UDB’s Shs 1 trillion package to bail out agrobusinesses

The ministry of Finance has approved the injection of Shs one trillion in Uganda Development Bank (UDB) for the next financial year as part of government’s Covid-19 stimulus package to make capital available in investment in areas where Ugandans have comparative advantage, writes ALON MWESIGWA.

Last Thursday, UDB presented its 2019/2020 financial year results that saw the bank’s profit after tax improve by seven per cent from Shs 9.4bn in 2018 to Shs 10.4bn in 2019.

While presenting the package, Evelyn Anite, the state minister of Finance for Investment and Privatization, assured UDB of government’s commitment to see the bank’s success, especially to build the capacity of Ugandan businesses.

Felix Okoboi, the UDB board chairman, noted that most of the funding for the Shs one trillion will go to agriculture, agroindustry, and manufacturing.

“We are very grateful to government because it has come at a time when the year 2020 has become challenging because of Covid-19 pandemic. Most importantly, Ugandan businesses are going to benefit, and people are going to see this money firsthand in the sectors that are key for the economy,” he said.

Okoboi also said UDB has amended its strategic plan for the 2019/2020 financial year to ensure compliance with the national development plan cycle. This means the bank will encourage more direct lending even when UDB continues to collaborate with government-owned financial institutions such as Post bank, Housing Finance bank, and Pride Microfinance, among others.

“There have been several questions asked of recent: Is UDB a wholesale bank? Is it going to stop direct lending? There are many benefits of direct lending, some of which are not even financial,” he said.

“With direct lending, you get in touch with the end beneficiary and that learning falls through with UDB’s other role of thought leadership, knowledge dissemination and you cannot do that if you one level is removed from the lending process. We feel we need to be in touch with the end beneficiary to be able to add value in policy debates about where the money is needed.”

Patrick Ocailap, the deputy secretary to the Treasury, said the Shs one trillion is part of government’s ongoing strategic direction to make capital available in investment in areas where we have comparative advantage.

“In order to do that, the ministry has come up with four key strategies. We aim to increase household incomes and improve upon the welfare of households engaged in agricultural production. We also aim to engage in value addition for these commodities in a consistent manner through creation of employment in the value chain,” he said.

“Lastly, we shall be able to attain a sustainable level of economic growth by investing in these areas. What has been missing is affordable capital and this [Shs one trillion] is a stitch in time.”

Ocailap also emphasized that food security, industrialization and import substitution will be top priority for UDB while disbursing the money.

“We want to ensure we do most of the manufacturing in the country and generally to lift the people’s wellbeing through such interventions. This will greatly reduce the import bill on products that we will produce here,” he said.

“For example, we still import agricultural products like cooking oil, beef and meat products, fish products, coffee, tea and many more. These are things we can produce domestically and be able to offset that import bill while the excess can be available for export.”

He also revealed that UDB is working towards an interest rate of 10 per cent.

SOLID GROWTH

According to the figures presented by Patricia Ojangole, the UDB managing director, the bank’s profit after tax improved by seven per cent from Shs 9.4bn in 2018 to Shs 10.4bn in 2019.

“So, amidst the challenging environment, UDB has performed well and we are happy for the government support throughout the year,” she said.

According to Ojangole, this was in part a result of the growth in the loan book and increase in capital by the shareholders. The bank’s balance sheet increased by 31 per cent to Shs 486bn in 2019 from Shs 370bn in 2018. This growth is a result of the increase in funding from the shareholders and the drawdown of lines of credit that had been approved earlier.

“In terms of development outcome, the bank continues to make a significant contribution in terms of jobs. Those created and maintained in 2019 were 28,313. There is also contribution in terms of tax revenue by the companies that the bank supported, and this rose to Shs 141bn in 2019 from Shs 133bn in 2018,” she said.