Monday, December 20, 2010

HIGH INCOME IS NOT WEALTH

Last week the finance ministry released a report on Uganda’s progress on the Millennium Development Goals (MDGs).

On the whole the progress in areas like increased primary school enrollment, access to clean water, gender equality and women’s empowerment and reduction in child mortality compared to ten years ago.

Among the findings of that report was the fact that proportion of Ugandans living on less than a dollar a day has plunged to 23% from 36% over the last five years. What this means is that as a country we have reached the target rate of poverty set out by the UN in 2000. The target date for achievement of these was 2015.

As I have argued before I think the dollar a day measure of poverty is cow manure. As far as I am concerned one-dollar-day is an easy target and personally do not doubt that we have attained these target. I think it’s a scandal that we can even have people living on less than a dollar a day or even $10 for that mater.

It is not hard to see why we struggle to meet this basic of targets.

During a conference last week the National Development Plan was criticized for its lack of clearly defined strategy for transforming the country’s economy – put bluntly our planners are involved in wishful thinking.

Also there seems to be a lack of understanding of what will make for sustainable poverty eradication. We are focusing on income from jobs or trade rather than on encouraging building income generating assets. The difference between the two is worlds a part.

Of course for political purposes raising incomes is the easier target – and hence the UN’s one dollar a day standard.

Back to first principles there are four levels of financial health. At the bottom rung is poverty, at this level one can not provide the basic necessities of life on their own income and is forced to rely on handouts to bridge their financial deficits. The next level is one of financial freedom where a regular income ensures that one can provide for self, in this category is most salaried workers, most of whom are a salary away from poverty.

Financial security, is where an individual may or may not have a regular income but his income from his accumulated assets adequately provides for his daily expenses. It is at this level that one can honestly talk of pulling out of poverty.

To be rich is an extension of being financial secure, but this time ones assets are throwing off more income than you or your family can consume.

Seen in this light you want to ask yourself whether you are out of poverty or not. And understandably this standard would be hard to attain, hence its unpopularity politically.

Let us assume as a country we aim at financial freedom for all by 2050, what it would take to attain that.

It goes without saying we have to sustain the current level of macro economic stability, especially keeping inflation rates down.

In addition we have to significantly lower the cost of doing business.

Improve our transport networks – getting the train up and running for goodness sake, eliminate power shortages, improve health services, restructure our education to provide market relevant man power and eliminate onerous licensing processes among other things.

The idea would be that not only would businessmen have a better chance of making successes of their enterprises – selling more and employing more, but the cost savings would be passed on to the consumer who would then have wider options for his money.

We would also restructure our financial sector creating incentives for more savings, liberalise the pension sector and support venture capitalists whose job it is to back start ups.

And eventually as a nation we need to be more committed to promoting entrepreneurship and financial literacy.

To take our businesses to the next level they need to be more structured and therefore our businessmen need education and mentoring. The days of hit and miss businessmen are gone as the economy becomes more formalized.

At the very personal level widespread financial literacy – the ability for instance to distinguish between income and wealth, is critical. For a long time now our salary and other income earners have been blundering through life, thinking that because they have a regular paycheck they have arrived only to be reduced to destitution at retirement.

Lets raise our sights beyond a dollar a day after all achieving arbitrary and meaningless benchmarks is not what we are here for.

Monday, December 6, 2010

LET’S DO A PILGRIMAGE TO ISRAEL


I have thought for quite a while now that Uganda’s economic planners should make a pilgrimage to Singapore and Dubai. I haven’t been to Singapore but have read the founding father Lee Kuan Yew’s book “From Third World to First: The Singapore story” and believe it should serve as the prototype for development. I have been to Dubai and what they have been able to conjure out of the desert in terms of infrastructure and a general corporate dynamic some say is unmatched except maybe by Hong Kong, is just a wonder. 

The harnessing of the private sector while itself becoming a super efficient state is something we badly need to learn. And now I add Israel to the list of must visit countries for the men and women of the Planning ministry. 

 “Start-Up Nation: The story of Israel’s Economic Miracle” is a book that tries to deconstruct the economic success of the Jewish state. To appreciate the miracle of Israel understand that this is a country, were it a square would not be as wide as the distance from Kampala to Masaka. Mostly desert, it was described by Mark Twain as a “desolate country … a silent mournful expanse.” 

It has a population of seven million people most of whom are at least second generation immigrants. Since independence in 1948 Israel has lifted itself from a besieged backwater to a high tech hub, while growing its economy fifty fold and this despite fighting three wars and being in a state of perpetual tension, “Totally unmatched in the economic history of the world,” according to Israeli political scientist Gidi Grinstein. 

 At the bottom of small Middle Eastern country’s success is the entrepreneurial spirit of its people. It has more start up companies per capita than any place else in the world. The amount of venture capital investment per person – another indicator of entrepreneurship, is nearly thrice that of the US and more than thirty times that of the European Union. Innovation that often comes with start ups, is the only proven way of economies to stay ahead and provide for the increasing demands of not only a growing population but of rising demands that come with a higher standard of living. This boom in entrepreneurial activity flies in the face of the perception of Israel, as not only being at the heart of an unstable region but that Israel’s very existence is not assured by its belligerent neighbours.

 A complicated subject. The roots of this national spirit of entrepreneurship and innovation, authors Dan Senor and Saul Singer find in some rather unlikely places. The fact that Israel – like the US, is a nation of immigrants who by definition are risk takers is key and has some useful lessons for immigration policy makers. When added to the crucial role played the Israel Defence Forces (IDF) in fostering an informal approach to authority, a unique attitude to failure and serves as a demanding culling selection process of the country’s best talent, the country has come as close as one can get to formalizing the process of entrepreneurship. 

 The development of the military and avionics industry – an unintended consequence of an arms embargo, nurtured a cadre of high tech engineers and laid the foundation for the huge concentration of the high tech industries in Israel today. A booming venture capital industry, initially promoted by the government, means local entrepreneurs have access not only to funds but to the mentorship needed to grow business and make them competitive on the international scene. Everything was not planned at the inception of the Jewish state by wise man Ben Guiron, but forced into a corner by real existential questions, Israel like few other countries in the world has literary taken the lemon of its circumstance and turned it into lemon juice. Which makes me wonder, what would have happened if the early Zionists had taken up Britain’s offer to settling in Karamoja?

Tuesday, November 23, 2010

TO BATTLE CORRUPTION, PAY UP

THE Inspector General of Government, Raphael Baku, this week released the annual report on corruption in Uganda.
I have not read the entire report but there was nothing to raise any eyebrows.

Infact, it was rather understated in cementing the perception that corruption is alive and kicking. On 94.8 fm’s Talk of the Nation this week, the issue of teacher absenteeism came up.

I heard how dedication to the vocation was lacking and teachers these days do not appreciate the huge responsibility they bear. The suggestion was that they don’t make teachers like they used to.

And then again on Press Chat on the same 94.8 fm, Richard Baguma narrated a heartbreaking but hilarious story of how in his earlier days as a public servant he went to the bank to check whether his salary had made his account.

"The teller took one look at his account balance and, writing it down on a slip of paper, said his salary had not made the bank yet. It had, but it was so little as not to register with the lady behind the counter....


Earlier this year I saw a list of salaries for various levels of civil servants and at first thought the civil service pay was not so bad after all, until someone pointed out the figures published referred to annual salaries.

I believe that corruption is thriving because we do not pay our public servants enough. They may be other reasons but they are all secondary.

Abraham Maslow’s hierarchy of needs is a useful framework from which to analyse human motivation. Basically, his theory suggests that human motivation is dictated by the pressing needs of a person.

At the bottom of the hierarchy are the basic physiological needs of food, water and breathing, climbing up to safety needs – family, health and housing, and on to belonging needs to esteem needs – achievement, respect, confidence to the ultimate, the self actualised person where issues of morality, creativity and lack of prejudice reside.

The theory says that if you do not fulfill the needs at one level it is difficult to rise to the next level and even if you do, chances are you will always regress to the lower level to resolve the needs unattended to at that level. It is impossible to belabor this point.

"As long as the Government continues to pretend to pay, people will continue to pretend to work while devising other means to meet their basic needs. It is blindingly obvious....


The lowly paid civil servant lives in Nakasero, Bugolobi and Ntinda, is building in Namugongo and Buwate and is unstintingly loyal racking up five, ten, 15 years in the civil service.

This would be an illusion if they were conjuring this lifestyle out of their payslips.

In arguing against corruption, some sanctimonious people argue that if you signed up to work for that pay you should honour your contract or get out.

And I suggest to them that if the Government is unwilling to up the pay and yet wants to plug the leakages maybe they should hire monks, who are sworn to poverty and celibacy....

But of course government planners, being civil servants, know all this.

The argument that there are no resources to improve civil service pay, fly in the face of the fact we are willing to shell out sh500b-plus to host CHOGM, a four-day event, which has had little residual benefit to the majority of the population.

The high profile figures we see getting billion shilling kick backs are the tip of the iceberg. The incessant gnawing away at public resources by lesser cadres pilfering a few thousand shillings from the office imprest, soliciting a bribe here and there to conveniently look away when the law is being broken, is where the real havoc is being wrecked.

There are the rare, blameless individual, but we can not organise society on the strength of a few outliers.

This in no way justifies corruption. If we are serious about fighting corruption let’s pay our civil workers the minimum to survive through the month and then, the fight against corruption will truly have begun.

