BESIGYE EXIT POINTS TO POLITICAL SHIFT

Weekend reports that Kiiza Besigye is stepping down from the helm of FDC will predictably weaken the party in the short run as they adopt to changing political priorities.

Besigye, who in the last ten years has come through as the most credible challenger to President Yoweri Museveni, it was reported was taking the action to give his successor sufficient time to plant roots ahead of the 2016 elections.

However according to the FDC constitution the party’s leader need not be its flag bearer in a presidential election, so one cannot count out a fourth bid at the presidency for Besigye.

But the alternative, that the pugnacious doctor from Rukungiri has thrown in the towel and moved on, makes for more interesting speculation.

Speculation has already turned to who will replace Besigye as the de facto leader of the opposition. The usual suspects have already come up for mention; the genial Major General Mugisha Muntu, the reinvigorated Nandala Mafabi and even a few dark horses like the irrepressible Salamu Musumba have enjoyed a passing mention.

"The major pitfall for the opposition can be found in the constitution or more specifically in the way we carry out elections in this country...

Unlike in the UK but like in the US, our presidents are elected directly. In the UK the electorate votes for the party and its leader becomes prime minister. This system as has been shown in the US, means that the electorate is wont to vote for personalities over policy, and therefore likable, well known personalities are likely to be successful as opposed to technocratic, doers with wooden personalities.

This is an important distinction that should not be overlooked.

When asked at the end of her husband’s term in office why a woman has never been US president while UK has already had a female prime minster, Hillary Clinton said in the UK a woman can propel herself to the top of her party and during election time the party machinery will ensure she is elected while in the US presidential candidates – while helped by the party, find that they are running more on personal merit.

Over the last 25 years no one comes closer to near universal face recognition in this country than Museveni and that gives him a few yards over his challengers in any electoral campaign.

"So by bowing out, Besigye has with one hand given a chance for renewal while with the other taking away arguably, the only other politician with a national profile...

In the run up to the last election some members of his FDC party grumbled that Besigye was so seduced by the possibility of making it to state house as leader of a badly cobbled opposition alliance, he paid little heed to building his own party structures.

The dissenters argued even then, that a win was impossible because there was no impetus behind his race from the party, beyond the feel good anticipation of an opposition alliance. The rest as they say is history.

But there too lies another problem. In building parties around personalities, the party structures – if there are any, are subjugated to the leading personality of the day to the detriment of long term sustainability of the party.

As a result we can expect to see infighting in the FDC as the contenders jostle for power without credible party structures to moderate tempers and mediate between contending factions.

"The Honourable Ronald Reagan Okumu fired the first salvo, declaring shortly after the polls, that no “westerner” will succeed Besigye as the leader of the FDC. This ourtburst was triggered by the frustration felt by a fringe element in the FDC who felt that Besigye, a “westerner” was in the way of their plans of ethnicising the last campaigns, which they felt was their best hope of a smash-and-grab victory against Museveni...

One can expect ethnic undertones will continue to colour the debate in FDC for some time to come.

But that could be a mistake if the last election were anything to go by.

Observers were convinced ahead of the last election that with the northern war over for all practical purposes, the main issue will be Museveni’s record and more specifically his government’s perceived tolerance of corruption.

However the opposition were caught flatfooted when the Museveni team made the campaign about the future, read the youth and less about the past – textbook tactics for a running incumbent.

Besigye recognized this probably a bit too late, as evidenced by his championing of the walk-to-work demonstrations earlier this year.

Barring any accidents expect subsequent elections in this country to be about cross cutting issues, namely the economy and less and less about tribe or religion.

"So if Besigye’s exit sharpens ethnic lines within the party, expect that FDC and the leader who will emerge to be less of a threat to the NRM in 2016...

2011: THE PERFECT ECONOMIC STORM

According to the statistics the year started on a rather benign note.

Inflation in December last year was 3.1%, the more than doubling of the rate from November’s 1.4% could explained away easily as due to the festive season. Petrol was selling for less than sh3,000 a liter and unsecured lending rates were just about 20%. Foreign exchange reserves stood at 5.2 months of imports.

Fast forward to today. Inflation in November slipped to 29% from a record high 30.4% in the previous month. Petrol is on the verge of touching sh4000 a liter at the pump and lending rates are now up to more than 30%. Foreign reserves have plummeted to 3.7 months of imports in October. To put that in perspective we shed about $500m or sh1.5trillion in reserves between December and October this year.

The more reserves a country holds the better a government can cope by battling inflation and stabilizing prices and smoothing out currency fluctuations, both of which if left unchecked can sink economies.

We might have to go back ten years or more to find a time when our reserves were less than four months of the imported goods and services.

But for the man on the street he did not need official statistics to tell him something was badly wrong.

"When sugar became scarce for the first time in more than 20 years, alarm bells went off. Sugar scarcity is a throwback to a time an older generation would rather forget and an inconceivable occurrence for a younger generation. As a symbol of things gone bad, few things beat sugar shortages in this country...

It is safe to say that no one saw this coming, and for good reason.

A perfect storm is used to describe the coincidence of adverse events to make an already bad situation worse.

Regional drought and famine that stressed local food stocks, an election year, with its attendant fiscal loosening, a deepening Euro crisis, which caused a dollar appreciation, dampened demand in our traditional export markets, reduced foreign direct investment and remittances from Ugandans abroad, all conspired to create our perfect storm.

Uganda’s predominantly subsistence agriculture sector has failed to respond adequately to growing regional demand. This was made worse by failed harvests in the Kenyan rift valley due to drought in the early part of the year. This was important because not only did we start feeding western Kenya but food demand, which was previously covered by our eastern neighbor, from Southern Sudan shifted to Uganda.

When food prices, which constitute the biggest single component of how we calculate inflation, rise general prices follow suit.

According to official statistics the food price increases peaked in March before beginning to slide starting in May.

The presidential and parliamentary campaigns not only served to cause more money to come into circulation but also caused some uncertainty, which held back inflows as investors adopted a-wait-and-see attitude – a now traditional occurrence ahead of the last three elections.

Diminished hard currency inflows put the shilling under pressure forcing import costs higher, most especially for fuel. Fuel prices are an important component of all product prices on our shelves or services we consume.

In a related incident the Euro crisis seemed to come to a climax this year with real fears that the Eurozone was likely to break up and the short lived Euro currency in its final days.

The crisis which has its roots in the global financial crisis that kicked off in 2008 saw the weaker European states – Portugal, Ireland, Greece, Spain and more recently Italy straining the Eurozone’s resolve to remain afloat. Massive bailouts of Greece, Portugal and Italy have cause uncertainty which has served to further strengthen the dollar.

It has been reported that as a result of our remittances have never recovered to the pre-global financial crisis $1b as our relatives in the diaspora tighten their belts in anticipation of tougher times.

All this also fed into our power situation with government being forced to make the choice between the discomfort of loadshedding or paying out billions of shillings to subsidise the expensive thermal power generators. The lifesaving hydroelectric power expected from the Bujagali power dam missed deadline after deadline and is now expected to come on line by the end of April next year.

But finance officials believe we have got over the worst part and barring any other shocks inflation should return to single digits next year, while the exchange rates have already begun to slide following determined and consistent action from the central bank all year long.

As we wind up the year there is evidence that export earnings are picking up, with export figures for September up more than 50% from the same month last year.

"The main lesson from 2011 seems to be that we need to shore up out food production. The reality is that as the East African Community takes hold and the continued free moment of goods and services gets entrenched we will not be producing for our own consumption any more. This will require a reorientation of our farming methods and a determined push into agro-industry...

With the Eurozone crisis far from resolved, the ever unpredictable weather patterns it would be full hardy to make any predictions going into 2012.

UGANDA LESSON 2011; FOCUS ON THE PRODUCERS

Aga Sekalala Senior is easily Uganda’s largest agro-industrialist.

Over more than 30 years of deliberate, painstaking work Sekalala has built a multi-million dollar operation that processes animal feeds, chicken, fish, vanilla and its derivatives and extracts plant oils.

Tucked away in Namulonge, off the Gayaza-Zirobwe road, his industrial estate employs more than a hundred people while providing income for hundreds more local out growers, suppliers and retailers.

But the reclusive Sekalala, more likely to be found overseeing his enterprise in overalls and gum boots than decked out in a power suit and poring over revenue projections, is not a happy camper these days...

In the space of two months the shilling has appreciated nearly 20% from the September low of sh2,900 to the dollar, threatening to decimate his margins and forcing him to wonder aloud about the priorities of the country’s economic planners.

People respond to incentives -- factors that enable or motivate a particular course of action, or counts as a reason for preferring one choice to the alternatives. That is as much an economic truth as a universal truth.

This year’s economic crisis – a delayed reaction to the global meltdown that kicked off in 2008, should force us to take a hard look at our own economy and the incentives we provide.

Inheriting empty coffers in 1986 the National Resistance Movement, under pressure to generate revenues fell in line with the World Bank, IMF-led donor community.

