LEAVING A BITTER TASTE IN THE SUGAR INDUSTRY’S MOUTH

In recent days there has been talk of there being a shortage of sugar in the market that necessitated the importation of sugar tax free to alleviate the shortage and force prices down.

Currently sugar retail prices are hovering at around sh5000 a kg.

The claims first came to light in a dubious press report which claimed government had allowed the importation of the tax free sugar. Trade and industry minister Amelia Kyambadde refuted the claims and the sugar industry came out to deny that they had run out of sugar.

"Word on the grapevine is that the people pushing this story and hoping to force government’s hand have already brought the sugar in and set to start churning it out to the unsuspecting masses ahead of the festive season...

This would be just another story were it not for the fact that the sugar industry is the biggest employer in this economy, sup ports the government not only through paying taxes but also in creating infrastructure and providing social services in the places it operates.

A collapse of this industry, which is what would happen if we allowed the importation of cheap sugar from abroad, would have a ripple effect through the rural economies of eastern and western Uganda.

Is this being alarmist? 

As a recently as a decade or two ago Mumia Sugar in Kenya was crushing 10,000 tons a day, employing thousands directly and indirectly and supporting a supply chain that stretched across the region. However a connected elite, that the Kenyan press resorted to calling the sugar barons, not only helped bring it to its knees but also won themselves concessions to bring in tons of imported sugar hammering the final nail in Kenya’s sugar industry.

Mumias is now down to crushing 1,000 tons a day on account of mismanagement but also a gutting of it’s out grower farmer scheme.

This last point is important because in Uganda we are seeing the same happening and given the Kenyan precedence it’s not a stretch to foresee the collapse of the Uganda sugar industry.

And when that happens the blame will lie squarely with the trade ministry.

For starters they have licensed 23 sugar companies in the last few years, 13 of which are now operational.

In a well regulated industry licensing of sugar companies ensures that they do not feed off each other’s plantations, which mean there should be a minimum distance between operations to ensure this.

As it is now sugar companies are mushrooming in eastern Uganda around the more established Kakira Sugar Works and Sugar Corporation of Uganda Ltd (SCOUL). Their intention is clear, to feed off the two giants out grower networks, without suffering the investment to build their own.

One indicator that this is happening is that for the 13 mills to be sustained today, crushing about 3,000 tons of cane a day the land under sugar cane would have to rise to 214,500 hectares. Currently the land under sugar cane in Uganda is about 120,000 hectares.

The biggest expense in the sugar industry in Uganda is the building and sustaining the nuclear plantation and the out grower networks.

There is a proposed sugar policy that has been seating on the shelf for at least a decade which prescribes that to set up a sugar milling operation one must 500 hectares of plantation and not be within a radius of 25km of an existing operation.

Despite the pleadings of industry players government has been dragging its feet on putting these rules in place.

"As a result of the cannibalism within the sugar industry the older players who were supporting outgrower farmers are scaling back their support which has resulted in production not growing to expected levels with the 13 players not producing as much sugar as the big three were producing last year...

The correct thing to do wold be to operationalize the sugar policy as a basic framework on how to guide the industry.

Mauritius, trailblazers in sugar production worked this out at least a decade ago. IN response to the World Trade Organisation (WTO) rules that prohibited preferential treatment between nations they have had to rationalise their sugar industry, consolidating from the more than 20 sugar plants in 2006 to the current four.

This has allowed them scale to not only produce more refined sugar but also to produce power, industrial alcohol and additives for the construction industry.

The current confusion in the industry overseen by the trade ministry will lead to the eventual collapse of the sector and the rise of powerful sugar import cartels which will frustrate any revival of the industry.

This is unfortunate too, since the same ministry is spearheading the Buy Uganda, Build Uganda (BUBU) initiative.

NSENENE AND THE PUSH FOR A MIDDLE INCOME

The Nsenene (grasshopper) season is in full flight (forgive the pun).

I read fantastic stories last week of how sacks of the insect are criss crossing the nation. The major supply areas seem to be the central region, where in a given night you may see contraptions made of iron sheets, drums and high intensity light being used to trap grasshoppers.