Monday, November 15, 2010

THE MYTH OF OUR POVERTY

The World Bank last week released a report which showed that remittances from Ugandans abroad may come in at about $ 773m (sh2 trillion) this year. This is up from $694m last year.

To put this in perspective. Uganda’s national budget stands at just under sh8 trillion, that means Ugandans abroad are remitting the equivalent of a quarter of the national budget to fund school fees, health expenses, building construction and general consumption.

Also this figure is about the same amount of money the government is expecting from foreign governments in loans and grants to balance the budget.

Two things to note, the World Bank acknowledges that this is understated as their statistics are derived from official records. So all the dollars that come stuffed in toys and clothes, through local couriers go largely unregistered.

A recent Central Bank survey on the issue showed that remittances through alternative means were about half the amount of those through the formal financial system.

And secondly, that this figure has been growing over the years, more than quadrupling from 1996’s $175m, shrugging off the recent global economic slowdown. At this rate Ugandans will double there remittances every seven years.

It is estimated that there are about 757,000 Ugandans living abroad, given this year’s statistics this suggests that on average each Ugandan abroad sends home just over $1,000 a year.

As indicated earlier, this money comes piecemeal and according to official statistics peaks in the last quarter of every year. This money goes largely towards consumption.

On the continent Nigeria is the top remittance receiver at $10b but elsewhere India, Israel and Phillipines are up there.

All indications point to the expectation that Kyeyo money will increase year on year as long as a stable macro-economic policy environment is maintained in this country.

Seeing as we shall be getting increasing amounts of these monies in coming years the question is how can we make maximum use of these funds beyond improving individual homesteads’ welfare?

For starters we need to aggregate this money. A few dollars here a few dollars there can’t make countrywide differences.

Ghana in 2008 launched the Golden Jubilee Savings Bond, which raised less than the intended target and most of it from Ghanaians at home. The funds from the bond were intended for infrastructural development. The Philipines is also planning there own bond issue.

Say that we were able to rope in a tenth of this year’s remittances about sh200b what could this money do if deployed in bursaries, low income housing or agricultural credit?

Somebody was telling me that following a geo-aerial survey to determine our natural resource potential, it was discovered we are seating on so much mineral deposits that were we to exploit it, it would mean relocating the whole population of Uganda.

I also learnt that of all the money in circulation about 60% of it is outside the formal financial system.

An increase in branch networks and proliferation of Savings & Credit Cooperatives (SACCOs) should go someway to mopping up all this excess liquidity.

Again you want as much money as you can in the financial system so it can be deployed to support trade and production.

Given also that about sh300b annually gets pilfered by our grubby fingered officials – except in 2007 when sh500b went on CHOGM alone, there is more than enough money available to relieve our donor dependency.

It may come as a surprise to you, but we are not a poor country. In fact it is a fallacy --. A misleading notion, an erroneous belief, a myth.

What we lack is the leadership to harness our local resources. It is much easier to go begging bowl in hand to donors than it is to set up the system to collect our little monies. But that is short term thinking which is hurting us now and will continue to hurt us over the long time if we do not snap out of it.

Saturday, November 6, 2010

THE RICH WILL GET RICHER

I am currently engrossed in the book “World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability” by Amy Chua.

The idea that by spreading capitalism and democracy, the world will be a better place to live in does not hold up to scrutiny when viewed against the background of the last 20 years since the fall of communism as symbolised by the fall of the Berlin Wall.

In fact the opposite seems to be true with increased incidents of poverty, ethnic divisions sharpening and in many places there are determined efforts to roll back the free economy and fledgling attempts at democratic practice.

In reading the book I see interesting parallels with the developments of the last 24 years in Uganda – the rise of economically dominant ethnic minorities, widening income disparities and rising tribal tensions

Capitalism by harnessing individual initiative is undoubtedly the most efficient way of growing wealth, how in a true free market inevitably the rich get richer and the poor get poorer.

I think even Jesus Christ recognized this truth more than 2000 years ago counseling his disciples that those who have will have more added onto them and those who don’t will have even the little they have taken away from them.

But why is it so? Author Eric Beinhocker in his book “The Origin of Wealth” reports on a computer simulation that showed that starting off on a relatively wealthy note, in terms of access to resources, almost always means you will end up wealthier than your contemporaries who started off less wealthy. Basically that wealth begets wealth.

So are the poor doomed to remain poor?

Not the way Beinhocker sees it. After a long and arduous deconstruction he comes to the conclusion that knowledge is the origin of wealth. The greater the knowledge in a society the more it informs the physical and social technologies, how we work and organise ourselves respectively to achieve the society’s goals.

So western economies are richer because they have a long history for recorded research & development and are organized – politically, commercially, socially in such a way as
To take advantage of this accumulated knowledge.

Even on an individual basis we are not as rich as we want to be because there is something we do not know. I am always amused when in denigrating rich people, the average person point to their huge debts as the illusion on which their wealth is built. One can get rich by saving every coin they earn (something the rich man’s critic does not do anyway) but it will take a life time of subhuman subsistence, and isn’t the point to get wealthy to enjoy a better lifestyle? However the judicious use of debt can quicken the process. Now you know.

So the question for every government is how do you get everyone in a position to accumulate knowledge, raise incomes and get richer?

The simple answer is widespread education.

Learning about the Rhinelands, Canadian prairies and the Benelux region is largely useless information – even for those who travel regularly, but the greater role of education is to open our minds to receive more and more knowledge.

It is not by mistake that the richest countries have near universal education up to undergraduate level.

But in those same countries you have people like Bill Gates, Larry Ellison, Alan Sugar and Philip Green who have no degrees but are the richest men in the world. Would they have achieved so much in a poorer, low income country like our own? No chance. The organization of society can not yet allow the accumulation of such wealth here.

The adherence to rule of law especially as it relates to business, mean that wealth can easily generated there than here.

For instance this week the World Bank released a report measuring the ease of doing business globally in which Uganda slipped to 122 from 112 out of 183 countries surveyed. Singapore was at the top of the heap with the UK and US at fourth and fifth respectively.

The point is that in a free market economy the rich will get richer, as is their right, but the poor need not get any poorer. There is more than enough to go around for everyone.

Saturday, October 30, 2010

IF I WAS A PRESIDENTIAL CANDIDATE

The presidential campaigns got off to a relatively calm note earlier this week – so calm in fact that Inspector General of Police Major General Kale Kaihura threw a party for his officers in charge of overseeing the campaign.

Meanwhile the candidates are putting the finishing touches to their manifestos and I hoping to add my two cents to their thinking processes.

As far as I am concerned there is only one issue in this country and every other issue derives from it – poverty.

As far as I am concerned poverty is the root of all our evils.

Was it a coincidence that this week that the Uganda Bureau of Statistics released results showing that poverty levels had fallen to 22% from 31% five years ago. Poverty here is defined as a situation under which a person lives on less than $1 a day.

The improvement in our figures has a lot to do with the people of northern Uganda returning to productive lives. Also considerable improvement was registered in eastern Uganda.

To begin with I would change the emphasis away from poverty eradication to wealth creation, because what you focus on expands.

First let us understand the various levels of economic health.

At the bottom of the ladder are the poor who consume more than they earn, then the financially independent, these can sustain themselves on their income but are often a pay check away from poverty, then the financially secure who in addition to a regular income have assets throwing off income that would sustain them without a job and then finally the rich who assets throw of so much income as to guarantee financial security for generations to come.

So the challenge of my presidency would be to get the poor jobs. Encourage a sound banking system in which the financially independent can save their money and low lending rates so they can borrow more to invest in productive assets. The financially secure and the rich would benefit from lowering the cost of doing business by reducing corruption, improved infrastructure and a better quality human resource, so they can see a better return for their investments.

Of course all this will be anchored by continued stability in the country and a commitment to widespread financial literacy so people can graduate from one level to the next level of financial health.

I think the $1 a day definition of poverty is too low and easy to achieve what I am proposing is a more ambitious plan that will create a bigger middle class.

The middle class is the anchor on which more developed economies and democracies are built.

The middle class are the biggest guarantors of stability since they have a real stake in their respective countries, beyond the fuzzy, sentimental pitch about nationalism and patriotism politicians sell.

And because of this real interest in the country – in the way of investments, the middle class are loath to resolve issues through violence and are more likely to look for civil solutions to conflict, this attitude is the bed-rock on which all enduring democracies are built.

Hate them all you want but the colonial government built up a network of social services – education and health, which elevated our previously poor, rural leaders to their current levels of exaltation today. The colonial government could do this because there was little pilfering of tax payers money, schools and health facilities got constructed and manned, roads got built and maintained and things worked as they were supposed to.

Poverty is not a natural condition (whatever our religious leaders tell us), it is a failure of political leadership and mapped by geographical boundaries.

It is true what they say, the rich are different. Their interests go beyond transient racial, religious or ethnic boundaries. James Mulwana’s milk is not restricted to the Baganda or MTN does not do business with the people from Charles Mbire’s tribesmates or Sudhir Ruparaelia’s does not open his banking hall to only his Asian brethren.

We are teethering on the cusp of social unrest and political implosion because we do not have enough rich people among us.

So I can assure you as your president I will lead a determined push for a middle and rich class and relegate to the dustbin of history this patronizing $1-a-day rubbish.

