The eco­nom­ics of big­otry

Finweek English Edition - - INSIGHT - BY KELLY BEROLD

With a $2tr econ­omy and a third of its na­tions reach­ing an­nual GDP growth of over 6%, Africa is now the fastest grow­ing con­ti­nent on the planet. It has be­come a for­mi­da­ble in­cu­ba­tor for some of the more dy­namic emerg­ing mar­kets in the de­vel­op­ing world. It is also home to mil­lions in the les­bian, gay, bi­sex­ual and trans­sex­ual (LGBT) com­mu­nity, whose cul­tural iden­tity, not to men­tion their free­dom and safety, is threat­ened daily in the 38 African na­tions that have sys­tem­at­i­cally out­lawed ho­mo­sex­u­al­ity. The con­tin­ued im­ple­men­ta­tion of such dra­co­nian mea­sures could have wor­ri­some long term ef­fects on the economies that Africa has in­vested so much time and en­ergy build­ing. Fin­week ex­plains these ef­fects in fur­ther de­tail.

“The West can keep their ‘aid’ to Uganda over ho­mos, we shall stil l de­velop with­out it,” Uganda’s govern­ment spokesper­son Of­wono Opondo an­nounced on Twit­ter last month. Opondo was re­spond­ing to the de­ci­sion made by sev­eral Western na­tions to re­voke for­eign aid af­ter Pres­i­dent Yow­eri Mu­sev­eni signed the coun­try’s anti-gay bill into law on 24 Fe­bru­ary 2014.

In the case of Uganda’s anti-gay leg­is­la­tion, which has been pushed across govern­ment desks since 2009, the bill im­poses harsh penal­ties on those who en­gage in, con­done, and/or refuse to re­port ho­mo­sex­ual ac­tiv­ity – a prac­tice that now car­ries a max­i­mum sen­tence of life im­pris­on­ment. While much of the me­dia at­ten­tion has been redi­rected to the so­cial and cul­tural im­pli­ca­tions of what this bill means for the dis­en­fran­chised gay com­mu­nity, to sug­gest that the coun­try’s fis­cal health might suf­fer a knock would be an un­der­state­ment.

Re­act­ing to the news, Nor­way, Den­mark and the Nether­lands im­me­di­ately moved to with­hold or di­vert up to $26m in de­vel­op­ment aid and other fi­nan­cial do­na­tions. The World Bank an­nounced last week that it had post­poned a $90m loan to Uganda while coun­tries like Swe­den, Aus­tria and the US were said to be re­view­ing their aid re­la­tion­ships

with the coun­try. On the day of the bill’s sign­ing, US Sec­re­tary of State John Kerry said that his depart­ment was “be­gin­ning an in­ter­nal re­view of our re­la­tion­ship with the govern­ment of Uganda” to make sure that “as­sis­tance pro­grammes up­hold our anti-dis­crim­i­na­tion poli­cies and prin­ci­ples,” a re­view that could see the US freeze a re­ported $456m in aid set aside for the com­ing fis­cal year. More­over, hu­man rights or­gan­i­sa­tions and prom­i­nent voices in the busi­ness world – in­clud­ing Vir­gin chair­man Richard Bran­son – sounded calls to boy­cott trade and tourism in re­sponse to the move.

World­wide cas­ti­ga­tion of the law was swift and puni­tive, which trig­gered a rip­ple ef­fect that hit the coun­try’s key in­di­ca­tors. Ac­cord­ing to Bloomberg, “Stan­dard & Poor’s cut Uganda’s credit rat­ing one level last month to B, f ive be­low in­vest­ment grade, in re­sponse to con­cerns that its budget deficit had in­creased due to bad press, aid cuts and con­se­quences stem­ming from the World Bank and the UK’s de­ci­sions to re­voke all fi­nan­cial sup­port in 2012 due to cor­rup­tion.” For Uganda, whose $20bn econ­omy (East Africa’s third largest) re­lies on aid for roughly 20% of its an­nual budget and for­eign trade ex­ports to make up the rest, a Western crack­down on once-col­le­gial aid and trade agree­ments could cre­ate prob­lems for Uganda, de­spite what Opondo ad­mits to the press.

