Tuesday, July 13, 2010

FOREIGN INVESTORS ARE GOOD BUT …

There was much gnashing of teeth in the hills of Kampala last week when England was bundled out of the World Cup by perennial rivals Germany.

The last time the two played in a competitive encounter England run rough shod over the Germans pounding them 5-1 in Berlin in 2001.

Hollywood could have not have written in a better twist than the referee disallowing a Frank Lampard strike that came off the crossbar and fell well beyond the goal line.

Poetic justice some may argue, with the World Cup final at Wembley in 1966 in mind.

In that match, which England won the 2-2 deadlock was broken in extra time by a Geoff Hurst shot that hit the cross bar and supposedly bounced off the line before being cleared but was given by the referee as a goal. England went on to win the Cup and have never seen a final since.

People having watched England’s arduous route to the second round and their eventual exit wondered how a country with the most visible league in the world – some people say the best league in the world, could be such underachievers?

In post match commentary the suggestion was that whereas the Premiership may be the best in the world, it is so because of the huge foreign interest in the league and less because of English home grown talent.

England’s predicament has interesting parallels for countries like Uganda, which have gone all out to attract foreign investors often times to the detriment of local entrepreneurs.

Foreign Direct Investment (FDI) is critical for countries like our own.

One, because we have been unable to aggregate our own resources into meaningful quantities to invest to the magnitudes we need to shift development. And secondly because we have been found severely lacking in our managerial capabilities to not only aggregate our resources but to manage even the little we have to the benefit of our people.

Regardless of what they tell you the easier thing is to attract foreign investment than to nurture your own local investor class.

Dangers abound however in pursuing such a strategy with unbridled zeal.

As the England’s World Cup team found out when stripped of all their foreign super stars, England struggles to stand shoulder to shoulder with other countries with less foreign interest in their leagues.

Clearly the Premiership’s bosses – all England born and raised, have chosen to chase profit to the detriment of national glory.

Similarly if a country ignores its local businessmen things can go well in the short run but when issues that demand a longer term perspective come up a country’s lack of a solid indigenous business class will turn up to haunt it.

And I am not even advocating handouts to our local businessmen. Or barriers to entry for foreign investors. Or even a return to state owned corporations. Far from it.

I believe Uganda needs to start from the basics.

We need a national, coherent and farsighted strategy to build a local business class.

This strategy would include a more committed effort, at training business managers and entrepreneurs, pooling our financial resources by increasing the population’s savings rate – legislation on the pension sector reform has been pending for more than 10 years and infrastructure expansion – roads, rail, power and telecommunications into rural Uganda.

People respond to incentives and unfortunately for Uganda over the last 24 years some of our best brains have decided that rent seeking -- earning income by manipulation or exploitation of the economic or political environment, rather than by earning through economic transactions and production of added wealth is the way to go.

I think the best thing that happened to this country was the privatization and liberalization of the economy in the 1990s. This reduced the surface area for rent seekers. As a follow up we now need to graduate to the next level where our indigenous businessmen can compete on a national, regional and even international level.

They say the best time to plant a tree was 20 years ago but the next best time is right now. The best time to set up the framework for building our entrepreneurial class was 20 years ago but the next best time is now.


Published June 2010. New Vision

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