WHY UGANDA SHOULD NOT REVERT TO PARASTATALS

Some people in government and in sections of society are hell bent on resuscitating the era of the state enterprise.

In a nutshell they argue that nearly 30 years of neo-liberal, Bretton Woods Consensus, market driven economics has only created jobless growth, promoted speculation and widened incomes and wealth disparities.

On this basis they say that government needs to take back the "commanding heights of the economy" (sounds so sanctimonious) by setting up strategic industries that, while critical to long term development, are currently unattractive to private sector investors.

In so doing they see the government creating jobs, jumpstarting these critical industries and beating a path for the eventual entrance of private players.

"There are many reasons why this argument is flawed, not least of all because its proponents seem not to have learnt the lessons of the past or are ignoring them conveniently for their own motives....

Allowing for the benefit of doubt, the end to which all economic engineering is aimed at, is development, which unlike growth — the quantitative improvement in the size of an economy, development goes a step further to mean an improvement in the living standards of the people.

While we are still at it, there can be no development without growth. Development is the distribution of the fruits of growth. 

The most effective and maybe even efficient creators of growth in an economy are the private sector or business or the market, terms which are used interchangeably.

The market has two things going for it in this regard.

One, it feeds off the desire of every individual to better themselves. Some call this greed but this falls short of the actual driver because in order for businessmen to make more and more money they need to to serve more and more people, which seems contrary to being greedy.

So for instance the most successful bank or telecom or fuel companies are those that serve the most people, if success is measured by the profits they make.

Another thing going for markets is that it takes advantage of the laws of evolution, that its not the strongest or the swiftest but the most adaptable of the species that survive. Those that survive benefit from the lessons of the multitude of experiments of trying to survive in the market, by themselves or their colleagues, past and present.

This is the most important argument against centralised economies. 

"There is no one person or group of people intelligent enough to simulate the thousands, even millions of experiments that occur in the market, needed to choose the market winners . Attempts in history to do so have failed dismally....

The USSR for instance, while it developed into a nuclear power, at the height of its “power” breadlines were a regular feature of its citizens’ lives!

These two features of market economies means the market is the most effective system to generate economic growth or create wealth, the human race has ever conjured.

That being said, it is no secret too that the market is the worst possible distributor of the growth or wealth it creates. Markets left to their own devices will give to those who have more and more and to those who have little even the little they have will be taken away.

So once consistent growth has been achieved how is this translated into development?

The distributor of this growth is supposed to be the government.

"First of all the government has to create a conducive environment for businesses to flourish and create this wealth. Alongside that government through the budget, distribute this wealth to the people by paying for social services, infrastructure and other public goods like security, social and environmental protection with revenues from taxation. In doing so across the population it ensures there is an improved standard of living, development for all...

It is clear that government has to partner business not subvert it, if it wants to foster development. If there is growth and no development it is a failure of government not the market, because the market has done its part.

Uganda's economy last contracted in 1985, it has otherwise seen more than 30 years of uninterrupted growth. the growing inequality in society is therefore an indictment on government as the private sector is wildly successful.

Which brings us around to why a reversion to parastatals is a bad idea and should be nipped in the bud.

The privatisation of the 1990s happened because the companies we had, gutted and mismanaged since the 1970s, had become a drain on the treasury, diverting much needed resources from service delivery.

To kill two birds with one stone – increase productivity and revenues while at the same time rid ourselves of these financial black holes, government decided to sell them off to private players who could fulfil the above conditions.

It is true that the initial impetus for this policy initiative came from the donors, who made it a condition of opening up the financial taps. But the logic was hard to refute. To get these companies to a point where they would produce enough revenues would require resources which the country did not have at the time.

So we had three choices. 

Either we could continue to soldier on with these ailing institutions, hoping they would turn around without much capital injection from government (hope is not a strategy); strip them of their assets and use the money to keep government running until the money run out or sell them as going concerns, which would not only continue to operate but increase their productivity, create jobs and pay more and more revenue over the years that would allow government to carry out its basic functions.

Thankfully government chose the last option. We are much better for it.

"The promoters of the return to the past base their thinking on the wrong analysis that the companies failed for lack of money. The truth is they failed for lack of proper management. More accurately, the management of these companies did not have the right support, which goes beyond finances, to include insulation from the politics of the day....

Management is key, because money follows good management. And we are not talking about the people alone– we have MBAs flowing out of our ears, there are the governance issues, policies and compliance to regulations and best practice. You can have the “best” managers but no systems and the business will fail.

