SA XENOPHOBIC BACKLASH CAN HAPPEN ANYWHERE

It has been traumatic watching, even from afar, the latest flare up in xenophobic violence in South Africa this week.

In one video, a group of youth set upon a helpless lady, pummeling her with punches and kicks, buffeting her from side to side in a corridor of torture. The 25 second clip spared the end – they had already started stripping her of her clothing.

I couldn’t begin to watch the one of the young man set ablaze, staggering about in agony as people looked on in morbid fascination.

"The madness is a culmination of the apartheid policy, which dispossessed the local communities and actively worked to prevent them from rising above their imposed poverty and a corrupt African
National Congress (ANC) government, which has failed to deliver on promises to improve social services and infrastructure in black communities, the badly needed rungs needed for the majority to climb up the social ladder....

There really is no sugar coating apartheid, it was an evil, criminal system that not only materially deprived the majority but also traumatized several generations ingraining complexes that have found full expression in an irrational xenophobia.

Sadder even is that politicians in South Africa have rose to prominence on the back of, maybe not xenophobia, but a variation of the hate agenda, tapping into the anger of a younger generation.

It is a messy business. Resolving it will take much pain, selfless leadership and foresight.

But we should be careful not see it as something that is happening over there and not likely to happen here.

It has been suggested that ethnic tensions are unlikely to be as vicious in Uganda as in other places, the thinking being that there are too many tribes in Uganda and there is no duopoly as the one found in Rwanda or Burundi that could trigger widespread bloodletting. Thank God.

"In Uganda the combination of economic growth not equitably distributed and one of the most youthful populations in the world, means a flare up of social unrest along the lines of the haves and have nots is more likely...

Bad politics leads to bad economics. In countries where income and wealth disparities are widening, the main culprit is the government. It either means government has failed to stimulate economic growth or If they have, they have failed to spread the love around equitably so everyone has a better than good chance of climbing the social ladder.

In Uganda we know how to grow the economy. We can do it in our sleep. We have enjoyed the longest period of sustained economic growth in the history of this country over the last 33 years – the last time the economy contracted was in 1985. As a result the economy has grown more than six fold during the period while the population has tripled.

Of course it can be argued that we were coming from a very low base, so paving a few kilometers of road or adding 100MW power to the grid or adding $100m to our export receipts would show up as significant in growth figures, but then why then don’t smaller economies show the same sustained growth?

The challenge then is to ensure every Ugandan feels these quantitative improvements on a macro level in their own incomes and standard of living.

First off despite the progress made on the macro level we really are still far behind where we need to be. The government plans to spend sh40trillion this financial year or about a million shillings per Ugandan. On health government plans to spend sh65,000 per Ugandan for the whole year.

You don’t have to do any deep analysis to realise that there is a shortage of resources to begin with.

Government finds itself between a rock and hard place. Does it provide quality services to less of the population or do as it is trying to do now, provide less than adequate services to a larger population?

From a purely mathematical angle it would make sense to offer quality services to a few people in the population. These few will be more productive and increase the resources – through taxation, that government can spend on more and more people.

But politics dictates that you have a mass product no matter the quality of the service. In this scenario you have a near universal feeling that government services don’t work, defeating the political argument for mass service delivery.

Corruption affects service delivery through theft of resources, diversion of resources, absenteeism and any number of dodges that cause government service to fall short in the context of resource constraints.

"If service delivery is not adequate you have fewer people climbing out of poverty, increased disenchantment with the political elite, which may very well lead to easy mobilization of disgruntled groups against those seen to be benefitting from the status quo...

They say never underestimate the stupidity of the people in large numbers. The analysis doesn’t have to be true of who the beneficiaries of the system are, to rile the mobs and cause mayhem as South Africa is showing now.

South Africans are not stupid, they are lashing out at the unfairness of their lot, which has its origins in a historical injustice and perpetuated by a corrupt political elite today. But they don’t know it.

UMEME HALF YEAR RESULTS SHOW PROMISE BUT …

Power distributor Umeme last week released its half year results, which showed that the demand for power continues to grow, with the sub-text being that in this context the need for an efficient distributor and a smooth running of the sector cannot be overstated.