Monday, October 25, 2010

CAN’T SEE THE FOREST FOR THE TREES

Sometimes we are in danger of not seeing the forest for the trees, meaning we are so caught up in the day-to-day grind that we fail to see the big picture. Many times it takes a new pair of eyes to give you an alternative perspective. This week I came across a report on Africa’s future prospects as an investment destination. The report, by the McKinsey Global Institute paints a picture of Africa – despites it chaos, disease and political uncertainties, on the verge of take off albeit with many challenges none of which the report thinks are insurmountable.
"A snap shot of the Africa of the future shows a continent with a collective GDP of $2.6 trillion, a consumer expenditure of $1.4 trillion, 128 million households with discretionary spending – an annual income of $5000 or more and a more urbanized population with 50% of Africans living in towns. All this by 2020....
. Over the last few years Africa’s economy continued to grow despite the global economic slowdown and this was due to more than higher commodity prices. The report titled “Lions on Move: The progress and potential of African economies”, was therefore prompted by an endevour to identify the continent’s sources of economic growth and whether this growth is sustainable. To begin with the growth since the nineties has come from improved political and economic stability and adoption of policies to kick start markets. Uganda’s experience with macro-economic stabilization, trade liberlisation and privatization illustrates this point in real terms for us. Looking ahead the report’s authors suggest that growth will be sustained by increased demand for natural resources, greater urbanization, the rise of the middle-class consumer and expanding labour force, which will be larger than that of India or China in 10 years. However the exploitation of these factors will not be uniform across the continent. Dividing Africa’s nations into pre-transition, transition, oil and diversified exporters the report shows that differing development paths will be necessary. Uganda was categorized as a transition economy where per capita incomes are largely below $1000, agriculture and resource sectors account for a third of GDP and two-thirds of exports but have fast growing economies. Assuming the compounded average rate of economic growth for the first eight years of the decade of eight percent, Uganda’s economy would double every nine years.
To sustain this rate Uganda – as a transition country, will have to beef up its infrastructure, increase the productivity of its oagricultural sector and improve the quality of its human resource.

 

In this respect the challenges are enormous. Africa’s average power usage is less than half of the emerging markets of Brazil, Russia, India and China whose road and rail networks are five and two times denser than our own. The World Bank estimates the continent needs to invest $118b a year to address the shortfall, which $46b more than is currently being laid out on infrastructure development. For agriculture to be a greater growth driver – and this can apply specifically to Uganda, opening u p new lands, increasing yields through use of better technologies and a shift to high value crops, will be critical. And of course it goes with out saying that beyond increasing school enrollment the quality of our education will need to improve substantially. Two things struck me about the report. Firstly, that it talked about Africa as one big continent, not homogenous but as if as one country and that is the way we need to be thinking in order to harness our potential. In registering the trend towards greater urbanization and the emergence of the middle class I was surprised the report paid short shrift to the political upheavals that these two trends signal.
With greater urbanization and improved incomes the clamour for more inclusive and transparent politics – read democracy, will mount and depending how it is handled will either slow growth on the continent or halt it all together for indeterminate stretches of time
. The report’s tone seemed to be regardless of our lack of planning, corruption and poor infrastructure the continent is on the move, governments will be best advised to stabilize the environment – political and economic and get out of the way.

Saturday, October 16, 2010

OF JIGGERS, ILLITERACY AND DEVELOPMENT ECONOMICS

Jiggers were discussed during a cabinet meeting. It would be hilarious were it not for the irritation and pain this little creatures can inflict on the human body and spirit.

It reminds me of a book written in the seventies, “You have got to cry to laugh” and it too I believe was about the African condition.

My holding to the conventional wisdom that jigger infestations are about a lack of hygiene were shaken this week when someone asked “So what about all the beggars, street kids on the streets of Kampala, how come they do not have jiggers?”

Yes. In the 21st century we have been reduced to discussing jiggers.

But then again as President Yoweri Museveni told us more than more than 20 years ago we are backward and we better acknowledge that and do something about it.

Just because we have layered ourselves in bad English, cheap suits, counterfeit black berry’s and second hand cars does not mean we have ascended into the league of developed nations or peoples.

But maybe its not our fault. Recently economist Bill Easterly wrote about the findings of a research he participated in which showed that, on the whole, countries which had not attained certain basic technological advancements by 1500 AD – oceangoing ships, paper, printing, firearms, the magnetic compass and steel, remain underdeveloped to this day.

Even more worrying is that these stratification occurred much earlier.

Luckily we are not doomed to perpetual poverty and underdevelopement, as North America , Australia and New Zealand has shown. Technology can travel.

But as the history China has shown, to resist technology transfer can be detrimental to your world standing. In the 15th century China was ahead of western Europe in technological advancement, but a series of paranoid ruling dynasties closed China off form the outside world, purged its scientists and thinkers and allowed the western world to overtake them.

In just over 30 years by opening up to the outside world and encouraging technology and innovation China’s is taking back its place as a leading world power.

And why is technology so important? Because technology is a building block of future innovation which in t urn drives economic growth.

But for technology to take hold or to be transferred you need an educated people. Education allows for technology transfer.

So it was with much shock that I read this week about a survey of the efficiency of our education system.

The survey done by the Uganda National NGO Forum showed that despite our reported high enrollment figures the quality of the product walking out of our school gates is shockingly bad.

Eight of ten children between six and 16 who were tested on a P2 math paper failed while 19% of the P3 students tested in the 27 districts surveyed could not read the alphabet.

If you can not read or count your educational foundations are fundamentally flawed and your chances of advancement economically or careerwise are seriously hampered, but more importantly for the nation is that the adoption of new technologies will be more laboured, putting a ceiling on economic development.

Technology is not only about machines but in the broader sense is about the way things are done.

At the end of the day the people of the jigger infested areas have only themselves to blame, no government or authority figure can rid them of jiggers if they are comfortable living with them.

But an epidemic of jiggers is a very manifest sign of underdevelopment not only of the infested but of the whole country. It points to a technological backwardness that does not augur well for future economic growth.

But since apportioning blame is a favourite past time in this country here is what Easterly wrote on his blog this week,

“What the history of technology tells us …Top-down development programs simply don't work. In fact, the principal beneficiaries of Western largesse today -- African autocrats and dysfunctional regimes -- are themselves the main obstacles to development. If there's anything that "must be done" to spur future development, it's to create the conditions necessary to empower the ordinary individuals who will create new and unforeseen technologies out of old ones.”

Monday, October 11, 2010

SALVATION IS IN THE SMALL COMPANY

Did you know that, of the ten biggest economies in the world six of them are companies? Today US, China, Japan and Germany are joined in the top ten by Walmart, Royal Dutch Shell, Exxon Mobil, Toyota and Japan Post Holdings all with revenues last year of more than $200b.

It boggles the mind.

A few years ago during a visit to the Johannesburg Stock Exchange, I noticed that the top companies listed on the exchange, were valued at more than the GDP of the East African Community.

“Some of us are really pretending to be countries, we should just be taken over by some of these companies and stop the charade,” a Kenyan colleague suggested, when faced with the fact of how puny our economies are.

If it is any consolation every big company was first a small company.

Last week the Uganda Securities Exchange and accounting firm Ernst & Young sponsored a workshop for Small and Medium-sized Enterprises (SMEs) to moot the idea of selling shares to the public through the exchange.

Going public has its benefits and challenges but if planned well the advantages far outweigh the disadvantages.

Listing on the exchange allows a company to raise relatively cheap capital but more importantly improves the companies’ processes, making it more competitive in an increasingly competitive world.

The main sticking point I gathered from the workshop participants was the loss of control that comes with selling to outsiders a part of your company or variations of the same theme.

A few years ago a report showed that Uganda was the most entrepreneurial country in the world. However Uganda’s businessmen were overwhelmingly necessity entrepreneurs, setting up businesses to sustain themselves and their families, as opposed to opportunity entrepreneurs, who identify gaps in the market, set up and grow companies to fill those gaps.

Invariably the vision of the respective entrepreneurs will differ with the necessity entrepreneur having a narrower, shorter term vision compared to his counterpart.

If for nothing else preparing to list one’s company on the exchange extends the owners’ vision. A business can only grow as big as the owner’s vision.
This is important for Ugandan business because of the changing economic landscape they are increasingly finding themselves up against.

With the coming into effect of the East African common market in July, goods, services and labour can now cross our regional boundaries free of most encumbrances than previously. What this means is that Uganda companies and their products find themselves in direct competition with the regional companies – a euphemism for Kenyan companies.

Our landlockedness has it disadvantages in terms of the cost of doing business here and the relative maturity of the Kenyan companies is such that they can command scales of economy – among other things, thus lowering their production costs to the disadvantage of our operators.

The global momentum is towards freer trade, it is unlikely that our government can shield our businessmen from this post-cold war impetus. It’s up to our businessmen to step up their games if they are to have a chance at survival.

The exchange has two listing avenues the Main Investment Market Segment(MIMS), whose conditions for listing are more onerous and suited to the larger business concerns, and the Alternative Investment Market Segment (AIMS).

A lot of our businesses would be candidates for a listing on the AIMS with an eventual upgrade to the MIMS.

One of our biggest challenges as country is our failure to aggregate our resources, be they financial, management, talent and other human resources or even land to expand output.

Listing on the exchange would help in this direction.

Seating in the workshop my sense was that our businessmen are too wed to their businesses and the thought of sharing ownership is a fearful one. The way I see it the alternative are much more dire. One’s company maybe in seeming good health today but tomorrow competition from leaner, meaner opposition will bury even the little our business owners are trying to cling onto.

