UGANDANS' ADVICE KIPROTICH SHOULD IGNORE

Our Olympic gold medalist Stephen Kiprotich would not lack for advice on how to take his career forward or  spend his millions if he asked for it on our street.

Ideally Kiprotich should be looking to do two things over the next five or so years, the most productive years of his career. One, to maximize his earnings, preferably through winning races but also through signing some lucrative endorsement contracts. And secondly, investing the larger percentage of  his earnings to tide him over a long retirement seeing as he will retire in his thirties and judging by the advanced age of his parents. Here is so me of the advice Kiprotich will best be advised to steer wide off from the bad to the worst.

#7 Buy/build a big house

A house just adds to the expenses in your life, but we waive these aside by consoling ourselves that we are escaping rent, when often times the cost of maintaining your own house is more than the rent you were paying previously. Sure Kiprotich’s earning power has just undergone a quantum leap, but that does not mean his expenses should follow suit. At the height of his career former boxing champion Mike Tyson bought himself a $30m (sh75b) house that was far too big for a single black man. The palace cost hundreds of thousands of dollars to maintain, several tens thousands more in taxes annually and more thousands in manning. When his career took a nose dive the castle was auctioned off to pay his debts incurred sustaining the mansion. The reality is that assuming his career continues on its current trajectory Kiprotich will be lucky to spend a four consecutive weeks at home in the next five years. A modest three-bedroomed house should do the trick for now.

#6 Buy a farm

The investment process is about finding the best return for your money with the least possible risk. His rural background will probably seduce him to buy himself a farm stock it with cattle and grow maize, but if the truth be told most farms are loss making, income sapping vanity projects that say more about the owners ego than their financial benefits. Kiprotich can well afford a few acres of land in his home area but let him be under no illusions that he will see an adequate return in that enterprise while his career is still on going. Let him see it for what it is a sentimental trophy to assure the villagers that he has arrived.

#5 Invest with every Tom, Dick and Harry

You can rest assured Kiprotich has already got people of all colours and shapes making a beaten path to his door with all manner of business proposals. As far as I know Kiprotich is a runner and not an investor. He is unlikely to match the well timed decision to overtake Kenyans Kirui Abel and Wilson Kiprotich with only a few kilometers to the end of the Olympic marathon a week ago if he turns to investing today. He will be best served by finding himself an experienced manager who can take care of the business side of his career while he does what he does best.

#4 Move to Kampala

There will be those whispering in his ear that he should move to Kampala. The facilities are better, the housing is better, there is more to do. These will be talking in their own selfinterest with Kiprotich in Kampala they will have easy access to him, more specifically, easy access to his millions. What has got Kiprotich to this point in his career is training in the relative anonymity of the Kenyan rift valley and he should continue to do so. Kampala has done nothing to advance his career and he owes it nothing.

#3 Buy car(s)

The boy can buy himself a car or two or even three straight off the assembly line if he chose to. He can throw in a personalized number plate, KIP RICH maybe, for good effect. To state the obvious his is the Olympic champion and he does not need the latest model of Mercedes or BWM or …. Whatever to validate him. He should habour no need to impress upon the public who he is. He is a young man who if his career continues to rise will not be in Uganda more than half the year, a sensible four wheel drive to navigate the treacherous roads of his home district. The money he would have spent buying more fancy cars can be deployed to make more money. More on that later.

#2 Retire

The man has won a Gold medal, hundreds of millions of shillings are being thrown at him by a grateful nation, why should he continue to suffer in training? Isn’t this – securing his and his family’s financial future what it was all about? “I want to be a legend” he said before he flew out to London. That is what sets Kiprotich apart from the rest of us mere mortals, groveling in mediocrity. Going by Abraham Maslow’s hierarchy of needs Kiprotich is beyond hunkering after basic needs, personal security and need for belonging at worst he is about building his self-esteem  and at best self-actualizing h is full potential as a human being. Olympic gold medalists are made of sterner stuff than most Ugandans can even comprehend. Kiprotich is not about the money and he should keep that way.

