POST BANK MAKING BELIEVERS OF US

The banking industry’s annual reports are coming in fast and furious ahead of the month end deadline.

In general the industry seems to be doing what it does best, making money and growing from strength to strength. The capital requirement increase – banks were required to increase their minimum capital to sh150b from the previous sh25b, has not worked itself into the bottom line yet, but we can expect that the effects of this will begin to show up in this year’s results.

Among the eye watering returns of the big players, one small player (is it small anymore?) is quietly but determinedly gaining ground on the big boys.

When critics of the banking industry start complaining how the industry is dominated by foreign capital and how there are no major local players, they either forget or unaware that Housing Finance Bank and Post Bank are local banks.

Post Bank is wholly owned by government and only begun operating as a Tier I bank in 2022.

Last year Post Bank reported a net profit of sh27.5b an 82 percent jump from the previous year’s sh15.2b. this came on the back of a 30 percent rise in income largely due to the loan book growing by a third. Growth in expenses did not keep up with income allowing the bank to report a 68 percent leap in operating profits.

It helps too that while high bad debtor provision have fallen to 24 percent of the loan book compared to 119 percent in 2020. Bad debts are the bane of the banking industry’s existence, a lack of discipline in this one area can and has led to collapses in the banking industry in our lifetime.

And to show last year’s result was no fluke, over the last five years the bank has shown double digit growth in total income, net profit and size of loan book. This last segment has contributed to the bank crossing the one trillion shilling mark in assets for the first time last year.

Last year the bank launched its online wallet Wendi, which will and is already easing government’s disbursement of Parish Development Model (PDM) funds beyond the use of its 58 branches.

The bank has proven efficient with the funds it superintends over reporting a return on Assets of 2.6 percent versus the industry average of 2.2 percent. While share holders will be glad to know the Return on Equity last year was 16.8 percent. While this is lower than the industry average of 20 percent it has been growing at compounded average range of about 15 percent over the last five years.

The point is that assuming Post Bank can maintain its momentum and discipline it can become a very significant player in the economy not only because of its size but because of its reach into the rural areas...

Discipline is key as their cost to income ratio of 83 percent  way higher than the industry average of 68 percent or market leader Stanbic’s which hovers around 50 percent.

Interestingly the bank which was hived off from the old Post & Telecommunications Corporation—the other companies are Uganda Telecom and the Post Office, is the only one of the trio showing not only a return but potential growth.

What does it take to run a state owned bank properly? Post Bank, the only wholly owned government Tier I  bank,  maybe showing that it can be done. It helps that in Chairman Andrew Owiny and CEO Julius Kakeeto, who took over four years ago, they have leaders with strong private sector experience.

It also probably helps that government’s objectives of increasing financial inclusion across the country ties in very well with Post Bank’s drive for profitability and long term sustainability.

This column has been consistently opposed to government being in business, not out of some capitalist dogma but because government’s main objective – anywhere in the world, is to hang on to power. It does this by doling out patronage, which often does not tie in very well with company’s efforts at long term sustainability.

"Government backed companies, the world over fail or at least fail to efficiently deliver goods and services, because when the desire for regime survival comes up against the profit motive, the latter often loses out...

It is still early days by any measure to bring out the champagne for Post Bank but initial indications are promising.

Opportunities abound especially if the bank can roll out its Wendi online solution, which with its 58 branch network and hundreds of banking agents, could provide the necessary synergies for the bank to climb to the next level in the industry.

 

DEVELOPMENT: EVERYBODY WANTS TO GO TO HEAVEN BUT NO ONE WANTS TO DIE

Last week downtown Kampala was shut down for a day or two as traders protested Uganda Revenue Authority (URA) methods of revenue collection.

As I understood it the new Electronic Fiscal Receipting & Invoicing Solution (EFRIS) leaves little room for discretion and has a long memory, which can make some people uncomfortable. EFRIS has then compounded a long standing complaint about invoicing, and how URA uses its own set of values to determine taxes on goods imported for instance. Another long held gripe is when the trader is liable to pay tax on a product or service sold at the point of invoicing or when cash actually changes hands.

You have to sympathise with this last one. Imagine delivering a service to government, you invoice today and are immediately liable for the tax but government pays you years later, this can wreak havoc on your cashflow situation.

In the same week the Bank of Uganda released its state of the economy report, which for me had some interesting revelations.

First, that in the first six months of the financial year, July/June our interest payments grew 17.4 percent, growing faster than revenue collections which grew by 12.4 percent, essentially that while government revenues are growing they are not keeping pace with the rate of growth of debt repayment. Interestingly most of the debt repayment is for local debt, mostly contracted through monthly government paper auctions. This is a double edged sword.

This was necessary as net external funding for the budget fell off a cliff to minus-sh122.3b compared to sh1,352b in the previous year. For any number of reasons external lenders are not coming through with their pledged funding, forcing government to look more to the domestic market. And even then they could only do it within reason, with net domestic financing only increasing by 6 percent.

And secondly that back ground probably explains why domestic arrears repayment collapsed by 73 percent to Sh175b from sh651b, which was also a pittance, in the previous year.

The recent friction between traders and URA, reminds me of the VAT strike of 1996, months after it was introduced. Then like now, one has the sense that not enough sensitistaion was done and traders going about their business as usual have found themselves on the sharp end of URA’s pressure to collect. But as said earlier, then as now, there is a section of people used to dodging taxes realizing that their space for maneuver is becoming increasingly squeezed.

The most sustainable way for an economy to develop is if it does this under its own steam, using resources generated internally, more than relying on foreign charity.

In Uganda it seems we are on the right track as revenue collections grow and government has built a credible mechanism for raising funds locally.

But to build up revenues more of the economic base has to be taxed. New taxes will always be a source of discomfort, as will the case be if you haven’t been and now have to start paying taxes.

Workers in formal employment forgo at least 30 percent of their income to the tax man. But out of a working population of about 11 million only about two million pay taxes on their income.  Pay As You Earn (PAYE) accounted for 17 percent of revenues collected in the first half of this year.  Imagine if half the workers of Uganda paid their taxes and doubled this percentage?

People are quick to argue that the wastefulness of government is a disincentive to paying taxes. But those are excuses. It is also possible that law enforcement is so starved of resources they are fighting an uphill battle to clamp down on wastefulness. It is not in doubt that they are under resourced.

"The claim of a lack of political will is there, but unless we want arbitrary arrests and convictions directed by the politicians, there is no way around the resourcing of the law enforcement agencies, to have a long lasting impact on the fight against government waste and corruption...

So we have to pay our taxes.

We point at places like Sweden that have nice infrastructure and working social services, but they pay 43 percent of GDP in taxes. In Uganda we are only touching 14 percent.

And finally while we mobilise more and more resources via government paper – to bridge the gap between our expenditure and tax collections, it is happening at the expense of the businessman. The treasury bond coupon rates are currently in double digits, which means it is impossible to have lending rates lower than that.

The theory is that if more of us paid our taxes government would have less appetite for borrowing locally, lowering bond rates and forcing banks to lower their rates to borrowing public. It is all connected.

