INFRASTRUCTURE DEVELOPMENT AND COMMUNITY FINANCING
Part: One …….Infrastructure Development and Community Financing
The responsibility to provide infrastructure to support production of any kind is upon the government is the classical school of thought for developing economies. However this school of thought has tested time and some countries in the world, communities have carried their own mantle and taken on developing their own infrastructure.
While economies all over the world have developed based in on national savings, borrowing funds remains the biggest source of funding for national projects that require substantial.
Low technological advancement and high costs associated with technological transfer basically have encouraged reliance on poor technologies hence increasing the cost of production among other factors. In the long run we have economies producing low quality products at very high costs hence not competing internationally. While these internal bottlenecks to production still linger in frustrating developing economies, the costs of money are equally extremely high for both states and local people in African countries. Funds from international development agencies are sometimes difficult to follow up on.
The least interest cost according to a survey carried out by Development Initiatives Africa in Uganda is 2% per month according to micro finance Institutions but these institutions require atleast 30% to 40% deposits and securities such as car log books, Land titles, buildings titles etc before giving monies to ordinary people, some of these securities are not easy to come by for the ordinary person. DIA shall discuss in future government led Micro finance initiatives in Africa and how they are affecting lives in communities. A case study of Uganda.
Part: One …….Infrastructure Development and Community Financing
The responsibility to provide infrastructure to support production of any kind is upon the government is the classical school of thought for developing economies. However this school of thought has tested time and some countries in the world, communities have carried their own mantle and taken on developing their own infrastructure.
While economies all over the world have developed based in on national savings, borrowing funds remains the biggest source of funding for national projects that require substantial.
Low technological advancement and high costs associated with technological transfer basically have encouraged reliance on poor technologies hence increasing the cost of production among other factors. In the long run we have economies producing low quality products at very high costs hence not competing internationally. While these internal bottlenecks to production still linger in frustrating developing economies, the costs of money are equally extremely high for both states and local people in African countries. Funds from international development agencies are sometimes difficult to follow up on.
The least interest cost according to a survey carried out by Development Initiatives Africa in Uganda is 2% per month according to micro finance Institutions but these institutions require atleast 30% to 40% deposits and securities such as car log books, Land titles, buildings titles etc before giving monies to ordinary people, some of these securities are not easy to come by for the ordinary person. DIA shall discuss in future government led Micro finance initiatives in Africa and how they are affecting lives in communities. A case study of Uganda.
The security requirements for commercial banks are not any better and have practically also made it difficult for community development. Sectors that need high initial investments such as fish farming and Hoticulture have not really made an impact based on commercial bank funding and yet some of these areas are key sectors in which developing economies have comparative advantage. There is need for reevaluation of these financial sectors in regard to community financing.
Does government have a role to play? Or should it be left to the forces of demand and supply?
Governments in developing economies have to realize that apart from the internal bottlenecks in the supply and demand chain factors outside African economies are becoming more visible and having much more impact at a comparative scale with internal bottlenecks on production in agriculture and Technology. Some of these include, Fuel prices, changes in global currencies in which most African economies have their reserves, Costs of Food and increasing natural devastations due to climate change. Such challenges are enough to trickle down and shut down businesses on the continent, if governments don’t provide incentives and response mechanisms (plan for) such outside factors. It is quite unfortunate that many a time developing economies make no effort of response to such changes or just wait for the situation to change, a cost on the ordinary people that is immeasurable.
This therefore calls for financial creativeness from government and opening more channels for communities to access finances. Corporate institutions are continuously growing towards support of community and individual livelihoods initiatives in the Uganda Economy, research has shown that corporate institutions are resorting to use of competitions and give a ways as market promotions of their products solely for profit gains. This direction is an appropriate direction, not only as an end in its self but in also stimulating individuals to think and take steps in establishing business and bringing to life ingenuity.
Such steps are a real source of development for they are thought out in the spectrum of the opportunities and challenges within community environments, therefore even in terms of growth and advancement of products. They would respond to community growth. Some may call this a slow process as the rate of growth and advancement of some communities is slow. However the rate of consumption is growing due to the increasing population.
Development Initiatives Africa carried out research in Areas of Kabarole, Masaka, Mbarara and Kasese in Uganda some of the leading matooke (Banana) producing areas in the country, our research has shown that the cost of production of the staple food on average is actually with in the means of most communities, however the challenge is the cost of transportation from the real production points to the markets.