#1 Have a blast

When Ugandans get money they think of how they are going to consume it first. The temptation to start when Bad Black left all will be overwhelming for Olympic Gold medalist Stephen Kiprotich. And there are hundreds even thousands of Ugandans who can help him spend his money. The amount of money pledged and given to Kiprotich in the last seven days is more money than many of us earn in a year leave alone in our careers, but he should not be under the illusion that there is such a thing as money that cannot be finished. Kiprotich is a runner the sooner he gets over this whole fanfare and gets back to training the better for him, and us as a country.

UGANDA PENSION LIBERALISATION LONG OVERDUE

The Retirement Benefits Sector Liberalization Bill 2011 is winding its way through the arduous journey of becoming law.

Among the proposals in the bill are that if contributors have saved for ten years will have access to 30% of their savings to leverage to buy homes.

So if after ten years of work one has saved sh10m, the sh3m can be used to put a downpayment on a mortgage.

This and proposals to lift the NSSF monopoly for mandatory savings are part of long overdue initiatives that will go some way to raising the saving rates in the country and growing the pool of long term funds needed to fund development projects.

As it is now workers in companies that have more than five employees are mandated to contribute five percent of their salary with the employer contributing twice as much into NSSF. While not discouraged few employers have an additional providence scheme for their workers because of the costs of doing it.

Under the new proposed law employees will still be mandated to save for their retirement but not necessarily with NSSF.

The introduction of competition in any sector is always a welcome thing – there is more incentive to innovate which increases efficiencies, pushes down prices and boosts up take of the product or service.

Uganda badly needs to build up its savings rate which is less than ten percent of GDP. Beyond providing long term savings, one can expect the high lending rates we have become accustomed to, to come under pressure.

The logic is simple if we raised national savings the banks which hold this money would be under pressure to on lend it to their clients. Good banks make their money from lending, in the absence of the credible lenders they lend to government. Government while being the safest borrower, offers lower interest than the private sector and also has finite appetite. If government options are exhausted banks will have to find other ways of lending more to the public.

It is not by mistake for instance that in the last ten years there has been an explosion of lending to individuals, increased savings deposits in the bank have a lot to do with it.

The proposal to allow a portion of workers’ contributions as down payment for mortgages could act as an incentive to spur savings. Government could go even further by allowing such savings to be tax exempt and giving waivers for additional savings beyond the mandatory requirement up to a limit.

In addition this one initiative can spur a housing construction boom as the demand for house can be expected to jump progressively over the years.

It seems like a no-brainer. Increase savings and hence available capital for industry, production is boosted and more taxes are collected.

Beyond that, the economy has an urgent need to bridge the gap in power generation, transport and communication networks. These gaps are holding back continued economic growth. To finance these we need long term financing the type of which around the world is financed largely by pension funds.

It really isn’t nanotechnology, what would need a rocket scientist to decipher is why it is taking us so long to get this piece of legislation out of the way.

Economics aside, as a guarantor of national stability nothing beats a property owning population. With a long term stake in the economy, property owners are like to resort to more peaceful means of conflict resolution than war, looting and wanton destruction.

Of course regulators will have to ensure that a lot of our savings are not expatriated but are mostly used to finance domestic projects. However it might turn out to be a disincentive if you tie the investors’ hands with such provisions when there are no local investable projects.

The challenge then for our business is to be set to absorb this money when it comes.

It is hard to overemphasize the need for long term funds in the economy and how crucial a more efficient pensions sector would be in attaining this goal, but the ball is clearly in our hands  for us to run with it or drop it.

NECESSITY IS THE MOTHER OF INVENTION

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Last week it was reported that Rwanda was finalizing plans to launch a sovereign fund.

Sovereign funds are investment vehicles promoted by states to invest national savings, with the income going to finance the budget and long term development.

Some of the most famous sovereign funds running in their billions of dollars belong to China, Singapore and Dubai.

While Rwanda’s plan for the Agaciro Development Fund was mooted last year, the timing will have observers of the small east African state nodding in understanding.

Recently the US cut $200,000 (!) in military aid to Rwanda following a UN report which accused Rwanda of aiding a rebellion in eastern Congo. The UK and Netherlands followed suit days later.

Like Kenya in the 1990s, which suffered an aid ban because of high level corruption and had to mobilize local resources to keep the economy afloat, Kigali is wise to start looking internally to fund its ambitious development plans.

