CONGO CONTINUES TO IRK RWANDA, UGANDA

The Democratic Republic of Congo would be like a bad itch that has refused to go, but the analogy is a hard sell given the country’s enormity – it has land area the size of western Europe.

Last week the UN Security Council’s Group of Experts said in a confidential report that both Uganda and Rwanda were supporting the M23 rebels, who are expanding their control of parts of Congo’s mineral-rich North Kivu province.

This latest report comes when the Ugandan led International Conference of the Great Lake Region is making headway in setting up the necessary infrastructure to bring peace to the trouble eastern Congo.

"The leak also came days before Rwanda’s bid for a seat for the Security Council was coming up to vote in the UN general assembly. Rwanda, the continent’s unanimous choice, won the seat regardless of the new allegations.
There are no such things as coincidence in the affairs of states...

Uganda and Rwanda’s interest in the DRC is not a secret. In the mid-nineties the two nations’ armies rolled into the Congo in aid of a rebel force led by Laurent Kabila. They overthrew the army of cold war relic Mobutu Sese Seko. They fell out with Kabila ganged up again to try and depose him at the beginning of the century.

A series of fights between Rwanda and Uganda led to their evacuation in 2002.

But their interest in the volatile and lawless eastern Congo has remained.

Kigali is wary of the remnants of the Hutu dominated army it ejected in 1994 who they fear have never given up on returning. While Kampala claims that anti-government rebels are finding refuge in the unpoliced jungles of eastern Congo. In fact Uganda troops remain in northern Congo in hot pursuit of rebel leader Joseph Kony and the remainder of his Lord’s Resistance Army (LRA).

But Congo’s real prize is the estimated $24 trillion worth mineral resources buried in its soils. To put the extent of this bounty in perspective this is the equivalent to the combined GDP of the US and western Europe.

These minerals range from old school copper, gold and diamonds, to new age minerals like coltan and silicon, critical in the multi-billion dollar high tech industry. There also suggestions of commercially viable quantities of oil and gas, given the neighbouring finds in Uganda and Rwanda respectively.

With poverty and ignorance endemic and Kinshasa’s influence largely absent in most of the vast central African nation, it is has become a haven for the unsavory types – free lance or state backed to take advantage of the system to extract as much wealth as they can at least cost.

In March 2004 Equatorial Guinea was the target of a coup organized by a motley crew of  British, South African and Zimbabwean investors and mercenaries, with some tacit approval from some key nations.

Equatorial Guinea president Teodore Obiang may not be a likable character given his human rights record and his stewardship of a kleptocracy that has doomed the majority of his people to a sub-human existence. But the small nation of 500,000 people on the west coast of Africa has  huge accessible oil deposits.  Enough oil to make an investment in a coup a worthwhile endevour, by some small time, albeit politically connected, businessmen. Equatorial Guinea has a paltry 1.1 billion barrels of proven oil reserves about $110b at today’s prices.

"It is not by accident that the Congo continues to be an insecure, unstable and poor country. Keeping it that way serves the purpose of certain interests who for instance would not entertain a country seating on such wealth with a leader that is politically conscience and determined to exploit this wealth for the benefit of the Congolese people....

One may query Uganda and Rwanda’s own interests in the Congo.

The rumours that the two nations through official and unofficial channels have been involved in the exploitation of minerals have been around, even before the 1960s incursion by units of Uganda Army into in aid of gold and ivory smugglers.

But the two countries may also probably be suffering a kind of guilt by association.

Uganda leading a process, which given a chance may see eastern Congo settle down unlocking a10million strong market, and Rwanda emboldened by its seat at the high table of global security, even if for only two years  may not bode well  in certain circles.

The Congo is murky business and this may be as good a conspiracy theory as any around.

UMEME AND THE CREATION OF AN INVESTOR NATION

Last week shares in power distribution company Umeme went on sale.

The company will raise sh170b by selling 38% or 622 million shares to the public in an initial public offering that will last till November 7. The shares will then be listed on the Uganda Securities Exchange (USE). Each share costs sh275 and Umeme threw in a further sweetener, pledging a bonus share for every ten shares bought.

This brings to eight the number of local companies listed on USE and to 13 the total number of companies listed on the USE.

Umeme, which is wholly owned by the UK Private equity firm Actis, has been running the distribution arm of the Uganda electricity Board (UEB) since 1995.  UEB was broken up into its generation, transmission and distribution components in order to facilitate its privatization.

What makes the Umeme privatization unique from those that have come before is that it owns the business of distribution of power but government owns the assets. Its safe to say government leased the assets – the buildings, power stations and distribution grid to Umeme. The government is paid an annual fee by Umeme for the right to do the business and at the end of the 20 year concession the assets and business will revert to government.

So shareholders will be buying a share in the concession, which may or may not be renewed when it expires in 13 years’ time.

"It is reasonable to expect that investors will make back their money and more in this period as more power is generated, Umeme improves its capacity to distribute this power around the country and maintains its profitability...

