RWANDA AND THE CASE FOR THE EAC

Last week I was in Kigali, Rwanda to attend the Commonwealth Secretariat sponsored “Media and Economic Development in a Globalising world”, a media forum in which examined our role as journalists in this fast changing world and region.

Journalism, whose definition is under threat from new media, remains an important tool now more than ever in steering populations through the rapid changes that are upon us. The understanding and application of press freedom varies around the commonwealth and finding that happy medium between journalistic license and responsibility to society will continue to be a challenge.

Around the workshop of course Kigali went on with business as usual.

I have been trying to crystalise my feelings about Kigali with little success, this having been my first time in the country of a thousand hills.

Entebbe Airport is small but Kigali International Airport is smaller, but as I descended to retrieve my luggage I was struck by a Rwanda Development Board billboard highlighting the ease with which you can do business in Rwanda.

The well paved, neat and clean roads of Kigali have become a cliché – which is as it should be, but you have to be there to appreciate it.

And this where my biggest emotional discordance set in.

"Was I impressed because where I come from we have unpaved, port holed and dusty streets? Or was I impressed because here was a country with an economy and budget almost a third the size of my homeland and showing us how things should be done given a little vision, organisation and dedication?

In hindsight it was a bit embarrassing that we had our jaws on the ground about Kigali’s roads, in functioning countries good roads are a given, so what does that say about us in Kampala.

I read somewhere that the efficiency of a government can be detected by the state of its roads. Roads fall apart when governments don’t work. A government in decline starts to show in its roads and conversely a government on the rise improves its roads.

Moving beyond Kampala-bashing the state of Kigali’s roads vis-à-vis Kampala’s or Nairobi’s or Dar es Salaam’s (I have not been to Bujumbura so I can not speak for them) highlights why fast progress towards operationalising the East African Community is important, even critical for the region’s people.

Rwanda’s traumatic history of the last 50 years needs no repeating, but the legacy of this leaves Kigali with no margin for error in delivering goods and services to its people. A continual improvement in the standard of Rwandans across the board, not only by a few urban elite, is crucial if stability is to be maintained.

Ten million people crammed into a space about a tenth the size of Uganda is a situation that does not allow for much pressure build up.

"The challenge for Rwanda is to grow its economy as fast as it can, while spreading the benefits of this growth as equitably as it can. To do this Kigali needs to be strong enough to reign in the corrupt, who frustrate social service delivery while flexible enough to not only attract investment but also encourage local entrepreneurship...

On one count, judging by the roads in the capital (even if as some critics say they are only for show and only in the capital), Kigali has shown itself able to get things done – in Uganda we cant even put up a road for show.

Given its small population, relative lack of industry and landlockedness, Rwanda can not do this alone. It needs unfettered access to a larger market to attract investment. It needs its neighbours’ infrastructure and processes to be in tip top shape to lower the cost of doing business.

The EAC must work for Rwanda to work. Rwanda must work for the EAC to work. This mutually beneficial equation applies to all the five member states. Rwanda just brings these issues into sharp relief because of its turbulent history and the ever present danger of a resurgence in ethnic violence. A World Bank report in 1990s found that countries with less ethnic diversity are more wont to descend into civil war than others.

The colonial borders of East Africa have been shown to be an impediment rather than an advancer of our welfare, the EAC offers us a way to transcend these boundaries and Rwanda serves as a case study for why failure is not an option.

THE LESSONS OF THE NEW VISION

This week the New Vision makes 25 years. Started in 1986 as a weekly newspaper by the new NRM government, the company has grown into a multi-media behemoth (in Ugandan terms) dominating all but a few of the segments it has entered .

As of the end of the media group’s last financial year it showed a profit before tax of sh1.9b($775m) down almost 50% from the previous year, which had a lot to do with higher depreciation costs due to new investments in plant and machinery.

But the blip in financial performance is being determinedly reversed as the new assets start to throw off earnings. In half year results released recently pre-tax profits were up 63% to sh3.1b from the same period last year.