Friends of mine who have been following the market, say that a few weeks ago as the season was just getting started a tumpeco (half-liter mug) of nsenene was going for sh20,000! And a sack of nsenene was selling for up to sh500,000. She thinks the season has peaked as the same quantities are now going for sh3,000 and sh20,000.

The snacky treat is prepared by stripping it of wings and legs and frying it in its own oils.  I am told one can add tomatoes and even garlic to taste.

There are two nsenene seasons around April and November, the latter being the major season.

So if one got to thinking, what would it take to rare nsenene and therefore ensure a year around supply? Would the market demand fall off because as they say familiarity breeds contempt? Maybe we can export the treat, what would it cost to break into those foreign markets?

That last lesson is key to our quest for transformation of the economy.

It is not a secret but to take our economy to the next level – surpass the $1000 per capita magic number, we need to export stuff, the higher up the value chain they are the better.

"As it is now total world trade is estimated at $24trillion shared between goods and services $18.5trillion and $5trillion respectively. Drilling down further of the goods traded $13trillion were manufactured goods, $3trillion natural resources and $2trillion agricultural products....

The low proportion of the global figure assigned to agriculture explains why the continent accounts for less than $5 in every $100 dollar of world trade and therefore why poverty stalks us.

Beyond doubling or tripling the number of bags of coffee we export a year, in an increasingly competitive market – Vietnam now offloads four times the amount of robusta coffee we do onto the world markets, the attendant increase in land under the crop may be hard to sustain.

Maybe when we attain those volumes we may be able to seriously consider adding value to our coffee and grit our teeth to try and break into the processed coffee market, already in the stranglehold of non-coffee producers from Europe and the US. We will grind our teeth to the gum before we can even cause a dent in that market.

Same maybe said for our tea, cotton and even sugar.

The sensible thing to do would be to squeeze ourselves into the trade in manufactured goods. This may not be as daunting a prospect as it may have been in the last century.

No one makes all the components of all they produce any more. For instance Apple has at least a hundred suppliers mostly in South East Asia but also in Israel, Ireland, Mexico, Austria and the US of course.

The same can be said for Mercedes Benz or Sony or Boeing.

The trick to inserting ourselves in these value chains would be a productive workforce, and most especially cost effective, reliable and efficient infrastructure.

"You can imagine the coordination of a global supply chain needs a high level of efficiency, especially since manufacturers don’t want to spend more than what is absolutely necessary on storage. They have taken Just in Time (JIT) delivery – where suppliers are integrated in the manufacturing process to the point that they only deliver when a component is needed, to another level....

It therefore makes sense for us to be seeking to push our power and transport costs down, necessary if we are to have half a chance of inserting ourselves in these multi-billion dollar networks.

Companies in South East Asia are doing a rip roaring business delivering switches to Apple or seat belts to Nissan or door handles to IKEA or valves to GE.

To illustrate when Apple launched its iPhone 8 it sold about 10 million units in the first week, imagine if each screen costs $10 and one supplier had the whole deal it would have pulled down $100m (sh300b)! in that first week.

It has been true for a long time. To continue to sell raw commodities to the world market is a losing strategy.

"We have no choice but to go up the value chain. However the markets are not open for us to just walk in. We need to prepare for a fight like we have not seen not only for trying to add value to our traditional commodity exports but also to break into the value chains of the world where the real money is being made.

For starters we need to stop working as if we exist in silos. Power generation is not only the business of the energy ministry but of the manufacturers, tourism industry, education and health sectors. As is the Standard Gauge Railway or the oil roads or the valley dams or fishing issues on our lakes.

Back to our nsenene.

While it may serve to provide seasonal income for some nifty grasshopper trappers it is unlikely to help vault the country into middle income status. If the foreign markets are our target a taste for Nsenene is not universal – some even gag at the idea of eating it.

A SHILLING SAVED IS A SHILLING MADE

Several events in recent days have served to remind us of government’s wastefulness and how through rationalisation of its operations we can stretch our tax shilling much further than we currently do or think possible.