I don’t think they will be a rush for the exit by donors soon, but in the event that they do, it maybe the best thing that ever happened to Rwanda.

An illusion has been perpetuated that African countries do not have the resources internally to develop themselves, this promotes an aid agenda that is not necessarily in the recipient country’s best interests.

For starters developing economies are highly informal. In the case of Uganda it is estimated that two thirds of the economy is informal, which means a lot of money in circulation – I saw the estimate placed at three in every five shillings in circulation is not in the formal financial sector.

Banks and other financial institutions aggregate our small sums into meaningful chunks to be onlent to businesses, which are the drivers of wealth generation.

In his book the Mystery of Capitalism, author Hernando de Soto says that the by formalizing property in developing countries hundreds of billions of dollars can be unlocked, more money than all the foreign aid and foreign direct  investment we receive annually.

But there is little incentive to go formal or disincentive to remain informal. That may be changing with URA’s new e-tax system however.

Secondly, in many developing country’s our natural resource potential remains the stuff of urban legend, no one knows for real – in a tangible way that can be exploited, how much minerals, timber, fish or even electricity generation potential we have under our feet, in our waters or in our abundant sunlight.

It is nearly next to impossible to attract any credible investment when our potential is so iffy. A few years ago Uganda did a geo survey of available mineral resources and this served as a good starting point for anyone marketing the country’s mineral potential. Concerns with the billions required to unlock this potential make decisions on hard facts not on sales pitches of likable heads of state.

And finally the securing of a nation’s intellectual property. As nations we have a lot of intellectual property embedded in our traditions and cultures which if secured can raise lots of revenues.
Unfortunately not only do we denigrate intellectual pursuit, hence our aggrandizement of thieves and robbers, but we do not respect intellectual property.

For example to obtain a patent for product or idea in Europe or US costs upto $40,000 a cost which most scientists can shoulder in Uganda. If government or private sector shouldered these costs it would not only secure the property to be exploited for the benefit of Ugandans but would also be the incentive needed to spur more locally relevant innovation. Innovation is important in creating greater efficiency.

As it is also our governments and companies are committing only fractions of a percent of GDP or budgets to research and development, therefore doing very little to unlock the intellectual assets of our people.

There probably a thousand other ways we can unlock the vast potential under our soils and within our people, which potential would make it totally unnecessary to contract aid from abroad, but we are so wed to the aid mantra we can not imagine life without it.

Its unfortunate that it takes donor governments annoyance at our behavior and the subsequent aid cuts for us to wake up to our own potential, but if that is what it takes so be it.

THE OLYMPICS, THE 10,000-HOUR RULE & HIGH ENDEVOUR

They say if you want to be successful look at what the majority of people are doing and then do the opposite.

"In any field of endeavor a minority enjoy disproportionate benefits compared to their numbers because they are willing to do what the majority are unwilling to do, in terms of putting in the planning and effort to achieve their goals...

Every four years the Olympics rolls around and serves as useful demonstration of how effort and dedication can lead to feats of superhuman of achievements.

Last week two athletes stood out for me Chinese teenage swimmer Ye Shiwen and North Korean weight lifter Om Yun Chol.

Shiwen who in breaking the record and winning the gold medal in the 400 meters individual medley race, kicked up a storm with some accusing her of doping. Breaking the record was not the issue, it was that she improved her personal best time by seven seconds, and in addition swam a faster final lap than the male winner in the same event just hours before. And the kagirl is just 16.

Chol on the hand not only broke the record in the clean and jerk for his weight category but Chol who is 56kg, joined an exclusive club of weight lifters who had ever lifted three times their weight.

When we watch them perform and like me, have our jaws drop to the floor in awe we are seeing but a small part of the whole process of achievement.

"Time magazine had a 71 page special on the Olympics and in it they gave a sneak peek into the Chinese training system, which is becoming the gold standard of how podium performances can be engineered...

They of course have taken sports science to a whole new level but there is no getting away from the volume of work, done with hellacious intensity the top Chinese swimmers, divers, gymnasts and weightlifters endure to perform at the highest level.

