WHAT THE MOODY’S DOWNGRADE MEANS FOR UGANDA

A few day’s ago credit rating agency Moody’s downgraded long term issuer rating of the Uganda government to B2 from B1, which means the country has been judged more risky to lend to and will be more expensive for us to borrow on the open market.

The downgrade came as a result of our increased borrowing, which has worsened our debt to GDP and revenue levels.

However the agency upgraded the country’s outlook to stable from negative based on continued economic growth, improved financial management and the shift towards development from recurrent expenditure.

To understand this use yourself as the analogy. In determining whether to lend to you or not a bank first looks at your income. In principle the higher the income the more you can borrow. For countries they consider GDP – the economic output, the higher this number is the more you can borrow. Uganda’s GDP stands at about $20b (sh70trillion).

But the bank would go further to determine how much of your income is actually available for debt repayments. They try not to take more than half of your take home pay. If you have little or no debt the more they can lend you. So for Uganda because we have been on a borrowing spree lately, and mostly of non-concessional loans, our ability to borrow more is less.

On an individual level the more money is going towards repaying debt the more at risk you are too any shocks in your personal life – accidents, medical emergencies or other unforeseen expenses. 

"Similarly as a country we have left ourselves little room for manoeuvre in case of any nasty surprises like depreciating shilling or lower than anticipated growth...

So a banker looking at your personal statement would worry about you more, the more indebted you are. Same as a country.

It helps of course if year on year your income is growing. This means less of your money will goes towards debt repayment, not only allowing you more money for you to spend yourself but also making you a prime candidate for more loans in future. Moody’s notes that our economy is growing slower than in the past --  about 4.3 percent on average 2012-2014 compared to 7 percent 2009-2011. 

As if that is not enough we are not collecting enough revenue – 13.4 percent compared to our peers who collect about 23 percent of GDP.

Also your banker would worry if you are not in formal employment, where incomes are predictable. 

Moody raises this concern in questioning the soundness of Uganda’s institutional strength, noting that the greater institutional strength a country has the more likely it is to take on more debt since the mechanism for raising money to repay the loans are in place.

However the banker maybe more optimistic of you long term, if your debt has not been frittered on high living and frivolous expenditure but on building up a viable business or your asset base. Moody’s says just as much of Uganda noting that the shift towards infrastructure development and away from recurrent expenditure – salaries, allowances and official perks, may lead to greater economic growth and hence improve our credit worthiness.

So on one hand our ability is borrow is reducing but the prospects for our economic growth are improving.

Uganda is not unlike the child in class who though is stuck nearer the bottom of the class than the top, is promising if only he could focus more in class and exercise more diligence in his homework. 

Under the current circumstances for the kid to make it to University a lot of things outside the kid’s control have to line up -- the weather, the seating arrangement and the degree of difficulty of the exam.

This is as opposed to the brightest kid in the class for whom none of those factors will matter on the day. He will thunder the exams or pass at worst. The possibility of failure is slim to none.

"Moody’s thinks that if the infrastructure developments generates economic growth and the country begins oil production an upgrade in the future is likely....

They also warn that further dramatic depreciation of the shilling could make debt repayments onerous -- already 16 percent of the budget, and affect economic growth.

Debt is a double edged sword it can be used to boost consumption -- bad debt or for investment -- good debt.

But an investment is only that when it shows a return if not it can become a white elephant.

But it can also turn into a bad investment if you pay too much for it, meaning for one that you will be servicing the debt longer than necessary tying down crucial funds, which could have been deployed elsewhere.

It's clear our development momentum has not attained irreversibility. Just because we have access to more funds should not mean we throw discipline out the window.

We are still at the bottom of the class. We need to focus and work harder than the brighter students if we are to keep up or even catch up.

OUR PEOPLE PERISH FOR LACK OF KNOWLEDGE

It has been reported that 36 districts are facing food shortages. The poor rains mean harvests have been poor and livestock have not been as productive.

The spin off from this, we can expect a jump in inflation in coming months and as the Bank of Uganda scrambles to contain that an increase in lending rates will follow, restricting borrowing, business growth and leading to distressed companies.

The long and short of it we should not be oblivious to the plight of these distressed districts.

But we need to ask, how is it that a country with 20 percent of its surface under water and almost half the region’s arable land ever have food insecurity issues?

