CRANE BANK AND WHAT IT SAYS ABOUT OUR ECONOMY

Last week the central bank took over Crane Bank. Bank of Uganda (BOU) said the bank was significantly undercapitalised and was putting its depositors’ money and the entire financial sector in danger.

Industry sources say all stops were pulled out to prevent Crane Bank’s eventual fate but they came to nought.

There is little else you can say about that story without making a bad situation worse, but if there was any doubt about the shakiness of this economy, the bank’s takeover should put these to rest.

It is true that the economy has become more sophisticated in the last 30 years. In 1986 coffee exports accounted for more than 50 percent of taxes and more than 80 percent of export receipts. Today coffee exports provide little revenue to the treasury and accounts for less than half our exports of goods and services.

It is also true that the economy has been growing consistently over the same period but this growth has been lopsided towards construction and services, with agriculture the biggest employer, growing at relative anaemic rates to the economy as a whole.

The net import of this is that the created wealth is being concentrated increasingly in to a few hands.

The national household survey carried out in 2013 showed that under two in every ten Ugandans or about 7.2 million Ugandans earn more than a million shillings a year or about sh80,000 a month. 

Think about that!

"Our ability to speak passable English, wheeze around in second hand cars and wear suits to work is but a thin veneer for an economy that is actually not very deep...

What this means is that all our thousands of businesses are scrambling for a small piece of a small pie. So when there is any stress in the economy – a slow down or disturbance the fall out is bound to felt by more people.

A few months ago when the debate about bailing out businesses struggling under the cloud of a underperforming economy were muted Ash Mukungu, formerly of the African Development Bank warned that the business failure will soon lead to bank failures. I thought he was hyperventilating.

And clearly our bureaucracy does not feel a sense of urgency around this subject. According to the finance ministry report for the first quarter of the financial year sh68b was budgeted for debt arrears but only sh28b was released.

The main cause of stress for our businessmen is the government not paying for supplies and services it has contracted. As at the last financial year this figure stood at sh1.3trillion. Other sources say however that even this figured cannot be nailed down.

So you have an economy that is barely trudging along and a government biting off more than you it can chew and you wonder whether Crane Bank’s woes are not just the tip of the iceberg.

One can expect that as a result of Crane Bank’s fate, it is the third largest bank by assets, there will be a slowdown in lending by mere virtue of the bank’s situation and as other managers make sure they are not haemorrhaging cash at a time when BOU is on the prowl. This does not help the economy’s growth prospects.

Clearly the need to return to the drawing board came yesterday, but today will do.

"We need to include more people into this miraculous economic growth we have been enjoying for the last three decades, if only so that businesses can stop depending on the small pool of Ugandans who earn more than a million shillings a year...

In the short term you focus on increasing agricultural productivity in a more systematic way than empty sloganeering. Invest in extension services so that our farmers can improve their practices. In the medium to longer term improve our health, education and other social services, its common sense that a better educated, healthier population will be more productive and earn more.

Secondly we need to take the burden of driving this economy off the backs of commercial banks. Commercial banks ideally should be financing going concerns not dominating the lending to startups, agriculture and development financing none of the latter do they do well. We need angel investors, venture capitalists, small business grants, trade financing and development financing.

Greater specialisation at these different levels will ensure better support for various sectors of the economy, more credit dished out and at lesser risk.

And finally there is no getting around it, we need to be more determined against corruption. Not only do the corrupt take money from the mouths of babes but they distort the business environment -- inflating asset prices and undercut genuine businessmen. But they also overturn the incentive system with people uninterested in innovation and focusing on being commission agents and rent seekers.

We need to be more interested in boosting the substance rather than shining the form of his economy. Crane Bank’s fate is our wake up call.

KCCA IS DAMNED IF IT DOES, DAMNED IF IT DOESN’T

On Wednesday the minister in charge of Kampala Beti Kamya issued a directive that all vendors be taken off the streets in the capital city.

The directive came after city traders threatened to evict the vendors themselves if government did nothing about them. City traders argue that the vendors constitute unfair competition and are driving them out of business.

The vendors do not pay taxes, rent or any city dues which allow them undercut the shopkeepers but as if that is not enough vendors, by congesting the pavements, often block paying customers from getting to the traders’ shops.

"From a purely economic perspective this is a difficult case to argue against and one can see why Kampala Capital City Authority (KCCA) too would be concerned; a contagion of business collapses in the city would not only single out the capital as place not to do business, but would also hit them where it hurts most, in the pocket as revenues from businesses collapse...

In addition the vendors can be an eye sore, litter the city and can even pose security risks.

