THE BEGINNING OF WARREN BUFFET'S BILLIONS

Although I had no idea, age 25 was a turning point. I was changing my life, setting up something that would turn into a fairly good-size partnership called Berkshire Hathaway. I wasn’t scared. I was doing something I liked, and I’m still doing it.

#KONY 2012: A CASE OF THE END JUSTIFYING THE MEANS?

At the beginning of this month the video Kony2012 was uploaded on to Youtube.

The video uses the plight of “night commuters” thousands of children who fled the surrounding villagers and descended on Gulu by night to escape possible abduction from their homes, to highlight the savagery of the LRA.

The video’s promoters have unabashedly called for more military aid to the affected nations to put rebel leader Joseph Kony out of action once and for all.

By the time of writing this article, the 30-minute video had been watched more than 84 million times, the video literally went viral.

The producers were hoping for 500,000 viewers when they uploaded the video. But a combination of strong emotional cues – read suffering children, the suggestion that viewers could make a difference by passing it on and the roping in celebrities from Justin Bieber to Oprah Winfrey to transmit the video, all made it possible for it to become the most viral upload in history.

However criticism of the video has also come in fast and thick as well.

The detractors have rounded off on how the video has simplified the suffering of the people in northern Uganda during the two decade long civil war and also how things have moved on, that the video is not relevant to the present time.

You know what they say, if you wake up and find your friend is an overnight success know he has not been asleep.

The footage from the video dates back to 2003 when a trio of US youth – Jason Russell, Bob Bailey and Laren Poole stumbled upon the “night commuters” after a failed bid to document the southern Sudan civil war.

Touched by the plight of these kids trapped in a war that was none of their making and with seemingly no sight in end, at least according to these “parachute” journalists, the young men went back to the US and started a campaign in campuses and highschools to spotlight the kids plight and rally support for a more determined effort against Kony.

They reached hundreds of thousands of children with their video and by 2008 it had become the top foreign policy issue for US students, according to Time magazine, on par with the anti-apartheid campaign of an earlier generation.
Since then Kony became the first individual to be indicted by the International Criminal Court, the US congress has passed a law directly targeted at the LRA and President Barack Obama has sent 100 special-operations troops to help bring Kony to book.

So the video’s recent success on social media was not an overnight success. In fact it is a perfect case study for the “tipping point” phenomenon.

Truth be told, by the time the filmmakers happened on the LRA insurgency in 2003 it was on its last feet in northern Uganda. The 9/11 attack on the World Trade Center, the subsequent isolation of the Khartoum regime – Kony’s backers for a long time and Uganda’s withdrawal from the DRC all conspired to ensure that the LRA’s days were numbered.

The video and the reaction to it makes one think.

To begin with Africa’s issues cannot gather much traction in western conscious unless we play to the stereotype that they can relate to: of war, disease, poverty and blood thirsty big men. The filmmakers played to this stereotype and while it offended our delicate African sensibilities, they got the more than the desired reaction from their target audience – the youth of America.

But isn’t that how you tell a good story? You find the audience where it is with its preset prejudices and misconceptions and graft your tale on, if you don’t you lose them.

It’s a classic case of does the end justify the means?

Secondly it is clear that the main stream media will never give Africa’s message a chance. It is telling that these middle class youth had had no inkling of the LRA and Kony in 2003 more than a decade after the insurgency begun, despite it having been reported intermittently on western media.

Fortunately the proliferation of social media today may give our stories a fair shake. We can circumvent the traditional media and get our message straight to the opinion leaders in western capitals.

And finally this story is a good illustration of the fact that no meaningful achievement comes without work driven by a far sighted conviction.

You may criticize Invisible Children’s co-founder Russell for his lack of appreciation of the nuances of the conflict and championing a cause he knows little or nothing about. You may criticize him for trying to bankroll his NGO with proceeds from the video – I heard they had already racked in about $5m. You may even criticising him of overlaying a good guy-bad guy Hollywood script on real human suffering.

But you cannot criticize him for not backing up his passion with action in the best way he and his friends knew how, something you cannot accuse some of the “leaders” nearer the action.

I suspect some of our averse reaction to the video is our sense of guilt at being unable to raise as much awareness – however slanted, about a situation that we lived with for years.