It is a cliché but it’s truly the survival of the fittest and our businesses are going to be forced to be more open minded to new ideas if they are to extend their legacies beyond current generations.

Published in New Vision on 9th October 2010

Monday, October 4, 2010

UNLOCK UGANDA'S TREASURE CHEST

It came around the corner to face us head on. There was no room on the road for both of us, so one of us had to give way. Our guide was very helpful, providing the detail that in the Murchison Falls National park, the biggest elephants weigh up to 10 tonnes!

My natural instinct was to shift the mini-van into reverse and move as far away from the lumbering hulk as I could.

Our guide and driver counseled that it would be suicide and proceeded to stop the van and rev the engine. After about a minute or two, which seemed like hours, the elephant stopped in its tracks and veered off into the bush.

At some point in the 60s and 70s, there were more than 16,000 elephants in the Murchison Falls National Park alone. The instability of the last 30 years, however, saw that figure fall to below half - but is now recovering.

Hippo, buffalo, giraffe, zebra and a variety of other game abound. The Madhvani Group is looking to take advantage of this revitalisation of Uganda’s largest national park with the opening of their new Chobe Safari Lodge, a $13m investment along the River Nile. It joins Para Lodge and Mweya in Queen Elizabeth as part of the group’s portfolio.

“A fusion of local materials blended with modernity has created a signature luxury safari style that is unique to Chobe Lodge. We are confident this will become the gem in Uganda’s tourism crown and one of East Africa’s top holiday destinations,” said the group’s director of tourism operations, Mani Khan.

On a boat ride up the Murchison falls, one could not help but wonder at how under-exploited our natural resources are. The Government’s role in the realisation of our full potential needs to be re-examined.

Through the privatisation of state enterprises and liberalisation of the economy, it was hoped we would be able to attract private capital and unlock local entrepreneurship.

The policy has worked in the context of the circumstances in which it was applied, but given that we continue to sleep on billions of dollars of unexploited natural potential, one has to wonder whether we have not hit a ceiling with that policy.

A U-turn to the day when the Government was involved in business in ways we knew should be discouraged.

That leaves us with the challenge of understanding the investor mind and providing the enabling environment that will attract them.

Nirvana for the businessman is a low cost environment with a growing market for their products and services.
By keeping costs low, profitability is almost certain an ever-increasing demand coming with the promise of business growth. The Government has a critical role in making both these conditions come through.

Lowering costs would involve guaranteeing safety of life and property, eliminating corruption, improving transport, energy, education and health infrastructure.

There also has to be extra efforts to market the country beyond sending delegations abroad and hoping for good press.

The quality of the people will increase their capacity to earn, and therefore, improve the effective demand of our market.

By focusing on lowering the cost of doing business, enterprises will thrive, jobs will be created, taxes collected and these, directed back into lowering the cost of doing business. All very obvious textbook stuff, you say.

The development of nations follows a simple formula: that your expenditure should shift increasingly towards investment and away from consumption.

It cost us sh500b at last count, to host CHOGM, a four-day event that benefited a small group of people and therefore a loss to the nation. That same money would have had wide reaching benefits if we had for instance, offered to carry the exchange risk of our industries and service providers.

As a country, we are not unlike the poor man who sleeps on a chest of gold, refusing or unwilling to open it because of some strange fixation with it remaining closed.

Monday, September 6, 2010

DELAY IN OIL EXPLORATION WELCOME

Last week our very own locally produced soap opera went into an ad break.

The show which trickled into our collective conscience as a rumour at the beginning of the last decade of oil finds in western Uganda, steadily gathered momentum three to five years ago as front page headlines of oil finds literally rained on us, this was proof of billions of barrels of oil under our very feet. We were rich!

But the plot begun to falter last year when oil explorer Heritage opted to sell their interests in the oil fields, after all they are an exploration company and their job had been done.

Hollywood could not have conjured the cast of characters – bickering government officials, Italians dressed to the nines offering a deal we could not resist, a motley crew of journalists dizzy from being bounced off one side or the other and a hodge podge of do-gooders; MPs, environmentalists, NGOs all also trying to muscle in on the action.

Tullow made a last ditch offer and paid $1.5b for Heritage’s stake in the oil fields to snatch it from Italian firm ENI.

This Kinauganda production would have ended there – and we would have all bumped off (potholes) into the sunset were it not for the small little issue of $404m in taxes Uganda felt was due from the transaction.

But wait a minute.

Heritage who were liable to pay tax had already fled,

“Having offloaded its stakes in the Lake Albert fields, Heritage declared it would not be paying $404m capital gains tax due on the deal. (Heritage CEO Tony) Buckingham … cleared his men out of Uganda with military precision,” the Financial Times wrote this week leaving Uganda empty handed and Tullow holding the bag.

Like a slighted lover Uganda lashed back repossessing the most lucrative oil fields from Tullow and hinting that since she did not recognise the transaction between Heritage and Tullow even one other oil field’s fate was up in the air.

That is the current state of play.

Oil was supposed to be gushing out of our wells, its proceeds sealing our potholes, furnishing our primary schools and stocking our hospitals in 2009. The latest is that the earliest we can expect to see those miracles

In hindsight we see that Uganda was truly out of its depth and the current impasse, which has put pause to progress is blessing in disguise. Maybe now we can take a step back and re-examine ourselves – what do want to achieve and how do we want to achieve that, set up the necessary conditions before we can jump back into the fray.

Of course people in the know argue that Uganda has a very progressive oil policy (which somehow did not work as seen above) and that we will not know how ready we are until oil production begins. The suggestion being that we should jump into the pool and find out whether we can swim once inside.

"Abraham Lincoln once said that if he was given eight hours to fell a tree he would spend the first seven hours sharpening the axe. Uganda should do likewise...

The risk that we can go the way of Nigeria, Equatorial Guinea or any number of countries that have squandered their natural resource in a blaze of corruption, consumption and white elephants is a very real one for Uganda regardless of what our government says.

To begin with let’s look at how much money will accrue to Ugandans, as it stands now taxes and a few shillings on the side seem to be all. But that need not be the case.

In the Middle East and Asian governments negotiate a stake in the oil producing companies so that beyond taxes they can also benefit from retaining a share of the profits. At a later stage these same stakes can be floted on the Uganda Securities Exchange so regular Ugandans benefit too from the spoils of the land.

The government’s insistence that a refinery should built in the country is a laudable one and one that should be supported by all of us. Refining our own oil rather than expect crude oil can spawn beyond the oil refining, ferterlizer, pharmaceutical and other petrochemical industries.

The feasibility of this endeavour is still under review but commonsense dictates that we extract maximum benefit from our own resources.

But because even our billions of barrels will run out sooner than later, that’s why we need to plan assiduously for this resource. The lull in excitement – until the next episode, is time we badly need to prepare.


Monday, August 30, 2010

Warren Buffett's 'business gene' built an empire that changed history

As he celebrates his 80th birthday, Warren Buffett shows no sign of slowing down. Stephen Foley looks at the secret behind the philanthropist's global success.

Warren Buffett has never revealed when he had his ego surgically removed, but it must have been at a very young age. As he turns 80 today, the billionaire investment guru remains as cheerfully good-hearted, funny and self-deprecating as ever – so much so, in fact, that it is easy to miss just how significant a figure he is in the history of American business. He has been lucky beyond his dreams, he said in his more recent letter to shareholders in his conglomerate Berkshire Hathaway. He and his business partner, Charlie Munger, were born with "a 'business' gene that allows us to prosper in a manner hugely disproportionate to that experienced by many people who contribute as much or more to our society's well-being". Indeed. His net worth of $47bn (£30bn) makes him the third-most wealthy person on the planet, according to Forbes magazine.

Forgive the highfalutin claims (Mr Buffett would choke on them), but while other corporate legends might spend their 80th birthday surveying a long career that peaked decades before, Mr Buffett celebrates his at the height of his powers, with a reputation that is stronger than ever, and cementing a legacy that will live for generations. Why?

He has created the fourth-largest company in America

Berkshire Hathaway is the name of a small Massachusetts textile firm that Mr Buffett acquired in the Sixties. By that time he had already been investing for half his life. The son of an Omaha stockbroker and politician, he had first expressed that business gene in his teens by installing pinball machines in local venues. By the time he alighted on Berkshire, he had established a strong local following for his investing nous, using principles he learned at the knee of Ben Graham, the father of value investing, who tutored Mr Buffett at Columbia University and gave him an early job.

While Berkshire itself eventually failed along with most of the US textile industry, Mr Buffett had long since turned the company into a mini-conglomerate, adding businesses in insurance and retail, and stakes in all-American staples such as Coca-Cola and McDonald's. Today it is one of the world's largest reinsurers and owns the largest US railways business, and has a market value of $200bn, eclipsed only by Exxon-Mobile, Apple and Microsoft. General Electric, the icon among American conglomerates, is worth only $160bn.

He has educated generations of investors

Mr Buffett is a teacher, by explication and by example. His homespun investment philosophy delivered in pithy bon mots – "Rule No 1, don't lose money. Rule No 2, don't forget Rule No 1" – and his determination to avoid the investment fads of Wall Street and the business school crowd won him the moniker the Oracle of Omaha and inspired a whole industry of Buffett-watching. You can find dozens of books from "How to build a business Warren Buffett would buy" to "The Tao of Warren Buffett".

