OIL PRICE DROP, A SIGN OF WORLD CHANGE

Last week the price of oil fell to its lowest in five years. By the time of writing US oil had fallen to $62.21 a barrel. In June it peaked at $107.64. Each barrel contains 159 liters.

This dramatic collapse has come despite disruption to production in Libya and Iraq, sanctions on Russia and disturbances in Syria affecting supply routes.

Traditionally oil prices rally heading into the northern hemisphere's winter season but for the first time since 2008, the year the global financial crisis exploded, this year is the first time that oil prices have fallen in the lead up to Christmas.

According to the economist four factors explain the downward dip in oil prices. 

One, economic activity in the the developed north is still low, as they try to shake off the hangover from the global financial crisis of the last decade so demand for oil similarly low. 

 

Secondly, despite trouble in Iraq and Libya which account for a combined four million barrels a day, they have held production steady. 

 

In the last year the US has become the world's biggest producer of oil with its advances in extracting l from l bearing rocks. While it doesn't export any it has reduced its import volumes creating more supply on world markets. 

 

And finally last week the Organisation of oil producing and exporting countries (OPEC) voted not to curb production, which would have pushed prices up.

"The biggest winners will be countries with huge oil import bills. It has been reported that China is taking advantage of the situation to beef up its reserves.

The biggest losers are. The oil exporting countries that rely heavily on oil to support their budgets...

In this respect is Russia and Iran, which are already staggering under international sanctions, Iran for instance needs oil to be at at least $130 a barrel to balance its budget.

For Uganda its a double edged sword. Our oil imports account for about $2b (shs5.4trillion) annually and this would do wonders for us if our oil bill fell by 40% in line with world oil prices.

On the other hand this new development may force a rethink by investors looking to invest in our oil industry. Already the cost of extracting our oil which is waxy and needs a lot of heating to keep it fluid during transportation, makes it expensive to produce. And that is without factoring in the more than 1500 km from our oil fields in western Uganda to the coast.

Big commitments in exploration and other preparatory work means plugging the wells and leaving is not an immediate option but a wait-and-see approach may slow down investment in the industry.

Thankfully the revenues from oil have not been factored into our budgets yet, but a huge infrastructural developments we are planning like power dams and overinflated standard gauge railway line were pegged to an eventual production of oil within the next five years.

Industry players are not being forthcoming with possible changes to their projections or how badly oil price fall affects our prospects but it would only be common sense to put the brakes on our grand designs for the moment.

On the global scene with the US more confident about its oil supplies what will that mean for their determined presence in the Middle East? The Middle East assumed new importance with the fall of the Shah of Iran in 1979. Within weeks of his overthrow oil prices jumped to $17 a barrel (the good old days) an almost doubling from about $10 at the start of the Arab oil crisis in 1974.

With the loss of a major ally in the Shah the US has not been averse to intervening in the Middle East to ensure the continued supply of oil.

Beyond just unhampered supply is the fact that the US dollar is backed by oil. All oil contracts are denominated in dollars, so if oil reserves fall in the wrong hands the US economy would be in mortal danger.

The conspiracy theorists suggest that this fall in oil prices is a deliberate effort, beyond the fundamentals outlined above, to bring Russia to its heels. Last week's refusal by a Saudi Arabia to cut exports was their final confirmation.

A shift in world geopolitics is happening before our eyes which could see tensions flare up in the Middle East as long held grudges, suppressed by US backing of unpopular regimes, bubble to the surface as America's interest in the region wanes.

For Uganda its not inconceivable that we might have to wait a little longer for our own oil production to start.

HOW AFRICA CONTINUES TO DEVELOP THE WEST

Fact: Illegal transfer of wealth out of Africa exceeds aid and foreign direct investment flowing I to the continent annually.

Fact: Funds from bribery and embezzlement account for less than five percent of these illicit fund transfers with upto six in every ten dollars of these come from the activities of multinational companies, otherwise legitimate companies with above board operations but through accounting dodges are often able to transfer more of their income abroad than they ordinarily should.

