The economics of bigotry
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.