UGANDA CAPITAL SEATING ON A GOLD MINE

Last week I had a meeting on Lumumba Avenue. In planning to make my 10 am meeting I set off 30 minutes ahead of time from home. I was not anticipating any traffic but was providing for the street’s horrendous potholes.

Having braced myself for the rough ride on that road I was therefore pleasantly supplied when I found that the road had been freshly laid and uncharacteristically smooth ride I so enjoyed I almost passed my destination.

About a week prior to my trip KCCA boss Jennifer Musisi announced that they had collected sh520m in dues from tax operators in a single day – the most Kampala’s authorities had ever collected in one day in their history.

Meanwhile whenever I am in the Wandegeya area I can’t help but marvel at the speed at which the market is being put up. By this time next year I can bet they will have completed the project.

All these bode well for KCCA in more ways than just good PR.

A few years ago people involved with capital markets argued that KCC at the time, had sufficient revenues to flot a bond of the stock exchange. A bond is the way companies or governments borrow using the stock exchange. My friends argued that given the real estate KCC commands they could collateralize it and issue a bond against it. The major challenge they pointed out was that it was hard to verify the monies KCC was getting from its assets around the city and worse still whether city hall was getting all the money due to it.

But now the taxi operators paying straight into the banks a situation that may also obtain when the new markets are up are running, for the first time in a long time KCC’s revenues are looking more transparent.

It goes back to the old say, money follows towards good organization. KCC’s money woes have always been more a function of bad management than a general lack of money.

KCCA may not take advantage of this potential new funding options because they can get cheaper donor money and secondly in order to access this donor funding any bond issues are discouraged.

Besides now would not be a good time to borrow from the local markets, as yields on benchmark treasury bills are only just coming off historical highs. Often times corporate or municipal bonds are priced a few percentage points above treasury bill yield rates. In Uganda the 182-day bill is usually used as the reference point. At least week’s auction the yield on this bill was 19.81%.

But if inflation continues to fall prompting a reduction in treasury bill issues by the central bank, we can then expect a drop in yield rates making bond issues more viable.

That aside an argument can still be made for borrowing more dearly from local markets even if the donor money is cheaper because such issuances will help firm up the bond market infrastructure reducing our over reliance on foreign funding.

Beyond KCCA’s ability to have independently verifiable revenues they need to rejig their image to one of impeccable integrity. Investors want to know that they will be paid back whatever the circumstances, an impression the government and the central bank have managed to create over the years with their Treasury bill and bond auctions.

Regardless of what is happening in Uganda’s politics or economics investors, going by the record of the last 20 years, investors know they will be paid when the government paper they are holding comes due. We all like to keep our money where we are assured we will get it when we need it.

The point is we as a nation are not as helpless as we have been led to believe. We just need to get more organized and subsequently transparent in our dealings and the money will be there for the taking. And secondly relying on foreign capital – sensitive to its own political interests that may not necessarily be aligned to ours, is an unsustainable model.

UGANDA’S HAZARDOUS BUSINESS ENVIRONMENT, PART II

Three years ago in this column I wrote under the headline “Uganda’s hazardous business environment” how a tirade by the then Energy minister Hillary Onek on the Bujagali dam project, was sending mixed signals about government’s commitment to the project and may very well jeopardize other major investments.

 I argued that investors would rather settle for lower rates of return, which are assured than come to Uganda with its allure of double digit returns which are iffy at best. I wrote that uncoordinated troop movement by government agencies heighten the uncertainty of our investment climate, reducing the sums invested and lowering the quality of investors we attract...

 So last week my jaw dropped to the floor in bewilderment on hearing what is happening to cement manufacturer Hima Cement. Hima Cement, whose parent company is Lafarge one of the largest cement manufacturers, have two quarries – Dura and Hima, near the western Uganda plant. Last year the company commissioned its new $120m factory that more than doubled their annual production to 850,000 tons of cement. An investment of this magnitude suggests the company was sure of its supply of limestone a key ingredient in the manufacture of cement from the two quarries they have running leases on at Hima and Dura. You probably could have knocked Hima’s top bosses when they received notice from the new owners of the Hima quarry at the end of January, asking them to vacate the site so they can take possession. 

