LET US GO THE INDIA WAY

In November last year the Indian government gave its citizens 50 days within which to turn in the  highest denomination notes for smaller notes in a bid to among other things raise revenues from undeclared incomes, mostly from the corrupt and black marketeers.

The scrapping of the 1000 and 500 Rupee notes that were scrapped accounted for 80 percent of the money in circulation by value.

There was some reported discomfort as people lined up to deposit their cash holdings with the banks. 

Deposits in the banking sector jumped and banks were forced to reduce lending rates.

But also as a result millions of dollars in untaxed income showed up overnight that has the Indian revenue authorities licking their lips with excitement.

The down side is that the real estate market in the big cities has slumped by as much as half compared to the same period last year.

"With the improved banking and payment systems that have removed the need for the carrying of large sums of money around isn’t it about time Uganda considered such a move as well? If only to increase our savings in the formal sector and to trap more taxes....

Imagine if we announced that we were scrapping the sh50,000, sh20,000 and sh10,000 notes, it will release those fabled money vaults in rich men’s houses into the formal banking sector for all of us to take advantage and like in India, uncover untaxed income that could very well boost our revenue collections.

Of course you can expect a bit of discomfort initially just as we felt with the currency conversion in 1987, but we will soon get over it. We will be fine.

It goes back to the point that we are poor as a country not for lack of cash or resources but more because this cash or resources is not aggregated into meaningful sums within easy reach of the productive sectors of our economy.

In 2011 cash in people’s pockets and under their mattresses accounted for just under 20 percent of the total money in circulation but this compares poorly with more developed economies where the figure is about two percent.

The difference between the two numbers is worlds apart as it suggests greater efficiency for the productive sectors to access credit in the west than Uganda, efficiencies which rise exponentially with each percentage point difference.

"The beauty of such a move too will not affect the poor as they are rarely in touch with the larger currency denominations. In fact it may end up being beneficial to them in incentivising them to get their own bank accounts....

One may argue about the efficiency of private banks in deploying resources, but we will cross that bridge when we get to it, let us first raise deposits.

This too will help the central bank control inflation much more efficiently since the banks are responsive to the instrument it uses in tightening money supply.

Of course one can expect virulent opposition to such a suggestion, especially for the direct beneficiaries of these unmonitored money movements.

As we have seen with India the first casualties would be the real estate sector which has for long been used to launder the illicit funds in the economy, explaining the property boom of the last few years. It is not unusual to carry out real estate transactions with bundles of cash.

The need for the economy to be more fomalised cannot be overstated. Economic data will be more representative of the real economy allowing investors to make more informed decisions, because it will make interventions easy to make and their outcomes more predictable.

For the rest of us mere mortals who don’t carry wards of cash around anyway we will continue using the ATM or making bank transfers to settle obligations or use mobile money.

What as a country we should never do is what Zimbabwe did and is trying to do now.

A few years ago because inflation which was in six digits was making printing more and more money impossible, the Zimbabwe dollar was shelved and the country adopted US dollars, South African Rand and a hodge podge of other currencies.

The hyperinflation was caused by the annihilation of the productive sectors especially agriculture and the printing of money to appease political constituencies as tax revenues begun to drop off.

But now Harare finds itself in a catch 22 situation because since the productive sector had been gutted they can’t export enough to earn the forex they need to circulate.

As a way around it Zimbabwe has issued dollar bonds, a kind of currency. The citizens don’t want to know. A currency is only as credible as the trust the users have in the government issuing the currency.

It does not take a prophet to see what will happen to ZImbabwe in 2017.

"Either Harare has to swallow humble pie and attract the white farmers and industrialists back – not unlike Uganda and the Asians, privatise the state enterprises and fall back in with the Bretton Woods’ institutions to help rehabilitate their infrastructure and get the economy up and running...

Or they bite the bullet hope to ride out the public dissent as the economy goes further into the toilet and hope for a miracle for things to turn around.

They will probably hope for the latter rather than the former and the end game is certain.