There are many factors but the one bandied around most is that most of Uganda’s agriculture is dominated by small holder, low productivity farms.

These farmers who are mostly subsistence farmers due to land tenure systems and low adoption of modern agricultural methods are barely eking out a living.

Interventions by the state have been haphazard and sporadic and failed to improve productivity. While others point to the low investment in agriculture as at the back of the sectors woes.

"Both sides are correct but like the blind men set the task of describing the elephant they are each snatching at parts of the problem without appreciating the whole...

At the bottom of the low productivity of our farms is the poor farming methods of our farms. We are talking of such basic things as spacing, use of manure and basic irrigation.

On Tuesday in our Harvest Money pullout which was dedicated to irrigation I learnt that one can dig a pit among a cluster of plants and fill with water at least twice a week and it will irrigate the surrounding plants. To take it a step further you can fill it with compost manure and as the water sips out into the surrounding farm will carry along with it nutrients from the manure.

We are not talking about cutting edge fertilisers and sprinkling gizmos. Basic improvements in our farm practices can cause significant improvements in productivity and that is before you look at improved seeds and increased application of fertilizer.

"According to a World Economic Forum research done in east Africa irrigation increases productivity by 90 percent compared to farms which don’t employ irrigation, fertiliser increases yields by 61 percent and the use of mobile based market information can raise incomes by up to 30 percent.
Increased productivity will lead to a need for markets. Small farmers can be encouraged to form cooperatives to bulk their produce to better negotiate in the market....

So why isn’t this all happening?

It is happening because our farmers don’t know better.

When we talk about investing in agriculture, arguably the single best investment we can make is in extension services – some studies have shown returns on investment in extension services of more than 80 percent.

According to agriculture ministry numbers only 700,000 of the four million agriculture households had been in contact with an extension service worker. At the Kakira sugar plantations they have one extension worker for every 90 farmers. Going by that we should have at least 40,000 extension workers scoring the countryside helping our farmers improve their methods.

There are issues of market failure but that those are a lesser problem to the low productivity of our farms.

It should be obvious by now. Our people are being caught seemingly unawares by and unable to cope with the changes in the weather for lack of information. Radio announcements and indifferent politicians will not spread the word.

AN INTRIGUING WAY TO FIGHT CORRUPTION

Last week the Indian government announced it would be withdrawing the largest denomination notes from circulation as a way to combat corruption ahead of state elections.

Indians have until December 30 to turn in their big notes to their nearest bank. And that the deposit of large sums would have to be accompanied by an explanation as to their source.

The logic is that these large denomination notes allow for ease of storage and movement of large sums facilitating money laundering and tax evasion.

Why didn't we think of this before?

"Imagine if the government woke up one day and said they had demobilised the sh50,000 and sh20,000 note and that everyone in possession of them should hand them in to be replaced by smaller denomination bills...

To begin with, just like in India there would be a jump in deposits across the banking industry. According to reports deposits jumped a record six percent in the last quarter as connected types reacted to a leak about the impending move.

As shown above the move brings more of the money in circulation into the financial sector, which may have an effect on lowering lending rates and it's a move unlikely to adversely affect the majority, none of whom come in contact with big notes, but only that small group of people hanging on to large amounts of cash not earned above the table.

One they would have to suffer some discomfort and answer uncomfortable questions why they have such huge amounts in cash and, after the transition shifting those sums will become that much more difficult

Currently sh50m in cash is ten bundles of sh50,000. But if the highest denomination were sh10,000 you would need 50 bundles. A much more cumbersome weight to lug around. But why not reduce the denomination to sh1000 altogether?

The reason for the huge notes in the first place was to ease the movement of money by people who operate in large volumes like traders. But that was the argument being made when payments, even salaries were made in cash. UCB and one other bank were the only ones with a countrywide network, ATMs and mobile money were non-existent.

By having smaller denominations it would force more people to get bank accounts or at least mobile money accounts. So if for instance I have brought my cows, milk or matoke to town for sale the buyer either writes me a check for my millions, does a transfer to my account via his mobile phone or pays me using mobile money.

"Meanwhile for those with questionable hoards of cash it will be more expensive to store. In effect if we made the highest denominator  sh1,000 it will take you fifty times more space to store your loot. Corruption can not be eliminated but by making it a bit more difficult to operationalize would help reduce it considerably...