 It turns out that the Geology department in the Energy ministry transferred the lease in January working on the assumption that Hima’s lease on the quarry expired at the end of last year. In this one transaction all civil service records of efficiency were shattered as the new company East African Gold Sniffing Company went from getting a prospecting license to full exploration license in 19 days – including three weekends, between 5th January to 24th January 2012. 

This process at the best of times takes months if not years to complete. In a nutshell what this means is that if the cement producers lose the Hima quarry the 500,000 ton-a-year factory they commissioned last year will be rendered useless and they may as well dismantle it and take it elsewhere. Is it conceivable that Lafarge would have plonked down $120m so close to the expiry of their lease and then forgotten to renew the lease? And who are these officials in the geology department, which department has all Hima’s projections for their use of the quarry, who can jeopardize multi-million dollar investments so casually and get away with it? 

 Selling a country to investors is like any other sale. You have a product. You highlight its positives and while acknowledging its deficiencies, show the buyer how the pros far outweigh the cons. But more importantly the seller needs to understand the buyer’s context – his needs and wants, seen and unseen, so he can appeal to those parts of his psyche that will lead to a successful closing of the deal. Any investor worth his salt assesses all potential deals with a view to preserving his precious capital, while looking to get the best possible return for the least possible risk – in that order. Governments looking to attract investment to their shores need to understand this at a very visceral level...

 Uncertainty is a major investment risk. The more certainty there is in the investment environment the better the businessman can project his returns, the cheaper the cost of capital and the more likely are the predicted returns to occur. A correlation can probably be found that shows a decline in the character of foreign investment to your country the more uncertain the environment you have. With long term, sustainable investments on one hand and gamblers, speculators and money launderers on the other. 

 If our goal is sustainable development that will reduce poverty and increase affluence uniformly around the society then you want more of the former and less of the latter. As it is we are seating on a time bomb. More and more youth are coming into the job market and we are doing less than a commendable job of finding them work. These idle youth will be the cause of future national instability. Frustrating quality investors – Hima is the biggest single exporter and manufacturer in this country, is not the way to ingratiate ourselves with investors.

BIG MONEY EYES UGANDA

It is easy to feel a bit discouraged by Uganda’s prospects, what with our political circus, our crumbling roads and endemic corruption, who can be blamed. But investors with an eye on Africa choose to take a longer term view, judging that all these shortcomings are speed bumps on what they see as an inevitable growth path. 

 Speaking about Africa in general and Uganda in particular financial services firm African Alliance Group CEO Tony de Castro said, “The big thing here is the growth in population and what you want to do with it. It is estimated that the population of Uganda will have doubled by 2050, this kind of demographic change if harnessed has historically driven in economies in the north and Asia.” “Growth will come there is no question the only risk is timing. Do you jump in too early and miss the larger part of the move or do you jump in to late and entry becomes too expensive,” he added in a recent interview.

 De Castro a founding member of the 20–year old financial service group, is looking to invest more in Uganda and through the investment banking wing of his company’s operations facilitate the massive investments required to unlock this economies latent potential. “We have gone past the fixing stages we now need substantial investments in the fixed assets – transport, communications and energy infrastructure … everybody is underestimating the investment required but it’s going to be huge,” he said. 

 And it has already started, he said. He remembers Kampala at the beginning of the century very much less developed than it is today. “When we talk about the population doubling by 2050 most people seem to be operating as if the explosion will happen in 2050, but it is already happening,” he said. 

 His family, which controls the African Alliance Group, believes that the continent is on the verge of change and all for the better believing that the two major drivers will be the demographic changes and urbanization. “Uganda has reached the cusp, where capital is going to start coming in more and more significant amounts and not only because of the oil. Oil is supplementary to the economic growth we foresee here,” he said. 

 He is unsurprised by the criticism government is suffering. “Your way of thinking is one that wants perfection, but these transitions are never perfect … we tend to be self-critical in Africa but historically it is always messy, Africans want to be in the twenty first century but we forget it’s taken centuries for the north to get where it is,” De Castro counsels. With better technology it shouldn’t take Africa that long, he says, but it will still take time. 

 “Given what we see here we want to be big investors, we want to focus on big projects in infrastructure, energy, mining, insurance and housing investments that will service the coming boom,” he said. Local capital mobilization remains a challenge largely because the insurance industry was destroyed in the high inflationary years but he is confident it is on it way back. 

