OF THE CBR AND THE UGANDA ECONOMY

Last week the Bank of Uganda announced it had lowered its regulatory Central Bank Rate (CBR) to ten percent from the previous 11 percent.

Bank lending rates have followed the CBR since it was launched in 2011, as the figure has real implications on at rate banks can borrow from the central bank. Banking lending rates then are a few percentage points above the CBR.

Since the beginning of the year lending rates have followed the CBR down with base lending rates threatening to be break below 20 percent for the first time in six years.

This should be welcome news all around as lower rates would mean more borrowing and therefore more cash sloshing around.

"The banks are unlikely to run out and send the credit taps gushing seeing as there are just coming out of a period when bad loans are at their highest levels in almost a decade. Fear is still ruling the credit market. Once beaten twice shy...

Relatedly the Treasury bill and bond yields remain determinedly in double digit territory.

In the budget the government pledged to half its borrowing from the public, which would put downward pressure on the government paper yields, but we heard that last year, so we really can’t take that promise to the bank.

Borrowers are coming back steadily into the market.

According to the Bank of Uganda growth in personal loans  came in at 20 percent in October last year – the latest available figures, agricultural loans also grew by 13.7 percent but lending to real estate and the manufacturing contracted by 4.9 percent and about 15 percent respectively.

The figures suggest that consumption is rising but production is not keeping pace. It’s a chicken and egg situation kind of. Which comes first an improvement in general purchasing power or increased production? But there can’t be increased demand without a jump in production to create the jobs that will drive the demand.

Of course the lending rates are such that it would take serious discipline to contract a loan and show a return in the current economic environment. For medium to long term optimism we need to see growth in credit to the productive sectors in order to hope for a sustained turn around in our current economic situation.

The growth or lack of growth in credit serves as a useful proxy for a sector’s health.

Since there is no visible growth in lending to manufacturing we can assume they are struggling to expand capacity, if at all. Anecdotal evidence suggests there has been no real growth in this sector over the last few years, judging by how many are shutting down or workers laid off.

"But is lack of credit the problem or a symptom of a larger problem?..

As a business one has the option to finance their business via an injection of resources by the shareholders, retained earnings held over from previous profitable years or borrowing from individuals or institutions.

When starting a business it maybe enough to rely on ones on resources as well as that of family and friends. You often don’t need much sophistication to get money at this phase. But as the business gets more sophisticated sourcing money becomes correspondingly complex be it borrowing from the banks, the public or raising funds on the stock exchange.

The more orderly you are as a business not only do you have more options for raising money but you can get it cheaper than a less organised company.

Unfortunately for our many of our businessmen our businesses have remained subsistence businesses, intended to support the founders lifestyle and not much else. How much can one man eat or drink? How many beds can he sleep in at the same time?

With such limited objectives there is no need for the business to become more sophisticated, to be better able to weather the economic storms that inevitably come around every so often.

As an example during the bailout outcry last year, it was reported that one business man had taken out an overdraft to build a factory. The mismatch of assets and liabilities seem obvious at a glance, but when you have come from a time feast, when cashflows were good you think you would be able to beat the system. Arguably if you were more organised not only wouldn’t you gamble like that but you would also have many options to raise financing that you wouldn’t box yourself into a corner.

The proof of this is that there are companies that while they have been distressed during this down turn continue to operate and collapse is not eminent. And we are not only talking about international companies.

"The reduction in the CBR is welcome news for all of us but if we have structural issues in the economy or in our businesses or personal finances it will not necessary lead to an improvement in our lot...

UGANDA MUST ASPIRE TOWARDS A RULE BASED SOCIETY

Overshadowed by juicer news events the land inquiry commission continues to plod through hundreds of cases that are being brought before it.

Justice Catherine Bamugemereire who heads the commission recently reported that since they started their inquiries in the middle of may about 1,600 land cases have been brought to their attention.

