Tuesday, November 29, 2016


A few day’s ago credit rating agency Moody’s downgraded long term issuer rating of the Uganda government to B2 from B1, which means the country has been judged more risk to lend to and will be more expensive for us to borrow on the open market.

The downgrade came as a result of our increased borrowing which has worsened our debt to GDP and revenue levels.

However the agency said upgraded the country’s outlook to stable from negative based on continued economic growth, improved financial management and the shift towards development from recurrent expenditure.

To understand this use yourself as the analogy. In determining whether to lend to you or not a bank first looks at your income. In principle the higher the income the more you can borrow. For countries they consider GDP – the economic output, the higher this number is the more you can borrow. Uganda’s GDP stands at about $20b (sh70trillion).

But the bank would go further to determine how much of your income is actually available for debt repayments. They try not to take more than half of your take home pay. If you have little or no debt the more they can lend you. So for Uganda because we have been on a borrowing spree lately, and mostly of non-concessional loans, our ability to borrow more is less.

On an individual level the more money is going towards repaying debt the more at risk you are too any shocks in your personal life – accidents, medical emergencies or other unforeseen expenses. 

"Similarly as a country we have left ourselves little room for manoeuvre in case of any nasty surprises like depreciating shilling or lower than anticipated growth...

So a banker looking at your personal statement would worry about you more, the more indebted you are. Same as a country.

It helps of course if year on year your income is growing. This means less of your money will goes towards debt repayment, not only allowing you more money for you to spend yourself but also making you a prime candidate for more loans in future. Moody’s notes that our economy is growing slower than in the past --  about 4.3 percent on average 2012-2014 compared to 7 percent 2009-2011. 
As if that is not enough we are not collecting enough revenue – 13.4 percent compared to our peers who collect about 23 percent of GDP.

Also your banker would worry if you are not in formal employment, where incomes are predictable. 

Moody raises this concern in questioning the soundness of Uganda’s institutional strength, noting that the greater institutional strength a country has the more likely it is to take on more debt since the mechanism for raising money to repay the loans are in place.

However the banker maybe more optimistic of you long term, if your debt has not been frittered on high living and frivolous expenditure but on building up a viable business or your asset base. Moody’s says just as much of Uganda noting that the shift towards infrastructure development and away from recurrent expenditure – salaries, allowances and official perks, may lead to greater economic growth and hence improve our credit worthiness.

So one had our ability is borrow is reducing but the prospects for our economic growth are improving.

Uganda is not unlike the child in class who though is stuck nearer the bottom of the class than the top, is promising if only he could focus more in class and exercise more diligence in his homework. 

Under the current circumstances for the kid to make it to University a lot of things outside the kid’s control have to line up -- the weather, the seating arrangement and the degree of difficulty of the exam.

This is as opposed to the brightest kid in the class for whom none of those factors will matter on the day. He will thunder the exams or pass at worst. The possibility of failure is slim to none.

"Moody’s thinks that if the infrastructure developments generates economic growth and the country begins oil production an upgrade in the future is likely....

They also warn that further dramatic depreciation of the shilling could make debt repayments onerous -- already 16 percent of the budget, and affect economic growth.

Debt is a double edged sword it can be used to boost consumption -- bad debt or for investment -- good debt.

But an investment is only that when it shows a return if not it can become a white elephant.

But it can also turn into a bad investment if you pay too much for it, meaning for one that you will be servicing the debt longer than necessary tying down crucial funds which could have been deployed elsewhere.

It's clear our development momentum has not attained irreversibility. Just because we have access to more funds should not mean we throw discipline out the window.

We are still at the bottom of the class. We need to focus and work harder than the brighter students if we are to keep up or even catch up.

Monday, November 28, 2016


It has been reported that 36 districts are facing food shortages. The poor rains mean harvests have been poor and livestock have not been as productive.

The spin off from this, we can expect a jump in inflation in coming months and as the Bank of Uganda scrambles to contain that an increase in lending rates will follow, restricting borrowing, business growth and leading to distressed companies.

The long and short of it we should not be oblivious to the plight of these distressed districts.
But we need to ask, how is it that a country with 20 percent of its surface under water and almost half the region’s arable land ever have food insecurity issues?

There are many factors but the one bandied around most is that most of Uganda’s agriculture is dominated by small holder, low productivity farms.

These farmers who are mostly subsistence farmers due to land tenure systems and low adoption of modern agricultural methods are barely eking out a living.

Interventions by the state have been haphazard and sporadic and failed to improve productivity. While others point to the low investment in agriculture as at the back of the sectors woes.

"Both sides are correct but like the blind men set the task of describing the elephant they are each snatching at parts of the problem without appreciating the whole...

At the bottom of the low productivity of our farms is the poor farming methods of our farms. We are talking of such basic things as spacing, use of manure and basic irrigation.

On Tuesday in our Harvest Money pullout which was dedicated to irrigation I learnt that one can dig a pit among a cluster of plants and fill with water at least twice a week and it will irrigate the surrounding plants. To take it a step further you can fill it with compost manure and as the water sips out into the surrounding farm will carry along with it nutrients from the manure.

We are not talking about cutting edge fertilisers and sprinkling gizmos. Basic improvements in our farm practices can cause significant improvements in productivity and that is before you look at improved seeds and increased application of fertilizer.

"According to a World Economic Forum research done in east Africa irrigation increases productivity by 90 percent compared to farms which don’t employ irrigation, fertiliser increases yields by 61 percent and the use of mobile based market information can raise incomes by up to 30 percent.
Increased productivity will lead to a need for markets. Small farmers can be encouraged to form cooperatives to bulk their produce to better negotiate in the market....

So why isn’t this all happening?

It is happening because our farmers don’t know better.

When we talk about investing in agriculture, arguably the single best investment we can make is in extension services – some studies have shown returns on investment in extension services of more than 80 percent.

According to agriculture ministry numbers only 700,000 of the four million agriculture households had been in contact with an extension service worker. At the Kakira sugar plantations they have one extension worker for every 90 farmers. Going by that we should have at least 40,000 extension workers scoring the countryside helping our farmers improve their methods.

There are issues of market failure but that those are a lesser problem to the low productivity of our farms.

It should be obvious by now. Our people are being caught seemingly unawares by and unable to cope with the changes in the weather for lack of information. Radio announcements and indifferent politicians will not spread the word.