The irony of it is that the street vendors probably have ambitions of taking out space in a shop to sell their wares or owning their own shops altogether one day. Their future ambitions would be scuttled if the street vendors entrenched themselves in business culture of the country.

Other countries have managed this by organising flee markets, outdoor markets organised every so often where mostly second hand wares are sold, but their main selling point is that customers can find bargains there.

We shouldn’t forget that street vendors are often good citizens who rather than turn to theft and burglary, forced against the wall they have decided to cobble together some capital, buy some goods and hit the street.

But KCCA have the force of the law behind them.

The challenge of course is that the vendor issue is not an entirely economic one.

The politics is murky as these things often are, but the vendors may represent a failure of government policy. That government is not creating a good enough enabling environment for job creation to at least match the available job seekers. This of course poses an opportunity for political rivals who would side with vendors as a way of scoring political points.

So on one side you would have opposition politicians agitating to keep them on the street while government would rather sweep them away under some long forgotten carpet.

Sadly once the vendor issue is shifted away from the economics and into the realm of politics, the vendors invariably suffer.

We tend to treat the symptom – deal with the vendor rather than the cause of why they need to seek a livelihood on the streets.

"In other economies these vendors, who constitute surplus labour would be snapped up by industry. Unfortunately for us our attempts at industrialisation have not kept pace with the number of graduates we are churning out annually at all levels of education....

So the question has to be why isn’t big industry not setting up in Uganda? For one they owe us nothing. Show them that we can be a viable proposition and they will beat a path to our door.

We have a huge regional market, but we are a high cost production center compared to our neighbours; We have a huge labour force, but their skills are inadequate at best and non-existent at worst. We boast of high returns on investment for businessmen who set up shop here but there are numerous hurdles – access to capital, land acquisition, qualified personnel and corruption to dodge before we can collect on the promise of high returns.

In short we are too hard to business with and it does not help that we do not have enough local business to play as hand holders for bigger concerns coming into the region.

So yes the vendors may have been swept off the street but its only a matter of time and the fundamental issues which remain unaddressed will see them back on the street in a little while.

WHAT IF INDEPENDENCE HAD HAPPENED DIFFERENTLY?

Last week New Vision to commemorate Independence Day had a 40-page plus supplement of stories and accounts surrounding the events.

The serialisation of Phares Mutibwa’s book “Uganda since Independence: A story of unfulfilled hopes” was an eye opener whose excerpts showed that the political manoeuvres by the key political actors sent against the background of a country divided by tribe and religion meant the Independence project got off to a shaky start at best.

"But even beyond that the country had serious deficiencies in social and physical infrastructure that meant the new government would, even with every citizen behind it, struggle to deliver the promise of a better Uganda for its citizens quickly enough to forestall any unrest...

But to go back even further the colonial project was not intended to empower Ugandans to take over the reins of power sometime in the future. Its main objective was extractive, to use our raw materials to stock Britain’s industry. With that in mind the British administration wold build only as many roads, railway lines, school only so many people as was necessary to execute the project.

It is unlikely if they had stayed any longer this state of affairs wold have changed.  One of the major reasons we got independence when we did was because Europe was reeling from the aftermath of the Second World War and was all but bankrupt. It did not have the resources to continue the political project in the shape and form it had since the beginning of the 20^th century.

In addition even those colonial powers that sought to hung on struggled once the momentum for independence was set in motion beginning with Sudan’s independence in 1956.

As a bare minimum a better educated population – only 700 students graduated from O-level in 1960, may have tempered post-independence tensions. To put this in perspective if we were graduating O-Level students at the same rate today we would only have 3,600 graduating to go to A-level. Today there at least 1.3 million students in O-Level and even these are not enough.

Unfortunately it takes at least 13 years of schooling to produce a clerk and while the post-independence government went on a tear in building schools for political purposes, white administrators had to be replaced by indigenous Ugandans immediately, often regardless of competence.

A long serving bureaucrat has suggested that it’s these capacity inadequacies that triggered the continent’s endemic of official corruption. He argued that we blame the Amin era for our descent into darkness but he pointed out that the same is happening in much more peaceful Kenya and Tanzania, which inherited similar if not worse human resource deficiencies.

Our physical infrastructure was just as lacking. The argument would have been that with adequate infrastructure we could have imported manpower as our own learned the ropes and we would be fine. 

To show how far behind we are comparisons with South Korea, which it is sometimes suggested we were at the same level of development in 1960, would be instructive.

"In 1960 the stock of South Korea’s road network stood at 27,000 km in Uganda 56 years later our road network stands at about 20,000 km. In the 1960s South Korea consumed about 1,500Gwh of electricity we currently only just double that number. Currently South Korea consumes about 5000 Gwh of power a year....