In the quarter century of its existence the group has served as a force for political, economic and social change and has exceeded its founders’ expectations in many ways. It has provided information, education and entertainment for millions of people. It has employed and provided business opportunities for thousands more. And more recently through listing on the stock exchange has served as an investment vehicle for hundreds of Ugandans

We could go on till the cows come home but my main interest is in the business model of the media group.

The New Vision as a dominant media player operating in a liberalised industry and economy, was for the first 18 years of its existence entirely government owned.

"Our experience with government owned companies is one of loss making, general malaise and drawn out decay. Understandable since the interests of governments are oftentimes slanted towards making quick political gains than growing wealth...

In many ways over the years, the stars aligned themselves benevolently for the New Vision.

A benign government policy that allowed the paper to be more independent in its editorial policy than many government’s would be happy with, a national economy that has quadrupled over the company’s life time and a succession of management teams that have not been content to seat on their laurels, but always willing to push the boundaries of possibility.

Ugandan businessmen can learn a thing or two about vision from the history of the company.

Former Managing Director William Pike took over management of the company in July of 1986 as a lean, tall and bearded 38 year old, who – judging by pictures of the time, may have been mistaken for a back packer.

Imagine that he might have graduated more than 15 years previously and his contemporaries were already amassing fortunes. His perspective therefore of what he wanted the New Vision to look like 10-, 15- or even 20-years down the road was always going to be bigger than most people around him.

His successor Robert Kabushenga has driven the company at tearing pace into the world of broadcast media, leaving many reeling and the naysayers sharpening their knives.
That too was driven by a vision that was bigger than anything being displayed locally.

Our businesses can also learn about building companies.

"Two things jump out when one examines the history of the New Vision; If you are organized internally to take advantage of market situations the money will come and secondly, that for a company to grow, a high degree of delayed gratification has to be exercised....

The building of the New Vision’s operations are still a work in progress. The commitment to building systems rather than centralizing decision making and power in the hands of one person, has ensured a smooth management transition and is what has propelled and continued to propel the company.

In an interview just before the New Vision went public in 2004 Pike said, $12,000 was the sum total of all the cash the company had received from the government.

By the time he left the company in 2006 the company had a book value – difference between assets and liabilities, of sh13.4b ($5.6m at current exchange rates).

The books are there for all to see, profits were largely retained and invested in increasing human and physical capacity in order to compete in an increasingly competitive environment, so much so that the company has grown largely through self generated resources through the years.

Going forward these same virtues will continue to serve the company, in addition to a maximization of its human resource, sharpening of its strategic process and improvements in operational efficiency.

But the New Vision should not forget in the famous words of Nelson Mandela, “After climbing a great hill, one only finds that there are many more hills to climb.”

WHY NO UGANDAN FEATURES ON THE FORBES LIST

This week the Forbes list – a ranking of the richest people in the world, was released. Bill Gates did not regain his title as the richest man in the world, partly because he gave away a lot of his wealth to charity and also because Mexican tycoon Carlos Slim’s net worth jumped 38%.

But don’t cry for Gates, his fortune still comes in at $56b or more than the size of the economy of Kenya, Tanzania and Uganda put together.

Africa’s highest ranked is Nigerian Aliko Dangote who has interest in sugar, flour and cement. He is in the top 100 at 51 thanks to a near seven fold increase in his net worth.

No East and central African made the list whose African interest was dominated by South Africans, Egyptians and Nigerians.

"The Forbes List which started in 1982 is a celebration of capitalism and as lists go probably means more to the readers of the lists than the entrants...

It has its place in determining which economies are generating wealth or in the case of Africa, which countries in addition are experiencing a rapid expansion in wealth disparities.

A friend of mine keeps saying that the reason we have so many problems – political, economic and social as a country is because we do not have enough rich men.

Given that with our GDP of $16b we would not be even in the top 50 on the Forbes list maybe we need to ask ourselves why that is.

To begin with we are unlikely to get a member of the Forbes List in the foreseeable future because our rich men run local operations.

But maybe more importantly our businessmen are not harnessing the power of collective investment. They are going it alone. Financing their businesses with personal savings and for the more sophisticated ones, bank financing.