The cases have ranged from land encroachment to “straightforward” land grabbing to grave snatching to grabbing whole forests, swamps, lakes and everything in between. The consistent thread running through these cases is of individuals trying to keep for themselves land which seems unattended to or occupied by helpless people who can easily be disposed of – literally or figuratively.

These cases examined in broad daylight seem incredible but point to a creeping – no, entrenched culture of impunity in our society.

"We have seen it before be it in the Office of the prime minister or the public service pensions scam or the jaw dropping smash and grabbing that characterised the Uganda National Road Authority (UNRA) or the shenanigans going on in many government offices....

That public officials willing to help themselves to public goods do so and do not even try to cover their tracks, flaunting their ill gained wealth under our very noses, safe in the knowledge that they will not be caught.

As a result even “good” men and women have joined the hogs at the trough arguing that if everybody is doing why not them, while continuing to assume pride of place at their local churches every Sunday.

Pope Benedict called it moral relativism, when the divide between good and bad begins to blur and eventually disappear. When the question stops being whether an action is bad but how bad compared to other actions it is.

A few years ago when a former minister discovered that his proceeds from a influence peddling deal was about to come to light he complained that he was being witch hunted after all, as he pleaded at the time, others had “eaten” more. Notice he did not deny that he had taken a bribe but was protesting his “relative” innocence.

"In a country committed to electoral democracy it was only a matter of time before the rapaciousness of the public official got in the way of service delivery, to the point that it is hard to explain it away with the wave of an autocratic hand...

But also as societies grow and become more complex, relying on the good manners of people or familial or tribal standards to enforce good behaviour becomes less possible hence the need for generally agreed rules and institutions to ensure  law and order.

The 1970s and 1980s – our dark ages, broke down a growing appreciation for the rule of law and institutions. Government’s inability to get things done means it cannot be business as usual.

We will hear increasing grumbling of the Moral relativism type in coming months and years as attempts are made to get things in order.

Even if the effort is half hearted, if it gathers some steam it will begin to take on a life of its own, an irreversible momentum that will force us all to conform to the rules.

Wishful thinking?

In order to meet our development ambitions a rule based society is imperative. See for example the billions of dollars we can now borrow from the open market. We couldn’t do this a decade ago. The lenders can now look at your society and discern some order which gives them a better chance of getting paid back.

Contrast this with our neighbours the Democratic Republic of Congo (DRC) whose natural resources have been estimated at about $12trillion but it cannot exploit them for the population’s benefit because the chaos at every level that prevails there.

"Whether we progress towards a more rule based society will depend on our elite both political and economic, which gives little solace....

On the one hand whether the politicians can see that a more prosperous, rule based society will be correspondingly good for them and on the other whether the business community can shed off those in their ranks, who have benefitted and worked to maintain a status quo that benefitted them to the exclusion of the rest of us.

NOTHING IS FOR SURE BUT CHANGE

Nothing is for sure except death and taxes – in our parts the latter maybe optional but no one can get away from the first.

Last week Oil futures broke below $45 a barrel after a brief rally in May that saw it climb to $52 a barrel. Tis despite the best efforts of the Organisation of Petroleum Exporting Countries (OPEC) to talk the price up. They met a few weeks ago to extend cuts in production as a way to keep oil prices up.

About 45 years ago OPEC created an energy crisis that saw oil prices jump to the princely $12 from the previous $3 a barrel. This came about when they placed an embargo on the US and other western economies for supporting Israel in the Yom Kippur war.

As of 2016 OPEC controlled 44 percent of world exports and 73 percent of the world’s proven reserves. So supply decisions made by the 14 member organisation have a telling effect on world prices.

Recent event suggest that’s not true anymore.

"A few factors have changed in recent years. Some of the oil exporters who gauged themselves on the $100-plus a barrel prices of a decade ago have seen their economies come and unstuck. Venezuela and Angola come straight to mind but you can add Nigeria to the mix...

These countries have an urgency to keep pumping the black stuff just placate their local populations. Then there is the return of Iran from the cold. An embargo on their oil exports was lifted last year and again politico-economic realities dictate that they generate more and more revenues.