The incidents in no particular order, started with the strike of the medical workers that was suspended a week or so ago. The doctors argued that they were working under terrible conditions and being paid less than they deserve, given the important role the play in the country against the millions being thrown at non-core staff in other government agencies.

The doctors laid down their stethoscopes for about three weeks saying they would not go back to work if their pay was not increased, in some cases by a factor of ten. The public gritted their teeth through the strike. We all think they should get a better deal.

Related to that, state health minster Sarah Opendi told parliament this week that the doctors will be catered for in an impending comprehensive review of public service workers terms of service in which one trillion shillings has been earmarked for pay enhancement.

She didn’t go into the details but if split equally among all 300,000-odd public servants this comes to about sh3.2m improvement in annual pay.

And then on Wednesday, the same day that the minister was at parliament, the Internal Security Organisation (ISO) released their report in which they had done a survey of government expenditures. A report commissioned by the president to look into the waste and duplicity of activities by government and its agencies.

"The ISO report highlighted several things key among which was the way public servants have enhanced their pay through allowances, consultancies to government and allowances of every nature...

Reading between the lines the report highlighted the need for a restructuring of government. The last such restructuring happened in 1992.

The restructuring is bound to find that public servants are all not lifting their weight, some should have long retired or many are misplaced and hence are inefficient and ineffective in their current position.

US billionaire investor Warren Buffet says if you find yourself in a sinking boat energy would be better spent changing boats than trying to bail out water from the doomed craft.

There really is no reason given the exponential growth in our revenues over the last three decades that public servants are not paid better so that we can bury for good the  idea that as long as government pretends to pay they too shall pretend to work.

We are not even talking about matching public sector salary scales.

Of course government will argue about that they are investing on major infrastructure projects, which no one doubts are critical to our development ambitions, but one can also argue that public servants cannot be held hostage to government’s planning inadequacies. Somebody should have foreseen that down the road there was going to be a fallout and worked towards mitigating it.

Of course we are always wiser in hindsight but that public service pay was a ticking time bomb has been common knowledge for years.

"I think what galls the most for the public servants is how they do the brunt of the heavy lifting only to see less deserving people – rent seekers, praise singers and the corrupt, skimming off the cream...

From the events above it is clear – if we needed reminding, that public servants need to be paid better, two, that a rationalisation of the public service would go some way to finding the extra money needed to cause improvement and three, that we have waited too long to get on with it.

There will be pain no doubt up and down the line but if done properly it will be for the greater good of society.

As if we needed to emphasise it more all the strategies, the Vision 2020, 2040, 3000 …. and operational manuals will count for nothing if the right people are not in place to implement them. This is important because the public service is a key driver of any plans or development we may be dreaming of.

If they don’t work or can’t work or won’t work our best laid plans will be pipe dreams at best and delusional gymnastics at worst.

TAKING A LEAF FROM MAURITIUS

Tucked off the east coast of Madagascar is the sunny little island nation of Mauritius.

Insulated from the continent’s chaos by a 4 hour flight from Johannesburg, Mauritius has achieved the transformation of their economy that African nations can only dream about starting with much less natural endowment than most countries on the continent.

From a standing start in 1968 the country has managed to not only grow its economy almost 20-fold to its current $12.2b in 2016 according to the World Bank. In 1976 – the earliest year for which the World Bank has numbers, the country’s economy was listed at about $700m.

This may be half of Uganda’s economy but it caters for a population of 1.3m or about 30 times smaller than our own. This is why the per capita GDP of the island nation is at $9,627. In 1976 Mauritius per capita GDP stood at $779 about where we are currently at $779.

During a recent study tour sponsored by UNDP, to investigate how Mauritius has made it work. 

Following meetings with officials at government agencies and the private sector this mission came with a few ideas about how they have achieved this under-reported miracle. Below are few but n ot all the findings.

1.      The independence constitution is not a copy and paste of the Westminster model.

Mauritius was colonised by first the Dutch and then the French and eventually the British. At the time of Independence while the island population was divided mainly between the landowners and the labourers, they negotiated a constitution over 23 years which took into account the country’s unique immigrant population and a desire to equitably share the future spoils of development.

