THERE IS STILL HOPE FOR US

In his previous life former president Jimmy Carter was a peanut (groundnut) farmer. “There are two types of people,” he once said. “Those who buy my peanuts and those who don’t”. After three years of this column’s existence I too have managed a rough classification of my own. 

Of those who read the column and respond to it, there are the ones who have written me off as a cynic (thank God they keep reading anyway), that I am too critical of this country, its government and people and that if I just stopped to look I would see that this country’s future is blindingly bright. 

The second type can’t get past the fact that I write for a paper whose majority shareholder is the government and see an ulterior motive in everything I write. I have made my own judgment on my readers. 

The former being people most probably benefiting disproportionately from the status quo, so they do not want any rocking of their boat and the latter are not benefiting like the previous group and resent anyone who will give this country, its government or people the benefit of doubt...

Like the proverbial elephant and the seven blind men, who depending on what part of the elephant they came into contact with thought it was a wall, snake, ship or tree, Shillings & Cents is often criticized, sometimes misunderstood and rarely praised – and that maybe is as it should be. 

I do not apologise for the often pessimistic tone of this column but once in while when all hope seems lost, something happens and you know there is hope yet for this country. 

Earlier this week I was in the picturesque South African town of Grahamstone (I will admit I did not visit its township). Rhodes University was hosting the annual Highway Africa Conference – the biggest annual assembly of media professionals on the continent. 

During the conference MTN had a presentation on its mobile money product in Uganda. Richard Mwami, MTN Uganda’s head of public access and mobile money ticked off some impressive numbers: more than sh600b transacted in the 15 months since its inception, nearly a million accounts, average transaction sums about sh50,000 with 60% of these representing flows from the urban to the rural areas. MTN Uganda is pioneering the service in the MTN group. 

On the sidelines of the event I asked Mwami what the future holds for the service, he said it was hard to tell with much certainity as the service has bested all projections envisaged and continues to do so. 

Contrary to how history is told, a revolution can be happening around you and you wouldn’t know it. In case you missed it, the use of money via mobile phones promises to be one such revolution. Two things are happening as we watch, the speed of the communication has increased dramatically in the last 15 years increasing efficiency and significantly lowering the cost of doing business. 

Now this speed of communication has been transferred to the speed of money transfer. There was a time you would send someone on a bus with money for relatives upcountry and wait hours or even days before you got confirmation from the intended recipient. 

Secondly, an unintended consequence of the money service is that people are saving money in the formal financial sector. Mwami revealed that people are keeping money on their mobile accounts for more than 15 days are in the thousands and increasing steadily. 

Those two developments alone will prove more beneficial than anything else we have going in the fight against poverty. As it stands now less than half of the money in circulation is in the formal financial sector. The downside of this statistic is that there is more money floating around – most probably aiding consumption, than there is in the banks, hampering their ability to lend and by extension keeping lending rates high.

Watch this mobile money transfer trend very keenly especially as Mwami revealed that MTN will soon be branching into bill payment, micro-lending and insurance, foreign remittances and bulk payments. It just goes to show that despite the difficulties we face in bettering our lives, the human spirit will always find a way. There is hope after all. 

 Published July 2010, New Vision

FOREIGN INVESTORS ARE GOOD BUT …

There was much gnashing of teeth in the hills of Kampala last week when England was bundled out of the World Cup by perennial rivals Germany.

The last time the two played in a competitive encounter England run rough shod over the Germans pounding them 5-1 in Berlin in 2001.

Hollywood could have not have written in a better twist than the referee disallowing a Frank Lampard strike that came off the crossbar and fell well beyond the goal line.

Poetic justice some may argue, with the World Cup final at Wembley in 1966 in mind.

In that match, which England won the 2-2 deadlock was broken in extra time by a Geoff Hurst shot that hit the cross bar and supposedly bounced off the line before being cleared but was given by the referee as a goal. England went on to win the Cup and have never seen a final since.

People having watched England’s arduous route to the second round and their eventual exit wondered how a country with the most visible league in the world – some people say the best league in the world, could be such underachievers?

In post match commentary the suggestion was that whereas the Premiership may be the best in the world, it is so because of the huge foreign interest in the league and less because of English home grown talent.

England’s predicament has interesting parallels for countries like Uganda, which have gone all out to attract foreign investors often times to the detriment of local entrepreneurs.

Foreign Direct Investment (FDI) is critical for countries like our own.

One, because we have been unable to aggregate our own resources into meaningful quantities to invest to the magnitudes we need to shift development. And secondly because we have been found severely lacking in our managerial capabilities to not only aggregate our resources but to manage even the little we have to the benefit of our people.

"Regardless of what they tell you the easier thing is to attract foreign investment than to nurture your own local investor class...

Dangers abound however in pursuing such a strategy with unbridled zeal.

As the England’s World Cup team found out when stripped of all their foreign super stars, England struggles to stand shoulder to shoulder with other countries with less foreign interest in their leagues.

Clearly the Premiership’s bosses – all England born and raised, have chosen to chase profit to the detriment of national glory.

Similarly if a country ignores its local businessmen things can go well in the short run but when issues that demand a longer term perspective come up a country’s lack of a solid indigenous business class will turn up to haunt it.

And I am not even advocating handouts to our local businessmen. Or barriers to entry for foreign investors. Or even a return to state owned corporations. Far from it.

I believe Uganda needs to start from the basics.

We need a national, coherent and farsighted strategy to build a local business class.

This strategy would include a more committed effort, at training business managers and entrepreneurs, pooling our financial resources by increasing the population’s savings rate – legislation on the pension sector reform has been pending for more than 10 years and infrastructure expansion – roads, rail, power and telecommunications into rural Uganda.

"People respond to incentives and unfortunately for Uganda over the last 24 years some of our best brains have decided that rent seeking -- earning income by manipulation or exploitation of the economic or political environment, rather than by earning through economic transactions and production of added wealth is the way to go....

I think the best thing that happened to this country was the privatization and liberalization of the economy in the 1990s. This reduced the surface area for rent seekers. As a follow up we now need to graduate to the next level where our indigenous businessmen can compete on a national, regional and even international level.

They say the best time to plant a tree was 20 years ago but the next best time is right now. The best time to set up the framework for building our entrepreneurial class was 20 years ago but the next best time is now.


Published June 2010. New Vision

UGANDA TO HOST WORLD CUP IN 2062

For a country, success in sports is a function of the country’s economic development.

There are of course exceptions to the rule, the best example being Kenya and Ethiopia’s stranglehold on the middle to long distance events in athletics on one hand and the US, Japan or China’s inability to win an international trophy in soccer.

I have conveniently ignored the women’s world cup -- the US won in 1991 and 1999, to make my point.

A quick calculation by yours truly shows that, thanks to South Africa’s hosting of the World Cup this year, Uganda will host the World Cup long before it wins it.

South Africa is the poorest country to ever host the world Cup while Argentina is the poorest country by per capita income to have ever lifted the cup. Uruguay, which won the cup in 1930 and again in 1950, has a per capita income almost twice Argentina’s. Uruguay also hosted the inaugural world cup but has a per capita income almost double South Africa’s.

We could host the World Cup by 2062 and maybe win the cup in the year of our hosting – assuming all things remain constant.

The record shows that a country needs to be at a certain level of development, best measured by the welfare of its people, before it can dream of hosting or winning of a World Cup. And I believe this is no fluke.

The creation of award winning athletes is the business of the whole country – more so with team sports, and not the sole responsibility of the respective sportsman’s family.

In the greater scheme of things sports comes well down the hierarchy of needs after food, shelter, clothing etc.

Politics is important because it determines the economic structure by how the national budget is apportioned and what economic policies are passed.

Providing for your family’s basic needs has more to do with the economy you live in than your own individual level of income and the health of an economy has a lot to do with the politics, the leadership of a country.

A government that stays focused on the ultimate aim of elevating the living standards of its people will have economic policies that will not only encourage growth by allowing the private sector to operate to its full potential, but also distribute this growth to its citizens through delivery of public goods like education, health, physical infrastructure and security.

So a look at the most recent hosts of the World Cup shows that South Africa is the smallest economy – GDP $290b, to ever host a World Cup and also the worst in terms of distribution of this economy.

If you look at the winners Argentina is the smallest economy to ever win at $310b but Brazil is the worst performer at 75th out of 182 on the UN’s Human Development Index, an indicator of how a country does on providing the basics for its people.

So by simple extrapolation assuming Uganda’s $15b economy continues growing at 6% it will take at least 51 years to get to South Africa’s size of economy.

But building the infrastructure to host an event like the World Cup -- it has cost South Africa about $5b in all, cannot happen in isolation of the improved general welfare of the people. A sub plot of the current world cup is the demonstrations against the largesse lavished in hosting the event when the rainbow nation has a few millions languishing in abject poverty.