"An argument against paying taxes will always be a popular one, but if a more developed country is heaven, while we all want to get there one day we do not want to die – pay our taxes...

UGANDANS ARE POOR BECAUSE THEIR LAND IS UNTITLED

Last month a report came out that Rwanda had reached the milestone of titling 12 million plots of land. This accounts for nearly all land in Rwanda.

The interesting subtext to this was that there are more women title owners than men, which will have far reaching ramifications for the distribution of wealth and the way the country will develop. This process of land regularization has been on for the last two decades.

In Uganda it is estimated that between 20 and 30 percent of land is titled.

This is very important for anybody interested in our country’s development.

All wealth is derived from land. Even the tech companies have to locate their administrations and servers in offices or residences or wherever. It therefore follows that to the extent that your land is formally recoginised is the extent of your wealth...

If we are to start from first principles, if our land is formally recognized, that is titled, a land market can be formed around it, unlocking its wealth either by outright sell, lease or mortgage.

So for example you want to invest a billion shillings in an enterprise and need land for the endeavour and there are two land owners, one with titled land and the other whose land is untitled, who would you deal with? The text book answer would be the titled land guy, because you know what you are getting and can establish some indicative price for it, which you will then register on your balance sheet.

Of course the street smart answer would be to deal with the untitled landowner, bargain him down to a meagre sum and organize the titling of the land. The point is that this land owner would not realise the market value of his asset and would be the poorer for it.

Extrapolating this example, the Ugandan land owner is more likely to be shortchanged than his Rwandan counterpart by investors, if the disparity in titled land is anything to go by. It is in the nation’s interest to have all its land titled as a means to fight poverty and also to ensure we get credible investors not fly by night cowboys.

Is it no wonder that whereas we pride ourselves with being an agricultural economy, poverty is most resident among our agricultural communities? Is it any wonder that the greater Kampala region which has the most titles in the country per capita accounts for more than 70 percent of GDP?

Taking the argument further, who are the major beneficiaries on the agriculture value chain? The farmer on his untitled land or the factory or ware house owner who has his enterprise on titled land? Which allows him to mortgage it for working capital or further development from credible financial institutions, while the farmer can only deal with money lenders or smaller institutions that cannot take him to the next level of development.

While it is true that there are also poor people who own titled land, they are poor probably for lack of financial literacy or are risk averse.

Economist Hernando De Soto in his seminal book the “The Mystery of capital” made this point and attempted to regularize land ownership for the poorest in his native Peru with some success. The interest groups that had galvanized around the informal land situation did not take too kindly to his meddling and hampered progress. Is that the case in Uganda?

That being as it may, if all Ugandan land was titled it could be taxed to raise more revenues to finance security, health, education and infrastructure development, improving the people’s capacity to lift themselves out of poverty, creating jobs and bettering access to market and the general  business environment in the process...

People argue that the poor in the rural areas cannot afford taxes, which is not true. There used to be graduated tax levied on all adults and people paid. And because they knew they had to they were more productive. Now our rural trading centers are good for producing ludo experts.

To pay their tax dues, people will either worker harder on their lands – stopping to work when the sun is high in the sky is so 20^th century; lease or sell the land to others who can make better use of it and pay the tax. It serves no one any good to have square miles of land to roam scrawny cows that are not good for milk or beef.

The news that finance ministry was threatening to halve parliament’s budget, while it will not happen, the savings from such an audacious move could be spent on titling all our land as a first step to lifting us into the 21^st century.

PRIVATISATION: THE GIFT THAT KEEPS GIVING

Last week two of Uganda’s most successful privatization companies, Stanbic bank and power distributor Umeme, released their 2023 results.

 A bit of background on both to put this into context.

In the heat of the privatization process in the 1990s it was clear that two companies had to be privatized if they were to provide the ripple effect the economy badly needed – Uganda Commercial Bank (UCB) and Uganda Electricity Board (UEB)...

UCB was the biggest bank with more than 100 branches and controlling more than 80 percent of deposits. This dominance had a net negative effect on the industry and the economy, as UCB was inefficient – it took up to three months to cash check from one branch to another and was seating on a mountain of bad debt that threatened to bring the whole sector down and the economy with it.

Detractors of the bank’s eventual sale argue that by the time of its sale it was profitable – it made sh19b in its last year, but what they neglect to say is that most, if not all, of the income came from treasury bills and bonds. Government had forbidden the bank from lending because every time they did, the stock of bad loans only increased.

Any fool can be profitable by buying government paper, but that is not the role of a commercial bank. A good commercial bank collects deposits and passes them on as loans to people who need capital. This intermediary role is critical in growing any economy.

Since UCB’s sale to Stanbic in 2002, the South African based bank has exceeded the wildest dreams of the government or its new owners.

Stanbic reported that revenues were up last year to sh1.3 trillion up from sh1.1trillioni n 2022. Profits followed suit coming in at sh421b from sh366b the previous year.

But two things stood out for me from last week’s results and in my mind cement the benefits of the banks privatisation.

To begin with bank’s lending to customers stood at sh4.2trillion, made possible in no small part to sh6.3trillion in customer deposits the bank holds. In the year Stanbic took over the bank had sh500b in assets against total liabilities of sh470.3b.

"No doubt a lot of this growth comes from momentum, the economy has averaged six percent growth over the last three decades, but you have to give the managers at Stanbic some credit because their asset base has shown a compounded average growth of aboutr 15 percent since 2002...

The second thing that stood out for me is that the bank paid the tax man sh132b. This is important because the government sold the bank for $20m or sh76b at today’s exchange rate. Going by the current trajectory of the banks growth, in five years they will be paying the equivalent of two UCBs in taxes.

These two, that they are lending multiples of what UCB did and paying increasingly more tax, seal the deal for me. This is before you go into how many people they employ, the businesses they have supported and grown over the years.

I shudder to think what the economy would be like if UCB existed with all its deficiencies to this day. Would it have been turned around? Maybe. We had all the qualified human resource at the time to do it—it was not run down by village bumpkins. But it would take time – I doubt we would have sorted ourselves by now, time we did not have then or now.

 On its part Umeme took over the distribution arm of the former UEB and its results have been just as amazing, if not more so.

Connections to the grid are touching two million accounts from less than 300,000 when they took over the concession. It helps of course that power generation capacity is three times more at about 1400MW than when they took over, but the efficiencies they have brought to the sector are not to be huffed at. They collect almost all their billings and have reduced technical losses by more than half to the current 16.2 percent.

In addition, they have joined mobile phone company MTN – another poster boy of the liberalization process, in earning revenues of more than sh2trillion and have made a few Ugandans wealthier by sharing in their success on the Uganda Securities Exchange (USE), not unlike Stanbic.

And finally over the last decade alone they have invested nearly two trillion shillings or $526m in rehabilitation and expansion of the network.

And that last point was a major consideration for privatization. Because not only were these companies hemorrhaging money, government  then or now, did not have the money to make the necessary investments to see these companies achieve their full potential.

