JUDGING THE NRM BY ITS OWN GOALS

When the National Resistance Movement(NRM) came to power in 1986 it had great aspirations for the run down, war scarred economy of Uganda as outlined in its original manifesto “The Ten Point program”.

In the fifth point the NRM set as its goal the building of an independent, integrated and self-sustaining national economy. By this the author’s meant an economy “that can move under its own power, not just a puppet of outside economies on which it is dependent” and where the extraction of raw materials was directly linked to the local consumer.

In their analysis of Uganda’s economy, we were backward because our economies were intertwined with western economies on an exploitative rather than symbiotic basis.

But they had very little to work with. The economy’s decline which begun in the 1970s and continued into the 1980’s meant that  GDP per capita stood at $230 or about 60 percent of the level it was at in 1971, according to a 1987 World Bank report on the country.

"With much of the formal sector grinding to a halt the economy regressed into subsistence, with primary agriculture accounting for four in every ten shillings of economic output. Agriculture both subsistence and commercial accounted for 63 percent of GDP. Of the 83 factories surveyed in 1985 only ten of them were working on higher than 30 percent capacity while another 29 were all but shut down...

While coffee production had held its own because it was mostly grown by small holder farmers – the country was producing 160,000 tons of the bean or 72 percent of the 1965 level, other crops which relied on estate farming, like tea, sugar and cotton had for all practical purposes stopped being produced.

Cotton production was at seven percent of the 1965 levels.

Whatever parameters you checked the economy was on its knees. With this context in mind they prescribed six solutions to redress the state of affairs.

The NRM’s thinkers identified the narrow agricultural base as a good place to start, making diversification of the products the pillar on which they would rebuild the economy.

While as stated above primary agriculture accounted for 40 percent of GDP, coffee alone accounted for literally all that Uganda exported bringing in about $400m a year. It was so bad that apart for accounting for all our export receipts, taxes on coffee exports accounted for half of all revenue being collected at the time. Today coffee exports suffer no tax.

This was a precarious situation. While not only was it not prudent to have all your beans in one basket, our over reliance on a primary commodity whose price was set by the buyers meant that revenues were bound to fluctuate wildly depending on fundamentals that were not in our control.

To illustrate, poor weather in Brazil – the world’s largest producer of coffee, in 1994 ruined their crop sending world prices shooting up peaking at about $4.00 a kg in September of that year. But once Brazil’s crop had recovered and new capacity had come onto the market especially from Vietnam prices of the bean collapsed to 47 US cents by the opening of the Uganda season in 2001.

"Today while we still export raw commodities we have a more diversified portfolio of exports.
For starters while coffee receipts have remained about the same at $400m in 2015, the bean only accounts for less than 20 percent of our total export receipts of $2.27b. Even more interesting is that the traditional exports of coffee, cotton, tea and tobacco account for only a quarter of exports by value. Since 1986 fish, maize, cement, beans, cocoa, hides and skins among others are being sent out...

This dramatic change in our export fortunes can be attributed to the economic reforms implemented to jump start the economy, but two in particular stand out – the liberalisation of produce marketing and the floating of the Uganda shilling.

Previously government had monopoly produce marketing across the country. Usual government inefficiencies, late payment for instance, served as a disincentive to production. With the breakup of the monopolies private companies jumped in and production followed suit.

Their second recommendation was to build import substitution industries, “to eliminate the import bill for especially consumer goods eg soap, toothpaste, paper, textiles etc”. It was not enough to have the industries here but that they must use locally produced inputs. “It is of little value to build industries that are heavily dependents on imported inputs if it is scientifically possible to have local alternatives thereby limiting the outflow of resources.”

While we have a few import substitution companies now, most have fallen short of the initial lofty goal of having all their inputs sourced locally. Most of our manufacturing is described last-stage assembly, with the manufacturing straight from raw materials in agro-processing, which accounts for 39 percent of this sector.

While agro-processing dominates our processing of raw materials, accounting for 39 percent of our manufacturing output we are still in early days as most of exports remain primary commodities.

The value added in manufacturing as a function of GDP in 2015 was 9.2 percent compared to 6.4 percent in 1986.