Using per capita as rough indicator and providing for our current population growth rate of 3.4% it would take us 97 years to lift our per capita income of $475 to South Africa’s $5800.

Using the same logic we will win the World Cup in 2120, using Argentina per capita GDP $7,725 as our benchmark.

Whereas a purely mathematical extrapolation, with oil we might catch up with South Africa’s current GDP much sooner or not for instance, the basic premise still stands: that you have to have attained a certain level welfare for your population before you can go around splurging on multi trillion shilling ego trips.

Ask Greece. Hosting the Olympics in 2004 set back the “poor” European economy by $11b and saddled it with stadiums it barely uses but has fork out at least $300m a year to maintain. This year Greece went bankrupt and threatened to bring down the European economy.

Published June 2010, New Vision

DON’T DESPISE THE DAY OF SMALL THINGS

Finance minister Syda Bbumba made her budget speech on Thursday. Leading the highlights were that the economy had grown at 5.8% -- down from 7.2% but still a rate not to be laughed at. She expects the economy to grow in the next year at 6.4%.

Continued economic growth gives a country the best chance of pulling its population out of poverty. So growth is not an end in itself but a means to an end.

So in every budget reading I am looking for signs that the growth is finding its way down to the people. Or should I be looking out for how people are contributing to the growth? The latter sounds more positive than the former.

Roads, classrooms, health units have been built and stocked. Valley dams are being planned for. Exports are up. NAADS is being revitalized. All very nice.

But what really made it for me is the resuscitation of the Savings & Credit Cooperatives (SACCOS). According to Bbumba there are now 1,060 SACCOS countrywide with sh83b in savings and more than sh100b on their loan books.

"I love SACCOS because of their power to aggregate tiny resources into meaningful sums and two, because of the empowerment it engenders in its members. Before some one experiences this empowerment the tendency is always to look out for handouts. We tend not to see the diamonds in our own fields and think salvation will be found elsewhere.

Three years ago I found my self at a village SACCO meeting in Kasese. It was attended by a few dozen people – seating on benches, traditional stools or just standing. The executive of the SACCO sat at the front of the meeting at a rough hewn table under a makeshift shed whose cover was a blue tarpaulin held up by four poles.

We just caught the tail end of the meeting. At the end of the meeting the chairman announced that they had collected sh6,500 that day in savings and sh3,700 in loan repayments, this drew some muted applause.

He then received a chit from his treasurer who was seated on his right – I assumed he was the treasurer because he had small pile of coins and the scratched money box in front of him. He stumbled over the numbers but eventually the chairman announced that the coops savings then stood at sh366,800 to which there was more enthusiastic applause.

A look threw the SACCOS’ accounts, contained in a green, weather beaten exercise book, revealed a tale of consistent saving and loan repayments over the eight months of the SACCOS existence.

Minimum weekly savings were put at sh500 with loans being repaid at the rate of 5% a month.

Members said they had used the loans to meet basic needs, but increasingly were using the money to buy inputs for their gardens, pay school fees and stock their market stalls.

I would love to go back and look up that SACCO. I suspect by now their savings have broken past the million shilling mark and the members now have a more optimistic and confident outlook on life.

I belong to a SACCO here in Kampala, which dwarfs our Kasese cousins many times over. But the net results are the same in empowering people and creating that can-do attitude we see little of among our government bureaucrats.

"There are no shortcuts, we have to develop under our own steam by, marshalling our meager financial resources, tapping our vast natural endowments and leveraging our own human capital. No country in the history of development has done so through aid...

Our Kenyan neighbours are eons ahead of us. At last count SACCOS accounted for at $20m in savings. They also control assets many times above that number in real estate, business and even shares on the Nairobi Stock Exchange. The ability to mobilise their own resources held Kenya in good stead when the donor community froze them out in the 1990s.

At a very basic level SACCOS introduce financial services to hundreds of thousands who would have no hope of having access via our high street banks.

Access to financial services is critical to poverty alleviation because through them people can build up asset bases either through saving or access to credit, which allows them to buy produce, livestock and land.

We in the urban areas take some of these basic services for granted, but they are the difference between wallowing in abject poverty and making a meaningful life for oneself for the vast majority of the our people.

So Mrs Bbumba keep your eye on this ball. And spare no resources – she pledged sh6.1b to SACCOS in her budget, to keep this growing movement alive, it might be the legacy you will be best remembered for when all is said and done.

Published in June 2010, New Vision

WE NEED TO FOCUS ON OUR HUMAN RESOURCE

President Yoweri Museveni delivered a state of the nation address that was heavy on economics and very little else.

Our fastest growth years were arguably the years between 1986 and 1996, when the President’s focus was almost entirely on resuscitating the economy. Electoral politics, the insurgency in the north and incursions into eastern Congo seemed to have shifted the executive’s attention away from the economy.

Regardless the economy has been tearing along, the president reporting that in the last five years the economy has managed an average annual growth of 8.4%. He also mentioned that revenue collections have grown a thousand fold since 1986, investment by Ugandans into the economy leads investment from all other nationalities and that foreign remittances – Kyeyo money, has rebounded after the global financial crisis.

I think that there is growth in the economy is easily verifiable but what is questionable is how evenly spread around the population is this growth. That the economy’s growth is not more evenly distributed is a failure of government more than anything, as the liberalised economy we operate under can promise economic growth but not equitable distribution. That’s just the way it is.

Government can not and should not distribute wealth by dishing money around. But by providing public goods and ensuring efficient service delivery this growth can be enjoyed by a larger proportion of the population.

This may sound simplistic but if you think about it, most of our ministers and senior technocrats followed a similar script from childhood – quality but cheap or free education all the way to university, working health services that kept the healthy and alive and rudimentary but good transport and market infrastructure that allowed their parents to sell their produce. All these in one way or another came out of government interventions.

Fast forward to the present and the pervasiveness of corruption means that service delivery by government is not where it is supposed to be and is it therefore a surprise that these prodigious growth figures government keeps trumpeting, are not felt by more than half the population?

But what I felt was more just as great an omission was the glossing over the development of our human resource.

Singapore’s first Prime Minister Lee Kuan Yew in his book “From Third World to First” conceded that even from him it took him a long time to appreciate the critical role human resource played in national development, “For a small resource poor country like Singapore, with two million people at independence in 1965, it is the defining factor,” he wrote.

He goes on to highlight how his government went about improving the quality of the workforce through education, health care provision, designing of a robust social security system and some rather controversial social engineering (he was behind a push for graduate men to marry graduate women, previously graduates married below their educational standard) among other things.

The point was that to exploit even the little resources the island nation had – mainly its strategic location, it need a quality human resource to do that.

Looking at Uganda’s human resource – among the least productive the region, is it any surprise we have failed to take advantage of vast wealth of natural resources?

It is no secret that the dramatic growth figures of the last quarter century are largely a function of the low base from which we were emerging. Watchers of our economy will tell you that we have gone as far as we can in rehabilitating existing infrastructure and need to move to the next level – creating new wealth.

We need to focus on our education, is the curriculum keeping up or better still ahead of the demands of the day? Are we continuing to upgrade even these skills regularly and systematically? In health, can we keep our population healthy in so doing improve productivity, and for longer life spans? Do we have a national human resource policy for Ugandan companies, that makes them competitive in regional and international markets and are we enforcing it.

Teaching of the three Rs – Reading, Writing and Arithmetic is all very nice but can only be a beginning. And in the Uganda of the future where knowledge workers will be the majority our current education system is only designed to produce brainless automatons to man outdated assembly line processes.

Published June 2010, New Vision

THE FUTURE IS HERE

Last week Kenya telecom company, Safaricom and Equity Bank launched a service, M-Kesho. The service will make it possible for Safaricom’s mobile money clients directly access their Equity bank accounts.

Safaricom’s M-Pesa service has been lauded high and wide, being the first of its kind anywhere, and since its inception almost four years ago has roped in 9.5 million clients. This is significant because now M-Pesa subscribers total more than all bank account holders in Kenya, making Safaricom a major player in the financial industry.

Coming together with Equity Bank is arguably a game changing move, because the bank in its own right, is the biggest bank in Kenya by number of account holders.

To understand the full implication of this development we need to understand how M-Pesa works.

Just like similar mobile money transfer services in Uganda, a subscriber would walk over to an M-Pesa agent and deposit money on his phone. The subscriber would then be able to send this money to another mobile phone owner or buy goods from selected agents.

With M-Kesho the need to go to the agent will be removed. Dealing with the mobile phone one can now transfer money from their bank account directly to the intended recipient.

Beyond money transferring M-Kesho will provide interest bearing accounts, issue credit and write life insurance.

The immediate implication of this is that Safaricom’s 15 million subscribers now have bank accounts, with all the attendant benefits that come with it.

Up to this point most Kenyan bank account holders were urban dwellers, with Safaricom’s extensive rural network hundreds of thousands of Kenyans will have easier access to financial services.