In his book Outliers, Malcolm Gladwell reported on research which showed that the common denominator among world class performers was the amount of time they put into practicing their craft. The research showed that at least 10,000 hours have to be logged if one is to have a realistic chance of being world class in sports, music or any endevour of significance.

Ten thousand hours is the equivalent of practicing your craft systematically, three hours a day, fifty two weeks a year for ten years.

So for the 16 year old Shewin who started swimming at six, virtually all her swimming life has been dedicated to her current performance, no splashing around in the local pool on hot Saturday afternoons for her, but systematic, lung bursting, limb cramping laps day after day after day.

And those who cannot or will not or dare not log the mileage how do they account for the success of their rivals? Talent!

The beauty of that excuse is that it suggests an intangible, god given gift relieving one of the responsibility of failure to perform at the highest level.

Ok they may be some physical characteristics – Shewin was identified by her kindergarten teacher because of her large hands and feet, but there are hundreds of other girls with big feet and hands, many of whom have been performing at the London Olympics, but only one of them has come through with stunning results.

In watching the Olympians one has to keep in mind we are witnessing the finished product. To go out tomorrow or next week or next year or even in five year’s time and expect to do Shewin’s time at Speke Resort Munyonyo – the only Olympic size pool in Uganda, is an exercise in futility or worse.

Which is why Uganda’s society fixation on the overnight success cannot be discouraged enough. They say when you wake up to find your friend an overnight success be sure he has not been asleep.

Overnight success is good for the romantic novels but does not play well in real life. Our search for the one big deal has warped our sense of morality and destroyed our work ethic (we used to have one)....

That is why many of us, report to office or rather our jackets do, while we hustle for an extra buck on the side, return home at the end of the day to cook the books rather than advance our education and on weekend we dispossess rural folk of their land by force or trickery instead of saving up to buy our own.

As they say its only in the dictionary where success comes before work.

The challenge is of course that as a society we have too many of the wrong role models and that needs to be addressed.

For starters I would suggest you all watch the Olympics – any sport, and then google the effort the athletes put into their sport.

As for Ugandan athletes? I ask, show me your 10,000 hours!

UGANDA REINS IN INFLATION, BUT UNDERLYING PROBLEMS REMAIN

Last week the bureau of statistics announced that inflation had fallen to 14% the lowest it had been since April last year, declining inflation mainly due to falling food prices has been aided along by a tightening of money supply by the central bank over the last year.

 Inflation is too much money chasing too few goods, it therefore stands to reason to combat inflation  you can reduce the money in supply or increase production or a combination of both.

As the overseer of government’s monetary policy, the central bank put the brakes on growing money supply using a number of instruments at its disposal, one of which was the Central Bank Rate (CBR).

The CBR is a policy rate that indicates to the banks what the Bank of Uganda thinks about the level of inflation and serves as a benchmark against which they set their lending rates.

Since its inception in July last year the CBR rose to 21% from the initial 13% in reaction  to mounting inflation but has now fallen back to 17%. The lending rates followed suit, but have not been as fast coming down as when they were going up.

A lot of the increase in money supply came from a jump in bank lending in recent years. By following BOU’s lead and raising lending rates, credit application were halved between July last year and April this year before rising again in May according to the latest figures from BOU. Amounts lent did not mirror this plunge in approved applications but fell nevertheless to sh345b in April from sh460b in July 2011.

The way it looks inflation is on course to fall to single digits next year as the central bank had expected.

But dampening monetary expansion using monetary instruments as the BOU has so ably done for years is like treating malaria fever with panadol, the fever – the symptom, will subside but the malaria parasite – the cause, continues to ravage the body.

The main cause of inflation of the last year was our inability to boost production to meet a spike in regional food demand.

Planning for increased production is not a BOU function, that function lies with the ministry of finance and economic planning.

Our best bet for increasing the amount of goods that the too much money is chasing, is to  boost agriculture. The share of economic output for agriculture has fallen over the last two decades to about a fifth of total GDP. This is due to the explosion in services, construction and industry, which is not a bad thing and is actually a natural progression, but sadly it is also a function of how time has stood still in the agricultural sector.

As it is now Uganda’s major challenge is to shift a lot more land into commercial and away from subsistence production. To do this we have to regularize our land tenure system, enhance agricultural production processes, improve access to credit and invest more in agricultural research and development to attract investment into the sector.