By bringing in credible investors with access to the deep pockets of the west, government was able to hit two birds with one stone; one, expand services to more people and two, get paid while doing it.

Have the investors of Stanbic and Umeme made money along the way? Of course, which is as it should be. It was the best of both worlds. By aligning foreign capital with our strategic goals – strengthening the financial sector and expand electricity coverage respectively, the people were the winners.

 

ZIMBABWE CONTINUES TO ACT AS A CAUTIONARY TALE

Last week it was announced that Zimbabwe’s finance ministry was mulling the possibility of a gold standard to shore up its hopeless currency.

Zimbabwe dollar battered by hyperinflation and falling export receipts has become so worthless that Zimbabweans have forsaken it for the South African Rand, US dollar among other hard currencies to transact in their daily lives.

A gold standard would hold the government to a discipline of only issuing as much currency as they have gold reserves (As was suggested in this column in 2008).

"This would have the immediate effect of putting the brakes on inflation and strengthening the currency, but would in the short term be very painful for the man of the street as cash would be in short supply and hard to come by...

How did it come to this? Zimbabwe used to be the breadbasket of Southern Africa, an emerging economy with industries and a growing middle class, better than adequate infrastructure – physical and social and generally an African country on the move.

What happened? In a nutshell, bad politics.

Former president Robert Mugabe and his ZANU-PF under pressure politically, resorted to populism, redistributing land arbitrarily to their cronies and gutting the southern Africa nation’s productive sector with one fell sweep.

It bought them an election but in the process setting the promising economy back decades. According to some reports the country’s per capita GDP has regressed to its 1980 levels, meaning they have fallen out of the middle income status as a nation.

That’s just a number, but for the everyday Zimbabwean it means shortages of essential commodities – Zimbabweans returning home stock up on sugar, bread and cooking oil; it means fuel lines at the stations or walking long distances to work, out of necessity because they cannot afford fuel or transport; it means a real fear of hunger and starvation.

"Zimbabwe is an important case study for us, in the developing world where politicians think they can tamper with the economy to sustain themselves in power, without regard to the long term repercussions to the general population...

Because the truth is, even in Zimbabwe the ruling class are not suffering the hardship and shortages of the everyday man. They still ride to work in fuel guzzling four-wheel drives, take their children to study abroad and have their families treated overseas—Mugabe died thousands of kilometers away in a Singapore hospital.

In Uganda we are no strangers to this downward economic spiral. While it did not start with the expulsion of the Asians in 1972, this clearly speeded it along by decimating our commercial class, a blow we have barely recovered from now 50 years later.

To get the economy back on an even keel, we have had to do some unpopular things like liberalise the economy, which while growing the country’s wealth has concentrated it in a few hands. This last part thanks largely to government inefficiencies and corruption.

While the Uganda macroeconomic stability and growth must continue in Uganda, probably more importantly the economy has to be rejigged to give every Ugandan a fair shake.

This does not mean government standing at every corner dishing out shillings. As popular as that may be in the short term it only serves to create dependency on government instead of self-reliance of the population.

The distribution would take the form of improving social service as a way to improve our human capacity, widespread infrastructure to allow access to market for our producers and improved safety of person of property, through improved security and application of the law.

That it is why it is important to pay attention to corruption whether in government or the opposition, because the perpetrators will seek to protect the status quo even if and especially if, it does not advance the living standards of the everyday man.

This is why given all that we have seen in recent weeks, with opposition politicians just as, if not more, rapacious than the usual suspects, calls for government to own businesses should be avoided like the plague. In fact we should look closely at the champions of these calls because more likely than not they would be the main beneficiaries of the increased surface area for corruption.

The point is this, just as in Zimbabwe, we need to recognize the productive sectors of our economies and rather than disrupt them, because we have no real control over them or because we want some quick political fix, enable them to be more productive through macroeconomic stability and an improved business environment.

Given our economic history, one would think I am preaching to the converted, but the political drama since the beginning of the year suggest that we are leaving the door open for some dangerous political maneuvering that may very well send us back into an economic abyss most of us have no knowledge of. Eight in ten Ugandans were born after 1990.

If Zimbabwe which had already attained middle income status in the 1980s, can be spiraling out of control, let us not think we are immune to the same, whatever the fat cats in government want us to believe.

PERPETUATING POVERTY AMONG OUR ELITE

At the end of last month a video went out showing a convoy of high end 4WDs cars ferrying the final year students of a secondary school to their prom.

The young men, who probably harangued their parents to hire the cars may be excused, we all know how it was to try and impress the ladies at that age, but you have to wonder about their parents and school administration for allowing this to happen.

I will never forget a few years ago seeing one of our friends shelling out sh300,000 for a pair of Timberland boots for her small brother to wear at his final year social, and thinking she was absolutely mad to be paying the equivalent of his school fees for a few hours of flossing.

Inflation has clearly set in, because I can imagine in addition to multimillion shilling outfit, parents now have to hire 4WDs and limousines for the boys to wow their female counter parts.

It makes me laugh to think that we used to be ferried in the school truck for socials. Alighting with all the dignity one could muster from the back of the truck, must have been a very funny sight. Bless the ladies of those days, they could see beyond that to the potential of their boyfriends.

"These same kids will grow up to be tone deaf MPs and thieving officials wherever they work. They have been set up for a life that they cannot afford to maintain through hard and diligent work...

It is no wonder then that one big shot on social media last week declared that to be rich in Uganda you need to have a net worth of $1.1m (sh4.98b), live in a house valued at at least sh500m, own two sh120m cars and have your kids in schools that charge at least sh5m. What he described was high living and not necessarily wealth.

And that is the thing, we think wealth is most manifest by our spending habits. So these young men are unwittingly being sold the idea that you need to look rich to be rich, which is far from the truth.

It has been shown that wealth depends more on your discipline with money than how much you earn.

There is the urban legend of the manager who cannot make his salary stretch to the end of the month, while his driver, who earns a fraction of his salary, not only gets to the end of the month but has enough left over to invest in his growing empire of mizigo rentals.

The difference between the two men is that the boss is focused on a consumption lifestyle while the driver is focused on investing.

And that is the crux of the matter. There are only two ways to spend your money, you either “eat” it or invest it. In the former case you look rich even while living hand to mouth, while in the latter case you may not look rich today, but you will be building wealth, which may very well lead to a higher standard of living in the future.

A friend of mine has been investing diligently for the last 15 years. He has maintained his expenses as a proportion of his income, to about 30 percent. So while ten years ago his expenses may not have been much to write home about, his expenses now have grown to almost sh5million a month. The remaining 70 percent he reinvests, increasing his income annually in the process.

His mantra is he would rather be rich than look rich.

"I believe our lack of understanding of how to create wealth is why our political leaders jump at any opportunity to dip their grubby fingers in the public till and our company officials do the same....

They think that building wealth comes from grabbing. Being men and women of above average intelligence they soon realise that in order to sustain their high consumption living they need to grab more and more. Which explains their bottomless greed. Hence their need to stay in government. There are enough former public officials walking around shell shocked, wondering where all their money went, because they do not have access to the treasury.

