By Andrew Meldrum.

Boasting economic growth of 7% in 1998 and inflation in single digits, Uganda's economy has been hailed by many as one of the most successful in Africa. And economic growth is predicted to continue in 1999.

President Yoweri Museveni's government can take much of the credit for turning the war-torn country into a relatively stable nation and for fostering healthy economic growth. Mr Museveni established sound market-based economic policies that have made Uganda the darling of the World Bank and the IMF, as well as numerous western donor nations.

Another factor in Uganda's economic recovery has been the return of the country's Asian business class. In 1986 the Museveni government returned large amounts of property to Asian families that had previously been seized when they were kicked out of the country by Idi Amin in 1972. Many Asian families returned to find dilapidated factories and farms that had languished. The enterprises have been refurbished and are now are contributing to Uganda's impressive growth.

"Mr Museveni took a bold step politically to return property to Asians," said Mayur Madhvani, an Asian businessman. "To return those properties was a mammoth task." Previously Asians were Uganda's trading class, the owners of small shops selling a variety of goods to black Africans. But now a new class of black Ugandan traders has sprung up. Most of the Asians who returned are concentrating on large-scale agriculture and manufacturing enterprises.

The Madhvani holdings include Kakira Sugar which currently produces 70,000 tonnes of sugar annually and plans to expand to 110,000 tonnes in the next three years. Nile Breweries is also part of the Madhvani group. Recently South African Breweries purchased 40% of Nile. South African Breweries, which transformed Tanzania's struggling national brewery into a regional powerhouse, has begun to boost Nile Breweries. "The market is growing by leaps and bounds," said Mr Madhvani. "Nile Brewery's capacity has gone from 30,000 cases per month to 350,000 cases.

The Madhvani group also has holdings in other strategic areas of the economy. "Our strategy is to rehabilitate the production facilities that had fallen into disrepair and then attract investment from other major players, such as South African Breweries. "We find the Ugandan government supports an environment that encourages investment and business," said Mr Madhvani. "The government recognises the private sector as the engine of economic growth. We've had good communication and cooperation with the government."

Not everything is rosy in the Ugandan economy, however. Corruption is widely recognised as a serious problem. In December Major-General Salim Saleh, the brother of President Museveni, admitted that he had secretly bought the country's largest bank, the Uganda Commercial Bank, breaking several banking regulations. Gen Saleh resigned from his post as Senior Adviser to the President and is under investigation for criminal charges.

Gen Saleh said he simply bought the formerly state-owned bank when it was privatised earlier this year in order to prevent it from being purchased by Malaysian investors. "If my actions smacked of impropriety, it was caused by my concern for the poor and the weak of this country, for whose protection and upliftment I have toiled so much," said Gen Saleh.

He may say he simply wanted to help the poor, but shortly after taking control of the Uganda Commercial Bank, Gen Saleh lent his own companies millions of dollars without proper procedures, according to reports by the regulatory Bank of Uganda. "How could Saleh become one of Uganda's richest men when 10 years ago he had nothing?" asked an angry caller to the popular Capitol Radio phone-in show.

A parliamentary report found numerous questionable deals involving large government contracts. Transparency International recently named Uganda as the world's 13th most corrupt country. The country's privatisation drive has been thoroughly discredited as officials have purchased state holdings cheaply and then quickly resold them at vast profits.

The World Bank specified 12 contracts where corruption had been identified and requested explanations and action from the Museveni government. Even as Gen Saleh was admitting his bank scam, more than 25 major donors who make up the Paris Club met in Kampala to consider Uganda's request for some $2.2bn over the next three years. Many expressed grave concern about giving such hefty aid to a government which may not be committed to getting the benefits of the assistance to the people.

Without a doubt Uganda has a corruption problem, but the country has nevertheless achieved impressive rates of economic growth. Over the past 10 years, Uganda has averaged more than 6.7% annual growth rates. Once the country suffered from hyper-inflation at 240% annually, now it is under 5%. Its balance of payments situation has also become healthy. Currently Uganda has foreign reserves equal to about five months of import cover. Uganda, which is heavily dependent upon imported goods, imports about $125m worth of goods per month.

"These macroeconomic figures are very good, very positive," says the resident representative of the International Monetary Fund (IMF), Zia Ebrahim-Zadeh. "The question is can they be sustained? And can it help alleviate the poverty? We say yes. Figures show that the numbers of Ugandans living in poverty dropped from 56% of the population to 46% between 1996 and 1998. That's good performance. There is still the question of how equally the benefits of this economic growth are distributed. Certainly the north, which is plagued by the rebel war, has not benefited from its share of economic growth."

Government critics say the impressive macro-economic figures have not translated into improved living standards. "I know Uganda is called a miracle economy. The statistics may be great, but you cannot see it on the ground. This glittering progress is not experienced by the average person," says Cecilia Ogwal, a member of parliament who is also a leader of the Uganda Peoples Congress Party.

"Museveni has portrayed himself as a good boy to the United States. He does what they want economically," says Mrs Ogwal. "What we are seeing is the emergence of a new elite which fully understands the language of the World Bank and the western powers. They are combining a market economy with military government, and now they can do what they like."

The western powers have indeed rewarded Uganda for its economic reforms. Last year Uganda was one of the first countries to receive debt relief as a heavily indebted poor country (HIPC). Through the programme Uganda has seen $650m in debt forgiven. This will reduce Uganda's debt repayment bills by about $40m per year over the next 10 years. As part of the HIPC agreement, the Ugandan government has pledged to spend that $40m on priority social service areas such as education and health.

The Paris Club group of donors also put aside their reservations about Uganda's evident corruption in order to pledge the $2.2bn in assistance requested by the Museveni government. Many Ugandans criticise this substantial aid, saying it will allow the Museveni government to continue pursuing its war in the Congo and will not benefit the average citizen. But donors and the Ugandan government say the good overall growth rates being achieved are ample justification for support to the Museveni government.