THE OLYMPICS AND UGANDA’S ROADS

Last week it was reported that government is resorting to more creative funding methods to bridge our infrastructure gap.

According to the report in an attempt to have 44 priority roads, which will cost about sh10 trillion, done as soon as possible government has mooted the possibility that contractors will be able to source financing for the projects themselves.

Under the arrangement the contractor will cost the project source the lender who government will approve of and take over the debt.

"As it is now all funding comes from the consolidated fund and it would take forever to have these roads done if we continue to rely on this model of funding. As it is now the government’s total budget is about sh10 trillion a year of which roads accounts for about a tenth of that total.

The major challenge with this is that it will be mostly foreign contractors who will win these contracts given their contacts with banks with cheaper funds abroad. But also it should be a wakeup call for local contractors to build up their capacity to compete.

Resorting to the private sector for funding is a time tested formula, its only poor countries like ours that resort to concessionary lenders.

The private sector’s motives are more transparent – the profit motive, compared to donor agencies’ assistance, which often has political and ideological undertones attached to it.

It is true of course that if the Uganda government fails to develop the capacity to scrutinize these projects we could find ourselves up to our eyeballs in unwisely contracted debt for decades to come.

To avert a recession in their economies western governments have forced borrowing rates to all time lows and that cheap money would always be more attractive to borrowers, but there is no reason we shouldn’t be more determinedly mobilizing our own resources locally to at least contribute to financing our own roads.

The anecdotes are a dime a dozen about how city traders, untrusting of the banking system and the state choose to dig holes in their shop floors or install vaults in their bedroom to store their cash. Billlions and billions of shillings.

One bank manager in the 1990s in trying to pitch his bank services to one trader was shown in to a vault in the back room of the traders shop that had more money than he had in his branch’s vault. True story.

Mandatory savings with NSSF for employees – five percent of gross salary with a employers pitching in with twice that amount, has seen the fund grow into the largest financial institution in the country. It is the biggest single lender to government and business, through the billions they fix in banks which are then on lent to the private sector.

"Beyond this initiative at mandatory savings government has done very little over the years to compel us to save more of our own income. Some will argue in order to boost production we need people’s disposable income to remain unencumbered so as to boost demand. But that is short term thinking...

Mobilising more of our own resources will increase bank liquidity, force lending rates down, allowing for more credit to the productive sectors, which require more long term financing.

The cost of money may still not be lower than the near zero percent lending rates we are hearing about in the west currently but the spinoffs in developing a mechanism for local resource mobilization will be well worth the cost and hold us in good stead in the likely event of future aid cut offs from abroad.

It is an illusion perpetuated by others that we do not have enough resources locally to help ourselves more.

Relatedly and to get into the prevailing mood the London Olympics will cost an estimated ₤11b (sh42 trillion), of this sum the National Lottery will provide ₤2.18b, TV broadcast rights an additional ₤350m, company sponsorships another ₤700m with ticket sales racking in another ₤600m...

The organiser’s of this year’s Olympics – while a national event, were not averse to bringing in private sector sponsorship not only to ease the burden on the national coffers but to also enhance the Games experience.

It makes sense. A lot of the public funding was used in infrastructure development, which will have far reaching benefits to the London economy, outside of this the private sector has shouldered most of the costs.

We need to wean ourselves from the tradition of government as the main benefactor and government too should look to the private sector to finance its projects, with the long term benefit of triggering alternative fund raising mechanisms.

STIGLITZ, CLINTON AND APPROPRIATE DEVELOPMENT

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Africa is the contemporary economist’s delight.

Western observers are still studying their own societies to determine how development came about and why economies developed the way they did in one place and not in the other. Africa, much of which is still in the pre-agrarian revolution stage is therefore a useful place not only to experiment but also try out one model or the other of development.

Last week Nobel prize winning economist Joseph Stiglitz was in town to talk about market failures in respect of the current global financial crisis. We also had former US President Bill Clinton in town, on a trip which took him through South Africa and Rwanda.