The fifth point of the ten point program also called for the building of basic industries in iron and steel, chemicals, construction and engineering. We have managed to set up some steel factories that use everything from scrap metal to imported billets but we only produce about 30, 000 tons of crude steel annually versus demand of 145,000 tons.

The fifth prescription “ensure that we eventually develop the capacity to make locally machine making machines” still seems a far off dream.

And finally the desire to acquire computer technology as a way to keep pace with international developments must have seemed a higher mountain to climb than building our won machines.

ICT (information & Communications Technology) is more widely used that the authors of the Ten Point may have imagined. The use of mobile phones introduced in the mid-1990s means we have vaulted from connectivity of about one line per 100 Ugandans to the current approximately 57 lines for every 100 Ugandans.

Aided by mobile phones and devices the access to the internet has followed a similar trend lowering the cost of doing business and making the adopters of this technologies more efficient in their processes.

. The Ten Point program offers no timelines to assess progress against.

It is safe to say that while the authors may have had a good idea of what they wanted to achieve it is unlikely that, seating down 30 years later to assess progress, they would have thought that so much would still remain undone.

NRM AT 31, A VICTIM OF ITS OWN SUCCESS

Yesterday we commemorated 31 years of life under the National Resistance Movement (NRM).

In 1986 after five years in the bush the NRA took over Kampala bringing to an end more than a quarter century of confusion and hopelessness.

Of course the NRM’s critics are legion and those not willing to give them the benefit of doubt, even more.

The critics say this government is not delivering services well, is heavy handed and uncompromising and is presiding over the most corrupt period of this country’s history.

It would be hard to argue with them on any of those fronts. Ironically, this criticism of the NRM is due to their own success over the last three decades in power.

"A sign of progress is when people take for granted things they previously did not have, but now do...

So when the NRM spin doctors talk about peace in the country they are brushed off with a dismissive wave of the hand, “Peace is supposed to be there, with or without you.”

 When they point out that now sugar, bread and biscuits are no longer luxuries as an indication of how production has been jump started, “Is that the measure of success?” they get asked.

And when they point out that for the first time in a long time people can go out to work with the knowledge that if they apply themselves diligently and intelligently, they can get ahead and keep the proceeds of their hard earned sweat. Again such protestations are brushed away with disdain.

In 1986 I will never forget, seeing a cow, come plodding down Bombo road and stop off at a porthole, opposite what is now Shell-Capital, to quench its thirst. What a god forsaken country this is, I thought at the time.

I am sure there are tourists who come and wonder at our unlit, dusty streets, our lack of efficient public transport, our expensive MBs and wonder how we live in such a place.

The truth is though that the size of the economy has grown more than sevenfold, social indicators like infant mortality, school enrolments and access to social services have improved markedly and the country is mostly secure.

So why the discontent?

"First off, because all the improvements are statistical averages. There are extremes that colour the picture more than an average score will do. So while on average we are ok there are people, a tiny minority, enjoying first world standards of living while the larger population is suffering under third world conditions...

Widening inequalities, because of the structure of the economy – agriculture which provides a livelihood for 80 percent of the people only accounts for 30 percent of economic output, means the majority of us have not benefitted much from the economic progress of the last three decades.

Secondly, most of the grumbling is done by the urban elite, who through their access to media and having travelled, know better. They are impatient for us to catch up with the rest of the world and see the government as the one holding them back.

But the biggest cause of grievance must come from the progress that has been made. It is true that when you give them an inch they will want a mile.

When I am used to flicking the switch and there is power, but on this day I flick on the switch and there is no power, my annoyance does not compare to a man who doesn’t expect power when he turns on the switch.

Lately KCCA has been paving roads in the city suburbs. We have been spared the chocking dust and rough rides. And we are grateful. For now.  But God help KCCA if a porthole develops. We shall curse them for incompetence, corruption and any number of things, the hard days of last year long forgotten.

"Those are the hazards of the job. When you raise the people’s expectations be prepared to meet them and when you do, you need to keeping meeting newer and higher expectations. There is no time to rest on your laurels...

So in the next 30 years the NRM – and any government, can expect gratitude will be in short supply, while the whining and gripping will get louder and angrier with time.

