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Topic Three: Assessing the Impacts of Structural Adjustment
The Social Impacts of Privatization in Uganda with a focus on its
implications on women
Taina Christiansen
Economic Development 213
Professor S. Khan
Term Paper, 14th December 2004
2
Privatization has been one of the most crucial components of the structural adjustment
programs (SAP) implemented in developing nations. As a result of agreements with the IMF
and the World Bank, several conditionalities have been imposed on these countries,
privatization in Uganda being one of them. According to Roger Tangi and Andrew Mwenda;
“Privatization was embarked upon in an environment lacking a regulatory framework that
could ensure probity and fairness in the divestiture exercise.”1
Uganda’s privatization program was initiated in 1992, prompted by the criticism
received on behalf of the Bretton Wood Institutions, claiming that public enterprises were
economically inefficient and that they incurred large financial losses which served as an
obstacle to successful economic growth, poverty reduction and debt repayment. Privatization
of State Owned Enterprises (SOE) was thus deemed as the most ideal choice for the
government. Privatization was intended to reduce inequalities in the access of goods and
services, result in fiscal benefits and equity-enhancing effects through income distribution
effects and generate higher levels of employment and reduce the costs of goods and services,
there are concerns that privatization has in fact, hurt the socio-economic welfare of the
majority. However, there is a general agreement amongst the Ugandan population that the
government did not facilitate adequate participation for locals in the process and as a result
“there is a general feeling that locals have been robbed of national assets, which were built
through accumulation of taxpayers’ contributions”.2 The reasoning behind privatization such
as including the promotion of the private sector as an engine of growth and to increase
efficiency and productivity in the economy whilst improving Uganda’s dire levels of poverty,
is largely over praised has resulted in the contrary.
While it is true that privatization in Uganda has led to an “…increased supply of
quality goods and services on the market, especially essential commodities that were in short
‘Water, land and labor: The Impacts of Forced Privatization in Vulnerable Communities’ – Halifax Initiative
Coalition, pg. 30
2
‘Uganda Country Report: A synthesis of the Four SAPRI Studies’ – SAPRI, prepared by Kevin Akoyi Makokha,
Uganda Technical Team, pg. 16
1
3
supply and a decrease in the monopoly of SOE in production and distribution” as well as
having “led to increased industrial capacity utilization, profitability and higher employment
levels in the privatized enterprises,” 3 there are several mixed impacts associated with the
social sector which have been significantly undermined. Serious problematic issues have
arisen that confirms the belief that SAP have served to widen the gap between the rich and
the poor instead of the contrary. In Uganda, privatization has increased the difficulties
encountered in the gender dimension where privatization has been more costly for women, as
they tend to be the ones with little or no specialized skills and, thus formed the highest
percentage of those laid off.4 A clear conflict arises between the goals of poverty reduction
and the policies implemented due to conditionalities which often “… increase poor women’s
domestic workload and to put essential services beyond their reach.” 5 Further negative
impacts include the decline in resource allocation and availability through increased costs in
for example water and electricity supply, increased corruption, lack of transparency and an
increase in unemployment. Ultimately, privatization has not improved the socioeconomic
welfare of the majority of the population in Uganda; instead, the main benefits have flowed to
a small group of the already privileged. “… As a result, privatization has promoted the
creation of a tiny wealthy class, rather than, as was its expressed objective, broadening the
basis of ownership’ among the African population.”6
The International Monetary Fund (IMF) and the World Bank (WB) maintain that the
privatization of public services such as water will increase the efficiency and quality of service
delivered whereas public sector ownership is perceived as too costly and inefficient. According
to the WB, “Efficient water resource management requires that water be treated as an economic
3
Ibid, pg. ix
“Most of the staff that has been laid off is those in clerical and unskilled jobs where women are concentrated.
