FOLLOWING KENYA BANK CRISIS, BANK OF UGANDA MOVES TO STRENGTHEN SECTOR

The Bank of Uganda has ordered banks to strengthen their balance sheets to improve their capacity to face up to any upheavals in the industry.

The move, while it has been three years in the making, comes at a time when across the border three Kenyan banks have folded under the weight of unregulated insider lending and general economic stress.

The collapse of several banks at the end of the last century, mostly due to an accumulation of bad debt, prompted the Bank of Uganda to raise minimum capital requirements to sh4b in 2005 from the previous one billion shillings for foreign banks and sh500m for local banks. This was further raised to sh25b in 2010.

The banks that folded included International Credit Bank (ICB), Greenland Bank, Cooperative Bank and Trust Bank. More recently the National Bank of Commerce and Global Trust Bank closed shop.

By raising minimum capital requirements allows the banks to absorb higher losses were the bank was to be distressed.

In the latest move the Bank of Uganda has ordered a minimum capital requirement of 10.5 percent of risk weighted assets – cash, loans and government securities from the previous eight percent. In addition banks will be required to provide for an additional 2.5 percentage points as a capital conservation buffer, bringing capital requirements to 13 percent of risk weighted assets.

"And for the big three banks which are judged to have huge systemic risks – what happens to them affects the whole industry, an additional 1 to 3.5 percent of risk weighted assets will be required depending on the central bank's discretion...

This counter cyclical buffer will apply to Stanbic, Standard Chartered and Crane Bank.

“The Banks are already informed and they should comply by the end of the financial year we expect,“ Deputy Governor Dr Louis Kasekende told Business Vision.

“Think of these actions as a longer term effort to strengthen our banking sector not triggered by anything happening here or abroad.”

Due to their unique financing structure, funded mostly by client deposits it is imperative that a bank’s capital keeps step with is growing operations. Bad debts can mean a bank failing to honour savings withdrawals and lead to its closure a bigger capital base means they can absorb more losses and keep the bank afloat.

According to the central bank documents deposits in the industry grew to sh13.2 trillion by the end of 2014 compared to sh1.04trillion in 1999. Industry assets also grew to sh19.6trillion from sh1.35trillion during the same period.

The Kenyan banking industry is reeling from the closure of Chase Bank last week, the third bank to collapse in the last six months. Imperial Bank was taken over by the regulators while Dubai Bank Kenya Ltd run out of money.

The banks have been plagued by bad debts but also improper lending to its shareholders and managers, which forced the lenders’ insolvency.

"The central bank’s regular adjustment of capital requirements and continued improvements in bank supervision has spared the industry much of the turmoil of the global financial crisis that started in 2008 and distressed many foreign banks....

Except for a spike in bad loans to about 5.6 percent in 2013 the industry has managed to contain the bad loans to under five percent, with the n umber coming in at 4.1 percent in 2014.

Industry sources said the changes have been a long time in coming.

“In 2015 bad debts have been rising, this is the central bank’s way of saying “Don’t take as much risk!” a senior banker said on condition of anonymity.

He said the increase in bad loan provisioning in 2015 suggests that banks continued to lend aggressively in a slowing economy and their clients are failing to honour their obligations.

The bigger banks have had it good for a while, accumulating billions in reserves and these new requirements shouldn’t cause much trouble, he said.

“The smaller banks may struggle especially if their head offices are under stress,” he said in reference with the goings on in Kenya.

The banks see the move as positive for the industry but also will be good for their clients.

“From the clients perspective the banks will be more resilient to external shocks so they will have additional comfort about the safety of their savings,” Stanchart’s finance director Kevin Musana told Business Vision.

For the bigger clients, he said, the bank will be able to lend them even more as the limits, currently not more than 25 percent of capital lent to a single client, will rise.

He agreed that it would be much easier to manage raising capital this way rather than fresh capital from the banks’ owners. However shareholders may have to take a cut on their annual dividends this year.

The local banks listed on the Uganda Securities Exchange include Stanbic, dfcu and Bank of Baroda, whose shareholders may be affected.