This entailed reining in government spending, privatizing inefficient public enterprises and allowing the free flow of capital into and out of the country.

Subsidies for production were frowned upon under tightly prescribed spending plans, which were flaunted at the risk of losing regime-propping aid.

"The net effect of this is an economy, which subsidises the urban elite at the expense of the rural masses by cutting government spending in agricultural extension, health and education to a bare minimum while keep exchange rates stable, allowing for importation of luxury goods to stoke the insatiable appetite of the urban wannabes...

In all fairness, that is the price we as a country had to pay to stabilize the economy up to this point.

Now that we are generating up to a thousand times more revenue than we did in 1986 a rethink of the way we do things is long overdue.

A budgetary shift away from consumption towards production would be welcome. Support for big agricultural concerns that incorporate local farmers in their plans, in the way of tax breaks, infrastructural aid, concessional loans, a focus on research and marketing assistance for exports would be useful.

I shudder to suggest a discretionary process overseen by our local technocrats because it can easily succumb to corruption, politicking and mismanagement, but the point is government needs to step up its game if we are to become a middle income country in our life time.

It has taken 25 years to stabilize the economy, we can expect that a properly designed and executed incentive program for our productive sectors will probably take just as long and cost as much to show sustainable results.

This year government has ear marked about sh350b in interest payments, largely to service its treasury bill and bond obligations, which are issued to manage inflation. So the cost of supporting our industries is not one we would be unfamiliar with.

The point is that if Sekalala and company identify an opportunity to produce fish feeds say, because local and regional markets demand them, he should be able to go to government with a well prepared business plan and government formulates a way to meet him part way.

"As it is now when entrepreneurial spirits have an idea, their last port of call is the government. Government technocrats are clueless about what it takes to do business (forget their little village ranches subsidised by office imprest) and worse still a request for concessions is always viewed with a jaundiced eye....

It is a no-brainer. Supporting agro-industry has the greatest potential to raise rural incomes, mobilise savings and jump start another surge in tax revenue growth.

This is all text book economics with numerous case studies in western economies, Asia and even on the continent. So why aren’t these things happening?

One, because as suggested earlier the government technocrat is not wired to create wealth but to allocate already present resources, the diametrically opposite mindset to that of an entrepreneur.

And secondly, our industrial base is still small and disunited – with each businessman suing for his own selfish interest, oftentimes subverting the general good.

Regardless, the writing is on the wall the sustainability of future growth and the very existence of our nascent producers will depend on whether we starting paying more than lip service to the producers of our economy or not.

UGANDA SHILLING GAINS HURTING EXPORTER PROFITS

Exporters are gnashing their teeth in frustration at the gains the Uganda shilling has made against the US dollar in the last two months.

A combination of pre-election jitters, uncertainty in the Euro zone and less than usual export receipts at the beginning of this year conspired to push the Uganda shilling to historic lows against the dollar and other major currencies.

At the beginning of September the shilling touched crossed the sh2,900 on the inter-bank market and the actually touched in sh3,500 at some forex bureau. Since then the shilling has gained dramatically against the dollar to just over sh2,400 in the inter-bank market on Monday and sh2,450 in forex bureau around Kampala.

The double digit appreciation has placated importers, who had protested vehemently against the earlier loss of value by the local currency so much so that they suggested that the central bank fix the rate at more favourable level.

At the time President Yoweri Museveni shooed off the importers, declaring that a weaker shilling is good for exporters and his government was not going to deliberately try to redress the shilling’s slide.

However inflation too was hitting record highs – topping off at 30.4% in October the highest since early 1993, fuelled by higher food prices, campaign related spending and as a result of the shillings depreciation, fuel prices rose with the attendant upward ripple effect on other prices.

In scrambling to rein in inflation, which is too much money chasing too few goods, Bank of Uganda started aggressive efforts to mop up excess cash by stepping up its treasury bill and bond auction and by raising the Central Bank Rate to reduce borrowing and therefore money in circulation.

The newly introduced Central Bank Rate (CBR) is an indicative rate commercial banks use to determine their own lending rates.

As a result of this the yields on treasury bills and bonds have more than doubled since the same time last year. The benchmark 91-Day treasury at last week’s auction averaged 23.39% compared to 8.1% average in December last year.

The attractive yields – the best in the region compared to Kenya’s 17% and Tanzania’s 12.4%, has attracted foreign investors, which new demand for shillings has been the main cause of the local currency’s gains in recent weeks.

“The preferred situation for my exporters is that there be predictable conditions and preferably favourable to us compared to our export markets,” said Uganda Export Promotions Board boss Florence Kata.

“The current appreciation on the shilling only makes sense to exporters on their imported inputs, but the shillings he is getting for his products are less, inflation is high, bank lending rates are through the roof … I know a few who have rolled back their production they are adopting a wait-and-see attitude,” she said.

Other challenges are that Europe has had a longer summer and therefore some of their exports which can still be sourced in southern Europe have not seen the seasonal kick in prices that comes with onset of autumn in October.

On a more individual basis exporters are complaining that they are in the red.

“Look I bought inputs when the dollar was at 2,900 and now I am having to sell at 2500, I am running at a loss,” said a major exporter, who chose anonymity for fear of being misunderstood.

“This country really has to decide what it wants, do we want to support producers, job creaters, tax payers or do we want to subsidise consumers…. We talk one thing and our actions point in the other direction,” the visibly irritated exporter said.

The central bank tasked with maintaining price stability, acknowledged the difficulties the exporters are facing, but argues that not to have taken the action they had taken would have buried those very same exporters.

“We knew that this is the price we would have to pay but letting inflation gain momentum is not an option we can consider,” deputy Bank of Uganda Dr Louis Kasekende said.

He said that the tools the central bank has at its disposal are short term in their action and that we would have to take a harder look at our economy and explore more medium to long term interventions.

While brushing aside talk that the Ugandan economy has been shown up to be more style than substance like Goloola Moses, Kasekende suggested areas our planners should seriously look into.

“To begin with we may need to rethink how much national reserves we should be holding. If we did not have credible reserves we might not have been able to fight off inflation. So maybe we should focus on targeting more than the four month’s worth of imports we are currently operating under,” he said.

In addition he suggested that we may want to review our manufacturing subsidies and realign them with our natural comparative advantages and also boost support to the agriculture sector, seeing how a shock to food security in the region can have a ripple effect through the economy.

“This global financial crisis has forced a rethink of quite a few economic theories we have been operating under. It cannot be business as usual after this,” Kasekende said.

UGANDA MINISTER'S RESIGNATION; AN UNCOMFORTABLE PRECEDENT FOR COLLEAGUES

The Minister of the presidency Kabakumba Masiko tendered in her resignation yesterday in a move that may, salvage the wreckage of her political career, make other ministers shift uneasily in their seats and galvanise the NRM rebel MPs.

A police investigation into the minister’s complicity in the alleged theft of a transmitter from UBC by the Kingdom Broadcasting Services (KBS), which the minister controls, was broken by the New Vision two weeks ago.

Subsequently she has come under pressure from parliament, her party and her fellow cabinet ministers to step down.

It was always a matter of time before the honourable member from Bujenje county, Masindi county either jumped or was pushed. Not since the resignation of Kirunda Kivejinja in 1999 has there been such damning physical evidence of wrong doing against a serving minster.

Kivejinja opted to resign rather than suffer parliamentary censure on evidence that he, as transport & communications minister had diverted 2000 liters of fuel from Uganda Railways Corporation to aid his re-election campaign.

"For better or for worse, in politics perception is everything, so much so that facts tend to bend to fit the perception...

Whether she was involved with the actual appropriation of the transmitter is really immaterial in these particular circumstances, a point that was totally lost on the minister when she attempted a rebuttal in parliament.

Indications were that she was willing to fight on, but saner – or maybe self-interested, minds prevailed upon her to step aside. And it maybe the best thing she could have done if she hopes to bounce back into the cabinet at a later date.

"To have tried to fight a censure motion would have been akin to death by a thousand cuts, as MPs of all political shades would have taken pot shots at her under the cover of parliamentary immunity shredding her credibility – or what was left of it, in the process...

But the greater concern will be for other ministers currently facing the threat of censure or future ministers who will inevitably follow.

It seems, given the Kabakumba and Kivejinja’s precedents, that resignation becomes an option when there is physical evidence adduced against you and when there is a real threat of parliamentary censure.

Leaks from within the NRM caucus meeting on Monday suggest that a clear distinction was made between her case and that of Prime Minister Amama Mbabazi and Internal Affairs minister Hilary Onek.

Allegations have been brought against the two ministers and foreign minister Sam Kuteesa alleging they have received bribes from oil companies. The ministers have declined to resign.

Independent investigations have however revealed that the basis of the allegations – bank statements from banks in the UK, cannot be authenticated.

With the demise of Kabakumba the pressure on the minsters to step down may mount uncomfortably in coming weeks, though it is unlikely to trigger a domino effect of resignations.