There is pressure on staff to resign voluntarily. When jobs are threatened, the male breadwinner mentality of
managers makes them place women workers first in the firing line.” – (citation below)
5
‘Interconnection in the Context of HIV/AIDS and Feminized Poverty’ – UNIFEM Roundtable on Economic and
Rights – Presentation by Winnie Byanyima MP (Uganda) - 2003
6
‘Water, land and labor: The Impacts of Forced Privatization in Vulnerable Communities’ – Halifax Initiative
Coalition, pg. 30
4
4
good.” 7 As a measure to meet yet another loan-attached conditionality, the government of
Uganda took steps in 2003 to prepare the privatization of the National Water and Sanitation
Company (NW&SC). Through a full cost-recovery program, the company was to become an
attractive business opportunity to private investors. In order to achieve this goal, several actions
were taken including increasing the price of water, disconnecting the supply to consumers who
had outstanding balances and failed to pay and lastly encouraging a sub-contracting system in
poor neighborhoods for selling the water.8 Water is a necessity for survival, hence an invaluable
commodity. Consequently, the gap between rich and poor increasing, and an elite water market
has emerged where water is treated as a product capable of raising high revenues by selling it to
rich consumers and a vital trading source. Water is very attractive to profit seekers; privatization
has subsequently caused private monopolies; and Uganda is no exception to this interplay. Due
to the fact that the urban water services in Uganda are more profitable, the government cut off
the rural sector from the NW&SC water management, which as a result remained under the
central government’s water department. As a result, the discrepancy between the urban and rural
population is exacerbated even further than it already is. According to the UN Human
Development Report (HDR)9, when the HDI (Human Development Index) and the HPI (Human
Poverty Index) are disaggregated along the rural-urban divide, they document more progress in
human development and less deprivation for people in urban areas than for those in rural areas.
The rural-urban divides in Uganda and Swaziland provide good examples of such disparity. In
1996 the HPI-1 in rural Uganda, at 43%, was more than twice that in urban Uganda, at 21%
(Table 1). The table shows that more than half of rural people are without access to safe water
while in urban areas it is only every third. This significant difference can be the direct result of
the privatization of water services in Uganda, or if it was a prior situation, privatization of water
will only lead to a further increase in the decrease of people without access to safe water.
‘Interconnection in the Context of HIV/AIDS and Feminized Poverty’ – UNIFEM Roundtable on Economic and
Rights – Presentation by Winnie Byanyima MP (Uganda) - 2003
8
Ibid
9
UN Human Development Report, 2000, Human Development Indicators, pg. 14
7
5
However, another thought is that if urban supplies are self supporting, this could in time release
government funds for subsidized rural expansion.
Table 1: Rural-urban disparities in human poverty in Uganda, 1997
%
Rural
Urban
People born
today
not
expected
to
survive to age
40
Adult
illiteracy rate
38
27
43
16
People
without
access to safe
water
People
without
access
health
services
57
23
57
5
to
Children
under
five
who
are
malnourished
HPI-1
27
15
43
21
Source: UNDP 1998d.
In order to minimize consumer resistance during the privatization of water in Uganda, the prices
were gradually increased and according to UNIFEM10, the donors praised the government for
this. The increase in price raised money for investments, however, the large rural population who
were unable to pay the increase in fees, was cut off from its supply. In a Western-oriented world,
this approach may be deemed appropriate; however, the direct effect that this has on gender and
poverty is not. In the case of Uganda, NWSC was/is responsible for urban supplies in 9-10
towns, not rural supplies as dictated by the government. As a result, ‘… already over-burdened
women’ have to devote time to collecting water from a polluted river, or buy water from
alternative sources whilst buying less food and reducing the payment of school fees. Water-borne
diseases are the common in Uganda, and the resort to polluted water as a source of supply will
only serve to aggravate the already extreme fragile health situation of poor urban families. 11
Often the school fees which are cut affect the female members of the family, as opposed to the
males, who enjoy a more important status in the Ugandan culture. According to the human
development indicators in the 1998 and 2003 HDR, literacy rates between adult and female
differ greatly (Table 2).
‘Interconnection in the Context of HIV/AIDS and Feminized Poverty’ – UNIFEM Roundtable on Economic and
Rights – Presentation by Winnie Byanyima MP (Uganda) - 2003
11
‘Interconnection in the Context of HIV/AIDS and Feminized Poverty’ – UNIFEM Roundtable on Economic and
Rights – Presentation by Winnie Byanyima MP (Uganda) - 2003
10
6
Table 2: Human Development Indicators (Human Development Reports, 1998 & 2003)
HDR: 1998
HDR: 2003
Analysis
1998 = 40.7
1970-75 = 46.3
1995-2000 = 39.6
65.0
45.7
2000-5 = 46.2
Life expectancy today remains the
same as it was in the 1970’s.
68.9
54.2
59.2
Literacy
rates
have
increased
minimally; however, the discrepancy
between genders is still extremely
prominent today.
76.1
78.8
Population with
sustainable access to
an improved water
source (%) 2000
Population living
below the national
poverty line (%)
(1999-2001)
HIV prevalence (%
ages 15-49), 2003
1990 = 45
48
3% change
1987-1997 = 55.0
44
11% change
1997 = 9.51
4.1 (2.9-6.6)
Public expenditure
on education (%
GDP)
1990 = 1.5
1999-2001= 2.5
GDP per capita
(US$)
1998 = 332
1990 = 251
1985 = 227
236
Through IMF policies, Uganda is one
of the few countries in Africa that has
successfully managed to decrease the
prevalence of HIV.