And to crown it all we had serious leadership gaps at independence. Our leaders really had no clue what they were getting themselves in to, did not have the tools or predisposition to run a modern state and were clearly out of their depth.

It did not help that the issue of Buganda’s status at the heart of an independent Uganda remained unresolved and sat like a ticking time bomb at the center of our collective conscious.

In hindsight its clear we really did not have a chance. The deck was so stacked against us as to guarantee failure. It was a matter of when not if the implosion would come.

WHAT IT WOULD TAKE TO MAKE A NATIONAL AIRLINE WORK

If there was any doubt that we are going ahead with a state airline President Yoweri Museveni’s word at the Independence Day celebration last week put them to rest.

My own opposition to the airline revolves around two questions.

What is it that the state airline would do for us that the existing players cannot do for us? Supporters of the project have never come up with a convincing answer for this except for a few vague mumblings about national pride.

"And secondly the issue of opportunity cost. That in spending the hundreds of millions of dollars required to make the project halfway viable, do we realise we will be denying more pressing needs in education, health and infrastructure the badly needed resources they need to deliver adequate service?...

The proponents don t seem to have a comeback for this one. Some have hazarded that we waste money on parliament and in corruption so why not on an airline.

That’s when I switch to another whatsapp conversation.

But since it is a fait accompli what would we really need to do to make this adventure work?

Project supporters point to the increased number flying into Entebbe – 1.5m last year compared to about 350,000 when Uganda Airlines folded, as a sign there is enough business for one more airline. 

The logic of that argument is lost on me. So the extra passengers will stop flying the time tested Emirates, Etihad, KLM, SN Brussels and even Kenya Airways to jump onto the untested new airline?

That being said it should be noted that these airlines feed into their respective hubs where they have onward flights to other destinations. Industry players estimate that only about 15 percent of travellers out of Entebbe are end-end users. This means for example that there are very few users who fly and stop in Addis Ababa or Dubai or Amsterdam or Nairobi for that matter. Most catch onward flights to elsewhere. Who would want to fly to a destination and have to change airlines? It’s a headache we would all rather avoid. Put that way it further narrows the numbers the new airline will be competing for to about 250,000 passengers a year.

Industry experts remember that the reason the initial Uganda Airlines collapsed was because it was undercapitalised and couldn’t take advantage of the lack of competition, then relative to now. Today the competition is much stiffer, with upwards of 15 airlines flying in and out of Entebbe which by extension would mean we would need more money to start-up the airline and keep it afloat.

"They point out that start-up airlines work on a business plan which sees revenues matching expenses after between 18 to 24 months, with break even coming much further down the line. RwandaAir started in 2002 and is still waiting to break even...

What can be expected is that there will be a long period of loss making, which losses, ongoing costs of operations and maintenance and continuous investment will have to be covered by the government.

To buy a brand new Boeing 737, the smallest of the company’s line, will set us back anything from $50 (Sh165b) to $90m (sh300b). To be competitive we will need several so already we can expect that on planes alone we will shell out at least $100m.

We could lease planes but industry experts are against this option as leasing costs will be a loadstone around the airlines neck especially when business is low. But assuming we used the leasing option to lease the same Boeing 737 with crew would cost us about $2500 an hour or $21.9m annually as this figure is regardless of whether the plane is flying or not.

And this is just the planes, we haven’t started talking about fuel, landing fees, staff costs, marketing and branding.

"To cut a long story short industry experts say for the airline to have half a chance of survival the government wold have to buy the planes and to buy back ground handling services from ENHAS....

One of the reasons for Uganda Airlines collapse was that the main cash cow of its operations, ground handling was hived off and sold to private operators. Observers say that a one off sale may mean at least $100m pay-out to the ENHAS owners given their annual revenues estimated in the millions of dollars. With more than 26,000 flights in and out of Entebbe annually and the cost of handling the smallest plane at $500, these cash flows would go a long way to easing the losses of the nascent airline.

Given this out lay one can expect that government would have to indulge in some predatory behaviour favouring the new airline over other airlines. This wouldn’t be bad if quality standards are what passengers have been used to but the flip side is that other airlines may have to start rethinking their investments in Uganda much to the discomfort of the passengers.

The key of course is whether the government will have the stomach to keep pouring money into what can develop quickly into a financial blackhole, as they wait for it to become profitable.

WE ARE OUT OF TIME TO BE MIDDLE INCOME COUNTRY BY 2020

When Lee Kuan Yew took over the reins of power in Singapore in 1965 he and his cabinet, many of whom were English trained lawyers, set themselves the target of raising the small island nation’s per capita to that of the UK within a generation.

