TO BATTLE CORRUPTION, PAY UP

THE Inspector General of Government, Raphael Baku, this week released the annual report on corruption in Uganda.
I have not read the entire report but there was nothing to raise any eyebrows.

Infact, it was rather understated in cementing the perception that corruption is alive and kicking. On 94.8 fm’s Talk of the Nation this week, the issue of teacher absenteeism came up.

I heard how dedication to the vocation was lacking and teachers these days do not appreciate the huge responsibility they bear. The suggestion was that they don’t make teachers like they used to.

And then again on Press Chat on the same 94.8 fm, Richard Baguma narrated a heartbreaking but hilarious story of how in his earlier days as a public servant he went to the bank to check whether his salary had made his account.

"The teller took one look at his account balance and, writing it down on a slip of paper, said his salary had not made the bank yet. It had, but it was so little as not to register with the lady behind the counter....

Earlier this year I saw a list of salaries for various levels of civil servants and at first thought the civil service pay was not so bad after all, until someone pointed out the figures published referred to annual salaries.

I believe that corruption is thriving because we do not pay our public servants enough. They may be other reasons but they are all secondary.

Abraham Maslow’s hierarchy of needs is a useful framework from which to analyse human motivation. Basically, his theory suggests that human motivation is dictated by the pressing needs of a person.

At the bottom of the hierarchy are the basic physiological needs of food, water and breathing, climbing up to safety needs – family, health and housing, and on to belonging needs to esteem needs – achievement, respect, confidence to the ultimate, the self actualised person where issues of morality, creativity and lack of prejudice reside.

The theory says that if you do not fulfill the needs at one level it is difficult to rise to the next level and even if you do, chances are you will always regress to the lower level to resolve the needs unattended to at that level. It is impossible to belabor this point.

"As long as the Government continues to pretend to pay, people will continue to pretend to work while devising other means to meet their basic needs. It is blindingly obvious....

The lowly paid civil servant lives in Nakasero, Bugolobi and Ntinda, is building in Namugongo and Buwate and is unstintingly loyal racking up five, ten, 15 years in the civil service.

This would be an illusion if they were conjuring this lifestyle out of their payslips.

In arguing against corruption, some sanctimonious people argue that if you signed up to work for that pay you should honour your contract or get out.

And I suggest to them that if the Government is unwilling to up the pay and yet wants to plug the leakages maybe they should hire monks, who are sworn to poverty and celibacy....

But of course government planners, being civil servants, know all this.

The argument that there are no resources to improve civil service pay, fly in the face of the fact we are willing to shell out sh500b-plus to host CHOGM, a four-day event, which has had little residual benefit to the majority of the population.

The high profile figures we see getting billion shilling kick backs are the tip of the iceberg. The incessant gnawing away at public resources by lesser cadres pilfering a few thousand shillings from the office imprest, soliciting a bribe here and there to conveniently look away when the law is being broken, is where the real havoc is being wrecked.

There are the rare, blameless individual, but we can not organise society on the strength of a few outliers.

This in no way justifies corruption. If we are serious about fighting corruption let’s pay our civil workers the minimum to survive through the month and then, the fight against corruption will truly have begun.

THE MYTH OF OUR POVERTY

The World Bank last week released a report which showed that remittances from Ugandans abroad may come in at about $ 773m (sh2 trillion) this year. This is up from $694m last year.

To put this in perspective. Uganda’s national budget stands at just under sh8 trillion, that means Ugandans abroad are remitting the equivalent of a quarter of the national budget to fund school fees, health expenses, building construction and general consumption.

Also this figure is about the same amount of money the government is expecting from foreign governments in loans and grants to balance the budget.

Two things to note, the World Bank acknowledges that this is understated as their statistics are derived from official records. So all the dollars that come stuffed in toys and clothes, through local couriers go largely unregistered.

A recent Central Bank survey on the issue showed that remittances through alternative means were about half the amount of those through the formal financial system.

And secondly, that this figure has been growing over the years, more than quadrupling from 1996’s $175m, shrugging off the recent global economic slowdown. At this rate Ugandans will double there remittances every seven years.

It is estimated that there are about 757,000 Ugandans living abroad, given this year’s statistics this suggests that on average each Ugandan abroad sends home just over $1,000 a year.

As indicated earlier, this money comes piecemeal and according to official statistics peaks in the last quarter of every year. This money goes largely towards consumption.

On the continent Nigeria is the top remittance receiver at $10b but elsewhere India, Israel and Phillipines are up there.