But his own legacy will be those annual letters to shareholders, where he teases out the difference between short-term accounting tricks and long-term value, and makes good jokes. Meanwhile, a record 40,000 Berkshire shareholders now attend the annual meeting in Omaha, for a one in 1,500 chance of getting an answer from their guru to a question.

He proves that human relations matter in business

Author Andy Kilpatrick – whose contribution to Buffettology is Of Permanent Value: The Story of Warren Buffett, which runs to 2,000 pages over three volumes and was described by the man himself as "puny, but at least it's a start" – says Mr Buffett's winning personality is a key to his financial success.

"You can't help but be attracted to him because of the way he speaks and the way he writes. His sense of humour is what makes him different from other brilliant businessmen. It gets him in a lot of doors.

"And he can judge people well – he can look and someone and size them up – a lot of his deals are handshake deals, done by looking someone in the eye and judging whether they just want the money or whether they really want to run the business at Berkshire. That human factor has become very important, and if you look at the top of Berkshire, seldom has there been any firings, or even anyone leaving. Buffett is the glue that holds all these human relations together."

He helped saved the world economy

Under-appreciated is the role that Berkshire played in keeping the world economy from the brink during the panic of 2008, in the weeks after the failure of Lehman Brothers. "We poured $15.5 billion into a business world that could otherwise look only to the federal government for help," Mr Buffett pointed out, in a single reference in his 2009 letter. "Berkshire was a supplier of liquidity and capital to the system, not a supplicant."

Berkshire pumped $5bn into Goldman Sachs and $3bn into General Electric when they were desperate for funds. He extracted a price, of course, but Mr Buffett's vote of confidence helped stave off disaster for two companies whose collapse would have had unthinkable consequences.

And now he is raising the bar for philanthropy

A century ago, John D Rockefeller, after a pioneering life in business, was revolutionising philanthropy, establishing the modern principles for targeted donations and well-endowed foundations. Mr Buffett's friend Bill Gates (with whom he has long tussled for title of world's richest man) has retired from Microsoft to concentrate on his own foundation. Since Mr Buffett does not plan to retire ("I plan to work past 100," he said this weekend), he is blazing a trail in philanthropy in a different way.

In 2006, he pledged to give 90 per cent of his wealth away to the Bill and Melinda Gates Foundation. With typical absence of ego, he said that the organisation was already doing more effective work in areas of health and education than any foundation with the Buffett name on could hope to achieve on that scale. "What can be more logical, in whatever you want done," he asked at the time, "than finding someone better equipped than you are to do it?"

Now, he is exhorting other billionaires to pledge similarly to give away a majority of their wealth, and has induced 40 of America's richest so far to agree. It's only fair, he says – and his three children will be just fine. As he wrote in 2006: "They've had a gigantic headstart in a society that aspires to be a meritocracy. Dynastic mega-wealth would further tilt the playing field that we ought to be trying instead to level."

Saturday, August 28, 2010

EVEN BECKHAM WATCHES HIS MONEY

Last week it was announced that soccer’s David Beckham and family had been advised to cut back on their staff.

According to the report the Beckhams have had to layoff 14 workers at their three of their four residencies.

“David and Victoria are multimillionaires but that doesn’t mean they have to waste money – and they were hemorrhaging,” a friend told reporters.

But wait a minute.

In July Forbes magazine listed Beckham as the best paid footballer in the world racking in at least $43.7m last year in salary and endorsement fees. To put in perspective the nearly sh100b he earned last year is almost the amounted our own Stanbic bank counted as profit after tax last year.

It is almost inconceivable that Beckham can blow all his money and retire to a life of destitution, but as a friend of mine keeps saying, “There is no money that is too much to finish.”

It is useful to note which expenses Beckham’s advisors have urged him to take a knife to – the staff expenses at his various mansions.

Beckham has earned top dollar all through his career but he is only 35, on the verge of retirement and likely to live past his 80th birthday, so his advisors are telling him to invest more while the going is good. The idea being, that when his earning power diminishes, seeing as it is based on his youthful good looks, he can sustain his current standard of living off the proceeds of his investments.

You can tell the potential or lack of thereof, of a person or company’s financial future by looking at their expenses.

An individual headed for a life of financial hardship has his expenses slanted towards consumption or instant gratification, while an individual with a chance of a bright financial future has his expenses biased more towards investment or delayed gratification.

An interesting survey was done of millionaires in the US in the 1980s, the results of which were published in the book “The Millionaire Next Door”, it showed for example that the average millionaire in America owned a car whose value was seven per cent of their net worth. If you think about it if this criteria was adhered to, to the letter in Uganda most of us would be riding bicycles or on foot.

What it means is that when you see a truly rich man own a luxury vehicle it has barely dented his balance sheet as opposed to the rest of us whose cars constitute a significant part of our net worth. To try an emulate the lifestyles of the rich and famous is like trying to grow a tree by planting leaves.

Given our largely Christian backgrounds aspiring to wealth is generally frowned upon, so let us think about it another way – Let us all aspire to financial security in our lifetime.

Where financial security is the ability to live without a salary, only earning income from our investments, without compromising our current standard of living.

How do you do this starting right here, right now? Shift your expenses towards investment and away from consumption. It’s simple. The initial shift away from consumption will be hard – I need my daily beer or I have to have those shoes or what will people say if we do not go on our annual holiday… I said it was simple I did not say it would be easy.

The point is, as many pensioners have discovered to their peril, no one is going to maintain your current lifestyle for you.

And if Beckham who collects his salary twice year ( when you are collecting millions of dollars in salary you don’t get paid per month) is preparing for the future by shifting his expenditure away from consumption who are you and I not to do t he same.


pbusharizi@newvision.co.ug

Tuesday, August 24, 2010

15 Characteristics of Highly Successful Investors

They always invest with a planned exit strategy

“Go to the mouse you foolish investor and learn. A mouse never entrusts its life to only one hole.” — Ajaero Tony Martins


Successful investors know that there are always two sides to an investment. They know that the future is unpredictable so they prepare in advance for it. Average investors try to predict the future of their investments; they count their chickens before they are hatched. Successful investors do the opposite; they prepare for the best while still preparing for the worst.


15 Characteristics of Highly Successful Investors

Saturday, August 21, 2010

UGANDA’S BUSINESSES NEED TO STEP UP THEIR GAME

Uganda’s business community is facing serious existential issues with the opening up the East African common market.

When the common market is in full flow people, goods and services will traverse the region without barriers. At a very basic level it means – in terms of goods and services, that goods that of better quality and are better value for money will compete with the best and worst, of what we have to offer.

Consumers do not have nationalistic considerations in their spending habits, we will buy what has shown to be good value in the past regardless of where it comes from.

First let’s make a distinction between patriots and nationalists. Both have a great love of their countries the difference is, that a nationalist thinks his country is better than all others while a patriot wants the best for his/her country.

So consumers may be patriots but they are not nationalistic – believing that their countries make the best products in the world, unless of course where that is true.

And hence Uganda Inc’s dilemma. It is already happening with Kenyan commodities making a big push in our market and vying more than favourably for shelf space with our very own. The knee jerk reaction is to say, “Shut them out while we develop capacity to compete on even footing.”

But that time is past. The competition is here and it is not just beating on the door, it has knocked the door down and now heading for pride of place at the head of the table.

Faced with this challenge Ugandan business has to be come more efficient.

Last week world reknown speaker Larry Hochman was in town at the invitation of the British Council to talk to businessmen and leaders about success in their respective enterprises.

The Success of any enterprise Hochman says, will depend on how central customer service, courageous leadership and talent management to the management’s thinking.

The customer is king is now cliché, but like all cliches they tend to get only lip service.

“Customer relations is the single most important ingredient for success, without putting the customer at the heart of every enterprise it is hard to be successful,” he said.

This linked invariably with leadership, which is “Courageous to take the actions to make any enterprise ever more responsive to its clients”

Hochman questioned the relevance of customer relations departments, as if customer care is the responsibility of one department and not the whole enterprise.

“We are in the information age, what that means that it gives people choice, power and control, the necessity to keep promises to the customers will be clear to leaders because the customer will punish them for talk and no action and they can spread the word,” he said.

His opinion on talent management would sound even more radical for our business leaders, “Your goal: To be an attractor of talent. All the best people should be knocking at your door and if they are not you should wonder.”

And understandably so. The leader can have the best vision centered around obsessive customer relations up and down the enterprise, “But if you don’t have the people to deliver the vision it does not matter.”

We treat our human resource like they are dispensable but a useful measure of the happiness of our customers can be established by judging the happiness of our workers, because our staff can only look out for the clients interests if theirs are being catered for adequately. And here he was not talking about pay but the whole environment in which our workers operate in.

If our business can work on this they might have a fighting chance, especially since the focus on these three things will ensure that our businesses can develop a unique value proposition.

“Customer relationships are the unique value your business will develop, it takes days, weeks, years to building relationships based on trust, relationships which cannot be replicated by anybody … of course it does no t take as long to jeopardize,” Hochman said.

Our businessmen will need to step up their games if they are not only to survive but to thrive in an increasingly hostile environment.

They will have to look beyond physical infrastructure – buildings, plant and machinery, to spur them on to success, but to the “soft-soft” issues of customer relations, leadership and talent management.

pbusharizi@newvision.co.ug

Friday, August 20, 2010

5 Money Rules for Pessimists

When it comes to personal finances, pessimism gets a bad rap. “The one exception where pessimists might have a leg up over optimists is money management,” says Colorado Springs, Colorado financial planner and CBS MoneyWatch blogger Allan Roth. “They worry more, so they tend to save more.”