And after all that, why is it a bad idea for our government or any government for that matter to go into business?

Governments’ sole preoccupation is how to stay in power. Everything they do is aimed at that goal. Government do this by doling out goodies to their support bases. 

In more advanced economies that may be industry supporting infrastructure or slanting policy to ensure industries are set up in their areas.

In pre-industrial societies like Uganda, the needs of the people are more basic than the self-esteem that comes with a job and the ensuing self-sufficiency. We just want something now to keep us and our families going.

It’s bad enough that the US government can’t do business, now imagine our government which has to pander to our base needs and instincts? You cannot run a business where you are donating stock, employing constituents despite their qualifications or allowing massive fraud go unabated because it’s being perpetuated by your supporters.

It is as simple as that. It’s not rocket science.

"

What government should do, which it has not been doing well, given the widening income and wealth disparities existing today, is work on improving the business environment – we are ranked 127 out of 190 people in a World Bank’s “Ease of doing Business” index, collect all taxes due to it and use that money effectively and efficiently to provide public goods....

These social services and public good ensure that the people's productivity improves and therefore earn more and their standard of living rises.

It is counterintuitive to think that if you cannot create a conducive business environment for the private sector, somehow the government companies will operate profitably.

That is another thing, the promoters of this return of the parastatals seem to think, that government companies need not be profitable.

What they don’t say is who is going to pay for the losses. 

They sidestep this issue because they know that we the citizens, shall have to pay for the losses with poor social services, derelict infrastructure and bad security. In fact if government is failing to pay its suppliers now – to the tune of sh1.4 trillion, now imagine what will happen when its companies owe hundreds more businessmen.

"In fact a return to parastatals will not only widen income and wealth disparities, as a fraction of the society will be sponging off the state, but will also jeopardise the economic growth we have been achieved over the last three decades....

While growth has not been equitably spread --- and we know why, it at least gives us a springboard for the future.

HAVE WARREN BUFFETT GUIDING YOUR NEW YEAR

American investor Warren Buffett is the fourth richest man in the world. His $80b fortune has been built over the last seventy or so years by investing in good companies either off the stock exchange or by buying them outright.

Through long experience he has developed a way of thinking about business and life that is simple, straight to the point and has earned huge success

You cannot do better than borrow some of his wisdom to take you through 2019.

On life …

1.       “The most important thing to do if you find yourself in a hole is to stop digging”

“Should you find yourself in a chronically leaking boat, energy devoted to changing vessels is likely to be more productive than energy devoted to patching leaks.”

This say the more or less the same thing differently.  In the New Year evaluate yourself there are those things or people who keep taking and taking and never giving back, getting rid of them will make you better off instantaneously.

2.      “There comes a time when you ought to start doing what you want. Take a job that you love. You will jump out of bed in the morning. I think you are out of your mind if you keep taking jobs that you don’t like because you think it will look good on your resume. Isn’t that a little like saving up sex for your old age?” 

Buffett turned 88 in August and has the benefit of experience and wisdom in saying this. To the rest of us trying to make something of our lives this advice can seem rather impractical in the face of mounting bills.

But if you think about it, if you do what you enjoy you will be able to surmount the obstacles to make it a successful and even profitable endeavour.

3.       “It’s better to hang out with people better than you. Pick out associates whose behaviour is better than yours and you’ll drift in that direction.”

Hanging out with people who are your equals or worse, are lesser than you, will keep you in your comnfort zone which not where growth happens. To grow into greater success you need to burst out and feel the discomfort.

In the New Year audit your friends and general environment.

4.       “Chains of habit are to light to be felt until they are too heavy to be broken”

Watch out the habits you adopt. Enough said.

5.       “Honesty is an expensive gift, don’t expect it from cheap people”

Life is so much smoother when you trust the people around you. Mistrust is expensive and can lead one to do things you would not ordinarily do and that would be detrimental to your future plans and wellbeing.

On business ….

1.       “Risk comes from not knowing what you are doing”

So the way to minimise risk is to increase one’s knowledge. The moe knowledge you havet he risk you can take on and still be successful.

2.      “Somebody once said that in looking for people to hire, you look for three qualities: integrity, intelligence, and energy. And if you don’t have the first, the other two will kill you. You think about it; it’s true. If you hire somebody without [integrity], you really want them to be dumb and lazy.” 