THE SPEC­TAC­U­LAR DROP OF UGANDA’S CUR­RENCY

The once salu­bri­ous Ugan­dan shilling lost three months of gains within three days, reporting a 2.9% slump against the dol­lar. This forced the cen­tral bank to in­ter­vene in the for­eign ex­change mar­ket by sell­ing dol­lars in or­der to sta­bilise the cur­rency. This, ac­cord­ing to NKC In­de­pen­dent econ­o­mist Jac­ques Nel, could pose a sig­nif­i­cant prob­lem.

“If the self-off per­sist or is not re­versed over the short-term, the pres­sure on the cur­rency would have detri­men­tal con­se­quences on var­i­ous other eco­nomic in­di­ca­tors. These in­clude a de­ple­tion of re­serves as the cen­tral bank at­tempts to de­fend the cur­rency, a de­te­ri­o­ra­tion in the terms of trade as im­port costs in­crease and the sub­se­quent ef­fects on ex­ter­nal ac­counts.”

The shilling’s fall­ing ex­change rate could eas­ily be dis­missed as an over­hyped and f leet­ing re­ac­tion to re­cent aid-cut an­nounce­ments and while the re­coil of sev­eral for­eign donors and in­vestors has been hard-hit­ting, it is im­pos­si­ble to pre­dict the long-term con­se­quences of those mea­sures or to what ex­tent for­eign mar­kets will pun­ish the shilling given that the eco­nomic fun­da­men­tals of the coun­try have not changed.

ECO­NOMIC PROB­LEM AR­EAS

The bill could have more en­dur­ing con­se­quences in three very im­por­tant ar­eas. The first is tourism, which is a cru­cial cog in Uganda’s eco­nomic ma­chine, par­tic­u­larly in its abil­ity to se­cure in­vest­ments and em­ploy­ment (it con­trib­uted $1.88bn to the coun­try’s GDP last year). The na­ture of the anti-gay bill could very well de­ter both tourists and in­vestors from pump­ing money into the econ­omy, which could in turn cause govern­ment to inf late the fis­cal deficit or cut pub­lic spend­ing in or­der to ne­go­ti­ate the longterm im­pact of lower tourism rates. Even NGOs, whose as­so­ci­a­tion with govern­ment is al­ready limited, “could slowly shift their aid and as­sis­tance to more friendly regimes” should a govern­ment’s pol­icy fail to align it­self to the or­gan­i­sa­tion’s core val­ues, notes Nel.

Sec­ond, anti-gay laws could play a sig­nif icant role in adding to al­ready hos­tile work en­vi­ron­ments for gay and les­bian em­ploy­ees. Ac­cord­ing to Dr Mark El­lyne, ad­junct as­so­ciate pro­fes­sor of Eco­nom­ics at UCT, this may end up marginal­is­ing some 5%-10% of the pop­u­la­tion that could ac­tively con­trib­ute to Uganda’s econ­omy and tax base. Third, the puni­tive mea­sures out­lined in the bill could lead to not only the con­vic­tion of those ac­cused of ho­mo­sex­u­al­ity, but also cit­i­zens who con­done and/ or abet ho­mo­sex­ual con­duct, in­creas­ing the num­ber of ar­rests and in­ter­ments per an­num. Ac­cord­ing to World Prison Brief, Uganda’s pris­ons are al­ready op­er­at­ing at 200% ca­pac­ity – with a to­tal of 38 477 in­mates – and with an es­ti­mated to­tal gay pop­u­la­tion of 500 000, the anti-ho­mo­sex­u­al­ity bill could put sig­nif­i­cant strain on Uganda’s ju­di­cial and prison sys­tems.

So why does Uganda claim it isn’t wor­ried? Ac­cord­ing to El­lyne, Uganda re­cently dis­cov­ered oil and are sched­uled to start pro­duc­tion on re­serves in 2018. “Anti-ho­mo­sex­u­al­ity na­tions like Nigeria and Rus­sia are also large oil pro­duc­ers, less de­pen­dent on donor aid and less in need of of­fi­cial donor aid. Thus, Uganda’s need for for­eign aid will greatly di­min­ish and even­tu­ally it will be­come more sus­tain­able.” El­lyne says.

How­ever, as prof­itable as Uganda’s ven­ture into oil pro­duc­tion may turn out to be, 2018 is still a way off and de­spite what Opondo tweets, the col­lec­tive force of bi­lat­eral aid cuts, trade bans, in­vest­ment boy­cotts, in­creased prison spend­ing, de­creased tourism and re­tracted NGO in­volve­ment are likely to harm the coun­try’s econ­omy short term and could have dire eco­nomic con­se­quences go­ing for­ward.

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