DOES UGANDA REALLY HAVE DRUG SHORTAGES?

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Nalongo’s son had just undergone an operation and it was long past the time he was supposed to get his final pain killer for the day.

She looked on helplessly as he whimpered in pain as his father went in search of the doctor on duty.

The nurse on duty when she came around – three hours after the 6 pm prescribed time for the young man’s doze, claimed the drugs were not in stock and that they should go outside the hospital to buy the drugs, which prescription she hastily scribbled on a piece of paper.

As it turns out the drug was very much in stock. For those in the know this was subtle attempt by the nurse to extract some money from the parents of the in-pain boy.

All this happened at the national referral hospital – Mulago.

While the end user is under the impression that our health centers are suffering a perennial drug shortage National Medical Stores is seating on tons of drugs which are reportedly in short supply.

“My warehouses are full of drugs to the point that I am asking my suppliers to hold with future deliveries as I try to work these ones out of the system,”  NMS boss Moses Kamabare told Sunday Vision.

Clearly between NMS warehouses and the end users there is a bottle neck that is preventing the end users from accessing lifesaving drugs.

Three years ago in attempt to alleviate the perennial drug shortages in public facilities, government centralized the procurement process under NMS.

Previously the procurement of drugs was decentralized to the national referral hospitals – Mulago and Butabika, the regional referral hospitals and the districts, which supplied the health center two to four.

By centralizing drug procurement government hoped to take advantage of the discounts possible with the ensuing economies of scale, create uniformity of supply and curb drug thefts.

Under the current system the referral hospitals and the districts provide NMS with a procurement plan, which guides NMS as to the drugs and their quantities to buy for the year as well as how regularly they should be disbursed. NMS only procures according to these plans.

NMS has a delivery schedule which is monthly for Mulago and Butabika and once every two months for everybody else.

Since the capacity to quantify needs was lacking at the lower health centers the health ministry came up with a basic kit, which has most of the essential drugs and supplies like gloves, which are supplied to the health centers two and three.

So NMS clients are supposed to requisition their drugs according to their pre-determined procurement plans and only then will they be supplied with the drugs.

“That is where the problem starts. We quickly found out that either they do not requisition, so we don’t dispatch or they requisition less than they already planned for leaving us with unused stock,” Kamabare said.

That is where the discrepancy between shortages at the health centers against the contradiction of NMS’ full warehouses begins.

By not requisitioning or under requisitioning you have health centers without drugs for months or running out of supplies ahead if schedule respectively.

Why this happens is a mixed bag of motives that range from incomprehensible incompetence to sabotage of an innovation that would expose the old practitioners to individual abuse of the system to meet personal needs.

“For example some prescribers can prescribe medicines that are not on our national essential medicines list. The idea being the patient would have to go out of the hospital to order the drugs living the impression that the hospital is short drugs while the truth is that a perfectly adequate drug is readily available in the health facilities dispensary,” Kamabare said.

Clearly a holistic solution to the problem including increasing health workers pay and welfare and training many more health workers.

But as a start beyond the streamlining procurement Kamabare counsels the use of medicines only listed in the national Essential Medicines List and prescribe as stipulated in the Uganda Clinical Guidelines – which has detailed descriptions of common ailments in the country and how they should be prescribed for.

“Artificial scarcities are being created  and sustained contrary to the truth, “ the NMS boss says. “Among the drugs we are over laden with are those for cancer, TB, ARVs, family planning supplies, rabies vaccines, insulin and mama kits. My concern is not that my warehouse are full but what is happening to the rightful patients of these drugs …. Aren’t they dying because of a failure of our systems?”

UGANDA BANK PROFITS UP, FORSEE MORE BAD LOANS

Commercial banks reported record profits last year on the strength of higher lending rates but also anticipate a greater proportion of their loans going bad.

Analysts also warn that as a result of determined central bank anti-inflationary measures tighter liquidity will lead to lower lending volumes which will negatively impact bank profitability.

Last year most banks reported double digit growth in net profits.

Barclays Bank led the way more than doubling its profits to sh21.2b from sh9.7b in 2010 driven mainly by profits booked on their currency trading.  The bank, which returned to profit two years after a particularly messy integration of the former Nile Bank, saw interest income – money from lending, rise to sh109.8b from sh100.6b the previous year there was a doubling of net trading income to sh23.7b from sh12.5b the in 2010.

Stanbic Bank, the country’s biggest bank by any measure, also saw profits jump 85% to sh162.5b in 2011 from sh87.6b the previous year. The boost in the bank’s bottom line came from sh100b jump in interest income.

Also noteworthy is that the banks increased their provisioning for bad debts. Every year banks examine their loan books and put money aside to cover anticipated bad loans.

Of the five top banks their average ratio of bad loan provisioning against the size of their loan books was 1.3% up from 1.16%, weighed down by a reduction in provisioning by Barclays Bank.

“It is not surprising that the bank profits are up significantly this year – higher lending rates and the treasury bill and bond yields made sure of that,” one retired banker speaking on condition of anonymity told Business Vision.

“The higher provisioning for bad loans was not a surprise too, but it is unlikely this will have a huge negative impact on the sector, if the results are anything to go by the percentage of bad loans to loan book remains in very manageable territory.”

Banks however will continue to draw criticism for their high lending rates when viewed against the interest they pay on deposits.