This should be at the foundation of human resource process. It would save a lot of time and stolen money.

3.      "No matter how great the talent or efforts, some things take time. You can't produce a baby in one month by getting nine women pregnant."

 What an investor needs is the ability to correctly evaluate selected businesses. Note that word “selected”: you don’t have to be an expert on every company, or even many. You only have to be able to evaluate companies within your circle of competence. The size of that circle is not very important; knowing its boundaries, however, is vital.

4.      "You can't make a good deal with a bad person."

This should help with dispelling the fallacy or ego trip we so often make when we think that just because someone was dishonest or scheming with other people they will not be the same with you.

If he has conned someone before or reneged on a deal before chances are they will do it again so stay clear.

There is very little commentary you can add to Buffett’s words of wisdom, he is often straight and to the point. You pay attention because he has not only lived a long and full life, but also because he has been widely successful financially without drama and theatrics.

Merry Christmas and Happy New Year to you all!

HOW NOT TO BECOME A ZIMBABWE OR VENEZUELA

Last week I came across two disturbing stories from Zimbabwe, which has just done yea since the dismissal of Robert Mugabe and Venezuela, whose economy is in rapid decline despite having the largest oil reserves in the world.

In the Zimbabwe story it had the heart breaking revelation that shortages are so total and the people so desperate that if they see a queue they just fall in line in the hope that they will be something at the end of the line. That’s just unimaginable, to me at least.

That if I was on my way to work and I turned the corner and I saw a queue had formed I would park my car or jump out of the taxi to join it. Interestingly the next ten people in the line probably wouldn’t know what they were queuing for and I wouldn’t have answers for the man behind me. That is so heart-breaking.

In Venezuela the economy is so in the toilet that the HIV/AIDS victims who only a few years ago were getting free anti-retrovirals from the state cannot get any neither the free ones or even buy at the pharmacy. As a result they go on blind fate and drink the juice from a tree known as the guasimo, whose potency scientists doubt.

For us we need to ask how did these countries, once beacons of development, get there and how can we avoid sinking into their quagmire.

Below is my four ways to avoid a Zimbabwe/Venezuela situation, in no particular order.

1.       Don’t attack the productive sectors

In the early 2000s Mugabe needed to shore up his political support and decided to forcefully redistribute the Whites Zimbabweans’ land to his cronies and a few token peasants. He was largely successful in achieving this and subsequently won the election, but it was Pyrrhic victory.

The same white farmers were the main producers of food and agricultural produce, which produce supported arguably the continent’s most vibrant agroprocessing industry, which in turn employed thousands of Zimbabweans.

"Many of the farms that were expropriated have reverted to bush, Zimbabwe now relies on the imports and donors for food and the famed agro processing industry has gone to ground. The effect of this is that exports have fallen off, hard currency receipts have plummeted and the country despite the best intentions of the new leadership is once again rolling into the abyss....

2.       Don’t try and be cleverer than the economy

In Venezuela the government of then president Hugo Chavez buoyed by oil prices that reached $140 a barrel a decade ago thought they could subvert the laws of economics. They instituted price caps on essential commodities as a way to raise the living standards of all. They imported food and sold it at less than the cost price. While the oil prices were high and the government could afford to subsidise the adventure things were good for Venezuelans. But productivity fell, after all why work hard to save costs and improve efficiencies when the government will pay you. When the government couldn’t sustain the subsidies and the producers fat on government subsidies could produce efficiently they went out of business and living standards plummeted.

When governments are flush with cash their instinct is to do the popular thing like lower the economic burden of the people in ways that are unsustainable and subject to abuse.

Surpluses should be invested in education, health and infrastructure, to improve the ease of doing business in the country, to ensure the economy’s competitiveness is maintained.

3.        Nip corruption in the bud

When you look at the fall of Robert Mugabe his corrupt cronies including his wife Grace had a lot to do with the collapse of his regime. In the last two decades or so many of these were let loose to not only take for themselves prime farmland – which was supposed to be redistributed to the lower classes, but also expropriated the revenues from state owned enterprises and mines. 

They did so without replacing parts or trying to run them as going concerns. They literally ground them to a halt.

"The corrupt are rapacious, they don’t have self-regulating mechanism to determine that enough is enough. They will keep gorging on the public funds and extorting the productive sectors, even when to do so would be to kill the geese that lays the golden eggs. And even then they won’t stop. They will begin to feed on themselves triggering instability.