But the world can learn from us too.

About two years ago government announced the single account in Bank of Uganda for all ministries.This would replace the thousands of ministry accounts peppered around the banking industry.

Now ministries can only see releases from the central bank against predetermined work plans unlike previously when the finance ministry would release money on a quarterly basis as per the budget.

With one fell swoop the tap of money that was leaking out of government was turned off, bringing general inflation under control and returning sanity to asset prices.

"It has also revealed that a lot of our consumption has been buoyed by this hot money. Otherwise how do you explain the tightness in cash when the government budget has more than doubled in the last five years?...

Previously these numerous accounts were "hard" to keep track off with money disappearing into them never to be seen again, financing land speculation, conspicuous consumption by a small group of officials in government and general financial indiscipline.

The argument from some quarters is that there has been a huge shift of resources to development projects, a lot of whose money is spent abroad but the recurrent budget -- salaries and supplier payments has also grown with the general budget so that argument doesn't real stand up to scrutiny.

This calls to mind what happened in the early 1990s when government improved it's fiscal discipline by shifting to cash budgeting and the outcry that followed.

Even then businesses collapsed, banks were stressed and a whole industry of air supply was badly wounded.

The political pressure was intense both from outside and inside government to loosen the fiscal straight jacket government had imposed on themselves.Thankfully the government didn't buckle in its resolve. One can imagine that even now the pressure is intense to see a return to easier times. And again government should not waiver in its resolve.We will get over it.

"The reason to clamp down on corruption can not be overemphasized. The proceeds from corruption concentrate money in a few hands, distorts the markets discouraging genuine business and ultimately possesses a security risk as the beneficiaries will do anything to keep the rackets ticking over....

Of course the beneficiaries while they may be few are very loud and boisterous and create a perception that the sky is about to fall, but past experience has shown this is not true.

KIGGUNDU AND THE BUILDING OF INSTITUTIONS

Thursday was the last day in office of Dr Badru Kiggundu’s tenure as head of the Electoral Commission (EC).

The event went largely unnoticed, overshadowed by our  latest scandal, the whodunit surrounding the death of social worker Kenneth Akena over the weekend. Two people – Matthew Kanyamunyu and his partner Cynthia Munwangari remain in custody as suspects in the incident.

The story has more twists than a Kisoro road and the public – never mind what social media says, is no closer to the truth  as to what happened on that fateful evening.

But back to Kiggundu and his place in history.

Engineer Badru Kiggundu was appointed chairman of the EC, seemingly out of the blue in 2002. The former dean of the technology faculty seemed an unlikely replacement for Aziz Kasujja, whose term at the EC came to an unceremonious end a year after the 2001 polls.

"Looking back to the time, quite a few people felt the engineer would find himself out of his depth.
That the unrelenting intrigue and political gymnastics that come with the position, would bamboozle the linear logic of his scientific mind, frustrate him and soon have him scampering for the hills in bewilderment.
They clearly underestimated the man. He oversaw the contentious 2006 polls, bounced back to shepherd the 2011 elections and finally the most recent at the beginning of this year, where logistical snafus had people seeing conspiracies at every turn. This is not counting the myriad of elections at local government level and the hundreds of by elections that we have become accustomed to.

But Kiggundu’s legacy is more than just about the man but as a builder of the foundation of electoral practice.

We may raise an eyebrow about the way this election was carried out, frown at the result of that poll or sneer at the seeming favaroutism of another, but precedent has been set for better or worse, which will give us a chance as a country to improve our process going into the  future.

It’s not automatic but at least there is a better chance of progress.

We forget that between Independence in 1962 and 1980 the country had only on general election. But in the 20 years from 1996 to date we have had five presidential elections.

The critics might pooh it away as mere ritual but that is to ignore or not understand how culture is established. Culture is the way things are done. It is not written into existence, but practiced over long periods to the point that a new baseline is set. Suggestions mooted last year that maybe for lack of money we should not hold this year’s elections, did not see the light of day, as a standard had already been set and should be observed regardless of circumstance.

The Democratic Republic of Congo which was supposed to have a general election in December has opted not to with little repercussion to the establishment, because elections are still a novelty in our western neighbour and can be done away at the convenience of the ruling elite.