The benefits of joining the formal financial sector can not be underestimated for individual or country.

We need not look far back into history to find a time when having a bank account was a a privilege and a thing of pride. Banks erected barriers to account holding with prohibitive account opening requirements, high minimum balances and unrealistic loan requirements.

With technological advancement and increased competition thousands more Ugandans now have bank accounts and access to credit is more widespread.

The numbers do not lie. Since 2000 after our own banking crisis, savings and loans in the banking sector have jumped more than five times to sh4,256b and sh4,083b respectively as at the end of February.

The benefits are there for all to see with the real estate development boom, businesses opening at every street corner and the collapse of the road system under the weight of the thousands on new cars making their way onto our roads annually. But this only happens in Kampala.

By merging financial services and telecommunications, the barriers to entry into the formal financial sector are will be further lowered and it is expected that the ensuing benefits will be much better spread around the country.

The advancement of individual players inevitably feeds into the national economy.

In the most important way that I can think of with more players entering the formal economy more of our little monies will be aggregated into meaningful sums that can drive meaningful change.

One of the biggest challenges of development is to drive up savings rates. Because savings fuel investment, which in turn grow economies and raise incomes and wealth.

So far Uganda is doing badly, with its savings rates far below regional averages making us reliant on moody donors to finance our crucial investments in infrastructure.

No country in the history of world development has developed without mobilizing its own resources. And it makes sense that with your own resources you can determine your own priorities and dictate your own development agenda.

The explosion of telecommunications on the continent over the last 20 years has provided the missing link for us to mobilize our resources. Out next challenge of course is learning how to deploy these same resources to extract maximum gain for our people.

But the collaboration of Safaricom and Equity bank – arguably the most innovative companies in their respective industries regionally, is a taste of things to come and an announcement that the future is here.


Published May 2010, New Vision

RETIREMENT … ALREADY?

A presidential directive to reduce the retirement among public servants to a proposed 50 years from eth previous 60 years has got a few knickers caught in a knot. And understandably so.

Who is the 50 year old civil servant? The 50 year old servant – assuming he has worked only in the civil service, begun work in 1986 give or take a year or two. He has sweated through the prospect of several retrenchments, put his children through school, paid the medical bills of ailing parents and relatives, all in all forged an acceptable life for himself.

In many cases they are just beginning to come into their own, setting about providing for their retirement looking to the next 10 years to actualize their retirement plan.

So you can call them unlucky. But surprisingly anecdotal evidence shows that their relatives in the private sector are often times worse off.

Often better paid, with better benefits accompanying the jobs the private sector worker is often lulled into a false sense of security. They are shielded from the true cost of living when provided with fuelled cars, free medical care and worst of all, the promise of a huge paycheck on retirement from NSSF and their in-house provident fund.

What is the cost of retirement? Experts suggest that in planning your retirement you should plan for an income of at least 70% of your current take home pay. But that assumption has come under sharp criticism because it assumes your costs will come down in retirement because you may have fewer dependants – this of course does not hold up under scrutiny.

Ugandans are dieing at an older age with the benefit of better health care, however it is these medical bills that are increasing the cost burden on older citizens.

The combined effect of lowering the retirement age and greater longevity means the cost of retirement will inevitably rise.

The sources of possible income will include a pension, gratuity and passive income from assets and businesses that the retiree might have set up.

First of all there is false perception that your pension will substitute your salary. Many times the monthly is a fraction of your salary at the time you retire. In addition the gratuity which comes in one big lumpsum is something to look forward to, but a quick calculation will often show that it can barely take you two years assuming you withdraw your current take home salary on a monthly basis.

People start up all sorts of side businesses during their working lives and as long as they are employed and subsidizing the businesses monthly it is all good until they retire. Then they quickly find the business can not stand on its own, neither can it sustain them and then we are all back to square one.

As for accumulated assets, assuming a generous rate of return of even 10 percent annually then the asset which is to sustain you has to be at least ten times the value of your annual expenses.

And its laughable to think that just because you have built yourself a house and are no longer paying rent you are set. The reality often is that you pay more in utility and maintenance bills in your own house than you pay while renting.

Does all this make you dread you retirement years? It should, with the effect of making you start seriously planning for the sunset of your years.

Unfortunately we have had barely 50 years of indigenous working class in Uganda so we are all at sea when it comes to retirement planning.

But maybe a few ideas. As early as possible we have to get a grip of our personal finances, know to the last coin where we earn our money from and what we spend it on. Then we need to burn indelibly on our souls, and live by, the saying “Its not how much we earn but how much we keep that counts”.

Frugality is a virtue but perish the though that you can ever save enough to see you through retirement. Therefore a new set of skills has to come into play beyond the discipline of saving – business management and investment, both acquired skills.

And of course the earlier we start acquiring these skills the better.


Published May 2010, New Vision

POVERTY, THE ROOT OF ALL EVIL

This week the police hauled in a gang of men and women who have been robbing taxi passengers of their belongings.

We have all been warned about boarding empty taxis. This gang would travel in a taxi and unsuspecting passengers would board the taxi finding their security in the numbers. The thought that all the passengers are all crooks would not have crossed their minds.

Minutes later, relieved of the weight of their valuables they would know better.

In the last 20 or so years Kampala has been the safest capital in the region. Visitors and residents alike felt safe walking the streets at any hour of the night and day.

A spate of crimes over the last few years – mutaingwa squad, car jackers, child sacrifice and now the taxi crooks, are all conspiring to put paid to our capital’s benign reputation.

The reasons for this upsurge in crime are not hard to see and are connected to another event that happened during the week.

Vice President Gilbert Bukenya finally appeared before the Parliamentary Accounts Committee (PAC) to answer queries related to his involvement in the preparations for the Commonwealth Heads of Government Meeting (CHOGM) that Uganda hosted in 2007.

The PAC’s interest in the subject was picqued by the Auditor General’s report billions of shillings intended for the preparation remain unaccounted for.

Bukenya in a classic case of blaming the messenger, lashed out at the media for attempting to bring his name into disrepute and informed us that averse headlines referring to him had caused concern around the world!

That maybe as it is but official corruption in government contracts as has been highlighted by the Auditor General and the revelations that have come out of PAC have a direct connection to the growing incidents of crime in Kampala.

Uganda has managed prodigious growth figures, which have seen Uganda’s economy doubling every eight years. Unfortunately most of this growth has been concentrated in Kampala, about 70% of the country’s GDP is generated here, but even this growth is concentrated among an even fewer numbers.

Our country’s growth has been driven by the financial, construction and services industries, all sectors that mostly service the urban areas and relatively little growth has been seen in the agriculture sector, where more than two thirds of our population derive a livelihood.

And it follows by the laws of heaven and compound interest that to those who have more shall be added unto them and to those who have nothing even the little they have shall be taken away.

A liberalized economy as we have, has been shown to be the most effective mechanism for wealth creation but woeful distributor of that same wealth. In a fully liberalized economy the rich get richer and the poor get poorer.

And that is where governments are supposed to come in.

By taxing the productive sectors of the economy the state then distributes this wealth by building schools, health centers and transport, telecommunications and energy infrastructure. These investments by the state one, elevate the living standards of the people and two, allow them to not only get involved in the growth but also partake of it.

And this happened in this country before. There is a generation which went to school free, had employers prostrating before them as they stepped out of the gates of Makerere University, enjoyed free medical treatment and rode on smooth roads and all this was financed with tax payers money.

So the Uganda government has the apparatus to effect this model but it is not happening. And it is not happening because monies meant for schools, drugs and roads are being robbed at historically unprecedented levels.

The net effect of this is that an ever increasing proportion of the population is being shut out of the “Ugandan dream”.

More and more people are being relegated to the wretched of the earth because their education does not allow them to compete, because they cannot get their produce to market and because they do not live to see their fiftieth birthdays.

The restless youth of Kampala’s suburbs are hitting back and it has more to do with their economic condition than the quality of their moral fiber.


Published May 2010, New Vision

WHERE IS THE TRICKLE DOWN?

Over the last few weeks commercial banks in Uganda have been releasing their results to the public.

Under the law the banks have up to the end of this month to make their results public.

Looking through the reports several things are clear.

One, that the banking industry is healthy and has shrugged of the effect of the global economic down turn but even more impressive have relegated the banking crisis of the late nineties to a fading memory.

Also the banks have shifted their asset base more and more away from lending to government to lending to the private sector.

In January 2000 the lending to the private sector stood at sh570b by the banks, while the treasury bills held by banks almost quadrupled this figure sh2,261b. Today the situation is almost a mirror opposite with loans to the private sector at sh4,003b compared to the outstanding stock of treasury bills of sh1,223b.

This trend is being helped along by the single digit returns on treasury bills the lowest in years.

So bank shareholders’ are laughing all the way to the bank as the dividends roll in. And there in lies the challenge.