Attracting meaningful investment into agriculture as it stands now is a hard sell.

We have to increase production to the point that industry can find it attractive to operate here, once industry sets up shop a market will be created and more farmers will jump into the fray. A virtuous cycle.

The land issue has to be sorted once and for all. Land has to be commoditised. As it is now the real value of our land is not valued because there really is no incentive to unlock it true potential. All land should be taxed for starters, this will compel our farmers to think more commercially forcing them to derive the maximum value from their land or sell it if they cannot. The political permutations surrounding this initiative would be have to be managed.

Currently loans to agriculture lag behind all other sectors including personal loans a situation that is an anomaly given that four in every five Ugandans derive a livelihood from the sector. The case for an agricultural bank with products tailored specifically to the sector, could not be stronger.

And last but not least a targeted education of our rural populations on how to unlock the value of the land they till. It sounds obvious but it is deceptively so and needs a tectonic mindshift to think commercially after generations of subsistence farming.

The state of the world is economy is such that we are going to have to look more to ourselves for a long time to come as the western donors scramble to salvage their own ravaged economies.

As day follows night expect more inflationary spikes in coming years if we continue to pussy foot around the issue of our inadequate food production.

HAS UGANDA'S OPPOSITION GOT THE NRM ON THE RUN

The recent string of by-election losses by the NRM while barely scratching the ruling party’s numerical strength in parliament, has given the opposition a sliver of hope for the future.

The loss by NRM flag bearer Alintuma Nsambu to DP secretary general Mathias Nsubuga in the hotly contested Bukoto South constituency a fortnight ago made it five out of six losses for the ruling party in the last year.

A record, which must count as the ruling party’s worst showing ever in by-elections since the return to multiparty politics in 2006.

Observers have put down the opposition’s runaway success to two factors.

The first is the general economic decline over the last 12 months, so the NRM losses count as a protest against the way the economy is being run.

Secondly and probably more importantly, is the way the opposition parties have been able to concentrate their forces in the contested constituencies, neutralizing the NRM’s presence. In general elections the opposition find themselves spread out to thin and unable to match the NRM’s nationwide presence.

In addition something has to be said for internal rivalries and wrangling within the NRM, with its succession undertones, which has made it near impossible to present a unified force to the electorate.

In the case of Bukoto South some NRM big wigs privately and in the open defied party instructions to throw their weight behind Nsambu. Some arguing that he was not a native son, an unknown quantity, while others citing his comments against Buganda kingdom that made him a hard sell in central Uganda constituency.

With Nsambu’s loss the ruling party ceded five of the 263 seats it came into the ninth parliament with, but this still leaves it eons ahead of its nearest rival the FDC which holds 43 seats.

But more importantly the NRM still has more than two thirds of the seats in the house. Despite the recent internal bickering and the discomfort of a few of its rank and file’s eargerness to tow lines independent of the party, the ruling party still has a comfortable majority that would allow it to have its way in parliament on any given day.

The losses are regrettable but unlikely to change the mathematical balance in the house.

But NRM planners will know more than anyone that, in politics when the facts come up against perception, perception wins all the time, and they will be forgiven for tearing out their hair and suffering sleepless nights in trying to work out how to stem the hemorrhage.

The recency factor – the tendency to give more prominence to recent events, is not helped by these events.

It doesn’t help too that with the presidential and  parliamentary elections out of the way last year, the NRM looked every day like a house divided against itself.

The opposition can smell blood, the question is do they have the organizational capacity to take advantage of the NRM at its moment of historical weakness?

A government in waiting’s best bet of increasing or maintaining visibility is through its member’s in house – debating eloquently against government positions, harassing the front bench and generally towing a populist line against the government’s pragmatic one.

This would improve their stock in the public eye, make them look like credible alternatives to the seating government.

For lack of numbers this is a difficult agenda to push in Uganda. In fact the ferocity of the NRM “rebels” in recent months is such that they look like the de facto opposition.

Your next option would be to take to the streets, tap into any discontent and magnify it. The walk-to-work protests last year were an attempt at this. But even with this strategy superior grassroot organization is required, you don’t just start a fire and expect the public to jump in and stoke it for you, no matter how much they sympathise with your cause.