But an even more interesting development is the shift of the US from being a net importer of oil to a net exporter in the last five years or so.

Modern technologies mean the US can not only make more marginal oil fields viable but also means then can extract oil from existing and abandoned oil fields. As a result of this surge in production a ban on oil exports was lifted two years ago. And in the first quarter of this year the US exported up a million barrels day.

As the biggest consumer of oil this is significant because it takes away OPEC’s influence in the global markets.

Last week it was reported that the company behind WordPress, the blog enabling service, will be closing its San Francisco office because not enough workers are coming to work in person. Workers are choosing to work at home or offsite more and more these days making the expense on office space optional or redundant altogether.

Advances in communication technology now mean that the need for brick-and-motar working environments is becoming a dated concept.

And finally last week it was reported that the number of south Sudanese refugees in Uganda has risen to 900,000 with no sign of the influx abetting. In some areas the refugees now outnumber the locals putting unbeareable strain on already inadequate physical and social infrastructure. It is safe to say that like the Rwandan influx of the 1950s  we can expect that the South Sudanese are here for the long haul.

This changes in energy, labour and movements of people around the world are radically changing economies and impacting politics in ways previously unimaginable.

Whoever thought in the heady days of $100+ a barrel oil that the middle eastern economies would be struggling for survival like they are today. The shut out of Qatar last week is a symptom of these growing tensions.

Whoever thought barely a decade ago that the office as we know it, the center of every business would become obsolete.

And a decade ago with the optimism of a newly independent South Sudan still hanging the air thought the world’s newest state would implode so spectacularly.

"There are other developments happening before our very eyes that are fundamentally changing the traditional factors of production of land, capital and labour, which mean that the way we think, project and plan our economic futures will have to change...

Last year they say that at least sg44trillion passed through the various mobile money platforms in Uganda. This is about one and half times the new budget and it is growing by the day. These are monies that were not in the formal financial sector that have been liberated from under our mattresses, socks and bras.

Already the various telecom providers are tapping into his flow to lend money bringing formal credit to a whole new layer of economic actors. That it takes less than a minute for a loan approval – literally, means the traditional lending houses will have to speed up their own processes to remain relevant or lose their relevance altogether.

You think not?

Already our face to face interactions with our bankers are down to near zero. Banks are rethinking opening new branches and are pushing for more technology usage and collaboration with other economic actors to extend their reach. The way technology is going it’s not inconceivable that the bank as we know it, in a decade will be no more with all of our transactions being carried out online and not with punching keys on our keyboards or phones but by telepathy with the same devices!!!!

SPARE A THOUGHT FOR THE TAX MAN

Long before Christ’s time the tax man was the punching bag. It got so bad that Zacheus had to climb up a tree on Jesus route to hear the message. Had he stayed at ground level his height would have meant he missed seeing the son of man on account of his height – he was a short man, but also because he was an unpopular figure being a tax man and no one would have sympathised with him and allowed him to the front.

The tax man suffers the classic dilemma of the messenger. He does not decide who to collect from, that is determined at the parent ministry, and even if the tax man has a contrary view about the wisdom of collecting from this or that person or entity he really doesn’t have a choice.

In Uganda for the better part of the Uganda Revenue Authority’s (URA) life the chief tax man has been a lady – Anne Brit Aslund followed by Allen Kagina and now Doris Akol.

The month and the financial year is coming to a close.

"The commissioner general is confident that save for the two public holidays – they lose at least sh30b in collections on such days, they should just make their sh13.2trillion target. At the time of our speaking just before the budget reading they had collected about sh12.8trillion...

Akol said the collections had proved a mixed bag in the year with taxes from fuel imports falling in line with less than expected growth in volumes, the economy missing its expected growth target of 5.5 percent to come in at under four percent, taxes from personal incomes underperforming, all of which it is expected will be countered by strong returns from the banking industry.

To meet the ambitious targets under such circumstances points to something more.