In his talk Stiglitz warned against unregulated markets. Using events that led up to the global financial crisis, the professor said by making the mistake of allowing the financial markets to regulate themselves the balance between greed and social benefits was lost in favour of the former with society paying the price in lost jobs, watering away of social safety nets and general uncertainty.

Going also by the liberalization of financial markets in the developing world he said the left to their own devices banks would finance consumption and real estate speculation of more long term development projects, like agriculture, which create jobs and have wider reaching societal benefits.

On Thursday former Clinton was in Rwanda to launch the Mt Meru SOYCO – a partnership between Tanzanian based Mt Meru Millers, Rwanda and the Bill Clinton Foundation, a project that will produce and process up to 30,000 tons of seed oil for local consumption and export, provide ready market for 30,000 local farmers and provide employment to 1,400 on the nuclear farm and factory.

Mt Meru Millers already have operations in Lira where in the last four years they have helped increased soya bean production tenfold to 30,000 tons a year currently.

During a trip to Rwanda earlier this year i saw the initial stages of their poverty eradication plan in action. The plan involves helping small farmers pool their land and labour to produce large scale for the market. If executed to even just half of expectations could easily see Rwanda becoming the regional bread basket in under a decade.

The government’s role in the plan is to provide the strategic inputs like infrastructure and legal framework. In the case of Mt Meru’s project the government has provided 30,000 hectares, ferterliser, subsidized seeds, farmer training, roads and made electricity available to the project and the required fiscal incentives.

The initial government input may seem relatively large but viewed over years of the project’s life the benefits in terms of increased production and improvements in the welfare of the participating communities, more than pays for itself.

The reason Uganda and most of Africa is in the pre-agricultural revolution stage is because of its failure to bring improved farming methods enhanced by entrepreneurship to bear on the land. That is why despite more than 80% of the population in Uganda deriving a livelihood from agriculture it accounts for less than 40% of economic output and  the sector only manages single digit growth annually. And that is why the rural areas have not been the major beneficiary of the economic growth of the last two decades.

Given our deficiencies in technology and finance makes a good case for public-private partnerships. To ensure the widescale effort we need to transform rural production, government is the only credible partner large scale investors can partner with as Rwanda is demonstrating. Government can make land available, construct roads or other transport infrastructure to target areas and provide tax relief.

Government’s goal is a social one to improve the welfare of its citizens, business driven by the profit motive, the trick is to align these goals in order to ensure sustainability of such projects. Without regulation profit will supersede the social motive resulting in exploitation of labour, super profits and pollution. If the social motive on the other hand takes precedence  production will suffer and the enterprise will buried under the weight of its losses or government will spend  billions subsidizing it, which monies could have been used in providing social services or building roads.

Stiglitz and Clinton know a thing or two about creating economic growth. Stiglitz served on Clinton’s Council of Economic Advisors for four years from 1993 the last two of which he chaired the council.

The two would therefore take part of the credit for the economic boom in their country that started in the Clinton era before coming to shuddering halt four years ago with the beginning of the current global financial crisis.

Some would say they laid the seeds of the crisis too but that maybe a discussion for another day

BAD BLACK AND THE UGANDAN CONDITION

The Bad Black show was finally brought to a close with the conviction of Shanita Namuyimbwa on Wednesday for defrauding a company set up by her ex-boyfriend of several billion.

There were many things wrong with this case – How does a young woman with no certifiable skill (marketable skill is another thing), no prior experience as an investor and probably no bank account, extract sh11b from her lover?

What kind of money does David Greenhalgh make to dish out billions of shillings after a night of passion? Maybe he thought he was in Zimbabwe?

And what happened to the famed stinginess of the rich man?

And the question on many people’s lips, Couldn’t she have saved or invested some of those billions, instead of blowing it on fly by night friends, dodgy booze and an atrocious wardrobe? Don’t get us started about her beautician.