At the time Singapore’s per capita GDP was $511 while the UK’s was just under four times that at $1, 850.

With the goal in mind they begun to work backwards, investing in human capital, raising national savings, developing their potential as a logistics hub, developing their financial services, dabbling initially in manufacturing before focusing on physical and biological hi-tech sciences.

It wasn’t a smooth ride, the country had to chart a developmental path while faced with risks to national security, walk the tight rope of Cold War geopolitics and begin from a standing start with a small, poor population riven by ethnic tension, on an island, which had no resources except for its strategic location on the sea route to the far east.

A half century down the road and Singapore now has a per capita GDP of $56,319 according to the International Monetary Fund (IMF) while the UK’s figure stands at about $42,000.

Interestingly if one was to do a straight mathematical calculation the growth in Singapore’s per capita GDP meant the country’s economy was growing at 9.65 percent

"Our target of attaining middle income status is not very different from what Singapore set out to do those many years ago except that we have set ourselves a steep growth curve....

What does it mean to attain middle income status as a country?

Middle income countries are nations that have a per capita GDP of between $1,036 and $12,615, a categorisation used by donors in deciding how to engage with countries.

Simply put it means that on average on attainment of this status a Ugandan – including children and prisoners, will have an income of at least a thousand dollars a year or about sh275,000 a month, when the nation’s total output in a given year is divided by 36 million-or-so Ugandans.

For some readers of this newspaper who earn multiples of this monthly it is a ridiculous target to aim for but is a reflection of how unevenly the benefits of development are spread out.

According to the Uganda National Household Survey 2012/13 just under two in every ten Ugandans or 16.9 percent earn more than a million shillings a year. While 17 percent of urban dwellers earn above a million shillings, only five percent of rural people earn that money in a year.

No figures were immediately available but one can expect that the disparities are even more dire for people who earn above the magic sh3.3 million a year.

On the surface of it, it is clear that one way to more evenly spread the love and set ourselves on a sustainable path to middle income status is to raise rural incomes.

The National Planning Authority (NPA) agree.

“The NDPII (National Development Plan II) identifies five lead sectors that if well focused, can propel this country to middle income status. These are: Agriculture; Tourism, minerals, oil and gas; Human Capital development and infrastructure development,” the NPA said recently in their recent “Roadmap to attaining middle income status for Uganda”

“At a macro level for middle income status to be achieved we must ensure the following; GDP must grow and the population growth must be contained; Macroeconomic stability must be ensured (including foreign exchange stabilization) For foreign exchange to be stabilized, exports must increase progressively, capital outflows should be reduced, and capital inflows increased; Productivity across sectors must be increased; Investment in public infrastructure must be frontloaded - Financial deepening / savings must be increased - Capital accumulation must be front loaded - Low interest rates must be maintained / cheaper capital,” The NPA added.

Given all this can we make middle income status by 2020?

"From a purely arithmetical standpoint to attain middle income by December 31^st, 2020 our per capita income – now at about $650, will have to grow by 12 percent a year. When you factor in our population growth of about three percent the economy will have to grow by at least 15 percent a year for the next four years starting in 2017 essentially that the economy has to almost double from its current $26b to $47b...

According to the World Bank at the peak of the current economic revival in the 1990s and 2000s, economic growth averaged seven percent, putting Uganda among the fastest growing economies in the world.

But maybe it isn’t impossible. The Ugandan economy has almost quadrupled in size to the current $26.37b according to the World Bank from $6.179b in 2002. This means that the compounded average growth during this period just under 12 percent.

So what do we needed to jump start the economy which fell short of expectations last year growing by 4.6 percent compared to the earlier projected 5.5 percent.

So where will the quick fixes come from?

“Agriculture. Because of how many people it employs when agricultural output grows by even four percent it has a ripple effect through the economy. People are already producing and the market is already there so you can see almost immediate gains if we targeted agriculture.  It feeds into our exchange rate and directly into the incomes of the people,” said economist Dr Fred Muhumuza.

The interventions would take the form of provision of improved planting and breeding materials and extension services in the immediate term and improved financing options and policy reforms in the long term.

Muhumuza also suggested that reforms in the way government works would be necessary.

“These stalled government projects need to get off the ground. Why do we have money lying around unused? The projects will not only release cash into the general economy but their implementation will have a multiplier effect through the economy.”

Muhumuza, a senior manager accounting firm KPMG is sceptical that the huge infrastructure projects will provide the growth required to take us over the finish line in four years.

“The benefits of infrastructure will come over time. But being funded by foreign financing its becoming troublesome, “a veiled reference to the World Bank’s recent announcement it was suspending aid to Uganda, for our inability to optimally utilise existing resources.