Pessimists are also more cautious. In studies that looked at optimists, pessimists, and gambling tendencies (a good parallel to the stock market), researchers found that pessimists tend to bet less and expect less when the gaming isn’t going their way, so they lose less. That’s right, pessimists, fret not (if you can help it): Seeing the glass half-empty might net you a fuller glass at the end of the day. That’s because pessimists have some characteristics on their side, such as caution, that can translate into more stable financial portfolios and larger retirement nest eggs. If you’re a pessimist by nature, the key is to harness your realism — while tempering the negativity. Sure, it’s good to keep in mind that black swans occur and stock markets can crash, but it’s counterproductive to assume that no risky investments will ever pay off. Here are five rules to help:
1. Get Control of Your Fear

There’s a basic principle called loss aversion that influences our financial decisions: the high you get from winning isn’t as powerful as the low you feel from losing. This phenomenon is exacerbated for pessimists. “When losses happen, pessimists are miserable, and when gains happen, they’re not as happy as they think they will be,” says Dan Ariely, a professor of psychology and behavioral economics at Duke University and author of The Upside of Irrationality. Pessimists should try to view risk as the cost of doing business, and remind themselves that it makes sense to take some risk. For example, consider all the probabilities when investing for retirement: The odds of the stock market going nowhere for 30 years are fairly low, while the odds of money markets lagging inflation over the next 30 years are fairly high.

2. Give Yourself Permission to Spend


“I have to tell my pessimist clients: You have permission to spend some of your money,” Roth says. “Even the ones with huge nest eggs are afraid they’ll wind up with nothing somehow.” There is a big difference between frugal living and withholding your spending to the point that your quality of life suffers. The huge nest egg when you’re 80 won’t wipe out the regret you feel for not taking those vacations you could have well afforded when you were 50. Set aside a cache of spending money — in a separate account even. Ignore that savings when it comes to calculating your future needs; that should help you get comfortable with the idea that you’ll be spending it.

3. Partner Up

“Having a financial companion to talk things over with can be really helpful,” says Moshe Milevsky, a finance professor at York University. Ideally, it’s someone who neither echoes your pessimism nor counters everything with optimism. Pessimists can really benefit from a neutral sounding board, whether it’s a spouse, friend, or financial planner.

4. Assess Your Insurance

“Pessimists tend to be over-insured, especially for life insurance,” Milevsky says. Those premiums can be wasted money if the value of your policy is out of line with your financial responsibilities. “Do a rational, analytic assessment of your insurance and what you’re spending in premiums,” he says. The point of life insurance is to provide your dependents with a replacement income stream if you should die. So buy enough insurance to cover their needs, nothing more.

The same is true for extended warranties, which tend to be expensive. They’re worth it sometimes — but not all of the time, especially since the chances of multiple items breaking at once is low. Channel your realism (not your negativity) to weigh the probabilities, and then self-insure by diverting the money you would otherwise have spent on warranties into a savings account instead.

5. Stop Watching Your Portfolio


“If you tend to only see the negative, don’t look too frequently at your investments because you will only be miserable,” Ariely says. Even more important, don’t be reactive. It goes back to loss aversion: Be careful of doing something spur of the moment (like pulling all of your money out of the stock market) because you want to avoid the misery you fear is coming. “It’s good to evaluate, but don’t evaluate based on emotion,” he says, especially if you’re in a doom and gloom mood. Instead, take the long view. If the market has just crashed, for example, ask yourself: a year or two after a market crash, is it usually higher or lower?

Wednesday, August 18, 2010

Life insurance as a savings account

Question: I'm 33, make about $150,000 a year and am starting from scratch to plan for retirement. A person close to me wants to sell me life insurance with a cash value feature as a way to save. Can you help me here? What do you think is my best option? --Carlos R., Houston, Texas

Answer: I'm not sure what "a person close" to you means. A relative? Friend? An acquaintance or co-worker? But whoever it is, the first thing I suggest you do is put some distance between you and that person, at least as far as your finances are concerned.

Life insurance as a savings account

Monday, August 16, 2010

"Obstacles are those frightful things you see when you take your eyes off your goal." - Henry Ford
Stay away from people who belittle your ambitions...the really great, make you feel like you can become great ~ Mark Twain

Wednesday, August 11, 2010

You may be rich, but are you wealthy?

Many of us struggle because we are unable to differentiate between riches and wealth, we acquire liabilities in the belief that they are assets, we put our money into schemes and claim that we are investing, we participate in savings groups yet we call them investment groups, we read and hear opinions and take them as advice.

You may be rich, but are you wealthy?

Africa is richer than you think

“At the highest level, Africa is similar to any other private investment – investors must take on risk to pursue an addressable market opportunity. What makes Africa unique is that incremental dollars invested into Africa will begin to unlock a previously inaccessible market of equal or greater size than Africa today,” says The Africa Group, emphasising that potential returns could be extraordinary. more

How to Be Productive: Stop Working

Industrial companies put a lot of effort into “asset integrity” — which really just means protecting critical plants and machinery from damage and wear and tear. At companies like BP, it’s clearly more of an aspiration than a reality, but anyone trained in a manufacturing environment learns that asset integrity is a top priority. But what about service industries — companies where the only assets are the brains of the people who work there? Shouldn’t they worry about asset integrity, too? Astonishingly, most of them don’t. Instead, financial services, consulting, the law and even the medical profession perpetuate working hours where all-nighters are heroic, driving with jet lag is the norm and anyone who actually has lunch risks becoming lunch.

But, they argue, we’re in the midst of an economic downturn, the worst recession in our lifetimes. Shouldn’t we all be working as hard as we can? Who has the luxury of time? What do you mean weekends aren’t for working?

Well, for the last 100 years, every productivity study in every industry has come to the same conclusion: after about 40 hours in a week, the quality of your work starts to degrade. You make mistakes. That’s why working 60 hours may not save you time or money: you’ll spend too much of that time fixing the mistakes you shouldn’t have made in the meantime. That’s why software companies that limit work to 35 hours a week need to employ fewer QA engineers: there isn’t as much mess to clean up.

In a knowledge economy, where thinking and creativity are the raw materials from which products and profit flow, brains are assets. They need to be cherished, nurtured and protected, not abused.
Leaders need to take seriously a century’s evidence that 1) overwork doesn’t make us productive, it makes us stupid, 2) looking away from a problem is often the best way to solve it, and 3) burnout is what happens when people are asked to work in ways that obliterate all other parts of their lives.


Also: we need to hammer the last nail into the coffin of multi-tasking. No, you can’t safely drive and hold conference calls, nor can you text while driving. And checking emails while in meetings means you may as well not be there. What modern businesses need isn’t distracted Blackberry addicts but human beings who haven’t forgotten the gifts of focus, concentration and mindfulness.

When the cognitive scientist Dan Simons looked at the vast mountain of evidence that demonstrates the futility of multitasking, he was inevitably asked whether there were anything we could do to enlarge the capacity of our minds. The answer was an emphatic “no.” There are hard limits to what our brains will do, and no amount of Baby Mozarts or Brain Trainers will alter that. Practice, Simons says, will improve specific skills but not general abilities. Doing Sudoko will make you better at Sudoko; it won’t raise your GMAT scores.

Is there anything that truly enhances cognition? Yes, says Simons:exercise.
Experiments by his colleague Arthur Kramer showed that walking for a few hours a week led to large improvements on cognitive tasks. Stretching and toning exercises had no cognitive benefits, but aerobic exercise, which increases blood flow to the brain, did.
Seniors who walked for just 45 minutes a day for three days a week showed better preservation of their brains in MRI scans. Exercise, Simons concludes, improves cognition broadly by increasing the fitness of your brain.

Care about asset integrity? Get out of the office and go for a walk. And make sure the people who work for you do, too.

“Filthy Stinking Rich” — A Moral Lesson

Here’s a quick exercise for you.

Finish this phrase: “Rich people are______________.”

How did you complete this phrase? Are your answers mostly positive or negative? Did you think of words like successful, accomplished, and disciplined? Or did you come up negative words like greedy, snotty, or ruthless?

Whether you admire or despise the wealthy, how you feel about money and the people who have it will determine–more than the knowledge in your head or the situation you grew up under–whether you will be financially successful or not.
You cannot be wealthy if you feel wealth is bad. If you have negative associations with money you will repel it rather than attract it.

This concept is nothing new, but the ramifications are huge.

I hope you want to become wealthy. More than that, I hope you want to be filthy stinking rich.

I’ll tell you why in a moment.

But first realize that if you’ve been telling yourself “I’d like to have enough to live on and do what I want, but I don’t need more than that” then you’re missing the point.
The point of becoming wealthy isn’t so that you can gorge yourself on expensive things, live fat and happy, and tell the rest of the world to go to hell.

If you’ve seen “Batman Begins” you’d seen how Bruce Wayne’s father, Dr. Thomas Wayne, had left Wayne Enterprises in the hands of “more interested” individuals so that he could volunteer at the hospital. I’m sure he, speaking as if he were a real person, touched the lives of hundreds of people through his simple service.

But more than just the services he provided I’m sure that, because of the billions of dollars he had from business, he was able to provide needed medical equipment to the hospital, allow people to get surgeries that they couldn’t afford, and a lot of good was done because he had the resources to back up his volunteer work. Good people can do so much more good in the world if they have money.