In the US the most crude of electoral malpractice, ballot stuffing, vote buying and intimidation have been reported down the ages. Much of it has been worked out of the system through improved legislation and the employment of technology.

But this would not have happened if they had not retained the culture of having an election every time it was due.

Elections are not democracy but it is one of the most critical pillars of democracy.

Kiggundu was not a saint and neither did he claim to be one. If Uganda matures into a better democracy his role over the last 14 years would have pride of place in the history books about the process.

"In a world where a person’s worth is measured by the size of his bank account, it is easy to dismiss his contribution. Future generations with no sense of history may relegate him to a footnote. But regardless of what happens, serious chroniclers of our time will find the record of Kiggundu’s era provides useful material to make head of tail of our time....

Kiggundu and his team have laid their brick on the wall of history. No one can take that away from them.

UMEME A VINDICATION OF THE SHIFT TO A MARKET DRIVEN ECONOMY?

Last week Umeme Holding Ltd (UHL) sale of half it shares to National Social Security Fund (NSSF) and their announced intention to offload their remaining shares brings to a close one of the most successful chapters in the country’s privatisation process.

The privatisation of state owned enterprises was based on the premise that old parastatals were a drain on the treasury, that they needed huge investment outlays the government could not afford and that we did not have the managerial capacity locally to turn them around. The last issue beyond inadequate managerial capacity was that local managements were not properly insulated from the interference of the state.

"The opposition to the privatisation process argued that we were selling the family silver, never mind that it was badly tarnished, to foreigners for a pittance. In doing so forgoing any leverage the government had over the economy and that it wold cost us jobs, earnings and prestige to sell...

Thankfully the economic reality was that the government really couldn’t afford to carry the load of these resource draining black holes in the face of more pressing needs – getting the economy back on its feet, rehabilitating roads, ensuring security and providing social services. Forcing the government’s hand to sell.

If the same debates were happening now the opposers of privatisation would have won the day.

The liberalisation and privatisation of the power sector was always going to be a sensitive issue because of its potential strategic importance to the economy. At that time we were only generating about 200 MW, the then Uganda Electricity Board (UEB) was covering less than three percent of the population and power availability was sporadic.

A law was enacted to break up UEB’s monopoly before it was unbundled into its generation, transmission and distribution components. The break up of the former UEB was important to bring specialisation to the various functions and to make it easier to sell, as resuscitating the whole UEB would have cost too much and increased the risk to potential investors.

The generation arm was leased to South Africa’s Eskom and the distribution arm to a consortium led by the UK’s Commonwealth Development Corporation (CDC). Later Actis, a spin off from CDC took over Umeme.

Under the arrangement the assets of Umeme still belong to government, but Actis was given a 20 year concession to run them from 2005.

"Half way through the concession Umeme has accomplished a lot of what the privatisation was intended to -- widen power consumption, deliver a more efficient service and increase revenues to government. And as a bonus they have sold their shares to Ugandans who have benefitted from its increasing profitable operations...

Of course the naysayers will point to the sh500b they got from share sales and dividends and say we got the short end of the stick. But this would be to ignore the growth in the economy and improvements in welfare to individual households and businesses that came with adding almost 700,000 accounts – the projection is there will be a million accounts by year end.

And not to mention the increase in wealth for the thousands of shareholders who have rode the company’s share price from its Initial Public Offering (IPO) of sh275 to the current sh525 a share price. Shareholders almost doubled their money when one considers capital gains and dividend pay-outs since 2012.

And then as if that is not enough they mentored a management cadre that will take this project to the next level.

The now disbanded privatisation unit could not have asked for a better poster boy for the process than Umeme.

The private sector is not the panacea for all our problems. But as a creator of wealth through the manipulation of land, labour and capital, no other economic system comes close. But for it operate for the benefit of all the people,  we need to understand what motivates it and leverage this to our own benefit.

In their pursuit of profit companies seek to maximise revenues and minimise costs. Governments on the other hand, ultimately, are looking to deliver goods and services to its people to improve their standard of living.

These two goals need not be mutually exclusive.

Government needs to create a conducive environment – good legal and policy environment, efficient infrastructure and productive human resource, these coupled with growing market demand should attract the kind of credible investors – internal and external, we need to move this economy to the next level.

