THE MOBILE PHONES UNDERSTATED ROLE IN ECONOMIC GROWTH

A friend recently did a trip up and down the country. Having done this several times before, he was shocked to discover, this time around, that he could not roll into a town unannounced, so to speak, book himself into a hotel for a night. Like in the good old days.

Being a celebrity counted for nothing. There was not a quality room– clean linen, working shower and solid door, to be had.

This did not happen only once but in several towns in the west, north and east of the country. And he couldn’t work out what was happening.

"In 1999 Uganda’s GDP growth jumped to 8.1% from 4.9% the previous year. There was no coffee boom or bumper harvest that year. In fact El Nino, the weather phenomenon characterized by flooding and prolonged rains had ravaged the crops up and down the country. In addition we were suffering a lot of bad press for our incursion into Congo and some donors had pulled the plug on their funds in a huff...

But in that year Uganda became the first country in sub-Saharan Africa where mobile phone coverage exceeded the number of land lines.

Up to this point Uganda had about 50,000 landlines on the Uganda Posts & Telecommunications Corporation (UPTC) network. In November 1998 South African company MTN –mobile telecommunications network then, entered the market and triggered the explosion in the uptake of mobile phones.

The correlation between the near doubling in GDP growth in 12 months and the widespread use of mobile phones is anecdotal at best, but may provide useful grist for a study.

Fast forward to today and the same parallels may be drawn to explain my friend’s travails on his travels.

But before we talk about mobile phone coverage there is the improvement in trunk roads around the country. In the last few years hundreds of kilometers of trunk roads have been worked on, creating a tarmac lattice around the country, making movement that much easier.

So it’s possible that the inns around the country are full, from travelers who can begin their trip later in the day and stopover in the major towns before a final push for home in the morning.

Add to that the phenomenon that now transport is available to any part of the country from Kampala any time of the day or night.

But I would like to think too that since now mobile communication has grown beyond voice calls as it was in 1999, to now include texting, social media and even mobile money, economy is beginning to reap the benefits of these improved communication means.

The last one is particularly interesting, it has become such a part of our lives that we take it for granted.

In 1998 if someone called you and said he was hard up for money, he was in Mbale say and you were in Kampala, how quickly could you get the money if you had it on you? You could go down to the bus park and find someone to deliver the money to so-and-so’s shop. People got a bit clever and to move money over such distances they would buy airtime, text the code and the recipient would find a way to flog the airtime for money where he was.

Hard to imagine if you were not there, when today the request can be honoured in under five minutes.

Given this scenario, is it no wonder that we now have a proliferation of bars springing up around every surburb and seemingly doing a rip roaring business day in, day out? There are even Sunday night theme nights these days!

"In the 2017/18 financial year sh73 trillion or more than twice that year’s sh30trillion national budget was transacted across all mobile money platforms. This figure was up 37% from the previous year’s sh53trillion. The figures are not out yet for the last financial year but assuming the same rate of growth, at least sh100trillion moved around all mobile money platforms in 2018/19....

If money can move around faster it stands to reason that there will be increased economic activity, the production, distribution and consumption of goods and services. And this is happening in a time when it is widely acknowledged that there is an economy-wide cash squeeze.

So the nephew on campus can now send a message to his favourite uncle Ben on a Friday night for beer money or you can order for and pay for a cab to pick up your better half and deposit him/her at your location without a word said or a physical exchange of cash or if you are an operator of a night spot you can advertise it online for the cost of only a few megabytes and or probably get a better response than before.

So it’s possible that my wandering friend has come up against the underrated power of the mobile phone, its growing uptake and use that make consumption easier and forced an uncomfortable night in the back seat.

NSSF AND OUR PERSONAL FINANCES

Last week a bill to amend the current NSSF Act came to parliament on its way to becoming law.

One of the 13 proposals that caught people’s attention was one that would change the way savers benefits would be taxed. As it is now our contributions are taxed before being passed on to NSSF. In the new law the taxing of our contributions would be deferred to the time we collect our benefits at 55.

"The uproar was understandable as most people are not aware that their contributions are taxed before we pay out, so they were feeling hard done by the fact that their eventual payouts would be taxed...

But in the new law one has the option to not collect their benefits at 55 and wait until they are 60 to get their full amounts without being taxed. Many lurched onto this provision complaining that government wants to force us to save with them till they are 60.

There were many things to learn from people’s reactions, mostly the loud ones who are in the minority, about our attitudes to money.