Somewhere along the line many people developed the idea that being poor is holy, and that if you live in poverty amongst the poor you can do the greatest good.

I think that’s ridiculous.

I think scratching to make a living keeps people from serving others, and living paycheck to paycheck is so time consuming that it keeps people from reaching their full potential. If you can barely help yourself, it’s going to be hard to really help someone else.


“Playing little” doesn’t do anything to help the world. If that’s your game, you’re going to need a whole lot more ambition than that to make it in the real estate investing business. Only those who want to do big things with their lives are going to have the drive and vision to make it in real estate.

Get it in your head that you are going to be very wealthy, because it’s the wealthy that have the time and resources to really make a difference in the world.
Even Mother Theresa, sworn to poverty, could not have accomplished a fraction of what she did without the financial backing of wealthy donors. She raised millions in her lifetime, and hard-working individuals had to earn enough money to take care of themselves first and then earn more money so they could give it away.

That is why I hope you want to be wealthy.

By the way, why do people use the term “filthy stinking rich?” Answer: Jealousy.
-Jarom Adair
Real Estate Investing for Beginners

Tuesday, August 10, 2010

Will Rogers Cup become Roger's Cup?

The dream final for organizers would be a Nadal-Federer showdown. They have a chance to renew their rivalry since they're on opposite sides of the 64-man main draw. They have played only once this season, when Nadal defeated Federer in the Madrid Open final last May to improve his head-to-head record against him to 14-7.

Will Rogers Cup become Roger's Cup? -

Monday, August 9, 2010

AGRICULTURE AND AFRICAN DEVELOPMENT

There are many barriers to improving agriculture in rural Sub Saharan Africa, but, Africa has 60 percent of the world’s unused arable land and the low crop yields on the land in use suggest they could be much higher. Poverty reduction efforts that include agricultural development are a natural.

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HOW RICH IS RICH?

Some people can make a million a year, but be spending a million and a half. They are not rich.

"Income relates to lifestyle, wealth relates to balance sheets."

How rich is rich?

Saturday, August 7, 2010

IS UGANDA PROGRESSING FAST ENOUGH

The privatization process had just survived a determined effort to scuttle it by the National Resistance Council. Celtel was labouring under the projection that Uganda was good for under 5,000 mobile phone subscribers. The production of beverages had more than doubled since 1986 but chronic shortages persisted around Christmas time. The New Vision sold for sh500 and to get connected to dstv would set you back more than $1,500.

Fast forward 15 years to today. Privatization is done and over with (we did not have much to sell anyway). There are more than 10 million mobile phone subscribers in Uganda all told today. Shortages of soft drinks and alcohol have not been experienced this century. The New Vision sells for sh1,200 and I saw the other day you can get hooked up to dstv for about sh300,000.

It is safe to say that the standard of living for Ugandans on average has improved somewhat but more significantly for those on top of the food chain – the urban elite.

Just one caveat, you know what they say, if your head is in the fridge and your feet are in the oven on average you are ok.

Our consumption choices have widened and deepened but as we have seen with the west, consumption can only go so far in driving economies.

But some key things have changed little or not at all during the period.

Most of our trade with the world is ferried by expensive road transport. Our power generation falls significantly short of peak hour demand. Our agriculture is mostly subsistence. Credit is expensive and we remain a largely cash economy.

As a result raw materials remain our predominant exports. We have no multinational concerns, either state enterprises or private concerns. Our output has shifted away from agriculture to service provision. And corruption, which cost business as mush as 30% of turn over in 1995, is more pervasive.

Economic growth is imperative especially if your population is one of the fastest growing in the world. Sustainable economic growth will come with the increasing application of technology to coax more and more out of the ground and the people. With application of more technology, value addition we can earn more for less. It is linear logic.

One thing you can say has happened over the last 15 years is that the government has given the private sector free reign to decide in its own helter skelter way what the priorities are, hence our shift away from production to services.

No doubt services are useful, after all if you are a manufacturer you need transport, financial and telecommunications infrastructure, but service provision also has a major attraction for business men, the capital outlay is small compared to potential returns. And in the event that the politics goes south you can up and go having recouped your initial investment and more.

Of course people are saying economics has changed we need not go through the process of industrialization before we join the knowledge economy – where services come in.

Two things I can see wrong with this argument in our context. To begin with our whole education system is geared towards producing workers for industry and the civil service and secondly, a development of industry especially agro-processing is the fastest way to create employment all through the value chain for a country in which up to 80 percent live off the land.

With that in mind you have to wonder then when share of agriculture in the economic out put is dwindling while that by services is more than 50 percent today.

The point is, from where I am standing we have gone as far as we can go on letting the private sector grow like a weed. No country in the world has developed like that.

There are certain investments that only governments can make, long term investments whose returns would not turn on the private sector.

Beyond maintaining law and order and infrastructure development, governments need to invest in more than strategic planning and even more in execution of these strategies – after all what’s a plan if it does not work.

Our development record over the last 15 years is not much to write home about and this is a function more of poor execution of strategy

To illustrate in 15 years of economic growth, from as low a base as we started in 1986 Singapore was a middle income country by 1980 and is now considered a developed country.

And meanwhile in the initial years of its existence there was a real danger of it being overran by Malaysia, so our numerous wars are no excuse, as Singapore too had to divert a lot of resources to building up an army from scratch.

Published in the New Vision on 7 August 2010

Wednesday, August 4, 2010

Warren Buffett's Mr. Fix-It: Full Version

Warren Buffett's Mr. Fix-It: Full Version

Of all Berkshire's lieutenants, David Sokol, 53, is mentioned most often as Buffett's heir, although Sokol shrugs off such speculation. Buffett likes Sokol just where he is, getting deals done, boosting profits, and turning around ailing businesses. In the foreword to Sokol's book, Pleased but Not Satisfied, Buffett writes, "He brings the business equivalent of Ted Williams' .406 batting average to the field of business management."

Monday, August 2, 2010

Try as Investors Might, So Much Depends on Chance

By SAM MAMUDI

Investors saving for retirement can find mutual funds that invest in almost any kind of asset, but they can't buy the one thing that will have the biggest impact on their nest egg: luck.
WSJ Reports

Read the complete Investing in Funds report .

Forget about who's the hottest fund manager, which is the best-performing fund or which sector appears to be the best bet. The biggest factor in long-term returns is how the financial markets happen to perform during the 30 or so years an investor puts money away for retirement.

Friday, July 30, 2010

FACTOR IN THE COST OF SECURITY

For a while now the BBC Knowledge channel on dstv has been airing “Infamous Assassinations”, a series of historical documentaries on high profile killings – successful and unsuccessful, which have changed the course of history.

They have explored the assassinations of the Indira and Rajiv Ghandi, Reinhard Heydrich – the author of the Jewish Holocaust, Che Guevara and Beetle John Lenon.

However the one that struck a code with me was the assassination of US President William McKinley.

Mckinley was the president of the US at the beginning of the last century, a period of great economic growth in the US. A period during which great wealth disparities begun to show themselves in that country.

It was as a protest to these economic disparities that an anarchist, Leon Czolgosz, assassinated McKinley.

The anarchists had the misguided notion that by assassinating the leaders of the western capitalist nations – in the previous year King Umberto I of Italy had been struck down, they could bring down capitalism and cause the emergence of a socialist world.

Fast forward to the 21st century and our new anarchists are called terrorists.

Who is a terrorist?

Many times it depends on who you are talking to – Nelson Mandela was branded a terrorist by apartheid South Africa, the Reagan White House and British Prime minister Margaret Thatcher. But it is generally agreed that these are armed parties that attack civilians with a view to causing disaffection and eventual overthrow of their respective governments.

The world is particularly ripe for these “sovereign individuals” to go to war with whole states. Advances in telecommunications, travel and the proliferation of military technology, following the fall of communism at the end of the last century, means individuals now have the ability to wage war mo re than ever before.

Following the attacks on Kampala on July 11, security has been heightened in and around Kampala.


Long lines of people and cars now snake their way around many corners in the city as people wait in line to be checked.

The delays while understandable are an inconvenience nevertheless and have cost millions of shillings in foregone sales and lost business over the last three weeks.

In this respect the terrorists are winning abetted by our government and local businessmen.

The current situation is unsustainable.

We have to decide as a nation to stop operating in silos – to see challenges as belonging to all of us and not one or another sector of society.

Our businessmen need to look long term. It is in their best interests to keep their premises safe, however the customer wants a safe environment to consume goods and services with minimal hustle. We want to have our cake and eat it.

What the lines are doing is reducing impulsive buying, the situation where a buyer goes looking for milk but buys deodorants, rags and other unrelated stuff in the process. Not good at all for business.

So businessmen are going to have to have to put a bit more thought into their security systems, which will inevitably mean additional investment. Security systems that are less intrusive (accusations of sexual harassment have popped up), not time consuming and at the same time thorough.

That is where the government comes in. This is not an issue for the security services alone.

It would be useful to make security systems mandatory by law for public places, while allowing some tax relief for their importation and sale in the country even if for a limited period of time, say six months to a year.

These systems can set back a businessman several million shillings but are necessary investment because now many people will not patronize places where we feel security is lacking.

Let us not kid ourselves. The terrorists will not give us a break because we were recent victims. If we let down our guard even a little they will hit us again.

The flip side of the issue is that our patience is wearing very thin, albeit after only two weeks of lengthy, intrusive checks. We are going to cut down on our shopping forays (a not all together bad thing) or go to places with less security ( an option too dangerous to contemplate under the circumstances).

