THE SCANDAL OF NSSF’S PILE OF BILLIONS

Recently National Social Security Fund (NSSF) boss Richard Byarugaba rued the lack of investable projects locally.

The Fund which manages sh5.8 trillion ($1.8b) in assets has about sh160b to invest per month, which for lack of viable projects it ploughs into government paper and fixes in commercial banks.

Of course the argument is that the money deposited in the banks will be on lent to the private sector but one has to feel that more can be done with that money.

Why is it difficult for NSSF to invest more prolifically locally?

The law aside let us look at the math.

Byarugaba and his team have pledged to pay contributing members an interest above the ten year moving average of the inflation rate.

Using simple arithmetic the average annual inflation for the last 10 calendar years is 9.34 percent. If NSSF is to come good on its pledge it would pay a bit over that figure to its members. Of course what that means the return on all their investments ten has to be above 15 percent for the year.

As a rough indicator all their assets if deployed would bring in about a trillion shillings this year.

US Billionaire Warren Buffett,whose company Berkshire Hathaway is valued at about  $240b keeps warning his shareholders that it is becoming more and more difficult each year to show a real return because the size of projects he needs to show a meaningful return are growing fewer and fewer.

Last year he splurged $28b to buy food company H. J. Heinz, in 2009 he spent $26b in acquiring logistics company Burlington Northern Santa Fe and the year before he bought chewing gum maker Wrigleys for $23b.

"His deals are few and far between and he keeps joking that he needs an elephant gun when he goes out shooting. No million dollar deals for Buffett, thank you.
NSSF finds itself in exactly the same situation for a corresponding economy...

And when they decide to invest abroad as the y did earlier this year in putting down sh120b for a stake in Kenyan based Equity Bank we start tearing out our hair and start questioning Byarugaba’s patriotism.

NSSF investing abroad is not the scandal, the real scandal is that we do not present big enough projects to NSSF for it to bankroll.

True that NSSF’s $2b war chest is a drop in the ocean of the infrastructure developments we so badly need --- the 700 MW Karuma dam alone will consume upwards of a billion dollars, but letting them in on a hundred million dollar stake or there would reduce on the exchange risks that come with borrowing abroad and also give the workers of Uganda a stake in these projects and the accruing benefits.

But government initiatives aside there is an embarrassing dearth of private sector projects that would tickle NSSF’s fancy. MTN is probably is the only billion dollar company in Uganda, with even Stanbic valued at less than $500m.

Meanwhile NSSF is not in the business of the shelling out money from its till. To get access to NSSF’s stockpile you either have to issue a bond, list on the Uganda Securities Exchange or sale a share of your company to them, like the $2m deal that was cut with Serena Hotel about a decade ago.

That being said I think NSSF needs to recognise its context and even the mountain cannot come to it it should go to the mountain.

Within the law NSSF should start up a private equity fund, basically a company which buys interest in going concerns to help them grow and then when certain parameters have been met sell out. So they could seed the Fund with say $10m or sh36b and hope to invest in 50 companies over the next five years.

It may even consider having several Funds, tiered to match the amount of money required. So you could have a lower tier for companies requiring $1,000,000 and above, another for $100,000-plus and finally for $50,000 - $100,000.

"I fear though that even if NSSF bent over backwards for us it might still suffer an inadequate deal pipeline....

Using Warren Buffett’s rules, how many companies can show a sufficiently long track record of improving shareholder value over years even decades? How many companies can show a distinct competitive advantage that cannot be replicated and therefore guarantee near monopolies years into the future? And finally how many of these have management systems that can be relied on to continue doing what they do well into the future?

So you want NSSF’s money fair and square? Get ready to roll up your sleeves and get to work!

TDA AND UGANDA’S QUEST FOR A VIABLE OPPOSITION

Unlike in the classroom, life first tests you before it teaches you the lesson. And it is true too, that you will continue to seat the test until you learn the lesson.

This week the political opposition came up empty handed in their attempt to agree on a single candidate for next year’s presidential election.