Banks are currently reporting annual results an exercise whose deadline is the end of April when a more clearer picture of how the industry did last year will emerge.

Seen against the historical issues of the sector the latest move by the central bank should be seen as an extension of previous moves aimed at strengthening the sector and hopefully making ot more competitive.

LESSONS FROM NIGERIA, ZAMBIA, ANGOLA RETURN TO IMF

In recent days it has been reported that Angola, Ghana, Nigeria and Zambia are making determined overtures to the International Monetary Fund (IMF) for assistance as they struggle in the face of falling commodity prices and slower economic growth.

This comes barely a decade since these countries, their economies boosted by natural resource revenues, were being feted as the drivers of the continent’s growth.

Albert Einstein’s definition of insanity is instructive at this point, “Doing the same thing over and over again hoping for a different outcome.”

"This is not the first time that countries on the continent, their revenues boosted by commodity booms, have thrown all economic prudence to the wind, bowing to populism by increasing recurrent instead of development, expenditures. And when the party came to a close they are left with nothing to show for it...

In the 1970s the frost in Brazil meant a collapse in coffee supplies worldwide and veritable party for coffee producers including our own country. Copper, for which Zambia was and still is a leading producer, also experienced such a boom and the government of the day splurged on food subsidies and high living.

As inevitably happened, commodity prices came crushing down and the beneficiary countries in order to stay afloat had to cut down on their extravagance --- with the prompting of the IMF and World Bank, and many of them were kicked out of power by an irate population unwilling to let go of their perks.

Fast forward to the beginning of this century and it was like déjà vu.

Driven by the insatiable demand of China, commodity prices once again went through the roof, and in classic illustration of the say, “That thing we learn from history is that we do not learn from history” commodity driven economies went on a spending binge.

There were some token attempts at shoring up infrastructure, which would have helped diversify their economies, but not nearly enough was done, given the huge deficits in infrastructure stock accumulated since the 1970s.

And as night follows day the commodity prices have crushed again as China’s economy has started cooling down and western economies are still in the doldrums.

So Angola which boats the richest woman in Africa, President Eduardo do Santos’ daughter or Ghana which was thumbing its nose at Uganda who it pipped to oil production or Nigeria, which continues to be one of the biggest oil producers on the continent or Zambia, whose copper mines had enjoyed a revival with renewed Chinese interest have been left to pick the pieces.

Angola, which relies on oil revenues for more than half its budget, has seen its reserves plummet to $22b from $32b and its currency shed more than a third of its value. Zambia, which is the second largest copper producer on the continent has seen its economy contract by three percent and Lusaka is biting its nails while thinking of how to painlessly shed $660m in fuel subsidies. Nigeria has seen its reserves fall by $30b and economic growth dwindle to 2.7 percent in 2015 compared to 6.3 percent in 2014. Ghana as part of the IMF conditionalities will have to cut its public service numbers down, who enjoyed a 50 percent jump in pay when oil started flowing.

And you can go on and on.

"Uganda knows the necessary but painful steps that come with IMF involvement in trying to resuscitate an economy. With oil and other minerals on the verge of being exploited, it’s clear what we should do, but most importantly what should not be done...

The continued emphasis on infrastructure development is key.

Improved energy, transport and communications infrastructure will not only lower business cost for existing businessmen abut will also open up new economic activities.

Investing in education, health and other social services will improve the quality of the Ugandan human resource --- all the dams, roads and railways will count for nothing if you don’t have the manpower to exploit them.

It is essential even critical, that we hold steady on this part. Shifting new revenues to consumption rather than investment will provide some short term relief but will end up in long term pain.

One of the stories of the last 30 years is how diversified the economy has become.

In 1986 coffee revenues accounted for almost all our exports and were second only to donor funds in financing our budget (we used to tax coffee exports!).

Now coffee exports account for less than one in five dollars of our export earnings and their contribution to the budget is next to nothing.

Last week the IMF said the country’s economy will grow by 5.5 percent in the next financial year compared to five percent this year, and we are operating the same environment as our less prudent brothers.

