THE ENTEBBE-NAIROBI ROUTE AND THE BENEFIT OF COMPETITION

In case you missed it the talk burning the wires was about the new rate of a flight on Entebbe-Nairobi route.

A same day return flight will now set you back about sh1.6m compared to sh800,000 at the beginning of the year. Kenya Airways once again monopolises the route following the suspension of Air Uganda last month.

The route has reverted to its status as one of the most expensive routes per kilometer in the world.

How did we find ourselves here?

The folding of Uganda Airlines more than a decade ago, set the stage for Kenya Airways to set up a monopoly on the route. The way these things work is that countries have bilateral air agreements, which means they license designated carriers from either country to fly into their respective airports. Other airlines cannot fly passengers between the two countries unless both agree to it.

So over the last several years Air Uganda has been our designated carrier and Kenya Airways served as our eastern neighbour's. so when Air Uganda stopped flying Kenya Airways increased the number of frequencies to Uganda -- to the extent that they could manage, to fill the gap.

Maybe they would have maintained the cost of a flight out of the goodness of their hearts, but "the pride of Africa " has been suffering losses in recent years and their management will only be too glad to earn a few more dollars wherever they can.

As a nation we are in a rather precarious position with no bargaining power to speak of.

Uganda and Kenya are each others largest trading partners. We both house huge numbers of our respective populations for historical reasons, more so than either of us do with Tanzania. We travel back and forth on holiday, to school or hospital. Granted that most of our exchanges are by road, but the Entebbe-Nairobi route carries enough of this interaction to make the route one of Kenya Airways major cash cows. So the route has to remain open.

The possibility of allowing another airline to be our designated carrier along the route will be fiercely opposed by the Kenyans. Ethiopia Airways tried after Uganda Airlines went down but made no headway. In the early part of the 2000s East Africa Airlines tried to break Kenya Airways stranglehold on the route but the resistance was such that it was forced to shut down and put its sister business, ENHAS cargo handling at a distinct disadvantage when Kenya Airways withheld its business.

It's times like this that we are really exposed to our over reliance on Kenya. The other times of course is when there is interference in the traffic between our border and the Kenyan coast, which route again dominates or land communication options.

The East African Community is doing a good job in raising our sense of interdependence on more tangible basis than political rhetoric, but even there we can see how the field is far from even.

Some saber rattling by our leaders may come in handy in redressing some of this unfairness, but the more sustainable solution is for us to diversify our communication options in the short run, but in the long run to grow our economic clout to the point where we can enjoy real bargaining power.

Of course there is the group, that jumps out of the wood work every so often, to use such times as a justification to push for our own airline. Yes. If we had our own viable airline the Kenyans attitude would be very different. Unfortunately starting and building an airline is not done with a snap of the fingers. And the opportunity costs of sustaining one in terms of lost investment in other infrastructure and social services make it difficult to justify. Ask Rwanda.

We shall not examine too closely how Kenya Airways established its advantage but clearly their dominance on the route is not about to go away.

It seems that we are in for a highly priced route, at least until Air Uganda extricates itself from its mess. If it can.

UGANDA DRUG MULES SYMPTOM OF WIDER MALAISE

Last week we heard the heart rending story of the widow of a Ugandan who was executed in China for drug traffiking.

The convicted trafficker, Andrew Ham Ngobi and another Ugandan Omer Ddamulira were executed two weeks ago by Chinese authorities after they were convicted for being in possession of a combined 43 kg of cocaine, with an estimated street value of sh6.6b.

There have been enough apprehensions of drug traffickers to tell us this not an isolated case.

Recent press reports have it that as many as 23Ugandans have been sentenced to death for smuggling drugs into China. In addition another 22 Ugandans are serving life in several jails scattered across China, while four others have been placed behind bars for a period ranging between 12 and 15 years.

As if that is not enough Uganda, is increasingly being seen as a transit route for drugs to Asia and Europe. Add to this the fact that while the national economy continues to grow, wealth and income disparities continue to widen leading to greater desperation among a significant portion of the population. It does not take for any serious soothsaying aptitude to predict that the number of Ugandans convicted abroad and maybe at home will only increase in coming years.

Ngobi's story made for national headlines I suspect because of the widow's testimony but who knows how many more Ugandans have been convicted or are serving long convictions in countries around the world with zero tolerance for the drug trade.

We should not be tempted to think this is a problem for other people and that the rest of us reading the paper over  breakfast just before we go to church are unaffected.

"A recent conversation with a high school counsellor revealed that the major problem she was battling was not under age sex, adolescent adjustment issues or even students cutting class but the rapidly increasing incidents of drug abuse. Clearly I could not relate. I came from an era when the handful of students  who smoked or stole out of school to go dancing or cut class were the bad boys. ..