NO GOOD DEED GOES UNPUNISHED

The sh6b cash pay out to officials key to the winning a favourable result in a multi-million dollar tax dispute against oil company Heritage Oil refuses to go away.

In 2010 when Heritage sold its interest to in their western Uganda oil concession Uganda Revenue Authority (URA) argued they were liable to capital gains tax. Heritage didn’t think they owed Uganda anything and even bolted the country after payment before URA could catch up with them. URA however were not about to let the issue of upto $700m go begging so proceeded to pursue them to the courts up to a London arbitration court.

A settlement netted the country $473m a princely sum for our cash starved coffures. In appreciation of the core teams efforts President Yoweri Museveni authorised a bonus pay out.

This week parliament went into indefinite recess following a ruling by the court of appeal whose import was to bar them from debating the bonus pay out.

The bonus pay out has got the chattering masses to a running start in the New Year.

Whereas the dust is far from settling two lessons are hard to miss from this unfortunate scenario (whichever way you look at it).

"To begin with as a country, as citizens we need to push relentlessly for the building of institutions and formalisation of systems. Emerging out of the chaos of the 1970s and 1980s it was okay to apply discretion in many affairs of state...

But two things have happened that are changing and will change the way we behave around public resources. One, as we broadened the tax base, we have also increased the number of people we are accountable to for how the money is spent. There will never be agreement in how best to utilise our finite resources. Hence the need for rules and procedures that are faceless, objective and transparent and backed by a reasonable consensus to govern our behaviour.

And secondly there is the increasing connectivity of our people ad proliferation of social media. As an example this we knew about the changes in the UPDF on Monday night. By the time the army came out with official communication on Tuesday morning we had thrashed out the issues of who, what, where, why and how. And by the time the daily newspapers came out on Wednesday they were looking decidedly dated. This speed of information transmission gives greater credence to the saying that “The lie will be half around the world , while the truth is still tying its shoelaces”

The second lesson is that in a country like ours where corruption is so pervasive, good people can suffer the perception that they have crossed to the dark side, if only because our default judgement on any action is that somebody must be “eating”.

"This is dangerous because among other things, it lowers the general level of trust in a society, making it that much more difficult to carry out normal transactions... 

 In a world where communication is flying faster and faster decisions will have to made with increasing speed and determinations about the trust worthiness of this or that individual or institution will be made that much more quicker.

A reputation built over decades can be left in smouldering ashes just by a shift in public perception. And in the court of public opinion perception beats fact every time.

WHY UGANDANS WOULD RATHER CONTRIBUTE TO WEDDINGS

It has been a perennial lament. Why as a society are we more likely to come together to finance multi-million shilling weddings than do the same to fund start up businesses?

The critics have said we are a fun loving society and we would rather consume than invest. An almost identical line with the previous  criticism is that we live hand to mouth and can't wait for returns that would come  with investment in business.

"One can understand the frustration. That while financing for start ups or businesses is hard to come by and expensive to boot, we contribute to weddings every week with no real hope of material return...

There is an element of truth in both arguments.

But if we think about it a rational person is more likely to contribute to a wedding than respond to calls for financial help from our businesses.

First of our wedding planners are more organised. Capital is a coward.It needs to be assured of some certainty. By the time we are called to contribute for a wedding there is certainity about who is getting  married, the date, the church or mosque the ceremony will happen in, where the reception will be and a reasonable estimate of how much it will cost.

Apart from the long term expectations of a fruitful marriage (This part has often been achieved by the wedding day), in the short term we will get to eat a good meal, quaff a few drinks and get to socialise with long lost relatives and meet a few more.

Weddings are the epitome of Specific, Measurable, Achievable, Realistic and Time bound (SMART)planning.

In addition intending couples have numerous mentors to call on to give the enterprise a realistic chance of success.

The same can rarely, if ever, be said for our startup projects. Often times the startup promoters may know what business they want to do, little idea about the feasibility of the enterprise and absolutely no clue how much it will cost until a return can be expected....