To get an understanding of the enormity of the challenge one has to look back at least a decade. Ten years ago URA collected sh2.6trillion a figure that is set to increase at least five fold this year. In effect revenues have grown an average of about 17 percent a year in shilling terms.

For a long time, ever since the introduction of VAT in 1997, there have been no new tax heads introduced. So these gains have been due to the growing economic activity during the period and improvements in administration.

Our tax base still remains small at about 14  percent to GDP compared to the sub-Saharan Africa average of 20 percent but there are incremental giants year on year should lend us some comfort.

Akol is confident that with the introduction of the digital tax stamps, especially in customs they will be able to meet or even surpass the next financial year’s sh15.3trillion target.

Efficiencies in rolling out the e-tax and collaborations with KCCA and the Uganda registration Service Bureau (URSB) to spread out the tax net should begin kicking in the next few years.

URA’s performance is critical in the context of increased borrowings to finance our ambitious infrastructure projects.

"According to the budget we will be shelling out at least $900m in loan repayments this year compared to $159m a decade ago, the near six fold increase in repayments being padded by the growing revenue collections over the period...

As our brand new infrastructure comes online be it in power generation or roads or railway the assumption is that these will spur new economic activity, which URA can then tax.

The naysayers argue that this new economic activity may not materialise and we will still be saddled with these onerous debt payments. But our history has shown there is still a lot of suppressed demand, which shouldn’t come as a surprise given the existing infrastructure deficit, which attempts to bridge are not keeping up with population growth at the bare minimum.

He tax man or woman is hard person to sympathise with, especially in our case where the history of bribery and extortion follow them around like a bad stench. But spare a thought for them as they go about their thankless jobs, which if they didn’t do well we really would be up the creek without a paddle.

UGANDA BUDGET 2017/18: KEEPING THINGS IN PERSPECTIVE

Finance minister Matia Kasaija read us his sh29trillion budget on Thursday. In it he reported that the domestic revenues from URA will cover about sh15trillion of the budget and the rest will come from domestic and external borrowing.

In the lead up to the budget reading the pundits were screaming blue murder about how much money we are borrowing and wondered whether we will be able to pay when the debt comes due.

The critics argue that our debt burden is growing as we play catch up in trying to lay down much needed infrastructure in the roads, rail and energy among others. I have listened intently to these arguments and I struggle to see either point.

To simplify let us use our own personal experience with debt. The banks will lend you about 15 times your net salary for up to six years. So if you earn a million shillings they can lend you sh15million shillings, which will be about 25 percent higher than your total annual salary.

So if we look at your debt to earnings ratio at the beginning of the loan it will be about 125 percent of your earning power for that year.

Hence the insistence of judging Uganda’s debt, in proportion to our GDP, a country’s economic output, of about, which the minister said was about 33 percent but when future payments discounted to today’s value about 27 percent of GDP.

Our GDP is about $26.4b and our public debt $8b.7b as at the end of last year.

That last part is based on assumption that future value of money is lower than the current value and so to get a more accurate read in present terms you need to take this into account.

"But I think what is more important is to measure our debt against our ability to pay our obligations as they come due....

Returning to our personal experience, that will we be able to meet the banks monthly repayment demands given our income?

Assuming a rate of 25 percent for your sh15m loan the bank will ask for a monthly repayment of about sh400,000. Assuming you keep the job you should be able to repay the back the full loan given your current income.

But imagine that every year your income increases by five percent, over the period of the loan your net income before loan repayments would have grown to about sh1.34m. Meaning your loan repayment will be much less worrisome to you by the time you finish paying the loan.

Extrapolating that same scenario to our national affairs.

Over the last ten years URA’s ability to collect revenue has risen to sh13trillion in 2016/17 from sh2.6 trillion in 2006/07. It would be interesting to use GDP but our revenue collections is where we should look, given our personal experience. Our revenues are what repay the loans.

This means that on average URA’s collections have grown by an average of about 17 percent a year over the last ten years.