According to a report by the Organisation for Economically Developed Countries (OECD) illicit fund transfers amounting to at least $65b are secreted out of the continent annually compared to the $63b received in aid and Foreign direct investment (FDI).

And even the OECD fears that it is understating the reality spectacularly.

"These are such scary facts that at the recent group of 20 most developed nations meeting in Australia last month it was on the agenda though no substantive resolutions were made to stem these immoral flows.

Immoral because, especially with multinationals they often constitute tax avoidance than tax evasion. The latter is criminal and the former is considered shrewd business.

Last week at the Africa Center of Media Excellence (ACME) journalists from he East African region were given a primer on how to recognize and report on these financial flows.

However there is only so much the media can do, their limited ability to decipher financial statements notwithstanding. Often these companies by setting up parent companies in offshore jurisdictions -- even these are hidden within convoluted webs that are impossible to make head or tail of, that offer favorable tax benefits, shift their costs to these places denying the country where the economic benefit is being generated from getting a fair shake.

The champions of these practices argue that these countries still benefit from job creation and technology transfers. That maybe so but the evidence suggests that there is a disproportionate benefit to the companies than our countries.

"These findings burst the myth that western companies are doing us a favour investing in our capital starved countries while in fact we are supporting their economies with massive repatriation of funds that prop up an unsustainable way of life while keeping our continent in poverty. Not unlike the massive repatriation of  capital during the slave trade and subsequently during the colonial era...

But the governments of the multinationals' home countries are only waking up to the fact if these companies can do it to us they have no qualms about doing it at home either.

Last week the UK government moved to plug loopholes that allowed US giants Google, Amazon and Starbucks to pay minimal taxes on their profits with the appropriately named Google tax.

The developed countries while horrified by how their treasuries are not getting their fair dues are also coming to the realization that these same networks are being employed by organized criminals and terrorists to launder and transfer funds.

But even more dangerous is that these dodges are facilitating the subversion of their own democracies. Not only do these ruses serve to concentrate prodigious amounts of wealth in very few hands, but his wealth, connected individuals then leverage their resources to have whole governments doing their bidding regardless of the impact on the general population.

"They are not waking up to the centuries' old scam because of their concern for us, the wretched of the earth...

A rough estimate that as much as $21 trillion dollars or twice the size of the US economy is being shuffled between 60 countries around the world with as far flung addressees as Macau to the Isle of Man and the Bahamas.

Given the scale of the industry there is very little individual countries can do. Even the UK's latest attempt is seen by observers as mere playing to the gallery, as no serious inroads can be made unilaterally.

It's obvious why we should care, this money could be used to improve the quality of our lives and divorce us from our dependence on foreign aid.

However it is a war that pits the severely, disjointed opposition against networks of power and influence that have been in place since even before the Middle Ages.

COFFEE BRINGS PROMISE TO THOUSANDS

Vincent Sekankya's former self would not have recognized himself today.

Barely ten years ago, Living in a mud-and-wattle, two roomed house and eking a living any which way he could to provide for his growing family, Sekankya's could not see any hope in the future.

Today he is the proud owner of five acres of coffee or 2250 trees, outside Miseebe trading center, in Mityana, from which he harvests just under 16 tons of coffee a season of exportable quality robusta coffee.

Sekankya's arrives for our interview dressed in a coat and kanzu, riding a motorcycle.

An excitable man in his late 30s he takes us around a part of his farm where the Barry's are heavy on the branches, but still green but will be ready for picking in a few days he says.

The turn around in his fortunes was sparked by a decade long project by the Hans R. Neumann Foundation to help local farmers improve coffee farming. The project kicked off in the Mityana-Mubende area but has now stretched out to Luwero,Nakaseke, Nakasongola, Masaka, Bukomansimbi, Kalungu and Kasese areas.

Under the project the farmers have benefitted from access to better planting materials, have learnt the use of ferterlisers and pesticides and have improved their bargaining power on the market.

"Next I want to park a car in the garage," Sekankya said of the room adjoining his house, which was halfway to the roof with sacks of coffee.