The average cost of money for the top five banks is about 4.4% while the average base lending rate – the rate at which banks lend to their most favoured customers is above 20%. The Bank of Uganda reported an industry wide weighted average lending rate of about 26.83%. The difference between the two figures is as high as 25% and at least in double digits.

“The truth is these banks have huge cost bases and someone has to pay for these,” the retired banker said.

Observers note that whereas the banks make huge profits year in, year out their services are restricted to the urban areas and even then to trade and services.

“The economy is growing every year but this growth is concentrated in the urban areas and more specifically in the services – banking, telecommunications and construction. Banks don’t lend to agriculture and they don’t lend to manufacturing they argue that they are not agricultural or development banks and rightly so, but this is not sustainable,” Makerere University Lawrence Bategeka said.

Bategeka a senior fellow at the Economic Policy Research Center (EPRC) the banks success shows how skewed our incentives are towards services and not production.

“If everyone is in banking who will be in agriculture and manufacturing. The productive sectors is where most of our labour force is and yet growth there is not matched by thatin the services,” he said.

“There is something fundamentally wrong when the returns on equity of banks far outstrips those of industry. In developing countries like us the productive sector should be enjoying returns on equity of between 15 and 20% with the banks around the same. As it is now banks are doing 20% and industry are seeing single digit returns,” another observer noted.

Return on average equity in the five banks polled stood at 32% with Stanbic Bank reporting a 55% return on average equity.

But in this year banks may witness a slowing down of profit growth weighed down by a tightening of liquidity and reduced lending on account of higher lending rates.

Though inflation and the central bank rate have been falling we have not seen a corresponding drop in lending rates.

“Banks are ok the real fall out going forward is going to be in the Small & Medium sized Enterprises (SMEs) a lot of these companies rely heavily on debt for their operations but are in very competitive sector. Look for them to go burst and this has implications on property as well as many of them are mortgaged to the hilt,” the former banker predicted.

NOW UMEME CAN START EARNING ITS KEEP

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It has been a while since I was loadshed.

As one person said, the power is now too much and we don’t know what to do with it. That sentiment will change when we gets our next bill.

With the power generation situation improving – Bujagali is now feeding 100 MW onto the grid with an additional 50 MW coming on in a matter of days. Power distributor, Umeme is taking a well-deserved breather from all the criticism they have endured over the last 12 months – until they post the next bill.

In order to bring greater efficiency into the power sector the government split up the old Uganda Electricity Board (UEB) into its component parts -- generation, transmission and distribution.

It hived off the generation function to a consortium led by South African firm, Eskom the distribution to UK investment fund Actis, which fully owns Umeme. Government retained the transmission function.

Now that the dust has settled somewhat, it’s as good as any a time to re-examine the Umeme issue.

A lot of criticism of Umeme was misplaced, but Umeme being the face of the electricity sector, the entity that interacts directly with the users, it suffered the brunt of the attacks.

Over the last few years attacking Umeme for loadshedding would be akin to blasting the airtime vendor for dropped calls and no network, which is the responsibility of the telecommunications companies.

What does not seem to be public knowledge is that Umeme has actually exceeded all targets set for it at the beginning of the concession.

"Under obligation of the concession Umeme was required to invest $65m (sh163b) over the first five years of the concession but has invested double that figure to date. Umeme was expected to sign on 75,000 new customers within five years to date the distributor has signed on 200,000. A case of too many users chasing too little power, this overzealousness may have set them up for a fall. Umeme was also tasked with reducing systems losses from about 40%. Losses are now down to 28% through improvements to the grid and reductions in power stealing.

Umeme seven years into its 25 year concession will for the first time, have enough power to go around and then some. For the first time Umeme will have the chance to show us what they have got.

There is still a lot of work to be done, money to be invested and people to be connected to the grid, a figure Umeme has lifted to 12% from the previous five percent.

The unbundling of UEB and the privatizing of its various parts was a novel approach to our privatization process. Breaking up the old parastatal while not necessarily creating competition, government expected that the benefits of specialization would accrue to the consumer.

The huge amounts of investment that were then required to rejuvenate the constituent parts therefore needed credible investors with not only the financial muscle but a long term view of the sector.

It is not by mistake that some of our biggest investors are in the power sector – Umeme and Bujagali Electricity Ltd. Our other biggest investors are in the oil, telecommunications and banking industries.

Capital is a coward.

Onlookers may think that capital flows towards the highest returns but the truth is that quality capital does not look at profit in isolation but measures it against the risk it would have to stomach to make that return.

In the famous words of billionaire Warren Buffett “Rule number one, never lose money. Rule number two, see rule number one” In Buffett’s book risk is measured in how likely he can lose his capital.

You may brag about your double digit returns – I hear in Uganda it is 40%, when wooing investors, but they are looking beyond that to the more normal commercial risk to things like political risk.

It’s in Africa where coups still happen, governments still expropriate foreign assets and mobs can torch foreign owned businesses. And we pay for that risk through higher costs, lower tax collections and/or smaller investments.

The point is that Uganda’s infrastructure needs – road, rail, telecommunications, energy, going into the future are huger than anything we have known before.

Africa is the next big frontier of investment and whether we will be at the top of the table winning the choicest investors or feeding off the crumbs of South Africa, Mauritius and Nigeria will depend on how we treat the current crop of our investors.