EVEN THE SWISS CAN'T DEFY MARKET GRAVITY

Three years ago alarmed by the rate at which the Swiss Franc was appreciating against the Euro the Swiss central bank that it would limit the EURCHF to not less than 1.2000 .

A dramatic appreciation of the Swiss Franc against the Euro would hurt its export and tourism industry, the corner stones of the economy.

The fundamentals – the general health of Europe’s versus the Swiss economies, dictated that the Franc should strengthen against the Euro.

Two weeks ago – and up to $200b or half their GDP, spent holding the peg, the Swiss central bank gave up which led to a dramatic 40 percent appreciation of the Franc against the Euro in less than an hour.

The Swiss have suffered the very same fate they were trying to avoid. Their exports now will cost consumers up to 20% more than last week, which may not be good for sales.

"It’s never a good idea to bet against the market, even if you believe the market is wrong. As they say the market can remain irrational longer than you can remain liquid....

There has been a long history of government’s trying to play the market – often a political decision not an economic one.

The British tried and when they failed trader George Soros is supposed to have made a billion pounds. The Argentine’s wrote a one-for-one peg into their constitution when they couldn’t sustain it their currency plummeted, triggering an economic crisis in the south American nation – and cost as the initial Bujagali project. The promoter American firm AES were burned by their huge investments in Argentina and couldn’t afford Bujagali. 

Closer to home Zimbabwe tried to print itself out of a bad economic situation, this has resulted in the south African nation doing away with its own currency and now transacting only in hard currencies.

When political expediency overrides good economics the end result is never a happy one.

The dollar strength is sweeping around the globe and Uganda has not been immune to its impact. The Uganda shillings has is 15 percent weaker than it was at this time last year, which ordinarily would cause stress for us as we are mainly an importing country.

The dollar is now teethering on the brink of sh2,900 the highest it has been since October 2011, and as if on cue the calls for government to intervene to stop the dollar rise are mounting.

Uganda imports more than it exports, so most of the discomfort is being felt by our importers. The exporters as long as they have little foreign input and looking forward to improved margins.

Thankfully global oil prices have also been in decline. Higher oil prices would have meant a higher oil bill and this would have a ripple effect in the economy as transportation charges rose.

"Trying to hold a currency to a certain level regardless of the reality is not unlike a person who tries to maintain his previous standard of living, when things have become costlier or when his income is less than previously...

Invariably he will dip into savings and once those are exhausted the collapse will be dramatic.

The smart thing to do would be to cut the cost of living to match reduced income. By trying to defend a certain rate country’s end up dipping into their savings and when they inevitably have to stop the collapse can be dramatic.

Of course the Swiss National Bank’s action went largely unnoticed here. However the losses sustained by the retail forex brokers accounted for Alpari UK, a popular broker for Ugandan retail traders.

It’s a bit complicated but suffice it to say that a few clients’ accounts were not only wiped out but went into negative balances, which were reflected as losses to the broker. In the space of hours Alpari went from one of the largest brokers to zero, a testament to how risky the forex trade can be.

The company tried to get a buyer at the end of last week but when that failed went immediately into receivership.

For people who had accounts in theory the funds are safe but it might take a while redeeming them as receivers KPMG go through the process.

TO THE RICH MORE WILL BE ADDED

Last week anti-poverty NGO Oxfam released a report, which showed that in a few years the richest one percent will own more than the rest of us combined.

And the head of Oxfam, our very own Winnie Byanyima, was quoted as saying,

“Do we really want to live in a world where the 1% own more than the rest of us combined? The scale of global inequality is quite simply staggering and despite the issues shooting up the global agenda, the gap between the richest and the rest is widening fast.”

She called for a reining in of powerful vested interests that perpetuate the status quo, where the rich get richer and the poor get poorer.

Byanyima said the major problem is that with the concentration of wealth comes a similar trend with power, leaving the poor voiceless and unable to cause change for the better.

The inequality is not only a reality but it is rising all around the world, destabilising national politics, aggravating environmental degradation and fuelling illicit trade. Something will have to give and the fallout is bound to be ugly.

Knowing the dangers this continuing trend poses to global stability the question is, what to do?

Obviously the wealth gap should be narrowed as much as possible.

"The knee jerk reaction seems to be, blame the situation on the “greed” of the rich. That they are taking more than their fair share and they are doing this by keeping salaries low, dodging taxes and repatriating the profits abroad.

The rich on the other hand recommend that the poor work harder and stop wasting their time on booze, sex and war....

In the words of Australian billionaires Gina Rinehart, “If you’re jealous of those with more money, don’t just sit there and complain. Do something to make more money yourself — spend less time drinking or smoking and socialising, and more time working.”

Needless to say the solution is somewhere in between those two extremes.

To get the poorest of the poor off the floor they need an income. Studies have shown that the better the education on average the better the income. They also need proper health care to ensure they can sustain a high level of productivity.

Basically the provision of quality education and health care is a function of government be it through public health services or creating an enabling environment for private health care to flourish.

