Wednesday, August 20, 2014


In the last two weeks or so, two events help illustrate the challenges our economy faces.

African leaders trooped to Washington at the behest of US President Barack Obama. The highlight of the historic occasion was Obama’s committing $33b to shift the relationship between the US and Africa away from humanitarian aid towards a more equal footing.

The second event is the ongoing saga of the Mukono-Katosi road. The details have been written about extensively but one couldn’t help but come to two conclusions. 

One, that after everyone has taken his cut its amazing how unnecessarily high our projects cost and secondly, that there clearly is a well-oiled machinery, a whole industry that feeds off government projects and procurements their intention, not always to deliver a service.

The more incidents like the Mukono-Katosi road the less likely Obama’s $33b will come through – at least for Uganda.

This is why.

When you look at a breakdown of Obama’s pledge to Africa this is what it looks like; $14b will come from US companies and will include $5b from Coca-Cola to extend its production capacity around the continent, conglomerate GE has pledged $2b, which may go to any number of things from generators to train engines, hotel chain Marriot has ponied up an additional $200m and IBM threw in an  $66m for technology services to a bank in Ghana.

In addition there was $12b for Obama’s Power Africa initiative that will come from the private sector, World Bank and Sweden.

And finally there was $7b targeted at improving trade across the Atlantic which included $3b in financing for the US Export-Import Bank to aid US exports to Africa over the next two years.
The impression these pledges give is that ahead of the summit the US government must have gone around to its captains of industry and said, “Look guys we have to give something. What are you working on in Africa that we can present?”

It’s a learning point for us. The US projects its influence not only by its military might but through its business community.

The rationale for a US military intervention is quite straight forward but for the private sector there has to be a business case. Projects must show a return and must be big enough to justify choosing them against projects in China, Asia or Europe.

See GE’s pledge. At the time of writing this column the giant company, founded by Thomas Edison in 1892 had a market value of $259b or more than twice the GDP of East Africa. Assuming a 10 percent return on investment on the $2b they have pledged in business, this would come to $200m or about a two US cents appreciation on a GE share, which sold for about $25.88 before lunch on Friday. 

This kind of investment does not make or break careers.

It’s obvious that for the US to be more interested in the continent, beyond being dragged kicking and screaming to the table because the Chinese are making determined inroads into Africa, we need to aggregate our markets and pool our resources.

With the East African community we are moving at a handy speed towards merging our markets but there is great opportunity for aggregating our resources through our capital markets.

By reinvigorating our capital markets and with strategic action from government we can fund a lot of our priorities namely infrastructure and human resource development to the point that investors can seat up and take notice.

The explosion in mobile money – grown to sh2.2 trillion from nothing in less than a decade, shows it is a fallacy that we do not have resources, what has been lacking is the mechanism to beyond pooling them together can transform them into long term, lower interest capital that can be channelled to key projects.

A deep and vibrant capital markets industry will also investors to test our market either through buying bonds or investing in listed companies.

The mechanism of doing that will be a story for another day. But it is clear that to deal more evenly with the US we need to scale up everything and then the real money will begin to flow


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