Not to mention with less than one in a hundred business surviving to their tenth anniversary, there is a dearth of business advisors and mentors who know how to run a business successfully.

So our businessmen seeking funds will be best served to learn from our wedding planners, especially in understanding potential funders needs.

First off it may be wiser to use ones own savings or resources to start up a business. Investors are looking for a chance of reasonable return, which can only be determined with any certainty when the business model has been shown to work. This could take years.

By the time of the wedding there is a reasonable expectation that the couple are compatible.

But assuming there is a working business model, meaning we know how revenues will come in, how much it would cost to deliver these and the business is ready to be scaled up, then it's a good time to look for external investors.

The investor is looking for four things basically, beyond a coherent business plan.

One, that the promoters of the business believe in their enterprise, that they will not bail out at the first sign of trouble. Better still that there is a meeting of minds between the investors and the start-up promoters on the future.

Secondly they would like a sense that the business has a defendable competitive advantage, that the business processes that bring it success are not easily replicable. So for example if your restaurants have secret recipes and delivery mechanism that are popular and not replicable that would be useful in rolling out a chain of restaurants.

Evidence of good management as reflected by a constant increase in value of the enterprise over time -- not the number of MBAs on the management, is the third thing investors are looking for.

And finally the investor would be looking to buy at some discount to actual value. As a businessman you would!d like to get maximum value for the share you are relinquishing but often times beggars can't be choosers.

The above  is premised on the idea that you are trying to attract equity partners and not lenders.

Not unlike a wedding. The romance surrounding the event gives it meaning, the couple can only marry each other on the day, the growth of the family is a forgone conclusion and often times the contributions a bargain price not only for the anticipated merriment but also for expected long marriage.

So it makes sense why we are falling over ourselves to contribute to weddings but don't have a similar enthusiasm for our neighbours potential million dollar company.

"They say that oftentimes a deal falls through not because of the environment or that the business is doomed but because of who controls the deal...

Potential businessmen should look more to themselves and their inadequacies to explain why they can't raise money. Otherwise we will be looking out for the next wedding to fund.

THE TOP TEN SHILLINGS & CENTS POSTS OF 2016

Uganda never bores. For better or worse we are always making news. This blog tries to go beyond the news to explain, interpret and decipher the news.

2016 has been a good year for news and below are the top ten Shillings & Cents posts by page views. This is the second edition -- the first having been at the end of 2015, of what will be an annual event

#10: WILLIAM KAJOBA, IN THE EYE OF THE BAILOUT STORM

On an evening talk show early last week Kampala businessman William Kajoba came out strongly in favour of a bailout of local businessmen, who are struggling through the current economic hard times and are staggering under the weight of the growing debt load on their businesses. more

#9: RUGASIRA ON COFFEE, CHOCOLATE AND EXPORTING TO THE WEST

 I prefer to seat upstairs at the Good African Coffee shop. But Andrew Rugasira had other ideas. We sat downstairs with a display of Good African’s various offerings as a backdrop to our conversation.

Rugasira is launching a line of chocolates to complement his company’s line of coffees, which project started a decade ago and took him from the foot hills of the Rwenzori Mountains to Buckingham palace to the rarefied heights of high finance in the business capitals of the world. more

#8: 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. more

#7: POST ELECTIONS, FOCUS ON JOB CREATION

As the dust from the just concluded polls settles it’s time to move on, use the lessons of the campaigns as a stepping stone to a better future for all Ugandans.

As far as I am concerned everything – political or social has its root in how the economy is faring, how it’s being run.more

#T5: 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. more

#T5: INTERVIEW -- WAPAKHABULO IS REARING TO GO AT UGANDA OIL COMPANY

Josephine Wapakhabulo was last month appointed the Chief Executive Officer of the Uganda National Oil Company (UNOC). Dr Wapakabulo sat down with Business Vision’s Paul Busharizi to discuss her company’s role, her plans and the prospects for oil in Uganda, below are the excerpts of the interview. more

#4: BREXIT AND WHY YOU SHOULD PAY ATTENTION TO PEOPLE IN LARGE NUMBERS

Last week the headlines were all about the shock UK vote to leave the European Union (EU).