HOW DO WE ADDRESS THE WEALTH IN EQUALITY IN THE WORLD

International aid agency Oxfam, last week revealed that the eight wealthiest people in the world own as much as the poorest half of the world’s population put together. Oxfam, used this as an indicator of how wide the wealth inequalities are, how unsustainable the current situation is and how it could lead to increased crime, conflict and widespread instability.

Among their suggestions to end the current situation is to put a stop to the illicit flow of finances especially by powerful multinationals, which is helping companies evade taxes, denying the poor the social services and infrastructure improvements that would allow them climb the social ladder.

"It is morally wrong for a few people to amass so much wealth while billions of people live in abject poverty. However bridging the divide will not come through moral suasion or even threats of doom...

The key to addressing the issue will lie in understanding how the wealth is created and why it is not “trickling” down to the masses.

The wealthiest people are so because they are providing a good or service that is considered valuable to the market.  Considered valuable because you may debate the value of diamonds or financial services or Whatsapp but the market votes with its wallet.

Contrary to what we think of the wealthiest as the most selfish and most self-centred people, none of them would have made the money they make if they tried to go it alone. On the contrary they brought people together, linked up with other organisations and networks to exploit an opportunity or unlock value in a situation.

It’s a long story but the origin of all wealth is knowledge. Mr A is wealthier or earns more than Mr B because Mr A knows something that Mr B does not.

So from the above the wealthy are so because they are more collaborative than the poor and that they know something that poor do not know.

Another thing is that the true wealthy are not burning the midnight oil counting their billions, plotting how to grow more. At some point wealth creation takes on a life of its own and even if some of these tycoons wanted to stop they would just keep on making money as a function of the good or service their companies continue to provide to the market.

Bill Gates for instance has donated $28b  -- or the total GDP of the Uganda, of his wealth to fight disease and alleviate poverty around the world, but his wealth continues to growth as Microsoft, where most of his net worth is derived continues to grow. IN fact he is richer today than he was when he started giving away his money!

Wealth builds on itself so the accumulation of wealth is not necessarily a function of greed.

So to pull more and more people out of poverty we need to increase their knowledge and the wealth will follow.

That is where government's come in – and where Oxfam is correct to appeal to them to redress the situation.

If there is inequality anywhere in the world it is an indictment on the respective governments more than anyone. It means either they are not creating an environment for enough wealth to be created to go around or/and they are not distributing the wealth properly once it is created.

Kenya’s founding President Jomo Kenyatta famously admonished his Tanzanian counterpart Julius Nyerere for pushing socialism by asking “What do you want to share? Poverty?”

"The point is wealth has to be created first before we can start raising general living standards or bridging wealthy inequalities. Governments enable wealth creation by easing the process of doing business in their respective countries by improving physical infrastructure, promoting the rule of law and investing in its human resource...

The better they are at doing the above the wealthier the country is.

By taxing the wealth creators the government is then able to continue improving the environment but most especially improving the quality of their people.

Thankfully we have seen this process happen in our life time. The people who had the head start at independence are those who went to school, the higher the better. But to benefit from this they had to live past their infancy, better health care improved their chances of doingthis. We take it for granted but the immunisation regimen we got as kids made the difference between life or death for easily half of us alive today.

Which brings us back to why governments are responsible for wealth inequalities.

"If government cannot collect tax and even that, that it collects is not utilised properly, it denies millions – especially those at the bottom of the food chain quality education and health care that would improve their chances of better incomes in future...

Government fail out of sheer incompetence, different priorities or corruption.

That is on a national scale.

On a global scale what is also true is that many of these huge companies have been able to leverage their power to influence policy towards maximisation of their profit. So for instance the movement of capital and not people has been freed for most of the world.

What that means is that the owners of capital have huge bargaining power in dealing with labour.

They can move their operations to where labour costs are low, while labour cannot easily move to places where wages are higher – in fact they are actively resisted.

But that is a discussion for another day.

EXIT OBAMA, ENTER TRUMP

Today is US president Barack Obama’s last day in office and Donald Trump’s first.

Just as Obama’s ascendance to the leadership of the free world was surprising and historical, Trump too has upset the conventional wisdom in US politics.