While the minister reported they had not met their target but URA officials are confident that by the end of the month they will have at least meet their target.

URA commissioner general Doris Akol told Shillings & Cents last week that their confidence comes from the fact that the banks have had a good year and their corporate tax is not yet in.

In 2006 the GDP of Uganda stood at $9.9b according to the World Bank, which means it has been growing at compounded average rate of about 10 percent annually using the finance minister’s current estimate of about $26.4b.

Looks high but can be explained I think by the rebasing of our economy in 2014 to capture new sectors. It grew 13 percent that year.

"This is interesting because according to the ministry’s figures we paid sh159.5b in 2006/07 in debt repayments which accounted for 6.1 percent of that year’s revenue collections. In the coming financial year we will be paying sh916b of the sh15trillion collected or about 6.1 percent....

The point is that while we will be paying about six times as much in debt repayments in the coming year compared to a decade ago, in terms of our ability to pay there is no difference in how much we are paying because we have developed the capacity to meet our added obligations.

If we are to be concerned about Uganda’s increasing debt burden we need to focus on whether our debt is being used for productive endeavours, things that will stimulate more economic growth and hence more revenues to pay for the debt.

So for example the privatising of power distribution and the commissioning of the 250MW Bujagali dam has seen Umeme’s revenues leap to sh1.31trillion in 2016 from under sh200b in 2005. In that year they paid sh52b from zero a 2005.

We should be concerned about the mounting debt but this should be seen in its right perspective.

To return to our personal analogy when you were earning a million shillings a sh15million debt was a daunting prospect but not so for today when you earn sh10m!

THE DIFFERING FORTUNES OF THE UK, UGANDA LEAGUES

Last week it was reported that Manchester United was the most valuable soccer club in the world. 

Audit firm KPMG using an algorithm that took into account a club’s profitability, popularity, sporting potential, broadcasting rights and stadium ownership, put the club’s value at €3.095b (sh12.7trillion)

The team from the North West of England, beat Spanish club Real Madrid into second place, followed by Barcelona, Bayern Munich and Manchester city.

For Manchester United this is a far cry from the team which started out as a department team for a railway company, went into receivership at the beginning of the last century, was relegated several times before the second world war and had to endure 41 barren years before it won its third league title in 1952 (so Arsenal should not lose the faith).

Closer to home it was reported that most teams in the just concluded soccer league season are staggering under the weight of massive debt, many have not paid their players in months.

If the richest sport in the country is suffering like this one shudders to think about the lesser sports.

"A cursory look around our league throws up some disturbing facts. If we were to judge our teams against the aforementioned KPMG parameters none are profitable, a few are popular or own a stadium, most sporting potential is non-existent and the sh50 fees from broadcasting rights barely covers payroll....

It’s not difficult to see why this is so. Beyond a dearth of business management talent (I am not talking about having an MBA) most team structures are more of hobby associations than sustainable enterprises.

They generate little revenue from the traditional sources -- gate collections, membership, endorsement contracts or player transfer fees.

But even the little they get they lose to a combination of the officials’ sticky fingers and a general financial ineptitude.

Assuming our soccer officials are well meaning individuals who are totally out of their depth in trying to make a success of their teams, rather than rapacious sharks whose sole intention is to smash and grab, I recommend for the off season reading Robert Kiyosaki’s “Rich Dad’s Guide to Investing”.

Kiyosaki has a simple model which he overlays on businesses to determine whether they are a worthy investment or not.

Called the B-I pyramid at its base it has cashflow, communication, systems, legal status and then at the peak the product. And this pyramid is further supported by the enterprise’s mission, leadership and team.

Notice that between the product – the entertainment, and cashflow the club’s legal status – the relationship between shareholders and members for instance, the systems the club employs to sustain the business and communication, in this respect our clubs continue to operate like the old Indian dukas where it was enough to throw the shop’s doors open and customers will come.

That could work those days when you were the only shop owner on Kampala road.