The model we can adopt to our own circumstances is Dubai, which has entered successfully into the logistics and tourism business to the point that oil as a proportion of GDP is down to under five percent today.

At the bare minimum let us be the ones who learn from history.

THE PANAMA PAPERS AND UGANDA

Earlier this week the publication of stories, implicating several world leaders – past and present, in secreting millions of dollars abroad, brought into the full public glare the issue of off shore tax havens and how the rich and powerful are playing by different rules than the rest of us.

The “Panama Papers” a treasure trove of documents, 11.5 million pages deep, that were leaked from a Panamanian law firm, Mossack Fonseca, which evidently has distinguished itself in secreting money away from the prying eyes of the public or the invasive fingers of governments.

Imagine you are a big fish who has “eaten” a big frog or multinational company that just thinks they should not pay all the tax due to them or an independent consultant, not only making tonnes of cash on the side but who is keen not to make the sources of those incomes known. You get in touch with a lawyer – in this case Mossack Fonseca and they create a shell company domiciled in any number of tax havens around the world through which you can receive payment or pay out of. In this way you can become an employee of your shell company and receive payments in amounts that will not raise eyebrows or buy assets as a foreign company.

So for instance I got paid $100,000 (I wish) for consultancy work I did in Switzerland, I would ask my employers to pay into my offshore account in the Bahamas, which account belongs to my company SmartBush Inc, which every so often may send me a check or gives me free use of its credit card or may buy property in Uganda or come in as an investor to buy privatised companies for a song.

URA will not be the wiser as to my new income and I can enrich myself to no end, tax free.

On the other hand if my employers had sent it straight to my account here URA may claim as much 40 percent of my sh350m pay check or sh140m!!!

Often times these shell companies are just a post office box on a sunny island in the Caribbean, administered by a law firm which makes sure it meets all statutory requirements in those jurisdictions.

The Tax havens have gained notoriety in recent years as revelations of how much money they are turning over as a proportion of their general economies are revealed.

Uganda only came up in the case of Heritage Oil & Gas, which tried to dodge a capital gains tax on the sale of its rights to concessions in western Uganda. Domiciled in the Bermuda they tried to shift to Mauritius – another tax haven, which has a double taxation treaty with Uganda.

A double taxation treaty shelters companies from suffering a double taxation on their earnings in two different countries.

"It’s not to say that our big fish are squeaky clean, it’s just that the leak has been in only one firm. There are hundreds maybe even thousands of firms around the world offering these services...

The supporters of the tax havens argue that they have legitimate uses in the protecting companies from bad regimes or as above prevent businesses from being taxed twice or several other arguments, which while they have a sound legal basis, they cannot stand up to higher moral or ethical scrutiny.

Recent campaigns have fingered these tax havens as one of the major reasons why wealth inequality is rising across the world. While us mere mortals pay taxes on our incomes the very rich pay much less in tax as a proportion of their income to the authorities, with the surplus used to enrich themselves further.

There is very little people can do about it as it seems everybody, who is anybody, is in on the action.

However, western governments are beginning to take the scourge seriously as they realise how much in revenue they lose annually to these tax blackholes, affecting their ability to provide services for their people.

And finally about the Panama Papers how come the prominent stories released are about Russian president Vladmir Putin and African despots?

THE GHOSTS OF KARUMA PROCUREMENT RETURN TO HAUNT PROJECT

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

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

But first some background.

"The tendering of the contractors of the $1.6b Karuma power dam was mired in controversy where government officials disregarded due process, ignored caution from the procurement agency, the courts of Uganda, the IGG, the cabinet and for good measure tried to rope in the President into their scheme to force through their favoured candidate in an unparalleled show of impunity.....

Ministry officials seemed to favour China International Water & Electric Corporation (CWE) over eventual winner Sino Hydro Corporation, another Chinese firm.

In the process they delayed the 600 MW dam’s construction by almost two years. Construction finally started in 2014, two years beyond the initial timelines.

The process was so compromised that the cabinet was forced to cancel it on the advice of the IGG and not only did Museveni have to personally appeal to China to help build the dam but had to chair an evaluation committee which interviewed and vetted the short listed companies!

