MUSEVEN BAILOUTS TO STRESSED BUSINESSES; A WISE STRATEGY OR..
The recent directive by President Yoweri Museveni instructing the Prime Minister, Robinah Nabbanja to bail-out the Aponye business empire had many Ugandans shout in negative. Their argument is that, why should the president bail-out private businesses be usingtaxpayers’ money when this should personal liabilities. The Aponye businesses are in agro-processing,transport and logistics, andreal estate. The Aponye Group were formerly owned by a renown businessmanAppoloNyegamahe whodied in July 2023 in a road accident. This death of Nyagamahe could be partly the reason the AponyeGroup is financially stressed but this might not be the only reason. Like most businesses around the world, the COVID 19 pandemic of 2020-2023disrupted most businesses, and they suffered revenue loss of unquantified margins. A bailout happens when a business, an individual, or a government provides money andor resources (also known as a capital injection) to a failing company. These actions help to prevent the consequences of that business's potential downfall which may include bankruptcy and default on its financial obligations. This provides for new capital injection in form of loans, stock or even cash to the struggling business. This is largely to prevent the collapse of the struggling business for it to regain ground and survive liquidation. Bailouts are typically only for companies or industries whose bankruptcies may have a severe adverse impact on the economy, not just a particular market sector President Museveni for some time now has been bailing out struggling businessesfor them not to go under. Some of the bailed-out businesses include but not limited to the following, ROKO Construction Company,Igongo Hotel, Abubaker Technical Services, Atiak Sugar Factory, DEI- Pharmaceuticals, etc. The bailouts are usually in form government buying shares in those struggling companies through Uganda Development Corporation.As a result, those businesses have survivedliquidation and are up and running and slowly becoming profitable again. President Museveniis a champion of the private sector led economy. In his view and correctly so, a thriving private sector grows the economy, increases the tax base, brings on board innovations and creates the much-neededjobs for our citizens. Therefore, allowing a business to fail can have significant consequences, both for the businessitself and for the wider economy. If a company fails, it will leadto significant job losses, which can have ripple effects throughout the economy. There will be unemployment which will lead to reduced consumer spending, decreased tax revenue, and a higher burden on social safety net programs. When a large company fails, it can cause economic instability, particularly if it has significant ties to other companies or industries. This can lead to a domino effect, with other companies failing and causing even more economic damage. Equally so, allowing a company to fail can erode investor confidence and lead to a wider loss of trust in the financial system and stock market at large. This can make it more difficult for other companies to raise capital, potentially leading to a downward spiral in the economy. President Museveni approach of bailing out struggling business is not a new economic approach, in the 1970s Japan was having economic challenges stemming from both external shocks and internal pressures. The decade saw the end of rapid growth, rising inflation, and the impact of two oil crises, forcing Japan to adapt its economic policies and industrial structure. This made businesses to either stagnate or collapse. The Japanese government employed a multi-pronged approach to bail out ailing companies, primarily focused on financial institutions and large corporations. This involved capital injections, loan guarantees, and government-backed special purpose vehicles to restructure debt and operations. During his presidency, Barack Obama oversaw bailouts of the auto industry and continued the banking bailout that was initiated by the previous administration. The auto industry rescue involved Chrysler and General Motors, while the banking bailout included financial institutions like Lehman Brothers and AIG. Additionally, the American Recovery and Reinvestment Act of 2009 (ARRA), a stimulus package, was enacted to further support the economy. Many companies that received government money, including General Motors, Citigroup and JP Morgan Chase, were struggling to stay afloat before receiving government assistance. Therefore, President Museveni is right to bailout stressed businesses. The debate should instead shift to how the bailed businesses should be managed such that there is no abuse of the injected capital. Yes, UDB is managing this partnership, but it requires more strong legislation to curtail any other form of likely abuse. We have businesses that were bailed outin similar manner and rebounded strongly. The Basajjabalaba Group is one case study. The Kampala International University with its teaching hospital in the Bushenyi campus are true testimony of the benefits Uganda enjoys from this investment. The jobs, the social services and above all the taxes from this investment are massive. The writer is the Acting Executive Director Uganda Media Centre
By Obed Katureebe
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