The interesting thing is that marketing ones product or self is so much cheaper than it was before. A face book page, a twitter handle, a SMS blast on match day can do wonders for a team. For much less than the price of a sugar cane

For all this to happen leadership comes first. What kind of leadership will lift our teams out this quagmire? One with a vision for the club that will not only aim for success on the pitch but even more important one with a goal of long term sustainability. Not one with eyes bulging at the crumbs now available in the game.

Like a business a club can only grow as big as its promoter’s vision. The bigger the better.

And by the way this is not calling for a takeover of teams by egotistical money men, although leverage greed and vanity to build teams has worked before.

Barcelona FC which last year pulled in more revenue £570m than Manchester United, £515 is owned by the supporters, like many of our teams.

In Barcelona’s case leadership is more crucial than in Manchester United’s case in the latter’s case it is a “public” property and you know what they say – beware of the stupidity of people in large numbers.

"The point is that we have to realise that our sporting entities, not only soccer, are floundering not because of the economy or lack of government support or lack of talent, but for lack of leadership and more specifically business management. That’s the place to start. Once you have that in place everything else will fall in line...

But then again there is the real possibility that this is not news to the people who matter. I hope not because then you would have to wonder about their motives for not effecting it, for maintaining the status quo.

But in the event that this is all news, thank me later. Or better still pay me!

WHAT WILL THEY SAY AT YOUR FUNERAL

This was a week when death was in the air and on the air. On Sunday renowned educationist Lawrence Mukiibi died in a Kampala hospital following a fall in the bathroom at his home. Mukiibi, the proprietor of a chain of schools, has been a prominent figure in the country’s education sector for the last two decades, a trailblazer whose legacy will not be easily forgotten.

In the same week South African based Ivan Semwanga, was buried I his home district Kayunga in a funeral that was more memorable for the money and booze that joined him in the grave than for any moving eulogy during the event. Semwanga is famous for lighting Kampala’s night life up as the leader of the “Rich gang” in recent years, with lavish parties and ludicrous displays of conspicuous wealth. It is also reported that he owned a few schools in South Africa.

Two Ugandans with differing legacies brought together only by the fact that they died within days of each other. It is unlikely the two men shared the same company.

"The self-improvement industry has numerous suggestions for how to live to one’s full potential. One that is particularly fitting this week is the suggestion that one should imagine his funeral and imagine what you would want said about yourself by your relatives and friends on the day, and then live towards that ideal...

A kind of reverse engineering.

Of course the nature of the tributes you envisage will be a function of your current state of consciousness, your perspectives on life. So if you are currently an achiever with huge ambitions what you imagine may be grander than the village drunk who looking forward to the epitaph, “He live his life to the full, never saw a beer he never liked or finished”.

Jokes aside such an exercise may spur one to greater things when they were just currently coasting through life or force a u-turn on a life that would inevitably lead to self-destruction or allow one to redefine success or even hold steady on a course which while not showing success currently will eventually lead one there.

Thinking ahead gives many people headaches because it imposes on one the burden of living up to an ideal self. But they say that if you don’t know your destination any road will lead you there.

The question is that what is the purpose of your life?

But first off why should we even have a purpose to our lives beyond getting by everyday, paying the bills and generally just existing?

You are either growing or you are dying. Growth suggests improvement. Purpose is at the end of that growth or improvement. To reach for higher purpose is what helps you get up from defeats you will encounter along the way, soldier through the challenges and just as importantly know when you have arrived at your destination.

As suggested above to attain ones purpose you have to grow to the size of that purpose. How big you grow will depend on the size of your purpose.

"The highest achievers down history had purposes that stretched far beyond their selfish or parochial interests. If they rose to fame or accumulated great wealth this was often a by product of a life of service to people beyond themselves...

Bill Gates’ initial goal was to have PC on every desk in America. His perspective on life changed and he has now committed himself to ending world suffering. Henry Ford behind him wanted to build a car that would be driven by the masses. In recent times Mark Zukerberg set out to connect everybody at his university Harvard before stretching his purpose to the whole world.