"As a result while they retained the parliamentary system with an executive prime minister and titular head of state and have provisions for coalition governments they also included seats for underrepresented minorities who are nominated through A Best Loser System. They have also retained clear separation of powers between the executive and the arms of government...

The net result of this is while they have had 11 elections and seven changes of governments since 1968 they have not suffered the upheavals that characterised mainland Africa’s population over the last half century.

2.     There is strong partnership between the public and private sectors

But Mauritius development could not have been underpinned by the good nature of its key players over the years. Pragmatism and real politick are more to blame.

The economy is dominated by handful of families who have lived on the island for decades. These however are the minority, mostly of French origin. The majority population are those of Indian descent who then drive the politics. They have a symbiotic relationship with each providing a counterweight to the other’s power.

"As a result the diversification and transformation of the economy from initially a mono-crop economy, where sugar accounted for easily 70 percent of the GDP to the current situation where they have diversified into textiles, light industry, tourism and financial services, and where sugar now accounts for less than one percent of GDP...

The development has been driven through negotiation between the private and the public sector, the public sector’s interest being to create jobs for its people and the business community’s desire to continue to remain viable.

This partnership was important because with a population that has remained steady around a million, a population that cannot support huge industry, support was needed to break into foreign markets and attract investment to the island.

More investment meant more jobs for the islanders – officials claimed there was virtually full employment in Mauritius today, but just as important the revenues from increased economic activity could be used to finance an ambitious welfare system like no other on the continent. Education and health services are free, and in addition the state provides a host of social benefits that range from basic pension, unemployment benefits and benefits for single parents.

3.     

  The welfare state is sacrosanct

Despite the huge cost the country’s welfare system places on government revenues, it is now recognised as a right so much so that when Mauritius needed to undergo some World Bank/IMF sponsored structural adjustment in the 1980s the continuation of the system was non-negotiable.

"The island’s elite recognise the system is necessary to help smooth inequalities in income that may exist and also to forestall social instability that may result from these. Of course the welfare system is also a way for government to support industry by ensuring continuous demand for their products...

It is clear that the partnership between business and public sectors is critical. If your bureaucrats look on the private sector with suspicion or worse as a source of bribes. And if the private sector just the technocrats as leeches and out of step with times and a happy middle ground is not found, its near impossible for development to happen, even if a country shows improving growth every year.

And it is this continuous give and take between the business and government and politicians that can lead to improved welfare for the general population.

However if the power relationship is lopsided as it is in most Africa, with the government lording it over the business community and they in turn looking to subvert government initiatives at every turn then the result is the chaos, stagnation and even regression of the African continent over the last half century.

THE FDC EXPERIENCE AS PART OF UGANDA'S DEMOCRATIC EVOLUTION

In what came as a shock to outsiders former parliamentarian Patrick Amuriat beat General Mugisha Muntu in last week’s poll, to become the new head of the opposition Forum for Democratic Change (FDC).

Muntu’s concession speech suggested that all was not well in the party. During a heated campaign accusations and counter accusations were flying in the air like confetti the net effect being the ejection of the general.

"Thankfully Muntu did not play to the sulkers and announce his departure from the party in a much anticipated press conference on Wednesday....

While insisting that there were “significant undeniable issues and differences” that exist in the party he recommitted himself to continued mobilisation for the party in its ambition to one day run this country.

The challenge in politics – as in any human endeavour, is that while people might come together for a common agenda, there not only are there differences of opinion about how the collective goal can be achieved but there are also personal ambitions that maybe as divergent as the number of people in the group.

So subsequent to the Namboole poll commentators have talked about the divide between “The defiance” wing, whose most prominent face is former FDC boss DR Kizza Besigye and “the compliance” which Muntu is supposed to represent.

"The former tendency seeks to mobilise the disenchantment with the government felt by the largely unemployed youth and the latter tendency are seeking to build party structures, not hope for a spontaneous mass uprising,  but use the established institutions – parliament and the judiciary to effect change...

One can see the attraction of the defiance struggle, it seduces with the promise of a quick and dramatic change, its proponents too impatient to go through the processes needed to build institutions and processes that will outlive them.