Last week Tony Wainaina, whose experience includes stints with Kenya’s most successful investment companies Centum and Transcentury, was in town to talk about creating wealth using investment groups.

During a talk organized by financial advisors, Akamai Global and sponsored by the Competitiveness and Investment Climate strategy Secreteriat of the finance ministry, Wainaina listed commitment, vision, governance and trust as critical success factors.

Wainaina said that in Kenya investment groups control up to a billion dollars in assets – and we haven’t even counted the Savings & Credit organizations.

Just as with an investment group, a lack of vision will keep your business small even if it had a chance to grow bigger.

"I think the key for our businessmen is to look at business as satisfying the needs of others beyond the individual founder or founding family. There is only so much one can eat, one house one can sleep in at a time and only so much of life’s pleasures one can savour in a life time...

But if the business’ vision extends to creating jobs and services for thousands and even millions then we will see bigger concerns come. Without this they will continue to be big fish in small ponds.

As a nation it is also important that we have big local businessmen and concerns not only because they create employment and provide services but also because as a result national stability has a chance to gain root.

Big business will need cash and the more businesses there are the more likely they will tap the local population for capital. In so doing – beyond the jobs, more people will have an interest in continued stability of the nation.

Poverty levels should not be viewed as just a statistic but also as a real threat to national security. A poor population has nothing to lose and when people are desperate the rule of law is suspended so that people can make a living any which way they can.

Singapore’s founding father Lee Kuan Yew in his book “The Singapore story: From third world to first” describes how demonstrations in the city state became less violent in the city state as the rate of home ownership increased.

So we should be concerned that we do not have an entry on the Forbes list or have some of the biggest companies on the continent or in the region.

And as a consequence our business men should know they can not do it alone, especially using our small economy as a launch pad. Aggregating our resources through collective investments is the way to go.

BUFFETT’S LESSONS FOR BUSINESS

It’s that time of the year again when the world’s richest investor Warren Buffett publishes his letter to the shareholders of Berkshire Hathaway, a conglomerate he runs and in which he has a controlling stake.

Berkshire Hathaway is a $210b company – this is almost thrice the size of the East African Community economy, which employs 250,000 people in the more than 70 firms it owns. A Berkshire share goes for $130,000.

While impressive, these numbers belie Buffett’s reputation as the world’s premier investor.

Buffett who turned 80 last year, took over Berkshire when it was a floundering textile company in 1965 and through buying stakes in public companies and acquiring companies provided superhuman returns for his shareholders.

The book value of the company’s shares have shown a compounded annual growth rate of 20.2%, meaning if you had met the nerdish 34 year-old Buffett when he took over Berkshire 46 years ago and placed sh1m with him, that investment would have grown to about sh500m today.

At the end of last year DSTV’s BBC Knowledge channel had a revealing documentary on “The Sage of Omaha” as he is affectionately referred to, in which they broke down his investment philosophy into a handful of principles.

Far way as he may be in the American heartland, Buffett’s annual letter to his partners has useful lessons for businessmen and investors in Uganda.

Below are some of the lessons I was able to glean from this year’s letter.

On the economy,

“Throughout my lifetime, politicians and pundits have constantly moaned about terrifying problems facing America. Yet our citizens now live an astonishing six times better than when I was born. The prophets of doom have overlooked the all important factor that is certain: Human potential is far from exhausted, and the American system for unleashing that potential – a system that has worked wonders for over two centuries despite frequent interruptions for recessions and a Civil War – remains a live and effective”



On Managing managers/companies,

“At Berkshire, managers can focus on running their business: They are not subjected to meetings at Headquarters nor financing worries nor Wall Street harassment. They simply get a letter from me every two years and call me when they wish….. There are managers to who I have not talked in the last year, while there is one with whom I talk almost daily. Our trust is in people rather than process. A “hire well, manage little” code suits both them and me”

“Berkshire’s CEOs come in many forms. Some have MBAs; others never finished college. Some use budgets and are by-the-book types; others operate by the seat of their pants. Our team resembles a baseball squad composed of all-stars having vastly different batting styles. Changes in our line-up are seldom required.”