"Muhumuza wondered too why when interest rates were negative in more developed economies, why we are not seeing a surge of funding to our shores, which would support these mega projects that are sorely needed to bridge our huge infrastructure deficits...

Another observer of the economy speaking on condition of anonymity was less forgiving.

“Middle income status will come soon enough out of sheer momentum. But we can do better if we only got our strategy right, put the right people in place and gave them an enabling environment. Talk is cheap let us just do the bare minimum we are supposed to do – provide quality education and health services, enable improvements in transport and other infrastructure and cut down on corruption and it’s a mathematical certainty that middle income will come…. But not in the next four years.”

WERE WE READY FOR INDEPENDENCE?

Fifty four years ago the Union Jack came down at Kololo airstrip and the Uganda flag went up signalling the end of colonial rule and a descent into chaos that we are only beginning to unravel.

In hindsight we were not ready for independence – we were a small little country in the middle of Africa, mostly illiterate, with huge infrastructure deficits and institutional inadequacies, without the capacity or the temperament to run a modern state.

Some disagree.

“We were ready for independence,” insists Kavuma Kagwa, who turned 26, weeks after Uganda gained independence.

“The British concentrated on education, agriculture and later on medicine. At independence we had an agricultural officer at every Gombolola (LCIII). We were graduating doctors from Mulago. The leaders of our political parties were very educated men,” he added.

For good measure he threw the anecdote of Dr Dionysius Bamundaga, a pioneer graduate of Mulago medical school, who was the first indigenous doctor to operate a European.

“The provincial commissioner of northern Uganda’s wife in 1953 got an appendicitis attack while in Gulu and there was no time to get her to Nakasero Hospital which was where European’s were treated. Bamundaga who was the provincial medical officer at the time volunteered his services which the PC grudgingly accepted. The operation was a success and soon after Governor Andrew Cohen made a radio announcement that indigenous medical doctors could operate on Europeans.”

The case of Dr Bamundga is more case of an exception to the rule.

"According to the 1962 Civil Service Survey there was no chartered accountant, solicitor, architect or pathologist and there was only one geologist, one veterinary officer, one entomologist and two dentists in public service....

This should not have come as a surprise since total enrollment at Makerere at that time, the sole university was only 364. There were about seven million Ugandans at independence.

While the civil service was not the only employer at the time it dominated the private sector especially in its employment of specialist skills.

The scarcity continued into the administration where the same survey showed that of the 408 executive class posts in the civil service Ugandans only filled 102 of them while another 106 were vacant.  In the super scales which were just below executive class it was even worse with Ugandans only filling 269 or about 20 percent of the 1,250 positions available.

But this should not have come as a surprise. In 1962 there were only 364 students at university, JC Ssekamwa reported in his book “History & Development of Education in Uganda” going on to reveal that there were 1991 students enrolled in O-Level in the whole country at the time. The number of students graduating from O-Level in 1960 was 700. It is not clear whether this means they were moving on to A-level or not.

"To get a sense of how deficient our manpower training was at independence, if O-level enrollment had kept pace with population growth there would be just under 10,000 students in lower secondary school today...

Today there are about 1.3 million students enrolled in secondary school.

In lamenting our backwardness they never tire of reminding us how Uganda was at par with some South Eastern Asian nations – South Korea and Singapore, who now enjoy developed world standards in 1962.

A cursory look over the data not only shows that not to be true, but more embarrassingly shows in key areas like human resource  and infrastructure we are only just catching up to where they were in 1962!

If we take South Korea as an example. In the year of our independence, South Korea was still reeling from the after effects of civil war that had split the peninsula into two.

They had a per capita GDP of $103 while we were at $62. That may give the impression we were nearly toe-to-toe with them at that point but place this figure against a figure like secondary school enrollment and the chasm between our two situations becomes apparent.

While as noted above our O-level enrollment was about 2,000, South Korea had an enrollment of 620,000 for the comparable age groups. Note too that today we only just double their 1962 secondary school enrollment figures.

By another measure the doctor to patient ratio in South Korea was 0.344 per 1000 it is now about 2 doctors for every 1000 South Koreans. Figures for Uganda were hard to come by but today we have a patient to doctor ratio of 0.41, we are just better than South Korea in 1962.

These disparities are reflected wherever you look.

South Korea had 27,000km of road in 1962, today Uganda has about 20,000 km. The Asian nation was generating 1,512 Gwh of power 54 years ago we are now doing about 3,000 Gwh according to official figures.

The point is that comparing ourselves against the south eastern nations when we attained is a false base.

"Of course the colonial authorities’ primary mission was not to educate or empower Ugandans, so our deficiencies in manpower and infrastructure should come as no surprise...