"Unfortunately for us our appreciation of the private sector – how it works and what it needs to work well, is rudimentary at best or bordering on total ignorance at worst. We have an unhealthy, even envious suspicion of money makers, which does not allow us to make the necessary concessions required to allow businesses to thrive...

Let us study the Umeme deal in more detail and maybe use it as proforma for attracting investors into our infrastructure, agriculture and social services sectors. And who knows, with sufficient exposure to international best practice we will not only appreciate business better but we will incubate our own crop of super businessmen.

WILL A TRUMP WIN FORCE A REEXAMINATION OF “DEMOCRACY”?

You are probably still shell-shocked by Donal Trump’s victory in the US presidential race.

The media never gave him a chance. Some pollsters gave his rival Hillary Clinton a 98 percent chance of winning. The Clinton victory was such a sure thing that Noble laureate Wole Soyinka promised to tear up his Green Card if Trump won.

The common denominator in all these anti-trump predictions was that they were being propagated and propelled by the elite, who control the mainstream media and the establishment.

"If this had happened in Uganda there would be loud accusations of election rigging by these same elite.

The most obvious take away of this election result is that all elections are local.

A politician may want to run a campaign based on highbrow issues like  the economy, foreign relations and trade issues but the decision to vote for one person or the other is based on, “What is in it for me?” I really can’t be bothered about jobs having been created if I am unemployed or a statistical improvement in healthcare when I am still not enjoying it or aggregate increases in employee incomes when I don’t see it.

For us looking from afar, we may have been dazzled by the presentation of our favourite candidate but we really didn’t have a handle on the local issues at play, shaping the race.

But a pattern seems have to been established.  We saw it with the Conservative Party victory in the UK last year, when all the polls and media saw a tight race but which turned out otherwise. We saw it in the UK referendum on whether to remain or pull out of the European Union (EU) where again the mainstream assured us the UK was voting to stay and didn’t. And now again.

Several forces were at play but I suspect two related events coalesced to award Trump the win.

For quite a while now the mainstream media has been running out of steam. Newspaper sales are down. TV ratings are falling. And radio’s pre-eminence as a source of news has fallen off in the west. That means that the controllers of these traditional media, supporters of establishment by virtue of their ownership, have seen their influence diminish.

Improvements in ICT mean that people now have greater choice of where they can get their information and even more important are less likely to kowtow to the establishment’s agenda, transmitted by the media.

"The greater access to information and improved capacity to organise and coordinate around an issue by the everyday man, means the manufactured consent by the traditional media is becoming increasingly hard to pull off...

It has happened before. The stranglehold that the Catholic Church over the old world’s social and political life was broken with the introduction of the printing press, which led to widespread literacy, which shattered the monopoly on the word the Church enjoyed up to that time. Of course the dissenters were helped that the King of England needed to marry a second wife and had to break away to do so.

And in a way Barack Obama’s success is to blame for Cinton’s loss this time. Prior to 2008 the phrase “every vote counts” rung hollow as establishment figures, be they Republican or Democrat, always won regardless of how out of touch they were with the grass roots.

But the lesson was not only for the minorities and liberal Americans to learn but for everybody. The analysts are saying rural America came out to vote this time and that made the difference for Trump.

"There is a lot of discontent because of the hollowing out of US industry, a decimation of the middle class and widening income inequalities. The discontent is so thick in the air that it throws up the irony of Trump, a billionaire, third generation American, born and bred in New York becoming the champion of the working classes, rural America and against immigration...

But that is democracy isn’t it? Not a perfect system but better than all the other systems – until it works.

ACTIS SET TO CASH IN ON UMEME INVESTMENT

Just over half way through the 20 year concession to distribute power in Uganda, Actis has all but sealed-and-delivered a deal to offload its interest in Umeme.

This week the private equity firm announced through its wholly owned subsidiary, Umeme Holdings Ltd (UHL) that it had sold about 122 million shares to National Social Security Fund (NSSF) and was in advanced stages of shedding the remaining 110 million shares to institutional investors and retail traders on the Uganda Securities Exchange (USE).

While the numbers are not yet clear sources in the financial industry Actis has done well for itself on the whole concession deal.