But the real “winners” of this sordid affair are the NRM “rebel” MPs who are cutting out a niche for themselves as public defenders.

A throw back to the Young Parliamentary Association of the late 1990s, which spearheaded the censure of Kuteesa, and the then primary education minister Jim Muhwezi, the rebels, have forced the party hierarchy to seat up and grudgingly take notice of them.

The group whose most public faces are Theodore Sekikuubo and Meddie Nsereko, while breaking with party ranks have in effect hijacked a project that ideally would be sustained by an opposition party.

"Though cause for much looking-over-the-shoulder by NRM big wigs the rebels may serve a useful purpose in lending credibility to the party as one that is concerned about corruption.

To badly paraphrase former US president Lyndon Johnson, the NRM probably figures it's probably better to have them inside the tent pissing out, than outside the tent pissing in...

Kabakumba’s action is bound to send reverberations through the political establishment least of all because it makes a minister’s resignation a real possibility again.

IS UGANDA'S ANTI-CORRUPTION FIGHT GAINING TRACTION?

On Friday was the International Anti- Corruption Day. One has to wonder about the timing of certain revelations of high corruption in recent weeks and the commemoration of the day last week.

According to the Inspector General of (IGG) Raphael Baku his offce is not only getting more reports to investigate but is piling up a commendable win –loss ratio against the “forces of darkness” . This year 109 arrests have been made, 45 cases concluded and 28 convictions obtained, a far cry from the 2009 record of 12 arrests, seven cases concluded and two convictions obtained.

The spike in activity has something to do with the passing of two new pieces of
legislation – Whistle Blowers Act and Anti-Corruption Act, 2009.

The Whistle Blowers act allows members of the public to report incidents of corruption, provides for their protection and a percentage of the illicit funds in question. It has its problems but is a critical step in the fight against corruption. More about that later.

Despite these gains against the vice the public perception is that, on the contrary corruption is galloping out of control and the cases we seeing being brought to court are the low hanging fruit on the tree. That there is selective prosecution with the biggest perpetrators getting away.

That maybe true but the nature of the crime lends itself to this kind of scenario.
Unlike murder or even outright theft, in corruption cases, bribery for instance both parties are guilty of a crime, witnesses are hard to come by and paper trails can be obscured. The aggrieved party is a faceless government or a far removed public neither of whom maybe aware a crime had been committed or an unable to do anything about it for legal or bureaucratic reasons.

Like a borehole pump which takes time to get going as the airlock is worked out I would like to believe that once momentum has kicked in corruption will be worked out of our system with time. The cynics argue that corruption is too well entrenched to be worked out and believe the normal judicial processes are incapable of making a dent in the cancer.

I on the other hand think that the fight against corruption will find its greatest ally in the business community – the supposed beneficiaries of this ill.
This is the reality facing the Ugandan businessman; He either grows, merges with international players or get swept away by new regional and international competitors. It’s happening already.

Formalising business processes will give owners a better picture of their business, allow them to maximize their strengths and minimize their weaknesses, allow generational transitions and in a globalised world make them more attractive to potential partners or buyers.

To ensure longevity businesses will have to document their process and adhere to the law – including pay taxes due. In this ever evolving scenario the space for corruption will narrow. In addition foreign players who are already steeped in best practice will insist on the same for their local partners, not to do so may be worth billions in lost revenues.

On the flip side, what may end up happening is that squeezed out of the business sector, our businessmen will go to work for government and perpetuate corruption there. The corrupt elements will then attempt to take government hostage failing that will seek to disrupt events, so that chaos can thrive and they can resurrect themselves.

This is the ever present challenge of governments. It is the corrupt cliques that have the greatest incentive to frustrate the private sector from being a credible counter to government, because a strong private sector can call government to order.

For our subsistence businessmen, with no ambitions beyond big 4X4 cars and a harem of little brown girls, and for our governments with less than a short term view of the their countries destiny, corruption may serve current purposes but it is not sustainable.

Unsustainable because governments need more and more revenues to service growing populations, which revenues come from the private sector, and businesses need to grow as a survival strategy.

Corruption is everywhere the challenge is to relegate it to the fringes of our daily lives, current evidence suggests we maybe on our way.

CORRUPTION IS INEVITABLE?

The press has been awash with the tales of corruption and the corrupt -- the botched ID project, the shenanigans around the UBC land and masts and our government’s inability to import a few dozen bicycles for village officials.

It does not help that these stories are coming out when inflation has hit historic highs, loadshedding is getting on our nerves and the rains have washed away the few roads we had left.

The way our officials are snorting at the trough, it all just leaves a bad taste in our mouths.

But then there is a logical – however unpalatable, explanation to all this

The development of human society has followed a well charted path.

Society start as small bands of under 100 people often speaking one language, related by blood and with an egalitarian or consensus leadership. Through birth or assimilation of other bands this grows into a tribe with hundreds of people still one ethnicity and often characterized by fixed settlements. The next stage is chiefdoms with thousands of people and at this point we begin to see centralized oftentimes hereditary rule.

In addition to or as a consequence of this centralized power, we see the emergence of the kleptocratic state, defined as one, which through corruption, enriches its supporters and sustains itself. This it does by monopolising the instruments of violence and conflict resolution, keeping the population happy by redistributing tribute (taxes) and more controversially promoting ideology to justify the continued kleptocracy.

How else can you organize large populations, spread over vast territories without centralizing power and violence? How else can you sustain that power without extracting revenues from the people and distributing it to the elite? And once in power how do you guard against your supporters running amok, plundering resources with increasing impunity?

US President Barak Obama, UK Premier David Cameron and German Chancellor Angela Merkel governments grapple with the same question. These governments are all kleptocracies only varying in degrees.

By logic and description all governments are kleptocratic.

It is futile to think otherwise. And it is with this understanding that we may have a chance of addressing the challenge.

MAKING OF A BUSINESSMAN

Businessman Patrick Bitature identifies the real turning point of his business career as the time he determined to go formal. Years ago a consignment of mobile phones was smuggled out of Entebbe airport by his workers. 

Thinking they had done good by him they told their boss what they had done. “It was a challenge to smuggle them back into the airport so that we could pay taxes on the consignment,” said Bitature of the event that marked the turnaround in his business career. The long overdue confirmation of his transition from informal to formal businessman came two weeks ago with the East Africa’s emerging entrepreneur of the year Ernst & Young award...

 The award which has been running for 25 years and held in 50 countries worldwide is recognized as the premier event of its kind. The judges drawn from eminent people in society -- this year included Justice Geoffrey Kiryabwire, head of our commercial court, take the nominees through a rigorous vetting process that tests the entrepreneur’s vision, knowledge of his business and grasp of the enterprise’s strategic direction. 

 “It was a very enlightening process that clarified a lot of things to me about my business and the way forward, not only in speaking with the judges but also in interacting with other nominees in the region,” Bitature said. 

Bitature known for his flagship Simba Telecom, which deals in airtime and mobile phones with branches in Kenya, Tanzania and Nigeria, also has interests in real estate, insurance, power generation and following his entrance into radio years ago has now added Television broadcasting with his interest in pay TV company, Zuku television. 

It all started with this father, Paul a businessman in his own right, who gave Patrick and his siblings pocket money at the beginning of every holiday and insisted on seeing who had grown his money most. Selling sweets to neighbours, grew into selling clothes to schoolmates and then owning night clubs – he sold the wildly successful Ange Noire club to current owner Charlie Lubega, eventually owning an MTN airtime selling franchise from which all his other interests seem to have spawned. 

This has all come to pass because of a change of mindset. “I made a lot of money before I got formalized but I have little to show for it, by formalizing my business I have made more money than I imagined,” said Bitature, who estimates his companies which employ at least 1000 people, turns over more than $100m annually. He doubts he would have been able to partner with credible international firms in his business and retain their trust is he had not formalized. Bitature acknowledges there is a lot of work to be done on his businesses, but says he is now on an irreversible path in that direction. 

In his seminal book “The Mystery of Capital”, Hernando de Soto argues that the reason capitalism only seems to work in western economies is for lack of formalization in the rest of world. He looked beyond the systematization of business processes to the nature of property rights. Property rights are the bed rock of capitalism, if you cannot show proof of ownership you cannot extract maximum value from of a property and therefore frustrating wealth creation. De Soto found that the cost of formalizing property rights was so onerous in many underdeveloped counties that many people chose to remain informal in their practices, putting a cap on a country’s development. A country develops because its citizens develop. 

 But as Bitature’s story shows for the few who make the thousand mile journey the benefits can be innumerable. “The seduction of being informal is that it seems like you are savings costs not registering, not paying taxes, dodging debtors, not keeping books properly, operating in cash … but it limits your growth and in which arena you can play,” Bitature said on the sidelines of another event last week in Kampala to honour his achievement. “You cannot grow to be big a tree without a mindset shift, without that (mindset change) you will remain a shrub,” he said.