On Corporate culture,

“Cultures self propagate …. Bureaucratic procedures beget more bureaucracy, and imperial corporate palaces induce imperious behaviour. … As long as Charlie (Munger, vice-chairman) and I treat your money as if it were our own, Berkshire’s managers are likely to be careful with it as well.

“Our compensation programs, our annual meeting and even our annual reports are all designed with an eye to reinforcing the Berkshire culture, and making it one that will repel and expel managers of a different bent. This culture grows stronger every year, and it will remain intact long after Charlie and I have left the scene.”

On Investment,

“You can be highly successful as an investor without having the slightest ability to value an option. What students should be learning is how to value a business. That’s what investing is all about.”


On corporate governance, (in letter to his managers)

“The priority is that all of us continue to guard Berkshire’s reputation. We can’t be perfect but we can try to be. As I’ve said in these memos fro more than 25 years: “We can afford to lose money – even a lot of money. But we can’t afford to lose reputation – even a shred of reputation.” We must continue to measure every act against not only what is legal but also what we would be happy to have written about on the front page of a national newspaper in an article written by an unfriendly but intelligent reporter.”

“Sometimes your associates will say “everybody else is doing it.”… It is totally unacceptable when evaluating a moral decision. Whenever somebody offers that phrase as rationale, in effect they are saying that they can’t come up with a good reason. If any one gives this explanation, tell them to try using it with a reporter or a judge and see how far it gets them.”

The 26-page letter is devoid of illustrations and graphics but still makes for compelling reading.

THE ECONOMICS OF REVOLUTION

If you wake up and find your neighbour is an overnight success, know he has not been asleep.

The events in North Africa have been brewing for at least a generation. We are witnessing the closing act, or rather, the climax before the intermission, because you can guarantee that these countries, especially Libya, will not return to business-as-usual anytime soon.

After all democracy only comes long after the revolution has eaten its children.

Interestingly the three states set on fire in the last two moths are those with the highest Human Development Indicators (HDI) in the region.

The HDI is a statistical measure of the quality of life of a population using access to health, education and other social services as indicators.

Relative to other countries on the continent the populations of these countries were well off.

The wealth disparities – another source of unrest, in these countries are less extreme than elsewhere on the continent.

But you know what they say? If you had your head in the freezer and feet in the furnace on average you would be okay.

The suggestion has always been that poverty and the large wealth inequalities are the breeding grounds for discontent and eventual upheaval. The poor majority seeing no future ahead of them are easily incited to violence and mayhem.

Historians further suggest that to forestall revolution political elites need to create a middle class – owners or property, jobs and professions, who then stabilize society by urging less violent means of conflict resolution and hence democracy.

But the political elite have a dilemma that if they grow a middle class they will start agitating for their rights and jostling for political power. Basically its too much work engaging a middle class, in the short term its much easier to run rough shod over the people.

The ruling classes in the North Africa have gone a step further, thanks to massive oil revenues and provided infrastructure and social services, keeping people from agitating for their rights.

That worked well for them during the cold war. But fissures started showing with the falling of the Berlin wall and the rapid spread of telecommunication technologies starting in the 90s.

To understand how improved communications is shaping the world one needs to understand truth.

We determine what is truth or not, through six basic filters.

Without going into detail, without information our truth is coloured by what others do (consensus), what has been happening (consistency), what a respected institution dictates (authority) and revelations passed down by authorities. However with more information scientific knowledge, truth tested to experiment, dominates and may endure.

So suddenly after years of authoritarian rule through secular state’s like Ben Ali’s Tunisia, Muammar Gadaffi’s Libya and Hosni Mubarak’s Egypt, their people who were blind but can now see, realize they deserve better.

And we are not just talking about their rights, but their standard of living as well. For years they have been fed on the propaganda that they are better off than other people on the continent or even around the world. Now they know better and have worked out that the only way to get what belongs to them is to oust their atrophied leadership.