The victory and defeat for either tendency last week is but only a moment in the democratic evolution of this country.

We forget but democracy took centuries to evolve in Europe. Of course with the benefit of better technologies we can expect that, if democracy is the natural end, it will take us a shorter time to get there.

For democracy to happen in Europe they first had to break away from the grip of the church. Once they had done that they then had to expand the right to determine how society was run away  from the royal houses of Europe, a process that was often violent, messy and seemed like a regression into lawlessness. And then in a process that is still going on, they have been working on expanding individual freedoms.

But often in this journey, to those who were in the middle of it, it often looked like an exercise in futility.

Imagine the intelligentsia who took advantage of the peasants’ grievances and directed the French revolution, only for them to be executed themselves after the French nobility had all been guillotined. It must have looked like democracy had failed before it had even started.

"Similar seeming reversals happened across Europe. While the cost was high they all informed the patchwork of democracy that Europe is today, with no two countries having a mirror image of another’s democracy...

The event’s in FDC today will make for a sentence in the history books. They will serve as the building block of our future democracy. A block in a wall is easily dismissed but its removal may render the whole wall useless.

FDC seems to have chosen the path of “least resistance” and they may be validated by one day ascending to power, however boring as it seems there is a place for those who want to build the party and its institutions.

Time will tell. But for now the hardliners took the day, we shall judge their effectiveness in coming years.

LESSONS FROM ZIMBABWE

On Tuesday President Robert Mugabe threw in the towel and resigned as Zimbabwe’s leader, forced in to this decision by a military takeover that was not a military takeover.

Last week the military put the aging president under house arrest following an unprecedented warning just hours before, that the army would not allow the purging of the Independence veterans to go on unabated. The latest victim was former vice president Emmerson Mnangagwa whose dismissal at the beginning of the month, it was suspected,  paved the way for first lady Grace Mugabe to take over and be first in line in the event that Mugabe stepped down or worse.

Grace, who is at least 40 years younger than her husband, is not popular with the “comrades” and they saw her as a real threat to their cozy living if ever she assumed power.

"It doesn’t help too, that Grace's  conspicuous consumption and ostentatious living has continued in recent years, despite the collapse of the economy and the widespread suffering of Zimbabweans...

The seeds of Mugabe’s downfall were planted in colonial times.

The takeover of more than half the arable land of Zimbabwe by the colonial government and the settlers, relegated millions of Zimbabweans to marginal land that they struggled to eke a living from.

In hindsight on attainment of black majority rule in 1980, a robust land distribution process which walked a tight rope between getting more farmland to the blacks and maintaining the productivity of the agricultural sector should have been embarked on with a sense of urgency.

What happened of course, is that Mugabe and his cronies parcelled out the land from initial land redistribution efforts to themselves, leaving a lot of his countrymen feeling shortchanged and disenchanted.

This disillusionment was leveraged by his opponents and in an effort to hang on to power Mugabe   forcefully redistribituted land starting in 2000 whose net effect has been to collapse the productivity of the agricultural sector.

"While he hang on to power, barely, the ripple effect from this political expediency has affected industry, services, the general economy to the point that the once food basket of South Africa cannot feed itself, they now use the US dollar as their currency because the Zimbabwe dollar was decimated by hyperinflation and for all intents and purposes Zimbabwe is teetering on the edge of economic ruin....

The official figures show that the real incomes of the average Zimbabwean are now down to the levels they were at around the end of the Second World War, a fifth of Zimbabweans now live outside the country and the billions of dollars are going to be required to resuscitate the economy.

There are numerous lessons but the one that sticks out for me is that governments should collaborate rather treat with suspicion the productive sectors of the economy, to ensure long term stability of their nations but also, from purely selfish perspective, to ensure their continued stay in power.

The productive sectors, agriculture, manufacturing and services as opposed to the rent seekers and corrupt, are what create jobs, pay the taxes and drive innovation.

While governments main reason for existence, couched in populist justification, is to hang on to power this should not be at the expense of the private sector.

"Once a government treats the private sector with suspicion and even actively undermines it, you know the end is near...