According to the unaudited accounts for the six months to the end of June revenues grew to sh816b from sh741b during the same period last year. This was attributed to a seven percent increase in power consumption during the period, which should not come as a surprise with the commissioning of the 183 MW Isimba power project in April.

"An additional 93,580 customers were hooked up to the grid bringing the distributor’s client numbers up to 1.4m....

Profit after tax grew marginally to sh61.2b from sh61.1b during the same period last year, mainly due to a near doubling of their income tax bill to sh51.8b in the first six months of 2918 compared to sh26.3b at the same time last year.

Energy losses on the grid inched up to 16.9% from 16.8% last year, breaking a falling trend in Umeme’s fight to bring down losses – commercial and technical.

The accounts show that Umeme spent less on repair and maintenance expenses, sh16.1b compared to sh21.7b and this may be responsible for slip in technical losses.

Umeme says as much, “Despite the efforts to improve efficiencies as measured by cost to serve per customer and operating costs per MWh, the regulatory allowance for operations and maintenance costs were insufficient thus constraining our service levels.”

Electricity Regulatory Authority (ERA) at the beginning of the year, allowed Umeme distribution operation and maintenance costs (DOMC) of not more than an annual $50m for the next six years. Umeme protested that this was unrealistically low given that last year they spent $60m and were planning to spend $70m.

Umeme argued that the increasing customers coming to the grid and the new supply – about 800MW this year alone, necessitated a bump up in costs.

"ERA on its part argued that given that the network was virtually all new now, efficiencies from the new equipment should be able to kick in and hence no need for higher DOMC...

Umeme resubmitted their proposals and a public hearing was held in the middle of August. ERA say they are still scrutinizing the proposals but argue that if Umeme had not omitted certain detains during the first submission they may not have been in the current situation.

The liberalization of the electricity sector begun with the unbundling of the Uganda Electricity Board into its constituent parts -- generation, transmission and distribution. The generation and distribution parts were passed to private operators while government retained the transmission function.

However, the challenge of creating competition in the sector was a difficult one, not least of all because there was a small customer base then, which meant that a regulator there  to ensure the customers get value for money was always going to be a powerful entity.

As it is, unlike in the banking or telecommunications industries, other liberalized sectors that have a regulator, ERA sets tariffs and by extension regulates the costs that feed into the tariff. An imperfect necessity.

Imperfect because when you allow market insensitive players to determine or cap market sensitive parameters it rarely turns out well for the industry or for the consumer.

A necessity because if you left the private sector up to its own devices it may exploit the consumers and indulge in other anti-competitive shenanigans.

Uganda’s explosion in power generation capacity comes as a result of allowing the private sector to invest in the sector. This would not be possible if investors were not confident that there would be an effective distributor to not only take up their power but also to grow customer demand into the future.

Hence Umeme’s efficient operation is central to the industry.

"It is in all our best interests that the current impasse comes to a speedy resolution. Umeme’s inability to invest appropriately now and into the future can have long term repercussions for the industry and in fact subvert what ERA is trying to achieve – affordable tariffs for everyone....

ERA is taking its lead from President Yoweri Museveni’s wish to see an end user tariff of less than US5 cents sooner than later. The details of how to achieve this has to be arrived through ERA and its stakeholders in a way that is not only timely but sustainable.

Forcing tariffs down in the short term with some cosmetic changes may actually endanger the sustainability of the sector, discourage new investment and create a situation where tariffs increase in the future because we have to pay for the omissions created in the past.

FORGET THE MAFIA, FOCUS ON UTL

The dust has settled now since last week’s less than surprising revelations that junior finance minister Evelyn Anite feared for her life, threatened by a Mafia, cartel or cabal working within government and against her.

She attributed this to her resolute stand in the UTL saga. UTL was put under receivership last year. Attempts to flog it off to one investor or another have come to naught. Anite called for an audit of the company which under the law of receivership she cannot do. When a company goes into receivership the interests of the creditors supersede those of the owner.

Anite disregarded this point of law and tried to ram through an audit of her own, which was frustrated at every turn. She argued that as the line minster she wanted to know the true state of the enterprise, which among other thing she feared was being stripped off its assets illegally.

"The problems of  UTL while they seem to have burst into the public conscience in the last few months have been simmering under the bonnet for long before it was hived away from the old Uganda Post & Telecommunications Corporation (UPTC)...