It says something about us that she lived the Ugandan dream: Hit the big “deal” (The Luganda corruption Dilu rolls off the tongue better), without much effort so people can call you “shrewd”, then go out and announce your “good fortune” with flashy cars  legendary night outs and above all let everybody know you have arrived by buying some media attention.

To be fair to ourselves this is not a uniquely Ugandan dream – the west’s voyeurism of the rich and famous is a variation of the same theme. Our history of instability, which necessitated a hand-to-mouth existence, is probably to blame for our short term attention span, glorification of crooks and fraudsters and the denigration of hard, diligent work.

In the short time that her star blazed bright Bad Black probably raised hope that overnight success as a model is viable – never mind what you have to sell to get it.

Maybe as Betrand Russell once said “The whole problem with the world is that fools and fanatics are always so certain of themselves and wiser people so full of doubts,” explains why we gravitate towards such show ponies like Bad Black.

Or maybe we are living such dreary lives with one in five Ugandans living in abject poverty, inflation last year hit nearly 20-year highs and like the Romans in coliseum at the end of their empire, we need more and more bizarre entertainment to distract us from pain of everyday living?

As they say the only place where success comes ahead of work is in the dictionary.

But there is hope for our beloved country.

Life is becoming more regularized so much so that phenomena like Bad Black are an anomaly, an aberration on our landscape. Believe it or not there was a time when there were Bad Blacks at every street corner, admittedly hustling for smaller change, but hustling all the same.

Increased availability of everything from paraffin to TVs to dollars means that margins are thinning, the black market has vanished and a regular income can be stretched to the end of the month – only just.

Bad Black has been trucked off to prison but when we fail to sleep at night and allow for some self-reflection, we should remember her as a symbol of our shallow excesses, do penance for our myopic ways, clammer after substance over style and pray that we earn success through thoughtful and consistent application.

Not to stamp on a lady when she is down but Bad Black won the lottery and like many big time winners before her, she was unprepared for her windfall, squandered it and any goodwill she may have had went with it. It may not be bad thing for her that she is going to have plenty of time to re-examine her life.

Hopefully now that she is under lock and key unlikely to dazzle us with her garish style and rural expression of urban excitement we can all get back to doing a honest day’s work.

BECAUSE EUROPE IS NOT UGANDA

In the 1980s Uganda like many African economies, was in big trouble.

Revenues were low, meaning the government could not provide much needed social services and other public goods. This had the effect of depressing private sector activity, killing any hope of tax collection. Meanwhile even the little revenue government was collecting wasvanishing into the black hole that was parastatal sector. The only thing that was thriving was the black market in hard currency as exports had slowed to a dribble.

To sort out the mess the government needed to raise production and then capture the taxes from this increased output. It was a simple formula but not easy to execute.

Government needed to jump start the private sector by first reining in inflation and rehabilitating the infrastructure. In addition government needed to stem the public sector hemorrhage by reforming and privatizing parastatals, as well as taking away their long held monopolies.

Twenty odd years later the private sector is more vibrant, revenues are up to the point that government is financing two thirds of the budget. However the benefits have not been enjoyed equitably across society, a situation which still needs to be redressed without jeopardising economic growth.

Understandably it was always going to be a politically expensive operation but there really was no plan B.

What is going on in Europe – more specifically Portugal, Italy, Greece, Spain mirrors our situation in the 1980s with the slight variation that their debt load has reached unsustainable levels – the last I saw Greece’s public debt was at 165% the size of the economy.

The proposed prescription to their predicament is much the same as the one we painfully swallowed.

The electorates of southern Europe, it seems are not willing to take the pain, protesting at every turn against the proposed austerity measures, pushing the Eurozone to the point of disintegration.

A case of the doctor not willing to take his own medicine?

The stakes are much higher of course – after all who cares if some poor African country falls off the face of the earth?