A 1% increase in education is
probably the result of the expenditure
reform which many countries under
IMF conditionalities had to undergo.
The GDP today is less than it was in
1998 and in 1990 and only slightly
higher than it was in 1985.
Life expectancy at
birth (years)
- Adult literacy rate
(% ages 15+)
- Adult female
literacy rate (% ages
15+)
- Adult male literacy
rate (% ages 15+)
For example, in 1998 the adult literacy rate between the two sexes had a total difference of
21.9%, in 2003, 19.6%. 12 Water privatization strongly contradicts the priorities of the poor,
especially on women and children. This is effectively highlighted in the Uganda Participatory
Poverty Assessment Project (UPPAP) report: “Access to clean water and quality of water were a
high priority for local people in rural and urban areas respectively. Community members
particularly women consistently ranked inaccessibility of safe water for drinking as one of their
top ten community priority problems… Local people expect that their water should be provided
12
UN Human Development Report, 1998 & 2003, Human Development Indicators
7
free of charge and expressed that they would have used the money (used to buy water) to buy
food, pay treatment costs or to pay school fees.”13
Privatization of SOE has greatly decreased the demand for non-specialized skilled labor.
As in most low income countries (LIC), Uganda has a very low percentage of educated skilled
laborers. As a result, two things happened: (1) a large number of people formerly employed in
low-skilled labor were laid off with small if any compensation payment at all; (2) high-skilled
foreign workers were ‘imported’, instead of training and assigning these jobs to local Ugandans.
Even though some argue that privatization increased employment, in the affected sectors
nonetheless declined across the board, leading to welfare losses. Low-skilled and hard labor has
always been an opportunity for the poor to make a living. The process of privatization took away
this livelihood availability, increasing the low levels of poverty which the reform set out to help
alleviate. The female workforce was even more marginalized than the male counterpart in the
process of privatization: “Privatization was more costly to former female workers in SOEs
because of their initial positions within the companies in which they were mostly in low or nonspecialized jobs and thus forming the highest proportion of the laid of labor force.” 14 Women
already face substantial problems regarding illiteracy, poverty, lack of voice and public security
(e.g. war, insurgence, cattle raiding, and banditry). In Uganda, a woman’s claim to family land
has traditionally been tenuous at best. Although women make up 80% of the agricultural labor
force, only 7% of all women own land.15 The impact of debt burden, specifically the role of
privatization, only serves to impair the problems of inequity already present amongst women in
society.
Structural Adjustment Programs in Uganda are considered as one of the success stories in
Sub-Saharan Africa with respect to their economic performance with an average growth rate of
UPPAP report ‘Learning from the Poor; A summary of Key Findings and Policy Messages’ – UNIFEM
‘Uganda Country Report: A synthesis of the Four SAPRI Studies’ – SAPRI, prepared by Kevin Akoyi Makokha,
Uganda Technical Team, pg. 16
15
Uganda: Exclusion of Women from land Ownership – The “Lost Clause” – www.equalitynow.org
13
14
8
6%.16 This is largely attributed to the positive impact privatization has had on the economy in
terms of increased output, income, tax revenue and employment levels17 at the expense of opting
out of subsidizing essential social services which ultimately affected the poor. The expected
privatization of one part of the power industry, the Power Purchase Agreement (PPA) for
Bujagali Dam 18 will undoubtedly result in major price hikes to the Ugandan consumers thus
hindering efforts to increase the extremely low levels of access to electricity in Uganda and
harming the country’s economy. The Dam project is touted to be of benefit to the local
population, planned to be a large export of hydropower, ostensibly to Kenya and Tanzania. Part
of the privatization process involves withdrawing any subsidies to the power sector, with all
costs passed onto the consumer. Not only will the cost of Bujagali power be three times the
charge to large industrial users and more than eleven times the charge to small domestic users,
but according to a WB report, no more than 7% of [Uganda’s] population can afford
unsubsidized electricity. 19 The truth is that the rest of the population has no choice but to
continue using wood fuel and charcoal which is of grave environmental concern. The high cost
of power combined with financial poverty has ensured that these energy resources are and will,
for a long time, remain the poor man's energy resources. Sadly, this fact is not reflected in
Uganda's energy plan; no commitment to fuel wood renewal indicates a lack of concern
regarding the need for environmental awareness and lack of appropriate proceedings in order to
protect the rural population in the long term. Even though small dams and alternative energy
sources have been considered unreasonable in global economic terms, “…locally, at least
elsewhere,
they have
proved
more
realistic;
environmentally
friendly
(Oweyegha-
Afundaduula.1999); and easy to integrate in sound water resource management.”20 Even though
16
Ibid pg. 10
Contested issue
18
‘Likely Tariff Implications of Bujagali Dam’ – submitted to the World Bank 17/07/01 – by International Rivers
Network ‘Linking Human Rights and Environmental Protection’
19
Ibid
20
‘Corporate crime and the crazy for huge hydropower development project in Uganda: The alternatives’ - by
International Rivers Network ‘Linking Human Rights and Environmental Protection’
17
9
the Bujagali energy program reflects a poor outcome, one must consider that this is a fiscal
burden and that prior to the program, the availability of power is way below the requirements,
and massive investments are needed to remedy the current shortfall. Distribution of electricity to
the poor for the sake of equal treatment could have led to a complete collapse of the fragile
system.