Also through sources previously unknown to them they learn that their leaders are not feeling their pain. They always knew their leaders were rich but have been shocked to discover that their leaders have been stashing away billions of dollars in Swiss accounts, gambling in Monte Carlo and have yachts moored on the French Riviera.

And suddenly too, they can connect with other dissenting voices not only in their neighbourhood or region but countrywide and worldwide as well.

And suddenly again, their first class health care, education, free state provided flat and job for life mean nothing.

The octogenarian leaders of the third world would be well served to read up on Maslow’s hierarchy of needs.

Often depicted as a pyramid, at the bottom of which are the physiological needs of food, water, sex etc, on the next level the safety needs – shelter, clothing, job etc. After these levels have been attained things get murky because physical things can not satisfy the need for love, self esteem and self actualization. When people reach this stage they start agitating for freedom.

So in a sense the leaders of North Africa have become victims of their own success. They could not see beyond providing for the physical needs of their citizens – the economics, and their myopia has caught up with them.

THE POLLS ARE OVER, NOW THE HANGOVER

I have no clue what happened, what the outcome was of the 2011 presidential and parliamentary election.

That probably sounds funny from where you are standing but its true. I wrote this long before a single vote was cast (I hope) and I am therefore writing it blind so to speak.

Prophesies they say, tell more about the prophet than the events being foretold.
I will therefore not predict who won.

But whoever he or she is there will be no time to rest on their laurels.

I am a Ugandan and we Ugandans like to talk politics, but I shall desist. Our politics anyway is too murky a subject to be unraveled in 700 or even 700,000 words.
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Whoever takes over is going to have to mop up all this money that has been sloshing around during the last few months of electioneering.

"Consumption went up a few scores of billion shillings in the last few months with the biggest beneficiaries I guess, being fuel, telecom and beverage companies...

Consumption drives production but we all know this was a bleep on our consumption graph, unlikely to happen again until 2016. So there is a very real danger that inflation – price increase prompted by too much money chasing too few goods, will rear its ugly head shortly.

In January annual inflation rose to 5% from 3.1% the previous month.

The government whose target is an annualised inflation rate of 5% can be expected through the Bank of Uganda to mop up these excess monies.

So in a way one does not want to be in the next government’s shoes. They will have to tighten government expenditure while finding a way to pay for all the campaign pledges they made. A poisoned chalice if ever I saw one.

Former Minister Richard Kaijuka once lamented that if it were not for politics, turning around the Ugandan economy – at that time just under $10b worth, would not be a big deal.

If this was a purely economic question the central bank and treasury have proven time and time again that they know what to do. As recently as August 2008 inflation touched 16%.

It is not easy for economic growth to happen when government is putting the breaks on spending.

Without government spending on infrastructure, business will be hard to do in this country. Without spending on health and education the productivity of our workforce will be further depressed. Without spending on the judiciary the case backlog will persist further dampening business efficiency.

And growth is critical if we are to continue pulling more and more people out of poverty....

In controlling inflation we may see a rising in lending rates in responses to actions taken by the Bank of Uganda.

If the central bank issues more government securities we can expect yields to rise. It is a against these yields that banks peg their lending rates, often in addition to their administrative costs, risk element and margin.

So we might have to sweat through higher lending rates for the next 12 months at least. On the flip side people investing in treasury bills and bonds maybe laughing all the way from the bank.

High lending rates do not augur well for business and therefore a powerful dent in economic growth.

The new government will have some hard and unpopular decisions to make.

As if that is not enough, last week the International Monetary Fund (IMF) expressed displeasure at our handling of the economy.

Uganda which has graduated from the poorest countries but still needs the nod from the IMF to access funds from other bilateral lenders, apparently reneged on an agreed economic program, most probably our spending got out of hand in recent months.

While have reduced our donor dependence significantly over the last two decades they are still important players in our economy.

"So remedying our errant spending ways, while massaging bruised egos in Washington will be at the top of the to-do list of the Finance minister....

As Nelson Mandela said, after climbing a great hill, one only finds that there are many more hills to climb.

It’s a thankless job but someone has got to do it.