This is the cost of security. But if we can all come together, business, government and the people we can find a way to maintain vigilance at the least cost to all money or timewise.

Published in New Vision on 31 July 2010

From Tiananmen Square to Possible Buffett Successor

By SUSAN PULLIAM

Twenty-one years ago, Li Lu was a student leader of the Tiananmen Square protests. Now a hedge-fund manager, he is in line to become a successor to Warren Buffett at Berkshire Hathaway Inc.

Mr. Li, 44 years old, has emerged as a leading candidate to run a chunk of Berkshire's $100 billion portfolio, stemming from a close friendship with Charlie Munger, Berkshire's 86-year-old vice chairman. In an interview, Mr. Munger revealed that Mr. Li was likely to become one of the top Berkshire investment officials. "In my mind, it's a foregone conclusion," Mr. Munger said.more

Thursday, July 29, 2010

Shooting the Sacred Cows of Money

Even I think Robert Kiyosaki is becoming a little tired around the edges, but the dude can cut to the chase on money matters better than anyone I know. No frills. No thrills. Just wham, Bham thank you ...

Shooting the Sacred Cows of Money: "Shooting the Sacred Cows of Money is an eye-opening mini-documentary that takes on our cultural myths about money and investing—and shows you how to move from the established mindset to the enlightened mindset about money."

Tuesday, July 20, 2010

Kenya's Equity Bank H1 profit up 46 pct,sees growth

NAIROBI (Reuters) - Kenya's Equity Bank posted a 46 percent rise in first-half pretax profit on Tuesday and its chief executive forecast earnings would rise further on easing costs and economic growth in the region.

Equity, which has operations in neighbouring Uganda and Sudan, said profit rose to 3.88 billion shillings during the first six months of the year.

Depositors jumped by 400,000 to nearly five million, mainly due to a new mobile phone service called M-Kesho, run jointly with Kenya's biggest mobile operator Safaricom, which allows users to access credit, earn interest on deposits and buy insurance. .

Equity's CEO James Mwangi told investors the bank's recent expansion costs had started to taper off and combined with better economic growth prospects in the region this signalled further profit gains.

"The profitability of the bank is likely to accelerate because of costs. Most of the costs are now fixed," Mwangi said.

Equity's loan book expanded by just over a quarter during the period while bad debt provisions rose 211 percent to 920 million shillings to clean out the threat of defaults, Mwangi said.

Saturday, July 17, 2010

THERE WILL BE A NEXT TIME

This week started off on a somber note. The bomb attacks on World Cup fans in Kabalagala and at Kyadondo Rugby grounds have had us holding our breaths through out the week as the extent of the tragedy became fully known. At the time of writing the official death toll was 74 with scores more wounded and hospitalised. Somali insurgents al-Shabaab, have claimed responsibility for the attack. They want our troops in Somalia, there to guard the capital Mogadishu out. Their links to Al Qaeda are well documented. In the immediate aftermath of the explosion our health system came under enormous strain. Mulago and Kampala’s other health facilities were overwhelmed with casualties. Given the already wanting state of health system they acquitted themselves well. But was it well enough? Ghana and Brazil went out of the World Cup at the same stage, but the reception of both teams at home were as different as night and day. Whereas the Black Stars were feted and adopted by all of Africa, Brazil’s multi-million dollar stars were brutally criticized and Dunga’s days as coach are numbered. The difference between the two is one of expectation. Ghana and Africa, were content with a quarterfinal finish but for five time winner Brazil, its population wanted nothing less than a return of the cup to their shores. In soccer as in life, your expectations will determine whether you are satisfied with world class results or are content to with much less. We know that already patients at Mulago – our national referral hospital, are enduring less than ideal conditions, one shudders to imagine what happened on Sunday night when more than 50 patients in many in critical condition descended on our health system. This is not the first time –we survived by a whisker the 1998 bombings of the US embassies in Nairobi and Dar es Salaam, nor will it be the last time that Uganda will be a terrorist target. Beyond that lets put things in perspective. The 2001 bombings of New York’s World Trade Center has produced the heights death toll of any terrorist attack in history. Almost 3,000 people died during that attack. Nearer to home 237 people died in the attacks on Nairobi and Dar es Salaam. Sunday’s attacks have already been logged and we come a distant 73rd in the list of deaths by a terror attack. Invariably the magnitude of the death toll has direct correlation on the victims hospitalized. If the health system of the capital has been overwhelmed by less than 200 casualties, God forbid when the casualties double? An ongoing audit of the health services provision is ongoing and throwing up some disturbing instances of inexplicable negligence of duty and outright corruption in the health system. But it is also showing that government needs to better address issues of staff welfare, procurement procedures and overall capacity inadequacies. The upgrading of our health system now more than ever, should become an issue of national security. To continue living at the mercy of god as we have been doing for so long, is not only foolhardy but downright suicidal. Our centrality in a region of historical instability means that we will inevitably get our share of tragedy, that is a fact and we should not bury our heads in the sand about it. Lets organize not agonise. Currently Uganda’s health sector budget amounts to an average of $7 per person compared to the $28 per person we require to provide very basic health care for all. That budget needs to be reexamined as a matter of urgency. If we thought we can continue to get by with our less than adequate health service system, let Sunday be our wake up call. Published in 17 July New Vision

Friday, July 16, 2010

SHOULD UGANDA PULL OUT OF SOMALIA? THINK AGAIN

Today Uganda's leading daily the New Vision made the succinct case for why the country's continued presence in the horn of Africa is necessary now more than ever.

"...To believe that if Somalia goes to the dogs it will have no impact on Uganda, is to ignore the big picture... Recent conflicts in eastern Congo, Burundi, Southern Sudan, Chad, the Central African Republic, Ethiopia, northern Uganda and the continued cattle rustling in north-eastern Uganda and north-western Kenya all have a direct link to the insecurity in Somalia.

It is estimated that there are up to 50,000 illegal small arms in Uganda today because we are right in the middle of a gun corridor that stretches from Somalia to Chad.

It does not take a brilliant mind to work out then, that the lawlessness in Somalia is the engine that drives this trade and this same trade feeds the continued destabilisation of the region.

Beyond altruistic considerations Uganda’s strategic interest dictates that Somalia or any neighbouring country should remain stable and peaceful..."

Tuesday, July 13, 2010

THERE IS STILL HOPE FOR US

In his previous life former president Jimmy Carter was a peanut (groundnut) farmer. “There are two types of people,” he once said. “Those who buy my peanuts and those who don’t”. After three years of this column’s existence I too have managed a rough classification of my own. 

Of those who read the column and respond to it, there are the ones who have written me off as a cynic (thank God they keep reading anyway), that I am too critical of this country, its government and people and that if I just stopped to look I would see that this country’s future is blindingly bright. 

The second type can’t get past the fact that I write for a paper whose majority shareholder is the government and see an ulterior motive in everything I write. I have made my own judgment on my readers. 

The former being people most probably benefiting disproportionately from the status quo, so they do not want any rocking of their boat and the latter are not benefiting like the previous group and resent anyone who will give this country, its government or people the benefit of doubt...

Like the proverbial elephant and the seven blind men, who depending on what part of the elephant they came into contact with thought it was a wall, snake, ship or tree, Shillings & Cents is often criticized, sometimes misunderstood and rarely praised – and that maybe is as it should be. 

I do not apologise for the often pessimistic tone of this column but once in while when all hope seems lost, something happens and you know there is hope yet for this country. 

Earlier this week I was in the picturesque South African town of Grahamstone (I will admit I did not visit its township). Rhodes University was hosting the annual Highway Africa Conference – the biggest annual assembly of media professionals on the continent. 

During the conference MTN had a presentation on its mobile money product in Uganda. Richard Mwami, MTN Uganda’s head of public access and mobile money ticked off some impressive numbers: more than sh600b transacted in the 15 months since its inception, nearly a million accounts, average transaction sums about sh50,000 with 60% of these representing flows from the urban to the rural areas. MTN Uganda is pioneering the service in the MTN group. 

On the sidelines of the event I asked Mwami what the future holds for the service, he said it was hard to tell with much certainity as the service has bested all projections envisaged and continues to do so. 

Contrary to how history is told, a revolution can be happening around you and you wouldn’t know it. In case you missed it, the use of money via mobile phones promises to be one such revolution. Two things are happening as we watch, the speed of the communication has increased dramatically in the last 15 years increasing efficiency and significantly lowering the cost of doing business. 

Now this speed of communication has been transferred to the speed of money transfer. There was a time you would send someone on a bus with money for relatives upcountry and wait hours or even days before you got confirmation from the intended recipient. 

Secondly, an unintended consequence of the money service is that people are saving money in the formal financial sector. Mwami revealed that people are keeping money on their mobile accounts for more than 15 days are in the thousands and increasing steadily. 

Those two developments alone will prove more beneficial than anything else we have going in the fight against poverty. As it stands now less than half of the money in circulation is in the formal financial sector. The downside of this statistic is that there is more money floating around – most probably aiding consumption, than there is in the banks, hampering their ability to lend and by extension keeping lending rates high.

Watch this mobile money transfer trend very keenly especially as Mwami revealed that MTN will soon be branching into bill payment, micro-lending and insurance, foreign remittances and bulk payments. It just goes to show that despite the difficulties we face in bettering our lives, the human spirit will always find a way. There is hope after all. 

 Published July 2010, New Vision