4.       DO NOT PRINT MONEY!!!

At one point inflation in Zimbabwe was so bad that it was measured in thousands of percent. The story is told of the man who caught a bus to go across town to buy bread. By the time he got to the bakery the bread had run out. As if that was not enough he then found he couldn’t afford the bus fair to where he had come from because it had quadrupled in the interim.

When governments begin to print money this signals their final capitulation and desperate attempt to subvert the laws of economics. After messing up the productive sectors, letting corruption run rampant and tried all sorts of shenanigans to trick the economy to bending to their will – you can’t cane or torture the economy into shape, they resort to printing money to alleviate the immediate need for salaries, payouts to cronies and the rest be damned...

From then on you are on slippery slope which can lead to in Zimbabwe’s case where they have had to rely on US dollars or South African rand. The problem though is because you have gutted the productive sectors you are not exporting much of anything to have enough dollars to keep the economy afloat.

In Venezuela’s case they launched a crypto currency backed by their oil reserves. The problem is the oil sector is producing less than half its capacity and all the oil they export is used to pay off existing debt.

GOVERNMENT SHOULD SIGN OFF ON UMEME

One of the best things this government did for this country as to privatise public enterprises and liberalise the economy.

"As a result the private sector has unlocked national assets and individual initiative which has ensured that we the economy has grown every year since 1985. In 1985 the last year the economy contracted it did so by 3.3 percent...

The majority of Ugandans were too young or not yet born when these two initiatives kicked in but just to illustrate it took me two years to get a telephone line, it could take you the same amount of time if not more to get an electricity line and at this time of the years we would suffer shortages of everything from sugar to soda.

All these are totally inconceivable for the majority of Ugandans, eight in every ten are 35 or younger, and for the rest of us we have forgotten.

One of the outcomes of this process is the Umeme concession, which was the privatisation of the management of the electricity distribution process.

The owners of Umeme, led by UK Private Equity firm Actis, took over the 20 year concession in 2005. The concession basically meant that government remains the owner of the assets and Umeme runs the distribution function for them.

Since the concession begun Umeme has signed on an additional one million users from the 290,000 they found online and have invested more than $500m to rehabilitate a dilapidated network and expand it to keep with not only the growing demand but also the increased generation capacity.

At the beginning of the concession Uganda had a generation capacity of 380MW, which has more than doubled since to 850MW and is set to double again in the next 12 months when electricity from the 600 MW Karuma dam and the 183 MW Isimba dam are switched on.

There have been intense negotiations to have government give an early indication that the Umeme concession will continue, when it comes up for renewal in 2025. This is important for Umeme and the economy as a whole because the distribution needs to contract financing to continue with its investment plans.

Umeme estimates that it will need to invest at least $1.2b (sh4.5trillion) over the next eight years to maintain and expand the existing grid.

"Recent outages may suggest that new investment into the network is struggling to keep pace with increasing demand. Last year new signings onto the grid increased by about 15,000 a month, a rate set to increase for this year...

Uncertainty would mean financiers would cost their funds much more expensively or even worse, withhold the badly needed funds until they can be more confident about the way forward. The higher cost of money will invariably feed into the price we pay for our power.

Over the last 15 or so years Umeme has got itself to a good place, raising the confidence in itself to the point that it can go to the open market to source funds. This is confidence is not easily won.

Government understandably has concerns about the cost of power in the economy. Umeme accounts for a third of the tarriff and anything to reduce this or at worst k keep it stable would be great.

And the icing on the cake on the Umeme deal is that the National Social Security Fund (NSSF), which boasts at least two million contributors, and the other Ugandans through listed shares, own about half the company as we speak. This allows a bigger pool of people benefit from the good fortunes of the distribution company, and by extension have a real interest in the dealings around the concession.

This is good because it takes the sting out of the naysayers argument that Ugandans are not benefitting from the investment --- apart from improved electricity distribution, that is.

SUSPENDING ECONOMIC LAWS CAN ONLY END BADLY

Tanzanian President John Magufuli last month decided that his government will buy all 220,000 tonnes of the cashew nut crop because the market was not giving his farmers a fair price.

He has bought the crop at almost double the market price and incurred an unbudgeted $320m.

Tanzania’s output account for under five percent of world production so it is unlikely that this development will move the needle on global prices to ensure the government breaks even.