As a compromise CWE was offered the 183 MW Isimba dam project, when Sino Hydro Corporation was eventually awarded the contract to construct Karuma Dam.

First forward to the present and the two projects are fast heading towards a stalemate as the energy ministry and UEGCL fight to resolve the issue of who is responsible for the two projects construction.

At the beginning of the project, in December 2013 a memorandum of understanding (MOU) was drawn up between the energy ministry, UEGCL and Uganda Electricity Transmission Company Ltd (UETCL).

In that agreement UEGCL was appointed the implementing agency of the Karuma and Isimba power plants and UETCL was to implement the construction of the transmission lines from the dams to substations in Namanve, Luzira, Mukono and Iganga.

The MOU was signed after the ministry had already identified the contractors for the two dams, employed its own supervising engineers – Energy Infratec PVT Ltd (EIPL) of India and already obtained financing of $1.69b from the China Exim bank.

China Exim Bank’s funding – a loan stretching over 20 years with a five year grace period at between two percent and four percent annual interest, will account for 85 percent of the project costs with the government coming up with the other 15 percent.

The distribution of responsibility on the projects was reiterated in a ministerial policy direction that was gazetted in September 2014 where the energy minister Irene Muloni instructed that,

“Government has appointed UEGCL as its representative in overseeing the construction works and later as owner of the hydropower plants and also appointed UETCL to oversee the construction of the evacuation lines and related substations.”

However months into the project, UEGCL following monitoring reports on the Karuma dam  complained that there was non-compliance with the project works and requested an expert  to assist in the supervision.

Finance ministry permanent secretary Keith Muhakanizi to whom the request was made, while pointing out the strategic nature of Karuma Dam and raising concerns about that UEGCL does not seem to be in control of the project, which he pointed out had ultimate responsibility for delivering the project, wrote,

“You are hereby required to urgently put in place adequate measures to fulfil the requirement as the implementing agency of the project,” Muhakanizi wrote in a 6^th March 2015 letter to UEGCL boss Harrison Mutikanga and copied to energy ministry permanent secretary Kaliisa Kabagambe.

Kabagame in response communicated to the finance ministry on 11^th March and Muhakanizi responded saying he had earmarked sh30b for project supervision in 2015/16 by UEGCL.

UEGCL went ahead and contracted two firms – SMEC International and AF-Consult Switzerland Ltd.

However this was after Austrian firm, ILF Consulting Engineersn -- hired by UEGCL,  did an independent audit of the Karuma and Isimba projects issuing a damning report which pointed out among other things,

“The confusing project management organisation structure of the Employer and conflicting roles and responsibilities between MEMD (energy ministry) and UEGCL has hindered the project implementation process,” the firm’s Dr Kamal Gautam said.

“The employer’s current project management system is ineffective and unable to provide firm leadership in project implementation process…. Such a project management approach by the employer will further impair the quality, cost and progress of the projects.”

In his references to the employer, even he was not clear whether he was talking about the ministry or UEGCL or both.

"In addition the consultant pointed out that the two projects were short of money, questioned the competence of the supervising engineers contracted and recommended that the supervising engineers should be in daily contact with the contractor engineers...

The consultant warned that “Delays in rectification of the identified issues and lack of implementation of the recommendations may prolong the project completion dates, impair project quality and easily overrun the project budget.”

Some shuffling and ejection of key staff at EIPL happened between the issue of the consultant’s report in June last year and the end of 2015, but were still found wanting by UEGCL’s own project management consultants – SMEC and AF-Cosult.

In January this year UEGCL boss Harrison Mutikanga wrote to the energy ministry pointing out that the poor supervision of the two projects continues and suggested that EIPL address issues that were raised in the consultant’s report, clarify on the different roles of the ministry and UEGCL on the project and halt payment to EIPL for their failure to adequately supervise.

In responding a month later on February 10, 2016 the ministry’s accounting officer Paul Mubiru first put Mutikanga in his place by pointing out that, “I am neither answerable to you nor do I get instructions from you,” before chastising him for his style of correspondence  which he circulates “wholesale”.