THE KIIRA EV-- MORE THAN JUST A CAR

Last week President Yoweri Museveni took a 10-minute ride in Uganda’s pioneer electric car the, Kiira EV.

The two-door lime green vehicle can scoot around at a credible speed and will cost you sh6000 at current Umeme prices, to get you from here to Jinja.

The handiwork of our very own College of Engineering, Design, Art and Technology (CEDAT) has its genesis in a 2008 Massachusetts Institute of Technology (MIT) project to develop a car that can run on both fuel and electricity.

The car has met with mixed reactions with some dismissing it as a mere car assembly project while on the other side of the spectrum others are looking beyond the car to other potential innovations that can be thrown off from the project.

Groping for what this means it was only natural that the idea of mass production was top of people’s minds.

But car assembly is a capital and labour intensive process that should not be in our immediate future plans....

Across the border in Kenya the Nyayo car was a similar project whose ominous beginnings pointed to doom. On the launch of the car in 1988 at the Kasarani Stadium failed to make it around the 400 meters athletic track much to the embarassment of the then president Daniel arap Moi. Nevertheless the Moi government ploughed on, pouring hundreds of millions of Kenya shillings into launching a company that would mass produce the car before corruption did in the project.

The cold war era is over. Propaganda is unnecessary and the idea of immediately mass producing this car should not find traction with our society.

We should look further afield maybe to Toyota. In the first half of the last century Toyota used money it got from the sale of a patent for a revolutionary automatic spinning loom to kick starts it car development arm.

Similarly in producing the Kiira EV intellectual properties might have been created. These can be patented or registered and licensed out or sold to concerns that can afford to invest resources in mass producing the car or using the licensed technology in their own processes. The money CEDAT gets thus can be used to finance future research and innovation.

Thankfully Professor Tickodri Togboa who oversaw the project is not seduced by the romance of an immediate push for mass production by Makerere University.

Togboa sees the Kiira EV as a useful tool to make people look up and take notice of Makerere’s potential.

"The immediate benefits of the project he sees, is changing the way Makerere’s students are taught – fusing theory with real time practice and says the process of registering the intellectual properties ensuing from the project are ongoing...

The project developers are looking much further down the line to developing technology solutions for our own unique circumstances. A planned Vehicle & Transport Research center should take care of this.

The paradox of innovation is where is it can happen in structured environments its best result are often a result of tottering down unbeaten paths. This kind of endevour often throws up unintended discoveries that can be utilized in seemingly unrelated fields. That is why universities are seen as ideal places of research and innovation.

So to see this development as only about a car would be to miss the point.

The car is the end product of intangible processes that can be adopted and built upon by other innovators in Makerere or further afield.

A lot of innovation is already going on at Makerere hill, what the Kiira EV will do is launch the university’s reputation as a center of innovation in the mass public. But beyond that it can ignite a spirit of innovation beyond the university.

It is in our interest to applaud innovation wherever its rears itself rather than snort at it.

In overall terms innovation is important for companies, countries and the human race at large because it allows us to extract more and more value from less and less of the finite resources we have on this earth.

THE GENESIS OF UGANDA'S POWER CRISIS

In 1999 then energy minister Richard Kaijuka came to parliament to get an amendment to the Electricity Bill passed that would allow his office the right to license Independent Power Producers for six months, as appropriate legislation was being put in place.

Parliament threw the amendment out insisting that the appropriate laws be expedited, arguing that the amendment was like treating a fracture with a plaster.

A visibly bewildered Kaijuka later on told journalists he was shocked that the amendment was thrown out. He thought the urgency was clear and the need for speed obvious.

Uganda is a small portfolio run by a middle level manager in Deutsch Bank, it can be turned around like this he said, with a snap of his fingers, our problem is politics, he concluded before jumping into his ministerial car and zooming out of the car park.

The laws when eventually passed led to the breakup of UEB, the privatization of its component parts and the creation of a regulatory authority.

In understanding the genesis of our current power crisis this moment probably has pride of place on the timeline.

I remember thinking that the minister was a bit politically naive to expect the amendment’s success without prior lobbying. But it also left me wondering why the major legislation was taking a long time to be brought to the house considering its strategic importance. That notwithstanding couldn’t parliament find it within itself to negotiate a middle way that would involve not throwing out the baby with the bathwater?

The current power crisis has its origins much further in the past than I know but a few inflection points stand out for me.

There was the disastrous contract to Chinese firm Sietco in the early nineties to expand the capacity of the Nalubale Dam -- Owen Falls dam then, to its current 180mw from the previous 150mw. That fiasco not only led to the termination of Sietco’s contract for corrupt practices but also put paid to local insurer Pan World Insurance Company (PWICO) who failed to make good on a sh33b performance bond.

The net effect was to delay construction, meanwhile demand continued to grow regardless.

When former US commerce Secretary Ron Brown in 1995 committed US business to build a dam at Bujagali one would have been forgiven to think that by the turn of the century work would be in advanced stages on the 250 mw facility and the dam would be done by the middle of that decade.

Determined sniping by foreign environmentalists, with the help of people like John Ken Lukyamuzi, delayed American firm, AES Nile Power long enough that financial pressures in their South American operations forced them out ten years later.

The results again is we have fallen further behind in catching up to ever growing demand.

During this sad episode with AES the World Bank and foreign donors refused to bankroll the simultenous development of the Karuma dam because they argued that there is not enough demand to sustain both dams. Norwegian backed NORPAK was planning a 700 mw dam on the northern Uganda site.

In fact as a donor condition to release funds for Bujagali, then energy minister Syda Bumba had to shuttle around the region soliciting guarantees from neighbouring capitals that they will consume Bujagali’s power when it comes online.

Bujagali’s delay coupled with the falling levels of water on Lake Victoria have forced us to contract expensive thermal generation plants that have added salt to injury.

In fact AES was committing to sell power to the grid at US6 cents a unit, a figure that would have brought power to our homes at US9cents a unit in 2006. This figure was lurched upon by Lukyamuzi and co. to bog down the dam’s development down because at the time the Ugandan consumer was paying a heavily subsidised US4 cents a unit for power. Today – thanks to Lukyamuzi et al we are paying about US12 cents a unit of power, a figure that is unsustainable as it is also heavily subsidized.

The cumulative effect of this circus orchestrated by donors, our own leaders and any number of do-gooder, is our current 24- hour loadshedding debacle. Obviously when Bujagali’s 250Mw hits the grid we will have temporary relief – a few months at most before the specter of day long loadshedding rears its head once again.

It would make for good comedy if it were not sad, to see power distributor Umeme being pilloried for the power deficit problems.

The power distributor is not beyond reproach but given the genesis of our current power crisis, Umeme is just a convenient scape goat, deflecting attention away from the real culprits in this sorry episode.

THE HOUSE THAT MUHAIRWE BUILT

The turnaround of the National Water & Sewerage Corporation (NWSC) almost ended before it begun.

Shortly after being appointed boss at the water utility Dr William Muhairwe, arrived at his Jinja road office one morning to find the premises padlocked by the URA, for defaulting on VAT.

As if that was not enough the internal revenue department was looking to attaché any assets of the corporation they could get their hands on to redeem the debt – including the managing director’s official car.

That was 1998, this week Muhairwe’s contract comes to an end and he thinks it’s time to move on.

“The average person craves legitimacy, the exceptional person builds legacy” they say.
NWSC’s numbers during his tenure tell an interesting story.

Customers to whom the corporation supplies water has jumped to 270,000 today from 50,826; the number of towns it supplies has doubled to 23 from an initial 12 and turnover is up six fold to sh131b while operating is up nearly thirty fold to sh30.3b. And the company showed a net profit of sh13.3b from being a loss making enterprise when he took it over.

All this growth was done in the context of a public utility company. An interesting story because when Muhairwe joined the corporation the Finance ministry was preparing it for the block like other public companies.

Privatisation will still take place but more likely through the more acceptable listing of shares on the stock exchange.

His legacy at NWSC may take many shapes but I think most importantly he put to rest any delusion that indigenous Ugandans cannot be good managers. Many people complain that it is not lack of management skill that dooms our enterprises but lack of finance. Muhairwe showed that where there is good management the money will follow.

Also to note is that because of the turn around of the corporation it has recently been inundated with the requests to share this knowledge. As a result NWSC now has a full fledging consultancy department – with the requisite PhDs and training center, that is fielding contracts from as far flung regions as Trindad & Tobago to Singapore, South Africa to Yemen.
NWSC external services as it is called, also does management consulting locally and has added sh8b in revenue to NWSC’s top line in the five years of its existence.

And one other point of interest is that in turning around the corporation Muhairwe is quick to point out, was done with some few changes by the human resource he found at the company. NWSC was never lacking in manpower.

There is still a lot of work to be done.

With just under 300,000 accounts in 23 towns, it means that even in Kampala water coverage has a long way to go before universal coverage can be claimed. If the numbers for water provision remain woefully inadequate it is a sadder story with sewerage coverage. An eventual extension of NWSC’s mandate outside the urban areas should also be on the cards.

