WHITNEY, AFRICAN AMERICANS & MONEY

For me the biggest news last week was the death of Whitney Houston. She burst on the scene when some of us were cutting our romantic teeth, plagiarizing her lyrics mercilessly in attempts to score points with the fairer sex. One couldn’t but feel what a waste her death at forty eight was, while watching videos of her past hits.

A lot of ink has already been spent eulogizing the queen of song but the tragic last years of her life point to a greater problem among African-American celebrity: an apparent failure to handle the immense wealth that comes with success.

While it is estimated that she lives behind an estate worth about $20m – a fraction of her earnings over the years, she joins a long line of black celebrities that include Michael Jackson, Mike Tyson, OJ Simpson and Gary Coleman, who have squandered fortunes – potential and actual.

Observers of financial matters would not be surprised.

"Financial illiteracy is endemic among blacks in the US, with more than half of their population without a bank account. Financial literacy is an understanding of money, which allows individuals to make choices and take other effective actions to improve their financial well-being and protect their financial resources...

As counter intuitive as it sounds it is easier to make money than to keep it.

The successful black celebrity after years of hard work – it takes more work to excel as a celebrity than it is to get a first class degree, follows a familiar pattern; they buy the biggest house, the flashiest cars and the blingest jewelry; live large, flying their private jets and patronize the high end streets. But they worked hard for their money why not let them enjoy it? We ask. And that is at the heart of the problem.

The white celebrity – often in film, music or golf is much wiser. He knows or is advised that one, money is for making more money not for spending, secondly, that there are only two decisions with money, you either invest it or consume it and finally, that there is a difference between earning money and making money.

On the basis of these three premises you are unlikely to see the white celebrity indulge in orgies of ostentatious consumption, which means they are unlikely to fall into destitution when their earning power diminishes as inevitably happens.

As an example former tennis professional Andre Agassi early in his career created a company to which all his earnings paid – prize money and endorsement fees amounting to a few million dollars a year. He was an employee of his own company, earning $400,000 annually or about a tenth of annual earnings. The company then invested this money on his behalf, multiplying his wealth to an amount many times over his total $31m career earnings. Today Agassi – whose father was an Iranian Olympic boxer and naturalised American, continues to earn from his investments and it is unlikely that he, his children or their children will ever want for anything.

"It is not that the black man is inherently allergic to wealth accumulation through steady work and diligent investing. Maybe what can be said is that the black celebrity does not have the financial expertise around him to shepherd him along, leaving his financial decision making to his base instincts. Never a good idea...

Nearer to home last week I went through the arduous task of compressing more than a 100 years of Madhvani history into 800 words. The Madhvani empire as we know it today is the product of hard work, but just as importantly delayed gratification and judicious investment.

Also more importantly the Madhvanis will never be accused of conspicuous consumption and if such displays of wealth are a sign of having “arrived” who better to have arrived than them?

Which brings us to the state of our local “rich”. When we make a few millions we plunder the company capital to buy a four wheel drive car, plan holidays to Europe and upgrade our taste in alcohol.

Partly our troubled past, which one can argue we should have put behind ourselves by now, but mainly our rural approach to urban excitement means there are barely any Ugandan businesses that are passed down the generations. The idea of a financial legacy is alien to us as we believe we must eat all we have made.

Whitney Houston’s death is sad on many fronts but it is most telling as a sign of the black’s ineptitude around money.

UGANDA POWER PROBLEMS STILL SOME WAY TO GO

Last week Prime Minister Amama Mbabazi witnessed the first turbine at the Bujagali dam generate its first 50 MW for the grid.

This is arguably the most anticipated 50 MW in the history of power generation. Previous dates for its appearance last year fell by the wayside as technical considerations conspired to delay its arrival. In the meantime we suffered the worst loadshedding in five years.

The Bujagali dam project has suffered a tortuous route to realization navigating through a minefield of environmentalist do-gooders, opportunistic law makers, bureaucratic delays and donor ambivalence before the first unit of power could be generated.