Lack all other parastatals then and since the parent company was dogged by political interference and bad management. UTL was seen as the jewel in the crown the others –  Posta Uganda and Post Bank, the other companies that resulted from the split were seen as weighing down UTL.

But as it turned out without its monopoly of the sector, UTL could not compete in the cutthroat world of competition and was relegated to back bench and sometimes totally forgotten as a player in the industry. This despite its huge asset base in infrastructure, buildings and land. Which just goes to show management and insulation from political interference is key.

The botched up privatization of the company has seen it change hands from a shadowy group, which claimed association with German telecommunications management consulting firm, Detecon to the Libyans and back wholly to government.

In the mean time the industry has gone so far ahead of the floundering company as to make It unattractive as an investment option.

"The public haranguing of the company’s administrator by Anite has only served to drive its market value further down....

Everyday that is spent squabbling overt UTL makes it more certain that it will be liquidated, its assets sold off to pay for its liabilities and the company closed all together.

This is not the first time that uncoordinated troop movements by our ruling elite has doomed companies to the graveyard of history.

Two companies spring to mind.

At the end of the last century government tried to sell a controlling interest in Coffee Marketing Board (CMB). It had fallen into disuse with the liberalization of coffee marketing in the country. As a going concern, like UTL it was struggling. It had a book value, mostly comprised of its land, storage facilities, its aging office block in Bugolobi and near obsolete four-million bag a year processing plant.

The companies book value flattered to deceive at about $40m misleading MPS that they were being conned when bids were put out for 49% of the company and Swiss coffee trader Sucafina offered $8m, the highest of three bidders. MPs jumped in cancelled the tender offer and called for a redo the bid. The second time around Sucafina were the only bidder and they this time offered $4m. That was the end of that. CMB eventually just drifted off, fell of the coffee industry map.

Uganda Airlines taking to the skies again this week was a good reminder of what happened to its predecessor. The old Uganda Airlines had been reduced to flying one route – the Entebbe-Nairobi route and was a constant drain on state resources. Fueled by pseudo nationalism MPs warded off suitor after suitor for the airline – British Airways and South African Airlines among them, arguing that they were offering too little for the tarnished family silver.

With the failure to get a credible investor government shut down the airline.

"Interestingly again the political elite have pushed for a revival of the airline even as there is no business case for it, hiding behind vague nationalistic sentiment...

The point is, as Anite is learning, politics cannot override everything, especially economics and business. When the politicians try to subvert the laws of economics and business they may be seduced by the initial gains but these are only temporary and only dig us deeper.

UTL is dead we should bury it to stop it stinking up the place.

THE MOBILE PHONES UNDERSTATED ROLE IN ECONOMIC GROWTH

A friend recently did a trip up and down the country. Having done this several times before, he was shocked to discover, this time around, that he could not roll into a town unannounced, so to speak, book himself into a hotel for a night. Like in the good old days.

Being a celebrity counted for nothing. There was not a quality room– clean linen, working shower and solid door, to be had.

This did not happen only once but in several towns in the west, north and east of the country. And he couldn’t work out what was happening.

"In 1999 Uganda’s GDP growth jumped to 8.1% from 4.9% the previous year. There was no coffee boom or bumper harvest that year. In fact El Nino, the weather phenomenon characterized by flooding and prolonged rains had ravaged the crops up and down the country. In addition we were suffering a lot of bad press for our incursion into Congo and some donors had pulled the plug on their funds in a huff...

But in that year Uganda became the first country in sub-Saharan Africa where mobile phone coverage exceeded the number of land lines.

Up to this point Uganda had about 50,000 landlines on the Uganda Posts & Telecommunications Corporation (UPTC) network. In November 1998 South African company MTN –mobile telecommunications network then, entered the market and triggered the explosion in the uptake of mobile phones.

The correlation between the near doubling in GDP growth in 12 months and the widespread use of mobile phones is anecdotal at best, but may provide useful grist for a study.

Fast forward to today and the same parallels may be drawn to explain my friend’s travails on his travels.

But before we talk about mobile phone coverage there is the improvement in trunk roads around the country. In the last few years hundreds of kilometers of trunk roads have been worked on, creating a tarmac lattice around the country, making movement that much easier.

So it’s possible that the inns around the country are full, from travelers who can begin their trip later in the day and stopover in the major towns before a final push for home in the morning.