 Recently the company’s Uganda arm has been forced to shut down its unit trusts for lack of critical mass of investors. Unit trusts are collective investments schemes, which by pooling money from many investors can take advantage of economies of scale to cut costs and provide a better return. 

 “We shut down the High Yield Fund in 2010 and the Money Fund and Balanced Fund in 2011 owing to un- feasibility based on inability to achieve critical mass (approximately 4 Billion per fund) required to profitably operate these schemes,” African Alliance Uganda boss Kenneth Kitariko said. 

 “We have decided to focus on institutional mandates at this time where we believe we are better poised to add value, however, should the market conditions change in favor of running a retail product, we will certainly return to the market with Unit Trust products.” 

 De Castro does not see the inability to raise long term capital as a major stumbling block pointing out that during such transitions economies are often importers of foreign savings. So what is the major stumbling block he sees going forward. “The biggest challenge is decision making … take the first step. Not only at the highest levels but also at the bottom and middle levels. Make a decision whether good or bad but just make a decision,” he said.

POVERTY ERADICATION: RWANDA’S SILVER BULLET

Poverty is simple to eradicate. All you have to do is raise people’s incomes – either through job creation or improving the productivity of their shambas, make sure they save a portion of their income, which in addition to loans they can use to build income generating asset bases and voila! Poverty has been banished.

This prescription is fool proof. So why don’t more nations pull more and more of their populations out of poverty?

The formula is simple but it is not easy to execute.

Rwanda, though seems to be doing something right. Since 2005 the small east African nation has reduced the incidents of absolute poverty – people living on less than a dollar a day to 45% from 57% of the population.

But they are pressing for more,

“Actually we would have reduced this figure much more significantly if we were able to bring population growth down to two percent,” said Protais Musoni, cabinet affairs minister in the prime minister’s office told journalists in Kigali.

Development economists are fawning over Rwanda.

Oxford professor Paul Collier says what Rwanda has achieved in povery reduction laudable by any standards.

“Rwanda has achieved a hat trick; fast growth, fast poverty reduction and increasing equity among the population,” Collier told Rwanda’s 9th Leadership Retreat recently.

A poverty eradication program that is divided into two components, the Vision 2020 Umurenge Programme (VUP) and the Integrated Development Programme (IDP). The programs are targeted at the poorest of the poor and prosperity generation respectively.

Under the VUP government has planned interventions for Rwandans classified according to six traditional class categorisations, ranging from the extremely poor -- people who often need to beg to survive to the money rich – often landowners, have salaried jobs and own good housing.

The poorest three categories benefit from direct handouts and employment on public works while the upper categories benefit from access to credit for investment through micro-finance and savings cooperatives.

But the IDP threatens to be the real game changer.
About an hour’s drive out of Kigali is Nyagatovu model village, a snapshot of how the Rwandan countryside may look like in a decade or so.

The village – rows of two bedroomed homes, demarcated by murram roads and dotted with electric poles radiating power lines to the homes, has a population of 250 people, is not more than three years old.

Its inhabitants are the former residents of three nearby villages. Under the program the government swaps the villagers small land holdings for land in a consolidated field near the new settlement this is in addition to building each villager a house and giving them a cow.

“In order to get buy-in we get the residents to build their own kitchen and toilets. But they are also not stupid they know where they have come from and they grab this chance with both hands,” said Emmaniel Mugabo, a communications person with the local government.

Concentrated in these model villagers it is much easier to provide not only utilities but services to these new villages.

“They have access to veterinary and agricultural officers who provide valuable support,” Mugabo said.

The village has a communal kraal with up to 40 head of cattle. The cows provide manure for the fields, which in Nyagatovu’s case have been dedicated to matooke and more recently tomato green houses.

The residents have opened up about 40 acres of land out of a potential 300 acres and are now selling matooke to the nearby Kayonza market twice a week-- “Maybe about 300 bunches a week with some as heavy as 100kg,” the resident agronomist said. Every so often trucks come in from Kigali.

The difference in the people’s lives is visible, but also a reflection of how badly off they were.

“Before in our former village we used to charge our phones in the nearby trading center, now I charge my phone at home,” 25 year old village leader Jean de Dieu Ntirenganya said.