Wherever you look around the world, a country’s viability is determined by the robustness of its private sector and this can only come through the active collaboration between the private and public sectors.

So while one can sympathise with Mugabe for inheriting a poisoned chalice in 1980, his putting his political survival ahead of the welfare of the private sector is what has brought him to his current sorry situation.

The catch of course is that, if as a leader you prop up the private sector, it becomes a counterweight to your government and disagreements can end up being resolved politically to your detriment.

PICKING UP THE PIECES OF THE ASIAN EXPULSION

On Saturday last week marked 45 years since President Idi Amin’s deadline for the expulsion of the Asians in 1972.

Amin claimed he had dream in which he was directed to expel the Asians. The President, who had run out of ideas of how to reinvigorate support for his presidency barely a year after he took power, lurched onto the envy of his henchmen as a way to give his popularity a boost.

Like in any another war, his “Economic War” registered the truth as the first casualty. The charge that the economy was floundering was because of the Asian businessmen who dominated retail trade was a convenient lie used to cover his motives that some say were driven by much baser instincts.

"And like war the damage was indiscriminate and we have never really recovered from it. The Asian expulsion accelerated the downward decline of the economy, gutted the civil, health and education services and while it led to a short period of affluence by those who benefited from the spoils, it never delivered on its promise...

Some people using some arm chair logic argue that if the Asians had remained the country would have been overran by them and the economy would be fully in their control. But that is to ignore or to be ignorant of the fact that by 1972 there were 180,000 Asians in Kenya as opposed to 50,000 that were in Uganda then. We don’t get a sense that the Asians have overran Kenya. They are key players in the economy, yes but that is not their fault. Blame it on their thrift and diligence. Values the Kenyan businessman has been quick to learn.

It is no wonder that Kenyan businessmen are more accomplished than our own. They have benefitted from the mentorship of the Asian businessman and it shows.

We are one of them most entrepreneurial countries in the world. Who can blame us. In the chaotic 1970s and 1980s when the economy collapsed relying on one job was not an option. Business was not for soe special class of people who knew the workings of money but everybody was in it.

Of course our businesses were and still continue to be predominantly about subsistence. As a result we also have a high attrition rate, with less than one in ten businesses making it to their tenth birthday.

We don’t know the meaning of once beaten twice shy, because no sooner have we buried one endeavour than we are off to start another. Which is how it should be.

The mentorship the Kenyan businessman has benefitted from is an understanding of how to separate capital from everyday expenses, how to utilise credit, the value of trust and customer care. And it shows on our supermarket shelves.

"So the Economic war laid waste not only to hundreds of millions of shillings – hundreds of billions of shillings today, commercial value but also obliterated decades of business intelligence about how to operate in the Ugandan economy...

The “lucky” few who inherited the illicit booty are nowhere to be seen today and have nothing to show for the manna that fell from Amin’s palms.

But the even bigger scandal is that the Asian community have trickled back and after two decades of putting their nose to the grinding stone now account for almost half of our tax collections!

It’s an old Indian trick Sudhir Ruparelia once told the Financial Times, you make ten shillings, eat one and plough the remaining nine back into the business. Repeat until rich.

Of course we have our excuses for why the Asians have prospered – again, and we are still spectators on the side-lines – they have cheap capital, they pay their workers peanuts, they cheat, we rarely acknowledge their work ethic or their financial prudence. They must have an unfair advantage that we don’t know about. What we are really saying is that we don’t want to do the work needed to get where they are, so we have blocked our minds to finding out how they do it and when we care to speculate about the tricks that bring in quick money.

As a result on last count there have been next to no successful transition of business from founder to the next generation by an indigenous owned business. This is telling because for a business to grow sustainably it does so over years even decades – except of course is you are a cyber entrepreneur.

 As a result we have no indigenous business that has a presence across the east African community or even one with a national presence from Kisoro to Kabong and fro Arua to Kalangala.

A country is only as viable as its private sector. The private sector creates jobs, pays taxes, fosters innovation and brings in the hard currency.

"By nipping the growth of the business community in the bud Amin in fact, doomed our country to donor dependency and economic servitude...

Talk about unintended consequences!