THE TOP TEN SHILLINGS & CENTS POSTS OF 2016

Uganda never bores. For better or worse we are always making news. This blog tries to go beyond the news to explain, interpret and decipher the news.

2016 has been a good year for news and below are the top ten Shillings & Cents posts by page views. This is the second edition -- the first having been at the end of 2015, of what will be an annual event

#10: WILLIAM KAJOBA, IN THE EYE OF THE BAILOUT STORM

On an evening talk show early last week Kampala businessman William Kajoba came out strongly in favour of a bailout of local businessmen, who are struggling through the current economic hard times and are staggering under the weight of the growing debt load on their businesses. more

#9: RUGASIRA ON COFFEE, CHOCOLATE AND EXPORTING TO THE WEST

 I prefer to seat upstairs at the Good African Coffee shop. But Andrew Rugasira had other ideas. We sat downstairs with a display of Good African’s various offerings as a backdrop to our conversation.

Rugasira is launching a line of chocolates to complement his company’s line of coffees, which project started a decade ago and took him from the foot hills of the Rwenzori Mountains to Buckingham palace to the rarefied heights of high finance in the business capitals of the world. more

#8: THE UPDF SHOWING THE WAY ONCE AGAIN

Last week the UPDF’s Wazalendo Savings & Credit Coop had it annual meeting.

According to its financial report they made a profit of about sh12b, which was 30 percent higher than the previous year when profit after tax came in at sh9b. Savings almost doubled to sh60b while the loan book came in sh146b. The 69,000 member group had invested sh80b in their SACCO by subscribing to the SACCO’s shares. more

#7: POST ELECTIONS, FOCUS ON JOB CREATION

As the dust from the just concluded polls settles it’s time to move on, use the lessons of the campaigns as a stepping stone to a better future for all Ugandans.

As far as I am concerned everything – political or social has its root in how the economy is faring, how it’s being run.more

#T5: THE GHOSTS OF KARUMA PROCUREMENT RETURN TO HAUNT PROJECT

The troubles that dogged the Karuma Hydropower project’s procurement continue to stalk the project, threatening the multi-billion dollar dam’s future usefulness.

In the current spurt the Energy ministry and the Uganda Electricity Generation Company Ltd (UEGCL) are in a heated battle over the supervision of the Karuma and Isimba dams, with accusations and counter accusations being traded, a situation that has been brought to President Yoweri Museveni’s attention. more

#T5: INTERVIEW -- WAPAKHABULO IS REARING TO GO AT UGANDA OIL COMPANY

Josephine Wapakhabulo was last month appointed the Chief Executive Officer of the Uganda National Oil Company (UNOC). Dr Wapakabulo sat down with Business Vision’s Paul Busharizi to discuss her company’s role, her plans and the prospects for oil in Uganda, below are the excerpts of the interview. more

#4: BREXIT AND WHY YOU SHOULD PAY ATTENTION TO PEOPLE IN LARGE NUMBERS

Last week the headlines were all about the shock UK vote to leave the European Union (EU).

By a four percentage point margin the British were scared into believing that immigrants from eastern Europe, the middle East and Africa would overwhelm their shores, and a vote to keep them out would be better than staying wed to the largest economy in the world. more

#3: SOUTH SUDAN'S IMPLOSION IS OUR WAKE UP CALL

The flare up in fighting in South Sudan is disheartening for the disruption and loss of lives that it entails but also for the economic loss to Uganda that it signals.

Clearly the recent peace deal between the South Sudan government of Salvar Kiir and the rebels led by former vice president Riak Machar has failed to hold. more

#2: WILL THE MUSANA CART BRING THE ROLEX TO THE WORLD?

Almost two decades ago two young men asked themselves what it would take to create a “Rolex” chain of restaurants.

The ideas would be take the rolex, which at the time was championed by one Sula in Wandegeya, create a menu, standardise the ingredients, upgrade the sanitation issues, license the Sula name and employ him for good measure. more

#1: WITH THE CABINET ARE WE BARKING UP THE WRONG TREE?

This week a double take was necessary on news that NRM members of parliament were sulking over not being appointed to the cabinet and went further to task President Yoweri Museveni to explain  his selection criteria.

Museveni ever the consummate politician, it is reported, listening to their griping, said he would take their concerns under advisement and would get back to them. more

RETHINKING POVERTY AND UNEMPLOYMENT

Two weeks ago I had the pleasure of interviewing Nobel Laurete Muhammad Yunus.

Starting in the late 1970s Yunus’ work with lending to the poor and the eventual founding of the Grameen Bank popularised the microcredit concept. His pioneering work gave traction to the notion that the poor don’t need charity but the opportunity to pull themselves out of poverty. It’s where the notion that there is wealth at the bottom of the pyramid begun to get traction.

Yunus, a trained economist himself, through the work he was doing among the poor of Bangladesh begun not only to rethink but to challenge the conventional economic wisdom.

He sums up his mission now as the three zeros – zero unemployment, zero-poverty and zero-carbon emissions.

"Yunus argues that employment as we know it is a recent concept a creation of the industrial revolution, prior to that if a person or a community had a challenge there would either learn a craft  or band together to sort it out – essentially creating a business....

Poverty he says too is an unnatural condition to the human being. How can one fail to meet his basic needs – the minimum definition of poverty, when we live among plenty and there are people all around us who are wealthier than us. Poverty he argues is imposed upon us to sustain an unfair system that thrives on inequality.

It’s a bit hard to argue against the man given that he not only has impeccable credentials in the subject but also because he has tested his thinking and despite what the text books say, has empirical evidence to prove his point.

Every once in a while, not very often maybe a handful of time during one’s life these type of people cross your path who take what you know, the conventional wisdom , and turn it on its head opening up a whole new perspective.

His Grameen bank started as a well-meaning attempt to free the poor from the yoke of the loan shark. 

The poor needed financial services but the high street banks couldn’t be bothered to service them. It would be too much bother and economically unviable to manage their many, but small accounts they argued – and still argue today. Besides how do you lend to a person without a regular income or recognisable assets.

Grameen Bank and the numerous microfinance institutions that have followed suit have put the high street bankers to shame. Grameen Bank now employs more than 20,000 and pulls in an annual net incomes in excess of $10m (sh36b) all from a clientele the regular banks did not want to touch with a ten foot pole.

Which raises the question, it can be argued that the patrons of the bank always had the resources so how come they couldn’t martial these same resources sooner?