Add to that the phenomenon that now transport is available to any part of the country from Kampala any time of the day or night.

But I would like to think too that since now mobile communication has grown beyond voice calls as it was in 1999, to now include texting, social media and even mobile money, economy is beginning to reap the benefits of these improved communication means.

The last one is particularly interesting, it has become such a part of our lives that we take it for granted.

In 1998 if someone called you and said he was hard up for money, he was in Mbale say and you were in Kampala, how quickly could you get the money if you had it on you? You could go down to the bus park and find someone to deliver the money to so-and-so’s shop. People got a bit clever and to move money over such distances they would buy airtime, text the code and the recipient would find a way to flog the airtime for money where he was.

Hard to imagine if you were not there, when today the request can be honoured in under five minutes.

Given this scenario, is it no wonder that we now have a proliferation of bars springing up around every surburb and seemingly doing a rip roaring business day in, day out? There are even Sunday night theme nights these days!

"In the 2017/18 financial year sh73 trillion or more than twice that year’s sh30trillion national budget was transacted across all mobile money platforms. This figure was up 37% from the previous year’s sh53trillion. The figures are not out yet for the last financial year but assuming the same rate of growth, at least sh100trillion moved around all mobile money platforms in 2018/19....

If money can move around faster it stands to reason that there will be increased economic activity, the production, distribution and consumption of goods and services. And this is happening in a time when it is widely acknowledged that there is an economy-wide cash squeeze.

So the nephew on campus can now send a message to his favourite uncle Ben on a Friday night for beer money or you can order for and pay for a cab to pick up your better half and deposit him/her at your location without a word said or a physical exchange of cash or if you are an operator of a night spot you can advertise it online for the cost of only a few megabytes and or probably get a better response than before.

So it’s possible that my wandering friend has come up against the underrated power of the mobile phone, its growing uptake and use that make consumption easier and forced an uncomfortable night in the back seat.

NSSF AND OUR PERSONAL FINANCES

Last week a bill to amend the current NSSF Act came to parliament on its way to becoming law.

One of the 13 proposals that caught people’s attention was one that would change the way savers benefits would be taxed. As it is now our contributions are taxed before being passed on to NSSF. In the new law the taxing of our contributions would be deferred to the time we collect our benefits at 55.

"The uproar was understandable as most people are not aware that their contributions are taxed before we pay out, so they were feeling hard done by the fact that their eventual payouts would be taxed...

But in the new law one has the option to not collect their benefits at 55 and wait until they are 60 to get their full amounts without being taxed. Many lurched onto this provision complaining that government wants to force us to save with them till they are 60.

There were many things to learn from people’s reactions, mostly the loud ones who are in the minority, about our attitudes to money.

The world over governments realizing they cannot always take care of their citizens, especially in old age, force their citizens to save through one kind of social security scheme or another. Left to our own devises we will not put money aside, even if on an intellectual level we understand the wisdom of this.

It is a human condition, hardwired into us down the years along our evolutionary path.

"This is why the wealthy people are the minority in society. Not because resources are not enough to go around, but because the attributes of planning long term and delaying gratification do not come naturally to any of us. Even the wealthy have had to train themselves – apart from those who inherited or stole their riches, to behave unnaturally not for a day or a week or even a month but for years even generations.

You can bet there was an uproar as well when the government in 1985 enacted the current NSSF act, with people wondering why government wants us to save, that we can do it for ourselves. Thankfully there was no social media then.

NSSF has been bandying around the statistic that of its members who get their age benefits at 55, up to 80 percent of them have blown it within two years. This statistic was one that could have been used to amend the law to move away from paying out a lump sum to paying a pension. That is not among the amendments proposed.

But interestingly there is a small minority of the Fund’s two million members, about 40,000, who choose to leave their savings with NSSF after retirement. It is an unnatural thing to do – everybody else just can’t wait to get at their monies, never mind that they don’t know what to do with the windfall; but it is a wise thing to do. NSSF last year paid an interest of 15% on savings there are no banks that can pay you that amount in this town, so why not let the funds continue to accumulate?

Unfortunately, under the current law these people can only do this until their 60 after which NSSF hands over their money. It is being suggested that this provision be scrapped and members if they wish, can keep their money with the Fund until they die.