Privatization has been discredited in the public eye from the very beginning of its reform.
The public have labeled the process of privatization as ‘non-transparent, insider dealing, conflictof-interest and corruption,’ and the World Bank echoed this sentiment. 21 Even though the
National Resistance Movement (NRM) voiced concerns regarding the nature that privatization
would undertake and end up being dominated by corrupt government officials and business men,
and foreign investors, this matter was disregarded in favor of the need for financial support
available from the financial institutions. These concerns were inadequately voiced as the
domestic population often possesses only limited savings and investable funds, if any at all. The
NRM were right, “Therefore the danger of a sell-out of the entire economy exists, which would
result in a division of the population between powerful capital holders (often foreigners or ethnic
minorities) and destitute wage earners.”22 One of the objectives of privatization was to broaden
the ownership amongst Ugandans, however, this could not be achieved due to the lack of capital
markets, a stock market and ultimately due to the fact that the average GDP per capita in Uganda
is US$ 236 (Table 2).23 Broadening ownership amongst the Ugandan population is a plausible
approach; however, should the companies have been acquired by locals at an unrealistic cost at
the risk that these locals could not gather the necessary investment and knowledge to make the
enterprises profitable? Already the government is criticized for having sold of some companies
at below the market cost, even though it was through a bidding process.
World Bank: ‘Recommendations for Strengthening the Anti-Corruption Program, Uganda.’ Dec. 1998, referenced
in Tangri and Mwenda
22
‘The Privatization Process and its Impact on Society’ by Uganda National NGO Forum: Structural Adjustment
Participatory Review Initiative’ (SAPRIN) July 2001, pg. 1-2
23
UN Human Development Report, 2003, Human Development Indicators
21
10
The benefits of privatization have not yet become apparent to the local Ugandan. As a
measure instituted to eradicate the long history of corruption, the process of privatization failed
miserably and served only the foreign investors and state officials. For example, in 1996 the
president’s brother, Major General Salim Selah bought controlling interest in the Uganda Grain
Milling Cooperation with a bid of US$5 million, the second highest bid. Shortly thereafter, the
General resold the cooperation to Greenland Investments who had initially placed the lowest bid
and made a profit of US$ 400,000 in the process.24 Self interest was advanced through political
power and influence and as a consequence, there was no fair competition.
Privatization is intended to benefit households, employees, and the economy as a whole.
As a widespread custom in Africa, poorer families tend to rely on support from their well-to-do
relatives, who are often obligated to cater for their demands. This phenomenon also reflects the
inadequate distribution of wealth and living standards between the urban and rural population
highlighted in Table 1. Furthermore, the extended family social system obligating better-off
families to subsidize their relatives in rural areas has helped to reduce their poverty. Yet,
households in urban areas, who are also subject to being laid off, do not have an external support
system, yet must continue to support their extended family. Typical effects include the absence
of school fees, health care finance as well as daily meal requirements. Even though households
in general appreciate the better quality and range of goods available on the market as the result of
privatization, the absence of government subsidies has increased the prices on essential goods
and thus eliminating the possibility in attaining these goods. A typical disappointment expressed
across the households who were laid off due to retrenchment in the privatization process, was
that often terminal compensation packages were inadequate, too small and left their future job
possibilities and livelihoods insecure. “Layoffs accompanied privatization across the board, and
new employment generation did not always compensate for jobs lost. Privatization has fostered
discontent among those workers who did not lose their jobs, because workloads have increased,
‘Water, land and labor: The Impacts of Forced Privatization in Vulnerable Communities’ – Halifax Initiative
Coalition, pg. 30
24
11
employment has become less secure, and the power to organize and negotiate with employers
has been weakened.”25
The primary stated goal of all privatization efforts was to promote the private sector as an
engine for growth and to increase efficiency and productivity in the economy. In 1998 Uganda
was ranked 158 (COMMA) and in 2002 ranked 148 by the Human Development Index. Uganda
has managed to achieve some substantial economic growth and has reduced its direct role in the
economy at the expense of the marginalized and of those that the SAPs were intended to help in
the first place. The state of the SOEs in Uganda prior to privatization was undoubtedly appalling,
yet the lack of an appropriate institutional framework to facilitate the process has possibly
resulted in a more distressing condition, especially with respect to the situation of women. For
example several SOEs had a substantial amount of money spent on them in order to restructure
the enterprise for divestiture, yet the sales were ultimately undervalued and undersold.
