By Mutabazi Sam Stewart
Although President Yoweri Museveni’s government has presided over a relatively stable economy for the last 24 years the Ugandan currency has steadily depreciated against major currencies both in Africa and the world at large. During the 1987 currency reform that saw the issuance of what was then termed as the “New Museveni Dollar, one Dollar was trading at approximately 85 Uganda shillings. Ugandans were however to enjoy the strength of their currency for only a short time. The highest currency denomination was 1,000 shillings. Coins of one, five and ten shillings were still widely in circulation and had a lot of value. A liter of milk was for instance sold at eight shillings. By 1990, the shilling had lost considerable value and was now trading at a much lower value of 350 shillings to one Dollar.
The situation worsened between 1991 and 1993 after the liberalization of the economy. The Ugandan currency was now trading at 700 to one dollar. The shilling held on to this position for a very long time. At that time prices were stable. A litre of petrol was trading at almost the same amount. The prices of food were much lower than they are today. Transport fares within the country were affordable to even the poorest. The price of land including urban areas was very affordable. The salary of an average Ugandan was not much but had more value than today. In essence many Ugandans were contented with the status quo. The full rigours of liberalization were however to be felt between 1995-1996. The shilling lost even more value as capitalistic market competition set in. The price of house rent especially in Kampala shot up and so was the cost of land especially with the entrance of property agencies like Akright Projects Limited.
By 1997, the Dollar had reached an incredible price of 1500 Uganda shillings. The increase of prices of basic commodities led to a higher cost of living especially in the city but this did not deter a continuous influx of people migrating from rural areas to Kampala and its suburbs. The upsurge of the population put a further strain on the price of land in Kampala and its environs. The ever sky locating cost of rent in the city forced many people to buy small plots of land where they put up poor housing units in a haphazard manner to escape the biting rental charges. Since then, the housing sector has been the fastest growing sector in Uganda and has had a spillover effect on the entire economy.
As the economy continues to expand, the cost of living is becoming more and more expensive especially for the majority urban poor. The shilling has continued to lose value and has become quite unpredictable. For instance whereas it was trading at 1600 in November 2009, it is currently going at 2080. Previously in June last it had touched an all time high of 2300 shilling, the lowest the shilling had ever gone since 1987. New currency denominations have been introduced by the central bank with the largest being a fifty thousand shilling note. There is speculation that if the current condition persists, a new bank note worth 100,000 many soon be issued to match the ever depreciating value of the shilling.
Although the shilling is fully convertible into major international currencies, it remains one of the weakest currencies in Africa together with that of Zambia-the Kwacha. The strongest currency in Africa today is the New Sudanese Pound which is currently trading at two units to one Dollar. The second strongest currency is the Egyptian Pound trading at Five Egyptian Pound to one Dollar. A strong currency may not necessarily be good for an economy but neither is the weak one. High value currency is certainly good for transaction and for feel-good-effect for nationals and for stability purposes which leads to investor confidence.
Uganda’s money has lost value in the recent past that consumers are routinely cheated without raising a finger. For example, an increase in the price of the Dollar for as low as 2%, may result in an immediate increase in the price of fuel by about 10%. On the other hand the loss of value of the dollar to the Uganda shilling often does not lead to reduction on local fuel prices. The other problem of a weak currency is that increase in prices of goods and services is often in bigger currency points than is always necessary. For instance an increase in the prices of fuel by, say, 100 shillings may result in an increase in transport costs for upcountry routes by about 2000 shilling. This is irrational and is mainly the major cause of inflationary tendencies in Uganda. The regulatory framework to monitor pricing of essential goods is lacking which leaves poor people go without basic necessities because of unscrupulous traders and service providers.
As we prepare for the 2011 general elections, the value of the Uganda shilling is likely to loose more of its current value and even more after the elections. The best alternative would be to carry out a fresh currency reform that would see a new stronger shilling that would help to propel our economy from the current stagnation where only one sector of housing and construction seems to dwarf all the others. I would be very happy, and I believe many others too, to once again see the Ugandan shilling trading at 200 shillings to a Dollar. I would be even happier if that exchange rate was maintained for a longer period of about five years. The Ministry of Finance and the central Bank should seriously think about this.
No comments:
Post a Comment