How Uganda's agency mergers will hit property owners

Uganda's decision to slash the number of statutory agencies in an attempt to reduce high public administration costs is likely to trigger distress among local property owners, travel agents and various suppliers as the country braces for big government spending cuts expected in 2021, observers have said.

Under the restructuring plan, more than 60 statutory authorities and agencies will be merged and ‘collapsed’ into parent ministries as government struggles to tame rising administrative costs tied to mushrooming regulatory bodies established over the past 10 years.

Sensitive agencies will be preserved in a major administrative overhaul scheduled to cover three years, according to government officials. Among the targeted high cost items are rental bills, fuel expenses, foreign travel and staff allowances.

Affected agencies include the Uganda National Roads Authority (UNRA), the Uganda Road Fund, Uganda Tourism Board (UTB), the National Forestry Authority, the Uganda Wildlife Authority, the Uganda Investment Authority, the Uganda Warehouse Receipt System Authority and the National Information Technology Authority of Uganda (Nita-U).

Others are the Insurance Regulatory Authority of Uganda (IRAU), the Uganda Retirement Benefits Regulatory Authority (URBRA), the Public Service Commission, the Education Service Commission and the Health Service Commission.

Government institutions excluded from the reorganisation are the Civil Aviation Authority, the Uganda National Bureau of Standards and the Financial Intelligence Authority.

The reduction in existing government agencies and authorities is expected to generate huge savings from rental charges incurred every year but could translate into lost revenues for big property owners.

High-end addresses

Rental costs incurred by statutory agencies have increased to Ush50.4 billion ($13.2 million) per year to date, according to data compiled by the Ministry of Public Service with many institutions to rents denominated in dollars.

Most of the affected agencies are key tenants in high-end commercial office buildings located in Kampala with two to three year leases.

For example, UNRA occupies more than two floors at the UAP Business Park located in Nakawa while UTB and Nita-U are tenants at Lugogo House.

Similarly, the IRAU is a valued tenant at Legacy Towers while URBRA is the biggest tenant in an office block located on Clement Hill Road that serves less than five clients.

Other major users of commercial office space in Kampala City are multinationals and NGOs.

While some property managers seem confused about the impact of the government’s restructuring plan on their business performance, some property investors are keen to diversify their portfolios in order to minimise the fallout from the spending cuts.

Large car fleets

“We realised three years ago that the government was thinking about cutting budgets for office space and was encouraging its agencies to construct their own office premises. That is why we opted to invest in new, mixed use properties that provide both hotel facilities and office space will generate higher demand in future than ordinary office space,” said a source at Twed Property Development.

Total spending on fuel by statutory agencies has grown to Ush81 billion ($21.2 million) per year according to government data, a figure that is likely to drop after the reorganisation.

Fairly large vehicle fleets dominated by big cars with engine capacity of more than 3000cc and growing transport needs faced by statutory bodies are to blame for this huge fuel bill.

An increase in the number of districts to 125 has increased operational pressure on various government agencies that manage scattered facilities.

Large spending cuts expected in this docket are bound to affect leading fuel companies that have enjoyed juicy supply contracts with some government agencies in the past.

Vivo Energy Uganda and Total Uganda are the largest players, with the former accounting for the lion’s share of fuel volumes sold in the market while the latter boasts of the biggest distribution network with 130 filling stations in its business portfolio.

“The idea of merging of statutory agencies under ministries is obviously good for cutting public administration costs but this process should be based on an informed study and I am yet to see one. It is true that the consolidation process carries negative implications for some businesses but I believe the wider social interest should override selfish private interests,” said Gideon Badagawa, executive director at the Private Sector Foundation of Uganda.

“A company may lose out on some big commercial opportunities at the end of the day but what is its contribution to the taxpayers’ well being? The better solution would be to expand market opportunities for affected businesses,” Mr Badagawa added.

Some of the affected agencies have questioned the rationale and motives of the reorganisation, citing investment-related risks.

“The government needs to communicate its decision formally because we are so far still reading about these things in newspapers. I do support saving money and minimising duplication of government functions, but saving cash is not an end in itself. Regulators are not mere spending centres but are obliged to create confidence among the businesses they regulate, which in turn, boosts investment levels in the economy.

“The IRAU does not depend on the Consolidated Fund but has become self-reliant as internal revenues grow. If the government moved this institution to Bank of Uganda, what message would it send to market players?” asked Ibrahim Kaddunabi, IRAU’s chief executive officer.