And one last legacy other CEOs would do well to emulate; In an attempt to raise the service delivery efficiency of the far flung corporation, Muhairwe devolved power away from the center, allowing regional managers more autonomy on budgeting
and hiring, leaving major capital expenditure and overall policy decisions to the Jinja road head office. As a result new cadre of leaders is coming up through the ranks at the corporation. The long term implication maybe that the corporation will not flounder after Muhairwe is gone but may actually grow from strength to strength.


So when an epitaph for Muhairwe’s time at NWSC is written it may very well read “He worked himself out of a job”

COMPETITIVENESS, SIMPLE BUT NOT EASY

The competitiveness of a nation refers to the ability of its companies to win and maintain market share in the global market.

The concept of competitiveness is important because the poverty of nations has a direct connection to the lack of competitiveness of its companies and vice-versa.

That is why Singapore a rock in the ocean off the coast of Malaysia at independence in August 1963, has a GDP -- total economic activity, of over $200b. This from a population of about five million on an island the area of land that is less than distance from Kampala to Entebbe squared.

Uganda, which was ahead of Singapore at independence on the other hand, has a GDP of $17b with a population of 34 million in a land size that is 340 times the size of Singapore.

But we shouldn’t feel so bad the per capita GDP of Singapore is twice the total of the comparable figure of Mauritius, South Africa, Botswana and Egypt combined.

It goes back to the basic truth – confirmed with the collapse of the Berlin wall, a country is only as viable as its private sector.

The private sector generates wealth by paying workers and making profits. And performance of the private sector has a direct bearing of the size of a country’s domestic revenues.

However the private sector is only as vibrant as the government that oversees it.

Beyond creating a stable macroeconomic environment there should be a systematic means of promoting private sector development through formulation of national business-centered strategies, provision of efficient infrastructure and human resource development.

During the 5th National Competitiveness Forum last week, a host of experts said this in very many words.

In a more than candid admission, Keith Muhakanizi, deputy Secretary to the treasury said that ministry officials commit more energy to dealing with donor officials than with private sector leaders, despite the fact that the private sector carries 80 percent of Uganda’s budget.


To get competitive there has to be a total mind shift from people working in their own little silos oblivious to what’s happening around them to shared competitive mind set.

One of the things government can do is actively promote business clusters, these are groups of inter-related businesses enjoying mutual benefits from associating with each other.

A possible cluster in Uganda for instance could be the commercial printing industry concentrated around Nkrumah road. Importers of paper, inks exist side by side with stationary shops, printers and graphic designers. Their close proximity encourages specialization adding to their combined efficiency.

So there should be initiatives to develop a sector strategy to encourage this cluster, help these entrepreneurs improve their business skills and find ways to give them other concessions that will boost the businesses and strengthen the sector. This should be part of a wider strategy with linkages to the transport, financial and education sectors.

A similar strategy has worked in Rwanda. Where at the start of century tourism was identified as a sector in which the small central African nation could carve out a competitive niche for itself.

Between 2003 and 2010 Rwanda invested $103m in standardizing facilities and infrastructure, marketing and promotion and institutionalization of various initiatives.

Government and private sector invested in upgrading rooms outside Kigali, rehabilitation of historical sites, training guides and drivers and incorporate basic tourism training in schools.

As a result of this initiative Rwanda now has a seven day tour that incorporates the country’s history -- the old kingdoms, the colonial era, the genocide and the RPF’s guerilla war.

It is estimated that tourists spend $320 a day for the duration the tour. As a result during the period of the investment total revenues to the sectors have come in at $345m and tourism numbers to these sites have gone up almost five fold to 70,000 in 2010.

Is it any surprise then that Rwanda overtook Uganda in per capita GDP terms last year?

There is no way around it we have to go beyond providing lip service to private sector led growth , understand the concept of competitiveness—especially as a key driver of poverty eradication and commit to it.

Easier said than done? Well in 1986 the NRM inherited empty coffers, a broken economy and an unstable country, they have made something of that basket case but clearly it is not time to rest on their laurels.

We will be served well by remembering Nelson Mandela’s words, “After climbing a great hill, one only finds that there are many more hills to climb.”

CAN UGANDA’S COFFEE BE WORLD CLASS AGAIN

Local businessman Andrew Rugasira is in the US hawking his coffee, trying to infiltrate the distribution chains of the largest consumers of the beverage in the world.

The US has 150 million coffee consumers who between themselves put down 400 million cups daily as their contribution to the $20b market. To put this in perspective all the economic activity in Uganda amounts to just over $17b annually.

Last year Good African Coffee (GAC) -- Rugasira’s company, made its first tentative steps into the American market by signing some distribution agreements before earlier this year beginning to distribute via the internet.

His coffee is now sold in Jewel and Meijer supermarket chains around the US, which between them have nearly 400 stores.

Leveraging the African Growth Opportunities Act (AGOA) as well the growing Fair Trade movement, GAC may have hit on a way to get a foot in on the gargantuan American market.

Fair Trade is a social movement, which seeks to promote better prices for producers as well as promote socially and environmentally sustainable enterprise.

Our export commodities are a hangover from our colonial times. In Uganda’s case Britain got us growing coffee, cotton and tea to supply their industries. Since the larger market and better infrastructure was at home it made economic sense to ship the raw materials back home for processing. After independence British industry saw no need to change the status quo.

The net result of this is that British industry carved out for itself the more lucrative part of the value chain – processing, marketing and distribution leaving the labour intensive, low paying, growing and harvesting of the crop to Ugandans. This of course applies to all past colonising nations.

After independence the ideal situation would have been for the former colonies to start processing their own raw materials and sell these to the west, but it never happened. The west threw up barriers to trade that made it near impossible to export processed goods to them. So we find ourselves 50 years down the road still exporting raw materials.

In recent years things are changing with a realization by western populations that the situation is not sustainable and also due in no small measure,to the threat of China’s insatiable demand for the same raw materials. Such initiatives as AGOA and the European Union’s Everything But Arms are being implemented.

However despite the more than a decade of AGOA the benefits to Uganda have been minuscule.

To take effectively take advantage of the opportunities that the American market present will take more than restless spirits like Rugasira banging on doors.

To penetrate the western markets we are going to have to compete as a nation, gear our economy towards penetrating foreign markets.

We will not be reinventing the wheel.

Columbia’s world famous Juan Valdez Café started out of the desire of the country’s farmers’ cooperatives to win more value for themselves. Through increased production, improved quality and government support in tax concessions and marketing support their coffee is now a world brand touted as “the richest coffee in the world”.

Taking from Columbia, a national strategy would also provide for efforts to nurture and develop supporting industries in processing, distribution, marketing, finance and research. And to make it all sustainable this process should be implemented largely by the private sector.

Of course this can be overlayed over any industry in which it has been established we have or can create a competitive advantage -- all other agro-processing, tourism, education, health, ICT and financial services and hydro-electric power generation.

We have gone as far as we can on the laissez faire approach, where government only bothers itself with providing a sound macro-economic environment and allowing business to sink or swim as it pleases.

A lack of strategy – or execution of strategy, sees us now without power to drive industry, with a fledgling railway and water transport sector and serious deficiencies in our research and development capabilities.

If we had better planning Rugasira would not be our lone ranger taking on America and the world alone, but would be part of a battalion – ok maybe a platoon, of similar minded entrepreneurs from agriculture to education and ICT, modern day barbarians at the gate of the western and regional economies demanding to be let in.

It is not a farfetched vision, we just need to put in a little thought and application to set the ball rolling before it takes on a life of its own and runs on its own impetus.

LESSONS FROM GADAFFI’S LIBYA

Former Libyan leader Muammar Gadaffi went out with whimper last week. One more leader who found himself on the wrong side of western interests and paid the ultimate price.

That aside we could take a leaf from how Libya managed its oil resources for the benefit of the people.

Libya with Africa’s largest proven oil reserves Gadaffi’s government was able to spread the wealth around affording its less than 10 million population a better than average living.

Before all hell broke loose earlier this year all citizens had access to water, health care and education services. As a result the average Libyan had a life expectancy of 70 years, and literacy levels are nearly total while infant mortality – children dying before the age of five is comparable with some of the best numbers in the west at 20 per 1000 births.

This largesse was easily affordable for a relatively small population in a $100b economy and annual tax revenues of $25b. The size of Uganda’s economy is just over $10b.

The economy has much potential for growth with power production of 20billion Kwh (kilowatt hours) annually, a modern road and rail transport network.

Oil money – receipts from the export of 1.5 million barrels a day, can subsidise the development of an agriculutural sector and ensure the country’s food sufficiency.

"In fact the great man made river, the largest irrigation scheme in the world which comprises 3000km of underground pipes and 1,300 wells and whose final bill was $25b, has the potential to help regenerate thousands of acres of desert....

In terms of social services its arguable that Gadaffi set a high bar for how public funds should be utilized to finance public goods.