And there are no guarantees that they would have worked hard to bridge those deficiencies except for the benefit of an elite few. But knowing this puts into sharper perspective the losses to the country caused by the lost decades of the 1970s and 1980s, which can be argued were due to the very same shortfalls in human capacity that we inherited.

So for those who were there, do they still think we were ready?

“Very much so. For me those comparisons with Asia don’t interest me very much, after all when are you ready,” Presidential media advisor John Nagenda asked.

“I wasn’t interested in politics at the time but the feeling was it was time and we would sort ourselves out on our own.”

WHAT DO WE NEED TO DO TO GET OUR TARRIF DOWN TO $5CTS

President Yoweri Museveni while speaking at the opening of the Uganda Manufacturers Association (UMA) annual trade fair once again promised the industrialists that power tariffs will come down in the near future.

Currently his focus is on Bujagali dam which is selling power to the grid at about $11 cents (sh340) a unit.

The President has expressed his desire the question then is how do we get that price down from current levels?

First of all looking at the composition of the Bujagali tariff of $10.1 cents, the rate at which they sell it to Uganda Electricity Transmission Company Ltd (UETCL), $6.7 cents goes towards repayment of debt and equity repayments to the shareholders, $2.3 cents is earmarked for taxes and repayments to government and $1.0 cents goes towards other costs – operations and maintenance and administration. These are the averages under the current agreement which lasts 30 years from 2012 when the dam was commissioned.

"According to figures that were seen last year which have changed somewhat by now, the simplest – but by far the easiest way, to collapse the tariff would be for government to get $1.4b (about sh5 trillion) or half of all the revenues we collected last year, pay off the shareholders – the Aga Khan’s Industrial Promotion services (IPS) and American private equity firm Sithe Global and retire all the debt. Sithe Global is currently in talks to sell its majority stake to in the project to Norwegian firm SN Power....

With one fell swoop we will have loped of $6.7 cents and brought the tariff down to $3.4 cents.

Ideally we should get all this money in cash so that there are no debt repayment costs and then it can have a real say in setting the tariff.

The challenge is government does not have this kind of cash lying around.

The next best thing would be to refinance the project by extending the term of the current agreement to say 50 years instead of the current 30. The Build Operate & Transfer (BOT) agreement calls for a handover of the asset to Uganda after 30 years.

Under such an agreement the average tariff over the life of the project would almost half to $6.6 cents.

The next best thing would be to pay off all the debt, which people familiar with the project estimate at about $530m, this would account for about $3.8 cents of the tariff bringing it down to $6.3 cents.  A removal of government taxes and repayments would then pull the tariff further down, below the magic $5 cents a unit number to $4 cents.

However given that dollars do not pave Kampala’s streets we could either pay off the investors or refinance the debt hopefully with money that will significantly dent the tarrif. And in addition forgo government revenues.

However calculations are that tariff would increase in both instances if we are still saddled with investor dividends and interest rate payments of higher than 8 percent per annum. The current debt costs about 3.8 percent over the duration of the project.

And if we were to borrow to get rid of the private investors on the project – government owns just over four percent, the new lenders would demand a higher usage of Bujagali, a plant factor of much higher than the current 70 percent. The higher the plant factor the lower the tariff.

"It’s clear that we don’t have the cash to send our private partners on their way and to borrow to do so may not have the desired effect, except make another set of arrangers and bankers rich...

But to reduce the tariff is not only a Bujagali challenge, even if the tariff from the dam account for about 60 percent of the current tariff to UETCL.

There is the issue of the 700 MW Karuma dam and the 183 MW Isimba dam which it is expected will come on line within the next five years.

The projections that these dams will sell power at $5.3 and $6.6 cents a unit for Karuma and Isimba dams respectively but that presupposes they will be firing on all cylinders from day one.

However industry experts wonder where the 800 MW of demand will come from. Uganda given its low industrialisation sees seven in every ten units generated  going to domestic consumption. There is only so much power a family can use. But even more of concern is that with the roll out of prepaid meters the industry has seen a falloff in demand or at least a slowing down in the growth in consumption.

"If government really needs to ensure the two new dams and Bujagali are working at full capacity and therefore lower the tariffs, they will have to go out and seek investors of the type that snap up this new capacity immediately. This would not be unlike what former energy minister Syda Bumba did in flying around the region to sign the regional power utilities to take up Bujagali’s power when it came on line as a precondition for donors to unlock their taps...

But beyond that we need to work to reduce commercial and technical losses on the transmission and distribution networks so that gains made in generation are not lost before they get to the end user.

Five US cents is the Promised Land, but there will be no silver bullets in getting there.

