Andrew Karamagi
I beg to respectfully but very firmly disagree with my namesake Mwenda’s spirited argument regarding ownership of buildings (office premises) by governments or more directly, the state.
He used the recently launched new home of Uganda Revenue Authority (URA) as the canvass upon which he painted his thoughts.
In summary, he contends, with a motley raft of calculations, that the billions sank into that construction project do not make business sense; that governments should not own buildings because this distorts and stifles the growth of the real estate market (‘economic dynamism’) and finally, that government-ownership of property is a venture with almost always negative returns on investment.
In one sentence, Mwenda’s thesis is predicated on (far-right) free market economics.
This is the lens through which he views the matter. He nonetheless waxed lyrical and conceded that the URA Tower is an architectural marvel.
My reservations are threefold:
Governments, or more directly, states do not principally exist to behave like going concerns. They should not be driven by the profit motive.
The very idea of the state is leftist.
As such, governments should stick to the business of governing. They should stay in their lane and manage our public affairs, convert tax revenue into and provide services and regulate the daily interactions of and between citizens and juristic persons.
The increasingly ubiquitous notion that governments should concern themselves with the bottom line (i.e. profit making) is significantly to blame for the reduction of government into agents and hostages of private capital…so much so that many of them today are held at ransom by faceless and shadowy interests.
If I may use, as an example, the recently concluded investigation into the failure of the supervisory function of our Central Bank, which, under Ms. Justine Bagyenda became a trader and not an overseer of commercial banking, it is immediately apparent that governments, even if led by Angel Gabriel and Mary Magdalene, cannot and shouldn’t be permitted to become players in the very economies they are supposed to regulate.
A cursory glance at the political economy of Uganda tells you that if government was to become a tenant, renting space for its MDAs (Ministries, Departments and Authorities), the few people who, for several not so admirable reasons, own real estate would become so inordinately wealthy and powerful that no government—incumbent or future—would be able to regulate or at the very least, have a handle on the economy…more so politics, law and order.
Where would that leave our national security and identity if, say, the already decadently rich Sam Kutesa, became landlord for ten ministries?
It is not only immoral and potentially conflicting; it is a gateway to state capture, the extent of which can make the terrible situation in which South Africa has found herself, after years of canoodling in bed with the Guptas, look like child’s play.
The second oversight that Mwenda makes is to view URA’s new home through the lenses of rate of return on investment, moreover with a rather myopic thirty-five-year (maturity) period.
It begs a few questions: is the world ending in thirty-five, fifty, or a hundred years that we must be in a rush to record a high rate of appreciation in asset value and turnover?
Is the geographical landmass called Uganda shifting next week? Must the incumbent “government” only build structures whose turn-over time is limited to one generation?
What happened to building for the future?
If the American vision had been limited by the profit imperative in the construction of buildings like the Department of Defence HQs—commonly known as the Pentagon (largest office building in the world, by the way), would they—decades later—possess the kind of unipolar, impregnable and omnipresent command they enjoy by virtue of owning that global nerve centre of military operations?
Would any American trade this in exchange for profits from rental income or investments in bonds?
How about other American government departments and authorities like the departments of Justice, Treasury, Health and Human Services and the numerous three-letter-agencies (FDA, CIA, DHS, DEA et al) which have their own secure, customized and permanent homes?
I had the privilege of conducting a study two years ago under the tutelage of Gimara Francis, President Emeritus of the Uganda Law Society, about the state of our judiciary.
I was struck by the homelessness of our Courts of Law, many of which are tenants and share spaces with restaurants, bars, boutiques, name it.
In the countryside, courts are often located in very ignoble and uninspiring but expensively rented structures. What and where are the symbols of our national pride and sovereignty if judges and state attorneys must walk dusty and bushy paths to dispense justice simply because we should not build permanent and dignified office structures for our government departments because they are not tradable/profitable—instead preferring to rent whatever shack or hovel is available?
Finally, a colleague, on a WhatsApp group chat poked holes into Mwenda’s calculus and I am convinced that it is important I share his views:
“Cost drift (overruns) happens after a project has started and this quantum only becomes fully clear after completion.
The rental expense saved is for the benefit of URA, but the tax revenue is received on behalf of the principal (Ministry of Finance, Planning and Economic Development) and so I would not offset the two as they accrue to different parties.
The assumption (by Mwenda) that rentals would be flat indefinitely in future is flawed; they tend to be adjusted for inflation.
Big real estate projects in many cities are funded by institutional investors. He did not mention at all that the URA Pension Fund is a core investor in that building. This is a third party to whom rentals would accrue. Most pension funds already have a sizeable exposure to Treasury Bills and would benefit from diversification to maintain stable income regardless of the seasons in the interest rates.
The Treasury Bill rates may have been at 15% gross of Withholding Tax, but they also go as low as 8% before deduction of 20% Withholding Tax. The outlook (if government had its way) would be for Treasury Bill rates to go down and stay low—yet rentals are more likely to go up, following inflation.”
