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.