Before the polls last year opposition candidates admitted privately that no opposition party had a nationwide network to match the NRM’s, and that whereas they made the necessary noises as a group it was really a case of everyone for themselves and God for us all. 

A mass uprising of the kind the opposition wished for, is predicated on a good organizational structure.  The images we saw on the TV of the Arab spring were the finished product backed up with solid organisational capability the like of which our opposition are yet to marshall.

This is not to say that the series of recent opposition victories should be overlooked, even landslides start with the movement of one pebble, but it means that the opposition has to a lot more work to loosen the NRM’s stranglehold on the country’s politics.

For the NRM it will serve as a wakeup call, a sign that it can no longer be business as usual.

THE OLYMPICS AND UGANDA’S ROADS

Last week it was reported that government is resorting to more creative funding methods to bridge our infrastructure gap.

According to the report in an attempt to have 44 priority roads, which will cost about sh10 trillion, done as soon as possible government has mooted the possibility that contractors will be able to source financing for the projects themselves.

Under the arrangement the contractor will cost the project source the lender who government will approve of and take over the debt.

"As it is now all funding comes from the consolidated fund and it would take forever to have these roads done if we continue to rely on this model of funding. As it is now the government’s total budget is about sh10 trillion a year of which roads accounts for about a tenth of that total.

The major challenge with this is that it will be mostly foreign contractors who will win these contracts given their contacts with banks with cheaper funds abroad. But also it should be a wakeup call for local contractors to build up their capacity to compete.

Resorting to the private sector for funding is a time tested formula, its only poor countries like ours that resort to concessionary lenders.

The private sector’s motives are more transparent – the profit motive, compared to donor agencies’ assistance, which often has political and ideological undertones attached to it.

It is true of course that if the Uganda government fails to develop the capacity to scrutinize these projects we could find ourselves up to our eyeballs in unwisely contracted debt for decades to come.

To avert a recession in their economies western governments have forced borrowing rates to all time lows and that cheap money would always be more attractive to borrowers, but there is no reason we shouldn’t be more determinedly mobilizing our own resources locally to at least contribute to financing our own roads.

The anecdotes are a dime a dozen about how city traders, untrusting of the banking system and the state choose to dig holes in their shop floors or install vaults in their bedroom to store their cash. Billlions and billions of shillings.

One bank manager in the 1990s in trying to pitch his bank services to one trader was shown in to a vault in the back room of the traders shop that had more money than he had in his branch’s vault. True story.

Mandatory savings with NSSF for employees – five percent of gross salary with a employers pitching in with twice that amount, has seen the fund grow into the largest financial institution in the country. It is the biggest single lender to government and business, through the billions they fix in banks which are then on lent to the private sector.

"Beyond this initiative at mandatory savings government has done very little over the years to compel us to save more of our own income. Some will argue in order to boost production we need people’s disposable income to remain unencumbered so as to boost demand. But that is short term thinking...

Mobilising more of our own resources will increase bank liquidity, force lending rates down, allowing for more credit to the productive sectors, which require more long term financing.

The cost of money may still not be lower than the near zero percent lending rates we are hearing about in the west currently but the spinoffs in developing a mechanism for local resource mobilization will be well worth the cost and hold us in good stead in the likely event of future aid cut offs from abroad.

It is an illusion perpetuated by others that we do not have enough resources locally to help ourselves more.

Relatedly and to get into the prevailing mood the London Olympics will cost an estimated ₤11b (sh42 trillion), of this sum the National Lottery will provide ₤2.18b, TV broadcast rights an additional ₤350m, company sponsorships another ₤700m with ticket sales racking in another ₤600m...

The organiser’s of this year’s Olympics – while a national event, were not averse to bringing in private sector sponsorship not only to ease the burden on the national coffers but to also enhance the Games experience.

It makes sense. A lot of the public funding was used in infrastructure development, which will have far reaching benefits to the London economy, outside of this the private sector has shouldered most of the costs.

We need to wean ourselves from the tradition of government as the main benefactor and government too should look to the private sector to finance its projects, with the long term benefit of triggering alternative fund raising mechanisms.