The world over governments realizing they cannot always take care of their citizens, especially in old age, force their citizens to save through one kind of social security scheme or another. Left to our own devises we will not put money aside, even if on an intellectual level we understand the wisdom of this.

It is a human condition, hardwired into us down the years along our evolutionary path.

"This is why the wealthy people are the minority in society. Not because resources are not enough to go around, but because the attributes of planning long term and delaying gratification do not come naturally to any of us. Even the wealthy have had to train themselves – apart from those who inherited or stole their riches, to behave unnaturally not for a day or a week or even a month but for years even generations.

You can bet there was an uproar as well when the government in 1985 enacted the current NSSF act, with people wondering why government wants us to save, that we can do it for ourselves. Thankfully there was no social media then.

NSSF has been bandying around the statistic that of its members who get their age benefits at 55, up to 80 percent of them have blown it within two years. This statistic was one that could have been used to amend the law to move away from paying out a lump sum to paying a pension. That is not among the amendments proposed.

But interestingly there is a small minority of the Fund’s two million members, about 40,000, who choose to leave their savings with NSSF after retirement. It is an unnatural thing to do – everybody else just can’t wait to get at their monies, never mind that they don’t know what to do with the windfall; but it is a wise thing to do. NSSF last year paid an interest of 15% on savings there are no banks that can pay you that amount in this town, so why not let the funds continue to accumulate?

Unfortunately, under the current law these people can only do this until their 60 after which NSSF hands over their money. It is being suggested that this provision be scrapped and members if they wish, can keep their money with the Fund until they die.

And assuming NSSF can maintain the track record of paying out double digit interest rates, in the five years between 55 and 60 these members savings will have doubled!..

That is the magic of compounding. Another unnatural phenomenon we are not conditioned to appreciate.

NSSF reported that if a person earns a million shillings a month and NSSF maintained a 10% interest for the duration of their 30 year working life under the new law they would receive sh345m compared to sh301m. The chattering masses jumped up and said this was a lie, given that of the worker’s income they only save sh50,000 a month or sh600,000 a year or sh18m over the 30-year period, so how does that become sh301m or better still sh345m?

They forgot the employer’s sh100,000 monthly contribution, the statutory 10% and were clearly ignorant of the power of compound interest, which Albert Einstein once said was the eighth wonder of the world.

NSSF also showed that while government tax from our contributions would amount to about sh67m under the current law in the new law government tax would more than double to sh143m. That set the critics off again. Why should government take more from us in tax? Tax, they say is the cost of civilization. Without civilization not only might you not get your money but if you do you might not enjoy it in peace.

But the clincher was that there is a proposal that workers can save up to 30 % of their income tax free. That if you earn a million a month, before the tax man wields his or her axe, you can commit up to sh300,000 to your retirement savings and leave only sh700,000 for NSSF tax. If you do the bare minimum savings of five percent or sh50,000 URA would tax sh950,000.

I am not holding my breath for Ugandans to max out on this benefit. Because the benefit will be enjoyed in the future. They would rather shoot themselves in the foot by saving less now and complain later when they tax their final benefits.

The argument to make would be that government should only tax the accrued interest on our savings, which are actually more than the contributions (thanks to compound interest), therefore not deferring taxing of our contributions but making them truly tax free.

THE NEW NSSF LAW, BETTER LATE THAN NEVER

This week The National Social Security Fund (Amendment) Bill, 2019 finally came to parliament for debate on its way to becoming law.

The report on the vent kicked up a storm among the chattering masses over one provision in the law which will have savers benefits taxed when they receive their retirement benefits and not when they contribute.

It caused an uproar because current savers are mostly unaware that they are taxed as they contribute now, so the proposed move to tax the benefits when they receive them was an unpalatable proposition.

They ignored or were more likely unaware, that in the proposed law they will not be taxed when they contribute.

Interestingly under the new law savers will collect more money than they would under existing circumstances but government too will collect more tax...

Assuming a million shilling salary for 30 years at a 10% annual interest under the current regime saver will collect sh301m, while government will have collected sh67m along the way. Under the new the same saver will pocket sh345m but government too will see its collections more than double to sh143m.

However, there is an interesting catch. If the saver pulls out all his savings at 55, the statutory retirement age, he will be liable to pay the whole tax due to government. But if the saver can hold on till 60 he will get all his contributions plus interest and not be liable to tax.

On a macro level this amendment could not have come too soon. In fact it’s probably a decade late.

The current NSSF law was enacted in 1985 and was probably a visionary document for its time. Proof of this is that our NSSF is the largest social security fund in the region despite many more years of stability in our neighbours Kenya and Tanzania.