NO INFRASTRUCTURE, NO EA INTEGRATION

Long, Long time ago former president of the then Zaire Mobutu Seseko made a state visit neighbouring Central African Republic. Received ta the airport by his counterpart Jean Bedel Bokasa they drove along multi-laned highway to the capital and on to Bokasa’s palace.

At the palace the Mobutu took Bokasa aside admonished him, “My friend,” he must have said. “What is wrong with you? How can you have such well paved roads leading to the capital? Do you want to be overthrown?”

It may sound funny now but if you visit the DRC today the most efficient mode of transport is by air, never mind that most of the air travel is done by decommissioned Soviet era planes whose safety would be hard to vouch for.

I recalled this anecdote last week on a road trip to Dar es Salaam from Kampala.

The 1800 km trip sponsored by the Tanzania Ports Authority, was meant to showcase the central corridor route – Mutukula to Dar es Salaam and promote it to the Ugandan business community as an alternative rout to the Kampala-Mombasa route.

Of all the four million tons of cargo that comes in or goes out of Uganda only one percent of it is channeled through Dar Es Salaam. This is down almost five times form the 2004 high of 132,137 tons.

Since then the sinking of the MV Kabalega in 2005 Uganda cargo on the route has fallen sharply.

Apart for a 100 km stretch before you get to the intersection to Rwanda at Lusahunga, the road is well laid. The poor quality of the road was a major impediment previously.

That Uganda external trade is totally exposed to the Mombasa route is the height of imprudence and that we have continued to let the situation drag on makes one wonder.

The larger strategic issue aside there are several bottlenecks both governments – Kampala and Dodoma, need to address to see more freight plying the central corridor.

For starters the distance to Dar es Salaam is about 600 km longer than that to Mombasa. Businessmen on the trip suggested that concessions have to be made to mitigate against this greater distance. For instance Tanzania might want to negotiate with Uganda to freight charges tax free on cargo coming through Dar es Salaam.

While acknowledging that the road was much improved the businessmen suggested that the vast distances between major towns need to be dotted with service points where passengers can sleep over or cars maintained.

In addition to improving the road the Tanzanians have invested in speeding up turn around at the Dar es Salaam port and are in talks with Kampala on multi-billion dollar project to develop Tanga, Port Bell and Kampala Port, to resuscitate the railway line and reinstate the ferry system on Lake Victoria.

Interestingly given our near death experience after the Kenyan post election violence in 2008 there seems to be little urgency in resolving this issue once and for all to the satisfaction of the business community.

Businessmen will not adopt the rout e because of some unquantifiable love for Tanzania. They will use the route because it makes business sense.

Making the route profitable is not rocket science but will need bureaucrats on both sides of the border to think like business or at the bare minimum be sensitive to their concerns.

We can sign all the protocols in the world but as long as our regional infrastructure remains wanting East African integration will remain a pipe dream toasted to in Arusha.

One of the reasons the East African community collapsed the first time was for lack of widespread interaction between the three country’s populations, beyond the handful of technocrats posted at the various capitals. This allowed the leaders of the time to play around with a public good like with little resistance from the people.

This is understandable since the colonial infrastructure was designed to extract raw materials and not improve communication in the region.

In a related incident Kenyan investment firm Centum cross listed their shares on the Uganda Securities Exchange. The 45 year old investment firm has $140 m under management, invested in companies and real estate around the region.

The company with pan-African ambitions has proved itself at raising and deploying capital to the benefit of its shareholders.

East Africa’s infrastructure needs are urgent and badly in need of funding. However our governments are only just waking up to the realisation that government need not go it alone.

The old model of government determining to build one project or the other, sourcing donor funding and building has left the region littered with white elephants that serve little or no productive use. The private sector, the major employers of the infrastructure need to be more involved in deciding what we build and what we do not build.

Groups like Centum have shown that we have more than adequate resources among us to look after ourselves.

Donor funding has its limits, as we learnt with Bujagali, and local capital which has a better understanding of local conditions, less risk averse and patriotic is definitely where we need to be looking.