“They made money at the Initial Public Offering (IPO), in dividend payouts,” said Salma Nakiboneka, the head of research at Crested Capital investment bank.

In dividend payments alone over the last three years UHL bagged sh35.8b out of a total of sh129b doled out to shareholders. A systematic reduction of their interest in the power distributor since 2012 has seen the private equity home take home a lot more.

In the IPO in 2012 UHL shed 40 percent of its interest for sh171b, most of which was used for expansion and paying off debt. Another 743 million shares were offloaded in 2014 when UHL reduced its holding to 14.30 percent for undisclosed sum, but somewhere in the region of sh250b going by the sh340 per share NSSF paid for the 100 million shares it bought during the transaction.

"And finally the sh59.4b they earned by offloading the 122 million shares to NSSF in the latest transaction for a grand total of about sh480b in share sales in the last four years...

This does not include interest on money lent to the Umeme and management fees the company.

“No doubt this has been a very profitable investment for Actis but more importantly it shows that the capital markets here work. That investors can come into this market and exit in a credible way is the biggest win of this transaction,” said Ken Kitariko, Africa Alliance’s local boss.

NSSF in its statement this week said it had earned sh22b in dividends since 2012 and made an 89 percent return in its Umeme holding, reporting that it had spent sh81.7b while the total value of the investment now is over sh132.3b.

“Our investment in Umeme Limited since it listed on the Uganda Securities Exchange has delivered returns to the Fund,” Said NSSF managing director Richard Byarugaba.

NSSF is now the major shareholder and it is expected that Umeme Management Services Ltd will be retained to manage the company once Actis exits.

Other observers agreed that the deal was a good one for NSSF.

“It ticked all the boxes. It was a local investment. A big outlay of cash. In a company with far reaching economic impact,” Kitariko said....

During the life of their involvement Umeme has seen the number of accounts grow to 860,563 from the 300,000 they fund connected in 2005. To make this happen the company has invested about $440m by the end of June this year.

MAKERERE HAS REACHED THE CROSS ROADS

Last week the government shut down Makerere University following a strike by the campus' staff over pay arrears. The students also went on strike to protest the staff strike.

Times have really changed.Who would have thought the day would come when students would strike because they are not being taught.

"Jokes aside Makerere finds itself once again at a cross roads. At issue is the remuneration of the staff, further still, how the university should be funded. This question has been the source of previous impasses...

In hindsight those disputes were left unresolved, token increases were given with promises of better to come in the future.

Every kicking of the tin down the road, has brought us closer and closer to the realisation that the model on which we run our public universities has long passed its sell by date.

The model based on the UK public universities has not kept up with changing realities. The original universities were designed as  institutions intended to train the ruling elite. Higher education was never supposed to be a mass product but a means to cement class distinction especially in the industrial age.

But an explosion in school enrollment in lower levels meant university enrollment had to follow suit.Its one thing to teach primary school kids under trees and another to lay down the infrastructure for a functional university. And soon governments realised they could not bankroll this new academic invasion.

Uganda realised this at the beginning of the 90s with the introduction of private students, something of second class citizens then, but are now the dominant number in the university system.

The idea is that government would continue to support the universities and student fees would serve as a useful addition to the universties' resources.

Clearly it's time again to revisit the model.

"To come to a long term solution it has to be recognised that in the face of other pressing priorities we don't have the resources to fund quality university education on a scale that our development ambitions demand....

Secondly, that the vast majority of university students cannot pay the full tuition fees for a quality education.

Our options range from a closure of all public universities since we can't afford them, not as a crazy an option given the falling quality of our public universities output. Or on the other end of the pendulum is to privatise these universities, let businessmen charge full fees and those who can pay, pay and may the devil take the hindmost.

For a number of reasons, not least of all political, neither extreme is palatable. A solution somewhere in between is where the answer lies.

"The truth is with the embarrassment of wealth in the form of real estate and intellectual property, our public universities would not be beholden to government to the extent that they are today...

Our universities are not unlike our country, Uganda, asset rich but cash poor. What is preventing the universities from unlocking the cash is inadequate management.

The way our public universities choose it's management, based on seniority, is at the heart of the universities' problem.  Companies with asset bases the size of Makerere 's cannot rely on a recruitment policies that hands the keys to the vault to people who have neither owned or run a business enterprise successfully.