And this comes at precarious point for our southern neighbour because with a reduction in the nuts’ exports the currency can be expected to depreciate, which is not a good thing as a$66m Eurobond payment is due in March. It will cost more in local currency – a further drain on the treasury to meet the country’s obligations.

"Populists and anti-free marketers will be toasting the president for his action and his political approval ratings may even jump to historical levels. But when the dust settles down the high fiving and back slapping will go with it...

Magufuli is trying to subvert the law of supply and demand because it is not convenient for him. In simple terms the law dictates that prices will rise and fall according to supply. When there are shortages prices go up, when there is too much of anything around prices will fall.

We may fault him on the nature of his intervention but he probably has no choice but to intervene.

The fault is in his government and those before him, who refused to face the cyclic nature of the cashew nut market squarely.

Throughout history politicians have tried to defy the law of supply and demand, because it did not suit their purposes or threatened them politically, often blaming it on foreign conspiracies to unseat them.

But Tanzania will learn this course of action is expensive – see the hit the exchequer has taken already and often causes the same problem you were trying to avert – in this case, a collapse of the cashew nut industry.

It seems global cashew nuts have fallen due to lower demand from India and Vietnam – big producers in their own right, but also reduced demand from Iran which is suffering trade sanctions.

Dar es Salaam had two choices both hard to swallow, either they let the farmers take the loss and may the best survive, which might have been a disaster as most of the farmers are small holders and therefore the industry’s collapse will be felt among more households.

Or do as they did and try and prop up the price for the farmers, although now they are stuck with a crop they cannot sell for a profit, in fact they are facing a 50 percent loss if they sell at market prices.

The aforementioned populists and anti-free market proponents will argue that that’s what governments are for to protect their people from such vagaries out of their control.

"What they don’t say is that the funds committed to this subversion of the free market have to come either from diverting funds in the budget, which may hurt social services, infrastructure development or other support to the productive sectors of the economy, or by printing more money, which will invariably trigger inflation which will affect the productive sectors, harm tax collections, which will affect service delivery – the dreaded vicious cycle....

What the populists are not addressing is the question of what happens if prices remain depressed next year and the next, then what? They say the market can remain irrational longer than you can remain liquid.

And if you think about it farmers will develop a kind of moral hazard. Because they are shielded from the market forces their incentive to be efficient – to produce more with less, is diminished and not only that whenever there is a problem they will expect the government to step in. Not a recipe for growing a globally competitive industry.

The solution is simple but not necessarily easy.

Clearly the market has to be restructured which is a medium to long term venture.  Tanzania needs to incentivise processors to set up there. These can provide a better price than that that the export markets will give for raw cashew nuts. As they should also support these producers market their output locally, regionally and even abroad. Incentivising processors and subsiding marketing costs is a more efficient use of resources than buying nuts from farmers at inflated and unsustainable prices.

While the market is the best creator of wealth, It is true too that it is the worst distributor of resources – to those who have more will be added on to them. Wealth distribution is the role of governments But for governments to fulfil this role they need to understand the way markets work and not be corrupt.

Tanzania will pay a high price for this misadventure, but some people just like to learn the hard way.

The trick is not to subvert the market but like a Judoka, to use the opponent’s weight – the market in this case, to bend it to your will.

MISS UGANDA’S STORY SIGNAL’S WIDER SUCCESS

It is that time of the year when the Miss World pageant rolls around. Apart from a few years in recent memory we have always had a representative.

We see them off at the airport with a sigh and a knowing look, we know they won’t make it far. Our best effort does not match up to the western standard of beauty, but we shouldn’t begrudge our girls the travel and exposure that comes with mingling with other beauty queens in a faraway land.

This year for only the second time ever, things seem different.

Our representative, Quiin Abenakyo, last weekend beat Miss Argentina in a head-to-head contest that saw her make the top 30, ahead of tomorrow’s final showdown in China’s southern city of Sanya.

The only other contestant recent memory who has made it that far in the beauty pageant was Victoria Nabunya in 2001.

There has been a flurry voting on line for our own and one wishes her the best of luck.

 [Since this was published in the New Vision on Friday 7th December, Ms Abenkyo was voted Miss Africa, was second runner up in the popular vote and made the top 5]

"But looked at from a wider perspective this is only one of several highlights we have enjoyed on the international in recent months in the sports and entertainment scene...