"Clearly the people could not see the potential around them and had bought into the idea that poverty was the natural order of things for them and they rather accept their lot. Its interesting how the mind works. Once it hears “No” it stops working, essentially gives up. And its possible for a mass conditioning to occur where a whole society believes it is lesser than its true potential because that is the accepted wisdom...

So poverty comes from the mind. The inability to conceive the possibilities and therefore take advantage when the opportunities present themselves is the beginning of all poverty.

While some people can pull themselves out of this mass hypnosis out of either self-education, stubbornness, faith that they deserve better or all of the above, most people need to be shown the way, led by another with recognised authority.

Essentially if my neighbour can do it, pull himself out of poverty why can’t I?

I imagine tooling around the squalor and deprivation of Bangladeshi slams Yunus could easily establish authority by virtue of the fact he had been to school.

Given the Grameen story all one needs to pull out of poverty is an open mind and leadership or mentorship.

Self-help author Robert Kiyosaki once wrote  that realigning the mind to think in a wealthy way is the hardest part but once that is achieved the physical part, the actual going about accumulating the wealth is the easier part.

It makes sense doesn’t it. The reason we are poor as individuals or as a country is because our minds have been conditioned to focus on the negatives – low income, poor education or lack of technical know-who to explain our inadequacy. Once that thought has found a comfortable place in the mind we stop thinking about the possibilities.

In a strange way despite these same thought processes causing us grief we rather stick with them than do the hard work to change our thinking patterns.

"Our agrarian background equates work to visible physical activity and cannot relate to the internal
work one has to do on themselves to change their mindsets.  Hence we are daily involved in frenetic activity, micromanaging everything and generally being loud as proof that we are working...

So thinkers are lazy people. So we remain poor.

The story of Grameen Bank is that whatever we need to pull ourselves out of our malaise is around us, better still inside us.

PROMOTE MORE SOLAR USE IN UGANDA

This week a 10 MW solar project, the largest in the region was launched in Soroti district.

The power from this $19m (Sh68b) project is enough to power 4,000 households or about five times the number of homes in Bugolobi flats.

Promoters of the Soroti  project estimate that if we were running generators to produce the same amount of power, we would need 15,000 liters of diesel daily.

They also report that to run a project of this type a key requirement is that there be between four to six hours of sunlight daily, Soroti gets about eight hours of sunlight daily making it one of the best solar resource areas in the country.

Rwanda recently commissioned a 8.5 MW solar project which is projected to power 15,000 households there.

But Morrocco, while not using photovoltaic technology like Uganda and Rwanda, earlier this year launched the first 160 MW of an eventual 510 MW solar farm, the largest in the world. The project which covers an area equivalent of 200 soccer pitches will eventually export power to Europe.

The issue of energy is critical to us. 

One because our power generation to our population is way below the average for the middle income country that we aspire to be.

According to the CIA Factbook next door neighbour Kenya was generating 189 kwh per capita of electricity in 2012 (the most recent year for which there were figures). Uganda in comparison was generating less than half that at 91 kwh per person that same year.

But even Kenya is a poor comparison. In the same year Egypt was generating 1,856 kwh per capita, Mauritius 2,182 and South Africa 4,896 kwh per capita.

These figures serve to show how far behind we are in our ambitions to make middle income status. Kenya already is so, at a bare minimum we need to double our generation capacity.

And secondly, to paraphrase the second law of thermodynamics, any country will regress into chaos unless energy – in this case electricity, is injected into the system.

"We don’t need theoretical physics to tell us that. A few years ago when we were not generating enough power to meet our needs, we suffered frequent loadshedding to the point that at one time a study showed that Ugandan manufacturers were losing at least 30 days per year in production as a result....

This would be disastrous because not only would our local businessmen be uncompetitive at home and abroad but one is unlikely to attract the kind of investment required to push the country to the next level of development.

They say we have at least 4,000 MW of hydropower generation capacity on the Nile, another 160 MW potentially from small hydro plants, geothermal capacity of 450 MW and another 800 MW from the use of peat from our numerous wetlands.

Given that our population continues to grow at about three percent annually, meaning it doubles ever 24 years, the urgency to unlock our power generation potential cannot be over exaggerated.

While we should be pushing for more and more generation we would not forget the other side of the story – directing even the little power we have towards productive sectors of the economy.

The campaign to get us to use the pricier energy saving bulbs has recorded a saving of about 30 MW according to the energy ministry.

In addition and related to the Soroti power plant we should find ways to move residential consumption to solar energy. A solar unit on every residential roof to power our bulbs and boil our water would probably save multiples of that saved by the new bulbs.

This is not as farfetched as it seems. The price of installing power has been falling precipitously over the last 40 years. The price per watt of solar power is now at around $57cents compared to $76 in 1977....

In preparation we should be looking at what policy changes need to be done to the current situation to kick start a move towards more residential use of solar power.

LET HOUSEHOLDS PAY A HIGHER TARRIF

It’s a simple concept.

It is based on the premise that there are only two ways to spend your money – you either eat/consume or invest it.

When you consume your money you will get instant gratification – a full belly, an emotional high from the new shoe, gizmo or car or the envy of your peers. When you invest your money – committing money with the hope of earning a return, you make and can accumulate more money.

"So to get rich you have to shift your expenditure away from consumption and towards investment.
Simple but not easy...

What works for individuals works for companies and countries.

Which brings me to the power tariff. It’s that time of the year when the Electricity Regulatory Authority (ERA) goes out into the public to get our views about the possible adjustment of the tariff in the coming year.

As it is now domestic consumers pay sh626 a unit, commercial consumers pay sh566.9, medium industrial sh524.7 and the large industrial consumer sh349.5 per unit.

Going by the above domestic consumers pay at least 80 percent more than the large industrial consumers and just over 20 percent more than the medium industrial concerns.

If I had my way domestic consumers should pay at least sh1000 a unit or three times what the largest consumers currently pay.

Going by the previous prescription of how our nation can be rich we need to shift more and more resources to the more productive sectors of society.

In our homes little economic value is created using our power – hopefully none of us is cooking using power anymore, so most of our power usage is for lighting and entertainment. Of course the argument can be made that these recreational activities – reading, watching TV or listening to music, enhance our value through learning and improved peace of mind, but that is often for a small number of people.