Interestingly the greater the achievement the more humble these giants of our time are. How can you be proud and arrogant when people are still dying of Malaria – in Gates’ case or how can you be arrogant when there are still at least five billion more people on earth to make active users – in Zukerberg’s case.

When you are truly committed to huge goals pride and arrogance do not occur because you are too busy trying to make your huge dream come true. Its only the little people who can afford the luxury of pride and arrogance.

So, what will they say about you at your funeral?

SACCOS TAX WAIVER: THANK YOU BUT ….

Last week parliament waived taxes all income taxes on Savings & Credit Cooperative Societies (SACCOS)for the next ten years starting with the next financial years as a way to encourage savings .

As it is now SACCOS pay 15 percent withholding tax on interest earned from savings and on dividends.

Raising savings rate is important for our national development ambitions.

According to the World Bank our bank deposits to GDP stand at about 17 percent of GDP in 2014 (the most recent figure they have on their website) Kenya stands at 44 percent, South Africa at 58 percent and Mauritius at 92 percent.

"The more money we have flowing through the formal financial sector the better for the economy. With increased savings we can have lower lending rates and more and more money can find its way to the more productive sectors of the economy...

It has been pointed out that its not true that we don’t save, its just that we save in different ways by buying land, livestock and other non-financial assets. The challenge with this kind of saving is that it locks resources down making them unavailable to the owner or anybody else and to that extent slowing down the development process.

The formula financial sector serves as the middleman between the savers and the borrowers. SO while you have no use for your savings if they are placed in a bank rather than under your mattress, those funds can support others with ongoing projects.

The other argument is that our incomes are low and the cost of living is rising every year leaving us nothing leftover to save.

Experience has shown that is not true. When the New Vision SACCOS was started in 2005 the minimum monthly saving required of members was sh40,000, even the highest paid members grumbled initially about the figure. Today a decade or so later members who did not have two coins to rub together can of millions of shillings in savings.

"This goes to show that the reason our savings rate are low as a nation is for lack of adequate avenues to save. This has been proven time and time again...

The bank accounts in existence currently are more than five million but there are at least 21 million mobile money accounts across all platforms today. It has taken the industry less than a decade to catch up and overtake the banking industry because of their convenience.

As an intermediary between the people and the formal financial sector SACCOS are arguably the next best thing. A well run SACCOs industry can be key in mopping up the billions that the banks are unable or unwilling to go after especially in the rural areas.

Whereas the tax relief is most welcome it is not the solution to the reported collapse of SACCOS. In fact I believe a tax waiver will make SACCOS more vulnerable to collapse than before.

This is why. First of all I would be surprised if even a tenth of all the 3000-plus SACCOS in Uganda pay any tax. For those that have been paying tax the waiver may serve as a windfall and how the SACCOS managements decide to deploy these windfalls may very well lead to their down fall.

In the absence of good strategic processes this windfall may go towards introducing perks for management, raising expenses, accumulating new liabilities and investing in assets that do not support the group’s core purpose.

Remember it’s a ten year tax holiday, if unnecessary expenses are accumulated when the taxation resumes cash flows will be severely affected and trouble will begin.

SACCOS will do best to remember that there are only two ways to spend money to invest or to consume. During this moratorium they should be best advised to beef up their balance sheets rather than increase their expenditures.

The New Vision SACCOS last year paid more than Sh100m in corporate tax, a figure that has been growing by about 14 percent over the last several years every year. And you are not counting PAYE and withholding tax on interest and dividends.

"While we are grateful for the relief a more sensible thing would have been to lower the tax rates for SACCOS, say to 15 percent even five percent during the next ten years. The idea being that the discipline of paying taxes would be maintained....

I can imagine that there will be a struggle to jump start tax compliance come 2017.

But while we are still on the subject of raising why not also raise the amount of mandatory savings workers make to NSSF? Say they match employers contribution of 10 percent of income?