But I am sure government is well aware of all this and have girded their loins for the battle ahead.

OF PATRIOTISM AND THE QUEEN OF KATWE

Last week the much anticipated premiere of the Queen of Katwe happened in Kampala. This event would have gone largely unnoticed had it not been for journalist Timothy Kalyegira’s scathing remarks about the event and the 20 minutes of the two hour film he watched.

His comments kicked up a firestorm on social media – and not much elsewhere. The few of us on social media when we lurch onto one cause or another tend to believe the whole country, even the world, is paying attention. The truth is that more Ugandans were engrossed in the Kampala Carnival than the rantings of one film critic and his haters.

Let me first say that as of writing this column I had not watched the film so I have no insights to share about it. And I will not try.

However, going by the general plot – girl rises from dirty poverty to the brink of world domination, it is a good film for Uganda to be associated with. Better than the one’s about our dark past --“The Last King of Scotland” or “The Raid on Entebbe”. The overriding theme in this new film set in our country seems to be one of hope. That born in the direst of circumstances one can rise above the hardship and gain world attention for a positive achievement.

But what was real interesting about the social media fire fight was that every so often one person or another would accuse Kalyegira of not being patriotic. That his criticism was uncalled for given that Hollywood has made a film about Uganda to celebrate one of our own.

"It is a thing we human beings do, to close or “win” arguments we are disturbed by, uncomfortable with, we evoke a higher authority. Daddy said or things are not done like that or this or that holy book says such, such and the other. More often than not the authorities we quote, on closer scrutiny, did not mean what we claim they did, but it is convenient for us to quote them if only to shut up the other party and have our way....

Who is a patriot? To simplify, a patriot is one who loves his country and wants the best for it. As a opposed to a nationalist, one who believes his country can do no wrong. You might think the distinction is small but it is very pronounced.

Whereas patriotism can be exercised by everybody, every time, nationalism is most strongly felt by the people with a vested interest in the ruling elite of the time.

The Queen of Katwe gives us a nice neutral subject around which we can explore this question.

Going by our above definition it is patriotic to support a film that portrays Uganda in a positive light but it is also patriotic to demand that the film be made to a higher standard. It would nationalistic to deny any poor representation of Uganda in the film – the slums, the unsophistication of the plot or the actors, but it would also be nationalistic to adopt Phiona Mutesi’s rise to prominence as a result of Uganda’s improved general environment.

The point is using the words interchangeably is the source of much confusion and unnecessary hostility, and we are not just talking about The Queen of Katwe.

"Criticism of the way things are is the patriotic duty of all citizens, when you see something wrong, diminishing the country you love, you should bring it to someone’s attention. To be nationalistic and deny anything is wrong only plays into the hands of those benefiting from the status quo....

Of course how you express that displeasure could very well make the difference between whether people take notice and do something about it or rubbish you as a heckler and ignore you all together. In effect throwing the baby out with the bathwater.

So yes the critics of The Queen of Katwe, as with everything in Uganda, can be accused of being insensitive and even ignorant but being unpatriotic should not be one of the charges levelled against them.

SHOOTING THE MESSENGER

There seems to be a standoff between parliament and the press following the averse reporting on some MPs recent trip to the US and their demands for hundreds of millions to buy cars.

Parliament seems to be under the impression that the reporting of parliament stops at the plenary and the committee rooms and should not extend to the honourable members’ activities in everyday life – although the negative commentary has come from their official duties.

This might be dismissed as a spurt between lovers but this is a more important issue for the furthering of democracy, that should not be swept under the carpet.

For background’s sake parliament is the third arm of government – the others are the executive and the judiciary. Parliament broadly speaking, represents the people and performs an oversight role of government in determining that it is working in the best interests of the people. This is in addition to its role as law maker.

The press, whereas it is not an arm of government, has been recognised as the fourth estate. With the other three being the church, royalty and the representatives of the people. The term the fourth estate was coined during the time that England was transitioning from a feudal to democratic system.

Assigning the media the title of the fourth estate was a recognition that whereas the rulers’ excesses need to be checked, those who check the rulers need to be watched as well.

"Parliament must know that the outrage expressed by the media is at a best, a milder representation of what the public feels; A public who suffers understaffed, underequipped and ineffective social services. A public that endures poor transport systems; A public that sees little hope in an economy which is not ticking along as it should...

When you add to this the MPs splurging on foreign trips and threatening to throw their toys out of the pram if they don’t get their way, then you can see where the disgust comes from.

The media after all is a mirror to our society. If society does not like the media it, society, probably needs to take a good look at itself. The same can be said for our parliament.