A large scale manufacturer who employs hundreds of people and may very well expand production or at the bare minimum be a bit more competitive in the market, has the benefits accruing from his business being spread much further afield.

The arguments against this are many but just to pick a few.

There is a fear that too high a tariff will encourage more power theft. While this may be the reality it is to be held hostage by wrong elements in society, emboldening them while messing up the business environment.

Greater investment from the power companies and government in stamping out power theft – even by well-connected individuals, cannot be put off because we are worried about raffling a few feathers.

"Strangely enough opposition to too high a domestic tariff comes from the same businessmen who want to see their own tariffed lowered. They argue that if power tariffs are raised it will lead to a higher cost of living for their workers and putting them – the employers, under pressure to raise wages...

This sounds like they want to eat their cake and have it. They probably are avoiding the higher choices that would come with making their companies more efficient by cutting wastage in their administration budgets or having to share their savings from a lower tariff with their employees.

That really should be handled by themselves. Government should work for the greater good.

However anecdotal evidence suggests a higher tariff will not necessarily lead to a higher standard of living or are unnecessary degree of discomfort.

For one people will become more frugal with how they consume their power – we shall turn off the lights when we walk out of rooms, we will do away with our electric cookers (finally), we may even install solar energy if not to light the house but at least to boil our bathing water and we will have to stop the wasteful business of having security lights on all night.

On that last point the increased revenue from domestic consumers can be used to help roll out solar powered street lights so we won’t have to keep our security lights on all night.

Already the almost universal switch to energy saving bulbs has made 30 MW available on the grid according to the energy ministry.

So our lifestyle won’t suffer that much.

"But secondly and probably more important is that the rollout of the pre-paid power meters is already affecting power consumption patterns. The feedback is instant and in fact power has become more affordable because not only can we pay for the power as we need it but also that we don’t have to wait to be slapped with a massive bill at month end or whenever the Umeme people choose to deliver the bill ...

Of course the only challenge for the people who run the electricity industry is that the people who will have to bear the brunt of this tariff hike – we the urban elite, will make so much noise, disproportionate to our small number, that government will be cowed into making one concession or the other.

When that happens government should just call our bluff.

THE CHALLENGE OF GOVERNMENT PROGRAMS

It was reported this week that MPs had visited an abandoned ice plant in Buyende which had cost government sh2.4b and has not as much as produced an ice cube since it was “completed” in 2011.

The plan was that ice plant would benefit the fishermen of the nearby Bukungu landing site by providing ice to preserve their catch, which ice they wold have to buy – and still do now, from faraway Jinja or Kampala.

This single desolate building with an overgrown compound and now overran by vermin, encompasses all that is wrong with government projects.

"Government projects are mostly backed by good intentions but often the deliverable is not that it works for the benefit of the intended beneficiaries but that it is there. Governments tend to focus on inputs and little on outputs...

So you will here this or that official bragging about classrooms, health centers or even ice plants built rather than the out puts of the said projects, how many students graduated from the schools, patients were treated or how was the fisherman’s productivity improved respectively.

Politicians are not wired for long term thinking. They are always on the lookout for the quick fixes. 

And because they know public opinion is fickle they have worked out that better to have a pipeline of projects – even if they don’t work than have that one project that will transform lives over time.

That is why despite the best intentions and better than average brains government is a poor businessman --- around the world.

A businesses viability is determined by its profitability, which is basically that the output is greater than the input. Governments because they are plugged into an almost inexhaustible source funds are not fixated on the bottom line or even better the return on investment.

Essentially government – and not only in Uganda, is incompetent when it comes to business. And this is the charitable view.

The more cynical view is that since government is a vehicle for doling out patronage to its supporters – all over the world, there is a tacit agreement that these government projects are the reward for the loyalty of its supporters.

So if they steal a little here or there or even stall whole projects its ok as long as they remain onside.

"Governments cannot really help themselves. The NRM recognised this early and sold off all its parastatals or broke up government monopolies 20 years ago. As a result we have more efficient services in transport, telecommunications, power generation, hospitality business and in any number of businesses sectors that the government let go of...

I wish it could be different but it cannot.

That being said there are instances where government needs government can get involved in business. In projects for instance where the returns are not discernible immediately but which are critical to the economy and where the private sector wold have an interest if the risks were mitigated against.

Enter public private partnerships where government would partner with private players. The model though should be that government should exit the enterprise as soon as it is up and running, otherwise for the same reasons for it not going into business, it can collapse a perfectly viable industry.

One other reason for government to be in business is so that its officials can learn how business operate and disabuse themselves of the suspicions technocrats tend to harbour against businessmen.

This will be useful exposure that will allow them better understand what makes business tick and the need for incentives and concessions to make ensure success.

But otherwise clamouring for government to go into business is not unlike doing the same thing over and over again and hoping for a different outcome.

And just one last thing about that forlorn ice plant in Buyende. It did not work because it was not connected to the power grid!!!!!

A SOLUTION FOR UGANDA’S BUSINESSES?

The numbers are quite disheartening.

Only one in a hundred businesses in Uganda make it past their fifth birthday. There are a handful of businesses with a nationwide presence. The same goes for companies that have transcended a generation – passed on from founder to son/daughter and continued the legacy.

This is a cause for alarm for several reasons, not least of all that if we cannot create viable businesses, we cannot create jobs or expand the tax base or create wealth sustainably. Never mind the negative effect to democracy that we do not have a viable indigenous capital class.

We have tried everything over the last three decades.

"Palmed off juicy assets during privatisation to locals only for them to accelerate, rather than reverse their downward spiral. We have tried seeding businessmen -- small and connected, with some start-up capital, only for that too to come to naught. We have offered preferable tax terms and concessions to our own but wapi!..

It would be funny if it weren’t a scandal, that during the fastest growing phase of economic growth in our history we have little to nothing to show in the way of solid businesses.

If it is any consolation we should keep two things in mind.

Even in the US, the bastion of freewheeling economics, start-up statistics are not very much different in relative terms. What helps there is that the process of creation-destruction is ongoing, non-ceasing , a numbers game which ever y so often throws up a Facebook, Google, Microsoft, Coca Cola or GE.

And secondly that Uganda is one of the most entrepreneurial countries in the world only second to Chile at last count. This is good because it means we on average have no fear of going into business for ourselves.

Believe it or not our companies don’t sputter and grind to a halt for lack of money but more for a lack of entrepreneurial and managerial capacity.

So what is the solution?