All indications point to the expectation that Kyeyo money will increase year on year as long as a stable macro-economic policy environment is maintained in this country.

Seeing as we shall be getting increasing amounts of these monies in coming years the question is how can we make maximum use of these funds beyond improving individual homesteads’ welfare?

For starters we need to aggregate this money. A few dollars here a few dollars there can’t make countrywide differences.

Ghana in 2008 launched the Golden Jubilee Savings Bond, which raised less than the intended target and most of it from Ghanaians at home. The funds from the bond were intended for infrastructural development. The Philipines is also planning there own bond issue.

Say that we were able to rope in a tenth of this year’s remittances about sh200b what could this money do if deployed in bursaries, low income housing or agricultural credit?

Somebody was telling me that following a geo-aerial survey to determine our natural resource potential, it was discovered we are seating on so much mineral deposits that were we to exploit it, it would mean relocating the whole population of Uganda.

I also learnt that of all the money in circulation about 60% of it is outside the formal financial system.

An increase in branch networks and proliferation of Savings & Credit Cooperatives (SACCOs) should go someway to mopping up all this excess liquidity.

Again you want as much money as you can in the financial system so it can be deployed to support trade and production.

Given also that about sh300b annually gets pilfered by our grubby fingered officials – except in 2007 when sh500b went on CHOGM alone, there is more than enough money available to relieve our donor dependency.

It may come as a surprise to you, but we are not a poor country. In fact it is a fallacy --. A misleading notion, an erroneous belief, a myth.

What we lack is the leadership to harness our local resources. It is much easier to go begging bowl in hand to donors than it is to set up the system to collect our little monies. But that is short term thinking which is hurting us now and will continue to hurt us over the long time if we do not snap out of it.

THE RICH WILL GET RICHER

I am currently engrossed in the book “World on Fire: How Exporting Free Market Democracy Breeds Ethnic Hatred and Global Instability” by Amy Chua.

The idea that by spreading capitalism and democracy, the world will be a better place to live in does not hold up to scrutiny when viewed against the background of the last 20 years since the fall of communism as symbolised by the fall of the Berlin Wall.

In fact the opposite seems to be true with increased incidents of poverty, ethnic divisions sharpening and in many places there are determined efforts to roll back the free economy and fledgling attempts at democratic practice.

In reading the book I see interesting parallels with the developments of the last 24 years in Uganda – the rise of economically dominant ethnic minorities, widening income disparities and rising tribal tensions

Capitalism by harnessing individual initiative is undoubtedly the most efficient way of growing wealth, how in a true free market inevitably the rich get richer and the poor get poorer.

I think even Jesus Christ recognized this truth more than 2000 years ago counseling his disciples that those who have will have more added onto them and those who don’t will have even the little they have taken away from them.

But why is it so? Author Eric Beinhocker in his book “The Origin of Wealth” reports on a computer simulation that showed that starting off on a relatively wealthy note, in terms of access to resources, almost always means you will end up wealthier than your contemporaries who started off less wealthy. Basically that wealth begets wealth.

So are the poor doomed to remain poor?

Not the way Beinhocker sees it. After a long and arduous deconstruction he comes to the conclusion that knowledge is the origin of wealth. The greater the knowledge in a society the more it informs the physical and social technologies, how we work and organise ourselves respectively to achieve the society’s goals.

So western economies are richer because they have a long history for recorded research & development and are organized – politically, commercially, socially in such a way as
To take advantage of this accumulated knowledge.

Even on an individual basis we are not as rich as we want to be because there is something we do not know. I am always amused when in denigrating rich people, the average person point to their huge debts as the illusion on which their wealth is built. One can get rich by saving every coin they earn (something the rich man’s critic does not do anyway) but it will take a life time of subhuman subsistence, and isn’t the point to get wealthy to enjoy a better lifestyle? However the judicious use of debt can quicken the process. Now you know.

So the question for every government is how do you get everyone in a position to accumulate knowledge, raise incomes and get richer?

The simple answer is widespread education.

Learning about the Rhinelands, Canadian prairies and the Benelux region is largely useless information – even for those who travel regularly, but the greater role of education is to open our minds to receive more and more knowledge.

It is not by mistake that the richest countries have near universal education up to undergraduate level.

But in those same countries you have people like Bill Gates, Larry Ellison, Alan Sugar and Philip Green who have no degrees but are the richest men in the world. Would they have achieved so much in a poorer, low income country like our own? No chance. The organization of society can not yet allow the accumulation of such wealth here.