One may argue that what else would he do with all that money and so few people. One need not look any further that Equatorial Guinea. This oil rich country on Africa’s west coast has population of under a million with a per capita GDP of $20,000 has some of the world’s worst Human Development Indicators – a measure of a population’s access to health, education and other social services and personal freedoms. In fact Uganda with a per capita GDP Of $400 is ranked much higher than Guinea Bissau.

However based on flawed economics Gadaffi stifled the private sector; flawed because it’s the private sector that is best able to harness the individual efforts of people. History also shows that country’s are only as viable as their private sectors.

"As a result government dominates economic life and resources were concentrated in the civil service. However it worked politically because without a viable private sector no alternative power center emerged in the country. In developed economies the power of the private sector acts as a counterweight to government omnipresence....

The net result of this is that the Libyan economy is generally inefficient, with its flaws being papered over by the oil billions.

This is an issue because reconstruction while being driven by the state relies largely on the initiative of the people, as the Ugandan experience has shown, so this maybe a sticking point in coming years.

Gadaffi’s United States Africa like many things about the man may have been sound in principle but his means of bringing them to fruition were suspect.

Africa would do itself a lot of good if it tore down the artificial boundaries that separate us. Africa as a continent accounts for less than five percent of world trade. This is bad enough as it is but it is more scandalous that trade with in Africa accounts for less than a fifth of all the trade the continent does with the world. Our infrastructure retains its colonial character channeling raw materials to our ports and onward to Europe.

"If we can reorient our transport networks more inwardly our producers can better benefit from our own markets and develop new ones where there were none....

Gadaffi the last word in his country for nearly half a century, failed dismally to sell his pet project to Africa’s leaders and an oble project will may take a lot longer to materialize.

OIL FANFARE CAN WAIT FOR ANOTHER DAY

In January 2002 on the banks of the River Nile, President Yoweri Museveni turned on the ignition of a Caterpillar bulldozer, the ceremonial groundbreaking for the AES Nile Power sponsored Bujagali Dam.

"Over the previous seven years government and the promoters of the $500m project had slugged through bureaucratic hurdles, political rearguard action and tortuous back and forth with a media savvy environmental lobbyists from here to Timbuktu...

Understandably Museveni was irritated by the circus and said as much in his uncharacteristically short speech that day. Some of the opposition to the project led by MPs like John Ken Lukyamuzi, hinged on the fact that according to AES’ projections they would sell power to the grid at about 9 US cents a unit while at the time Ugandans were enjoying highly subsidized power at about 4 US cents a unit. Lukyamuzi and company using this as a rallying point popularized the notion that the environment would suffer for the building of the dam. Time waits for no man and certainly not for Ugandans, despite what they think. Events a continent and an ocean away in Argentina conspired to force AES’ hand and it had to pull out of Uganda. That aside had AES been able to start building in 2002 it is arguable that Uganda’s economy would be very different from what it is now – inflation may not have tripped into double digits for instance. A debate for another day.

Because of Lukyamuzi’s best efforts we are now paying about 15 US cents for our power.

Thank you very much! And the Bujagali dam will eventual cost almost thrice the original cost when it comes into full production 17 years after it was first nooted. Fast forward today and we find ourselves in an almost similar situation with the exploitation of our oil resource. Last week’s goings on in parliament were high on drama, low on substance and had all the hallmarks of a medieval inquisition. The accusations leveled on the first day fell flat when the accused responded leaving conscientious Ugandans wondering what this was all about. What is little reported and causes me to reminisce back to the AES Bujagali episode is the houses resolution to stay all forward movement on the development of the oil fields until appropriate legislation is put in place. A very honourable request. However we – both parliament and government need to see the bigger picture when dealing with these kinds of issues. It’s all very nice if you are a political neophyte to enjoy your 15 minutes of fame after ruffling some big wigs’ feathers, but let us ask ourselves, who is going to pay the costs which will continue to accumulate regardless of whether Tullow sells off or not? How will the uncertainty about doing business in Uganda affect our attempts to attract credible investors? As it is now Uganda is not a prime investor destination its inadequate infrastructure aside there is a lot of uncertainty regarding our political and bureaucratic process that entrepreneurs are forgoing our mouth watering returns for predictability and lower returns elsewhere. And how will it affect our own businessmen if they choose to borrow from abroad or link up with foreign partners? Our businessmen who are still steeped in rudimentary practices are being denied the chance to partner with international businessmen and benefit from the transfer of best practice because as explained above the international business would rather not bother with us. We may tow the pseudo-nationalist line that we do not need foreign investors in this country, but see where that attitude has got us since 1972. I am all for cleaning up the bureaucratic processes in this country – in fact that is one of the biggest costs of doing business in this country. I am not averse to the odd MP grandstanding for his rural constituents. And I will not shed a tear if a minster resigns. But we need to have a holistic view of things, especially of what makes economies tick, what makes business work and how we can harness this for the benefit of our people. To paraphrase, the world shall not wait for Uganda to develop. In their resolution the MPs compelled the government to bring all oil-related legislation to the house in the next few days so they may be passed expeditiously. If need be they should work weekends to iron out the kinks and pass the law. The political fanfare can wait for another day let’s keep our eye firmly on the ball, the welfare of Ugandans depends on it.

THE CENTRAL BANK IS DAMNED IF THEY DO, DAMNED IF THEY DON’T

The Bank of Uganda stepped up its fight to bring inflation under control, raising the central bank rate (CBR) for the fourth consecutive time to 20%.

The CBR was introduced this year as an indicator for banks setting their lending rates.

In addition the Bank of Uganda raised by four percentage points its bank rate – the cost it lends money to banks, to 26%.

The above decisions were a direct consequence of annual inflation – the general change in prices, jumping to 28% in September from 21% the previous month. This is the highest inflation has been since January 1993, almost 19 years ago.

"A coincidence of elements have come into play that have triggered this historical rise in inflation – poor harvests and rising food demand regionally, imported inflation due to the falling shilling and campaign spending earlier this year...

The central bank, whose brief among other things is keep to prices stable, has a limited number of instruments with which to mop up excess money in circulation, which drives inflation.

They have already pushed up the amounts they offer in their treasury bill and bond auctions this year, with the result being that in last week’s auction the 91-day treasury bill rate was up to 21.4% the highest it has been in almost a decade(?).

In direct response to these actions commercial banks have been pushing up their lending rates with average base lending rates – the interest rate banks offer to their best clients, climbing to 23% from 18% at the beginning of the year.

Higher lending rates should lead to less borrowing. This has far reaching repercussions for the economy. Lower borrowing will put the brakes on economic growth, as businessmen will have to cut back on investment plans, lowering their capacity to grow production and increase jobs.

This is a situation the central bank is well aware of. The cost of reining in inflation is lower economic growth. The alternative, with runaway inflation eroding the value of people’s earnings, is too dire to contemplate and could reverse the economic gains of the last three decades...

The Bank of Uganda’s aggressive attempts to wrestle down inflation is a double edged sword and puts them in the clichéd position of damned if they do (take the steps they are taking now) and damned if they don’t.

But the Bank’s leeway to bring down inflation is short term at best. The economy’s planners need to think more strategically.

If this “crisis” has shown something it is how fragile and shallow this economy is. For instance how can Uganda with its rich soils and benign climate, in the middle of a region stressed by conflict and drought fail to rise to the occasion and supply food, so much so that the external demand for our food drives up our own prices to historic levels?

In a comment issued last week by Makerere University’s Economic Research Policy Center they warned that the current tightening of monetary policy if carried on for a long time could send the economy into recession, especially if the productive sectors – agriculture and manufacturing, are not supported.

They counseled that coupling tight monetary policy with “prioritization of expenditure in support of the productive sectors should succeed in controlling inflation as well as spurring growth of the Ugandan economy, which seems to be operating below full employment. This would entail cutting consumptive expenditure, especially budgets for state house, defense and public administration.”

In personal financial terms this is like the wannabe who “looks” rich because he rents an expensive house, drives a flashy car and is dressed to the nines, even to bed, but has not invested in any assets to make him really rich and ensure the long term sustainability of his flashy lifestyle – his doom beckons.

To work this “crisis” out of our system there are no short term solutions.

What BOU is doing is firefighting and this has limited value before the water from their fire hoses drowns us in the debris of the Ugandan economy.

ENVIRONMENT OR BUSINESS? A DUBIOUS CHOICE

The palm plantations of Kalangala Islands have been in production for about two years now. This year Oil Palm Uganda Ltd (OPUL) intends to extract 10,000 tonnes of crude palm oil and expect this figure to jump further to 15,000 tonnes in 2012. This is up from 4,000 in 2009. The icing on the cake is that more than 1,000 farmers too have started growing palm to supply OPUL, the suppliers of BIDCO’s raw oil. However, we should not forget the stiff resistance OPUL came under from the environmental lobby. They charged that by converting forest to palm plantation they were destroying a valuable natural resource and threatening climate patterns not only in Kalangala but in the region as a whole. OPUL currently has a nucleus plantation of 5,930 hectares, while small holders and out-grower fields cover an additional 2,100 hectares. But in order to have the sh20b mill working at full potential it needs to be fed with at least 20,000 hectares of palm fields. One can expect that the environmentalists will fight against every additional hectare of land that OPUL will claim but may find little support on the islands. On the surface of it, it seems that such issues of development have to be a fight between the government and investors on one side and the environmentalists on the other, but that need not be the case. 

