In 1965 I was admitted into a Higher Secondary class (what they call Advanced level here) and introduced to the study of Economics. The teacher came into the classroom and wrote on the blackboard: Demand = Desire + Ability to pay. If you have a series of desires, a long list of wishes, those do not constitute demand; you must have the ability to pay. If you do not have the ability to pay, it is not demand. The Africans have got a host of desires, but they do not have the ability to pay; and that is where the problem lies.

When you talk of trade, you are talking of market; because you cannot trade without selling – you must sell what you produce. When you talk of markets, you are talking about demand, which means purchasing power – ability to buy. How do you get power to buy? You must have income; you must have money in your pockets.

There are four ways of getting income. There could be others, which you could add to the list. The first way is by means of employment. Somebody employs you and he pays you a salary. That means there must be employment in the system. The second way is through engaging in commercial agriculture and related services. In Uganda; people have been agriculturalists (cattle keeping especially) for the last 7,000 years. If you want to prove this, go to the Egyptian tombs in Southern Egypt; you will find paintings of long-horned cows; yet they do not have long-horned cows in Egypt – those are our cows! And those tombs were four, five thousand years ago. 

Our people have been engaging in agriculture for filling the stomach, what is called food security and subsistence farming these days. My family has been food secure for 7,000 years because we have cows. However, food security alone cannot give you development. You must also be income secure, especially in modern conditions. In the olden days, yes; since we had no demands for money – (we neither had to send children to school nor have to build modern houses), food security was enough. However, now we must talk of food security and income security. We must, therefore, engage in agriculture not just for food security, but for commercial purposes as well – commercial agriculture. Instead of selling goods, you could provide a service (transport, hotels, medical,) and be paid an income.

The third way I could think of is putting down your money as equity, (investment) in a company of manufacturing, services or mining.  You will be paid dividends; and that will be income for you.

Self-Employment is the fourth way. If you are self-employed as an artisan, or as a retailer, you could earn some money.

If you do not have access to any of these or some few other ways which I may not have remembered, then you do not have income in your pocket, so you cannot buy. Even if the goods are available, you just watch them – we call it window-shopping.  

What does this mean for Africa? There are 800 million of us in Africa. The population used to be small in the past; in 1900, it was only 110 million. There are some theories on population: they say that African population has “exploded.” But, you know, I have been around for a little while. In the 1960s, when I was in the Secondary School, it was being said that the population of China in 1965 was 750 million people (I remember very well – and if you put a figure in my head I will not forget). The population is now 1.3 billion, and is much richer than it was at the time when it was smaller. The population of India, when China went to war with them in 1964, was 430 million; it is now 1 billion, and those people are much richer today. What, therefore, is the implication of this? (I leave you to think).

The African population is now 800 million but our purchasing power is only US$ 550 billion dollars; however, to simplify it, let us say US$ half a trillion. The United States has a population which is approximately a third of this population of ours – (290 million people), but their purchasing power is US$ 11 trillion. These people who are two thirds smaller than us in population size are consuming 22 times more than we are consuming. Why? It is because of what I told you – there is no money in our pockets. There are desires, but not enough demand in Africa.

The World Health Organization (WHO) says that each one of us should eat, each year, 80 Kgs of both white and red meat; this is if you want to maintain your muscles, and any part of your body which needs proteins. What do Ugandans eat? 3.6 kgs per person per year! So if you see Ugandans a bit shriveled, do not think it is for athletic reasons, or that they are on diet; it is really serious business. They do not have the money to buy the meat, which is plentiful in Uganda!

WHO says we must drink 200 litres of milk per person per annum to maintain our bones, our teeth to avoid dental problems, and so on. The Ugandans’ per capita consumption of milk is 40 litres per person per annum. Africans are, therefore, under-consuming because they do not have money; our market is, therefore, small although the population is getting bigger.

The issue of trade access to the developed markets of the West is very, very important. When we talk with Europeans and Americans, they normally waste a lot of time on simple things that are easy to deal with; that just need common sense and decency; instead of the real issues they should spend time on. If people are serious; this is the issue they should address – trade access. Some of the countries have started to address this issue. The United States, a few years ago, opened their market for the first time in the form of AGOA (African Growth and Opportunity Act). I described AGOA as the first Act of solidarity between the West and Black Africa in 500 years; this is because the previous relationship between Black Africa and the West has been a bad one, as you know: slave trade, colonialism, cold war. Europeans are talking of the EBA (Everything But Arms). The Japanese are also coming up with some good arrangement. This is the way to go forward.

Trade access should be emphasized; then we can deal with the supply side constraints. If you deal with those supply side constraints but ignore trade access, where will you off-load what you produce? You are likely to be stuck with it. Certainly, here in Uganda, we are stuck with many products that we could export. And whatever is not forbidden by tariffs, we export. How do we manage to export so much coffee? Uganda is a big exporter of coffee; we are the fourth biggest exporter of coffee in the whole world. How do we manage to export that? And coffee is a bulky crop. How do we manage to export cotton? We are exporting fish! If the market is not interfered with, African countries can easily overcome the supply side constraints.