I think I might have stumbled upon it last week in the form of the book “The Start Up J Curve” by Howard Love.

Love, a serial entrepreneur and venture capitalist, after years of starting up his own companies or helping others has distilled his experience into a model of how startup companies go from inception to maturity.

His six phases of the J-curve starts with creation, dips down into “long cold winter” or the “valley of death”, the phase when after you start a company reality hits that your idea is not so brilliant and requires much more work than was anticipated.

If you manage to survive the valley of death and pull out, you can then scale up your business and eventually reap a rich harvest either by selling the company or earning serious money from it.

This model is important the author says, and the sequencing of events more so.

His suggested order is product development, then creating a business model – how the business makes money, around the product and once those are sorted you can then begin to scale and eventually cash in.

"He makes the point that startups fail because either entrepreneurs jump to soon to create a business model before they have created a product that is acceptable to the market. Or try to scale the business before you have determined the business model or even got the product right...

And it each phase of the J-Curve there specific tasks to perform and targets to aim for before you can go to the next stage. To short circuit the process is increase the certainty of failure.

How many times have we seen startups taking out huge office space – scaling, before they have even tested their product in the market or nailed down a business model?

He also has some interesting thoughts at how to finance each stage of the process. All finance is not the same and what may work at the creation phase – angel funding will not necessarily work when it comes to scaling the business, where venture capital may be more desirable. And vice-versa.

No one can tell anyone about how a business will turn out. The mere fact that businesses are different, start at different times and in various locations alone mean no two experiences can be the same.

But they also say if you want to climb a mountain study all the routes to the top and then ask someone who has already been there.

"That last part – finding mentors, is notoriously difficult in our context, because as described at the beginning there is a dearth of businesses that have gone beyond providing a lifestyle for their founders...

During the grand finale of the NSSF Friends with Benefit show I learnt that NSSF has 1.5 million members out of a workforce of 15 million Ugandans. This statistic is a proxy for the size of the formal economy to informal economy. That the informal economy is ten times the size of the formal economy.

This could be significantly changed if more businesses could go from inception to maturity. Just imagine if we had 1000 companies of the Vision Group’s size – the size having been achieved by successfully charting the J-Curve, how qualitatively better the economy would be?

LESSONS FROM KASESE

Last weekend a crisis that was on a slow boil in south western Uganda burst into full eruption when police and army units attacked the palace of the Omusinga of Rwenzururu, Charles Mumbere.

A series of attacks on security personnel and civilians in the districts of Kasese, Bundibugyo, Notorko and Kabarole in recent months has caused unease in the region. The taking refuge in the palace by some of the perpetrators of these attacks served as an excuse for security agents to storm the palace.

In the process between 60 an d100 people were killed, including 16 policemen and Mumbere was arrested and charged with murder in a Jinja court.

Since then numerous commentators are have highlighted certain issues critical to understanding the issue.

One, that the resistance of the Rwenzurru comes from a fight against marginalisation by Kampala and the Toro Kingdom under which they were. Secondly, that among the Bakonjo there is a difference of opinion about engagement with the central government and finally , that the genesis of the situation also lies in a certain amount of lethargy with which our own government goes about enforcing the law.

Last week I had the benefit of reading second prime minister Kirunda-Kivenjinja’s Uganda: The crisis of Confidence. In the section of the build up to the 1979 invasion of Uganda by Tanzanian forces and a combination of anti-Amin forces several things appeared obvious to me.

One, that the Uganda army at the time, after eight years of decay was incapable of any meaningful stand against the invaders. And secondly were it not for the Tanzanian army’s involvement it’s doubtful that Uganda exiles would have been capable of such a swift ejection of the Field Marshal on account of their disorganisation.

"For every romantic tales of success of rebel movements in Cuba, Mozambique or even Uganda there are dozens even hundreds of “rebel” movements that have been unsuccessful, the hopes of their buccaneering leaders dashed against the formidable defence of a coherent state or floundered for lack of strategy beyond wishful thinking...

The time for forcing government’s hand by force are long gone in Uganda.

People in disagreement with Kampala are going to have to use a little more brain and a lot less brawn to have their way. It is easier to resort to violence than intelligence in resolving disagreement. The hope being that if you can catch your opponent by surprise or overwhelm them with force or both, you can impose your will.

But what happens when you don’t surprise them or overpower them?  It can only end badly for you.

Given that the government, like any other around the world, has literal monopoly on large scale violence and that this government is more coherent than others before it, to hope to force into concession is not unlike bashing your head against a wall.

Now one needs to organise, mobilise and harass the government by civil means, if only because in the last three decades or so the NRM has built a countrywide organisation, that while not always working as one, is easily mobilised in the face of external aggression.

So why haven’t divergent views managed to organise to the point that the government would be forced into concession?

"Because it is too hard. It is too hard to formulate a durable message. It is too hard to sell it to a largely apathetic population. It is too hard to organise around it. And it is too hard to stay the course in the face of stiff resistance from government...

One understands the romantic notion of a smash-and-grab attack, the reality is that it is unlikely to happen today in Uganda.

This is by no means to diminish the unnecessary loss of life and the tense situation being experienced in south western Uganda.

But unpalatable as it sounds, if one wants to win concessions from government, any seating government, one needs to be a bit more organised, a bit more systematic and a lot more tenacious.

WHAT THE MOODY’S DOWNGRADE MEANS FOR UGANDA

A few day’s ago credit rating agency Moody’s downgraded long term issuer rating of the Uganda government to B2 from B1, which means the country has been judged more risky to lend to and will be more expensive for us to borrow on the open market.

The downgrade came as a result of our increased borrowing, which has worsened our debt to GDP and revenue levels.

However the agency upgraded the country’s outlook to stable from negative based on continued economic growth, improved financial management and the shift towards development from recurrent expenditure.

To understand this use yourself as the analogy. In determining whether to lend to you or not a bank first looks at your income. In principle the higher the income the more you can borrow. For countries they consider GDP – the economic output, the higher this number is the more you can borrow. Uganda’s GDP stands at about $20b (sh70trillion).

But the bank would go further to determine how much of your income is actually available for debt repayments. They try not to take more than half of your take home pay. If you have little or no debt the more they can lend you. So for Uganda because we have been on a borrowing spree lately, and mostly of non-concessional loans, our ability to borrow more is less.

On an individual level the more money is going towards repaying debt the more at risk you are too any shocks in your personal life – accidents, medical emergencies or other unforeseen expenses. 

