Tuesday, January 17, 2017


In November last year the Indian government gave its citizens 50 days within which to turn in the  highest denomination notes for smaller notes in a bid to among other things raise revenues from undeclared incomes, mostly from the corrupt and black marketeers.

The scrapping of the 1000 and 500 Rupee notes that were scrapped accounted for 80 percent of the money in circulation by value.

There was some reported discomfort as people lined up to deposit their cash holdings with the banks. 

Deposits in the banking sector jumped and banks were forced to reduce lending rates.

But also as a result millions of dollars in untaxed income showed up overnight that has the Indian revenue authorities licking their lips with excitement.

The down side is that the real estate market in the big cities has slumped by as much as half compared to the same period last year.

"With the improved banking and payment systems that have removed the need for the carrying of large sums of money around isn’t it about time Uganda considered such a move as well? If only to increase our savings in the formal sector and to trap more taxes....

Imagine if we announced that we were scrapping the sh50,000, sh20,000 and sh10,000 notes, it will release those fabled money vaults in rich men’s houses into the formal banking sector for all of us to take advantage and like in India, uncover untaxed income that could very well boost our revenue collections.

Of course you can expect a bit of discomfort initially just as we felt with the currency conversion in 1987, but we will soon get over it. We will be fine.

It goes back to the point that we are poor as a country not for lack of cash or resources but more because this cash or resources is not aggregated into meaningful sums within easy reach of the productive sectors of our economy.

In 2011 cash in people’s pockets and under their mattresses accounted for just under 20 percent of the total money in circulation but this compares poorly with more developed economies where the figure is about two percent.

The difference between the two numbers is worlds apart as it suggests greater efficiency for the productive sectors to access credit in the west than Uganda, efficiencies which rise exponentially with each percentage point difference.

"The beauty of such a move too will not affect the poor as they are rarely in touch with the larger currency denominations. In fact it may end up being beneficial to them in incentivising them to get their own bank accounts....

One may argue about the efficiency of private banks in deploying resources, but we will cross that bridge when we get to it, let us first raise deposits.

This too will help the central bank control inflation much more efficiently since the banks are responsive to the instrument it uses in tightening money supply.

Of course one can expect virulent opposition to such a suggestion, especially for the direct beneficiaries of these unmonitored money movements.

As we have seen with India the first casualties would be the real estate sector which has for long been used to launder the illicit funds in the economy, explaining the property boom of the last few years. It is not unusual to carry out real estate transactions with bundles of cash.

The need for the economy to be more fomalised cannot be overstated. Economic data will be more representative of the real economy allowing investors to make more informed decisions, because it will make interventions easy to make and their outcomes more predictable.

For the rest of us mere mortals who don’t carry wards of cash around anyway we will continue using the ATM or making bank transfers to settle obligations or use mobile money.

What as a country we should never do is what Zimbabwe did and is trying to do now.

A few years ago because inflation which was in six digits was making printing more and more money impossible, the Zimbabwe dollar was shelved and the country adopted US dollars, South African Rand and a hodge podge of other currencies.

The hyperinflation was caused by the annihilation of the productive sectors especially agriculture and the printing of money to appease political constituencies as tax revenues begun to drop off.

But now Harare finds itself in a catch 22 situation because since the productive sector had been gutted they can’t export enough to earn the forex they need to circulate.

As a way around it Zimbabwe has issued dollar bonds, a kind of currency. The citizens don’t want to know. A currency is only as credible as the trust the users have in the government issuing the currency.

It does not take a prophet to see what will happen to ZImbabwe in 2017.

"Either Harare has to swallow humble pie and attract the white farmers and industrialists back – not unlike Uganda and the Asians, privatise the state enterprises and fall back in with the Bretton Woods’ institutions to help rehabilitate their infrastructure and get the economy up and running...

Or they bite the bullet hope to ride out the public dissent as the economy goes further into the toilet and hope for a miracle for things to turn around.

They will probably hope for the latter rather than the former and the end game is certain.

Monday, January 16, 2017


The sh6b cash pay out to officials key to the winning a favourable result in a multi-million dollar tax dispute against oil company Heritage Oil refuses to go away.

In 2010 when Heritage sold its interest to in their western Uganda oil concession Uganda Revenue Authority (URA) argued they were liable to capital gains tax. Heritage didn’t think they owed Uganda anything and even bolted the country after payment before URA could catch up with them. URA however were not about to let the issue of upto $700m go begging so proceeded to pursue them to the courts up to a London arbitration court.

A settlement netted the country $473m a princely sum for our cash starved coffures. In appreciation of the core teams efforts President Yoweri Museveni authorised a bonus pay out.

This week parliament went into indefinite recess following a ruling by the court of appeal whose import was to bar them from debating the bonus pay out.

The bonus pay out has got the chattering masses to a running start in the New Year.

Whereas the dust is far from settling two lessons are hard to miss from this unfortunate scenario (whichever way you look at it).

"To begin with as a country, as citizens we need to push relentlessly for the building of institutions and formalisation of systems. Emerging out of the chaos of the 1970s and 1980s it was okay to apply discretion in many affairs of state...

But two things have happened that are changing and will change the way we behave around public resources. One, as we broadened the tax base, we have also increased the number of people we are accountable to for how the money is spent. There will never be agreement in how best to utilise our finite resources. Hence the need for rules and procedures that are faceless, objective and transparent and backed by a reasonable consensus to govern our behaviour.

And secondly there is the increasing connectivity of our people ad proliferation of social media. As an example this we knew about the changes in the UPDF on Monday night. By the time the army came out with official communication on Tuesday morning we had thrashed out the issues of who, what, where, why and how. And by the time the daily newspapers came out on Wednesday they were looking decidedly dated. This speed of information transmission gives greater credence to the saying that “The lie will be half around the world , while the truth is still tying its shoelaces”

The second lesson is that in a country like ours where corruption is so pervasive, good people can suffer the perception that they have crossed to the dark side, if only because our default judgement on any action is that somebody must be “eating”.

"This is dangerous because among other things, it lowers the general level of trust in a society, making it that much more difficult to carry out normal transactions... 
 In a world where communication is flying faster and faster decisions will have to made with increasing speed and determinations about the trust worthiness of this or that individual or institution will be made that much more quicker.

A reputation built over decades can be left in smouldering ashes just by a shift in public perception. And in the court of public opinion perception beats fact every time.