A few weeks ago local singer Bebe Cool won the East Best Male Artist at The Africa Music Awards (AFRIMA), beating Tanzania’s Diamond Platinum to the post. But Bebe Cool is just the tip of the iceberg of talent that keeps crawling out of the woodwork everywhere you look.

In sports the Uganda Cranes kept a clean sheet through four matches to qualify for the second time in as many attempt for the Africa Cup of Nations. Golfers Eva Magala and Irene Nakalembe won back to back titles in Nigeria. Joshua Cheptegei broke the 15 km world record in the Netherlands. Our netball team the She Cranes are just back from a tour of England where,  while they lost all three matches played against their world number two hosts, never embarrassed.

In Uganda we have our share of heart-breaking news but every so often someone slogging away quietly in the corner at the chosen craft bursts out and takes our breath away.

In any significant endeavour, for one to attain universal recognition takes hours of hard work. Not only physical work, but work against self-doubt, against the haters and against the peculiar circumstances life throws at them. The fact that they all make it look easy when they do succeed is a function of their mastery of their craft than anything else.

Why is this all happening now?

"Three decades of peace and economic growth means that more people can afford to indulge in leisure activities or patronise those activities. To develop one Stephen Kiprotich or Joshua Cheptegei or a team like the double African Champion She Cranes or even Bebe Cool requires a huge pool of other contenders competing with and against each other to bring out the best in themselves...

It’s no wonder that the relatively inexpensive sports like long distance running and netball, are the first to break out.

Then you need an organised administration – private or public to facilitate the talent with equipment and foreign exposure. Anyone who has achieved anything of significance knows the power of associating with the right organisation to propel one to greater heights.

It is too early to tell – it takes years even decades to establish a country as a sporting power, but from here onwards it will be the quality of our sporting administrations that establishes a pipeline of winners well into the future.

It might be that there is an alignment of the stars that is allowing all these athletes to start enjoying success at home and abroad and once they move on we will be back to square one.

Our sports administrations complain of government support. I think that is a cope out. There is enough corporate funds sloshing around looking for a place to stick their flags. The challenge is that few sporting administrations can show corporate Uganda a return on their investment if they were to shell out the money.

"We have established that we have talent, the ball is in the manager’s court....

Do they have the organisational capacity to unlock our sportsmen and entertainers’ full potential?

THE UGANDA ECONOMY IS GROWING FOR THE FIRST TIME

The other day it was reported that the Uganda economy may beat projections and grow by seven percent above the expected 6.1 percent.

The International Monetary Fund (IMF) think that this beating of expectations will come as a result of the completion of certain infrastructure projects, anticipated peace in South Sudan, developments in the oil & gas sector and continued good output from agriculture.

"Economic growth is not a big story in Uganda. According to World Bank numbers the last time the economy did not grow was in 1985, when it contracted by 3.3 percent. Growth peaked at 11.5 percent in 1995 but for the most part has averaged about six percent in the last 30 years or so...

For development to happen, improvement in the general standard of living, there has to be growth. There have been two problems for the Uganda economy during the period.

One that we started from a low base. IT easier to grow a $4b economy – where it was in 1986 by ten percent than it is to do the same to the current $25b economy. SO while the numbers have been eye popping they may not be saying very much on the ground.

Secondly that this growth has been concentrated in services, construction and industry, meaning the main beneficiaries of this growth have been urban dwellers. This accelerated growth has not been mirrored in Agriculture from which seven in ten Ugandans derive a livelihood. And this to a large extent is why many, if not most Ugandans feel the benefits of this economic miracle continue to elude them.

But that might be changing.

Last week the Uganda Coffee Development Authority (UCDA) reported that coffee exports have increased by a million bags in the last three years. In the current coffee season that runs from September – August, it is expected that 5.1 million bags will be exported.  This was not by mistake.

A plan to export 20 million bags by 2025 has led to a dramatic increasing in coffee planting with 318 million seedlings planted for distribution this year up from 45 million 2014.

"This is positive on several fronts but not least of all because most of this new production comes from small holder farmers, with coffee fields of five acres or less. Coffee a highly marketable commodity will allow more rural families to derive an income...

But even more important is that we shall start producing coffee in quantities that can support a robust coffee processing industry.

Producing between two and four million bags a year for the last 30 years gave little incentive for the big coffee roasters to come set up shop here or even inspire the creation of local mega roaster. If that happened farmers may benefit from the savings and get higher prices at the farm gate.

But maybe not.