The trick with money is that if it is left seating around it will diminish with time. A function of inflation. And if our brains are wired towards consumption rather than investment, there is no money that cannot be finished.

The lessons our children should be learning are, how to earn money through hard, honest work, to live below their means, saving the surplus and then how to make that money work for them through investment. The biggest lesson of this process would then be that it takes time to create wealth.

Coming full circle to the young men and ladies at the aforementioned prom. By enabling this ostentatious display of wealth, our parents and schools are sending the wrong signals to their young wards, that pretending to be rich makes you rich...

In trying to keep up with these artificial standards these young men and women will not be averse to reaping where they did not sow when the opportunity presents itself.

MTN CONTINUES TO POINT TO THE FUTURE

Last week telecom company, MTN reported its 2023 net profit jumped 21.4 percent to sh493b, on the back of double digit growth across all revenue centers, including voice, which in 2022, for the first time registered lower revenues than the previous year.

In 2022 net profits came in at sh406b. Top line revenues were up 16.1 percent to sh2,629b from sh2,265billion in 2022.

While voice revenues grew by 11.6 percent to sh1,117b, data and mobile money revenues continued the now established trend of beating voice revenues for the third year running, accounting for 53 percent of revenues.

"Shareholders will be glad to learn that final dividend of sh6 per share is planned pending approval from the Annual General Meeting. This brings the total dividend per share to sh18 or a 10.6 percent dividend yield which compares favourably with fixed deposit rates in the market....

As an investment proposition the sh170 a share is becoming increasingly attractive as the earning per share is now sh22.02 up from sh18.14.

In a later conversation with CEO Sylvia Mulinge, who was reporting on her first complete year at the helm of Uganda’s largest company, she attributed the good results to her team’s execution of strategy. A focus on people, infrastructure development and the sharpening of the customer value proposition, led to the company’s market leading performance.

She was unsurprised by the recovery in voice revenues, pointing out that Ugandans are still buying more feature phones than smart phones, so there is still a lot of scope for voice revenues to grow, even if data and mobile money revenues will continue to dominate. In Kenya last year there were about 600,000 more smartphones than feature phones on the market.

Relatedly, as a sign of things to come data subscribers increased by 22.4 percent to 8.2 million. Given that MTN’s total subscriber base stands at 19.5 million, doubling of data subscribers is a real possibility in coming years.

This has far reaching ramifications for improving the ease of doing business in the country with the uptake of delivery services and other e-commerce options. MTN is aiding this growth with their MTNKabode programme by selling smartphones on credit, helping smartphone penetration grow to 39.1 percent. The comparable figure in Kenya is upwards of 60 percent.

 But even more exciting for me is the progress that MTN’s mobile money is making.

For starters the value of transactions jumped 44 percent to 133trillion from 92trillion in 2022. To put this in perspective, this year’s government budget is sh52trillion. What this means is that more and more of the money in circulation is being liberated from under our mattresses into the formal financial sector, where it can be useful not only to others who borrow it, but also to the owners who earn interest from it. MTN paid sh42b in interest on savings in 2023,  more than doubling the 2022 figure of sh19b.

And finally, that MTN has sh1,488b in deposits, which would easily have made them a top ten financial institutions in terms of deposits. The previous year deposits closed at 1,207b, a 23 percent increase, which means the deposits can double every three years.

The two movements, in data services and mobile money uptake, is where the telecom industry is going to have a transformative effect on the economy.

Mulinge is intimately familiar with the road ahead for MTN, having been Safaricom Kenya’s Chief Customer Officer, before she came to Uganda,

“If you think about the demographic dividend of this country, 70 percent of the population is under 35 and they're largely digital natives, so many of them will want to get on to our platform;” Mulinge said.

And then “Who is going to own the home? Because whoever gets into your home first, in terms of fiber connectivity and everything it will be very difficult to dislodge them.”

 

TO FIGHT CORRUPTION WE MAY HAVE TO RELY ON FOREIGNERS

It was an interesting week last week.

We had President Yoweri Museveni reporting that corruption had sipped into the military establishment, especially with soldiers serving as enforcers in land disputes. It was also the week that finance ministry permanent secretary Ramathan Goobi called for a leaner government, complaining that the cost of public administration had galloped out of control.

 A related story and probably even bigger than the aforementioned was the removal of Uganda from the Financial Action Task Force (FATF) grey list.

The FATF leads global action to tackle money laundering, terrorist financing and the funding of the proliferation of weapons of mass destruction.

"The FATF, while it has been around for at about thirty years, really got its teeth during the fight against terror, that kicked off at the beginning of this century in the aftermath of the attack on the Twin Towers in New York on 9^th September, 2001...

Uganda along with Barbados, Gibraltar and The United Arab Emirates were lifted out of the grey list last month, while Kenya is still there. One of the major requirements that we have only just complied with, is registering ultimate beneficial owners of businesses that was completed at the end of last year.

Companies with unclear promoters were being used to transfer illicit funds and by lifting the veil on these interests, the hope is that it will be plugging one more conduit for transferring ill-gotten wealth.

As mentioned above these moves have gained impetus since the 9/11 attack on the twin towers, as investigations have shown the people responsible used US financial services to fund and  shift resources around.

A failure to comply with standards and a fall into the FATF blacklist or high risk jurisdictions, would have had far reaching implications for the economy.

North Korea, which is on the blacklist, the FATF has advised other countries that deal with it to subject its companies and banks to extra scrutiny and to close their bank branches and end all correspondence relationships with North Korean Banks.

For country with aspirations to ramp up exports, attract foreign direct investment and encourage its citizens in the diaspora to send back more remittances, such action on Uganda would set us back a few decades.

While western economies are targeting bigger fish, our merchants of corruption, if they know what’s good for them need to seat up and take notice.

There will be greater scrutiny by financial institutions on the sources of income of funds and transferring abroad to hide them from local busy bodies, has become that more difficult, not least of all because of the sanctions on financial institutions if they are found to have abetted transfers of illicit funds, means it will not be business as usual.

Which probably explains the increased number of safes in people’s houses and the proliferation of the forex bureau in the suburbs, because if you think about it, it is easier to handle $100,000 than sh390m.

We can expect that in coming times there is going to be an industry built around money laundering to beat not only local anticorruption legislation but the FATF as well.

Expect a few to be caught in coming days, those who think they can do-it-yourself the process and don’t need the experts.

"Of course Uganda whose economy is largely informal, up to 70 percent by some counts, there are still a lot of avenues for people to launder their ill-gotten wealth. But we have to recognize that these too are fast being sealed....

In a previous life if you stole your billion shillings you could go and buy land, start building. Nowadays you have to justify the source of your income to URA and if it has not been taxed URA would charge a hefty 40 percent of the sum. While if you had stolen the money it would not be a bother to pay tax, but you enter a database, which are increasingly becoming integrated and sometime in the future someone may very well pull this fact up.