"Similarly as a country we have left ourselves little room for manoeuvre in case of any nasty surprises like depreciating shilling or lower than anticipated growth...

So a banker looking at your personal statement would worry about you more, the more indebted you are. Same as a country.

It helps of course if year on year your income is growing. This means less of your money will goes towards debt repayment, not only allowing you more money for you to spend yourself but also making you a prime candidate for more loans in future. Moody’s notes that our economy is growing slower than in the past --  about 4.3 percent on average 2012-2014 compared to 7 percent 2009-2011. 

As if that is not enough we are not collecting enough revenue – 13.4 percent compared to our peers who collect about 23 percent of GDP.

Also your banker would worry if you are not in formal employment, where incomes are predictable. 

Moody raises this concern in questioning the soundness of Uganda’s institutional strength, noting that the greater institutional strength a country has the more likely it is to take on more debt since the mechanism for raising money to repay the loans are in place.

However the banker maybe more optimistic of you long term, if your debt has not been frittered on high living and frivolous expenditure but on building up a viable business or your asset base. Moody’s says just as much of Uganda noting that the shift towards infrastructure development and away from recurrent expenditure – salaries, allowances and official perks, may lead to greater economic growth and hence improve our credit worthiness.

So on one hand our ability is borrow is reducing but the prospects for our economic growth are improving.

Uganda is not unlike the child in class who though is stuck nearer the bottom of the class than the top, is promising if only he could focus more in class and exercise more diligence in his homework. 

Under the current circumstances for the kid to make it to University a lot of things outside the kid’s control have to line up -- the weather, the seating arrangement and the degree of difficulty of the exam.

This is as opposed to the brightest kid in the class for whom none of those factors will matter on the day. He will thunder the exams or pass at worst. The possibility of failure is slim to none.

"Moody’s thinks that if the infrastructure developments generates economic growth and the country begins oil production an upgrade in the future is likely....

They also warn that further dramatic depreciation of the shilling could make debt repayments onerous -- already 16 percent of the budget, and affect economic growth.

Debt is a double edged sword it can be used to boost consumption -- bad debt or for investment -- good debt.

But an investment is only that when it shows a return if not it can become a white elephant.

But it can also turn into a bad investment if you pay too much for it, meaning for one that you will be servicing the debt longer than necessary tying down crucial funds, which could have been deployed elsewhere.

It's clear our development momentum has not attained irreversibility. Just because we have access to more funds should not mean we throw discipline out the window.

We are still at the bottom of the class. We need to focus and work harder than the brighter students if we are to keep up or even catch up.

OUR PEOPLE PERISH FOR LACK OF KNOWLEDGE

It has been reported that 36 districts are facing food shortages. The poor rains mean harvests have been poor and livestock have not been as productive.

The spin off from this, we can expect a jump in inflation in coming months and as the Bank of Uganda scrambles to contain that an increase in lending rates will follow, restricting borrowing, business growth and leading to distressed companies.

The long and short of it we should not be oblivious to the plight of these distressed districts.

But we need to ask, how is it that a country with 20 percent of its surface under water and almost half the region’s arable land ever have food insecurity issues?

There are many factors but the one bandied around most is that most of Uganda’s agriculture is dominated by small holder, low productivity farms.

These farmers who are mostly subsistence farmers due to land tenure systems and low adoption of modern agricultural methods are barely eking out a living.

Interventions by the state have been haphazard and sporadic and failed to improve productivity. While others point to the low investment in agriculture as at the back of the sectors woes.

"Both sides are correct but like the blind men set the task of describing the elephant they are each snatching at parts of the problem without appreciating the whole...

At the bottom of the low productivity of our farms is the poor farming methods of our farms. We are talking of such basic things as spacing, use of manure and basic irrigation.

On Tuesday in our Harvest Money pullout which was dedicated to irrigation I learnt that one can dig a pit among a cluster of plants and fill with water at least twice a week and it will irrigate the surrounding plants. To take it a step further you can fill it with compost manure and as the water sips out into the surrounding farm will carry along with it nutrients from the manure.

We are not talking about cutting edge fertilisers and sprinkling gizmos. Basic improvements in our farm practices can cause significant improvements in productivity and that is before you look at improved seeds and increased application of fertilizer.

"According to a World Economic Forum research done in east Africa irrigation increases productivity by 90 percent compared to farms which don’t employ irrigation, fertiliser increases yields by 61 percent and the use of mobile based market information can raise incomes by up to 30 percent.
Increased productivity will lead to a need for markets. Small farmers can be encouraged to form cooperatives to bulk their produce to better negotiate in the market....

So why isn’t this all happening?

It is happening because our farmers don’t know better.

When we talk about investing in agriculture, arguably the single best investment we can make is in extension services – some studies have shown returns on investment in extension services of more than 80 percent.

According to agriculture ministry numbers only 700,000 of the four million agriculture households had been in contact with an extension service worker. At the Kakira sugar plantations they have one extension worker for every 90 farmers. Going by that we should have at least 40,000 extension workers scoring the countryside helping our farmers improve their methods.

There are issues of market failure but that those are a lesser problem to the low productivity of our farms.

It should be obvious by now. Our people are being caught seemingly unawares by and unable to cope with the changes in the weather for lack of information. Radio announcements and indifferent politicians will not spread the word.

AN INTRIGUING WAY TO FIGHT CORRUPTION

Last week the Indian government announced it would be withdrawing the largest denomination notes from circulation as a way to combat corruption ahead of state elections.

Indians have until December 30 to turn in their big notes to their nearest bank. And that the deposit of large sums would have to be accompanied by an explanation as to their source.

The logic is that these large denomination notes allow for ease of storage and movement of large sums facilitating money laundering and tax evasion.

Why didn't we think of this before?

"Imagine if the government woke up one day and said they had demobilised the sh50,000 and sh20,000 note and that everyone in possession of them should hand them in to be replaced by smaller denomination bills...

To begin with, just like in India there would be a jump in deposits across the banking industry. According to reports deposits jumped a record six percent in the last quarter as connected types reacted to a leak about the impending move.

As shown above the move brings more of the money in circulation into the financial sector, which may have an effect on lowering lending rates and it's a move unlikely to adversely affect the majority, none of whom come in contact with big notes, but only that small group of people hanging on to large amounts of cash not earned above the table.