But unlike Obama’s entry into the White House, which was accompanied by a hopeful feeling not only in the US but around the world, many people are looking forward to the Trump administration with apprehension and foreboding.

My sense is that Trump’s exuberance will be tempered by the sheer weight of the US bureaucracy. 

But one can be sure that the character of his administration will be coloured by his personality.

We will leave that to the crystal ball watchers.

Obama’s presidency we can look over with the benefit of hindsight.

"In 2008 when Obama won the race for the presidency it came after two terms of Republican George W. Bush’s administration, during which the US went to war, laying waste to Iraq and Afghanistan. As if that was not enough he bequeathed Obama an economy in the worst state it had been since before the Second World War...

So Obama was starting on very poor footing, which was not a bad thing – if the optimists were to believed, because there was nowhere to go but up.

In his eight years at the helm Obama has created – but not necessarily replaced, millions of jobs, a signal that the economy is beginning to pull out of its hole, managed to widen the net of medical insurance and restored some decorum to the oval office.

The negatives are more about things he promised to do but failed to deliver on like, shut down Guantanamo Bay, pull out of Iraq and generally make the world a better place to live in. Then there was the widening use of drones to carry out extrajudicial killings of terrorist suspects.

But as is our wont as Africans we expected Obama, whose father is Kenyan no less, to be more proactive in helping lift the continent out of its morass.

He made several visits to the continent, including an emotional return to Kenya, he pledged $20b towards the development of energy infrastructure on the continent, made his feelings known about the continent’sdemocratic progress – or lack of thereof and the general intolerance for alternative lifestyles.

Looking back on the Obama years, his work on Africa will be much closer the bottom than the top of his list of achievements.

But what did we expect?

The political elite probably hoped he wouldn’t poke his nose too much in their business, which he did not and the general masses were probably hoping for an uptick in aid, which did not happen.

But if we were to step back a bit we would see that this continent is a hard one to help.

Anybody looking to make a dent in the continent’s intractable dilemmas of poverty, illness and conflict would be best advised not to hope for quick results.

A genuine helper would want to insert themselves in existing systems or institutions and hope local momentum would do the rest. We all know how difficult this is not least because of the lack of institutional depth on the continent.

They say God helps those who help themselves, I imagine the same would apply to the US.

But we also forgot or chose to ignore, the fact that Obama was first and foremost the president of the US, sworn to protect and promote its interests.

"So was the Obama presidency a lost opportunity for Africa? No. It nailed the point home that no one – even a black president of the greatest economy in the world, is going to help us unless we help ourselves first...

LET US GO THE INDIA WAY

In November last year the Indian government gave its citizens 50 days within which to turn in the  highest denomination notes for smaller notes in a bid to among other things raise revenues from undeclared incomes, mostly from the corrupt and black marketeers.

The scrapping of the 1000 and 500 Rupee notes that were scrapped accounted for 80 percent of the money in circulation by value.

There was some reported discomfort as people lined up to deposit their cash holdings with the banks. 

Deposits in the banking sector jumped and banks were forced to reduce lending rates.

But also as a result millions of dollars in untaxed income showed up overnight that has the Indian revenue authorities licking their lips with excitement.

The down side is that the real estate market in the big cities has slumped by as much as half compared to the same period last year.

"With the improved banking and payment systems that have removed the need for the carrying of large sums of money around isn’t it about time Uganda considered such a move as well? If only to increase our savings in the formal sector and to trap more taxes....

Imagine if we announced that we were scrapping the sh50,000, sh20,000 and sh10,000 notes, it will release those fabled money vaults in rich men’s houses into the formal banking sector for all of us to take advantage and like in India, uncover untaxed income that could very well boost our revenue collections.

Of course you can expect a bit of discomfort initially just as we felt with the currency conversion in 1987, but we will soon get over it. We will be fine.

It goes back to the point that we are poor as a country not for lack of cash or resources but more because this cash or resources is not aggregated into meaningful sums within easy reach of the productive sectors of our economy.

In 2011 cash in people’s pockets and under their mattresses accounted for just under 20 percent of the total money in circulation but this compares poorly with more developed economies where the figure is about two percent.