Standard Chartered bank will remit sh33b to its shareholders abroad this year. Stanbic bank will pay out about sh40b in dividends, of which sh32b will revert to the Johannesburg head office. Barclays Bank is in the midst of digging itself out of a bad run of losses and is not paying out a dividend.

Other multinationals like the oil, telecomm and retail companies are creaming off as much, if not more money. Free enterprise is alive and kicking in Uganda, no doubt.

Starved for cash we liberalized our economy to allow investors from far and wide to come and invest in the economy. To sweeten the deal among other things we allowed unfettered repatriation of dividends and did not make it a condition that nationals have a share in enterprises established here. Beggars after all can not be choosers.

The policy worked brilliantly as the number of multinationals straddling our economy will attest.

But now that they have made back their money many times over, maybe a rethink of this policy may be in order.

Now that we have a functioning stock exchange – the Uganda Securities Exchange is in its eleventh year, I think these multinationals out of the goodness of their hearts or through other means of persuasion should sell shares on the exchange.

This will not be a donation to Ugandans and will have a much larger impact than all the half-hearted corporate social responsibility initiatives these companies have indulged in over the last two decades.

A cursory look at the accounts of many of these companies will show that the CSR programs account for much less than one percent of their dividend pay out.

Corporations by their nature are amoral to the point of psychopathy, and it does little good to appeal to their good side.

What does selling shares on the exchange do? For one it raises awareness about the company more than any advertising or PR exercise can do. Secondly, and more importantly it encourages a positive association with the company with a wider pool of people than the company’s employees and their dependants, fusing the self interest of a greater public with that of the company.

All this leads to brand strengthening, which has been shown to have positive effects on profitability – the incentive the corporation understands.

It makes business and moral sense to do this.

It maybe a lost cause to appeal to the corporation’s greater sense of good, but on a broader scale selling shares fosters national stability.

These corporations will be playing a bigger role in the development of a property owning middle class in Uganda. History shows that it’s the middle that guarantees stability.

In his book “The Lexus and The Olive Tree”, which was published in 1999 Thomas Friedman made just this point in pointing out that no two countries – except Yugoslavia, which had a McDonald’s chain have ever been to war. To have a McDonald’s suggest a country has attained a critical mass of the middle class whose interest is not served by violent conflict resolution.


Published April 2010, New Vision

THERE IS HOPE WITHOUT PRIVATISATION

Book: Making Public Enterprises Work
Author: William T. Muhairwe 419 pp

I begun my business journalism career in the throes of the privatization process. Privatisation of public enterprises was sold as a way to increase productivity while reducing the burden on the treasury.

It was a relatively easy sell given the wasteful, ineffective nature of many of our parastatals.

The more than doubling of the economy over the last 15 years, justifies that earlier leap of faith, with a quantum jump not only in production but in taxation and job creation as well.

The holdouts against privatization talked about selling “the family silver” but wherever you looked what passed as family silver did not seem worth keeping.

Dr William Muhairwe, managing director at National Water & Sewerage Corporation (NWSC), was one of the hold outs.

In 1998 he was appointed the boss of NWSC – a badly run, technically insolvent and a dead weight on the public coffers that finance ministry officials were convinced needed to be flogged at the first opportunity.

In his recently released book “Making Public Enterprises Work - From Despair to Promise: A Turnaround Account” Muhairwe outlines what it took to get NWSC back on its feet again and acknowledges selling NWSC was the last thing on his mind – especially since he had just been hired as its boss.

The book starts with his promise to turnaround the company in 100 days – a promise that had those who knew the workings of the corporation rolling in the aisles with laughter. Twelve years down the road Muhairwe’s detractors are conspicuously silent.

The book though written as a narration of the turnaround process is less about Muhairwe as it is about the processes that were initiated and the teams that chaperoned these processes.

During the journey the corporation explores novel management styles, gets more intertwined with the fortunes of its clients, negotiates with government and donors for its right to exist and devolved its services away from the center to improve service delivery.

An unintended consequence of this well documented process is that the corporation now has an external services division that offers consultancy services to other water utilities in the region and as far afield as Bombay.

The corporation is still a work in progress and the delivery of water and sewerage services are far from perfect, but as a handbook for how to revitalize public enterprises in the third world this book is the first of its kind.

One of the strongest arguments for privatization is that it brings companies under the discipline of the market and unlocks the value of its constituent parts – capital, labour and assets better than the public corporation.

But the turn around of the NWSC serves as a disturbing exception to the adopted wisdom that privatization is the panacea of the failing public enterprise.

If there is one thing in the NWSC story that one can single out as a dominant factor to its success, is the role of leadership and the agenda it champions.

Before the entrance of Muhairwe to the corporation millions of dollars had been sunk into the company, it was far from understaffed, clearly the missing element was leadership to steer it towards a more customer sensitive and commercially viable entity.

In hindsight it is common sense, but there can be no better rallying cry than the motto the corporation adopted - “The customer is the reason we exist”, an acknowledgment few enterprises public or private can be held to.

Apart from an introductory note about the author, Muhairwe is mostly present as the narrator of the story, which may be counted as the book’s major omission.

Muhairwe’s management style is there for all who read the book, but more biographical detail may have been useful in determining how he came to adopt his managerial persona.

The book is divided in to five parts with 19 chapters and will find a select audience in managers, policy makers and students of business.

One hopes that this is the first of many books on doing business in Uganda during a time of economic transition that will offer a record for future managers, so they can learn from history and not try to reinvent the wheel.

In a largely liberalized economy NWSC is an aberration and managers from both the public and private sectors will do well to pick up a copy for the invaluable lessons the book contains.

Published April 2010, New Vision

MY FRIEND FROM A MORE CORRUPT COUNTRY

It’s an old joke. An African minister went to a ministerial conference somewhere in Asia. At the end of the conference the Asian invites his African friend home for lunch. The African is balled over by the opulence of his friend’s house and after lunch, unable to hold it any longer, the African manages, “But how? How are you able to afford such a lifestyle on a government salary?”

The Asian with a twinkle in his eye leads the African to an upper floor balcony points across the valley to a bridge, “You see that bridge?”, he asks his guest. “Ten percent” he says thumbing his chest. “You see that road,” he says pointing at four-lane highway. “Ten percent.” “You see that skyscraper?” this time the African didn’t wait for him to finish “Ten percent” he said pointing at his host. They both laughed, the Asian at his on ingenuity and the African even more so at this Eureka moment.

A year later the Asian minister his African counterpart’s country. The African hosted the Asian to an even more lavish meal, in a more magnificent house.

The Asian did not wait for dinner before he asked, “But how? How are you able to afford all this on a government salary? An African government salary?”

The now oily cheeked, waddling minister ushered him to an upper floor balcony. Pointing out into the distance he asked, “You see that highway?”, the Asian followed his host’s finger into the center of the most squalid slam he had ever laid eyes on.

“Which highway?” he asked, looking back at his now grinning-from-ear-to-ear friend. To which the African answered, while pointing at himself, “100%”.

The joke is funny because it’s what we Africans think about our governments, but sad because it is largely true.

But this week I got a new perspective on “fighting” corruption. A friend was passing through town – a private equity hawker, and we had lunch and inevitably the issue of corruption came up. My friend is from an even more corrupt African nation and has been traveling the continent peddling finance to companies, so nothing I told him could faze him.

As he saw it we – Africans, do not seem to be able to put in place the required deterrents to put the brakes on corruption or halt it altogether. There is greater economic incentive to be corrupt than not to be, but even more worrying he said is that there is little if any social and moral incentives to stay away from corruption too.

In western countries where corruption as a percentage of the economy is much lower than he has seen while criss crossing Africa, moral and social censure for corrupt acts is a big enough deterrent to keep all but the most deviant characters in check.

But in Africa crooks are beatified and even worse previously morally-upright-foreigners – who should be monitoring their government’s monies, have jumped into the cesspool and are participating in the racket with abundant glee.

And that in his opinion, is why official aid has never developed any country beyond the cosmetic advancements registered in the capitals of these poor countries.

The challenge for graft busters around the continent is how do you make it expensive morally and socially to be corrupt, given our socially backward big man mentality, where a man’s social clout is measured by how many people can sponge off him? A process of social engineering that would take at least a generation to right he estimated.

However, he was wary about coming down to hard on corrupt officials because this will only push the practice underground and cause capital flight – money being sent out of the country to other locales.

The best thing that could have happened for the fight against corruption is the war against terror, with the more stringent restrictions of moving money around the globe. But he said this could easily be circumvented by the elite of like minds across borders and besides even in the wealthiest democracies if you have enough money those restrictions can be waived.

Russian oligarchs, a group of super rich mostly men who benefited disproportionately from Russian privatization at the beginning of the 1990s, have been welcomed with open arms in Europe and their residence and citizen status fast tracked for a few million Euros.