Mubiru went on to point out that the criticism of EIPL was unfair and may have been prompted by a conflict of interest between UEGCL’s project management consultants who bid and lost to EIPL, in an earlier tendering process for project management consultant.

“I wish to reiterate that EIPL won the tenders for Owners’ engineer for the two projects competitively,” Mubiru wrote. “Any attempt to smuggle the PMC into Owner Engineer role through the back door using the tactics of wide dissemination of malicious allegations against EIPL will be both futile and very costly to the nation.”

Mubiru questioned why the UEGCL’s engineers were reluctant to present their findings in the presence of the onsite engineers and wondered about the integrity of the reports.

Mubiru also pointed out that the ministry has ultimate responsibility over the two projects, “There is no way MEMD can bury her head or hide under any entity as regards to success or failure of these projects … the role of any other entity in delivering those projects is supportive and peripheral.”

He also declined to halt payments to the supervising engineers “on hearsay or your instructions.”

When contacted for comment on the breakdown in cordiality between his office and the ministry, Mutikanga said,

“All we are after is the smooth implementation of the project. Because eventually if we don’t get good dams we will spend a lot on operations and maintenance jeopardising the viability of the projects and our ability to repay the loan, which we are contracted to repay,” Mutikanga said.

He denied that they were trying to smuggle their supervisory engineers to take over the project pointing out that they were tendered with the full knowledge of the board, on which Mubiru seats and under the advisement of the Public Procurement Disposal of Public Assets Authority (PPDA).

Museveni has instructed minister Muloni to get to the bottom of these turf wars and suspend work in need be on the dams’ construction so that remedial work can be done if they are deemed necessary.

 And parliament too has summoned the warring parties to appear before them to resolve the issue.

Attempts to contact ministry officials were futile.

The continued bickering surrounding the two dams does not augur well for our power situation. The commissioning of the 250 MW Bujagali dam in 2012, alleviated debilitating daily load shedding up to that point and savesd government hundreds of billions of shillings in subsidies to the thermo generation operators.

However further delays on Karuma, which was supposed to be commissioned by 2018 according to the earlier time line, may send the country back into the "dark ages".

FACE TO FACE WITH THE BIG MAN, KANU NWANKWO

Last week The Vision Group had the honour of hosting former Arsenal Football Club striker Kanu Nwankwo to lunch.

In the country as a brand ambassador for Star Times TV, the lanky forward was down to earth and genial. A member of the Arsenal ”invincibles” who went the 2003/04 season without a loss it is hard to begrudge him the honorific of legend, especially since he won almost every honour in Europe, with only the World Cup eluding him.

A key player for Arsenal at the height of his career, it is reported that he may be worth about $9m.

It is this number when I came across it that got me thinking, how does a team pay a single player upwards of £25,000 (sh125m) weekly?

Arsenal formed in 1886 was valued at $1.3b last year by Forbes magazine. The revenues from their home ground, Emirates Stadium came in at £100m last year which was about a third of total revenues.

The question then becomes how do you build such a company?

Longevity helps. The club will be 130 years this year but even better it has to be run as a commercial enterprise to unlock its value. The Club went bankrupt before the First World War, was relegated to the second division, before being taken over by a businessman.

I am sure if you go look for the company’s audited accounts they date back to 1886. Record keeping is key because you can learn what you are doing right and continue doing but more importantly you can see what you were doing wrong and put a stop to it. It does away with the guesswork that many companies indulge in for lack of information or inability to analyse the information available.

"Generally records serve as an objective measure of progress or lack of thereof. Objective decision making meant they moved away from the Highbury grounds to the Emirates Stadium in 2006. They put aside 93 years of history, tradition and passion to improve the business. With one fell swoop they double the match day crowds and the last I heard make one million pounds more than the larger Old Trafford stadium home of Manchester United...

Aside from a long tradition of good management it helps too, that up to the second world war England was the top economy in the world, with an empire on which the sun never set.

Essentially, by the time Kanu came along in 1999 the company was an already well-oiled money making machine.