The adherence to rule of law especially as it relates to business, mean that wealth can easily generated there than here.

For instance this week the World Bank released a report measuring the ease of doing business globally in which Uganda slipped to 122 from 112 out of 183 countries surveyed. Singapore was at the top of the heap with the UK and US at fourth and fifth respectively.

The point is that in a free market economy the rich will get richer, as is their right, but the poor need not get any poorer. There is more than enough to go around for everyone.

IF I WAS A PRESIDENTIAL CANDIDATE

The presidential campaigns got off to a relatively calm note earlier this week – so calm in fact that Inspector General of Police Major General Kale Kaihura threw a party for his officers in charge of overseeing the campaign.

Meanwhile the candidates are putting the finishing touches to their manifestos and I hoping to add my two cents to their thinking processes.

As far as I am concerned there is only one issue in this country and every other issue derives from it – poverty.

As far as I am concerned poverty is the root of all our evils.

Was it a coincidence that this week that the Uganda Bureau of Statistics released results showing that poverty levels had fallen to 22% from 31% five years ago. Poverty here is defined as a situation under which a person lives on less than $1 a day.

The improvement in our figures has a lot to do with the people of northern Uganda returning to productive lives. Also considerable improvement was registered in eastern Uganda.

To begin with I would change the emphasis away from poverty eradication to wealth creation, because what you focus on expands.

First let us understand the various levels of economic health.

At the bottom of the ladder are the poor who consume more than they earn, then the financially independent, these can sustain themselves on their income but are often a pay check away from poverty, then the financially secure who in addition to a regular income have assets throwing off income that would sustain them without a job and then finally the rich who assets throw of so much income as to guarantee financial security for generations to come.

So the challenge of my presidency would be to get the poor jobs. Encourage a sound banking system in which the financially independent can save their money and low lending rates so they can borrow more to invest in productive assets. The financially secure and the rich would benefit from lowering the cost of doing business by reducing corruption, improved infrastructure and a better quality human resource, so they can see a better return for their investments.

Of course all this will be anchored by continued stability in the country and a commitment to widespread financial literacy so people can graduate from one level to the next level of financial health.

I think the $1 a day definition of poverty is too low and easy to achieve what I am proposing is a more ambitious plan that will create a bigger middle class.

The middle class is the anchor on which more developed economies and democracies are built.

The middle class are the biggest guarantors of stability since they have a real stake in their respective countries, beyond the fuzzy, sentimental pitch about nationalism and patriotism politicians sell.

And because of this real interest in the country – in the way of investments, the middle class are loath to resolve issues through violence and are more likely to look for civil solutions to conflict, this attitude is the bed-rock on which all enduring democracies are built.

Hate them all you want but the colonial government built up a network of social services – education and health, which elevated our previously poor, rural leaders to their current levels of exaltation today. The colonial government could do this because there was little pilfering of tax payers money, schools and health facilities got constructed and manned, roads got built and maintained and things worked as they were supposed to.

Poverty is not a natural condition (whatever our religious leaders tell us), it is a failure of political leadership and mapped by geographical boundaries.

It is true what they say, the rich are different. Their interests go beyond transient racial, religious or ethnic boundaries. James Mulwana’s milk is not restricted to the Baganda or MTN does not do business with the people from Charles Mbire’s tribesmates or Sudhir Ruparaelia’s does not open his banking hall to only his Asian brethren.

We are teethering on the cusp of social unrest and political implosion because we do not have enough rich people among us.

So I can assure you as your president I will lead a determined push for a middle and rich class and relegate to the dustbin of history this patronizing $1-a-day rubbish.

CAN’T SEE THE FOREST FOR THE TREES

Sometimes we are in danger of not seeing the forest for the trees, meaning we are so caught up in the day-to-day grind that we fail to see the big picture. Many times it takes a new pair of eyes to give you an alternative perspective. This week I came across a report on Africa’s future prospects as an investment destination. The report, by the McKinsey Global Institute paints a picture of Africa – despites it chaos, disease and political uncertainties, on the verge of take off albeit with many challenges none of which the report thinks are insurmountable.

"A snap shot of the Africa of the future shows a continent with a collective GDP of $2.6 trillion, a consumer expenditure of $1.4 trillion, 128 million households with discretionary spending – an annual income of $5000 or more and a more urbanized population with 50% of Africans living in towns. All this by 2020....