The difference between the two numbers is worlds apart as it suggests greater efficiency for the productive sectors to access credit in the west than Uganda, efficiencies which rise exponentially with each percentage point difference.

"The beauty of such a move too will not affect the poor as they are rarely in touch with the larger currency denominations. In fact it may end up being beneficial to them in incentivising them to get their own bank accounts....

One may argue about the efficiency of private banks in deploying resources, but we will cross that bridge when we get to it, let us first raise deposits.

This too will help the central bank control inflation much more efficiently since the banks are responsive to the instrument it uses in tightening money supply.

Of course one can expect virulent opposition to such a suggestion, especially for the direct beneficiaries of these unmonitored money movements.

As we have seen with India the first casualties would be the real estate sector which has for long been used to launder the illicit funds in the economy, explaining the property boom of the last few years. It is not unusual to carry out real estate transactions with bundles of cash.

The need for the economy to be more fomalised cannot be overstated. Economic data will be more representative of the real economy allowing investors to make more informed decisions, because it will make interventions easy to make and their outcomes more predictable.

For the rest of us mere mortals who don’t carry wards of cash around anyway we will continue using the ATM or making bank transfers to settle obligations or use mobile money.

What as a country we should never do is what Zimbabwe did and is trying to do now.

A few years ago because inflation which was in six digits was making printing more and more money impossible, the Zimbabwe dollar was shelved and the country adopted US dollars, South African Rand and a hodge podge of other currencies.

The hyperinflation was caused by the annihilation of the productive sectors especially agriculture and the printing of money to appease political constituencies as tax revenues begun to drop off.

But now Harare finds itself in a catch 22 situation because since the productive sector had been gutted they can’t export enough to earn the forex they need to circulate.

As a way around it Zimbabwe has issued dollar bonds, a kind of currency. The citizens don’t want to know. A currency is only as credible as the trust the users have in the government issuing the currency.

It does not take a prophet to see what will happen to ZImbabwe in 2017.

"Either Harare has to swallow humble pie and attract the white farmers and industrialists back – not unlike Uganda and the Asians, privatise the state enterprises and fall back in with the Bretton Woods’ institutions to help rehabilitate their infrastructure and get the economy up and running...

Or they bite the bullet hope to ride out the public dissent as the economy goes further into the toilet and hope for a miracle for things to turn around.

They will probably hope for the latter rather than the former and the end game is certain.

NO GOOD DEED GOES UNPUNISHED

The sh6b cash pay out to officials key to the winning a favourable result in a multi-million dollar tax dispute against oil company Heritage Oil refuses to go away.

In 2010 when Heritage sold its interest to in their western Uganda oil concession Uganda Revenue Authority (URA) argued they were liable to capital gains tax. Heritage didn’t think they owed Uganda anything and even bolted the country after payment before URA could catch up with them. URA however were not about to let the issue of upto $700m go begging so proceeded to pursue them to the courts up to a London arbitration court.

A settlement netted the country $473m a princely sum for our cash starved coffures. In appreciation of the core teams efforts President Yoweri Museveni authorised a bonus pay out.

This week parliament went into indefinite recess following a ruling by the court of appeal whose import was to bar them from debating the bonus pay out.

The bonus pay out has got the chattering masses to a running start in the New Year.

Whereas the dust is far from settling two lessons are hard to miss from this unfortunate scenario (whichever way you look at it).

"To begin with as a country, as citizens we need to push relentlessly for the building of institutions and formalisation of systems. Emerging out of the chaos of the 1970s and 1980s it was okay to apply discretion in many affairs of state...

But two things have happened that are changing and will change the way we behave around public resources. One, as we broadened the tax base, we have also increased the number of people we are accountable to for how the money is spent. There will never be agreement in how best to utilise our finite resources. Hence the need for rules and procedures that are faceless, objective and transparent and backed by a reasonable consensus to govern our behaviour.

And secondly there is the increasing connectivity of our people ad proliferation of social media. As an example this we knew about the changes in the UPDF on Monday night. By the time the army came out with official communication on Tuesday morning we had thrashed out the issues of who, what, where, why and how. And by the time the daily newspapers came out on Wednesday they were looking decidedly dated. This speed of information transmission gives greater credence to the saying that “The lie will be half around the world , while the truth is still tying its shoelaces”

The second lesson is that in a country like ours where corruption is so pervasive, good people can suffer the perception that they have crossed to the dark side, if only because our default judgement on any action is that somebody must be “eating”.