Of course Kanu’s pay pales in comparison to the current crop of top earners, but that’s academic. If he had played now he most probably would be racking it in with the best.

The question would then be for our own current circumstances, which of our teams are best placed to emerge, backed by a powerful corporate structure, in a hundred years be a stand out team like Arsenal FC? The prospects look rather bleak.

And we should not thumb our noses at organisation. The English league is arguably the most organised soccer league in the world, which organisation is reflected in the teams there. It makes the most money for its stakeholders, never mind that it is neither the most enjoyable league to watch or have the most talent in the sport.

You can have talent but for lack of organisation, struggle, lose that same talent to more organised leagues -- see South America.

On the day that Kanu was at the New Vision the Uganda Cranes were getting ready to take Burkina Faso in a match they needed to win to all but guarantee their chances to participate in the African Cup of Nations next year.

Following a similar pattern we failed to come up with the goods, drawing with the West Africans. 

While there is still hope for us me made that much harder by not shutting the door on the Burkinabe.

Undiscerning observers blame our lack of talent. But that is erroneous as 16 of the 18 member squad ply their trade as professionals abroad –okay none of them is in the premier league, but so too Burkina Faso.

"Our underwhelming performance on the international scene is down to poor management of our local teams and the local governing body FUFA....

How does one explain that golf a sport with a handful of elite hackers, relative to soccer’s local fan base, is the darling of corporate sponsors? Sponsors are looking for efficiency in deploying their marketing spend.

Of course recent events at the world soccer governing body FIFA suggest that clearly the sport struggles with governance issues right from the top. But is too much to ask that our sports’ administration taken the path less travelled, get their houses in order and give us something to cheer about?

Back to Kanu. Nigeria where the lanky dribbler comes from, lost his talent to Europe. Is it inconceivable to think that a soccer mad country of a 100 million people can fail to find the money to sustain a world class soccer league? You tell me.

NOW THAT THE SUPREME COURT HAS SPOKEN …

By the time of writing this column we were still waiting for the justices of the Supreme Court to make an appearance. But by the time you read this the Supreme Court would have made its ruling on the Amama Mbabazi petition against President Yoweri Museveni’s February 18^th election.

From a communications point of view this has been a first-of-its-kind campaign the amount of resources in cash and time invested in shaping the candidates message has been unprecedented.

In my mind there were actually two elections, the elections in the media, particularly on social media and the election conducted by the Electoral Commission (EC).

There was dichotomy in the message. There were messages for and against a Museveni re-election.

The Museveni campaign found themselves caught on the back foot wherever they turned. Being the “defenders” so to speak, it was always going to be that the Museveni campaign was going to be  guilty until proven innocent.

"The anti-Museveni strategy seemed to have been a simple one – discredit the Electoral Commission, the police and all government institutions, promote the narrative that a rigged vote is in the making and then finally downplay the successes and highlight the deficiencies of the NRM administration...

They had a strong media presence fuelled by an urban, youthful elite, who have known nothing but the Museveni administration and are opposed to it by a combination of unmet expectations, disgust at endemic corruption and creeping feeling that change for change’s sake is an acceptable outcome and let the consequences take care of themselves.

The NRM, while trying to highlight the progress the country has made over the last three decades, seemed content to mobilise for the nearly 300 rallies their candidate addressed and have a talking presence on the popular talk shows on Radio and TV.

The net effect of these and all other strategies employed by the antagonists was a 60 percent victory for Museveni at the polls.

A return to the drawing board for the opposition is imperative – they can huff and puff about all manner of things, slander the EC, police, the courts and burglars all they want, but in the still of the night when all the chatter has gone down some hard thinking, specifically about messaging has to be confronted.

The NRM too know that they cannot rest on their laurels. They are no strangers to elections having battled through the last five. Things have changed since 20 years ago in 1996.

"For one, communication technologies and accessibility are improving at a remarkable rate. Secondly, according to the final census results released last week less than 50 percent of the population was of voting age. In the next elections this figure will jump to 55 percent. And finally, during the next election the urbanised population will have grown to about 26 percent from the current 20 percent, assuming urban populations continue to grow faster than the general population. Urban population grew at double the three percent national population growth between 1991 and 2014...