. Over the last few years Africa’s economy continued to grow despite the global economic slowdown and this was due to more than higher commodity prices. The report titled “Lions on Move: The progress and potential of African economies”, was therefore prompted by an endevour to identify the continent’s sources of economic growth and whether this growth is sustainable. To begin with the growth since the nineties has come from improved political and economic stability and adoption of policies to kick start markets. Uganda’s experience with macro-economic stabilization, trade liberlisation and privatization illustrates this point in real terms for us. Looking ahead the report’s authors suggest that growth will be sustained by increased demand for natural resources, greater urbanization, the rise of the middle-class consumer and expanding labour force, which will be larger than that of India or China in 10 years. However the exploitation of these factors will not be uniform across the continent. Dividing Africa’s nations into pre-transition, transition, oil and diversified exporters the report shows that differing development paths will be necessary. Uganda was categorized as a transition economy where per capita incomes are largely below $1000, agriculture and resource sectors account for a third of GDP and two-thirds of exports but have fast growing economies. Assuming the compounded average rate of economic growth for the first eight years of the decade of eight percent, Uganda’s economy would double every nine years.

To sustain this rate Uganda – as a transition country, will have to beef up its infrastructure, increase the productivity of its oagricultural sector and improve the quality of its human resource.

 

In this respect the challenges are enormous. Africa’s average power usage is less than half of the emerging markets of Brazil, Russia, India and China whose road and rail networks are five and two times denser than our own. The World Bank estimates the continent needs to invest $118b a year to address the shortfall, which $46b more than is currently being laid out on infrastructure development. For agriculture to be a greater growth driver – and this can apply specifically to Uganda, opening u p new lands, increasing yields through use of better technologies and a shift to high value crops, will be critical. And of course it goes with out saying that beyond increasing school enrollment the quality of our education will need to improve substantially. Two things struck me about the report. Firstly, that it talked about Africa as one big continent, not homogenous but as if as one country and that is the way we need to be thinking in order to harness our potential. In registering the trend towards greater urbanization and the emergence of the middle class I was surprised the report paid short shrift to the political upheavals that these two trends signal.

With greater urbanization and improved incomes the clamour for more inclusive and transparent politics – read democracy, will mount and depending how it is handled will either slow growth on the continent or halt it all together for indeterminate stretches of time

. The report’s tone seemed to be regardless of our lack of planning, corruption and poor infrastructure the continent is on the move, governments will be best advised to stabilize the environment – political and economic and get out of the way.

OF JIGGERS, ILLITERACY AND DEVELOPMENT ECONOMICS

Jiggers were discussed during a cabinet meeting. It would be hilarious were it not for the irritation and pain this little creatures can inflict on the human body and spirit.

It reminds me of a book written in the seventies, “You have got to cry to laugh” and it too I believe was about the African condition.

My holding to the conventional wisdom that jigger infestations are about a lack of hygiene were shaken this week when someone asked “So what about all the beggars, street kids on the streets of Kampala, how come they do not have jiggers?”

Yes. In the 21st century we have been reduced to discussing jiggers.

But then again as President Yoweri Museveni told us more than more than 20 years ago we are backward and we better acknowledge that and do something about it.

Just because we have layered ourselves in bad English, cheap suits, counterfeit black berry’s and second hand cars does not mean we have ascended into the league of developed nations or peoples.

But maybe its not our fault. Recently economist Bill Easterly wrote about the findings of a research he participated in which showed that, on the whole, countries which had not attained certain basic technological advancements by 1500 AD – oceangoing ships, paper, printing, firearms, the magnetic compass and steel, remain underdeveloped to this day.

Even more worrying is that these stratification occurred much earlier.

Luckily we are not doomed to perpetual poverty and underdevelopement, as North America , Australia and New Zealand has shown. Technology can travel.

But as the history China has shown, to resist technology transfer can be detrimental to your world standing. In the 15th century China was ahead of western Europe in technological advancement, but a series of paranoid ruling dynasties closed China off form the outside world, purged its scientists and thinkers and allowed the western world to overtake them.

In just over 30 years by opening up to the outside world and encouraging technology and innovation China’s is taking back its place as a leading world power.

And why is technology so important? Because technology is a building block of future innovation which in t urn drives economic growth.

But for technology to take hold or to be transferred you need an educated people. Education allows for technology transfer.

So it was with much shock that I read this week about a survey of the efficiency of our education system.

The survey done by the Uganda National NGO Forum showed that despite our reported high enrollment figures the quality of the product walking out of our school gates is shockingly bad.