And assuming NSSF can maintain the track record of paying out double digit interest rates, in the five years between 55 and 60 these members savings will have doubled!..

That is the magic of compounding. Another unnatural phenomenon we are not conditioned to appreciate.

NSSF reported that if a person earns a million shillings a month and NSSF maintained a 10% interest for the duration of their 30 year working life under the new law they would receive sh345m compared to sh301m. The chattering masses jumped up and said this was a lie, given that of the worker’s income they only save sh50,000 a month or sh600,000 a year or sh18m over the 30-year period, so how does that become sh301m or better still sh345m?

They forgot the employer’s sh100,000 monthly contribution, the statutory 10% and were clearly ignorant of the power of compound interest, which Albert Einstein once said was the eighth wonder of the world.

NSSF also showed that while government tax from our contributions would amount to about sh67m under the current law in the new law government tax would more than double to sh143m. That set the critics off again. Why should government take more from us in tax? Tax, they say is the cost of civilization. Without civilization not only might you not get your money but if you do you might not enjoy it in peace.

But the clincher was that there is a proposal that workers can save up to 30 % of their income tax free. That if you earn a million a month, before the tax man wields his or her axe, you can commit up to sh300,000 to your retirement savings and leave only sh700,000 for NSSF tax. If you do the bare minimum savings of five percent or sh50,000 URA would tax sh950,000.

I am not holding my breath for Ugandans to max out on this benefit. Because the benefit will be enjoyed in the future. They would rather shoot themselves in the foot by saving less now and complain later when they tax their final benefits.

The argument to make would be that government should only tax the accrued interest on our savings, which are actually more than the contributions (thanks to compound interest), therefore not deferring taxing of our contributions but making them truly tax free.

THE NEW NSSF LAW, BETTER LATE THAN NEVER

This week The National Social Security Fund (Amendment) Bill, 2019 finally came to parliament for debate on its way to becoming law.

The report on the vent kicked up a storm among the chattering masses over one provision in the law which will have savers benefits taxed when they receive their retirement benefits and not when they contribute.

It caused an uproar because current savers are mostly unaware that they are taxed as they contribute now, so the proposed move to tax the benefits when they receive them was an unpalatable proposition.

They ignored or were more likely unaware, that in the proposed law they will not be taxed when they contribute.

Interestingly under the new law savers will collect more money than they would under existing circumstances but government too will collect more tax...

Assuming a million shilling salary for 30 years at a 10% annual interest under the current regime saver will collect sh301m, while government will have collected sh67m along the way. Under the new the same saver will pocket sh345m but government too will see its collections more than double to sh143m.

However, there is an interesting catch. If the saver pulls out all his savings at 55, the statutory retirement age, he will be liable to pay the whole tax due to government. But if the saver can hold on till 60 he will get all his contributions plus interest and not be liable to tax.

On a macro level this amendment could not have come too soon. In fact it’s probably a decade late.

The current NSSF law was enacted in 1985 and was probably a visionary document for its time. Proof of this is that our NSSF is the largest social security fund in the region despite many more years of stability in our neighbours Kenya and Tanzania.

However, it has been long overdue for an overhaul seeing as national savings have stuck stubbornly to just about 10% of GDP for at least 15 years now.

At an NSSF news conference this week the Fund’s CEO Richard Byarugaba reported on the lopsided nature of our savings which are skewed unsustainably towards short term money. Money held in our financial system for less than five years accounts for just over 60% of the total. Long term money which is the real driver of development accounts for about 37%.

In more serious economies those figures are the other way around.

This inversion of our saving habits is a major reason why lending rates are high in this country. If the banks had more long term funds they would scrambling to shovel that money out of the door and according to the laws of supply and demand lending rates would fall.

This bias has a historical background. Our over reliance on donors for development financing meant there was none to little incentive to try and develop long term savings. But as we have disagreed on our development priorities and the donors have turned off the taps it has become critical that we mobilise our own resources.

If you were central planner like the Ethiopians, you would wake up one morning and order every working Ugandan surrender a greater portion of their income to beef up national savings. Which may at first have other people cheering at the foresightedness of the leadership it would be unsustainable and susceptible to abuse and evasion.

With a bit more intelligence you can convince, even seduce, your people to part with a few more shillings.