Participation was greatly lacking during the process, hence “Privatization should therefore be
implemented in as egalitarian and equitable way as possible to ensure that every citizen has equal
starting opportunities.”26 Opinions amongst the population have been expressed confirming that
privatization has triggered high social costs, has worsened the welfare of the poor, and that the
government has poorly managed the process. It is clear that the implementation was the main
root of all subsequent problems, however there was also a “… a lack of market-friendly policy
framework and a relatively well-developed institutional and regulatory capacity to work
alongside privatization.”27 With regards to future programs, a country’s culture needs to adapt to
a market-friendly framework through integrating the social, political and economic history into
the adjustment plans. Instead of adopting privatization as a top-down approach by setting rules
and developing programs without substantial input from the workers, a bottom approach to
‘The Economic and Social Impact of Privatization Programs’ – Chapter 5, pg. 108: SAPRI – Uganda.
(http://web.forumsyd.se/Arkiv/uploaded/SAPRI_5_Privatization.pdf)
26
‘The Privatization Process and its Impact on Society’ by Uganda National NGO Forum: Structural Adjustment
Participatory Review Initiative’ (SAPRIN) July 2001, pg. 2
27
Ibid pg. 49
25
12
increase participation from the grass roots level is necessary. The economics of Uganda must be
conducive to private ownership before one can even think about trying to develop a successful
program from privatization (SAPRIN, pg.51). The SAPRIN (Structural Adjustment Review
International Network) review concludes that in order for a program to be beneficial, proper
timing and sequencing are an essential aspect of the policy. Government commitment needs to
be in name of the people, and not a process to self-enrichment. In hindsight one must also
acknowledge there was a lack of alternatives that existed prior to privatization. It is not the
‘product’ of privatization that lacks credibility, it is the government dealings with private firms
whom are corrupt and ultimately end up distorting the process. Controversial, yet to a certain
extent true, it is often the lack of transparency and honesty on behalf of those in charge of these
processes that are bad, and not the idea put forward by the IMF and the WB. In the case of water
privatization, it is profit motivated thus requires constant investment and overseeing. In several
countries throughout Africa the water supply prior to privatization was disastrous and about to
collapse due to illegal tapping of pipes which cut off the limited supply to urban areas. Thus, the
situation prior to privatization was not better and certainly did not serve the urban poor in a more
efficient way. Finally, the causes of the discontent about the process have multifaceted sources
beyond the privatization process itself.
13
Bibliography
Halifax Initiative Coalition, ‘Water, Land and Labor: The Impacts of Forced
Privatization in Vulnerable Communities’
Kevin Akoyi Makokha, ‘Uganda Country Report: A synthesis of the Four SAPRIN
Studies’ – SAPRIN, Uganda Technical Team
Winnie Byanyima MP, ‘Interconnection in the Context of HIV/AIDS and Feminized
Poverty’ – UNIFEM Roundtable on Economic Rights – a presentation
United Nations Development Report, 2000, Human Development Indicators
United Nations Development Report, 1998 & 2003, Human Development Indicators
UPPAP report ‘Learning from the Poor: A Summary of Key Findings and Policy
Messages’ – UNIFEM
Uganda: Exclusion of Women from Land Ownership – ‘The Lost Clause’ –
www.equalitynow.org
International Rivers Network: Linking Human Rights and Environmental Protection,
‘Likely Tariff Implications of Bujugali Dam’ – submitted to the World Bank 17/07/01
International Rivers Network: Linking Human Rights and Environmental Protection,
‘Corporate crime and the craze for huge hydropower development project in Uganda:
The Alternatives’
SAPRIN, ‘The Privatization Process and its Impacts on Society’ by Uganda National
NGO Forum: Structural Adjustment Participatory Review, July 2001
SAPRIN, ‘The Economic and Social Impact of Privatization Programs’ – Uganda
(http://web.forumsyd.se/Arkiv/uploaded/SAPRI_5_Privatization.pdf)