 "In fact in countries like ours where governments lack the capacity to protect the environment business can provide the solution. What is needed is for environmentalists to think like businessmen and businessmen think environmentalists and both parties do this in the context of the needs of the people populating these natural endowments...

 The businessman is seeking to minimise costs and maximize revenue. The serious businessman is seeking to do this over the long term. The environmentalist is seeking to conserve the environment, ideally in its natural form but the serious ones realize they will have to be some tradeoffs to accommodate the march of development. The local inhabitant just wants to make a living for himself, and the needs of survival are often short term and very pressing. The businessman therefore needs to recognise that a few concessions the environmental may demand, maybe costly in the short term but may pay off in the long term in terms of the harmonious operations and regeneration of the resource they are exploiting. The environmentalist fitting himself into the profit making frame of mind of the businessman, will need to think how he can leverage the investors resources to conserve the environment without making it an odious cost to his business. For example the investor could finance environmental research and sponsor conservation initiatives. And both should be thinking how to uplift the locals lives in the short to long term while making their natural environment an asset to them too. It is all very nice to preach how by preserving the environment we can guard against climatic shocks in the future, but that thinking does not wash with the man who has a wife(s) and children to feed and has decided burning charcoal is the only means within his reach to do so. But if you get him employed he may not need to be engaged in the back breaking job of charcoal firing. Empowering local communities is working well in the tourism sector already.

" If we are serious about conserving environment we have to do this in the context of fighting poverty. Solve the poverty issue and the environment will be spared...

To illustrate, Kololo and Naguru Hills are separated by the two kilometer tarmac strip of the Lugogo bypass. Kololo hill is virtually a forest – as is Nakasero hill, while the poorer side of Naguru hill is denuded of trees. People have built on every square inch while probably cutting down a lot of trees for firewood. The rich housewives appreciate the aesthetics of trees because they can afford to cook with gas or electric cookers. If they too were pressed with looking for firewood there would be no trees in their compounds too and their kitchen walls would be covered with a sooty grime.

BIG COMPANIES WERE ONCE SMALL

The New Vision’s “Pakasa Youth Awards” never ceases to inspire. The series of articles that has been running since July, highlights mainly youth taking their destiny into their own hands and setting up businesses to survive.

And they businesses span from real estate development to mandazi making; earning hundreds of millions a year to a few thousand shillings a month but despite their varied experiences and the challenges they have faced, the common denominator among them seems to be the sense of hope ringing in their narration. A quality they do not teach you in business school.

About five years ago a World Bank survey conducted with the help of Makerere University Business School (MUBS) determined that Uganda was the most entrepreneurial country in the world. A subsequent survey showed us to be second only to Chile.

The question was asked that if we were the most the entrepreneurial country in the world, even ahead of the US and Europe, how come we are not in the league of bigger economies?

There are basically two types of entrepreneurship – necessity and opportunity. In the first instance enterprises are set up to meet subsistence needs while in the second businesses are set up to take advantage of market gaps.

The study found and the Pakasa Youth Awards illustrated that the overwhelming number of Ugandan business are set up to meet daily requirements.

The study showed that the challenge is for Ugandan businessmen to transition into opportunity entrepreneurs.

This is a challenge that the likes of Enterprise Uganda grapple with every day. To illustrate the issue, according to Enterprise Uganda’s research there is only one indigenous Ugandan business that has been handed down from one generation to the next.

Handing over a business goes beyond handing over the physical infrastructure and staff there are the softer issues of the vision, mission which inform the culture and work ethic of the business going on, I think this where our businessmen and women trip up.

It cannot be easy to be develop a thriving business that will outlive you if your attitude is one of subsistence – that you will eat everything before you die.
Which brings us to an interesting presentation made last week by one of our leading businessmen.

In a presentation to Institute of Chartered Public Accountants of Uganda (ICPAU) “An entrepreneur’s journey to business growth and development and personal development” Mohan Kiwanuka, proprietor of Oscar Industries, outlined what it takes to be an entrepreneur.

He made very many telling points but the nominees of Pakasa would be well served if they went away with two lessons.

The first, that growth is imperative to survival. Because good ideas are copied Kiwanuka counseled, “Growth is not an option. It is a survival imperative. It raises the bar to block or disadvantage potential competitors.”

A business’ growth can be managed by expanding existing capacity, supplying additional market needs, expanding your product range or supplying yourself, he said.

He went on to say that the entrepreneur is the most important past of the business and it, the business, will fail or succeed depending on three questions the business owner must answer – Do You know yourself? Do you understand your environment? And are you committed100%?

He rounded off his presentation by saying, “The future is in your hands oh sorry in your heads”

In a 20-page presentation Kiwanuka, who should know, spared no space on profit& loss, cash flows and all those technical accounting terms, his presentation dealt on the mind of the entrepreneur.

The point is that for the Ugandan businessman to transcend to the next level of his craft, he has to work more on his mind than on the external environment.

The Pakasa youth will be well served to heed Kiwanuka’s advice. They need to dream beyond feeding, housing and clothing themselves and make serving more and more people wherever demand for their mandazis, saucepans or bushera can find a market.

A business can only grow as big as the vision of its founders and all big businesses started as small businesses.

ECONOMICS OF VENDORS OR NO VENDORS

Last week Kampala City Council Authority came through on a promise to get vendors off the streets of the capital.

This was always going to be a political issue more than a straight forward administrative action. And so it turned out as Mayor Erias Lukwago threatened to variously resign or seek interpretation from the constitutional court of his role in running the city.

There are concerns about what the vendors will do now that their livelihood has been taken away from them. There is even the suggestion that this previous bread winners will turn to a life of crime to make ends meet. The political tacticians are off course looking to see how to take advantage of this new disgruntlement or harness this for more support.

Aloof from all the hoolabalooh, seemingly above it all – as she should be, is the KCCA Chief Executive Jennifer Musisi. The way she is going about her job will be a test case for whether we, as a society, can still recognise professionalism, laud it, support it and most importantly, get out of its way as it goes about its business.

She will provide a home grown test case for another theory – The Broken Windows theory. The theory first introduced in 1982 suggested that that monitoring and maintaining urban environments in a well-ordered condition may prevent further vandalism as well as an escalation into more serious crime.

Further popularized by author Malcom Gladwell in his bestselling “Tipping Point”, he used the theory it to explain the dramatic fall in New York’s crime rates in the 1980s.

The vendors are one of the manifest signs of a city out of control. So are the portholes. So is our kamikaze driving.

According to the theory if you are in a neighbourhood and there is one broken window, if it is not fixed will tempt criminals to break a few more windows and if they are not fixed more vandalism will occur escalating into full scale robbery and eventually murder.

New York City went about fixing neighbourhoods – cleaning them up, fixing street lighting and painting over graffiti, to eliminate any incentive for an escalation of antisocial behavior.

Drawing parallels to the Kampala’s vendors. The law says they should not be on the street. By allowing them to establish themselves over the years we have abetted criminal behavior to the point where vendors were normal and this week Kampala road seemed rather dull. Who knows how many other more serious criminal behavior started to take root under our very noses? We could say that the vendors eviction is a process that will not stop there but will continue to filling portholes, painting buildings, regularizing traffic and maybe finally eliminate jay walking – crossing the road without the green man blinking.

The headache for the planners is what to do with these able youth who have been displaced and essentially deprived of a livelihood? Actually any planner worth his salt would just be as pissed as the vendors for this turn of events. Because it would be their problem to get them jobs. But then again if they were not kicked off the street the planners would probably continue with business as usual, leaving the vendors to eke a living off the streets with no real security of tenure. Now someone has to think. Or will they?

Thinking is what we need more of.

The vendors were proving more than an inconvenience. They were unfair competition for shop owners who are saddled with rent, payrolls and taxes. In fact it became so bad that in a classic case of “If you can’t beat them join them” shop owners had resorted to giving their stock to vendors to sell on their behalf.

If we are to get more and more of our businessmen into the formal sector this is clearly not the way to go.

Maybe the price of getting these vendors off the street will be to train them in vocational and entrepreneurial skills, that way they can become not only better businessmen but also learn a skill that they can sell. Or see an escalation of crime in the city as the vendors try to find their feet.

Regardless of which way this goes it does not negate the underlying principle of doing it. That the situation was allowed to deteriorate to this level is not KCCA’s problem the backlash though, may affect all subsequent programs of the authority.

UGANDA EX-VP BUKENYA RODE THE TIGER

When history is written it will be said that former vice-president Professor Gilbert Bukenya broke all the forty-eight laws of power and then some.