One they would have to suffer some discomfort and answer uncomfortable questions why they have such huge amounts in cash and, after the transition shifting those sums will become that much more difficult

Currently sh50m in cash is ten bundles of sh50,000. But if the highest denomination were sh10,000 you would need 50 bundles. A much more cumbersome weight to lug around. But why not reduce the denomination to sh1000 altogether?

The reason for the huge notes in the first place was to ease the movement of money by people who operate in large volumes like traders. But that was the argument being made when payments, even salaries were made in cash. UCB and one other bank were the only ones with a countrywide network, ATMs and mobile money were non-existent.

By having smaller denominations it would force more people to get bank accounts or at least mobile money accounts. So if for instance I have brought my cows, milk or matoke to town for sale the buyer either writes me a check for my millions, does a transfer to my account via his mobile phone or pays me using mobile money.

"Meanwhile for those with questionable hoards of cash it will be more expensive to store. In effect if we made the highest denominator  sh1,000 it will take you fifty times more space to store your loot. Corruption can not be eliminated but by making it a bit more difficult to operationalize would help reduce it considerably...

But the world can learn from us too.

About two years ago government announced the single account in Bank of Uganda for all ministries.This would replace the thousands of ministry accounts peppered around the banking industry.

Now ministries can only see releases from the central bank against predetermined work plans unlike previously when the finance ministry would release money on a quarterly basis as per the budget.

With one fell swoop the tap of money that was leaking out of government was turned off, bringing general inflation under control and returning sanity to asset prices.

"It has also revealed that a lot of our consumption has been buoyed by this hot money. Otherwise how do you explain the tightness in cash when the government budget has more than doubled in the last five years?...

Previously these numerous accounts were "hard" to keep track off with money disappearing into them never to be seen again, financing land speculation, conspicuous consumption by a small group of officials in government and general financial indiscipline.

The argument from some quarters is that there has been a huge shift of resources to development projects, a lot of whose money is spent abroad but the recurrent budget -- salaries and supplier payments has also grown with the general budget so that argument doesn't real stand up to scrutiny.

This calls to mind what happened in the early 1990s when government improved it's fiscal discipline by shifting to cash budgeting and the outcry that followed.

Even then businesses collapsed, banks were stressed and a whole industry of air supply was badly wounded.

The political pressure was intense both from outside and inside government to loosen the fiscal straight jacket government had imposed on themselves.Thankfully the government didn't buckle in its resolve. One can imagine that even now the pressure is intense to see a return to easier times. And again government should not waiver in its resolve.We will get over it.

"The reason to clamp down on corruption can not be overemphasized. The proceeds from corruption concentrate money in a few hands, distorts the markets discouraging genuine business and ultimately possesses a security risk as the beneficiaries will do anything to keep the rackets ticking over....

Of course the beneficiaries while they may be few are very loud and boisterous and create a perception that the sky is about to fall, but past experience has shown this is not true.

KIGGUNDU AND THE BUILDING OF INSTITUTIONS

Thursday was the last day in office of Dr Badru Kiggundu’s tenure as head of the Electoral Commission (EC).

The event went largely unnoticed, overshadowed by our  latest scandal, the whodunit surrounding the death of social worker Kenneth Akena over the weekend. Two people – Matthew Kanyamunyu and his partner Cynthia Munwangari remain in custody as suspects in the incident.

The story has more twists than a Kisoro road and the public – never mind what social media says, is no closer to the truth  as to what happened on that fateful evening.

But back to Kiggundu and his place in history.

Engineer Badru Kiggundu was appointed chairman of the EC, seemingly out of the blue in 2002. The former dean of the technology faculty seemed an unlikely replacement for Aziz Kasujja, whose term at the EC came to an unceremonious end a year after the 2001 polls.

"Looking back to the time, quite a few people felt the engineer would find himself out of his depth.
That the unrelenting intrigue and political gymnastics that come with the position, would bamboozle the linear logic of his scientific mind, frustrate him and soon have him scampering for the hills in bewilderment.
They clearly underestimated the man. He oversaw the contentious 2006 polls, bounced back to shepherd the 2011 elections and finally the most recent at the beginning of this year, where logistical snafus had people seeing conspiracies at every turn. This is not counting the myriad of elections at local government level and the hundreds of by elections that we have become accustomed to.

But Kiggundu’s legacy is more than just about the man but as a builder of the foundation of electoral practice.

We may raise an eyebrow about the way this election was carried out, frown at the result of that poll or sneer at the seeming favaroutism of another, but precedent has been set for better or worse, which will give us a chance as a country to improve our process going into the  future.

It’s not automatic but at least there is a better chance of progress.

We forget that between Independence in 1962 and 1980 the country had only on general election. But in the 20 years from 1996 to date we have had five presidential elections.

The critics might pooh it away as mere ritual but that is to ignore or not understand how culture is established. Culture is the way things are done. It is not written into existence, but practiced over long periods to the point that a new baseline is set. Suggestions mooted last year that maybe for lack of money we should not hold this year’s elections, did not see the light of day, as a standard had already been set and should be observed regardless of circumstance.

The Democratic Republic of Congo which was supposed to have a general election in December has opted not to with little repercussion to the establishment, because elections are still a novelty in our western neighbour and can be done away at the convenience of the ruling elite.

In the US the most crude of electoral malpractice, ballot stuffing, vote buying and intimidation have been reported down the ages. Much of it has been worked out of the system through improved legislation and the employment of technology.

But this would not have happened if they had not retained the culture of having an election every time it was due.

Elections are not democracy but it is one of the most critical pillars of democracy.

Kiggundu was not a saint and neither did he claim to be one. If Uganda matures into a better democracy his role over the last 14 years would have pride of place in the history books about the process.

"In a world where a person’s worth is measured by the size of his bank account, it is easy to dismiss his contribution. Future generations with no sense of history may relegate him to a footnote. But regardless of what happens, serious chroniclers of our time will find the record of Kiggundu’s era provides useful material to make head of tail of our time....

Kiggundu and his team have laid their brick on the wall of history. No one can take that away from them.

UMEME A VINDICATION OF THE SHIFT TO A MARKET DRIVEN ECONOMY?

Last week Umeme Holding Ltd (UHL) sale of half it shares to National Social Security Fund (NSSF) and their announced intention to offload their remaining shares brings to a close one of the most successful chapters in the country’s privatisation process.