The Democratic Alliance (TDA) last week, with four presidential flag bearer nominees --- FDC’s Kizza Besigye, DP Norbert Mao, Former vice president Dr Gilbert Bukenya and former prime minister Amama Mbabazi, it was hoped by mid this week they would have a single candidate they could rally around.

The NRM’s President Yoweri Museveni had already been duly nominated during the weekend.

Reports were that very quickly they had narrowed down the choices to Besigye and Mbabazi, which was not a surprise, but it also became clear that both men were unwilling to budge, to give way for the other and give up their ambition to lead a unified opposition.

They say we are wiser after the fact.

Beyond the individual personalities of the two men, one wonders whether TDA ever had a chance at achieving this goal.

They say the seeds of any endevour's destruction will be sown at the beginning of the process and that light we have to ask, who is TDA?

TDA has projected itself as a pressure group that will force government into good behaviour, with the secondary aim of unifying the opposition under a single candidate ahead of next year’s polls. As time has gone it can be argued that the emphasis has shifted to the latter from the former.

The idea seems to have been that they would whip up popular discontent against the government which would force them to a negotiating table, where they would steam roll the NRM into a raft of concessions not limited to electoral reforms.

The idea was good but the execution may have fallen short.

"TDA did not muster any traction among the masses – despite their shrillest protests, and therefore made little to no impression on the government, the evidence being that in bringing constitutional amendments to the house a few weeks ago, the cabinet all but ignored TDA’s “Citizen’s compact”...

The truth of the matter is that TDA is a political elite grouping who have analysed our situation and have a proposed solution to the country’s challenges. They do not have a popular mandate, like parliament or other elective offices.

This is not a crime and is not necessarily a weakness.

The political movements of the world have been directed by men and women who take it upon themselves to crystalise the society’s problems for the masses and then rally those same masses to overthrow the status quo.

The trick of course is to sell the alternative view to the masses. This takes time, patience and persistence.

People dwell on the romanticism of the Arab spring or the Ukraine’s orange revolution or even our very own NRA bush war, they forget the hard work, disappointment and the numerous times victory was snatched from the jaws of defeat.

 Truth be told TDA, this time last year was not in existence, is looking more and more like a desperate smash-and-grab attempt at State House without paying the price that high endeavour demands...

I would like to be wrong, if only because this country needs a credible opposition, not only made of high profile, charismatic individuals but in addition the opposition we look forward to is one which has men and women of substance as their flag bearers, but who are also backed by organised operations which can project their will nationwide.

ORGANISE YOUR SMALL BUSINESS YESTERDAY

A fortnight ago an organisation called the Inclusive Business Accelerator (IBA), which in a nutshell helps small businesses formalise their operations and make them more understandable and attractive to investors and potential partners.

IBA inaddition to make small businesses investor friendly link the up with potential investors.

The organisation, backed some traditional charitable organisations, highlighted a growing trend by aid agencies who in trying to have their monies have a broader impact on society are looking directly at the bottom of the pyramid.

Its a natural progression from offering a hungry man a fish to showing him how to fish, which is more sustainable and can be profitable for all involved.

"Uganda's status as the most entrepreneurial country in the world was recently reaffirmed by UK study. Unfortunately while we are good at starting up companies we are poor at growing them and ensure they endure over years.
The reason that this happens range from the strategic -- we have no long term plan for our businesses beyond providing subsistence for ourselves, to the tactical -- that our businesses are not organised enough to take advantage of opportunities available. The second is derived from the first...

Arguably since we have businesses sprouting up at every corner we have solved a critical part of the equation of how to build sustainable businesses. Our businesses then need handholders to help them transition from their small, informal beginnings to more viable entities.

And this does not apply only to the rolex guy around the corner or the small market stall owner. 

During a recent press event with Uganda Revenue Authority boss Doris Akol she said that the informal sector include law, accounting and consultancy services. This was a revelation because one would think these knowledgeable specialists would better appreciate the benefits of getting organised.

Of course one of the reasons of this reluctance is the high price of transitioning to formality -- the hustle of registration, new dues and regulations that come into play.

The difference between a company with organised accounts and one that doesn't is like night and day. The same can be said for one that is tax compliant compared to one that is not.

