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.