The defenders of the current system argue that running university is not like a business hence the way they recruit their management, but the facts do not bear out this urban myth.

Business is about leveraging land, human resource, capital and entrepreneurship to show a return. 

The more efficiently you do this the higher the return.How different is that from churning out quality graduates, if you chose the quantity and quality of your graduates as a measure?

"Our kneejerk reaction against private sector involvement is born of discredited propaganda and a push back by interest groups benefiting from the current unsustainable status quo....

Others argue that government has a responsibility to fund university education. There is no such law. However how government meets this unwritten obligation depends on the context in which we find ourselves.

There is a wider reason why public universities must succeed, and if that requires a greater role for the market so be it, and this is that university education can only be as good as what public universities offer.

If your public universities are shambolic then private sector need only be slightly better, which is not very good, to operate.

So clearly we need to hire more entrepreneurial managers for Makerere, who will be appraised on the quality and quantity of graduates and research the institution churns out.

Secondly the same management needs to be freed of any shackles to its ability to raise money and restructure and rationalise the once "Harvard of Africa".

For the rest of us, we need to shed our attachment to unworkable models. The truth is, if these public universities collapse under the weight of our expectations, because they were not given a chance to succeed, universities will revert to the old reality where university education was the preserve of a select few, who are not necessarily deserving....

LET IT: THE RENTAL MARKET WILL REGULATE ITSELF

A new law that will regulate landlord-tenant relationships is coming to parliament with some clauses which will have a negative impact on efforts to bridge our housing deficit.

The Landlord & Tenant Bill 2016 has some laudable clauses that regulate certain aspects of the relationship like house repairs, security deposits, liability for utility bills and eviction circumstances. These have been handled by the members in the relationship by ear but a more formal prescription will be useful.

However it has some clauses that, while clearly pandering to populist sentiment will do irreparable damage to the development of the sector.

There are four particular clauses that caught my eye. 

The first one was the provision that all rent shall be charged in shillings. Tenants have complained that charging in dollars makes it difficult to plan their expenditure or keep up with the fluctuating shilling. And that in circumstances like last year when the shilling shed as much as 40 percent of its value against the dollar rents will become unmanageable. It’s hard to ignore the pain of the tenant.

But the other side of the coin is the landlord’s side. For lack of long term affordable capital in this market it’s possible the landlord would have borrowed in hard currency where lending rates are in single digits unlike locally where mortgage rates are in double digits, and in order to hedge against those same fluctuations he passes on the exchange risk to the client.

"In a situation where landlords are restricted to charging in shillings you may very well see a slowdown in development, a subsequent shortage of rentable space and the dreaded rental increases we are hoping to prevent...

Secondly the law proposes that landlords should not demand for more than three months in advance. 

Currently landlords can ask for unlimited rent in advance but the figure has come down over the years to anything between six and three years. To legislate this period is wrong because like the first case we do not know how the land lord financed the project and his demands are in line with his repayment schedules.

And then what has got to be the craziest proposal is the one that seeks to cap rental increases annually to six percent. How they came up with six percent is not explained. In a year when inflation shoots to 30 percent and the shilling depreciates 40 percent – all recent events that have happened in this country, how does a landlord manage? A landlord should be allowed to respond to market forces promptly in order to make his investment viable. This amounts to a price cap and can only lead to bad things down the line.

And finally the provision that a rental increase should not be effected within 12 months of the last one. Once again what happens when the market or economy dictates otherwise?

It has been reported that Uganda has a deficit of quality housing of about eight million units with 2.3 million of these needed houses in the urban areas. The last thing you need is for non-market laws to come into play which would stifle current private sector efforts to bridge the deficit.

If landlords are charging in dollars, asking for six month or more in advance and raising rates at unfair intervals it speaks to the fact that it is still a sellers’ market. That the stock of housing is less than demand and therefore the owners of the properties can do what they want.

"One of the most visionary things the NRM did as regards the housing sector is to resist calls in the 1980s to control rent on property. By letting the market determine what is fair rent, the boom in construction was spawned that has led to thousands of rental units being built...

The housing situation was so bad that renting someone’s garage as living space was not uncommon. 

Imagine paying sh300,000 a month for nothing more than four walls – ventilation maybe optional!