For a relative small dam of 250 MW it is scandal that it has taken almost taken 20 years to come to commissioning.

It is hard to determine the loss to the economy of these delays but it would not be unrealistic to stay it must ruin in the billions of dollars.

The most telling sign is that, judging by our power load curve, we use more power at night to watch TV, security lighting and boiling tea than we do for industry. What heavy industrialist in his right mind would set up shop here when our power situation is so inadequate? So our wealth creating and therefor job creating potential is capped and yet we have been growing at more than an annualized five percent for the last fifteen years. It boggles the mind to think where would be as a country if only we had enough power all this time.

Contrary to what has been reported the dam is on schedule to be completed on time – the contractor’s deadline is June this year and with the phasing in of the remaining four turbines over the next few months, we will see a total elimination by Christmas of loadshedding because of low power generation.

Experts project that this happy situation may continue for at least another year or two before we start suffering loadshedding again.

For the time being expect that normal loadshedding – power off every other day, should continue until the second turbine comes on line.

Expect that the last diesel plant we have at Mutundwe will be decommissioned soon so that Bujagali’s power can take its place. Government is shelling out almost $10m a month to keep the Mutundwe plant running money we can least afford at this time.

Energy drives economies. No energy, no growth. Energy is needed to keep us from regressing into lower levels of development and chaos.

We should determine as a country that load shedding should never happen again. Thankfully the process for starting on the Karuma dam has begun, with construction of the 600MW dam expected to kick off by June. The dam should be commissioned by the end of this decade.

In the meantime we can expect small hydro–power plants of up to 20 MW to be up and running.

Karuma is going to be a test case of the whether the government using internally generated funds, can build the dam. It helps that oil will be coming into production within a year or two and those resources are already earmarked for among other infrastructure needs power generation.

The beauty of using our own funds to build the dams, we will not have financial backers making us jump through hoops.

During AES’ doomed attempt to build the Bujagali dam donors, including the World Bank, had then energy minister Syda Bumba scurrying around the region to solicit pledges from our neighbours that they will buy our power. Never mind that in Uganda electricity coverage was barely five percent of the population at the time.

It is estimated that Karuma dam will cost $2.2b – a figure that includes a several hundred kilometer transmission line.

On the other hand one wonders whether it’s a good idea for government to involved in trying to build a dam, given its officials propensity to dip their fingers in the till at every turn.

FACEBOOK, UTODA AND THE UGANDAN BUSINESSMAN’S FATE

Facebook last week announced that its much anticipated share sale was going into its final stages. The Initial Public Offering (IPO) when it comes to the market could value the hugely popular social interaction site at as much as $100b. The original concept was hatched to slight an ex-girlfriend in 2004 out of founder Mark Zuckerberg’s university room.

Zukerberg, whose interest in the company would be valued at upwards of $18b – or larger than the economy of Uganda, is only 27.

Nearer to home multi-billion shilling concern UTODA (Uganda Taxi Owners & Drivers Association) saw their knees chopped from under them when KCCA took over the running of Kampala’s taxi parks.

UTODA, which was set up ostensibly to represent the rights of taxi owners and drivers, has run – or run down, the parks since 1993. By losing the contract UTODA will go into the record books, next only to mobile provider Celtel, which ceded its control of the mobile phone industry to MTN at the end of the 1990s, as a company that took for granted and let slip a Godsend of a deal.

While UTODA is a test case of how not to run a monopoly, Facebook is very much the opposite.

Last week Zuckerberg wrote a letter to his shareholders outlining his company’s reason for its existence, its vision and explaining why facebook is going public.

“Facebook was not originally created to be a company. It was built to accomplish a social mission – to make the world more open and connected. … Most great people care primarily about building and being a part of great things, but they also want to make money. …These days I think more and more people want to use services from companies that believe in something beyond simply maximizing profits,” he said.
Three things stand out in the above that successful businesses are created to meet human needs, secondly great business are driven by great men motivated by creating great things and finally, that profit is not the be all and end all of business.
And the kid should know. He has built a company bigger than the economy of East Africa from a standing start in 2004.
Obviously this letter came too late for the old men of UTODA.