Road construction is one of the biggest infrastructural cost for most countries in developing economies coupled with costs of monies borrowed from International Development banks, the debt trap in which developing economies find themselves is overwhelming. The cost of food according to our research is basically forty percent built by the transportation cost.
Government officials argue that there is inadequate budget allocations to infrastructure development, while this is a fair argument the energy and creativeness put forth to access funds is not commensurate to the challenge.
Development initiatives Africa proposes some of the following avenues that could be available for research and exploration for specific infrastructure Development.
Bonds for Infrastructure Development
The classical approach is that bonds should be bought in favourably larges sums for easy management. However this approach limits access to these bonds and information about bonds, treasury bills etc are inadequate or not even available to ordinary people. Very few people are aware of these instruments.
Bonds for Infrastructure Development
The classical approach is that bonds should be bought in favourably larges sums for easy management. However this approach limits access to these bonds and information about bonds, treasury bills etc are inadequate or not even available to ordinary people. Very few people are aware of these instruments.
Developing economies would actually make direct appeals to the populace through saling of bonds to communities on issues pertaining development of Infrastructure, this would reduce the money in circulation but increase the ability to consume in the long run, as investors shall be earning interests on their investments. This would also increase the ability for communities to save money that should probably be consumed. Projects that generate income such as Dams, Railway networks, oil pipelines etc. should be sold in form of bonds to communities in African economy. It should be noted that we have continuously referred to nationals as community in reference to the most ordinary income earner in a small village.
This initiative would ascertain accountability because this money would be coming directly from the communities rather than funds from development partners that are some times tied with strings, and people would be directly expectant on their investments hence pressuring governments to institute proper accountability systems.
Therefore governments in developing economies need to revise and break down bonds into small manageable funds, which ordinary people in communities can buy and also use as securities, clearly the advantages of this initiative is immense but most importantly is the promotion of the savings culture in communities and a growing culture of self reliance on the part of African Economies.
Case Study: Construction of the Erie Canal
The construction of the Erie canal from New York in the 1820, this canal was constructed from Albany to Buffalo a 363 mile distance. The canal connected lake Erie to the Atlantic Ocean. This canal enabled private businessmen to access the interior from Atlantic Ocean all the way to Minnesota. The uniqueness of this project was that president Jefferson at the time refused to fund this project, however private business men led by New York bought bonds to fund the project from which they earned interests once the canal was opened. In 9 years the state had recovered the $7 million investment and 1.5 million interests for private investors who had bought canal bonds.
The initiative of public funding would also foster good governance as it shall reduce the tie between politics and infrastructure development, a point that is easily exploitated by politicians in developing economies. Communities will have more independence in terms of political inclinations and shall be able to expect standards from those in power to manage public resources. It has been a leading trend for political institutions in Africa to strongly rely on infrastructure development and provision of services to communities as bargaining chips for votes. A vivid example is the case of Zimbabwe where some communities have been denied Food Aid on the basis of their political Inclination.
Some may argue why not turn to taxation?. Why not provide tax holidays to investments, like Uganda Revenue Authority has done in Uganda, and in the long run have a big stable taxable base. Why not hold governments in African economies accountable to taxes they collected?, why not continue relying on Aid?.The case of taxation is beyond the scope of this paper., it shall be discussed in our next commentary.
Capital and stock Markets
The development of capital markets is equally as important, consumers would accrue value in paying for products that they consider as investment. Very few companies have sold shares to the private sector hence, giving back very little to consumers. The founders of most developed economies realized this aspect and by law encouraged many private entities to sale a given percentage of shares to publics. This would also act as a direct control on some of the “quack” investors that use developing economies as testing grounds through conniving with technocrats and politicians.
Part Two: Social Cohesion and Development
Development Initiatives Africa considers public funding, an appropriate direction for research for some of these huge investments that African countries are under taking. It should be noted that international financial institutions are benefiting in terms of earning from such investments as opposed to nationals, opportunity should be given to Nationals to part take in their national development of especially infrastructure.
This strategy shall also reduce the debt burden of African economies in the long run and also provide ground for social cohesion. It important to note that distance between communities and huge capital investments has sometimes led to social unrest due to lack of ownership of the projects. Nigeria Oil drilling companies have suffered this lash due to deliberate sabotage from communities of the industry because they are not directly benefiting. In the faith of understanding the dynamics that foster social cohesion, this strategy requires research.