By a four percentage point margin the British were scared into believing that immigrants from eastern Europe, the middle East and Africa would overwhelm their shores, and a vote to keep them out would be better than staying wed to the largest economy in the world. more

#3: SOUTH SUDAN'S IMPLOSION IS OUR WAKE UP CALL

The flare up in fighting in South Sudan is disheartening for the disruption and loss of lives that it entails but also for the economic loss to Uganda that it signals.

Clearly the recent peace deal between the South Sudan government of Salvar Kiir and the rebels led by former vice president Riak Machar has failed to hold. more

#2: WILL THE MUSANA CART BRING THE ROLEX TO THE WORLD?

Almost two decades ago two young men asked themselves what it would take to create a “Rolex” chain of restaurants.

The ideas would be take the rolex, which at the time was championed by one Sula in Wandegeya, create a menu, standardise the ingredients, upgrade the sanitation issues, license the Sula name and employ him for good measure. more

#1: WITH THE CABINET ARE WE BARKING UP THE WRONG TREE?

This week a double take was necessary on news that NRM members of parliament were sulking over not being appointed to the cabinet and went further to task President Yoweri Museveni to explain  his selection criteria.

Museveni ever the consummate politician, it is reported, listening to their griping, said he would take their concerns under advisement and would get back to them. more

RETHINKING POVERTY AND UNEMPLOYMENT

Two weeks ago I had the pleasure of interviewing Nobel Laurete Muhammad Yunus.

Starting in the late 1970s Yunus’ work with lending to the poor and the eventual founding of the Grameen Bank popularised the microcredit concept. His pioneering work gave traction to the notion that the poor don’t need charity but the opportunity to pull themselves out of poverty. It’s where the notion that there is wealth at the bottom of the pyramid begun to get traction.

Yunus, a trained economist himself, through the work he was doing among the poor of Bangladesh begun not only to rethink but to challenge the conventional economic wisdom.

He sums up his mission now as the three zeros – zero unemployment, zero-poverty and zero-carbon emissions.

"Yunus argues that employment as we know it is a recent concept a creation of the industrial revolution, prior to that if a person or a community had a challenge there would either learn a craft  or band together to sort it out – essentially creating a business....

Poverty he says too is an unnatural condition to the human being. How can one fail to meet his basic needs – the minimum definition of poverty, when we live among plenty and there are people all around us who are wealthier than us. Poverty he argues is imposed upon us to sustain an unfair system that thrives on inequality.

It’s a bit hard to argue against the man given that he not only has impeccable credentials in the subject but also because he has tested his thinking and despite what the text books say, has empirical evidence to prove his point.

Every once in a while, not very often maybe a handful of time during one’s life these type of people cross your path who take what you know, the conventional wisdom , and turn it on its head opening up a whole new perspective.

His Grameen bank started as a well-meaning attempt to free the poor from the yoke of the loan shark. 

The poor needed financial services but the high street banks couldn’t be bothered to service them. It would be too much bother and economically unviable to manage their many, but small accounts they argued – and still argue today. Besides how do you lend to a person without a regular income or recognisable assets.

Grameen Bank and the numerous microfinance institutions that have followed suit have put the high street bankers to shame. Grameen Bank now employs more than 20,000 and pulls in an annual net incomes in excess of $10m (sh36b) all from a clientele the regular banks did not want to touch with a ten foot pole.

Which raises the question, it can be argued that the patrons of the bank always had the resources so how come they couldn’t martial these same resources sooner?

"Clearly the people could not see the potential around them and had bought into the idea that poverty was the natural order of things for them and they rather accept their lot. Its interesting how the mind works. Once it hears “No” it stops working, essentially gives up. And its possible for a mass conditioning to occur where a whole society believes it is lesser than its true potential because that is the accepted wisdom...

So poverty comes from the mind. The inability to conceive the possibilities and therefore take advantage when the opportunities present themselves is the beginning of all poverty.

