Last week it was announced that Kampala Capital City
Authority (KCCA) had been given a clean bill of health to start issuing bonds to
finance some of its projects.
The South African based Global Credit Ratings (GCR) has
certified KCCA’s credit worthiness following a World Bank funded audit of
KCCA.
At the bare minimum it means that KCCA has access to one
other means of financing its operations, beyond government contributions, its
own revenues, donor loans and grants.
"But beyond that, it means that KCCA’s management practices have met the bare minimum required for money managers to take an interest in it. To be cleared to issue bonds, which is borrow from the public, it means you have verifiable sources of income and a management that can put whatever monies lent to good use. That’s the bare minimum investors want...
This development may have passed unnoticed by the general
public but it is a heartening vote of confidence in the three-year old
authority.
It means that they have been vetted on an international
standard the big money men know and appreciate. This means that KCCA now has
access to massive pools of money, that if captured and used judiciously can
transform the city beyond recognition.
Of course there is still a lot of work to do. KCCA needs to
streamline its operations even further, collect all the money due to it and
resolve the niggling political question surrounding the mayor’s seat.
No country ever developed without the prudent use of debt.
One of the reasons our countries, and individually, we fail
to develop, is because of an uninformed fear of debt and the unempowering
overreliance on cash. That being said it takes a superior financial
intelligence to make debt work.
The best use of debt is to increase your capacity to earn
and not your capacity to spend. So for instance the investment in markets may
provide additional income for KCCA or the building of roads in the suburbs will
increase property rates and therefore the ground rates the authority can charge
on properties as would the building of schools, hospitals and other amenities
that make it pleasant to live in the city.
However, splurging on a new fleet of 4WDs or on raising
allowances for councilors may show no
return but would just ensure higher expenditures.
Essentially you want the activity for which the debt is
committed to pay its own way.
"KCCA would do well to take a leaf from the Bank of Uganda issued treasury bills and bonds. What started off tentatively, in the late 1980s, as a mechanism to damp down inflation by mopping up excess cash from the economy, is now viewed with more confidence by local and international investors. Beyond its anti-inflationary role, has in recent years helped finance the budget, especially when the donors threw a fit a few years ago about our corrupt practices and pulled the plug on their aid....
The government paper issues came under a lot of criticism
initially when they were exclusively for managing money supply and at the cost
of hundreds of billions of shillings to the tax payer, but its proponents argued
that was the cost of maintaining macro-economic stability. Without that
stability, the economy as we know it today – with all its limitations would not
exist today.
One can expect that KCCA will start slowly one, because they
need to build confidence in the markets and because their absorptive capacity
of these funds may still be limited. But if their bond program is run well in a
decade in two KCCA will be a power onto itself and hopefully will pull the rest
of the country along with itself.
Other towns could follow suit.
One of the challenges of our societies is our low saving
culture. This is a problem because it means compared to the money in
circulation, we have not enough of it aggregated into meaningful sums for use by
the productive sectors of society.
In the western economies for instance as little as ten
percent of all money in circulation is physical cash or just hanging around in
the pillows, pocket or under their mattresses. The largest percentage of the
money is held in financial institutions.
In Uganda according to Bank of Uganda figures this was as
high as 24 percent at the end of December 2013 is not in the formal financial system.
And finally KCCA is proving a truism in finance, that money
follows good organisation or management. We do not have access on favourable
terms to the large pools of cash sloshing around the world because we do not
manage our affairs in such a way as to instill confidence in possible lenders or
investors.
