Tuesday, July 13, 2010


This week the central bank intervened in the market to buy dollars. This had the net effect of causing an appreciation of the dollar versus the shilling, as the market was also short of dollars.

The dollar broke the sh2,000 earlier in the month as off shore investors’ treasury bills matured and instead of rolling back the money into a new issue chose to buy dollars and repatriate their earnings.

But the shilling has been losing value steadily against the dollar. Last year before the credit crisis came to the attention of the media, the shilling hit a four-year high of about sh1,600 to the dollar, that means importers are paying about 30% more for the same volume of imports compared to six months earlier. Company budgets drawn up in June last year have long been trashed.

Shilling fluctuations happen ever so often in Uganda some how our businessmen have shown much resilience in previous episodes, but this time they also have to grapple with the ripple effect of the global financial crisis.

US banks – until recently, aflush with cash resorted to risky lending habits that eventually involved lending to people who had little chance of repaying their loans. As night would follow day, these bad borrowers defaulted compromising these banks’ balance sheets. That would not have been bad if the effects were localized to the US.

However, the bankers then bundled these loans, which are assets on the banks’ books and used them as security to borrow from all over the world. So when the bad debtors defaulted the banks defaulted on their obligations to their creditors and voila! we have global financial crisis.

Ugandan banks did not participate in these then lucrative bond issues, so our banks are largely sound. But unfortunately the markets for our exports, countries from which we get aid and where our brothers make a living and send back money to finance education, health and investments are floundering badly and Uganda finds itself reeled into the mess through no fault of our own.

Figuratively there is blood flowing in the streets of western and Asian capitals as companies are taking hatchets to their expense budgets, thousands of jobs have already been cut and more job cuts are expected to follow.

There seemed to be a glimmer of hope this week as western securities markets begun to rise after months of free fall, on news of the US government’s latest rescue package. The proposal is to buy all the bad debt from the bank and jump start lending so that business and incomes can grow again.
Corporate Uganda is aware if this looming danger and CEOs are being forced to earn their salaries – the cocktail circuit is bound to suffer.

The knee jerk reaction in these times is to start reexamining costs.

The world’s richest investor Warren Buffet on costs, “Keeping costs down is like breathing you don’t wake up in the morning and decide to breath.”

The last few years have been quite good for Ugandan business. Carried along by the general economic growth a lot of businesses have flourished beyond their owners’ wildest dreams and understandably managerial slackness has creeped in. Never more so than in their marketing endeavors.

You can generally tell when the times are good and sales are coming in automatically, company’s are lax about their marketing and communications departments – small bud gets, haphazard recruitments and general lack of strategic thinking in this area.

In respect to this Buffets said something to the effect that when the tide is out you know who has been swimming naked.

So now companies having shaved off a few percentage points off their marketing budgets, while still needing to remain visible, are asking a lot from their previously ignored marketing and public relations departments. And then they find they are not up to the task.

They say that in these economic boom and burst cycles, during the upswing everybody
looks like a genius but during downturns the money returns to the rightful owners.

We all hope this crisis will play itself out this year and next year we can return to happy days, but we can expect a lot of pain, jobs will be cut, managers will be found out and sent on their way and companies will fold.

Is there was ever a good time for managers to dust of their textbooks on strategy and execution this is the time.

Published April 2009, New Vision

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