So should roll over and let these fat cats with their grubby fingers rape our continent? Not at all, he said, but it will be an uphill challenge as long as the laws and anti-graft initiatives are not anchored in moral and social codes that thieves can not ignore.

“Short of a generation change I do not see it happening in the next 20 years,” he hazarded.

Published April 2010, New Vision

METHOD TO THE MADNESS

Last week insurer NIC’s shares went on sale. The company is now owned 40 percent by the Ugandan public with the remaining 60 percent owned by Nigerian insurer IGI.

The company’s listing on the Uganda Securities Exchange (USE) brings to seven the number of local companies listed on the exchange. Five other Kenyan companies are cross listed on the exchange.

Its one of Uganda’s best kept secrets but in the ten years of its existence real money has been made on the USE.

Outsiders to the process view the business of shares as gambling but there is method to the madness and money can be made intentionally.

Benjamin Graham an investor and don at New York’s Columbia University, is the acknowledged father of security analysis. His protégés include Warren Buffet the third richest man in the world, who credits the late Graham on setting him straight on investing in shares.

Graham’s major contribution to share investing was his assertion that in the short term the stock exchange was a voting machine but in the long term it was a weighing machine, meaning that on a day to day basis share prices are often like a popularity contest moving according to the level of fear or greed in the market but in the long term the company’s health or lack of thereof, will be reflected in the share price.

With that in mind Graham counseled that to make a profit one should only buy shares that were discounted against their intrinsic value. The market is not efficient and Graham’s investment philosophy was centered on taking advantage of these inefficiencies – you buy when t he market underprices shares and sell when shares become over priced.

But just as important is the much forgotten fact that shares are not just a price but are parts of the larger company, and the fortunes of the company are eventually reflected in the share price.

If Graham showed that there was method to the madness Buffet showed that one can profit enormously from the market.







Buffet now 78 who bought his first share at 11, says that to invest successfully one needs to know two things: how to value companies and how to react to the market fluctuations.

What might be a turnoff for many people when it comes to investing on the stock exchange is that in a good company most of the gains would be paper profits. Dividend payouts are rarely above five percent of the share price and these only come once year or sometimes never – Buffet’s company has only paid a dividend once since he took it over.

And because of this cash mentality people forgo the huge share price increase being earned on the exchange.

But for people who cannot spare time from their everyday jobs to run businesses share investing is a useful way to grow assets either as a long term strategy or as a way of raising capital to eventually go into business.

Of course there are no guarantees and you can lose money on the stock exchange. But research done around the world show that shares show the best return of any class of assets over the long term.

If hat is so one wonders why more people are not involved in shares.

Apart from the cash mentality investing in shares takes away from the proprietary pride that comes with starting, running and owning a business.

By buying a share you are hiring existing management, benefiting from a mature brand and taking advantage of an established market share. So the sexiness of taking your children and showing them your company is lost and thus part of the unattractiveness of share market.

But for the few who seat down to analyse the issue dispassionately, share investing has been very lucrative business and will continue to do so as long as the economy keeps growing and companies along with it.

Published April 2010, New Vision

ONLY FOOLS DON’T CHANGE THEIR MINDS

At the launch of the book “Uganda’s Economic Reform” last week President Yoweri Museveni said that a return to a more active role in the economy by government is being seriously considered, he however played down fears that this would constitute a policy reversal, a return to the inefficient, finance sapping parastatals of yesteryear. 

One can understand what is prompting this thinking . In his recent countrywide tours the President could not have helped noticing how the economic recovery of the last 25 years has disproportionately benefitted the urban over the rural areas - the last I heard more than 70% of Uganda’s economic activity is concentrated in Kampala. This should come as no surprise. 

A laissez faire economy as we have been laboring under since the late 1980s, tends to concentrate rather than distribute resources. During the period government has extricated itself from doing business through privatization and liberalization a situation which has led to an upsurge in production, greater job creation and high tax revenues. 

Prior to this government’s experience with business was woeful, with parastatals unable to operate on their own steam, proving a constant drain on government resources and making the management of the macro-economic environment impossible .

 So to rein in government expenditure and therefore inflation and to increase production the lode stone of the parastatal sector had to go. And that logic still holds. However, the predictable consequence of letting the private sector decide on the allocation of resources means they are often unwilling to venture into uncharted territory and markets and are reluctant to make the large scale investments that will have a transformative effect on the large parts of the economy. 

Capital they say, is a coward gravitating only to areas where profit is assured like retail, transport and basic services sectors and avoids areas where heavy investment is needed and the risk is higher – heavy industry and infrastructure development. Inevitably the more densely populated, better facilitated urban centers are the major beneficiaries in a laissez faire economy. 

Historically the state in the more developed economies, has intervened to smooth out the market uncertainties through favourable – often illegal, economic policy, setting up corporations, forming partnerships with the private sector and/ or facilitating the private sector growth through subsidies, underwriting research & development and infrastructure development. 

The argument by third world commentators is often, if they are doing it why are they stopping us from doing it as well. As valid an argument as any other. Economic history will show that the developed economies were very protectionist of their nascent industries and continue to be so for “strategic” sectors of the economy and the same history will also show that no economy has managed any reasonable development without government intervention. 

Businessmen however will cry foul, protesting they are unable to spread the love more evenly. They will point to poor transport networks, inconsistent power and the high cost of finance as being at the root of this failing. And they will be right. The concentration f the benefits of two decades of economic growth are more a function of government rather than business sector failure...

So given the government’s history in and out of business, a return to the days of the parastatal will only make economy watchers like myself superstars when predicted failure materializes. Why? Because nothing has changed. Parastatals saddled with motives beyond commercial success will suffer doubly so in an environment of frequent load shedding, high transport, unproductive labour and extortionist credit. 

And because by definition they will be too large to fail, constant government babying will only exacerbate their inefficiencies. 

But we all agree government needs to be more involved in directing the economy. What then should the nature of this involvement be? To begin with government needs to invest more time in the formulation of a long term national development strategy, beyond the papers it generates to get donor support . Because it is this strategy that will inform interventions in infrastructure, research and development, human resource advancement, investor incentives and private sector collaboration, with the long term view of moving us from “Third world to first in one generation” 

At an even more basic level can government improve the road network, get the railway going, provide consistent and inexpensive electricity, improve the quality of education and health services, eliminate corruption, expedite the judicial process… Published April 2010, New Vision

THE POWER OF THE MANY

The main issues dogging our country -- both in the public and private sectors, are the inadequacy of our management capability and lack of finance, mostly in that order.

More than 20 years of chaos in the 1970s and 80s interrupted our progress in the identification and development of management talent. In recent years there has been some transfer of skills from foreign owned companies, but all observers agree this needs to be speeded up.

Our business schools are hampered too by the country’s history, with none of our business faculty boasting very real time experience in the rough and tumble of the real business world.

Management is critical because money follows good management, which explains why we suffer from a lack of money to finance our most critical public sector needs or grow our businesses.

Last week I had the pleasure of interviewing Karim Sadek one of the managing directors of Egyptian investment firm, Citadel Capital.

Citadel Capital is the firm that is in the process of taking control of RVR, the railway firm overseeing the Uganda and Kenya railways. Lead investor Sheltham has already sold 49% of its interest to Citadel with the remaining 51% pending approval from international lenders.

Citadel which opened its doors to business in 2004, currently manages $8.3b in investments, which is about the size of the Ugandan economy, spread across 15 industries in 12 countries in Africa and the Middle East. This portfolio has been cobbled together from an almost standing start – the founders started with $400,000. And ion the last six years they have returned $2.4b to their investors.

What kind of manager do you need to be accumulate a portfolio of almost $10b in six years?

And in that question lies the answer to our inadequacy.

Citadel borrows and invites investors – institutional or individuals, to participate in its projects. These financiers are not charitable organizations, they want to see a return on their funds, the higher the better and with as little minimal risk as possible.

One of the key criteria investors are looking for in placing their money is the quality of the management, does their record show they are able to consistently, invest money profitably?

Extrapolating to our situation as a country, as business, as individuals (why wont the bank give me that loan?) we are broke because we are unable to show managerial capability.

And as CHOGM has shown and all the donor funding that has flowed into this country since independence, or our inability to create business that can compete even nationally, leave alone regionally, we are severely wanting in the area of management – whether it means showing a return to our citizens, shareholders or ourselves.

The question then becomes what kind of managers do we need to attract significant funding?

I was happy to read that in Sheema county, Bushenyi district several Savings and Credit Cooperative Organisations (SACCOs) have banded together to form a SACCOs union.

In effect they are graduating to managing larger and larger entities, there will be some hiccups without a doubt and they may even collapse all together because the old managers could not rise to the task of managing not only bigger money, but more staff and higher expectations.

You build managerial capacity through experience – we have MBAs flowing out of ears already, and the experience from this SACCOs union can be transferred elsewhere.