One of the challenges of making the transition is the unrealistic expectations people place on their business. Talk to any new business owner and they expect to have broken even within months and buying a VX within the year. Registering, paying taxes and meeting other regulations do not play into these expectations.

This an important discussion if only because it will give our small business not only a chance of survival but to grow into big companies. All big companies started as small companies.

It is also important because even in more developed economies it is small businesses that create the most jobs.
While organisations like IBA and similar outfits, may have it as one of their aims to make small businesses investor ready the long term benefit to businesses to getting organised is immeasurable. The ability to qualify for credit, the quality of tenders one can bid for  and the calibre of partners that will give one a second look are but a few of the benefits and make all the "pain" of formalising.

"But even for those who want to become immensely rich, they soon find out that informal practices only take you so far before they begin to sabotage the business. If you are racking in millions even billions on an informal structure know you can be making multiples more with a formal structure. And the longer you remain informal the costlier it will be when you are finally compelled to...

As Uganda has formalised over the last few years we have seen any number of businesses from supermarkets to manufacturers and even banks because their continued informal practices caught up with them.

The new movement of business incubators and  accelerators, which should eventually evolve into our own venture capital industry is one to watch and encourage.

Thankfully the early adopters are already coming through. Last week the start up online logistics company, Intership Uganda beat off eleven other local companies for a chance to pitch to foreign investors in Switzerland next year.

They won, i think, on the strength of their business model, providing logistics services via the web, but also because their model was better organised and they had realistic projections given their current operations.
So do you have a side hustle you are running-- you bake cookies or you have a chicken  project or even doing mushrooms in your garage, at the bare minimum have organised books of accounts. At the bare minimum you will be able to objectively determine what you are doing right and you do more of it or what you are doing wrong and not do it again.

LEARNINGS FROM EU IMMIGRATION WOES

In recent weeks thousands of immigrants have been streaming into the European Union. The recent upsurge has accentuated ongoing waves of Africans and east Europeans.

A civil war in Syria that has razed the middle eastern country to the ground is the trigger for the current explosion in immigrant numbers. That and the fact that many of it's richer neighbours are unwilling to take in even a single fleeing Arab.

Its impossible to detach the politics of it from the economics and speaks volumes to the issues of the blow back from colonialism and neocolonialism, governments' role in translating economic growth into development and the future reality of a centralised global government.

"No one wants to leave home. We are compelled to do so because we are insecure where we live for political or economic reasons.
Immigrants are a failure in the management of our society, more specifically the management of our economics....

The relentless flow of immigrants to Europe since the independence of many African states has as an underlying factor the global economic inequalities that have continued, even widened in the last half century.

The west by plundering Africa during colonialism and maintaining those exploitative systems after colonialism have grown rich on the continent's back.

The UN estimates that up to $1.4 trillion has flowed out of Africa illegally between 1980 and 2009. A lot of this money can be attributed by organised crime -- smuggling, drug and human trafficking but more than half of it, some estimate about 60 percent of it is due to multinationals through tax evasion and avoidance among other dodges. A system the west has cordoned but only now moving to minimise as it threatens their economies and politics.

The net effect of this is that the rich have grown richer and the poor have grown poorer. To the point that it is doubtful whether the word has the resources to sustain us all at the standard of living the west has grown accustomed to.

So its a simple equation there will always be motion from high pressure to low pressure areas, in this case from high economic stress areas to lower economic stress areas. The movement will be stopped when balance is attained. There are no shortcuts.

For this obviously two things have to happen.

One, the prodigious economic growth figures that many in the third world have been posting should be translated into meaningful improvements in general welfare. Secondly, that the developed nations severely cut back on their consumption to allow the third world catch up.

The first cannot happen without the second, which explains why poverty maybe here with us to stay.

That being said what needs to be done to ensure meaningful development for the third world?

To begin with there has to be a near universal appreciation among ourselves that we have all the resources -- human, natural resources and even capital to dig ourselves out of our predicament.

Across the border from us in the DRC the extent of their mineral wealth is estimated at $12trillion, at par with the US economy. And we haven't even started factoring the economic potential of its 70 million people.