The milk industry has been a key player in turning around a trade deficit with Kenya. Our production now stands at about 2.5 billion liters annually a more than ten-fold increment from 1986 when 200 million liters was produced.

The downside is that milk prices have been falling with increased production but on the bright side farmers and farmer groups are looking to value addition to make the enterprise viable.

The point as with coffee and milk, there is more than enough scope for expansion and our small holder farmer model means that more and more people will benefit from robust growth in the agriculture sector.

But can also expect that out of necessity the small holder farmer will fade away either by exiting the industry or merging into bigger entities that can better compete and survive in a future of lower farmer gate prices...

Interventions by government to beef up its extension services are welcome, as are efforts to provide irrigation infrastructure, a lot of work needs to be done in getting the improved varieties of animals and crops out of our labs and onto the market.

For the farmers too they need to be helped to operate like businesses. This important because in their current state there is a ceiling on their development as they cannot attract financing or new investors to scale up their businesses.  This is important in order for our farmers to weather the vagaries of the weather and the market.

Government’s intervention of providing inputs through the Operation Wealth Creation (OWC) were necessary and even welcome. While there is room for a lot of improvement this is only the beginning and one intervention the government can push to boost rural incomes.

Market access is being improved with the widening road network and our improved regional connectivity.

So assuming that the weather holds up and government officials don’t keep too much for themselves with agricultural production growing exponentially, opening the door for agro-industry and the export of value-added commodities, we might see the more equitable distribution of the benefits of growth in coming years. So for many this maybe the first time they acknowledge growth in the economy.

Fingers crossed.

THE SUNKEN BOAT AS AN ANALOGY FOR OUR ECONOMY

Last weekend a boat capsized in Lake Victoria. At last count 32 people were confirmed dead of the more than 100 revellers who were on the boat.

According to survivor accounts the boat had slowed to a crawl, was taking in water, when its engine failed, the lights went out, the music stopped and it went under.

Fingers have been pointed at the boat owner, the marine authorities and the partygoers. It is clear that all parties shoulder part of the blame for the tragic disaster. I hesitate to call it an accident.

"I couldn’t help feeling that the whole event had an ominous resemblance to our economy...

To begin with we are overloaded not for the size of the country --- England about half the size has a population of 55 million and no one is complaining, except the Brexiters who don’t want any more people coming in.

 It’s the size of our economy which is the problem as the engine was for the MV Templar. It was stuttering and stalling, grinding and groaning under the weight of the merry makers on deck. Our economy of $25b is barely keeping us afloat at $600 per capita.

A combination of historical accident, the total collapse of the economy in the 1970s and 1980s, while the population continued to grow, set us up very badly for today. The boat it is said was dragged out of the “garage” for the weekend event with the mechanics still below deck tinkering with the engine, whose model we would not be surprised had long past its sell by date.

Our economy too seems to be stuck in a time warp, our planners still stuck in their “Economic for Eastern Africa” by Livingstone & Ord, text books. The fundamentals remain the same its true, but we seem unable to build on those fundamentals to keep up with the information age in which we are living.

"But like the ill-fated weekend revellers living a fiction up on deck while the people below are engaged in a futile effort to shovel water out, we continue with our lives refusing to make the sacrifices (pay taxes) to not only keep the economy going but get stronger and stronger...

Our tax revenue collections to GDP are at about 14 percent, which is why we cannot finance our own budget and need to go out to borrow to bridge the deficit.

The insufficient life jackets are a useful parallel for how the economy cannot finance adequate services for all. The people who enjoy the services are those who are connected or those who know how to access the services, through their connections or being in the right place at the right time.

The boat management instead of charging everyone a fair rate so they can provide each with a life jacket, opted to charge a minimal fee that will attract numbers and forget about the safety precautions.

The loud music and copious amounts of alcohol are enough to keep  many oblivious to the  impending doom just like in our economy because we are relatively secure, healthy and getting along we do not pay attention to deficiencies in the institutions supposed to deliver public goods – the police, the health and education sectors. Until it is too late.

A constant theme that run through many survivor accounts is that they sat up and took notice when a speaker fell into the water, when the ship begun to keel over.

But there was no more ambiguity about the situation when the engine died, the lights went out and the music stopped.

We need to shift the economy into production and away from donor dependency. To do this we need to raise our revenues, emphasise quality education for all, improve the business environment and accelerate our infrastructure development.

To do all this will take hard decisions, many decisions which seem unpalatable as long as the music keeps playing. It will also take sacrifice by all, especially the urban elite who have had it so good for the last three decades.