Most of us sell our labour at our jobs or working in our businesses to earn a living. Before one can think of accumulating wealth you have to have an income. Once you have one the challenge is how you earn more for your labour.

You can either work longer or get a better job. But because you are one person there is a limit to how much you can earn. If you could be in more than one place at once arguably you can multiply your earning power to the extent that you can replicate yourself.

Since self-replication is out of the question the next best thing is to have your money work for you.

Investing on the stock market is a useful tool to help anybody have their money work for them.

In buying shares you are deploying your money to make you more money. Of course like with any investment there are risks of loss, but these can be mitigated through knowledge and experience.

The advantage of shares over other traditional investments is that you don’t need a lot of money to begin with, so the cost of entry into these kind of investments is low.

One other advantage is that you are buying into a going concern. In setting up a business there is a steep learning curve, which costs money. But in buying into an established business this “pain” can be avoided. One will be buying into a tested business model, management and systems.

On a more general note, offering shares in the previously state owned companies widens the net of the asset owning class which has far reaching consequences for national stability and the growth of democracy.

National stability is not guaranteed by national armies and security agencies but by narrower wealth disparities in a society. Asset owners tend to resort to more civil ways of resolving conflicts than the poor, who have nothing to lose and therefore violence and its attendant destruction does not bother them.

By its nature an investment takes a while to mature, the mentality of a nation of investors is very different from that of a nation of consumers – and a safer place to live in too.

NORTHERN UGANDA CAN LEVERAGE ITS HISTORY FOR GOOD

This week the World Food Program (WFP) announced it will start buying food grown by small farmers of the Acholi region.

This was a momentous event because barely two years ago the region was dependent on food assistance from the UN agency.

For almost 20 years between 1986 and 2004 northern Uganda ravaged by the LRA insurgency, as a result more than two million people were displaced from their homes and housed in the Internally Displaced Peoples (IDP) camps.

For the duration of the war the fields have remained fallow, reducing the once productive region to a food aid recipient.

But with rebel leader Joseph Kony far from home in the Central African Republic, people have been moving back home and have set about returning their lands to productivity.

Even twenty years of the decimation of their cultures and traditions have not taken away a work ethic that existed before and an initial 154 tonnes delivered to the WFP is proof of that.

The Acholi farmers has a few things working not least of all is that the land left fallow for all these years has  been regenerated with most of its fertility restored, so we can expect that farm productivity will be higher than two decades ago.

WFP are obviously see this coming, they have set up a 6000 ton produce warehouse just outside Gulu town.

When the war ended a suggestion was floated that the people should not return to their villages but instead the camps be developed --  with better housing, proper infrastructure and services into urban areas.

The major benefits were that it would be easier to provide services to those large concentrations of people. Pabbo camp’s 140,000 inhabitants would be the fourth largest city in Uganda.

But also the large tracts of uninhabited land could launch a commercial agriculture revolution. 

The idea never caught any traction, probably because of the magnitude of the endevour, coming out of a war, emotions still raw the project would understandably be a hard sell.

But if the truth be told northern Uganda with a lot of its land communally held,  will face a huge challenge raising farm productivity beyond the fertile soils and reenergised labour force can manage.

Communal land ownership means there is collective ownership of land by a group of people – tribe, clan or family with all decisions about land use done by consensus. The disadvantage of this is that land is often underutilized, hard to trade and therefore difficult to unlock its full value.

An opportunity has presented itself. The larger part of the population in the Acholi region is starting life anew. The time to make transformative changes is fast slipping away.

This is not a northern Uganda problem, but the area’s leadership have the keys to make a significant change.

Land reform is always a politically expensive process and understandably leaders with a five year horizon will be reluctant to tackle the issue. The inertia of doing things the way we have always known them to be done is an immovable object. The question is can the local leadership create the irresitble force to dislodge it?

Northern Uganda will have no problem feeding itself, but the land tenure system will put a ceiling on production and the surpluses which can lead to the transformative change the region so urgently needs.

In the meantime we can still improve productivity further in the area through  the use of fertilizer, improved crop husbandry, efficient post-harvest handling and by reviving and exploiting the economies of scale that come with cooperative societies.

FOR MODERN STATEHOOD, UGANDA NEEDS TO THINK LIKE BUSINESS

President Yoweri Museveni speech outlined the goal for the next fifty years – to be a modern high income economy.

Currently the Ugandan economy is about $18b, given a population of about 35 million this comes to a per capita income of about $500. According to the World Bank’s classification we are a low income nation.

To become a middle income nation we need to at least double our per capita GDP and to become a high income nation this figure has to leap to at least $12,000 per person.

The trick is how to do it.

By using the measure of economic output per person --- though a far from perfect measure, it is recognized that the size economy of the economy is nothing if it does not benefit the nation’s people.

So while China has a bigger economy than Canada, Canadians enjoy a better standard of living because of a smaller population and a better job of spreading the wealth around by its government.

