Monday, August 13, 2012


Last week it was reported that Rwanda was finalizing plans to launch a sovereign fund.
Sovereign funds are investment vehicles promoted by states to invest national savings, with the income going to finance the budget and long term development.
Some of the most famous sovereign funds running in their billions of dollars belong to China, Singapore and Dubai.

While Rwanda’s plan for the Agaciro Development Fund was mooted last year, the timing will have observers of the small east African state nodding in understanding.

Recently the US cut $200,000 (!) in military aid to Rwanda following a UN report which accused Rwanda of aiding a rebellion in eastern Congo. The UK and Netherlands followed suit days later.

Like Kenya in the 1990s, which suffered an aid ban because of high level corruption and had to mobilize local resources to keep the economy afloat, Kigali is wise to start looking internally to fund its ambitious development plans.

I don’t think they will be a rush for the exit by donors soon, but in the event that they do, it maybe the best thing that ever happened to Rwanda.

An illusion has been perpetuated that African countries do not have the resources internally to develop themselves, this promotes an aid agenda that is not necessarily in the recipient country’s best interests.

For starters developing economies are highly informal. In the case of Uganda it is estimated that two thirds of the economy is informal, which means a lot of money in circulation – I saw the estimate placed at three in every five shillings in circulation is not in the formal financial sector.

Banks and other financial institutions aggregate our small sums into meaningful chunks to be onlent to businesses, which are the drivers of wealth generation.

In his book the Mystery of Capitalism, author Hernando de Soto says that the by formalizing property in developing countries hundreds of billions of dollars can be unlocked, more money than all the foreign aid and foreign direct  investment we receive annually.

But there is little incentive to go formal or disincentive to remain informal. That may be changing with URA’s new e-tax system however.

Secondly, in many developing country’s our natural resource potential remains the stuff of urban legend, no one knows for real – in a tangible way that can be exploited, how much minerals, timber, fish or even electricity generation potential we have under our feet, in our waters or in our abundant sunlight.

It is nearly next to impossible to attract any credible investment when our potential is so iffy. A few years ago Uganda did a geo survey of available mineral resources and this served as a good starting point for anyone marketing the country’s mineral potential. Concerns with the billions required to unlock this potential make decisions on hard facts not on sales pitches of likable heads of state.

And finally the securing of a nation’s intellectual property. As nations we have a lot of intellectual property embedded in our traditions and cultures which if secured can raise lots of revenues.
Unfortunately not only do we denigrate intellectual pursuit, hence our aggrandizement of thieves and robbers, but we do not respect intellectual property.

For example to obtain a patent for product or idea in Europe or US costs upto $40,000 a cost which most scientists can shoulder in Uganda. If government or private sector shouldered these costs it would not only secure the property to be exploited for the benefit of Ugandans but would also be the incentive needed to spur more locally relevant innovation. Innovation is important in creating greater efficiency.

As it is also our governments and companies are committing only fractions of a percent of GDP or budgets to research and development, therefore doing very little to unlock the intellectual assets of our people.

There probably a thousand other ways we can unlock the vast potential under our soils and within our people, which potential would make it totally unnecessary to contract aid from abroad, but we are so wed to the aid mantra we can not imagine life without it.

Its unfortunate that it takes donor governments annoyance at our behavior and the subsequent aid cuts for us to wake up to our own potential, but if that is what it takes so be it.

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