The new bill speaks to the latter rather than former approach.

NSSF believes that if implemented appropriately we can see our national savings rate shoot up to as much as 40 % in 30 years. Then and only then do we take control of our development agenda.

We have said it many times before, as a country we are poor because we have failed to aggregate our resources, be it land, human resource or money. We fail because we are not putting in place the mechanisms to enable this.

Imagine if government had left it to our own devices to save for our retirement, how many of us would put aside five percent of our gross income, leave alone 15% and not touch it for the duration of our careers? It is likely there are no hands up in the room.

Despite the hoolah balooh I would pay good money in the not so distant future, to be around the hecklers when their NSSF check lands in the account – taxed or not.

THE STORY OF YOUR BUSINESS IS MORE IMPORTANT THAN MONEY

BOOK REVIEW: STORY DRIVEN

AUTHOR: BERNADETTE JIWA

AVAILABLE: Amazon

There are tons of books published annually. In the US alone it is estimated that up to a million new titles are published in a year. So the chance of finding the book that speaks to you right here, right now, is made that more difficult. 

Literally a one in a million chance.

“Story Driven” has been that book for me in recent days. Its catchy tag line—“You don’t need to compete when you know who you are,” made me want to not only look again but snap up a copy and see what this all meant.

Truth be told I didn’t get around to reading the book immediately. It took me a few weeks to get around to it, because I was attending to other books that had moved me. I only do books that move me, otherwise what is the point.

The book is based on the simple premise that companies that flounder are often those who lose their story, the reason they were set up, which often was not to make money but because the founders thought they could solve a problem they had identified. But as time goes on companies forget this and start competing for market share, increased profitability and enhanced brand awareness.

The author makes the distinction between the competition driven company, which is reactive to competitors and focused on winning, as opposed to story-driven companies, which are responsive to customers and pushed by a need to matter, are purpose driven, keen to live a mark on the constituencies that they serve.

“Great companies,” she says. “Have something in common, they don’t try to matter by winning. They win by mattering.”

We forget – or maybe we don’t know, that business success measured by profitability or growth or any other traditional metric is a byproduct of providing a good or service that is in demand and in a cost effective way.

In fact, Jiwa, who is a world renown authority on business philosophy, explains that what distinguishes two companies, even in the same industry, is their respective business philosophies. And this is irrespective of whether it is articulated or not.

She says being a story driven company is important because that is where culture starts, its philosophy and is emphatic that everything that happens to a company good or bad are a direct result of the business’ philosophy.

It makes sense. If you think about it, if one of the drivers of business success is differentiation how better to distinguish yourself from the competition if not by being your authentic self. And is that not a competitive advantage in itself, providing goods and services in a way that only you or your company can?

This inability to hold your story close to your chest is most probably the reason why many of our businesses cannot transcend a leadership generation. The inheritors of the family silver do not know the story and not emotionally attached to the culture and philosophy as set out by the founder.

If they have not served at the founder’s feet and were just jettisoned into the company at the top they really can’t appreciate the company’s story and therefore its raison d’etre.

A company’s story is what allows the founders to weather the usual upheavals of being in business – poor sales, shifting markets and even the incessant knocking of the tax man.

This fits in very well with past writings in this column.

That for instance there are only four reasons to go into business – to feed oneself, to pass on something to descendants, to sell the company and for philosophical reasons. And to a tee companies are more likely, to not only survive but thrive, the more they tend towards being set up for philosophical reasons on one side of the pendulum than to sustain the found on the other hand.

We are more likely to make progress once we believe in the significance of what we are doing, she writes.

It also speak to the lesson of professor John Kay in his book, Obliquity in which he makes the case that business success – profitability and growth is often arrived at without aiming at it directly, but by round about means, obliquely, in improving customer service and experience.

And the market is not stupid. It recognizes when a company stands for something and rewards it with attention, loyalty and of course an ever ringing till.

It is simply written. And just in case you think your business is small and not susceptible to such strategies, she has brief synopsises of dozens of companies both big and small (but all companies were once small companies) doing everything from counselling to manufacturing electric cars to show that this principles are universal and not only suited to manufacturing or services alone.

If you extrapolate this philosophy it can serve well in other enterprises – sports teams, schools and even governments.

The book is a must read for anyone trying to build anything of significance.