It begun about 15 years ago when the Neumann Coffee Group decided to locate a coffee plantation in Uganda. They leased land, about 2,000 hectares in Kaweri in neighbouring Mubende district, where they proceeded to develop the biggest coffee plantation in Africa.

This season Kaweri farm is set to export 2,500 tons of coffee or two in every hundred bags of coffee produced in Uganda.

But the Neumann family, as a way to give back to an industry on which they have built their fortune, help coffee farmers wherever they can but especially around similar giant plantations in Mexico and Brazil.

"There are millions of small holder farmers around the world are they are living in difficult situations, barely making a living for themselves. A project like this can have a transformative effect," said Stefan Cognigni, the general manager of the Neumann Foundation in Uganda.

But Cognigni was quick to point out that the farmers helped through the project are under no compulsion to sell to Ibero, the Neumann Coffee Group's agents in Uganda.

"The goal is to start up independent organizations that are sustainable," he said.

The 20 households are organized into production organizations (POs), these mobilise farmers, provide extension services and collect coffee. Twenty POs in turn form a depot committee. The depot committees are companies limited by guarantee which help in bulking the produce, provide quality assurance, value addition and marketing. The depot committees are then represented at the Uganda Coffee Farmers Alliance (UCFA), the apex body charged with capacity building, helping with market access, serves as a link to service providers like banks and input suppliers.

"The main challenges facing our farmers -- coffee or otherwise are poor farming methods, no understanding of the value chain, no market information or skills to run their farms as business," said Tony Mugoya, the UCFA executive manager....

As a result he said, the farmers have low productivity and are at the mercy of middlemen and other players, ensuring that they do not get fair value for their sweat.

A cursory assessment of the progress of this model has thrown up some encouraging results.

"A new member benefiting from only the better prices but not yet seen any improvement in yields yet will earn 31 percent more than before. More established members will not only benefit from improved prices but also from improved yields and can see their income jumping between four and scene fold," Mugoya said.

A visit to the heartland of the project provided anecdotal evidence in support of the raw data.

Miserere growers company ltd, the depot committee in Bukera sub county in the last decade has seen their output rise 120 tons from 800 kgs in 2005.

"While membership has increased we have seen more coffee per acre being harvested," said chairman David Katende, while seating in his office, a small four wall room in Miseebe trading center, that also serves as a store for their weighing scales and hulling equipment.

But the quality of the beans to have seen dramatic improvement, with up to 60 percent of coffee sent out by the group is screen 18, the best exportable quality.

"Small things like drying using tarpaulins instead of on the bare ground, proper spacing, pruning of old branches and learning from each other has made the main difference. Of course that we can get better prices from the market is important," Katende said.

In field study schools, where members of a PO make field visits to individual farms and share experiences challenges such as pests, proper fertilizer application and water conservation methods were discussed among themselves and with an extension worker, with lessons taken back to be applied in their respective farms.

"This is more effective than people coming from Kampala or the district headquarters to tell us. With this system we deal with the needs of the day not according to predetermined schedule," Katende explained on the sidelines of one visit to Kibuuto PO.

Ravaged by the coffee wilt disease a few years ago, the Mityana-Mubende region is fighting back using new clonal varieties that have proved resistant to the withering disease.

"We have strategic goal which will see us in the medium term branding and exporting our own coffee, we already working with other partners to do this and to add value to own coffee instead of shipping beans," Mugoya said.

But as the program has progressed while there has been improvements in household incomes there may no have been a corresponding improvements in living standards.

"We have introduced a gender and youth component which through sensitization we are helping households make business plans for themselves which means incomes are better employed not drunk by the head of the family," the Neumann Foundation boss Cognigni said.

"For the youth there is a program to show them the benefits of agriculture and not necessarily coffee, but faster maturing crops,"

THE CONTINUED RESILIENCE OF THE HUMAN RACE

While the deadly Ebola virus outbreak continued to cast its malevolent shadow over international headlines we commemorated World AIDS day last week.

Lest we forget about 30 years ago when AIDS first hit the headlines the doomsayers were gleefully predicting the end of the world. The disease, characterized by a wasting to nothingness of the human body, struck horror in communities and cut through whole populations for lack of information on how to prevent or treat it.