Then we need to grow the jobs or create an environment in which businesses can be thrive so the rest can earn a living.

But income – what one earns, is different from wealth – how much of what one earns, one keeps. The wealthy are adept at converting earned income into wealth, making most of their income from what they own than from their salaries.

Steve Jobs at the time of his death was worth more than $10b but had annual salary of $1. If you used his salary as a measure he was living way below the poverty line of a dollar-a-day.

The world over – especially with the collapse of communism, the private sector is where the jobs are created.

It is no surprise that some of the countries with the narrowest wealth disparities rank highest in the World Bank’s Ease of Doing Business survey.

So again it’s the responsibility of governments to create an enabling environment for business. An environment where, there is adequate, functional infrastructure, corruption is minimised, the workforce is well skilled and the regulatory environment is efficient and responsive.

At the end of the day the wider the wealth disparities are in a county is how inefficient the government is in creating wealth, through the encouragement of business on the one hand and redistributing this wealth through the building of infrastructure and improvement of the quality of the human resource.

Governments are either ineffectual because they are held hostage by the business lobbies,  which force them to do their bidding by allowing them keep wages low, allowing tax loopholes to persist and abrogating its responsibility as driver of policies beneficial to the majority.

On the other hand, out of sheer incompetence or misplaced ideological bias, governments are incapable of generating the economic growth needed to lift up society as a whole.

The wealth gap will not be bridged by dishing out money as some charity organisations propose.

The real focus in tackling wealth inequalities in our countries and in the world should be on governments. One, do they have as their singular goal the improvement of the living standards of their citizens and if they do they have the willingness and competence to make this happen?

It’s popular to bash the rich, and granted there are some unscrupulous types among their number, but if you think about it, the genuinely rich grow in wealth by producing more, employing more and subsequently paying more in taxes.

It follows therefore, that to reduce the wealth gap we need more not fewer wealthy people, even if we are jealous of them...

AS NRM GOES INTO THEIR 30TH YEAR WHAT CAN UGANDA LEARN FROM THE ORIGINALS

On Monday the National Resistance Movement (NRM) will begin its 30^th year at the helm of Ugandan politics.

Looking back it has been a tumultuous three decades.

Inheriting a dysfunctional state and even more woeful economy, the NRM has helped turn it around. Revitalising the economy, even if we know there is still a lot to do. Regularising our politics, even if they are not averse to bending and even ignoring the rules. And creating a stable, liberal environment for society to find its way, even if we don’t always agree at our wholesale adoption of foreign cultures.

But January 26^th 1986 was not the beginning of the adventure. It started much earlier in the minds of some young men and women. While they were not unique in their youthful aspiration for a better Uganda, they more strongly believed it was their destiny to do something about it, “By whatever means necessary”.

"Wide eyed exuberance may have given way to adult cynicism, but there is still some things we can learn from those youthful adventurers that can give the whole project that we call Uganda a new lease of life....

Winston Churchill once said, “If a man is not a socialist by the time he is 20, he has no heart. If he is not a conservative by the time he is 40, he has no brain.”

Socialism is defined as a political and economic theory of social organization that advocates that the means of production, distribution, and exchange should be owned or regulated by the community as a whole.

Whereas it is to bash one’s head against human nature to communalise property, the principle “From each according to his ability, to each according to his need” is still a laudable goal.

At the bottom of it, a desire to see no one left behind as we progress. That through their taxes the more fortunate will pay for the ladders – education and health, that will allow the lesser privileged to improve their lives and ascend to the high table.

It would be useful for us to reflect on that, in this day of endemic corruption that is killing service delivery and dooming millions of our people to a subhuman existence.

Ideological fervour aside, imagine the scene when your friend, Yoweri Museveni asks, “Are you in or are you not?” How many did follow him into the bushes of Luwero with zero guarantee of exiting this project alive, leave alone taking over government?

The truth is to make that decision you were either incredibly stupid or so convinced of the cause that you fell in with Museveni and his band.

The former needs no explanation but the latter is where the lesson is.

That these young men and women believed in a cause bigger than concern for individual safety and comfort, personal ambition, a selflessness we need ample dozes of today.

Of course it helped that for many there was no choice, they were branded outlaws and government agents were not averse to killing them on sight. But then again what can beat self-preservation to push a collective endeavour.

This project is going into a new phase, doing away with the old and integrating the new.

Organisations thrive and are sustainable on the strength of their mission, whether that mission is so ingrained in a critical mass of the members DNA as to cause a self-propelling drive. The trick is always to transmit it to the Johnny-come-latelies.

"The NRM’s challenge going forward is that it will be a victim of its own success. One, because now that more and more voting Ugandans were born after 1986 previous horror stories of an unstable Uganda do not wash. And secondly, for the rest of us who have seen a steady improvement in our lives we expect it to only get better, the law of diminishing returns be damned....

“No retreat, no surrender” would be absolute folly as a catch phrase for a guerrilla army, but that is exactly what we expect from the NRM – or any subsequent governments, going into the future.