While some people can pull themselves out of this mass hypnosis out of either self-education, stubbornness, faith that they deserve better or all of the above, most people need to be shown the way, led by another with recognised authority.

Essentially if my neighbour can do it, pull himself out of poverty why can’t I?

I imagine tooling around the squalor and deprivation of Bangladeshi slams Yunus could easily establish authority by virtue of the fact he had been to school.

Given the Grameen story all one needs to pull out of poverty is an open mind and leadership or mentorship.

Self-help author Robert Kiyosaki once wrote  that realigning the mind to think in a wealthy way is the hardest part but once that is achieved the physical part, the actual going about accumulating the wealth is the easier part.

It makes sense doesn’t it. The reason we are poor as individuals or as a country is because our minds have been conditioned to focus on the negatives – low income, poor education or lack of technical know-who to explain our inadequacy. Once that thought has found a comfortable place in the mind we stop thinking about the possibilities.

In a strange way despite these same thought processes causing us grief we rather stick with them than do the hard work to change our thinking patterns.

"Our agrarian background equates work to visible physical activity and cannot relate to the internal
work one has to do on themselves to change their mindsets.  Hence we are daily involved in frenetic activity, micromanaging everything and generally being loud as proof that we are working...

So thinkers are lazy people. So we remain poor.

The story of Grameen Bank is that whatever we need to pull ourselves out of our malaise is around us, better still inside us.

PROMOTE MORE SOLAR USE IN UGANDA

This week a 10 MW solar project, the largest in the region was launched in Soroti district.

The power from this $19m (Sh68b) project is enough to power 4,000 households or about five times the number of homes in Bugolobi flats.

Promoters of the Soroti  project estimate that if we were running generators to produce the same amount of power, we would need 15,000 liters of diesel daily.

They also report that to run a project of this type a key requirement is that there be between four to six hours of sunlight daily, Soroti gets about eight hours of sunlight daily making it one of the best solar resource areas in the country.

Rwanda recently commissioned a 8.5 MW solar project which is projected to power 15,000 households there.

But Morrocco, while not using photovoltaic technology like Uganda and Rwanda, earlier this year launched the first 160 MW of an eventual 510 MW solar farm, the largest in the world. The project which covers an area equivalent of 200 soccer pitches will eventually export power to Europe.

The issue of energy is critical to us. 

One because our power generation to our population is way below the average for the middle income country that we aspire to be.

According to the CIA Factbook next door neighbour Kenya was generating 189 kwh per capita of electricity in 2012 (the most recent year for which there were figures). Uganda in comparison was generating less than half that at 91 kwh per person that same year.

But even Kenya is a poor comparison. In the same year Egypt was generating 1,856 kwh per capita, Mauritius 2,182 and South Africa 4,896 kwh per capita.

These figures serve to show how far behind we are in our ambitions to make middle income status. Kenya already is so, at a bare minimum we need to double our generation capacity.

And secondly, to paraphrase the second law of thermodynamics, any country will regress into chaos unless energy – in this case electricity, is injected into the system.

"We don’t need theoretical physics to tell us that. A few years ago when we were not generating enough power to meet our needs, we suffered frequent loadshedding to the point that at one time a study showed that Ugandan manufacturers were losing at least 30 days per year in production as a result....

This would be disastrous because not only would our local businessmen be uncompetitive at home and abroad but one is unlikely to attract the kind of investment required to push the country to the next level of development.

They say we have at least 4,000 MW of hydropower generation capacity on the Nile, another 160 MW potentially from small hydro plants, geothermal capacity of 450 MW and another 800 MW from the use of peat from our numerous wetlands.

Given that our population continues to grow at about three percent annually, meaning it doubles ever 24 years, the urgency to unlock our power generation potential cannot be over exaggerated.

While we should be pushing for more and more generation we would not forget the other side of the story – directing even the little power we have towards productive sectors of the economy.

The campaign to get us to use the pricier energy saving bulbs has recorded a saving of about 30 MW according to the energy ministry.