Or if you have the land already and decided to spend you ill-gotten gains putting up apartments for sale or rent, the issue of the income to build the apartments will come up.

All these means that that it is that much harder to launder money than it was two decades ago.

"It would be naïve to believe that the coalition of the corrupt will see the writing on the wall and scale back on their actions. More likely to happen is that they will go further underground, employ expert money launderers, but at least the impunity will have been toned down....

Ten years ago this columncelebrated the passing of the Anti-corruption law. Even then the cynics dismissed it as a tick box thing to appease western donors. There are a few score of individuals who have gone through the court and are not laughing.

So let us check back in 2034 and see how much the FATF has changed.

 

SPEEDING TOWARDS A CASHLESS SOCIETY

Two weeks ago the Bank of Uganda released the quarterly ”Financial Stability Risk Assessment Report” for the last quarter of 2023.

Long story short most risk in the banking industry is under control and the sector is generally in good shape and has come some way from Covid-lockdown crisis.

That  should be a relief to any one who has an interest in the economy. More interestingly for me is the rate at which cashless payments are  increasing every quarter.

In the last three months of 2023 debit card payments rose to sh581.1b from sh532.9b in the previous quarter a near ten percent jump. In the meantime mobile money transactions  increased in value to sh62.2trillion from sh60.5trillion. To further emphasise the point of the shift away from cash mobile banking transfers increased to 2.4 million

  from sh1.9 million transfers in the previous quarter.

Even more interesting is that over the year  mobile money transactions crossed the sh200trillion mark up from the 2022 figure of sh190trillion transacted on all mobile money platforms.

This trend is a useful one because it means more and more of our cash is being liberated from our pockets, socks, mattresses and other dark, dank places we have been storing our money. This money is finding its way into the formal financial system where it is not only beneficial to you but also  is made available to others who have need for resources when you don't. It would be interesting to track the uptake of mobile money loans, despite their eye-gouging rates.

Basically the more of currency in circulation is in the formal financial sector the better for an economy.

The mobile phone is accelerating this process in Uganda.

If you think about the sh200trillion-plus in mobile money transactions is about $52b or bigger than the economy of Uganda. We can expect this trend to continue as more people  appreciate the convenience and businessmen allow it as an option for payment.

Speaking for myself I save on a fintech app, which gives me seven percent on savings, posting the  interest daily. I borrow the savings of other users from my mobile money provider and I virtually walk around without money in my pockets, because I can pay for anything using mobile money and if the worst comes to the worst reach into my bank account using my phone to meet other needs.

This means I keep my money in the bank or on mobile phone longer. I remember a time when eye watering qeueus used to form at the bank on Fridays to withdraw money for the weekend. God help if you if you did not make it to the bank on time, which used to be 1 pm, on Friday.

The counter intuitive thing is also that money is staying more in the formal financial sector because of the ease of withdrawal.

And this trend has other far reaching implications for the economy. A major reason for the high lending rates is the low savings rates in this economy. As a result the banks charge higher rates.

Banks are often walking a tight liquidity tight rope. Lending out of their capital and the few long term savings accounts. If more of us fixed our money longterm the risk to the banks to get caught in a liquidity squeeze would reduce and they would be able to lower lending rates.

This trend being pushed by mobile money is good place to start.

Of course the major reason lending rates are high is government borrowing from the public and paying double digit interest  rates. It is a no-brainer every money manager will lend to government first and then think about his riskier customers and force them to pay a premium for the  privilege.

But with oil revenues just over the horizon, one can expect government appetite for debt to reduce and the with the trend of more money finding its way into the formal financial sector and bank operational costs sliding, lower lending rates is becoming more of a reality.

To speed up the process towards a cashless society, it would help if government scrapped the larger denomination notes – sh50,000 and even sh20,000, forcing more transactions into the financial sector and even serving a fatal blow to corruption in Uganda.

It is very likely that in five to ten years the clamouring for more  branch opening by banks will be a thing of the past. The competition to reach clients will go online with the banks with the most user friendly platforms taking the day.

 

HOW TO ENSURE “AFFORDABLE” SCHOOL FEES?

Last week parliament tasked the education ministry with outlining punitive measures for schools that charge prohibitive fees.

This is

a perennial lament that pops up around the first term, when parents coming out of the merry making of the festive season, “suddenly” realise school fees are “too expensive”.

The representatives of the people jump on the sentiment and criticise the government in general and the education ministry, in particular for the high fees schools are charging.

This time they have gone a step further and demanded that the education ministry punish schools, which charge exorbitant fees.

You never know whether to laugh or cry in these situations.

There are a number of issues here, not least of all is how do you  determine what are exorbitant fees.

A man who was used to driving free of charge on Entebbe road may think the sh5000 a trip on Entebbe expressway is exorbitant; A man who is used to drinking a beer at his local Kafunda at sh3000 may scream bloody murder when he goes to one of our higher establishments and they charge him sh10,000 for beer; A man used to paying sh1,000 in a taxi may have some uncharitable words to say when the Uber driver charges him sh15,000 for the same trip into town.

Even more fundamentally, the MPs were not calling for sanctions on government schools but on private schools, which government ideally should have no business setting caps on what they charge as fees.

"Putting a cap on fees will disincentivise investment in the sector and lead to the very thing MPs are complaining about – exorbitant fees...

About 10 million children are enrolled in primary and secondary schools around the country. In Kampala 84 percent of them are enrolled in private institutions. In the countryside this falls away considerably depending on the earning power of the population.

If parliament wants to sustainably lower school fees they need to take a long hard look at that ratio. That number screams for more investment by government in the sector.  

With the power to appropriate budgets, MPs should be talking about increasing the funding to the sector to build, man and equip more schools as a way to bring fees down.

It’s a simple demand and supply equation. The more government schools there are of credible quality the less the gap for the private schools to fill in.

In Sweden where government provides free education for every child of school going age,  private schools account for less than a fifth of all enrolment. 

ERA: THE PATH OF LEAST RESISTANCE IS A CROOKED ONE

Last week Electricity Regulatory Authority (ERA) announced a 1.6 percent reduction in tarrifs for power consumers.

They gleefully reported that this amounts to a sh40b saving for consumers.

ERA can allow these reductions because the “cheaper” power from Karuma dam was coming and would lower the average tariff price.

Everybody including me, is always happy for cheaper goods and services, but not at the expense of the quality of the product or service.

"There is a connection between the mechanical driving down of tariffs and our ever increasing power outages...

Worked into the power tariff is the cost of operations and maintenance for the power generators, transmitters and distributors. As a way to keep tariffs down ERA has severally denied the industry players optimal operations & maintenance budgets.

While this allows them to report a lower tariff it also means that the industry players cut back on their operations and maintenance, a major cause of the regular outages we are experiencing.

Imagine for instance that Umeme has outsourced its troubleshooting function to a company X. Umeme wants to get the service at the lowest possible price without compromising quality. But there is only so low the contractor can go with his price, below which he will have to start cutting back on staff, increasing response times and in some instances leading to longer power outages. Gone are the days when Umeme “Kamyufus” responded in hours. God forbid now you lose a pole or transformer you will be out for a week, as I learnt painfully recently. God help you if you are upcountry.