In a new publication “50th Uganda; Past, Present, Future” published by the Vision Group and currently on the shelves, I suggest that the Ugandan businessman as we know him now – single proprietorship, running a local operation and continually plundering the business capital, will be extinct in the next half century.
Years of instability and questionable national policies have not helped the indigenous businessman. With the collapse of national borders the Ugandan businessman has no time to go through the usual evolutionary processes, he has to quickly identify his competitive advantages, aggregate their resources to become more formidable enterprises and be pen to partnerships with foreign investors.

Nationalistic sentiment will balk at the idea, but the way things are going there is a real threat that Ugandan businessmen will be relegated to corner shops or as bit players in the economy. And they can rest assured the consumer will not be in their corner especially if foreign concerns are providing satisfactory service.

What does it matter if our local businessmen get swept off onto the dung heap of history? Local businessmen are more likely to opt for local over foreign suppliers, local businessmen are more likely to reinvest profits in the economy and local businessmen will be less aloof of local politics, interested in continued and sustainable stability.

As a start local businessmen would do themselves a lot of good to refocus themselves towards providing a service first, in the faith that once this is done profit will be the welcome byproduct.

By focusing on a goal greater than themselves issues of forming partnerships for example, will not seem so abhorrent.

In Asia, in the middle of the last century, some governments forced some companies to merge in order to compete and were favoured as national champions to expand out of their respective countries.

For that to work however you have to have a firm entrepreneurial base otherwise government as often happens, will end up throwing good money after bad.

Back to UTODA, there is unlikely to be any tears shed for their demise, which is not a good place to be for any business to be, because at the end of the day the business’ clients are the best guarantors of its survival.

UGANDA’S ECONOMIC CRISIS SOWN IN COLONIAL TIMES

The decision to not make Uganda a settler colony, the nationalization of companies, the expulsion of the Asians and the liberalization of the economy under the NRM are arguably the biggest decisions that continue to reverberate through the economy.

Fifty years after independence services account for about half of GDP, industry 25.1% and Agriculture 22.2%. As economies develop, agriculture significance reduces as manufacturing and services not only create more value from agricultural commodities among other things but also that manufacturing and services employ more and more.
In Uganda however Agriculture employs four in every five workers while industry employs five percent and Services about 13% according to 2009 estimates.

What this means is that the overwhelming majority of Ugandans have been left behind by the economic boom of the last 26 years as most of the growth has come from the services and the manufacturing sectors.

To ferret out the root of this problem you would have to go back to the beginning of the last century to see how this came about.

"Sir James Hayes Sadler, who was a commissioner of Uganda between 1901 and 1907, decided that Uganda was not attractive for human settlement. The hot humid climate, which came with malaria infestations and the tse tse fly, he decided should best left to the Africans. The tse tse fly and the distance from the sea, would make commercial agriculture untenable....

Sir Hesketh Bell, who came after Sadler, was also sold on the idea and did little to encourage European settlement.

While in neighbouring Kenya the temperate climate of the highlands straddling the rift valley were more suited to the settler and with the large unoccupied tracts of land could engage in commercial agriculture.

The repercussions of this single decision – despite massive pressure from certain quarters to allow for European settlement a la Kenya, is that our tenure system was not regularized.

To do commercial agriculture you cannot afford a disparity of the tenure system that currently exists in Uganda, but not in Kenya or Zimbabwe or South Africa, British colonies on the continent. In these colonies all the arable land is titled meaning it can be verified, transferred or collatralised. Land becomes a commodity and attains commercial value.

So in the wish to develop Uganda as an African state small holders farmers were used to plant cash crops – cotton, coffee and tea. The introduction of poll tax and the harsh penalties one would incur if they did not pay, served as incentive enough for farmers to grow cash crops.

"So successful was the cash crop economy, mainly due to cotton, that the British treasury stopped subsidizing the Uganda administration in 1914...