Europe will serve as a perfect test case for the saying what is popular is not always right and what is right is not always popular.

The old world has got itself into this situation through populism and to extricate themselves they are going to have to force through some hard reforms.

It’s no time to be smug. The Euro zone crisis is affecting us too, with lower demand for our exports, lower remittances from our relatives abroad and the less aid.

Which might not entirely be a bad thing.

Living off the fat of the west slowed any progress towards developing and mobilizing our own resources, cultivating internal and regional markets and nurturing meaningful continental alliances.

They say that when the tide falls you will know who was swimming naked. This crisis will show how far along our economy has grown by how it reacts to the crisis. But more importantly it will focus planners’ minds as they learn to live with lower handouts from the west.

And just as important, we are going to have to pay more attention to the markets around us to sustain us for the next several years. As it is now all our transport infrastructure is designed to extract from the hinterland and evacuate through the ports – a  colonial hangover. Now we will have to build roads which reflect the new appreciation of our own local and regional markets.

The long and short of it is this a crisis we should not let go unexploited.

DON’T LAUGH.UGANDA NEEDS CAPACITY BUILDING

Last month President Yoweri Museveni commissioned road maintenance equipment worth sh295b. The road maintenance units, one for every each of Uganda’s multitude of districts, were purchased on a loan from China.

In the spirit of investing more in infrastructure development with the intention of cutting down the cost of getting to market for our produce and products, it’s a step in the right direction.

My initial optimism was deflated last week by a friend in government who should know about these things. On the surface of it the biggest challenge I thought, would be the fuel to drive these units – did the districts have the budgets to run this equipment?

But I was shocked to find that the problem would actually be worse than that, that we do not have enough machine operators in the country to operate these road units. Surely we do, I protested. Just driving the earth movers, rollers around. My friend assured me it is not a simple as it looks and requires specialized knowledge in order that good work is done.

It is a problem enough that Economic monitoring minister Henry Banyenzaki told a dialogue on trade and wealth creation last week convened by the African Center for Trade and Development (ACTADE), that one of the reason billions of Uganda shillings in aid money goes unused is simply a lack of human capacity to execute the projects.

We have an inadequacy of skills right up the line from the most basic to the extremely sophisticated.

In order to get the job down in whatever endeavor you need strategic process, which is the road map to convert a vision into reality, operational process, which will actualize the plan and the human resource, which goes without saying. You can be as strategic as you want or have the most perfect workflow plans the world has ever seen but without the right people everything done is as good as useless.

My friend who should know, knew of no government statistics that could accurately reflect the skills’ shortages in this country so I had to make do with those I could glean off the net.

The doctor to patient ratio stands between 6 to 8 doctors per 100,000 Ugandans depending on which sites you visit.  So for our population of the 35 million we have under 2500 doctors. Statistically speaking Kampala with a day time population has 12 doctors.

The World Health Organisation’s (WHO) recommended minimum is ten for every 100,000, meaning we would need at 700 new doctors to meet the WHO standard.

I am reliably informed that all our medical schools do not graduate more than 200 doctors a year.

The same statistics show that Seychelles has the best ratio on the continent with 151 doctors per 100,000 patients. In the region Kenya has 14, Rwanda five, Burundi three and Tanzania two.

And this dismal state of affairs goes across the profession from the lowliest health workers to the specialists. The same story is found in in veterinary medicine, agriculture and forestry, engineering, accounting or any number of fields you can think of.

At the heart of our many problems wherever you look, is a lack of capacity – this is before we even consider competence and integrity.

Training takes time. Think about it, of all the kids who enrolled in P1 under UPE in 1997 none has graduated from university yet.

Looking back Uganda started with universal primary education 15 years ago and has been in the process of rolling out the secondary school equivalent. Both far from perfect attempts but a start anyway. More recently government has raised the incentives for science teachers and has plans to construct and equip science labs across the country.  In addition government is putting in more money in business, technical and vocational education and training.