Secondly, depreciation of assets is another charge to be factored into the tariff. Depreciation allows asset owners to “save” money for the replacement of the asset when it has outlived its natural life.  If the industry players are not allowed adequate depreciation allowances it becomes difficult to replace ailing assets.

Is it no wonder that when South African firm Eskom handed over the Kira-Nalubale dams, there was need for $10m remedial works on the complex..

When the question of replacement of assets was raised with one official, he brushed it off by saying government will replace the assets and they are not complaining.

"Government priorities shift by the day and it is full hardy to put replacement or development of new assets entirely at their feet....

The more sustainable position is to provide an adequate depreciation charge so that the industry players can replace or develop new infrastructure in line with growing demand not according to the whims of the government.

Given the avoidable delays in development with Isimba and Karuma dams this logic should not be hard to grasp.

ERA it can be assumed is looking to implement a Presidential desire to see power tariff, at least for big industry, down to US5cents per unit.

President Yoweri Museveni’s desire for cheaper power to drive industrialisation is hard to argue against. What the technocrats need to grapple with is how to deliver on that desire in a way that will ensure the continued sustainability of the sector well into the future.

While the contracts of the bosses of ERA are a few years, they owe it to posterity to ensure that when they have left we still have a power sector to talk of.

On my first trip to South Africa in 1996 no one knew what loadshedding was. In Uganda we were suffering daily loadshedding by then – if you had power in the day today, you wouldn’t have power in the night tomorrow. A recent return to the rainbow nation and loadshedding is now a permanent fixture in their vocabulary.

If you look back into the roots of the current dire situation, under investment in the sector is at the top of the list.

The way we are going we are heading there.

So you have reduced my tariff but for more times than I like, I have to power up my generator to produce power. Even at our current tariff it costs almost ten times more at US80cent per unit or about sh3000 per unit, to use a diesel generator than use the  power from the grid, so who is complaining about expensive power?

It is really a no-brainer. For any producer given the choice between cheap but intermittent power and dearer but consistent power supply, they would opt for the latter over the former.

Don’t take my word for it, lets do a survey especially of the big energy consumers and see what they say.

Lowering tariffs the way we are doing is good for the technocrats but not for our industrialisation ambitions.

UGANDA’S RECORD FDI AND THE MAN ON THE STREET

In November audit firm Ernst & Young (E&Y) released a report on Africa’s economic prospects.

"In the report “Pivot to growth” E&Y reported that Uganda attracted a record $10b in foreign direct investment in 2022 or seven in every ten dollars of FDI that came into East Africa that year....

This was driven by projects in the oil & gas sector.

The news left the man on the street scratch his head at how come he never saw this money.

The confusion comes from our not understanding how FDI is reported and secondly, how such monies when they do come, trickle down to the everyday man.

Reading the report one realises that when they talk of $10b in FDI booked, they are reporting the monies committed for a project. So in our case for example, our share of the $10b East African Crude Pipeline (EACOP)for which final investment decision was reached in  2022 would be included in this number.

The funds of course will not arrive in one lumpsum but will mostly be parceled out over the duration of the project.

Why we did not see immediate improvement in the contents of our pockets is largely a function of what the project will need or buy locally.

The planning, design, plant and machinery will be  bought abroad and paid for there but are factored in as project costs. Foreign contractors may very well be paid in  to their accounts at home.

Local contractors, suppliers, hospitality and service providers are beginning to smell the money.

But as we all know there is no one as quiet as a man who has been paid. The loud ones are the one who are not in the slip stream of the money...

In years after commercial viability of our oil finds was determined in 2006, government has written into law what sectors of the industries servicing the oil & gas sector can be ringfenced for Ugandans. These were mostly food, hospitality, security, logistics and other low capital intensive sectors.

So if you are a friend, relative or business partners of the local businessmen who have already seen some contracts you are not complaining.

But also while the oil & gas sector may very well effect some major changes in the greater scheme of things our 200,000 barrels per day at full capacity, is really not much to write home about.

Nigeria last year averaged 1.35 million barrels per day, Angola came in second at 1.1 million barrels per day and Algeria at 908,000 barrels per day.

That being said businessmen are reporting that they are beginning to feel an uptick in demand, starting the middle of last year and one may imagine some trickle down is beginning to show its head.

The relative stability of the Uganda shilling which traded in a a narrow band of sh3750 – sh3850  may also indicate that some of that oil money is already coming and supporting the shilling.

Kenya across the border saw its currency cross the sh160 to the dollar mark before Christmas, a trend that continued into January. Some of the reasons were falling commodity prices and a flight for the exit on indications our eastern neighbour is set to default on some key international loans.

Whether you will earn from the oil & gas sector or not will depend on how you are positioned. As a worker the industry has stringent accreditation standards that have to met before they can look your way, for contractors and suppliers the same.

"The expectation is that at least $20b will spent until first oil in 2025 and so it may not be late to position oneself to draw from the oil wells...

The money will not come dripping with oil and easily recognisable as coming from the sector, but it will come.

Many have been called to partake  but few will be chosen.

PRESCRIPTIONS FOR UGANDA'S NEXT 38 YEARS

Last week we commemorated 38 years of the National Resistance Movement (NRM).

There is a lot to be proud of. No less a figure than Singaporean former leader Lee Kuan Yew speaking in 1998 did not give Uganda a chance in 100 years to get back up on its feet. At the time the NRM was two years in power having inherited a country that was barely functional and an economy that had regressed to pre-1970 levels...

To add salt to injury there were insurgencies in the north and east, which were taking priority of the meagre national resources.

The rebellion mostly in the north, which lasted into this century, served as a lodestone on economic progress, as almost one in five of the country’s population was not producing or consuming meaningfully.

The end of the war on Ugandan soil from around 2002, meant northern Uganda could reenter the productive economy and the results have been telling.

Uganda’s per capita GDP has jumped almost four-fold to $934 at the end of 2022 according to the World Bank, from $241 in 2002. Interestingly per capita GDP fell back to 2002 levels from $253 in 1986.

One can argue that by 2002 a growth momentum had set in, from earlier reforms that liberalized the economy, but it is hard to discount the effect of the reentry into the economy of northern Uganda and West Nile.

However, an argument can be made that we have underperformed given the human capital we have, the natural endowments and the peace the rest of the nation has enjoyed.

That being as it is I would like to look to the next 38 years to see how we accelerate the development trajectory.

1.       Root out corruption

The recent Auditor General’s report reports a continued trend towards more and more waste in government. Its not that our officials are clumsy and letting valuable shillings disappear into thin air, more that they are keeping more and more of our tax shillings for themselves. This is affecting service delivery, concentrating resources in a few connected people’s hands and even worse, distorting markets by overinflating asset prices and underpricing genuine businessmen. Not only is this trend grinding the economy to a halt but also poses a serious threat to national stability and security.