Shut out of production the European and Asians found themselves restricted to the commercial and processing side of agricultural produce.

If Sadler and Bell thought there were doing the African a favour by keeping settlers off the land the unintended consequence – or was it?, is that the European and Asians ended up controlling the more lucrative parts of the value chain.

As a result by the 1970s a handful of families – mostly Asian, controlled more than a third of the economy of Uganda.

Milton Obote, with his move to the left attempted to redress this by nationalizing enterprises, reasoning that by having the government hold and run this assets in trust for Ugandans would redress the wealth disparities.

Analysts of the time say with his slap dash nationalization policy Obote “disenfranchised the non-citizens who run the economy without empowering the Africans who had not been allowed to participate in commerce, industry and large-scale agriculture” – a recipe for disaster.

His successor Idi Amin while becoming increasingly isolated from his erstwhile sponsors, especially the British, and hoping to bolster his local support expelled the Asians in 1972 at the height of his economic war.

The vacuum caused by these efforts at “nationalization” accelerated the economy’s down turn.

"In his native wisdom Amin sought to slow the slide by publicly executing or torturing people involved in economic crimes – hoarding, smuggling, overcharging and dealing in foreign exchange....

The extent of the destruction of the economy is captured by the fact that of the 930 companies registered in 1971 only 300 remained by the time of Amin's demise in 1979 operating at five percent of capacity. The economy had shrunk by an annual one percent, while the population continued to grow. All sectors collapsed apart from subsistence agriculture, for lack of imported inputs.

Obote’s second administration was dogged by insecurity, although some progress was made at recovery. The economy grew by 5.5% and inflation fell to 20% while the share of agriculture fell from 70.5% of to about 50% of GDP.

The NRM’s triumphant entry into Kampala in January 1986 was therefore tempered by the reality of a basket case economy and enormity of the task of resurrecting it.

"In 1986 per capita GDP was less than half what it was fifteen years earlier, the government tax base had collapsed as subsistence agriculture and the informal sector accounted for almost all of economic output...

A country is only as viable as its private sector, because it is the private sector that pays the taxes that sustain governments and finance infrastructure and social services.

In the beginning the NRM deeply opposed donor prescriptions for the economy. It revalued the shilling, allocated commodities administratively, sought to control prices and maintain the parastatal monopolies.

But there was only so much a government with empty coffers could do.

Years after Obote’s nationalization drive and Amin’s expulsion of the Asians no comparable indigenous business class had emerged to fill the void left, by these well-meaning but disastrous attempts at economic engineering.

"Faced with the urgent need to jump start the economy with little money to sustain its central planning agenda the NRM did an about face invited the Asians back -- a process that begun with the Obote II government, privatized state corporations and liberalized the markets....

This was the much needed shot in the arm the economy needed.

A combination of these policies in addition to liberal dozes of foreign aid have seen the country enjoy its longest stretch of economic growth in the last 50 years.

Revenues are up a thousand fold from 1986, manufacturing and services now dominate economic output and exports have been diversified away from coffee.

Uganda in recent years has been judged the most entrepreneurial country in the world. The nationalization of enterprises, the expulsion of the Asians and hard economic times could take the credit for bringing about this situation. The challenge though is, for lack of know how the indigenous Ugandan businessman has failed to graduate from a subsistence businessman. To get to the next level the Ugandan businessman would have to learn how to aggregate his efforts with partners in order to pursue ambitions beyond his own personal upkeep.

"The frustration of the colonial settler farmer and the expulsion of the Asians denied Ugandans that skill transfer and the insecurity of the 1970s and 1980s short circuited the learning process further...

As a result of these decisions taken generations ago we find ourselves in a high inflationary situation partly because our agricultural production could not fill a regional gap left by drought that hit Kenya last year. While we continue to be donor dependent because the informal sector continues to dominate the economy and hence a narrow tax base.

Going forward – and politics aside, the resolution of our land tenure system and the development of a more credible entrepreneurial class will determine whether we continue on a growth trajectory or not.