The implications are obvious. A more technologically savvy, more urbanised voting population will mean NRM will have to tailor its communication better for the towns, whose indifference they have been able to shrug off in each of the last three elections, because their numbers were in the rural areas.

Elections have always been about the message and the effectiveness of delivery. This election has shown, if not emphasised that, for a ruling party they cannot afford to waffle on their message, to do so means the holes will be exploited and filled by every hare-brained conspiracy theory under the sun.

"Relatedly and more worryingly, this election has made true the old say that the lie will be half way around the world before the truth can lace up its running shoes...

THE UPDF SHOWING THE WAY ONCE AGAIN

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

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

And all this has been achieved in less a decade.

The devil is in the detail but on the surface of it this is progress not be laughed at.

"Our soldiers are nearer the worst paid than best paid workers in the economy, but by coming together they are now not only the largest SACCO in the county but, at the rate at which they are growing, it’s not inconceivable they will be a full-fledged commercial bank within the next decade....

The benefits to the soldiers, besides an avenue to save and invest, are affordable credit to resolve some of their most pressing needs – school fees, building and agriculture.

On a much wider level the UPDF are showing the rest of us once again the possibilities around us.

When in 1981 President Yoweri Museveni and his motley crew of 27 headed into the bush, they essentially took the little they had and emerged five years later much stronger and obviously much more influential.

Wazalendo, Swahili for patriots, is likely to change the configuration of the financial sector as they grow and also by their example, which one can expect will inspire other people to start SACCOs.

What is one of our major failings as an economy? The inability to aggregate the money we have into amounts that can drive development.

In 2011 money in circulation accounted for about 18 percent of total money supply. The rest of the money is being kept in banks. An equivalent comparison in the UK for instance shows that only about two percent of the total money is being held in people’s wallets and under their mattresses.

The net effect of this difference show themselves in lower lending rates and more efficient allocation of resources to the more productive sectors of the society.

So Wazalendo’s example means that money which had have found quick release at the nearest bar outside a UPDF barracks is instead being employed to build houses and set up farms. By lumping it together it more easily accessible to those who need it for productive endeavour.

Relatedly SACCOS like Wazalendo are reaching out into the furthest corners of these nation where the high street banks can’t be bothered to be caught dead.

And secondly, the profits are being distributed locally, as all Wazalendo’s members are citizens.  This important on several fronts but most importantly it means these monies are then being reemployed in this economy to create the virtuous multiplier effect we so badly need. Without naming names many of our banks pay some tax, some bonuses to their managers but the larger part of their profits are shipped out to pay off foreign shareholders who then benefit those economies.

Foreign Direct Investment is important for generating capacity and even allowing technological transfers. They are not charities so what they decide to do with their profits is entirely up to them. But what is stopping us building our own models and appropriating some of this profit for ourselves?

Even if for example the biggest shareholders in Wazalendo sometime in the future start taking home billions of shillings, chances are most of that money will be employed here – investing, paying salaries, donating to local charities and boosting demand locally.

"A pattern the multinationals are unlikely to do here, after all at the first sign of trouble – a few cans of teargas being sprayed around, they are quick to put projects on hold or expropriate their earnings, until things settle down...

Imagine a scenario with 100 Wazalendos and a few other lower tier SACCOs and imagine the transformation that would occur in the economy?

The point is, when you look down the history of development around the world, the more developed countries – many much less endowed than ourselves in terms of people and natural resources, relied on their own meagre resources to lift their societies out of poverty.

In fact no country has developed by relying on aid, the kind of which Africa has received over the last five decades, the patronising kind, designed to keep us locked in a dependency cycle, our best minds are convinced we cannot pull out of without the very aid that is perpetuating the vicious cycle.

"Of course Wazalendo should brace themselves for a backlash. Such attempts at self-sufficiency are frowned upon and they can expect that there will be attempts, overt and covert to subvert their project...

But then again they are big boys, they can take care of themselves.