One reason why coffee prices are going down is because all the backward countries have crowded into coffee – Colombia, Brazil, Uganda, Vietnam, Indonesia. Since coffee is the only open window – there are roadblocks on all the other windows – we all crowd in coffee; there is over supply and the price goes down.

There has been a debate about aid and trade. I have repeatedly stated that aid cannot develop a country. I would like to hear of examples if there are any. Aid in order to trade, yes; that will bring results. If you get vision-led Aid, rather than Aid-led vision, you can develop; if Aid comes to fill into your vision, yes, you can make it. I got some figures from the World Bank that the trade losses for Africa between 1970 and 2004, were almost US$ 2080 billion; but the Aid inflows in that time have been of the magnitude of US$ 165 billion!! The trade losses, therefore, have been much, much more than the Aid inflows; if the unfair trading arrangements which Africa faces were not in place, we would have earned much more money than what comes in the form of Aid.

Africans are actually the “donors.” In Uganda we donate money; on every kg of coffee, we donate about US$ 15 to the outside world. Take the example of cocoa; when you export cocoa as a raw material, it faces zero tariff; when you export it as an intermediary product, it faces 7 per cent; as a finished product, 21 per cent. That is iniquitous, it is evil! What arrangement is this? The arrangement was clear – if you are foolish enough to bring raw materials, you are welcome; but if you try to be ‘clever clever’ and add value to your raw material, you are not welcome – you are shut out. This is real “partnership! in development”.

Owing to this, and also to our own laziness, really, we have been exporting money to others. Why? It is because when you sell unprocessed coffee, if it is Arabica coffee, you get about US$ 1.20. If you process it by roasting and grinding it here and you sell it, you may get as much as US$ 20 a kilo; the loss of weight is about 12 per cent. So when you sell unprocessed coffee you get about 1/20th of the value which the other man who adds value will get at the super market price. By the time the coffee gets in the cup it will be about US$ 200; but I am only talking of up to the super market level.

When you export unprocessed cotton, lint cotton for instance, you get about US$ 1.20; but if you spin the cotton into yarn, it goes up three times, to US$ 3.60; if you weave the fabric, it goes up six times to US$ 7.20; if you make a garment, a suit, it goes up 10 times, to about US$ 12 or 15 from the same cotton from which you would have got US$ 1.20 if you ended at the lint cotton level. What does that mean? That is why I am calling Africans “donors.

What does it mean? In every Kilogram of cotton, you are donating two things: first, you are donating about US$ 10 to somebody outside; but, secondly, you are donating jobs! All those jobs – the spinning, the weaving, finishing, tailoring jobs, you have exported to somebody else to be the one to do them. That is why your own people do not have jobs! If you are talking about market, therefore, you must start with not exporting jobs.

In Africa, we have a weakness. We are broken up into 53 states, and each state faces the other partners alone. In Uganda, we negotiate with the Development partners alone; you find all our partners on one side and Uganda in the dock. Negotiations mean mutual threats; it means I threaten you and you also threaten me and then we agree. It means that I should be able to tell you that if you do not do this for me, I will not do that for you. However, if you can only say: “Please, please, please, you do this for me, otherwise I will collapse”, that is not negotiations – they should give it another name, like petitioning or supplication.  

Uganda has not negotiated with anybody, except with our neighbours – I have been handling negotiations with Kenya and Tanzania in the East African Customs Union. There, I really negotiate: “If you do not do this, I will not do that” – that is negotiation. However, between Uganda and her Development Partners, we do not have negotiations. However, we can negotiate if we all go together now, under the NEPAD, and set conditions for them: “You people, if you do not do this, we shall not do this”; you will see. They are clever people – they see when somebody is serious; but when they look at you Mr. Museveni: “Aaah, this one, what can he do?” If Africa uses concerted efforts, they will have a bigger negotiating power. 

China, a communist country, negotiates with America; they were communist yesterday, today and even tomorrow they will be communists. They negotiate with America because China is China – you are talking of 1.3 billion people! A small country, like Uganda, going alone would be of no consequence. The European countries are very rich. A small country, Belgium, has a GDP of about US$ 290 million. If you combine the GDP of South Africa, our super power, Nigeria (our other super power), and the whole of East Africa, they do not equal the GDP of Belgium. Belgium is like one of the provinces of Uganda; it has only 10 million people but has got that huge GDP. However, Belgium does not negotiate alone. She always hides in the European Union. Although Belgium is better off in terms of economic performance than the whole of South Africa, Nigeria or East Africa, our GDP’s combined, we never see Belgium for she hides in the EU. Why don’t we, therefore, learn the wisdom of these people?