Several useful lessons can be derived from SACCOs the ability to aggregate resources and secondly, the ability to delegate the management of these resources to people outside ourselves.

The challenge of managers, entrepreneurs is the inability to let go of “their” thing
There is only so much an individual can do in terms of growth before the strain starts to tell on the business and the person.

Growth is not done for growth’s sake, but with size comes the ability affect more people’s lives. Small is beautiful but big can be useful too.

Back to Citadel.

Citadel divides its investments into platforms of which there are 18, Managing Director and partner, manages mining and quarry, upstream oil and gas and now railway platforms which in all are worth a few billion dollars under management.

He foresees putting down $150m in investments in RVR over the next three years and his target is to oversee the turnaround of the concession to the point that they will more than quadruple freight carried on the line from its current one million tones.

And oh yes, his fortieth birthday is not due for maybe another three years.

Published March 2010, New Vision

BRAND IT LIKE MAO

Last weekend Gulu district chairman Norbert Mao was elected Democratic Party President.

He beat out the evergreen Kampala mayor Nasser Sebagala, to come within spitting distance of his long held ambition to run for the presidency of this country. Our Ugandan businessmen can learn a thing or two about branding from Chairman Mao.

Branding is about managing the feelings that surround your company with the intention of improving sales, profitability and market share.

Branding revolves around the management of the key components of awareness, association, experience and loyalty as these relate to the brand.


WHO DOESN’T KNOW MAO?

Mao burst on the scene with his very visible run ins with Museveni’s government in the early 1990s. But even before that he was involved in a very emotionally charged campaign for the guild president against another promising young firebrand Brigadier – then Lieutenant, Noble Mayombo. The OBs of Namilyango will remember him as their head boy prior to that. Recently he has been an MP and even more recently the chairman of Gulu district. The picture of Mao shaking LRA leader Joseph Kony’s in the jungles of southern Sudan will forever be seared in the minds of millions of Ugandans.

Awareness is not created by just slapping a few glossy posters all over town. Enduring awareness is created by a long and systematic publicity campaign – and better still if it is anchored on perceived success and propelled by a third party.


MAO’S ASSOCIATIONS

Mao is an old boy of Namilyango College. He attended Mwiri Primary School – another name with formidable historical links. He did law at Makerere (never mind its reputation now). And has done a fellowship at the prestigious Yale University. He has been an MP, a district chairman and is now leader of the oldest political party in Uganda.

What are your brand associations? And do those associations mean anything to your target market? The New Vision is Uganda’s leading daily, does that association, being the market leader resonate with its target market? Leadership denotes authority and the paper’s target group is looking for news it can trust. Opinion is another matter, but the last word on the news they know they can get from the New Vision.

Daimler Benz targets affluent clients who want to distinguish themselves from the rest of us mere mortals. It makes beautifully crafted, well engineered and pricey cars. A Mercedes says you have arrived.

Show me your friends and I will tell you who you are.


THE MAO EXPERIENCE

Youthful but wise, an outspoken rhetoric but judicious in choosing when to speak and more importantly when to shut up, ambitious but not obnoxiously so and as far as we know, not a blemish on Mao’s character in regard to corruption.

The customer’s experience with your company comes with the use of your products and the interaction with your staff. The customer experience with your company more than anything is the best case for why branding is not just a function of the marketing and PR departments.

You may have the flashiest and most memorable TV and radio ads and the most striking company signage but it will count for nothing if the driver in your company branded car drives like a bat out of hell in rush hour traffic.


BRAND LOYALTY

Mao has only lost one election—the battle for a seat in constituent assembly in 1993, in comparison to the may others he has won through out his life this suggests he commands some loyalty.

Customer loyalty – like all loyalty is forged over time and is where the extent to which you managed awareness, associations and the experience your company offers your clients over time comes to a head. If your clients are fair weather friends then you need to re-examine your branding strategy.

Kampala can not be accused of being branding country. A lack of general competition – the type that presses businessmen to look for every available edge, is not found here. But that day is not long in coming and corporate Uganda needs to be prepared.

Published February 2010, New Vision

REENTREPRENEURSHIP, OUR COMPETETIVE ADVANTAGE?

In July this year the East African common market will become a reality. The common market means there will be free movement of goods, services and labour across the region. It will also mean restrictions of land ownership will be lifted to the region’s nationals.

This follows on from the customs union, which went into full operation at the beginning of this year but has been in partial operation since the 2005. The customs union means that goods coming into the region from abroad suffer only one tax but otherwise move through the region tax free.

Contrary to previous fears URA reports that revenues have grown rather than fallen as the trade within the region has jumped over the last few years. In fact customs duties have almost doubled rising to sh1,764.2b in 2007/08 from sh958b in 2004/05.

And we can expect with the coming into force of the Common Market this trend will in crease.

But it has also been suggested that the increasing intraregional trade has cushioned Uganda from the worst of the global financial crisis, greater demand for our goods regionally has reduced our reliance on the traditional European export markets.

What is for sure is that with the free movement of goods, services and labour in the region Ugandan businessmen and workers are going to face stiffer competition than they are accustomed to.

The Uganda businessman in particular faces a real life-and-death dilemma. Protected for long by tariff barriers they have been shielded from the full effect of Kenya Inc.

Kenya’s private sector thanks to years of relative stability and experience in a market driven economy have developed better managerial, marketing skills, have better developed financial services and a government which pays more than lip service to propping up its businessmen.

But in rethinking their strategy several areas sectors have been identified in which Uganda’s businessmen can win a competitive advantage against regional rivals – agro industry, education, medical and financial services, ICT, power generation and niche tourism.

To this list I may add entrepreneurship as a potential competitive advantage we can develop.

At the basic level entrepreneurs seek profit by meeting people’s needs. Profit is not guaranteed and the possibility of total loss is an ever present danger. The entrepreneur can start with no thing and build something as opposed to the bureaucrat who first needs resources to start working.

Historical accident – Idi Amin’s chasing away of the Asians in 1972 and the ensuing economic collapse, means Ugandans unlike their neighbours in Kenya, were thrown in to the deep end of business in order to fend for themselves. Whereas they may have bungled the going concerns that were left behind by the Asians and they have little to show by way of having built regional let alone national empires, the entrepreneurial spirit is alive and kicking.

In two World bank sponsored surveys a few years ago Uganda was the top and then second placed entrepreneurial nation in the world for two years running, judging by the amount of entrepreneurial activity in relation to the population.

However it was found that Ugandans were more necessity entrepreneurs – set up businesses for subsistence rather than opportunity entrepreneurs, who set up businesses to capitalise on an existing opportunity regardless.

And there in lies the crux of the matter and explains why we rush to open shops, take aways, taxis and piggeries because our neighbour also did it.

However the essential attribute of setting out on our own to start a business while relatively rare elsewhere -- we take it for granted because after all everybody is doing it around us, is something that can be harnessed and exploited.

This is the essential skill that will keep us a live in the face of the mounting challenge from more established and tested regional rivals.

The trick is how do we broaden the horizons of our businessmen, expand their vision beyond living large in a sea of poverty?

Entrepreneurship is already being taught in our schools, but it does not go far beyond definitions and theories.

While it is still early days Enterprise Uganda has a program that is good to the extent that it fires up its alumni to go out, create businesses and offers them some support in their new endeavors.

Maybe the East African common market is just the impetus our businessmen have needed to jerk them out of their complacency. Fighting back successfully will be determined by our businessmen’s openness to new ideas, practices and partnerships and a systematic, transparent and well executed government program to help the private sector gird its loins.

Published May 2010, New Vision

THE AID CIRCUS ROLLS ON

Beyond wallowing in the poverty of my country, my introduction to development issues came by way of the book “How the other half dies” by Susan George.

Long before it was fashionable to bash the aid industry George warned among other things, that the obsession with economic growth was clouding, even obliterating issues of what she called “appropriate development” or more simply put the improvements in people’s lives.

She lambasted the aid industry as a neo-imperialist machine that was creating more indebtedness, more poverty and even suggested the term (at least it was the first time I heard of it) the Never to be developed countries (NDCs).

George wrote that the aid industry only served to fatten the wallets of the elite in the west and the aid recipient capitals by promoting consumption over investment, propping up undemocratic government and dooming the rural poor to ever decreasing levels of sub-human existence.

Writing in the eighties she warned that the prevailing wisdom that increasing aid flows will lead to high investments leading to industrialization and eventual upliftment of whole third world populations out of poverty was irredeemably flawed, because after more than 30 years of aid it was not shown to work that way – the book was first published in 1976.

This last week I had a where-have-you-been-all-my-life moment in the way of the book “The elusive quest for growth” by William Easterly.

I am yet to finish reading it but writing almost 30 years after Susan George – the book was published in 2001, Easterly pushes much of the same argument but fortified with nearly three decades more of additional data.