The privatisation of state owned enterprises was based on the premise that old parastatals were a drain on the treasury, that they needed huge investment outlays the government could not afford and that we did not have the managerial capacity locally to turn them around. The last issue beyond inadequate managerial capacity was that local managements were not properly insulated from the interference of the state.

"The opposition to the privatisation process argued that we were selling the family silver, never mind that it was badly tarnished, to foreigners for a pittance. In doing so forgoing any leverage the government had over the economy and that it wold cost us jobs, earnings and prestige to sell...

Thankfully the economic reality was that the government really couldn’t afford to carry the load of these resource draining black holes in the face of more pressing needs – getting the economy back on its feet, rehabilitating roads, ensuring security and providing social services. Forcing the government’s hand to sell.

If the same debates were happening now the opposers of privatisation would have won the day.

The liberalisation and privatisation of the power sector was always going to be a sensitive issue because of its potential strategic importance to the economy. At that time we were only generating about 200 MW, the then Uganda Electricity Board (UEB) was covering less than three percent of the population and power availability was sporadic.

A law was enacted to break up UEB’s monopoly before it was unbundled into its generation, transmission and distribution components. The break up of the former UEB was important to bring specialisation to the various functions and to make it easier to sell, as resuscitating the whole UEB would have cost too much and increased the risk to potential investors.

The generation arm was leased to South Africa’s Eskom and the distribution arm to a consortium led by the UK’s Commonwealth Development Corporation (CDC). Later Actis, a spin off from CDC took over Umeme.

Under the arrangement the assets of Umeme still belong to government, but Actis was given a 20 year concession to run them from 2005.

"Half way through the concession Umeme has accomplished a lot of what the privatisation was intended to -- widen power consumption, deliver a more efficient service and increase revenues to government. And as a bonus they have sold their shares to Ugandans who have benefitted from its increasing profitable operations...

Of course the naysayers will point to the sh500b they got from share sales and dividends and say we got the short end of the stick. But this would be to ignore the growth in the economy and improvements in welfare to individual households and businesses that came with adding almost 700,000 accounts – the projection is there will be a million accounts by year end.

And not to mention the increase in wealth for the thousands of shareholders who have rode the company’s share price from its Initial Public Offering (IPO) of sh275 to the current sh525 a share price. Shareholders almost doubled their money when one considers capital gains and dividend pay-outs since 2012.

And then as if that is not enough they mentored a management cadre that will take this project to the next level.

The now disbanded privatisation unit could not have asked for a better poster boy for the process than Umeme.

The private sector is not the panacea for all our problems. But as a creator of wealth through the manipulation of land, labour and capital, no other economic system comes close. But for it operate for the benefit of all the people,  we need to understand what motivates it and leverage this to our own benefit.

In their pursuit of profit companies seek to maximise revenues and minimise costs. Governments on the other hand, ultimately, are looking to deliver goods and services to its people to improve their standard of living.

These two goals need not be mutually exclusive.

Government needs to create a conducive environment – good legal and policy environment, efficient infrastructure and productive human resource, these coupled with growing market demand should attract the kind of credible investors – internal and external, we need to move this economy to the next level.

"Unfortunately for us our appreciation of the private sector – how it works and what it needs to work well, is rudimentary at best or bordering on total ignorance at worst. We have an unhealthy, even envious suspicion of money makers, which does not allow us to make the necessary concessions required to allow businesses to thrive...

Let us study the Umeme deal in more detail and maybe use it as proforma for attracting investors into our infrastructure, agriculture and social services sectors. And who knows, with sufficient exposure to international best practice we will not only appreciate business better but we will incubate our own crop of super businessmen.

WILL A TRUMP WIN FORCE A REEXAMINATION OF “DEMOCRACY”?

You are probably still shell-shocked by Donal Trump’s victory in the US presidential race.

The media never gave him a chance. Some pollsters gave his rival Hillary Clinton a 98 percent chance of winning. The Clinton victory was such a sure thing that Noble laureate Wole Soyinka promised to tear up his Green Card if Trump won.

The common denominator in all these anti-trump predictions was that they were being propagated and propelled by the elite, who control the mainstream media and the establishment.

"If this had happened in Uganda there would be loud accusations of election rigging by these same elite.

The most obvious take away of this election result is that all elections are local.

A politician may want to run a campaign based on highbrow issues like  the economy, foreign relations and trade issues but the decision to vote for one person or the other is based on, “What is in it for me?” I really can’t be bothered about jobs having been created if I am unemployed or a statistical improvement in healthcare when I am still not enjoying it or aggregate increases in employee incomes when I don’t see it.

For us looking from afar, we may have been dazzled by the presentation of our favourite candidate but we really didn’t have a handle on the local issues at play, shaping the race.

But a pattern seems have to been established.  We saw it with the Conservative Party victory in the UK last year, when all the polls and media saw a tight race but which turned out otherwise. We saw it in the UK referendum on whether to remain or pull out of the European Union (EU) where again the mainstream assured us the UK was voting to stay and didn’t. And now again.

Several forces were at play but I suspect two related events coalesced to award Trump the win.

For quite a while now the mainstream media has been running out of steam. Newspaper sales are down. TV ratings are falling. And radio’s pre-eminence as a source of news has fallen off in the west. That means that the controllers of these traditional media, supporters of establishment by virtue of their ownership, have seen their influence diminish.

Improvements in ICT mean that people now have greater choice of where they can get their information and even more important are less likely to kowtow to the establishment’s agenda, transmitted by the media.

"The greater access to information and improved capacity to organise and coordinate around an issue by the everyday man, means the manufactured consent by the traditional media is becoming increasingly hard to pull off...

It has happened before. The stranglehold that the Catholic Church over the old world’s social and political life was broken with the introduction of the printing press, which led to widespread literacy, which shattered the monopoly on the word the Church enjoyed up to that time. Of course the dissenters were helped that the King of England needed to marry a second wife and had to break away to do so.

And in a way Barack Obama’s success is to blame for Cinton’s loss this time. Prior to 2008 the phrase “every vote counts” rung hollow as establishment figures, be they Republican or Democrat, always won regardless of how out of touch they were with the grass roots.

But the lesson was not only for the minorities and liberal Americans to learn but for everybody. The analysts are saying rural America came out to vote this time and that made the difference for Trump.