The construction industry is one of those sectors with really multiplier effect through the economy, with the masons, materials and transporters locally sourced many people are happy when there is a construction boom. We want to keep those happy times going.

We need to let the industry grow largely unfettered, especially since government has shown a lack of capacity to build houses itself.  The natural progression is that house supply will match demand and all these practices of charging in dollars, asking for advances and unnecessary rent hikes will become a thing of the past.

What government needs to address is why the increase in the stock of housing is not matching the rising demand and to try and address this.

"To bring the cost of housing down government should consider underwriting the infrastructure into the residential areas – the roads, electricity lines, water and sewerage network. By some estimates these account for half the cost of development...

We also need to lower mortgage rates. The high rates again are a function of low supply of long term funding. Maybe it’s time government increased the mandatory rate of borrowing of workers towards their pensions and gratuity. The current five percent has been in pace for 30 years! With more long term money in their coffers banks maybe forced to lower lending rates. And not only prospective home owners but developers will benefit from the decrease.

In a nutshell what government should be doing is encouraging credible investors into the sector by improving the environment for real estate development and prices will take care of themselves not try to legislate into law things that are determined by the market.

This does not take much intelligence but the repercussions will set us back.

ICC NEVER REALLY HAD A CHANCE WITH AFRICA

South Africa has started the process of exiting the International Criminal Court (ICC). Its leaders argue that being part of the ICC compromises their role as a regional peace broker.

The Burundian parliament has voted to leave and Gambia became the latest country on the continent to declare its intent in the same direction. Gambia’s decision could prove an embarrassment to the ICC’s chief prosecutor Fatou Bensouda, a native of the small West African nation.

South Africa’s decision, which became official with their writing to the UN came as a surprise and the worry is that it may galvanise other African country’s to act out their own desires.

"One can say the momentum to leave the ICC on the continent begun with the refusal by the court to drop a case against Kenyan President Uhuru Kenyatta, for his alleged role in his country’s post-election violence a decade ago. The ICC’s adamant stance turned off previous supporters on the continent and has since been easily spun as a racist attempt to subjugate Africans...

This perception has not been allayed by the fact that nine out of the ten cases for crimes against humanity are against Africans. The appointment of Bensouda to replace the tenacious Moreno Ocampo has not helped matters much.

There is a lot wrong with Africa, not least of all how human and civil rights are trampled upon by the high and mighty without any fear of repercussions.

It helps that a better educated population, with a growing middle class is increasingly appreciating democracy or at least that people have certain rights and is forcing leaders around the continent to tamper their heavy handedness.

However the institutions that Africans would ideally turn to for justice are underfunded, understaffed and fit like a square peg in a round hole in a cultural context where the big man still reigns supreme.

The ICC’s case is not helped by the fact that it is essentially an institution, designed, funded and backed by the west, despite its veneer of international respectability. African leaders probably fell over themselves to sign onto the Rome Statute, which established the ICC, to keep in favour with a donor community that was tearing out its hair at the medieval bloodletting going on the continent while feeling powerless to stop it.

Not necessarily because they have any sympathy for us poor Africans, but more because insecurity was getting in the way of accessing valuable natural resources in the jungles of the Congo or the savannah of South Sudan or the river banks of Liberia.

"It is easy to make the case that foreign self-interest is pushing some of these otherwise noble initiatives, especially when the nine out of ten cases are African and while places like Iraq, Afghanistan and Libya lie in ruins with not a squeak out of the Hague...

Whether South Africa’s decision will trigger a mad rush for the exit by Africa, only time will tell but clearly its not difficult to mobilise against the court, as Kenya showed recently.

That being said we cannot sweep under the rag the wanton human rights abuses happening all around the continent.

The more sustainable solution is that our courts should be empowered to handle these cases themselves, a solution which would evoke sceptical tongue clicking around the continent.

Let it not be forgotten that we are not reinventing the wheel or that Africans have a particular penchant for brutality and savagery. European history is drenched in accounts of genocide and gratuitous violence that have only been tempered in recent years – at least in Europe,  by economic interconnectedness and military balance.

The good news is that Africa will get there one day, as our borders fall away and we begin to focus on mutual benefit as opposed to parochial interests. The bad news is that external interference may stall this natural progression.

Until that is sorted out the ICC may have to wait.