He starts the book by affirming that economic growth is critical for development, but its how we have gone about growing economies that can not stand up to scrutiny.

Easterly then outlines a list of remedies that have been suggested will sort out the third world development issues once and for all and how they have failed dismally.

In the beginning the theorists thought that if the bridge the financing gap – the difference between national savings and investment requirements that would do the trick. Here the thinking was that if a country needed $1b to invest in infrastructure but only was saving $100m by providing the needed $900m in aid to for infrastructure development, they would be on their way to development.

That did not work least of all because the investments were imposed from abroad with little input from local beneficiaries or awareness of cost to environment, culture or labour in the beneficiary countries.

Then they thought that more technology transfer and education for the locals would cause jumps in productivity, raise incomes and therefore lift every body out of poverty. However the context in which these prescriptions were being grafted among other things put paid to that line of thinking – if you increase technology in low skill areas or vice versa it is doomed to failure.

Then economists thought the issue has to do with population growth, if we could only bring populations under control, per capita incomes would grow and development achieved. But obviously they were unaware of their own history because population growth slow down happened only after development had been achieved in their countries

But they did not give up, they decided that for aid to work we need to have certain policies in place in the recipient countries eg low inflation, low budget deficits and liberalized economy, so they decided to grant conditional aid. But that too hit a dead end because the beneficiary countries learnt how to play the system getting ever increasing amounts of aid despite their rotten policy environments.

By logical extension because of the huge debt overhang it was decided that these countries needed debt relief so they can kick start their economies. But this panacea has had dismal results as the debt forgiven countries have just gone back and contracted more debt and are back to their original unsustainable levels.

That is as far as I got in the book, but can not wait to read his thoughts on corruption – potentially explosive stuff.

But one has got to wonder about the hit-or-miss style of the aid industry and our willingness to be part of the circus.

But as Easterly’s mantra throughout the book goes “people respond to incentives”!

Published February 2009, New Vision

A BUSINESS MODEL TO EMULATE

Last week I found out what it means to be “sick as a dog”. A combined bacterial infection and Malaria had me more or less bed ridden the whole week, wondering what it feels like to be healthy.

During that enforced leave I lay on my bed with little else than the TV to keep me company. My attention span was so short I never read a word other than the newspapers, hence my tight relationship with the remote.

I watched everything and anything. Drifted in and out of sleep, waking up to find the TV watching me.

In between bouts of self pity and perfunctory introspection, I wondered at the marvel of pay television DSTV. DSTV is the digital satellite television service of South African multi-national Multichoice. Multichoice in turn is a subsidiary of multimedia company Naspers.

In less than 15 years, employing a combination of improving content, ever cheaper technology and an aggressive and a farsighted expansion plan, for all intents and purposes DSTV now has a near monopoly hold on the pay television market south of the Sahara.

With an estimated 2 million plus subscribers in South Africa and -- I am only guessing, maybe another million on the continent, DSTV has a significant head start on any new entrant to the market – as GTV learnt.

But beyond the details one has to marvel at the textbook execution of their strategy.

It all begun in 1986 with a single channel analogue service, which expanded its programming offering gradually before DSTV was opened nine years later.

The natural tendency for our local pioneering businessmen is to curve out a part of a potential market and then seat back and rest on their laurels – in between buying four wheel drives, making trips to exotic destinations and generally making every effort to announce they have “arrived”.

But not DSTV’s parent company. One can discern a greater vision by the founders that went beyond subsistence to maybe even world domination. When your vision is bigger by default you become a bigger man.

In pursuit of the vision they have had to co-opt partners and even part with a share of the company. Our businessmen because their vision is very generally parochial they want to hold their business tightly around them and maintain total control. That has the inevitable consequence of frustrating growth and innovation.

Proof DSTV’s larger agenda is that the set up cost of the service has been coming down year after year.

In the lead up to the Evander Hollyfied-Mike Tyson bout in 1997, DSTV run a $1500 (about sh3m now) promotion, now one can sign on for less than sh300,000 for the same service. And this is with little prompting from direct competition, the intention of course is to lock down the market.

And despite the price cuts there has been a dramatic increase in content in ensuing years, which has provided more value for money.

In my other life I am an arm chair investor. I use a simple criteria to determine where I put my money. I like companies with dominant market positions which are leveraging their positions to record ever increasing returns on investment. The theory being I will benefit through dividend payouts and share appreciation.

The point is, the DSTV model can be emulated by our businessmen – though with the East African common market knocking that window of opportunity is fast closing. Our businessmen need to have bigger ambitions than feeding their families, buying flashy cars and being seen with little brown girls.

Our businessmen need to ditch the He-owns-a-shop-I-will-own-a-shop mentality. They need to choose niches where they can establish a dominant position nationally, regionally and even continentally, set aside their egos to forge partnerships that can propel the dream and develop an iron willed discipline to see the mission through.

There is hope.

There is a plant in Masaka that cans Obushera (millet porridge). It has seen its volumes increase steadily as the urban elite shift away from the roadside variety they find on their travels upcountry.

This is a competitive advantage that can be built up because there is a ready local market for the product and Uganda can act as a springboard into the region and beyond.

The question is does the proprietor’s ambition go beyond his immediate needs and wants? Is market domination in his plans? Only time will tell.


Published February 2010, New Vision

SAVING ONE CHRISTIAN AT A TIME FROM POVERTY

On Sunday it will be ten years since a few dozen young Christians at the Kampala Pentecostal Church sat down to address their financial limitations.

“That was our very first meeting,” Y-Save CEO Dunstan Kisule said in a recent interview.

Now numbering a few hundred they will converge on Kati Kati this Sunday, 24 January, to celebrate and take stoke of their achievements.

After the meeting Y-SAVE (Young Savers Association in Ventures and Enterprise) was born with an initial 15 members and a three person executive.

Membership was acquired with the payment of sh5,000 and by buying a sh10,000 share. In addition to retain membership one was expected to save at least sh5,000 every three months.

“But we kept pushing up requirements up to its current sh50,000 a month per member,” Kisule said.

Today the association has a membership of 340 adult members and about 1,000 children – children for whom their parents contribute and who will decide when they come of age whether they want to be full members or otherwise.

Since then Y-Save has grown in corporate sophistication and financial strength.

With little structure to speak off – they were not even officially registered; Y-Save acquired its first property at the end of its first year of operations, a 26 acre piece of land in Kyaliwajjala.

“When we bought the land we were not a legal entity so we formed Y-Investments Ltd for purposes of buying the land,” Kisule said.

However with its growing financial strength the regularization of Y-Save’s operations became more urgent.

“In 2002 we called in a consultant to look at the business, he said there was a major contradiction because the association was illegal and the real estate company was not filing any return… He advised us to become a SACCO (Savings and Credit Cooperative).”

In 2004 Y-save was finally registered as a SACCO and the following year it got its first employee and office premises at Buganda road flats, “to be near the church.”

Today Y-Save has 5 employees including Kisule who resigned his job from the National Housing Corporation in 2008 to take up the position.

“The feeling was that we are growing and need the vision of the company to be directed on a fulltime basis,” Kisule said, who was the first chairman of the organisation.

It pays its Tax and NSSF dues and he believes is on a steady path to sustainable growth.

Y-Save now boasts savings of more than a billion shillings and book value of, “a few billion shillings.”

And they are not resting on their laurels.

“Currently we are working to become a Micro-Deposit Taking Institution (MDI), we are looking for strategic partners because bank of Uganda regulations do not allow for one owner, then our vision is that this will grow into a bank … to become a world class financial institution,” Kasule says.

Their faith in God, leadership, integrity, honesty and cohesion deriving from their shared faith Kisule says, is the key to their success.

“In addition we run it like a business and once you have that mentality you grow… many other SACCOs are not run as businesses and do not try to grow,” he said.

The benefits to their members have ranged from the intangible – a new self confidence t othemore tangible – homes, cars, business.

“Our members have adopted a saving culture and have increased their financial literacy,” he said. The association every so often calls in experts on financial management to come in and speak to their members.

“Its important that their financial literacy is improved so that even if they are not actively involved in the running of the organization they understand what they are doing and how it will impact on their situation.

The board and management team annually go on a weekend retreat to examine their practices and map out strategy for the coming year.

“We have learnt that for the sake of our members we have an obligation to keep growing, but this growth must be planned and anchored by long term goals … we have to be increasingly professional in how we run Y-Save,” Dunstan said.


Published January 2010, New Vision

WARNING: PRICE CONTROLS KILL

Venezuelan President Hugo Chavez is the best current example of the wisdom that everybody who desires the highest office in the land should first have a good working knowledge of basic economic theory.

Buoyed by high oil prices, which rose to as high as $140 a barrel in 2008, the populist president maintained price controls in his country and even boasted that the global recession would not affect Venezuela. That was before oil prices plummeted, making maintaining price controls unsustainable.