The same can be said for Uganda where recent surveys have showed if we were to fully exploit our mineral wealth we would have to relocate everyone out of the country.

The trick to unlocking these embarrassing riches at our feet is to improve the quality of our human resource, through quality education and health care and to create a conducive environment for the private sector to thrive. 

And that doesn't mean living capitalism to run around unfettered, because the market is the most effective wealth creator we know its the worst distributor of wealth.

It is important that we tap into our well documented entrepreneurial abilities to harness the market for our benefit. All the aid in the world cannot do that for us.

"In fact aid has stalled rather than helped our progress. Getting aid is easier than building durable, transformative companies. In the last half century, billions of dollars have been pumped into Uganda but during the same period we have only a handful of companies with a national presence, nor do we have billion dollar companies....

A country is only as viable as its private sector. That is the more durable measure of development, with a string private sector your poverty issues will be sorted out, as will be your governance issues and therefore your service delivery issues.

The "crisis" the EU is facing has the same qualities as the rural-urban migration.

Its not an insurmountable challenge but a restructuring of the world economy -one way or another, will have to come first before things change.

There is a more apocalyptical vision but we will keep that for another day.

THE SCENT OF ROSES AND WEALTH CREATION

Last week we arose to news that a company belonging to Kampala businessman Sudhir Ruparelia has been allowed to lease land at Namulonge, part of the National Crops Resource Institute.

Premier Roses intends to utilise the land for growing roses, vegetables, fruits, herbs and spices mainly for the export market.

"The knee jerk reaction to the deal was a throwback to the rabid opposition to the sale of government properties in 1990s. Then like now, the chattering masses prophesised that, nothing good would come from selling the badly tarnished government silver, buyers would strip the companies of their assets and live us holding a worse carcass than we had sold them and finally that we were enriching foreigners at the expense of locals by selling the revenue sapping enterprises...

Almost 20 years down the road the doomsayers are conspicuously silent reminding us they still live among us when they pop up to throw feeble punches for their lost cause.

At the heart of this debate is the question of how best do we drive development given the resources we have and the context in which we find ourselves.

We are a country wealthy beyond measure, and we are not even talking about oil. Our arable soils, benign climate, abundance of animal and plant specii, resourceful people and central location on the content among other attributes means it is a scandal that more than half our population live in abject poverty (forget the low standards our officials use to measure poverty).

We are asset rich but cash poor. We are poor as a country because we have failed to unlock this embarrassment of potential riches.

The formula to unlock this wealth is simple, but not easy, is time tested and replicable.

Through entrepreneurship you manipulate the factors of production – land, capital and labour to generate value recognised by the market and which the market is willing to pay for at a high price than the cost of production. The resulting profit is used, some of it, to pay the entrepreneur and the rest ploughed back into the business.

The reinvested money if employed properly will grow the company and increase its capacity to create more value and the cycle continues.

However the entrepreneur does not operate in a vacuum and he needs a good political environment to do his magic.

"It is interesting how the wealth of nations is determined largely by the imaginary lines that separate one country from the next. Our political boundaries will determine that people in western Uganda live a better life than their neighbours in eastern Congo or northern Ugandans compared to south Sudanese....

 Governments thanks to the incentives that drive them – entrenching themselves in power through spreading patronage, are terrible at business, but they can help the private sector unlock wealth through maintaining law and order and enacting progressive policies.

Which brings us full circle to the case of the Namulonge land.

"The land in question is largely unused or severely underutilised. It’s creating no jobs or new knowledge as was intended. The government is hoarding it, depriving Ugandans of the economic output that would result from it if properly utilised...

Sudhir’s company comes along offering to put it to use and even willing to pay for it. The only concern would be were it not put to use, which is unlikely as every businessman needs to make a return on his investment, his very survival depends on it.

We are within our rights to ask that proper procedure in allocating the land was followed. We are within our rights to insist that the land is put to productive use. We are even within our rights to reject the application altogether.

That last option however would be counterproductive even destructive. It would send out the signal that reason does not prevail in Uganda either out of jealousy or malice. But worse still it would discourage entrepreneurship and by extension the betterment of our collective lot.