He looks forward to greater harvest in coming seasons and can’t wait to get a motorcycle for himself, but first things first, he is getting married in June.

“It is clearer what I can make of my life than before, this is the chance I have been waiting for,” he said.

With this “collectivization” the farmers productivity can rise exponentially and it is not impossible that Rwanda can become an exporter of food to the region – even Uganda. The potential is frightening.

“With increased agricultural production value addition becomes feasible,” said cabinet affairs minister in the prime minister’s office Portais Musoni. Clearly the foundations of agro-industry are being laid.

The government plans to roll out to each of the country’s thirty districts.

“We don’t see what we are doing as a subsidy but as a startup. It helps then jump out of the poverty trap and so far the progress is sustained,” finance minister John Ruwangombwa told journalists in Kigali.

“We see a strong correlation between urbanization and job creation,” Musoni said, pointing out that they have seen an increase of 370,000 since 2005 of non-farm jobs.

“Each time you double the settlement size you get an average of 6% increase in productivity,” Collier later said, arguing that in consolidating its progress in fighting poverty urbanization is the next step for the Kigali government.

UGANDA MPs NEEDS TO LIE DOWN BEFORE THEY HURT THEMSELVES

The public always likes a good show, and for the most part this parliament has provided just that.

The NRM MPs slighted during the last polls by the party hierarchy are getting their own back, ministers now understand the true meaning of “No one is innocent” scampering for cover before being forced to resign kicking, screaming and -- when all else fails resorting to blackmail, in an attempt to hang on.

More recently MPs set their sights on the central bank but their “irrational exuberance” may have got the better of them on that one. More about that later.

Two weeks ago the constitutional court pronounced itself on a petition filed by Severino Twinobusingye questioning parliament’s authority to urge ministers named in the recent oil probe to step down as well challenging whether the ad hoc committee to address the matter was constitutionally put together.

The five judges of the constitutional court agreed that parliament had no power to compel the ministers under suspicion to step down pending the completion of their investigation and were critical of the house’s conduct in coming up with the resolutions, which were “passed in a very emotional, hostile and unparliamentarily fashion, perhaps, unprecedented in the history of this country since her return to parliamentary democracy”.

Despite this, four judges thought the ad-hoc committee was constituted constitutionally and that to rule otherwise may be seen as an attempt by the court to interfere in the workings of parliament. Justice Steven Kavuma differed.

Kavuma held back no punches in ruling that the conduct of the house “offended the principles of natural justice”, the ad-hoc committee’s set up was “fundamentally flawed” and that “it was irredeemably tainted with unconstitutional acts of the whole house from which it was constituted and from which it drew its character and derived its authority”

Arguing that separation of powers does not mean the constitutional court should not exercise its role to point out when excess have been committed by the other arms of government he said, “Parliament acted unconstitutionally and it is the duty of the court as the custodian of the constitution, to so find as such.”

While the court’s ruling was being communicated MPs were still basking in the afterglow of having caused the resignation of ministers Syda Bbumba and Khiddu Makubuya.

The ministers are alleged to have helped inflate, by billions of shillings, compensation claims by businessman Hassan Basajjabalaba. Basajjabalaba lodged the claim following the cancelation of his tenders to lease Nakasero and Owino markets.

Unsatisfied by those scalps they mounted pressure for the resignation or sacking of central bank governor Emanuel Tumusiime Mutebile.

Mutebile on request of then finance minister Bumba wrote a letter of comfort to banks Basajjabalaba owed money, to stay action on the beleaguered businessman who had fallen back on his debt payments.

MPs added to Mutebile to their list of most wanted, arguing that he overstepped his mandate in guaranteeing the businessman’s loans.

The long and short of it is that Basajabala had borrowed money from the banks and was having problems paying it off. He appealed to the finance ministry for help since the government owed him about sh140b for cancelling his leases to the city markets. The finance minister asked the central bank to help Basajabalaba. In Mutebile’s judgement a letter of comfort to the banks was his best course of action.

He wrote to the banks assuring them that Basajabalaba was good for the money – given written assurances by the finance minister, and that if the compensation did not come through by a stipulated time the central bank would make good on the loan and square their accounts with the government later. And there is a paper trail to that effect.

It is hard to see what Mutebile’s fault is in the whole arrangement.