However, it has been long overdue for an overhaul seeing as national savings have stuck stubbornly to just about 10% of GDP for at least 15 years now.

At an NSSF news conference this week the Fund’s CEO Richard Byarugaba reported on the lopsided nature of our savings which are skewed unsustainably towards short term money. Money held in our financial system for less than five years accounts for just over 60% of the total. Long term money which is the real driver of development accounts for about 37%.

In more serious economies those figures are the other way around.

This inversion of our saving habits is a major reason why lending rates are high in this country. If the banks had more long term funds they would scrambling to shovel that money out of the door and according to the laws of supply and demand lending rates would fall.

This bias has a historical background. Our over reliance on donors for development financing meant there was none to little incentive to try and develop long term savings. But as we have disagreed on our development priorities and the donors have turned off the taps it has become critical that we mobilise our own resources.

If you were central planner like the Ethiopians, you would wake up one morning and order every working Ugandan surrender a greater portion of their income to beef up national savings. Which may at first have other people cheering at the foresightedness of the leadership it would be unsustainable and susceptible to abuse and evasion.

With a bit more intelligence you can convince, even seduce, your people to part with a few more shillings.

The new bill speaks to the latter rather than former approach.

NSSF believes that if implemented appropriately we can see our national savings rate shoot up to as much as 40 % in 30 years. Then and only then do we take control of our development agenda.

We have said it many times before, as a country we are poor because we have failed to aggregate our resources, be it land, human resource or money. We fail because we are not putting in place the mechanisms to enable this.

Imagine if government had left it to our own devices to save for our retirement, how many of us would put aside five percent of our gross income, leave alone 15% and not touch it for the duration of our careers? It is likely there are no hands up in the room.

Despite the hoolah balooh I would pay good money in the not so distant future, to be around the hecklers when their NSSF check lands in the account – taxed or not.

THE STORY OF YOUR BUSINESS IS MORE IMPORTANT THAN MONEY

BOOK REVIEW: STORY DRIVEN

AUTHOR: BERNADETTE JIWA

AVAILABLE: Amazon

There are tons of books published annually. In the US alone it is estimated that up to a million new titles are published in a year. So the chance of finding the book that speaks to you right here, right now, is made that more difficult. 

Literally a one in a million chance.

“Story Driven” has been that book for me in recent days. Its catchy tag line—“You don’t need to compete when you know who you are,” made me want to not only look again but snap up a copy and see what this all meant.

Truth be told I didn’t get around to reading the book immediately. It took me a few weeks to get around to it, because I was attending to other books that had moved me. I only do books that move me, otherwise what is the point.

The book is based on the simple premise that companies that flounder are often those who lose their story, the reason they were set up, which often was not to make money but because the founders thought they could solve a problem they had identified. But as time goes on companies forget this and start competing for market share, increased profitability and enhanced brand awareness.

The author makes the distinction between the competition driven company, which is reactive to competitors and focused on winning, as opposed to story-driven companies, which are responsive to customers and pushed by a need to matter, are purpose driven, keen to live a mark on the constituencies that they serve.

“Great companies,” she says. “Have something in common, they don’t try to matter by winning. They win by mattering.”

We forget – or maybe we don’t know, that business success measured by profitability or growth or any other traditional metric is a byproduct of providing a good or service that is in demand and in a cost effective way.

In fact, Jiwa, who is a world renown authority on business philosophy, explains that what distinguishes two companies, even in the same industry, is their respective business philosophies. And this is irrespective of whether it is articulated or not.

She says being a story driven company is important because that is where culture starts, its philosophy and is emphatic that everything that happens to a company good or bad are a direct result of the business’ philosophy.

It makes sense. If you think about it, if one of the drivers of business success is differentiation how better to distinguish yourself from the competition if not by being your authentic self. And is that not a competitive advantage in itself, providing goods and services in a way that only you or your company can?

This inability to hold your story close to your chest is most probably the reason why many of our businesses cannot transcend a leadership generation. The inheritors of the family silver do not know the story and not emotionally attached to the culture and philosophy as set out by the founder.

If they have not served at the founder’s feet and were just jettisoned into the company at the top they really can’t appreciate the company’s story and therefore its raison d’etre.

A company’s story is what allows the founders to weather the usual upheavals of being in business – poor sales, shifting markets and even the incessant knocking of the tax man.

This fits in very well with past writings in this column.