"This is dangerous because among other things, it lowers the general level of trust in a society, making it that much more difficult to carry out normal transactions... 

 In a world where communication is flying faster and faster decisions will have to made with increasing speed and determinations about the trust worthiness of this or that individual or institution will be made that much more quicker.

A reputation built over decades can be left in smouldering ashes just by a shift in public perception. And in the court of public opinion perception beats fact every time.

WHY UGANDANS WOULD RATHER CONTRIBUTE TO WEDDINGS

It has been a perennial lament. Why as a society are we more likely to come together to finance multi-million shilling weddings than do the same to fund start up businesses?

The critics have said we are a fun loving society and we would rather consume than invest. An almost identical line with the previous  criticism is that we live hand to mouth and can't wait for returns that would come  with investment in business.

"One can understand the frustration. That while financing for start ups or businesses is hard to come by and expensive to boot, we contribute to weddings every week with no real hope of material return...

There is an element of truth in both arguments.

But if we think about it a rational person is more likely to contribute to a wedding than respond to calls for financial help from our businesses.

First of our wedding planners are more organised. Capital is a coward.It needs to be assured of some certainty. By the time we are called to contribute for a wedding there is certainity about who is getting  married, the date, the church or mosque the ceremony will happen in, where the reception will be and a reasonable estimate of how much it will cost.

Apart from the long term expectations of a fruitful marriage (This part has often been achieved by the wedding day), in the short term we will get to eat a good meal, quaff a few drinks and get to socialise with long lost relatives and meet a few more.

Weddings are the epitome of Specific, Measurable, Achievable, Realistic and Time bound (SMART)planning.

In addition intending couples have numerous mentors to call on to give the enterprise a realistic chance of success.

The same can rarely, if ever, be said for our startup projects. Often times the startup promoters may know what business they want to do, little idea about the feasibility of the enterprise and absolutely no clue how much it will cost until a return can be expected....

Not to mention with less than one in a hundred business surviving to their tenth anniversary, there is a dearth of business advisors and mentors who know how to run a business successfully.

So our businessmen seeking funds will be best served to learn from our wedding planners, especially in understanding potential funders needs.

First off it may be wiser to use ones own savings or resources to start up a business. Investors are looking for a chance of reasonable return, which can only be determined with any certainty when the business model has been shown to work. This could take years.

By the time of the wedding there is a reasonable expectation that the couple are compatible.

But assuming there is a working business model, meaning we know how revenues will come in, how much it would cost to deliver these and the business is ready to be scaled up, then it's a good time to look for external investors.

The investor is looking for four things basically, beyond a coherent business plan.

One, that the promoters of the business believe in their enterprise, that they will not bail out at the first sign of trouble. Better still that there is a meeting of minds between the investors and the start-up promoters on the future.

Secondly they would like a sense that the business has a defendable competitive advantage, that the business processes that bring it success are not easily replicable. So for example if your restaurants have secret recipes and delivery mechanism that are popular and not replicable that would be useful in rolling out a chain of restaurants.

Evidence of good management as reflected by a constant increase in value of the enterprise over time -- not the number of MBAs on the management, is the third thing investors are looking for.

And finally the investor would be looking to buy at some discount to actual value. As a businessman you would!d like to get maximum value for the share you are relinquishing but often times beggars can't be choosers.

The above  is premised on the idea that you are trying to attract equity partners and not lenders.

Not unlike a wedding. The romance surrounding the event gives it meaning, the couple can only marry each other on the day, the growth of the family is a forgone conclusion and often times the contributions a bargain price not only for the anticipated merriment but also for expected long marriage.

So it makes sense why we are falling over ourselves to contribute to weddings but don't have a similar enthusiasm for our neighbours potential million dollar company.

"They say that oftentimes a deal falls through not because of the environment or that the business is doomed but because of who controls the deal...

Potential businessmen should look more to themselves and their inadequacies to explain why they can't raise money. Otherwise we will be looking out for the next wedding to fund.