"An intelligent man, a personable mobiliser, an effective communicator all this counted for nothing when he came up against the rough and tumble of politics, where nothing is as it seems, principles are dynamic and the impermanence of alliances can live your head spinning...

His academic history suggests he was no ordinary mind, coming through St Mary’s Kisubi, doing Medicine at Makerere University before doing his post graduate studies in Public Health.

His vaunted academic career – he eventually served as the Dean at Makerere’s Medical School and international exposure, allowed him to operate with ease among the high and mighty, while his humble upbringing – his tuition was largely met by the earnings from his mother’s waragi business, gave him an earthiness that allowed him to connect with the lowliest of society.

In hindsight therefore it should not have come as a surprise when he found his way into politics, rising to the second highest office in the land. The May reshuffle brought to a close his eight year tenure as Vice President.

His lost bid to become the NRM secretary general earlier this year and his current battle in court, where he is charged with fraud in relation to CHOGM procurements, are seen by many as the final act in a political career where the barrel chested professor dropped the ball at a most crucial turn.

At the beginning of his tenure he embarked on an ambitious program of rural transformation. The plan seems to have been to introduce a highly in-demand crop that was easy to grow and which the rural farmers could find ready market for. Enter upland rice.

The crop, which unlike paddy rice needed less water, could grow anywhere in Uganda and after piloting it in his Kakiri home area was soon out in the country spreading the gospel. The natural progression of the plan was that once farmers had a steady income from the rice and other suggested agricultural ventures, they would own bank accounts, which would allow them into the formal financial sector and one step away from better housing and mechanized agriculture.

At the height of the program’s success the professor gave an interview in which he alleged that a powerful clique of cabinet colleagues wanted him out of cabinet. Apparently the attention the good doctor was garnering countrywide for his upland rice, was making more ambitious men jittery.

He might have survived that round, but the less than transparent procurement processes – which he was in charge of as head of the cabinet sub-committee to ready Uganda for CHOGM, always meant he was going to be an open target for his political enemies – imagined or otherwise.

It is no secret that his stellar mobilisation skills aside, the decision to appoint him Vice President was informed by his being Muganda Catholic and it was always going to be that he would be the man to watch in case he decided to leverage these two historically powerful constituencies.

"If he had taken the bullseye on his back for granted, it was made very clear to him by the time he cried “mafia”...

He narrowed his options by defying the NRM earlier in the year to stand for the position of Secretary General, which left a bad taste in the party’s leadership's mouth. And for better or worse the NRM for the forseeable future will always be a credible force to reckon with that you would rather have for you than against you.

Whereas there maybe some sympathy for the man, his court case is not likely to have him coming out smelling of roses.

And if you have not torn all your hair out by now, his announcement this week that he is going to retire entirely from politics one thinks was ill advised and not well thought out. His remaining an MP is probably his last card. While out of the inner circle – either in government or the party, he could still keep in touch with the heartbeat of the party and wait for another day.

"It maybe too early to write sixty two year old Bukenya’s political obituary but the signs are not good for him looking to the future...

YES, WORKERS SHOULD HAVE A LIVING WAGE

Last week the issue of the living wage reared its head again.

Members of Parliament called on government to set a minimum wage to stop worker exploitation by investors.

They argued that despite the rising cost of living businessmen have continued to pay their workers peanuts.

In 1995, sh75,000 was recommended as the minimum wage for unskilled labour. This was never effected.

Proponents of the move say that improved wages will lead to higher worker productivity.

While government and opponents of the minimum wage bill have argued that to raise labour costs would dissuade investors, because one of Uganda’s main attractions for investors is low-cost labour.

As with many of these arguments both sides are right but not in the way that either intended.

One of the things holding back the economy is the low productivity of the Ugandan labour force. Compared to our neighbours the Ugandan worker produces less per unit input compared to his Kenyan or Tanzanian cousins.

The State of Uganda’s Population Report released at the end of last year showed that six Ugandans are employed to do a job that can be done by one Kenyan. Also, one Tanzanian national can do a job that is done by four Ugandans.

There are questions about our people’s work ethic, while this has something to do with our dismal figures, low productivity is more a function of how much capital is injected into our work processes.

A farmer using an ox plough is using a much more capital intensive approach to his farming than his hoe using neighbor.

Two things can happen for the ox-plough farmer.

To begin with he needs considerably fewer workers for the same piece of work, invariably increasing the productivity of his labour, meaning he can cultivate more land.

Secondly, with the increase in revenues and the reduction in staff numbers he can afford to pay his workers better even if his neighbour’s workers are toiling “harder” and longer. It is also in his best interest to pay his workers higher because they now have higher skills that are not readily available in the area. But also he needs to pay them higher to discourage his rivals from poaching his already trained workers.

Using this analogy the opponents of a living wage are right that a higher wage will dissuade investors from setting up shop on our shores, but the investors it will be discouraging are the investors who cannot or will not invest in higher technologies or capital intensive industry. Our low labour costs make us ideal for the “hoe-farmer” investor.

The pro-living wage lobby are right that low wages offer little incentive for higher productivity, but not for the reason they suggest. A higher living wage will force businessmen to invest more in technology, cut down on their workforce and pay the higher skilled labour a higher wage.

It seems like a chicken and egg question. Do high wages cause higher labour productivity or does high productivity raise wages?

Our poor productivity numbers are related to the low quality of the investors we attract.

The question then will be, what will we do with the newly, inevitably redundant workers?

That is where education comes in. The smarter workers will look to constantly upgrade their skills, keep in touch with the latest technologies and improve their own work processes. Government too should be constantly be revising curriculum at the school level and encourage an adult education industry to help workers retool.

So yes for the greater good of the economy and to catapult us to the next stage of development, we need to set and enforce a minimum wage for our workforce.

MAKERERE DONS GOING ABOUT IT THE WRONG WAY

Makerere University has been closed indefinitely following a breakdown in talks between the campus staff and government over pay increases.

The staff at the university are pushing for a minimum monthly wage for assistant lecturers of sh8m.

I will be the last to begrudge anyone their wage demands, after all you get paid according to what you negotiate, but I think the dons of the ivory tower are going about things the wrong way.

According to sources familiar with the situation the teaching staff of Makerere want government to pay their salaries because they know they have reached the limit of how much they can reasonably extract from students in fees and secondly, the demands are based on the fear that in an increasingly competitive sector Makerere will earn less and they need to secure their salaries by insisting on a vote from the treasury.

I have heard it said that Makerere was once referred to as the Harvard of Africa (must have been long before my time) so I shall refer to how the original Harvard handles its finances as a pointer to how Makerere should be thinking.

But first of all, the desire to be paid by the government is a losing strategy on two fronts.

To begin with the incentive for Makerere staff to be more productive in terms of teaching students will be removed. As it is now teaching staff’s pay is also pegged to the size of the class one teaches. This incentive system has glaring weaknesses but at least it ensures that lecturers make an appearance in the lecture theaters. It does not take rocket science to work out what will happen when lecturers start drawing salaries from the consolidated fund.

And related to that improvements in staff productivity will not be recognized as readily at the finance ministry, as it may if spending decisions are controlled by the Makerere Administration.

A man after dreaming about acres of diamonds sold his land and set out into the world in search of his fortune. He went prospecting all over the world failing miserably sometimes or striking it rich only to squander all his wealth. Frustrated and dejected he returned to his village where he expected he could throw himself at the mercy of friends and family. On arrival at his old home he found it was a flourishing diamond mining enterprise fuelled by diamonds from his old plot.

Everybody except the dons of Makerere do not realize how much gold they are seating on.

It’s a stretch to compare Makerere with Harvard, but for illustrative purposes America’s oldest University has some interesting pointers.

In 2008 before the credit crunch Harvard had an operating budget of $3b a year. However the university managed an income of $9.3b the previous year of which only(!) $600m or just over 5% came from student fees. And we know Harvard’s student fees are not to be laughed at.

So where does Harvard get more than 90% of its income? About half of the budget is met by income from its $35b endowment fund – this was the value before the credit crunch, and then in order of size donations, merchandising, publishing and from licensing of patents the University holds. This is aside from the fees from hiring out their buildings and land or consulting. Meanwhile they earn about $1m a year from ticket sales when University teams are playing.

Yale is not very different with student fees account for just under ten percent, with the bulk of income coming from their own endowment and the medical services.

These vaunted institutions of learning do not create new revenue streams because they like to but because they long came to the realization that there was only so much they could charge students to enroll.

Makerere University’s intellectual properties (if it has bothered to license them at all) are worth millions of dollars if only their value can be unlocked for the benefit of the institution.

What Makerere needs is time-tested, entrepreneurial managers who can unlock the billions of shillings of assets that Makerere owns and controls.

But maybe we should not be too harsh on Makerere’s the same syndrom is coursing through the general society. When we have a need our first instinct is to look outside ourselves for help while we have all we need around us – as individuals, institutions and even as a country.

Makerere does not need handouts from government, in fact it is Makerere’s best interest not to need them.