That for instance there are only four reasons to go into business – to feed oneself, to pass on something to descendants, to sell the company and for philosophical reasons. And to a tee companies are more likely, to not only survive but thrive, the more they tend towards being set up for philosophical reasons on one side of the pendulum than to sustain the found on the other hand.

We are more likely to make progress once we believe in the significance of what we are doing, she writes.

It also speak to the lesson of professor John Kay in his book, Obliquity in which he makes the case that business success – profitability and growth is often arrived at without aiming at it directly, but by round about means, obliquely, in improving customer service and experience.

And the market is not stupid. It recognizes when a company stands for something and rewards it with attention, loyalty and of course an ever ringing till.

It is simply written. And just in case you think your business is small and not susceptible to such strategies, she has brief synopsises of dozens of companies both big and small (but all companies were once small companies) doing everything from counselling to manufacturing electric cars to show that this principles are universal and not only suited to manufacturing or services alone.

If you extrapolate this philosophy it can serve well in other enterprises – sports teams, schools and even governments.

The book is a must read for anyone trying to build anything of significance.

THE UPDF RETIREMENTS AND THE STATE OF THE NATION

In his seminal book “Guns, Germs & Steel” author Jared Diamond makes an attempt to explain why the north – economic north is rich and the south is poor.

"At the bottom of it is the agrarian revolution where farmers by adopting more modern methods of agriculture – crop spacing, irrigation and animal husbandry, were able to generate a surplus. This surplus was traded with neighbours or stored away to finance two classes of people that have been critical to the domination of western culture – the thinkers and the professional army...

That is how great scientists like Isaac Newton or Michael Faraday or Galileo Galilei were able to tinker around for hours in their labs and lay the foundations of modern science or allowed Aristotle and Socrates while away their days thinking about the organization of society.

The professional army barracked away from society and the study of military science in the same vein meant that the armies of western Europe were able to sweep around the globe form conquest to conquest, with the booty from this far flung empire – another surplus, helping to improve the living standards of their people.

The development of the modern army is in response to the need to project these country’s influence abroad and to defend themselves against other rivals imperial ambitions.

In lesser developed nations armies were smaller, used rudimentary weapons and little to no science in their operations.

When the war drums were beaten able bodied men reached for the nearest implement and rushed onto the battlefield to protect their lands and women. Or not. Driven more by passion than strategy.

No wonder a handful of soldiers were able to subdue all the tribes on the African continent.

Fast forward to the present. This week 341 officers of the Uganda People’s Defence Forces (UPDF) were retired in a lively ceremony at Bombo barracks.

Some had been in service since the 1970s having been passed down from the Uganda Army to the Uganda National Liberation Front (UNLF) the National Resistance Army (NRA) and eventually the UPDF.

Before being demobilized they were oriented into civilian life, advised about how best to utilize their severance pay and how to access their pensions.

This was a great occasion not just for the UPDF but for the country as a whole. For one the fact that the UPDF can allow people leave is a sign of the peace prevailing in the nation. While they are still on call as reservists, the urgency to maintain all officers and men in situ is not there anymore and is not conceived for the near future.

It also means the Forces are being renewed with young people joining and coming through the ranks.

As a peace time force they need to be looking to improve the quality of the force rather than increasing the size of the force. Recently reported plans to convert Kabamba Military Academy into a university of military science points in this direction. We shall return to this.

Secondly, these can add to efforts to boost the economy. Soldiers by training and practice are disciplined and understand its usefulness. There is nothing worthwhile that can be achieved without discipline. In western economies demobilized soldiers become businessmen and consultants, their value recognized by business and their contribution valued.

In more competitive economies every edge counts and the army is recognized as useful resource for mining leaders.

The battles of the future will not be fought with the AK47 – a handy, sturdy gun, well suited to our low technology environments. The battles of the future will be fought in cyberspace, in the labs and with much more advanced technologies and out of necessity will require a different kind of soldier.

Continuous renewal of the forces can help in better appreciating this new reality.

I think I am young and as a member of the press, I am ahead of most people in our society in keeping abreast of recent developments. But any superiority I feel over my fellow man is often dissipated within minutes of sitting around ten year olds with access to a smart device and a data connection. 

"Not only do they have more access to information than I had at their age, but they are leveraging and manipulating it in ways that can only come from early adoption of these technologies and a fearlessness of the possibilities....

I shudder to think what they will be doing with their computers in a decade or so from now.

The physical demands of military service are a natural filter but given the rapid changes in technology and military science, we may be forced to be more proactive not only returning officers and men into civilian life but in accelerating the training of those still in the force.