Inflation has set in with prices rising more than 25% in 2008 and 2009 and expected to jump by as much as 50% this year.

Inflation is a result of too much money chasing too few goods. Either government prints too much money or production falls off making goods scarce in both cases leading to price rises. It is as natural a law as the law of gravity and you contravene it to your own detriment.

"Price controls have the effect of discouraging investment, which in turn stifles production and then the inevitable happens...

So this week Senor Chavez devalued the Bolivar in order to give relief to exporters and fatten the state coffers ahead of the legislative polls in September. It is suggested he will go on a social sector spending spree to ensure victory for his allies in the house.

Because he nationalized the oil industry he is rubbing his hands with glee in anticipation of the increased bolivars from oil exports. However he is indulging in wishful thinking because inflation will wipe out that artificial windfall faster than he can say John Maynard Keynes.

The politically expensive but economically sound thing to do is for him to lift restrictions yesterday, maintaining them is only aggravating the problem because prices tended to explode once controls are lifted and the longer you wait the worse the explosion.

Well consumers have been buying imported goods in bulk this week in anticipation of price hikes when current stocks run out.

In the early 1990s despite pressure the NRM government refused to impose rent controls in the city.

Following the repossession of many Asian properties the “new” landlords started charging commercial rates and the local “businessmen” thought this was unfair.

Rent controls were not imposed and this is at the heart of the property development boom we are in right now. Of course the convoluted nature of land holding system means it will take some time before we fully address our current housing shortage but it would have been worse if government had bowed to misplaced, popular opinion.

But our current power situation has its root in the dreaded price controls.

To begin with UMEME is grappling with an old, dilapidated, under capacity network because power prices were held artificially low for a long time. Therefore there was little investment on the network beyond perfunctory maintenance, and we are paying far higher power rates than we should be as a result.

But more recently the departure of AES the original promoters of the Bujagali dam was prompted by price controls in Argentina.

In 2002 as a step to climb out of an economic crisis, Argentina abandoned the politically fixed 1-to-1 peso-dollar exchange rate. Almost immediately the peso lost 40 percent of its value.

This was bad because AES which had power investments in Argentina had been borrowing in dollars while getting paid in pesos, this worked as perfectly as long as the 1-to-1 exchange rate applied. But when the peso was floated AES was in a bind because it could not raise its prices as fast as the peso had fallen.

Bujagali was one of the casualties.

In 2008 Zimbabwe’s president Robert Mugabe his country being pummeled by inflation of more than 1000%, ordered that commodity prices should revert to a prior level and when they did not he arrested shopkeepers and ranted at western imperialism.

Price controls are the temptation of every desperate politician but they should come with a health warning. Unfortunately economic logic rarely stands up to political expediency.

Published January 2010, New Vision

IN DEFENCE OF CORRUPTION?

Forbes magazine; there are few other publications that beat the drum harder for the free market economy.

If publisher Stephen Forbes had his way government would be restricted to policy formulation , regulation and law and order enforcement. By reducing government presence to a sliver, the invisible hand would ensure increased production as entrepreneurship thrived and therefore society as a whole.

Forbes and his ilk believe that in this way society will fairly reward entrepreneurs who are the engine of wealth creation.

While this is true, we also know that the free market while being our best system of generating wealth, is most inefficient in distribution of that wealth once created. Governments are supposed to act as an arbiter, which taxes producers in order to provide public goods that, among other things, would allow everybody an equal chance at climbing up the ladder of affluence – the trickledown effect.

"However, in many developing countries the trickle-down has remained a pipe dream as corruption has subverted it. Transport networks and other infrastructure, health and socials services have suffered ensuring that the rich-poor divide widens rather than recedes...

So it came as a surprise when in its latest issue Forbes published a semi-defence of corruption.

Professor John Hooker writing this week argued that corruption is not a bad thing per se, it is just that it is operating out of its original context. He argued that – giving Asia as an example, nepotism, cronyism and bribery were tools that cemented society’s cohesion, redistributed resources and actually increased the efficiency of firms.

The professor of Business management wrote that in Korea for example the powerful industrial complex the chaebols, grew on these tenets which are now being frowned upon by the purveyors of the new corporate governance.

For instance the founders of companies would ensure their offspring took over control of the
company by fast tracking their promotion to the top. Nepotism was a way for the patriarch to enforce the vision and standards though his sons thanks to the authority he wields over them as their father.

That cronyism while awarding contracts to associates, would guarantee quality work or supplies because of the strong relationship between the contractor and the client. And the offering of gifts to people of influence is just courteous and not intended to influence contracts.

Without the context that celebrates family honour and the value of social ties, corruption then becomes a cancer to society.

The author argued that whereas western economies operate on an impersonal, rule-based framework, the economies of the developing world are more influenced by relationships and therefore needs, what the west sees as, corruption to lubricate the wheels of progress.

I think the theory was deficient in that it ignores the reason why the systems differ.

A rules based system is necessary in large communities where the influence of the individual can only go so far. Faceless institutions – the parliaments, courts and even governments evolved as societies grew in size and complexity. Europe and the Far East developed these institutions out of necessity – rulers needed to project their influence further and further afield, as a result of their capacity to produce food surpluses that were used to sustain thinkers and professional armies.

Even among our larger kingdoms institutions deriving their power from a central authority as we know them to do today, were starting to form.

So the natural evolution is towards a rules and away from a relationship based society, where corruption is a hindrance rather than an enabler. There are positive to take from both systems however, and western management thinking is increasingly embracing the role of relationships in business.

"But the point that systems can only work within a given context and not be grafted wholesale onto other cultures is a valid one...

The western Europe’s institutions did not just appear on the scene but rather evolved over decades of uneven development , with man’s base instincts for crude accumulation and indiscipline always lurking around the next corner, ever ready to hinder, reverse or even terminate progress.

That being said we are more technologically advanced, better informed and need not trace the erratic oftentimes despotic and many times bloody path to development that Europe endured over many decades.

Published January 2010, New Vision

IN NEW DECADE, FOCUS ON EXECUTION

Yesterday was the first day of the new decade. A powerful psychological turning point.

I started the last decade believing poverty is the root of all Uganda’s evil – high population growth, famine, disease, corruption and now stepping into the new decade I am more convinced than ever that this remains true.

Unfortunately the way we talk about poverty it is as if we are discussing something that happens to other people.

Clearly we are in denial, the vast majority of us are living off our parents or spouse or lurching from pay check to paycheck or have business with no larger mission than to provide subsistence for us and our loved ones.

A cursory look at our individual balance sheets would make a grown man weep.

Many of us are guilty of spending money we do not have, to buy things we do not need, to impress people who do not care.

With our money there are only two decisions to make when a spending opportunity presents itself, either we consume it or invest it. The rich angle their expenditure towards investments, building asset bases that will ensure their financial freedom. The majority of us spend on consumption guaranteeing that we shall live in perpetual servitude at best or suffer a subhuman existence.

As a result Uganda is a manifestation of the sum total of our spending folly. The poverty of our nation is a man made situation, perpetuated by poor (there is that word again) leadership.

At the beginning of the last decade I also thought this country was poor for lack of planning. I was recently disabused of this thinking.

If we had no plans as a country how were we able to wangle billions of dollars out of the donors over the last few decades?

The donors are not your benevolent rich uncle. They require very elaborate plans detailing economic viability, environmental impact assessments, the project’s usefulness in the context of national development plans etc before they can disburse one dollar.

So the fact that we have been one of the greatest beneficiaries of donor largesse presupposes the plans are there.

We have world class policy papers on any number of areas from alternative energy uses to gender based affirmative action but the results – or lack of thereof, are there for all to see.

What is missing is execution, defined as getting the job done.

Having world beating plans is only one component of getting things done the. We need the right people, infused by a vision of where the country is going, operating in an enabling environment all this underpinned by robust strategic planning.

Ten years ago a UN consultant broke it down for us. His advice was that there are a few areas in which Uganda can win a competitive advantage and therefore thrive in regional and international markets. He listed these as Agriculture processing, education and health services, ICT, niche tourism, financial services and power generation.

In the last 10 years we can list the edible oils industry, the helter skelter growth of the private education industry, the empty hotel rooms post CHOGM, the proliferation of telephone subscribers and the emergency thermal power generators as a sign that we might be moving in the right direction.

I believe we could have done much more in the last ten years with a more systematic execution of our priorities.

And execution is going to become even more critical in the coming decade with the East African common market for goods, services and labour opening up in the middle of this year.

If our industries close and we lose our jobs because of more competitive goods and services from other countries squeezing our offerings out of the market we will have only ourselves to blame.

I go into the new decade resolute in my conviction that fighting poverty – on a personal and national level is not everything, it is the ONLY thing.

We will do this buy executing far sighted strategies that will one, crystalllise our competitive advantages and then execute them with unwavering determination.

Have a Happy New Year!


Published January 2010, New Vision