The ideal is that parliament and the media should work together in holding the powers that be accountable, but parliament should not assume that the lenses will never be turned on them, especially since they are probably one of the biggest concentration of budgetary expenditure in this country. And also because parliament is manned by the human beings who at the best of times are fallible.

That being said, parliament is within its rights to have differences with the media, to question its methods and every so often be loudly vocal about their disapproval. But in looking for censure of the media, there are institutions through which this can be channelled.

By seeking out these institutions, in fact parliament will be strengthening institutions, devolving power from individuals and promoting due process.

"You have to worry when people in power cannot take criticism. It makes you wonder about what they are hiding or the insecurities they harbour. If one is secure within themselves they should be able to see beyond the raw emotion or delivery of the criticism, turn it around into a force for good...

The truth is, despite previous evidence, we actually expect a lot from parliament, its members and the institution. Our criticism is not unlike the scolding of a parent or teacher who knows his charge can do better. Believe it or not we do not believe parliament is beyond salvage.

OF OIL AND LOCAL CONTENT

A few months ago government issued production licenses to two of the three oil explorers paving the way for final preparations for oil production to begin.

Government had already issued a production licence to China’s CNOOC in 2013 who argued they could not do anything major until its partners, UK based Tullow Oil and Frances’ Total got their own licenses.

"It has been reported that up to $20b (sh66trillion) or about the GDP of Uganda will be invested by the time our oil fields reach peak production. Uganda has an estimated 6.5 billion barrels in the ground of which about 1.6 billion barrels are recoverable. At peak production it is expected that Uganda will be pumping out 200,000 barrels a day....

In money terms this could mean Uganda earning as much as 10 percent of GDP in royalties, profit sharing and tax revenues.

That is all very nice but those are official revenues, payments to government. There is the issue not being much discussed, which is the issue of how will Ugandan businessmen benefit from this windfall.

This discussion is going on in backrooms and not in the public space despite its benefits beginning to accrue well before real production begins and long after it stops.

Already we are seeing how it is a real issue with the building of the billion dollar Karuma Dam and the smaller Isimba dam. The contractors on this sites have pointedly ignored local producers of steel, cement and other inputs arguing that they are of inferior quality are not in adequate supply or don’t meet one requirement or another.

As a result manufacturers who had tooled their factories to take advantage of this new construction boom are operating well below capacity, with the excess capacity going begging, aggravated even more by the current economic slowdown.

Like the construction of the two dams, it is important to realise that exploitation of our oil find will continue with or without our input. The companies involved have already committed hundreds of millions of dollars to get this point and you better believe it that they have well laid out plans for every possible contingency including lack of local supplies.

If need be they will import their toothpicks, firewood and even toilet paper if we are not ready.

Speaking to various providers of local content it is clear we are not ready at a policy level or local capacity level and time is running out.

"Take for instance the job sector. It is estimated variously that the oil companies will be employing as many as 15,000 in fields varying from welders, electricians, plumbers and truck drivers. But outside the oil companies many more, in multiples of those hired directly, will be required...

We have a few thousand artisans of various types working in our local industries, doing business or just wandering the streets for lack of opportunity, so the industry will very handily absorb all this slack?

Think again.

According to Patrick Mbonye, founder of human resource consultants Q-Sourcing, the industry will not be hiring any one off the street and will definitely be hiring the graduates of our various vocational institutes.

“There demands are very specific. One needs to have internationally recognised certification to have a chance of working in the industry, first because they want to be sure your skills are up to their requirements and secondly, for their own regulation issues, “he explained.

For instance, in the second instance, to match safety regulations they need to insure the workers but the insurance firms will not insure unqualified people.

Mbonye’s firm The Assessment and Skilling Center (TASC), which is affiliated to several international certification bodies, has done some assessment of some of graduates of a vocational institutes and the results have been dire.

“Our people don’t have the skills required. Period.” He says. “They have done a lot of theory but cannot apply it.”. He warns that by the last quarter of next year, 2017, when actual work will begin, hundreds – he estimates at least 3000 artisanal workers will be needed, of artisans from around the world will be making their way here, taking our bread from under our very noses....

Mbonye says it is not a lost cause yet but time is of the essence, as taking the best of our current crop of workers and raising their skill level will take at least a year.

A disdain for vocational training  means that gaining certification may seem a pricey affair, TASC’s cheapest certifiable course costs $1,400 for a five-week basic electrical installation course by the City & Guilds, the UK based global leader in skills development.

His is one of only two organisations in Uganda that offers this certification – the other is Kinyara Sugar Works.

Maybe we should be content with the anticipated hundreds of millions government will collect in revenues and not try to be too clever and try getting prepared at an individual level for the oil but that will be stupid at best and criminal at worst.