2.       Leaner government

Relatedly we need to cut back on the cost of public administration, especially because the bloated public sector has increased the surface area for corruption with little attendant improvement in production. Leaner government would allow government to focus on what its supposed to do which is facilitate the private sector to produce and equitably distribute the ensuing growth. Leaner government also means government not succumbing to the temptation to go back into business...

3.       Greater emphasis on human capacity development

A few years ago an argument was made in the The Economist magazine that given a choice between human capital and infrastructure development, the smart money is on improving the quality of the population. The argument was that once the people are better educated and healthy they will find a way around the infrastructure deficits. However, if the quality of the people is wanting all the infrastructure in the world will count for little as they will not be able to exploit it to improve their living standards. School enrollement has to continue to rise but more importantly we need to reduce the drop out rate, about 1.4 million a year the last number I saw. We must increase access to quality health services. We must increase opportunities by improving the business environment to absorb all these quality Ugandans entering the job market.

4.       Continued infrastructure development

While we have made significant strides in infrastructure development – except rail transport, we are far behind what our ambitions require in road, energy and social infrastructure. Using roads as an example we have about 16 km of paved road per square km, which is well below what an average middle income country which is around 80 km per sq km. We have all seen in our various suburbs how much new economic activity is generated when a tarmac road is laid. The same deficiencies are seen in everything from electricity generation and consumption, to health center and school facilities to housing. Infrastructure is what unlocks the latent economy.

Invest in agriculture extension 

A recent study showed that for sub-Saharna africa to make its biggest gains in agriculture investing in agricultural extension services and irrigation are your best bet. we have been seating on our laurels for too long, to thepoint that our agriculture is still using means of pre-agricultural revolution times. Extension workers who will improve the productivity of our small holder farmers is critical. It is a scandal that while agriculture provides the livelihood of seven in 10 Ugandans it acocunts for less than 30 percent of GDP and has not enjoyed double digit growth in any one year in the last 40 years, hence the prevalence of poverty in Uganda.

 

5.        Export led growth

And finally, we need to focus on producing for export rather than import substitution. As the Asian tigers showed focusing on export led growth improves the quality of products and creates more jobs. Import substitution benefits a few connected people, does not improve quality standards and generally lowers livings standards by condemning the population to endure substandard goods. The evidence is all around us the export targeted Lato has better quality products, in adequate quantities and changing the socio-economic status of farmers in Ntungamo than their local competitors who are content to serve the Ugandan market.

 

This is by no means a comprehensive nor original list, the challenge for the next 38 years is the execution of these ideas. Hopefully we will look back in 38 years and we would have far exceeded our expectations.

FOR GOD AND MY COUNTRY!

 

A RETURN TO SAPS IS A REAL POSSIBILITY

In his latest report the Audit General drew a painful picture of how our domestic arrears are doubling every five years with no effective action to slow down this accumulation or pay them off.

The Auditor General John Muwanga in his report of the year that ended in June 2023 said domestic arrears continued to mount by 16 percent annually, inexplicably and illegally.

“Some accounting offices are concealing domestic arrears and paying for arrears which previously were not disclosed nor budgeted for,” Muwanga reported.

“In other instances, the arrears disclosed are not properly supported by evidence of goods or a service. I further observed that some entities have entered in to multi-year commitments without parliamentary approval.”

In simple English officers are paying for ghost products and services, hiding legitimate claims on government while paying the fictitious ones and committing government to debts without proper approvals.

The net effect of this, is that what government owes to suppliers has nearly tripled to sh10.5trillion in 2022/23 from sh3.335 trillion in 2018/19, with no corresponding growth in revenues. During the same period URA collections grew by just over 50 percent to sh25.2trillion from sh16.6trillion. Just by that simple calculation it is inconceivable that government will ever fully pay these domestic arrears.

The worst offenders are Kampala Capital City Authority (KCCA) who in the last year’s domestic arrears jumped almost tenfold, followed by the works ministry, prisons and the finance ministry. That is ironic because the finance ministry is supposed to be overseeing and implementing the discipline around accumulating domestic arrears.

This is a scary situation than is being acknowledged by the government.

So I have a friend who does business with government. They owe him a few billion shillings for work that has been done and certified. His business is on its knees because between government not paying him, URA is baying for his blood, as is his bank. To survive he has been forced to regress into informality. He has adopted two sets of books, cut back on his official payroll and basically insists on being paid in cash and not through the formal financial system.

It does not take a rocket scientist to see what will happen if his methods are replicated across hundreds or even thousands of companies.

URA will huff and puff but will find little love in the private sector. That is not a threat but a promise.

It is so bad, that many banks are refusing to discount government invoices. Previously if a business man won a deal he could take an invoice he had made to government and borrow against it in the bank. Now banks don’t want to touch that “counterfeit” paper with a ten-foot pole. Businesses are slowly grinding to a halt.

This is an unsustainable situation. Our taxes come from private companies and individuals. With businesses struggling they will close down altogether costing jobs in the companies and among its suppliers.

What the Auditor General was describing up there was corruption in very many words. Despite a policy and new blood in the ministry the interest groups around this racket are so firmly entrenched they can openly defy Ramathan Goobi’s best efforts to bring some sanity to the system. Isn’t it just a matter of time before he throws up his hands in defeat or joins them anyway?

"There is even a scarier scenario.  That these interest groups that are a law unto themselves, have actually captured the state...

Ebola is particularly dangerous parasite because it feeds off the host and when they die abandon them for a new host. When it is feeding off the host it has no thought of coexistence, it just feeds off the host in disregard of the hosts continued life.

That is what the Auditor General is reporting is happening in the Uganda government. That the corrupt are feeding off the state without regard for whether it will continue to exist. In fact when every one else is tightening their belts, these leeches are accelerating their eating and to hell with everything.

This cannot end well, especially if good people decide to join in the plunder.

While it may sound drastic you just have to look across the border to Kenya to see what happens when a rapacious clique takes over the state and bend it to their own over the national intersts. For all intents and purposes, they are going back to Structral Adjustment Programme (SAP) -- raising taxes, cutting subsidies and privatizing public enterprises to qualify for much needed cash.

All this because revenue inflows have long been surpassed by government expenditure. If corruption was tackled decisively you would be shocked how dramatically government expenses would collapse.

And this is not just macroeconomics. As a proxy of economic activity mobile money transactions in Kenya last year for the first time in 17 years. The small man is feeling the pain in a very real way.

God forbid that we find ourselves back in SAPs because of our indiscipline. But how improbable is that given what we know?

THE ATIAK SUGAR DEAL LEAVES A BITTER TASTE IN THE MOUTH

We all know someone like this. You come together as group to contribute to a business venture, but they despite their initial enthusiasm for the project, are reluctant to contribute to the endevour. The rest of you get it off the ground with the little you have managed to put together and what in patient hope for the coming of their contribution.

It doesn’t come and there is always an excuse why. It is beginning to get on your nerves because the defaulting member is benefitting from the project disproportionately to his contribution. You could have let them freeload – after all we are all friends, but the sheer injustice of the situation is beginning to poison the friendship. And the freeloader seems totally unbothered by the situation he has put you people in, oblivious to the risk of jeopardizing the project all together.