"There is a lot of discontent because of the hollowing out of US industry, a decimation of the middle class and widening income inequalities. The discontent is so thick in the air that it throws up the irony of Trump, a billionaire, third generation American, born and bred in New York becoming the champion of the working classes, rural America and against immigration...

But that is democracy isn’t it? Not a perfect system but better than all the other systems – until it works.

ACTIS SET TO CASH IN ON UMEME INVESTMENT

Just over half way through the 20 year concession to distribute power in Uganda, Actis has all but sealed-and-delivered a deal to offload its interest in Umeme.

This week the private equity firm announced through its wholly owned subsidiary, Umeme Holdings Ltd (UHL) that it had sold about 122 million shares to National Social Security Fund (NSSF) and was in advanced stages of shedding the remaining 110 million shares to institutional investors and retail traders on the Uganda Securities Exchange (USE).

While the numbers are not yet clear sources in the financial industry Actis has done well for itself on the whole concession deal.

“They made money at the Initial Public Offering (IPO), in dividend payouts,” said Salma Nakiboneka, the head of research at Crested Capital investment bank.

In dividend payments alone over the last three years UHL bagged sh35.8b out of a total of sh129b doled out to shareholders. A systematic reduction of their interest in the power distributor since 2012 has seen the private equity home take home a lot more.

In the IPO in 2012 UHL shed 40 percent of its interest for sh171b, most of which was used for expansion and paying off debt. Another 743 million shares were offloaded in 2014 when UHL reduced its holding to 14.30 percent for undisclosed sum, but somewhere in the region of sh250b going by the sh340 per share NSSF paid for the 100 million shares it bought during the transaction.

"And finally the sh59.4b they earned by offloading the 122 million shares to NSSF in the latest transaction for a grand total of about sh480b in share sales in the last four years...

This does not include interest on money lent to the Umeme and management fees the company.

“No doubt this has been a very profitable investment for Actis but more importantly it shows that the capital markets here work. That investors can come into this market and exit in a credible way is the biggest win of this transaction,” said Ken Kitariko, Africa Alliance’s local boss.

NSSF in its statement this week said it had earned sh22b in dividends since 2012 and made an 89 percent return in its Umeme holding, reporting that it had spent sh81.7b while the total value of the investment now is over sh132.3b.

“Our investment in Umeme Limited since it listed on the Uganda Securities Exchange has delivered returns to the Fund,” Said NSSF managing director Richard Byarugaba.

NSSF is now the major shareholder and it is expected that Umeme Management Services Ltd will be retained to manage the company once Actis exits.

Other observers agreed that the deal was a good one for NSSF.

“It ticked all the boxes. It was a local investment. A big outlay of cash. In a company with far reaching economic impact,” Kitariko said....

During the life of their involvement Umeme has seen the number of accounts grow to 860,563 from the 300,000 they fund connected in 2005. To make this happen the company has invested about $440m by the end of June this year.

MAKERERE HAS REACHED THE CROSS ROADS

Last week the government shut down Makerere University following a strike by the campus' staff over pay arrears. The students also went on strike to protest the staff strike.

Times have really changed.Who would have thought the day would come when students would strike because they are not being taught.

"Jokes aside Makerere finds itself once again at a cross roads. At issue is the remuneration of the staff, further still, how the university should be funded. This question has been the source of previous impasses...

In hindsight those disputes were left unresolved, token increases were given with promises of better to come in the future.

Every kicking of the tin down the road, has brought us closer and closer to the realisation that the model on which we run our public universities has long passed its sell by date.

The model based on the UK public universities has not kept up with changing realities. The original universities were designed as  institutions intended to train the ruling elite. Higher education was never supposed to be a mass product but a means to cement class distinction especially in the industrial age.

But an explosion in school enrollment in lower levels meant university enrollment had to follow suit.Its one thing to teach primary school kids under trees and another to lay down the infrastructure for a functional university. And soon governments realised they could not bankroll this new academic invasion.

Uganda realised this at the beginning of the 90s with the introduction of private students, something of second class citizens then, but are now the dominant number in the university system.

The idea is that government would continue to support the universities and student fees would serve as a useful addition to the universties' resources.

Clearly it's time again to revisit the model.

"To come to a long term solution it has to be recognised that in the face of other pressing priorities we don't have the resources to fund quality university education on a scale that our development ambitions demand....

Secondly, that the vast majority of university students cannot pay the full tuition fees for a quality education.

Our options range from a closure of all public universities since we can't afford them, not as a crazy an option given the falling quality of our public universities output. Or on the other end of the pendulum is to privatise these universities, let businessmen charge full fees and those who can pay, pay and may the devil take the hindmost.

For a number of reasons, not least of all political, neither extreme is palatable. A solution somewhere in between is where the answer lies.

"The truth is with the embarrassment of wealth in the form of real estate and intellectual property, our public universities would not be beholden to government to the extent that they are today...

Our universities are not unlike our country, Uganda, asset rich but cash poor. What is preventing the universities from unlocking the cash is inadequate management.

The way our public universities choose it's management, based on seniority, is at the heart of the universities' problem.  Companies with asset bases the size of Makerere 's cannot rely on a recruitment policies that hands the keys to the vault to people who have neither owned or run a business enterprise successfully.

The defenders of the current system argue that running university is not like a business hence the way they recruit their management, but the facts do not bear out this urban myth.

Business is about leveraging land, human resource, capital and entrepreneurship to show a return. 

The more efficiently you do this the higher the return.How different is that from churning out quality graduates, if you chose the quantity and quality of your graduates as a measure?

"Our kneejerk reaction against private sector involvement is born of discredited propaganda and a push back by interest groups benefiting from the current unsustainable status quo....

Others argue that government has a responsibility to fund university education. There is no such law. However how government meets this unwritten obligation depends on the context in which we find ourselves.

There is a wider reason why public universities must succeed, and if that requires a greater role for the market so be it, and this is that university education can only be as good as what public universities offer.

If your public universities are shambolic then private sector need only be slightly better, which is not very good, to operate.

So clearly we need to hire more entrepreneurial managers for Makerere, who will be appraised on the quality and quantity of graduates and research the institution churns out.

Secondly the same management needs to be freed of any shackles to its ability to raise money and restructure and rationalise the once "Harvard of Africa".

For the rest of us, we need to shed our attachment to unworkable models. The truth is, if these public universities collapse under the weight of our expectations, because they were not given a chance to succeed, universities will revert to the old reality where university education was the preserve of a select few, who are not necessarily deserving....