Every so often we now hear of young adults combatting debilitating drug addictions or dying from overdoses. They don't make kids like they used to.

But beyond the worrying trend among our young adults and subsequent generations, these increasing drug related problems have wider ramifications.

Last year the value of global illicit trade was estimated at $650b in goods ranging from cigarettes to human trafficking and up to $2.5trillion in illicit financial flows. It's not clear how much of this trade flows through Africa but if only a percent of it did, that would be $35b annually or about the  size of East Africa's total annual trade.

An unintended consequence of our ramping up our investment in infrastructure means it will become increasingly easier to get around the region and the continent, couple this with our poor or corruptible enforcement officials and one can see that this continent will soon be a haven for international organized crime.

This should have us -- not only the parents, all biting on our finger nails.

The history of organized crime has two very disturbing characteristics. 

One, that the networks employed for the drug trade are the same ones used for gun running, human trafficking, smuggling and any number of other nefarious activities. We shouldn't seat on our hands thinking drugs are our only problem. The more the drug networks entrench themselves the more likely that all other ills will come rushing in the door.

"But even more scary is that organized crime is not content just to have foothold in a country or region. They are not averse to taking over administrations or whole governments to ensure they have continuous carte Blanche to do as they please...

It is not unheard of. 

In South America governments are being held hostage by cartels who have corrupted the entire political and administrative processes, engaging in all out war against drug lords at the expense of critical service delivery and In addition because of their international reach these illicit networks are causing diplomatic incidents everywhere they are.

The plight of Ngobi and Ddamulira should serve as a wake up call for the country. 

It is possible that illicit networks are already finding their way into our country, not surprisingly given the extent of our official corruption alone, but we better be warned that when you give them an inch they will want a mile.

NO NEED TO REINVENT THE WHEEL

Last week I read two articles about the development process. 

On the one hand was "Devaluing the Bolvarian revolution" an article in The Economist that tried to describe the challenge of getting the Venezuelan economy up and running after years of populist policies that have sunk the economy, never mind that the South American nation is one of the world's largest oil producers.

The second article was about China, "The most disciplined organization in human history". According to the article the Chinese Communist Party is that organization, judged by its role in spearheading the rise of China characterized not only by its huge leap in its macro economic numbers but by the tens of millions of its citizens it has lifted out of poverty in the space of under half a century.

At the heart of China's reemergence as a world power is the principle of "the State as a work of science or Scientific development". That "state’s affairs should not be a matter of opinion, intuition, impulse, emotion, religion, personal preferences or lineage, but based on the scientific approach of “seek truth from facts” in political and economic affairs."

The determination to do this came following the death of Mao Tse Tsung who led the country on a series of disastrous social engineering experiments that they have however exploited to their advantage.

Venezuela under Hugo Chavez however has gone down a dark tunnel not unlike one that Robert Mugabe has taken Zimbabwe. The supporters of both men argue that they were forced to do the things they have -- Gut the productive classes, expand the government to unsustainable levels and indulge in populist but economically unsustainable policies because of external threats.

Anyone who has observed world events would not discount their fears and may be tempted to cut them some slack. But one could also argue that China has developed in the same environment and even under harsher circumstances.

As a communist nation, which not only had to fend off western holier-than-thou democrats but also interference from its once ally the USSR, who wanted to bring the world's most populous nation under its thumb and expand it sphere of influence beyond eastern Europe, the rise of China was never a forgone conclusion.

China comes under a lot of criticism for its human rights record but they have a response to that, arguing that the time will come for that, that it is in fact inevitable, but for the time being what they most need now is discipline.

The current appreciation of human rights in the western democracies came out of a long evolutionary process. We may study about them in the text books but the world's majority have no real appreciation for them. Even in those same western democracies there are still significant pockets of racism, bigotry and xenophobia.

It's all very nice to cut and paste these rights into our constitution and laws but is something else to practice them.

I would be loath to call for a roll back of the few rights we now enjoy, least of all my freedom to express myself, but China provides a compelling argument for a unified authority. As did Europe before democracy came a few hundred years ago in the wake of the industrial revolution.

The development process is a series of trade offs depending on the particular circumstances of a particular country or region. It also a long winding process that never proceeds in a straight line.

The basic principle has to be that whatever is planned or implemented is done for the eventual benefit of the population. The benefits may not be visible in the short term but it is hoped they will be seen in the long term.

But we know that even the best of intentions do not necessarily deliver the desired result. That's life.