That sums up Uganda’s challenge over the next fifty years --- to grow the economy and then ensure the benefits of this growth are spread equitably across the economy.

We have done a better than average job of growing the economy since 1986, quadrupling the size of the economy over the period, though it must be said this was achieved from a low base to begin with and the benefits have been tempered by a doubling of the population over the last 26 years.

In addition given that most of the growth came in services and construction the urban populations have benefitted disprortionately from this world beating advancement. Agriculture which employs as much as four in every five Ugandans has not witnessed a corresponding jump in output, dooming about a third of the population to exist below a dollar a day.

We have learnt over the last two decades that the best way to grow the economy is to unleash the energies of individuals and companies. The privatization of state firms and breakup of old monopolies unleashed an energy that has carried us to this point.

When wealth disparities exist in an economy it is an indictment on the politics of that nation. So while private initiative is supposed to produce wealth, the government’s role is to ensure the environment for this wealth creation is sustained and enhanced and to distribute this wealth by providing public goods like enabling policy,  security, infrastructure and social services.

Government has left the private sector largely to its own devices and it should remain that way except that our political elite and public servants should adjust their attitude towards the private sector. They need to see businesses as partners in development rather than adversaries to hold in check or golden geese to shakedown for bribes every now and then.

This is the challenge. To attain middle income by 2030 which is the stated goal, we have to quadruple the economy again and we might just make it if the population keeps growing at the current 3.6%.

That is the easy part. To make sure this happens while carrying everyone along, we need to not only invest more in infrastructure and social services but also to make sure that we get value for money for these investments.

Government needs to shift away from thinking about inputs – so many health units, schools, road, railways and dams have been built and focus on outputs -- how many people are treated, quality students graduate, market access availed and industries powered. In short stop thinking like a government and more like a business.

And the elephant in the room --- corruption, needs to be tackled with more determination otherwise it will be like trying to fill a bucket with water which has a hole in it.

IN UGANDA THE MORE THINGS CHANGE, THE MORE THEY STAY THE SAME

“Over the last 60 years, Uganda’s economic growth has been unspectacular but steady. Uganda remains an agricultural country: two-thirds of gross domestic product is derived from farming and over 90 percent of all exports are produced from the land. Agriculture is in large part subsistence farming (mostly done by women with hoes) with a growing, but as yet smaller, proportion of total output produced for the market: three-fifths of the area under cultivation are used to produce food for the consumption of the cultivator and her family”

Except that this was an excerpt from a World Bank report “Development of Uganda” authored in 1962 one would be forgiven for thinking it was a more a current report.

At the time of the report Uganda’s population was just over 6.5 million, GDP stood at $230m (sh620b) and per capital income was about $35.

Fast forward to today the population is 34 million, economic output is at about $15b and per capita GDP is about $450.

In addition agriculture accounts for less than half of GDP and coffee and cotton are not the biggest foreign exchange earners.

"The report was requested by the Uganda government following a collapse in the world prices of coffee and cotton, proceeds from which pre-independence Uganda had relied to balance its budget and set up the Owen falls Dam and Kilembe mines....

The reduced income from these cash crops was putting a strain on government’s ability to provide services, a delicate situation given that independence was around the corner and the new government would need all the resources it could muster to drive its expansion of social services.

When you read the report its amazing how as much as things have changed things have  not really changed at all.

“Industrialisation is nevertheless still in its initial stages. The small size of the home market has been a dominant limiting factor …. The birth and growth of small backyard enterprises is still slow because of the slow pace of development of indigenous small entrepreneurs.

“The labour force is still quite distinct in character from that of industrialised countries. Wage labour like the cash crops, has been grafted on the subsistence economy.”

"The World Bank reports that there were 13,000 miles of road of which a fourth were main road. This has remained largely unchanged at 20,000 km with less than a quarter paved...

But the researchers saw deficiencies in our national human capacity which gaps they foresaw would cause trouble in coming years.

While noting that there were 240,000 people working outside peasant agriculture the

15,000 skilled, technical, managerial and administrative personnel needed for running and development of the economy were mostly Asian and European.

"Uganda is seriously short of trained senior administrators and technicians for government posts …. The closer the date of independence the greater the need for “localization” of the civil service. The skills acquired can be acquired only through higher education and experience, and Uganda will have difficulty supplying them for many years to come,” the report said.

We may never know the loss to the economy after 1971 when little or no new education institutions were set up but the population continued to grow, and the shortages in manpower were aggravated by the fleeing into exile of many middle class professionals.

And this human capacity deficiency is at the heart of any problems you may think of in the country today inadequate medical care and education services, corruption to name a few.

Seeing the enormity of the task the researchers proposed a long term strategy.

“Educational patterns cannot be changed overnight. Educational planning must take place on the basis of generations rather than in terms of a five-year cycle,” they wrote.

 The report a 520 page tome, studied all aspects of Uganda’s economy and suggested the way forward. It would be useful even today given that the same challenges the authors pointed out at the time persist almost unaltered, today.