HIV, the virus that causes a breakdown in the human immune system and therefore makes one susceptible to disease, was particularly scary because it was transmitted mainly through sexual contact.

This was scary because it fed off our natural instinct to perpetuate the human specie. In fact I remember some sections warning that this disease would lead to the extinction of the human race in a few generations.

It is no coincidence then, that there has been a boom in various religious movements especially on our continent as people grappling with poverty while being stalked by AIDS have fallen back on the Church to strengthen their moral fortitude.

Others pointing to our poor health services predicted that Africa's economies were going to be dealt a death blow as large swathes of our populations would drop like flies.

That seems like a long time ago now. While there have been serious advances in our understanding and our ability to combat HIV, the virus has not sat around waiting to be picked off.

At least in Uganda, from being a disease that predominantly preys on the youthful and most productive segments of society, efforts to roll it back have been hurt by recent trends that show that it is showing up among older people, while continuing to affect the youth.

However serious advances in our understanding of the deadly disease and our ability to treat it continue to be made. Scientists are continuously finding more effective means to reduce the immunity suppression that the virus triggers, with a single doze treatment that will boost immunity for months imminent and work on a vaccine in advanced stages.

But incredibly too, Africa, while coming to terms with the epidemic has enjoyed its greatest burst of economic activity and seems poised to be the next frontier of world development.

The continent's economy has more than doubled during the duration of the AIDS epidemic. Although this has happened in bursts and not been evenly spread among the population, it has dispelled some of the gloom and doom surrounding Africa's prospects

Ebola of course is a more lethal disease, in the speed in which it has spread and also because it is more contagious, making it more likely that sufferers may be isolated from badly needed treatment.

It was announced that the death toll from the year-old out break hit the 7000 mark and that the original sites of the disease continue to see increasing number of infections, suggesting that the haemoragic fever has not yet run its course.

"The history of epidemics shows that they have come with concentration of human populations. But unlike the outbreaks that accompanied the renaissance and industrial revolutions, this time around improved communication will ensure that these outbreaks while just as deadly to those who come into immediate contact, their devastation will be short lived. Little consolation for the affected, but makes it possible to predict that for the human race even this will come to pass....

But also what we can expect is that in coming years there will be a proliferation of these epidemics on the continent. Thankfully, as with all evolutionary processes those that survive learn, adapt and are readier for subsequent attacks.

Uganda, which was the epicenter of the AIDS epidemic used the experience to fight off three Ebola attacks and is now a significant contributor in the fight against the current outbreak.

Our warm climate, uninterrupted by cold winters, means disease carrying organisms can survive and thrive in our midst. On the one hand they can get stronger as they spread among populations but also through continued contact our natural human processes can develop some immunity.

It is no surprise that researchers are finding that with time some strains of the AIDS virus are less potent than others. The body is fighting back. While not at the speed we might want, the body, which has withstood constant attacks through out the history of the human race, is in full survival mode.

The point is, that while we shouldn't let down our guard against Ebola, seeing as it has fallen off the international headlines, it shall be overcome. Just in time for the next outbreak.

SOUTH KOREA'S LESSONS FOR UGANDA

You know what they say, if you are going to climb a mountain study all the possible routes up and then ask someone who has already been there.

Looking at the numbers alone South Korea was little different than Uganda about 50 years ago. At independence in 1962 Uganda's GDP per capita was about $62 while that of South Korea was about $87, around the same.

However South Korea was just coming out of a devastating civil war that had literally razed it to the ground, while Uganda was being touted as the cant-miss country with its bounty of natural endowments.

If you had gone to sleep then, after visiting both countries, and woken up today you would have doubted what you knew then.

During the period the size of the South Korean economy has grown to $1,197 billion from $2.3 billion, grown to five hundred times its size or essentially averaged 13 percent annual growth for the last 52 years. And it has done this while spreading the benefits better than its neighbours. It's ranked 15th on the Human Development Index, a ranking which measures how well the country is doing on social indicators like literacy,availability of health services and other indicators which measure the population's quality of life.

The Ugandan economy of course has only grown forty fold in size from its 1962 levels.