Never mind that they have no constitutional right to cause the governor’s dismal, MPs argued he should have queried the size of the compensation, but that is the role of the auditor general. They argued he should have queried the legality of the compensation but that again is the role of the attorney general. They argued he should have refused to pay afterall, “Didn’t he smell a rat?” But as the banker of the government who is he to say no to the client when he has all supporting documentation?

It was reported that the cabinet sub-committee exonerated the central banker of any wrongdoing and will report to parliament as much.

We are all for parliament keeping the executive on its toes. We are all for parliament going hammer and tongs after the corrupt, we mere mortals actually enjoy seeing the high and mighty squirm in their seats as details of their wrongdoing are revealed.

But as the justices of the constitutional court counseled, parliament needs to guard against degenerating into a village crowd, meting out mob justice at the slightest provocation in the belief that their cause justifies whatever means they apply.

Parliament is critical to the building of a strong democracy, maybe the MPs need to seat back and better appreciate the enormity of their responsibility and act accordingly.

RWANDA TAKING ON POVERTY BY THE HORNS

An hour’s drive east of Kigali is the Nyagatovu model village, a 90 home settlement and one of the showpieces of the Rwanda’s attempt at eliminating poverty.
The settlement is built on the premise that by concentrating families and their resources, farm productivity can be improved, services can be delivered more effectively and subsequently incomes will be boosted and poverty will be shood out the door.

Barely two years into the project and the settlement has begun selling surplus matooke to local markets and Kigali, they have forty head of dairy cattle in a fast growing herd and they have several tomato green houses.

The village’s young eager leader Jean de Dieu Ntirenganya tells me he moved to the settlement a year ago and can see the light at the end of his tunnel.

“We had our small plots and were just growing food for eating and it was not enough, now not only do we have food for ourselves but we are now selling and making money, and there is still a lot of land,” the 25 year-old said.

Under the program, which is being rolled out to all the 30 districts of the small east African nation, consultation and sensitatisation of the communities leads to resettlement – where beneficiaries exchange their land for land at the earmarked sites and join up to 150 other families.

At the settlements government builds each family a two bedroomed house, in addition each family gets a cow, to improve family nutrition, income and whose waste is employed as manure in the fields. Each family also gets about four acres of land in a consolidated tract of land. At Nyagatovu the crop they concentrate on is matooke and more recently tomatos.

For all intents and purposes Nyagatovu is now a urban center, with lines radiating from power poles into homes and roads quartering the more than 50 acres of residential area.

I am suspicious of government handouts – or handouts of any type. Our guide Emmanuel Mugabo of the Local government ministry said they were aware of the dangers of this government largesse and ask every family to build their own kitchen and pit latrine in order to get buy into the project and ensure sustainability.

The Chinese collectives of the 1960s and 70s, on which this scheme seems to draw a lot of lessons, were successful in raising farm output but failed because the farmers were restricted to selling their produce to the government. In Rwanda the settlements sell their produce on the open market not only getting better than market rates but being paid cash.

At the heart of the poverty challenge is poor productivity, before you even talk about access to markets.

In explaining the historical wealth divide between the more developed northern versus the poorer southern economies of the world, is the fact that agricultural surpluses thanks to the agrarian revolution of more than 600 years ago, have been registered in Europe and later America ever since. These surpluses meant two things, that those societies could sustain thinkers – inventors and administrators as well as professional armies, which then could project their will abroad and secure markets and raw materials for their industries. By extension in fighting poverty the issue of surpluses has to be addressed.

With concentration of populations, delivery of social services – education and health as well as infrastructure will be more efficient ensuring a better quality of human resource and lower costs of doing business in Rwanda. In addition since each settlement is generating income and wealth financial services follow and all other services like retail trade as well.

The market economy has been shown to be the most effective driver of wealth creation. Market economies evolve and cannot be designed. However governments have a responsibility to create an environment in which markets can thrive. In addition through good governance, nations then mitigate the worst excesses of the market by ensuring good service delivery that can allow everybody a chance at material advancement.

It is still early days but barring bureaucratic inertia, Rwanda is setting itself up to be the real breadbasket of the region. But the implications of this scheme go far beyond that. This model with some variations can be applied to creating clusters of anything from crafts, manufacturing and ICT to make Rwanda the economic hub of the East African Community.