Eight of ten children between six and 16 who were tested on a P2 math paper failed while 19% of the P3 students tested in the 27 districts surveyed could not read the alphabet.

If you can not read or count your educational foundations are fundamentally flawed and your chances of advancement economically or careerwise are seriously hampered, but more importantly for the nation is that the adoption of new technologies will be more laboured, putting a ceiling on economic development.

Technology is not only about machines but in the broader sense is about the way things are done.

At the end of the day the people of the jigger infested areas have only themselves to blame, no government or authority figure can rid them of jiggers if they are comfortable living with them.

But an epidemic of jiggers is a very manifest sign of underdevelopment not only of the infested but of the whole country. It points to a technological backwardness that does not augur well for future economic growth.

But since apportioning blame is a favourite past time in this country here is what Easterly wrote on his blog this week,

“What the history of technology tells us …Top-down development programs simply don't work. In fact, the principal beneficiaries of Western largesse today -- African autocrats and dysfunctional regimes -- are themselves the main obstacles to development. If there's anything that "must be done" to spur future development, it's to create the conditions necessary to empower the ordinary individuals who will create new and unforeseen technologies out of old ones.”

SALVATION IS IN THE SMALL COMPANY

Did you know that, of the ten biggest economies in the world six of them are companies? Today US, China, Japan and Germany are joined in the top ten by Walmart, Royal Dutch Shell, Exxon Mobil, Toyota and Japan Post Holdings all with revenues last year of more than $200b.

It boggles the mind.

A few years ago during a visit to the Johannesburg Stock Exchange, I noticed that the top companies listed on the exchange, were valued at more than the GDP of the East African Community.

“Some of us are really pretending to be countries, we should just be taken over by some of these companies and stop the charade,” a Kenyan colleague suggested, when faced with the fact of how puny our economies are.

If it is any consolation every big company was first a small company.

Last week the Uganda Securities Exchange and accounting firm Ernst & Young sponsored a workshop for Small and Medium-sized Enterprises (SMEs) to moot the idea of selling shares to the public through the exchange.

Going public has its benefits and challenges but if planned well the advantages far outweigh the disadvantages.

Listing on the exchange allows a company to raise relatively cheap capital but more importantly improves the companies’ processes, making it more competitive in an increasingly competitive world.

The main sticking point I gathered from the workshop participants was the loss of control that comes with selling to outsiders a part of your company or variations of the same theme.

A few years ago a report showed that Uganda was the most entrepreneurial country in the world. However Uganda’s businessmen were overwhelmingly necessity entrepreneurs, setting up businesses to sustain themselves and their families, as opposed to opportunity entrepreneurs, who identify gaps in the market, set up and grow companies to fill those gaps.

Invariably the vision of the respective entrepreneurs will differ with the necessity entrepreneur having a narrower, shorter term vision compared to his counterpart.

If for nothing else preparing to list one’s company on the exchange extends the owners’ vision. A business can only grow as big as the owner’s vision.
This is important for Ugandan business because of the changing economic landscape they are increasingly finding themselves up against.

With the coming into effect of the East African common market in July, goods, services and labour can now cross our regional boundaries free of most encumbrances than previously. What this means is that Uganda companies and their products find themselves in direct competition with the regional companies – a euphemism for Kenyan companies.

Our landlockedness has it disadvantages in terms of the cost of doing business here and the relative maturity of the Kenyan companies is such that they can command scales of economy – among other things, thus lowering their production costs to the disadvantage of our operators.

The global momentum is towards freer trade, it is unlikely that our government can shield our businessmen from this post-cold war impetus. It’s up to our businessmen to step up their games if they are to have a chance at survival.

The exchange has two listing avenues the Main Investment Market Segment(MIMS), whose conditions for listing are more onerous and suited to the larger business concerns, and the Alternative Investment Market Segment (AIMS).

A lot of our businesses would be candidates for a listing on the AIMS with an eventual upgrade to the MIMS.

One of our biggest challenges as country is our failure to aggregate our resources, be they financial, management, talent and other human resources or even land to expand output.

Listing on the exchange would help in this direction.

Seating in the workshop my sense was that our businessmen are too wed to their businesses and the thought of sharing ownership is a fearful one. The way I see it the alternative are much more dire. One’s company maybe in seeming good health today but tomorrow competition from leaner, meaner opposition will bury even the little our business owners are trying to cling onto.

It is a cliché but it’s truly the survival of the fittest and our businesses are going to be forced to be more open minded to new ideas if they are to extend their legacies beyond current generations.

Published in New Vision on 9th October 2010