Last week the Auditor General released his report for the year that ended in June2023. Wading through the inane stuff that included air supply in local governments, our ballooning public debt, ghost works in government I happened upon a report about our interest in Atiak Sugar Company.

"If lack of capital is a reason for most business failures in Uganda there is no way, absolutely no way, Atiak Sugar Company will collapse...

The project is located in Amuru district, northern Uganda and has the potential to process 1650 tonnes of cane daily for a production of 66,000 tonnes of sugar annually on the 7,900-acre plantation.

 They have struggled to get off the ground, with production being pushed back from 2016 before limited production begun in 2020, but had to be shut down in 2022 for lack of cane to run the plant following a burning of 3000 acres of their fields. Observers think it won’t be until 2025 when they resume operations.

Industry players in private are not surprised by the teething problems the project is suffering as the promoters thought they would circumvent certain key processes in setting up an operation as they had envisaged.

For a project of this magnitude to take almost a decade after its initial commencement to take off is mind boggling.

But maybe not.

Over the last six years government has pumped sh459b into the project in equity and loans through Uganda Development Corporation (UDC). But also an additional sh69b has been received from NAADS (National Agricultural Advisory Services) for such things as slashing, weeding and planting.

But to break it down even further these monies at sh14m a classroom, build about 40,000 classrooms or almost 6,000 primary schools. This would  put a dent in our horrific number of more than 1.4 million kids dropping out of school annually....

These funds, which are more than were allocated to the manufacturing and tourism sector – sh491b, in the last budget, is five times more than government’s commitment to the project. Government is a 40 percent shareholder in the project for which they were supposed to contribute sh80b.

But it gets better.

John Muwanga the Auditor General reported on government’s partners in the project, Horyal Investment Holding Company (HIHC), “There was no evidence to confirm that the private shareholders had provided their capital contribution to the company.”

All I could say was, Wow!

But not only has government given HIHC a blank check to set up this financial black hole, but also was not adequately represented on the board. Government has only one instead of two board members. This kind of negligence is criminal.

To simplify several of us got together raised money and then handed over the money to the one among us who has not contributed to the business and we are not bothered what he is doing.

Where is the incentive for Atiak to work?  The promoters are already being paid hand over fist before the project starts, why suffer with staffing and operations, when we can just be paid for twiddling our thumbs?

I would love to be wrong but it is not rocket science to see what is going to happen.

"The promoters will throw their hands up in the air in defeat, walk away, government will take over the project to make a show of trying to recoup their investment and eventually give up as well, let the bush grow back and let the machines rust away....

It goes without saying that this country cannot afford this kind of waste on such an industrial scale.

Government actions in this project make one wonder whether they really wanted the project to succeed. If they really wanted it to succeed, the obvious thing to do would be to contract someone who has experience in this business, pay them probably a tenth of what they have already shoveled into this doomed project and just maybe we would have sugar from northern Uganda within a finite time.

And now its on to the next scandal.

 

 

 

THE USE, UGANDA’S OPEN SECRET

If you are to get a quick idea of a person’s financial health, look at how they spend their money.

There are only two ways to spend your money, either you consume/eat it or you invest it. Consumption needs no definition, but investing means committing money with the hope of a return in the future. The returns on investment can come as cash-on-cash returns – you earn cash from the investment or as capital gains – you invest in something and its price rises after you have invested.

Going by this, your financial health is dictated by the balance of how you spend your money. If you consume more than you invest you are not very healthy financially and the opposite is true. Essentially

your financial health is determined by how much of how much you earn you keep.

Shifting the balance is a process done over time and often begins with a shift in mindset, unless you are forced to save like many workers do with the National Social Security Fund (NSSF) in Uganda.

But many of us are at loss on what to invest in. As a result of this confusion, we follow the bandwagon into farming, real estate or business. For those who can not muster the monies to go into the above, they fall back on eating their kamoney, until they get a “big deal”.

Is it any wonder that corruption is in our DNA?  In our endevour to hasten the big deal we end up dipping our fingers in the till.

For the everyday man there is a way to sock away small sums, which over time can grow into huge investments.

The answer is the Uganda Securities Exchange (USE).

At the USE for as little as sh10,000 – National Insurance Corporation (NIC) shares are selling for sh6.5, one can begin on their investment journey, while they wait for the big deal.

They say the best time to start investing was 20 years ago and the next best time is now...

But don’t take my word for it.

If you invested sh10,000 in each of the 11 locally listed shares on 2 January last year, by year end you would have registered a return of sh4,400 according to share monitoring firm Simply Wallstreet. This was in dividends – a share of company profits,  and share price increases (capital gains).

While that may not be enough to whet your appetite, the devil is in the detail.

Of the 11 companies listed on the USE, all but three showed a positive return last year.

Of the eight winners, five of them showed double digit returns, with the lowest being Bank of Baroda at about 19 percent by the end of November and the highest being Stanbic Bank at about 73 percent, according to investment bankers Crested Capital. And among these winners, three of them their dividends accounted for between 25 and 50 percent of the gains.

Interestingly for two counters – MTN and Uganda Clays despite a slide in prices, the dividend payouts more than compensated for that to show a positive total return at year end.

Basically, that you can still win on the exchange even if the share prices dip, if the company is fundamentally sound and can afford a dividend payout...

In an ideal world if a company is doing well – revenues, profits and net asset value are growing, the share prices should follow suit. It doesn’t always work that way especially on the USE where trading is very thin – up to November turnover was only sh61b, with one counter Umeme accounting for almost half of this volume.

Trading is thin because most shares are held by institutional investors, who often buy to hold rather than trade. As a result price movements across the market are subdued.

So, while you can get some credible dividend yields – how much dividend you get compared to what you paid, the history of the USE is that it is rather sleepy in terms of price movements.

But there in lies a huge opportunity for long term players. If company profitability continues to grow while prices are indifferent, it means the shares are becoming increasingly good value for money.

Imagine you bought your house at sh100m ten years ago and were initially charging one million shillings a month in rent but ten years later rent has doubled to sh2m, the value of your house has gone up, at least twice, beyond the initial sh100m you bought it at. Even if no one knows until you decide to sell.

Before telecom company Airtel started trading at the end of the year, while profitability of the listed companies was up 24 percent, prices on average had only moved up  6 percent. Meaning prices had some way to catch up to earnings.

It is a no brainer. As long as companies’ earnings continue to outstrip price movements, it’s a mathematical certainty that somewhere down the line prices will begin to rise to reflect this reality. Next week? Next month? Nest year? Who knows but it will.

Historically the best returns for your money come from owning businesses. The USE is offering pieces of some of the best run companies in Uganda and the region – there are seven Kenyan companies selling shares on the USE, for a few shillings.

And we have not even talked about the treasury bonds and bills trading on the exchange with double digit returns.

So why isn’t the above not widely known? Wealth is silent.