China's is set to overtake the US as the globe's largest economy within a decade, but going by its per capita statistics it is still a middle income nation. A lot of work is still to be done. 

You can be sure when they started this journey in 1978 -- when they decided to introduce some elements of the market economy or even in 1949 -- when it was proclaimed the People's Republic, the naysayers outnumbered and outshouted the believers. That's what happens at the beginning of any human endeavor of any significance.

I guess we will find our own way but it will be useful to remember, 

.

Without discipline we would accomplish Nothing.

With Some discipline we can solve only Some problems.

With Total discipline we can solve All problems.

- Peck Scott, The Road Less Traveled.

KICK SENTIMENTALITY OUT THE WINDOW, TO FIGHT POVERTY

In the aftermath of the budget speech many commentators have questioned the wisdom of imposing taxes on agricultural inputs. They complain that these taxes will make it more difficult for rural populations the majority of who derive their sustenance from the land. They argue that government is offering no or little support to agriculture and should not tax the farmers.

They may very well be right.

The taxes, more specifically VAT on everything from hoes to machinery, may increase their costs, may very well make agriculture unviable for many and may even jeopardize food security (though I highly doubt it).

On a broader level there is the question of poverty it's prevalence and our efforts to alleviate and, hopefully eventually eradicate it.

The way we measure poverty -- people who live on less than a dollar a day, suggests that most of the poor are in the rural areas and mostly in the north and the east. By this measure the country has been doing famously in lowering the proportion of the poor among us -- we down to about 20 percent from two decades ago when about half the population lived below the poverty line.

Of course the anecdotal evidence suggests otherwise.

"It's safe to say our measure of poverty is more statistical than anything -- if you put your head In a fridge and your feet in a furnace on average you will be ok; are colored by the local and international politics and really don't get to the bottom of the issue, which is how do we raise incomes across the board and when we do so how can we ensure that the people keep more and more of their expanding incomes, the true measure of poverty eradication...

We are obviously going about it the wrong way. If you wanted to alleviate sadness in your life wouldn't it make sense to aim for more happiness, which is the opposite of sadness, rather than aim for less frowning or pouting?

So the question then becomes how do we increase the wealth of our people? 

Straight off the bat we need to recalibrate our economic classifications, it takes more than earning a dollar a day to vault out of poverty. Also that poverty is not just a rural phenomenon -- some of the worst occurrences of abject poverty can be found barely meters off Kampala road.

Studies have shown that improved education leads to higher incomes. It is also obvious the healthier you are the more you can work and therefore the more you can earn. And of course the better the social -- security and institutions, and physical -- communications and energy, infrastructure the better the general economy can grow and therefore allow more and more people to benefit.

But we also know that often times the 80/20 rule or variations of it will apply in the distribution of income and wealth: twenty percent of the population will earn or control 80 percent of the income or wealth. Utopia is a fantasy.

Since we are now aiming for more wealth rather than less poverty it would be instrumental to study the top 20 percent, in the hope that we can trickle down a bit of their knowhow for the benefit of more people. Also in the process while we might not shatter the 80/20 rule at least we will have grown a bigger pie so that everyone has more.

A look down the ranks of the largest tax payers will show up some differences from our farmers. To begin with they pay more taxes, infinitely so seeing as our farmers pay none at all, and they have not collapsed. How do they do it?

Our biggest companies leverage partnerships with investors, banks and because of their size, even governments. Farmer Mukasa, Okello or Asedri trying to eke the last drop of nutrients from his plot is at a decided disadvantage in trying to go it alone.

But the first companies were not created or sustained out of camaraderie of their founders but out of a need to mitigate against risk. They were compelled to do so.

Our farmers have remained largely subsistence. Why bother getting more organized when you have a tax free status? They need some compulsion to get organized, produce more and keep more -- by the way the tax laws are rather lenient with people amassing assets.

People are quick to point out that western governments are lenient on their farmers in order to keep them in business. That does not mean their lands, inputs and incomes are not taxed.

But they also forget the history of the agricultural revolution. The western farmers with less than ideal climate and soils were forced to be more organized to grow food to not only last through the year from one season but also to feed the thinkers and soldiers. We obviously do not have the advantage of poor weather and marginal soils but nevertheless need an external compulsion to get the falling productivity of our lands up to a place where we can seriously talk about poverty....sorry, wealth creation for all...

Another way to increase national productivity would be to enslave all the marginal workers -- read the rural population, aggregate their lands and set up huge agroprocessing industries where they can work. This might do nothing for improving welfare for the general population but would have the statisticians licking their chops at the ballooning per capita incomes.

Viewed against this, taxation does not look so bad, does it?