Last week members of the press sat down with officials from South Korea's embassy and technical assistance agencies to understand how the East Asian nation achieved what it did and what lesson's we can glean from their experience.

Given the apparent equality at the beginning, South Korea maybe one of the best case studies that show that for development the key factor that predicts success, or not, is the quality of the people -- leadership and general population, rather than the wealth in natural resources of the country.

Despite a period of colonization by Japan, South Korea had been existence since before Jesus Christ was born, which meant it had had a centralized administration that was directing development. The levels of education among the population were quite high with primary enrollment at 60 percent in the 1960s compared to 12 percent here.

This means two things, that the country's bureaucrats were drawing on long established practice and experience, while at the same time there was a critical mass of qualified people to formulate and execute policy.

But they did not stop there. When they decided they were going into heavy industry they decided their skilled manpower was inadequate to support their ambitions and they embarked on a programme to skill their people.

They ramped the numbers of their graduates from science universities and specialized technical schools from 5,000 in the the 1960s to 50,000 by the end of the 1970s. I will be impressed if we have 5,000 technology and science graduates annually in Uganda today.

"But in the classic case of God giving meat to those who have no teeth, our embarrassing bounty in arable land and conducive climate has clearly worked against us. The Koreans have less than a fifth of their land good for agriculture but have mastered the art and science of high yields to the point that Dr Hyeong-Jin Jee, the head of their agriculture assistance arm asserted "It's not the size of the farm, but how much you can reap that matters"....

While South Korea imports 70 percent of its food its self sufficient in rice and vegetables.

He pointed that the share of our budget is woefully low and suggested that were the budget to be increased from the current under ten percent, it should be focused on developing agriculture technology, especially seed development. In addition extension services should be boosted.

He said that in the 1960s Korea used to develop up to 40 new seeds varieties annually now they are up to a thousand annually.

However it might be a case of its still early days for us -- if we write off the 1970s.

The graph of the growth in per capita income shows that here was slow, almost imperceptible growth between the end of the Korean War in 1953 before they reached $500 GDP per capita in the mid 1970s. Around that time, probably when the human resource had matured and the shift towards heavy industry, fuels an exponential jump that has continued despite the subsequent political and economic upheavals.

Also interesting is that the leadership recognized very early that this growth needs to be shared rather than concentrated in a few hands, long before poverty eradication became a fad in development economics.

South Korea was never uganda, but interesting lessons can be learned from their development process and then who knows in 40 years we will look back and wonder at what we have achieved.

SHOULD WE GIVE HEALTH INSURANCE THE BENEFIT OF DOUBT?

The acronym SMH is widely used on social media. It stands for Shaking My Head.

Last week I SMH when I read that government is pushing ahead with the National Health Insurance
Scheme.

Under the scheme the government is undertaking to organise health insurance that will increase the accessibility to health coverage countrywide. Workers will be required to pay 4 percent of their gross salary into a pool with their employers forking out an additional 4 percent.

My knee jerk reaction was shock at the shamelessness of these government officials trying to fleece us yet again. I couldn’t comprehend how you can ask me to pay insurance for services which do not exist.

Health insurance schemes in Kenya, Tanzania and even further afield in South Africa and Ghana have
managed some measure of success, actually improved the quality of health services in those countries for their people. But this is Uganda!

Dr Francis Runumi, the health ministry’s commissioner for planning, was gracious enough to absorb my scepticism (to put it mildly) and shed more light on the concept.

That health services are undercapitalised and staff unmotivated while health is a human right underpins a move towards the introduction of a health insurance scheme.

The law, a draft of which is already working its way through the system, proposes the creation of an independent agency to oversee the scheme and will contract public as well as private health providers.

"The designers of the scheme expect that a properly run national scheme will lower the cost of health care, improve government services and will help not only set but enforce benchmarks for health service providers, as the penalty for falling short of set criteria will be black listing...

In reaction to it being too expensive for Ugandans Runumi said this is not borne out by the facts. In 2009 he said the ministry’s budget was Sh472b but in that year Ugandans spent sh3 trillion on health care. Essentially government had fallen short of national requirements by at least four-fifths.

