Tuesday, July 13, 2010


Over the last few weeks commercial banks in Uganda have been releasing their results to the public.

Under the law the banks have up to the end of this month to make their results public.

Looking through the reports several things are clear.

One, that the banking industry is healthy and has shrugged of the effect of the global economic down turn but even more impressive have relegated the banking crisis of the late nineties to a fading memory.

Also the banks have shifted their asset base more and more away from lending to government to lending to the private sector.

In January 2000 the lending to the private sector stood at sh570b by the banks, while the treasury bills held by banks almost quadrupled this figure sh2,261b. Today the situation is almost a mirror opposite with loans to the private sector at sh4,003b compared to the outstanding stock of treasury bills of sh1,223b.

This trend is being helped along by the single digit returns on treasury bills the lowest in years.

So bank shareholders’ are laughing all the way to the bank as the dividends roll in. And there in lies the challenge.

Standard Chartered bank will remit sh33b to its shareholders abroad this year. Stanbic bank will pay out about sh40b in dividends, of which sh32b will revert to the Johannesburg head office. Barclays Bank is in the midst of digging itself out of a bad run of losses and is not paying out a dividend.

Other multinationals like the oil, telecomm and retail companies are creaming off as much, if not more money. Free enterprise is alive and kicking in Uganda, no doubt.

Starved for cash we liberalized our economy to allow investors from far and wide to come and invest in the economy. To sweeten the deal among other things we allowed unfettered repatriation of dividends and did not make it a condition that nationals have a share in enterprises established here. Beggars after all can not be choosers.

The policy worked brilliantly as the number of multinationals straddling our economy will attest.

But now that they have made back their money many times over, maybe a rethink of this policy may be in order.

Now that we have a functioning stock exchange – the Uganda Securities Exchange is in its eleventh year, I think these multinationals out of the goodness of their hearts or through other means of persuasion should sell shares on the exchange.

This will not be a donation to Ugandans and will have a much larger impact than all the half-hearted corporate social responsibility initiatives these companies have indulged in over the last two decades.

A cursory look at the accounts of many of these companies will show that the CSR programs account for much less than one percent of their dividend pay out.

Corporations by their nature are amoral to the point of psychopathy, and it does little good to appeal to their good side.

What does selling shares on the exchange do? For one it raises awareness about the company more than any advertising or PR exercise can do. Secondly, and more importantly it encourages a positive association with the company with a wider pool of people than the company’s employees and their dependants, fusing the self interest of a greater public with that of the company.

All this leads to brand strengthening, which has been shown to have positive effects on profitability – the incentive the corporation understands.

It makes business and moral sense to do this.

It maybe a lost cause to appeal to the corporation’s greater sense of good, but on a broader scale selling shares fosters national stability.

These corporations will be playing a bigger role in the development of a property owning middle class in Uganda. History shows that it’s the middle that guarantees stability.

In his book “The Lexus and The Olive Tree”, which was published in 1999 Thomas Friedman made just this point in pointing out that no two countries – except Yugoslavia, which had a McDonald’s chain have ever been to war. To have a McDonald’s suggest a country has attained a critical mass of the middle class whose interest is not served by violent conflict resolution.

Published April 2010, New Vision

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