THE ECONOMICS OF REVOLUTION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

THE POLLS ARE OVER, NOW THE HANGOVER

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

NO INFRASTRUCTURE, NO EA INTEGRATION

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

OPPORTUNITIES ABOUND IN LAWLESS SOUTHERN SUDAN

MOSES rues the day he decided to do business in southern Sudan. He heard stories about how there was a lot of money to be made in Southern Sudan. So he and some friends pooled their resources and put together a four-truck convoy of general merchandise and food to transport to Uganda’s northern neighbour. 

A planned week-long trip stretched out into several weeks as impassable roads, numerous road blocks, armed hijackers, disease, frequent vehicle breakdowns and a hostile business environment conspired to slow him down and vanish his profit and capital. “It was hell. How do people make money in that place. I would rather look for smaller and surer returns than gamble with my money and life,” he said days after returning, a lot darker and several kilos lighter. 

 Uganda’s is Southern Sudan’s biggest trading partner currently. According to the most recent figures available $260m (about sh598b) worth of goods and services was traded between the two nations in 2009. Observers say this figure has risen since, estimating that up to a quarter of all Ugandan imports are meant for the southern Sudan market. Uganda import bill in 2010 was $3.8b. 

 “There are many opportunities in Southern Sudan,” said Kampala City Traders Association (KACITA) spokesman Issa Sekito. “Great demand for housing and construction materials and services, foodstuffs, household commodities, cars and other goods and services … they produce nearly nothing everything has to be imported so you can imagine the opportunity.” The area known as Southern Sudan is 619,745 square kilometres or almost thrice the size of the Uganda. The population stands at between 7.5 million and 13 million, so it has vast unihabitted spaces. Ravaged by a civil war between the north and the South for more than 20 years this already marginalised behemoth has never really got on its feet. As an indicator there are only 60km of tarmarcked road in all the region, power is provided by generator as there is no national grid and water is scarce in many areas. ...

 Apart from part of the DR Congo, Southern Sudan is largely untouched by modernity which is a challenge but also a source of immense opportunity. The region contains many mineral resources such as petroleum, iron ore, copper, chromium ore, zinc, tungsten, mica, silver and gold. There are huge international interests with their eye on Southern Sudan’s vast natural resource potential but everyone agrees that the biggest challenge is to overcome the general state of lawlessness in the area. 

“These are people who are just out of a war, there was not much in the area before the war and what little there was in the way of systems and institutions have broken down,” KACITA spokeman Sekitto said. At the top of many traders’ challenges in dealing with Southern Sudan is the real risk of not being paid for goods and services delivered and the lack of formal institutions to resolve such disputes. “I ask for 90% of payment up front if not I lose interest in the whole venture, if they do not pay you where do you find them? And there is a real danger that if you press too much for payment you can be literally lose your life,” another transporter said. 

According to Sekitto at least 20 Ugandans have lost their lives following such disputes and Kampala seems indifferent to the plight of its businessmen. “The attitude seems to be that political interests supercede commercial interests… we have a petition delivered to parliament at the beginning last year but it has not been tabled in the house,” Sekitto said. 

But the trade ministry disagrees.“We have all those complaints and we have a memorandum of understanding to set up a arbitration committee to look into these claims,” said Silver Ojakol, commissioner external trade in the ministry. He explained that all claimants have been divided into four groups according to whether they have claims with the government of South Sudan (GOSS), local authorities, private businessmen or robbed or defrauded. “The naming of the arbitration committee – which would handle claims between private businessmen has just been delayed by the recent referendum, but our consulate general in Juba is following up on all claims against GOSS and the local authorities,” he said. 

The arbitration committee was agreed on in February last year but has not been constituted todate. As more traders have made the foray into southern Sudan, the margins have thinned considerably. “But they are still by far better than anything our businessmen are used to, which explains why they keep going back … the returns are worth the risk,” businessman Joseph Okiror said.