Health officials suggested that up to $100m (sh260b) in premiums will be collected from the formal sector and another $10m from the informal sector, but Runumi said projections are that within five years they expect to be collecting at least $400m (one trillion shillings).

Opposition to the scheme has come from business owners, who anticipate a rise in their operating costs and existing service providers, who can expect to lose some business initially.

But that is not unusual. When Tanzania launched its own scheme in 2001 the opposition was intense and protracted. But as the scheme begun to operate some of its most voracious critics have become is greatest champions.

And finally he scheme will not be run by the health ministry but by an autonomous body like the NSSF with its own management and reporting structures.

The principle of national health insurance is a good one on many levels.

At the most basic level that it has the potential to improve access to health services for more Ugandans. Secondly in order to comply as providers to what will be the biggest pool of funds in the health sector, providers will have to improve their offerings ensuring more widely spread improved
services.

Which still leaves the niggling question of whether we can trust a government agency with our money? If government has failed to provide decent health care with all the money we pay in taxes how can they be expected to do any better? Why don’t they improve health services before they can come to us asking for or hard earned cash?

Runumi is adamant that the health sector cannot be improved with government funding alone.

Secondly, he argues that you cant wait for circumstances to improve while people are suffering.

“If we are going to do the chicken-and-egg debate  we will never get off the ground. You pay then complain later – if there is something to complain about,” he said.

UGANDA AT THE HELM OF ANTI-EBOLA FIGHT

Uganda has more than thirty health workers helping out in West Africa against the Ebola outbreak in that region.

At the end of November 12 health workers arrived in the Liberian capital, Monrovia, while another 20 were already dispatched in August.

It’s not by mistake that the World health Organisation (WHO) is calling on our capacity in this battle.

Since 2000 we have suffered three Ebola outbreaks. In all there were 598 who contacted the deadly virus, 278 of who died. But the interesting thing about the attacks is that with every subsequent one the country’s health system was quicker to identify the problem, restrict infection and minimise deaths. Eighty percent of all the deaths due to Ebola were registered in the first attack, when we were caught flat footed and still trying to understand and respond to the disease.

Of the countries in the region that have experience with haemorrhagic fever South Sudan and 

Democratic Republic of Congo, being the others, we probably have the more organised system. 

Which is not saying very much, but it is something.

Of course the experience in Liberia is not going to be the same for our selfless health workers. The support systems -- government commitment, media involvement and popular vigilance that our own anti-ebola effort enjoyed may be lacking.

Maybe the one good thing that came out of Uganda’s three decade experience with HIV/AIDS, is that the public are easily mobilised to fend off threats like these.

"In hindsight one of the challenges that led to the spread of the disease in West Africa, which at the peak manifests as bleeding from all orifices of the body, was the inability by local populations, media and NGOs to raise the alarm when the first victims showed up in December last year...

Officially it is reported that 5,000 people have died since February but one has to wonder how many died in the three months prior to that.

This should be an eye opener to us. That we can deal with our own challenges quite adequately using our own people and resources.

But Uganda should go further. Given our centrality on the continent we should be building capacity not only to cure our deadliest diseases but also be on the cutting edge of research into these diseases. And beyond that we should be leaders in formulating and dispensing tailor made treatments for these ailments.

It makes sense.

Billions of dollars are poured into research related to cancer, cardiovascular and heart diseases and aging in the west, while the amounts committed to malaria, TB, diarrhoeal and water borne diseases, which are predominantly third world problems, is only a fraction of the former.

Let us recognise that no one will sort out these problems or at least treat them with as much urgency as ourselves who suffer the brunt of their effects.

It is not unheard of for a lesser developed country to be leading the way in one field of endeavour or another.

Brazil, a major coffee exporting nation, is on the cutting edge of every facet of coffee production, processing and marketing, with whole universities dedicated to the aromatic bean.

We don’t lack for manpower or even resources, seeing how many billions are pilfered in dodgy contracts and questionable payments every year. What we are lacking is the leadership with sufficient sense of urgency to drive this agenda.