In the long run countries in developing economies are creating consumer societies rather than producers, as the ability, potential, ingenuity, initiative and capacity to produce, is not comparatively developed or not as equally competitive with the available products on the international market. In conclusion involving ordinary people to invest in their social economic infrastructure is to empower communities to be able to follow up and acquire knowledge of the technological advancements in the market, in the long run, just as ordinary men have learned to diagnose particular diseases and dangers that they face in their natural environment, Communities will adapt to diagnosing their own needs and find solutions without or minimal external help, even when challenges are beyond the scope of their knowledge or level of education.
This initiative would ascertain accountability because this money would be coming directly from the communities rather than funds from development partners that are some times tied with strings, and people would be directly expectant on their investments hence pressuring governments to institute proper accountability systems.
Therefore governments in developing economies need to revise and break down bonds into small manageable funds, which ordinary people in communities can buy and also use as securities, clearly the advantages of this initiative is immense but most importantly is the promotion of the savings culture in communities and a growing culture of self reliance on the part of African Economies.
Case Study: Construction of the Erie Canal
The construction of the Erie canal from New York in the 1820, this canal was constructed from Albany to Buffalo a 363 mile distance. The canal connected lake Erie to the Atlantic Ocean. This canal enabled private businessmen to access the interior from Atlantic Ocean all the way to Minnesota. The uniqueness of this project was that president Jefferson at the time refused to fund this project, however private business men led by New York bought bonds to fund the project from which they earned interests once the canal was opened. In 9 years the state had recovered the $7 million investment and 1.5 million interests for private investors who had bought canal bonds.
The initiative of public funding would also foster good governance as it shall reduce the tie between politics and infrastructure development, a point that is easily exploitated by politicians in developing economies. Communities will have more independence in terms of political inclinations and shall be able to expect standards from those in power to manage public resources. It has been a leading trend for political institutions in Africa to strongly rely on infrastructure development and provision of services to communities as bargaining chips for votes. A vivid example is the case of Zimbabwe where some communities have been denied Food Aid on the basis of their political Inclination.
Some may argue why not turn to taxation?. Why not provide tax holidays to investments, like Uganda Revenue Authority has done in Uganda, and in the long run have a big stable taxable base. Why not hold governments in African economies accountable to taxes they collected?, why not continue relying on Aid?.The case of taxation is beyond the scope of this paper., it shall be discussed in our next commentary.
Capital and stock Markets
The development of capital markets is equally as important, consumers would accrue value in paying for products that they consider as investment. Very few companies have sold shares to the private sector hence, giving back very little to consumers. The founders of most developed economies realized this aspect and by law encouraged many private entities to sale a given percentage of shares to publics. This would also act as a direct control on some of the “quack” investors that use developing economies as testing grounds through conniving with technocrats and politicians.
Part Two: Social Cohesion and Development
Development Initiatives Africa considers public funding, an appropriate direction for research for some of these huge investments that African countries are under taking. It should be noted that international financial institutions are benefiting in terms of earning from such investments as opposed to nationals, opportunity should be given to Nationals to part take in their national development of especially infrastructure.
This strategy shall also reduce the debt burden of African economies in the long run and also provide ground for social cohesion. It important to note that distance between communities and huge capital investments has sometimes led to social unrest due to lack of ownership of the projects. Nigeria Oil drilling companies have suffered this lash due to deliberate sabotage from communities of the industry because they are not directly benefiting. In the faith of understanding the dynamics that foster social cohesion, this strategy requires research.
In the long run countries in developing economies are creating consumer societies rather than producers, as the ability, potential, ingenuity, initiative and capacity to produce, is not comparatively developed or not as equally competitive with the available products on the international market. In conclusion involving ordinary people to invest in their social economic infrastructure is to empower communities to be able to follow up and acquire knowledge of the technological advancements in the market, in the long run, just as ordinary men have learned to diagnose particular diseases and dangers that they face in their natural environment, Communities will adapt to diagnosing their own needs and find solutions without or minimal external help, even when challenges are beyond the scope of their knowledge or level of education.
By: Edgar Walter Byaruhanga, Exec Director DIA
Research Materials:
A concise history of the United States of America by Paula Baker.