Government may consider incentivizing private investment in education to speed up the process. But before we start throwing money at the problem we need to get a more accurate assessment of the extent of the problem beyond anecdotal evidence.

Unfortunately in our poor countries with finite resources and pressing needs that are all urgent --- what do you do first? Roads? Hospitals? Schools? Unfortunately we do not have the luxury of sequencing.

INVESTING IN UGANDA NOT FOR THE FAINT HEARTED

In March this column reported  how cement manufacturers Hima had woken up in January to find they had been dispossesed of the right to mine one of their major quarries.

Previously unknown firm African Gold Sniffers Ltd (you really can’t make this up), had with the help from an official in the geology department of the energy & mineral development ministry, acquired the mining rights to Hima quarry – one of two quarries, the  other being Dura that the cement producers use for manufacture.

Mining concessions change hands every so often but what was interesting with this particular case was that Hima’s concession was not due to expire for another year, it expires at the end of December 2012, and therefore not due for renewal or termination.

The transfer was even the more stranger because, the local arm of worldwide cement manfacturer LeFarge had only months before commissioned a $120m (sh300b) plant on the basis of the Hima quarry, which was to double their production to 850,000 tonnes annually.

The plot thickened even further when investigations showed that the Sniffers had got the full exploration license in under 19 days – including weekends, for a process which takes months if not years to consummate. This must be a record in efficiency for the Ugandan civil service.

The Sniffers wasted no time in asking Hima to vacate the quarry so they can take possession. This was the first Hima heard of the whole nefarious affair. One would have thought with millions of dollars on the line and having been a long term investor and with full knowledge of Hima’s business plan for the next 25 years, the geology department would have appraised Hima of what was going on. Even if out of basic courtesy.

Since I wrote the article in March the responsible – or irresponsible, official in the geology department is being investigated and the concession is back with Hima. Incredulously Sniffers are crying foul and are sniffing around for compensation.

This story is a familiar one and readers will be forgiven for nodding their heads knowingly and moving on to the next story.

Not to sound clichéd but these kind of machinations are at the heart of what ails this country and keeps the majority of our people suffering sub human existences...

Uganda badly needs investors – local and foreign, to unlock the wealth in its vast bounty of natural resources.

Any investor worth his salt has to be assured that his property rights are guaranteed by the state.  No serious investor is going to put in any money in an endevour in which he is not assured of at least recouping his investment. 

An exploration of why capitalism works in certain places and not in others, finds that insecurity of property rights is at the center of market failure. What happens is if an investor – local or foreign, is unsure of the security of his property rights, they tend to veer towards short term speculation, which requires little capital input and through overpricing is guaranteed to show returns in double quick time. Such investors will not create many jobs, invest in technology or even pay much tax. Clearly not the kind of investor Uganda is looking for...

They say capital is a coward. Capital would rather take lower returns on investment, which are more assured than gun for higher returns, which are not as assured.

Word gets around. What has happened to the local arm of global cement manufacturing giant, LeFarge will be discussed over cocktails in London, New York, Paris and now after reading this probably in your local kafunda as well. And investors will wonder why suffer this grief and rather invest in another more transparent country or for you in the kafunda, why not buy treasury bills and bonds and save yourself the stress.

To state the obvious, a country is only as viable as its private sector. The private sector pays tax and creates jobs. In Uganda over the last two decades as the private sector has grown their taxes account for more than two thirds of the budget. In the eighties local taxes accounted for less than a third of the budget, with the rest coming from aid. Without a private sector a country is vulnerable and despite outside pretensions, collapse is never far away – ask the Union of Soviet Socialist Republics.

"We cannot treat investors – local or foreign as if we are doing them a favour. They risk money to make money, in so doing create jobs and pay us taxes. We may debate whether the taxes they pay are properly utilized but that is a debate for another day...

Ugandans need a chance and long term credible investors are what we are looking for unless one is sniffing  stuff more potent than cement or is that gold?.