In addition and related to the Soroti power plant we should find ways to move residential consumption to solar energy. A solar unit on every residential roof to power our bulbs and boil our water would probably save multiples of that saved by the new bulbs.

This is not as farfetched as it seems. The price of installing power has been falling precipitously over the last 40 years. The price per watt of solar power is now at around $57cents compared to $76 in 1977....

In preparation we should be looking at what policy changes need to be done to the current situation to kick start a move towards more residential use of solar power.

LET HOUSEHOLDS PAY A HIGHER TARRIF

It’s a simple concept.

It is based on the premise that there are only two ways to spend your money – you either eat/consume or invest it.

When you consume your money you will get instant gratification – a full belly, an emotional high from the new shoe, gizmo or car or the envy of your peers. When you invest your money – committing money with the hope of earning a return, you make and can accumulate more money.

"So to get rich you have to shift your expenditure away from consumption and towards investment.
Simple but not easy...

What works for individuals works for companies and countries.

Which brings me to the power tariff. It’s that time of the year when the Electricity Regulatory Authority (ERA) goes out into the public to get our views about the possible adjustment of the tariff in the coming year.

As it is now domestic consumers pay sh626 a unit, commercial consumers pay sh566.9, medium industrial sh524.7 and the large industrial consumer sh349.5 per unit.

Going by the above domestic consumers pay at least 80 percent more than the large industrial consumers and just over 20 percent more than the medium industrial concerns.

If I had my way domestic consumers should pay at least sh1000 a unit or three times what the largest consumers currently pay.

Going by the previous prescription of how our nation can be rich we need to shift more and more resources to the more productive sectors of society.

In our homes little economic value is created using our power – hopefully none of us is cooking using power anymore, so most of our power usage is for lighting and entertainment. Of course the argument can be made that these recreational activities – reading, watching TV or listening to music, enhance our value through learning and improved peace of mind, but that is often for a small number of people.

A large scale manufacturer who employs hundreds of people and may very well expand production or at the bare minimum be a bit more competitive in the market, has the benefits accruing from his business being spread much further afield.

The arguments against this are many but just to pick a few.

There is a fear that too high a tariff will encourage more power theft. While this may be the reality it is to be held hostage by wrong elements in society, emboldening them while messing up the business environment.

Greater investment from the power companies and government in stamping out power theft – even by well-connected individuals, cannot be put off because we are worried about raffling a few feathers.

"Strangely enough opposition to too high a domestic tariff comes from the same businessmen who want to see their own tariffed lowered. They argue that if power tariffs are raised it will lead to a higher cost of living for their workers and putting them – the employers, under pressure to raise wages...

This sounds like they want to eat their cake and have it. They probably are avoiding the higher choices that would come with making their companies more efficient by cutting wastage in their administration budgets or having to share their savings from a lower tariff with their employees.

That really should be handled by themselves. Government should work for the greater good.

However anecdotal evidence suggests a higher tariff will not necessarily lead to a higher standard of living or are unnecessary degree of discomfort.

For one people will become more frugal with how they consume their power – we shall turn off the lights when we walk out of rooms, we will do away with our electric cookers (finally), we may even install solar energy if not to light the house but at least to boil our bathing water and we will have to stop the wasteful business of having security lights on all night.

On that last point the increased revenue from domestic consumers can be used to help roll out solar powered street lights so we won’t have to keep our security lights on all night.

Already the almost universal switch to energy saving bulbs has made 30 MW available on the grid according to the energy ministry.

So our lifestyle won’t suffer that much.

"But secondly and probably more important is that the rollout of the pre-paid power meters is already affecting power consumption patterns. The feedback is instant and in fact power has become more affordable because not only can we pay for the power as we need it but also that we don’t have to wait to be slapped with a massive bill at month end or whenever the Umeme people choose to deliver the bill ...

Of course the only challenge for the people who run the electricity industry is that the people who will have to bear the brunt of this tariff hike – we the urban elite, will make so much noise, disproportionate to our small number, that government will be cowed into making one concession or the other.

When that happens government should just call our bluff.