In order to promote trade, we must deal with physical infrastructure, whether we are speaking about trade between Africa and the outside world or trade among the African countries. Our railway line to the sea through Kenya, and through Tanzania is still inefficient – it must be made more efficient. The ports at Mombasa, at Dar-es-Salaam, must be made more efficient. Some parts of Africa are not linked at all. There is no linkage between East Africa and Ethiopia, between East Africa and Congo DRC by train. We need to solve this problem by building a railway line from East Africa to Kisangani, and linking up with the Ethiopian system. I do not know what we should do about the gauge because the gauges are also not the same. Some have got a wide gauge, others a small narrow gauge – it is another complication. We need a railway line to link East Africa with North Africa, across that desert. Okay, camels used to help us; but camels now? That was for the time of Mohammed going to Mecca for the Hajji! We are now talking about business!

Consider the roads at the border point between Uganda and Kenya. The immigration officers there, sleep half of the day. If you go there at night they say we have closed; you must come tomorrow to off-load the things. But business does not wait; I am losing money! That means the drivers must sleep in the hotel, must pay money – transaction costs are going up! Why can’t we drive continuously for 24 hours? Simple issues like that need to be sorted out. At the border point, there is no discrimination among people being handled. You find people of trailers, the tourists, people who are going for a wedding, all waiting to be cleared in one line. Those border points need to be re-organized; the trailers should have their own line to clear them quickly and they go.

On attracting investment: we cannot trade unless we produce, unless we invest. Investment faces a number of challenges. One of them is low savings. Ugandans do not save – they squander resources. Out of 100 shillings Ugandans would save only 6 shillings and squander the rest. The Asians, on the other hand, save 35 shillings out of every 100 shillings. The saving rate of Ugandans is very low. Ugandans drink and roast pork so much. Why should the Asians save and Africans cannot save? One route of increasing investments, therefore, would be saving.

The other route is interest rates being low, so that we are able to borrow. In some cases the interests are very high for a number of reasons. One of them is indiscipline in expenditure. If you are undisciplined in government expenditure, the Governor of the bank may have to put up the Treasury bill rates to suck in some of the money and, of course, that will have to push up the interest rates. Controlling expenditure, therefore, is very important. That calls for a little bit of debate; because demand is also, as I have already said, very important.

How do the Europeans manage?  Economist Maynard Keynes reminded europeans about aggregate demand; and you know how they deliberately give money to people who have no jobs, (under the welfare system) to give them purchasing power. I do not know how they balance it there. But here we are very much scared of expenditure. We think that expenditure is inevitably causing inflation.

When we quarrel with the West about opening their markets, do not forget that there are other big countries like China in the world. They are our friends. We need to talk with China to open their markets or reduce tariffs. They also have high tariff for processed goods. India has high tariffs against rice. I hear that to export processed coffee to China we pay 52% tariff rate.

This is part of the disgruntlement of Mr. Robert Zoellick the American man. He is saying, “Why do you Africans only talk about us? Why don’t you talk about other people who are blocking you out?” And I think that is a good point. When the Prime Minister of India visited Uganda,  I pointed out to him: “I am buying Tata lorries, industrial machinery, drugs and so many other things from India. What do you buy from me; can I sell you tea?” “No, no, no, I am self sufficient in tea”. “How about cotton?” “No, no, I am self sufficient in cotton.’’ “So what do I do now?” We ended up by saying maybe India could buy fertilizers from us; but they are already buying fertilizers from Morocco. So what do I sell you now? How do we trade?

Now finally, on the broader development issues, there are these recipes which are concocted from time to time: debt relief, Debt forgiveness, HIPC (Highly Indebted Poor Countries). When HIPC was being trumpeted, I pointed out (the problem is that I am always on the opposition), that if you forgive somebody’s debt who is poor, unless you help him to get more income, he will contract a new debt; otherwise, how will he manage? It is, therefore, not enough to talk about debt forgiveness. Figures already show that debt forgiveness is not a solution. If you forgive debt but you do not increase export value; you do not add value, how will you avoid contracting new debts?  

In some countries, for instance Uganda, we have been having unbalanced growth, although the economy has recovered. We have been having high rates of growth for many years now – 6.5 % average for almost the last 17 years (6.5% GDP rate of growth). But this is unbalanced because it is only in some few sectors: in construction – a lot of houses, a lot of bars (there is a bar in every corner). There are so many petrol stations that I think Kampala will be burnt one day, because there is a petrol station almost on every block. This is growth of course, but it is not balanced.

How about growth in adding value to our exports? Real growth is in adding value to the exports – Export-led growth. By doing this, we will create more employment: export-led growth with adding value, not exporting raw materials. The more we add value, the more jobs we create. Then we shall be able to have balanced growth; then we can have our bars, petrol stations, and very many cars. The crucial sectors where we must grow are in exporting value-added products and internal integration using the raw materials, for producing goods for the internal and regional market.

By Yoweri K. Museveni
President of Uganda.