"The signs are there, we don’t have to wait for the speaker to fall into the lake for us to start doing something....

HOW TO TELL AN INVESTMENT FROM A SCAM

Last week arrested the Charles Lambert Nwabuikwu, a Nigerian born Briton who through his Development Channel promoted a Ponzi scheme that came crushing down months after it was opened. But not before he had separated hundreds of Ugandans from their hard earned cash.

In another news event National Social Security Fund (NSSF) announced that the option to take out their accumulated savings in phases was open for those who qualify to withdraw their savings.

A saver with NSSF who attains the age of 55, is rendered invalid, leaves the country or attains the age of 50 and is out of work for a year qualifies to withdraw their savings. However it is not mandatory that they withdraw it all in one lump sum.

The Fund’s research has shown that after barely two years of withdrawal of their savings about four in five people are totally broke and have nothing to show for the windfall. Popularising the partial withdrawal is their way of guarding against this for other members.

The challenge with happening upon a huge sum of money, we assume that because we have a lot of money we have now become super businessmen or have become investment experts. We labour under the widely publicised illusion that the solution to our money problems is more money --  “If we had more money our business would survive/thrive”

Here are a few common sense tips is you fall into things, NSSF or otherwise to determine an investment from a scam.

1.       How do they make money

If someone approaches you with a investment or business proposition understand first how they make money. Most propositions are a variation of the buy low, sell high theme. So they will buy maize, beans, coffee, whatever at price X and sell its (X+costs +100) shillings, which 100 shillings they share with you. If you understand the way the business works you are off to a good start. That is why you are advised to invest in what you know, it saves you the learning curve that comes with costs.

2.       What is their experience

Management is everything. You can have two businesses in the same industry, one thrives while the other struggles or collapses. More often than not the difference in their respective fates comes down to the management of the businesses. Do the people you are handing over your money to have any experience in the business they are hawking? In this case the experience you are looking for is that they know how to make money doing the business, not just that they worked in the industry as employees or managers.

3.       How long before you get your money back

The promoters of Ponzi schemes seek to dazzle you with this in the hope that you forget to ask the hard questions above.

Development Channel for instance was selling tablets for sh750,000 with a promise of a monthly payment of sh350,000 a month for life. This a return on your money of 460 percent per year. What this means is that you will get your money back in just over two months. Is this a fair return or not? The best to know is by comparing with other investment opportunities in the market.

The safest investment in the market are treasury bonds and bills, these represent debt the government borrows from the public.  As of November 7^th an investor can earn an annualised 11.25 percent on the 91-day treasury bill and 17.50 percent annually on the 15 year bond.

So far these are safest best in the market, meaning that any investment proposition should promise you, better still pay you higher than these rates. The higher the risk the higher they should pay you.

So when Development Channel comes along and pays you more than 20 times what the government is offering you alarm bells have to go off.

Two questions immediately arise, how risky is this business that they are willing to offer so much and secondly, remember whatever they are paying you is after they have taken off their own cut, that means the business is actually showing a higher return than 460 percent! What are they dealing in to show such returns? Drugs? Black dollars?

If you are in doubt about the returns see #1.

4.       Does the “investment” bring meaning to your life

And if you have convinced yourself of the above the final test would be whether this investment is in line with your morals, does it have meaning for you. So for instance out of religious convictions you might not be interested in investing in money lender or banks or condom factories.

Of course the more money you have to invest the more detailed the vetting process would be. If all the above four criteria are met to your satisfaction only then can you begin to consider the investment if it is one.

IS UGANDA BECOMING A GANGSTER NATION?

There is a lot to worry about our beloved country not least of all the proliferation of “tycoons”. No sooner has one passed on or been jailed, than three others pop out of the woodwork to take their place.

This week a video went viral of one of these “tycoons” stacking up wads of notes in his bedroom. No sooner had we caught our breath, another one was being plucked out of the ceiling of his unfinished mansion. The police has put out multiple summons for him, which he had flippantly ignored (Who does that?). We have one languishing in jail in the United Arab Emirates (UAE) and another in a South African prison. Another disappeared into thin air, the last we knew he was a “guest” of the Kenyan state, a status which probably still persists...

And these “tycoons” are not hard to spot. They have two defining characteristics – among others, they burn through money like they have fire in their pockets and no one knows the source of their billions.

They are good entertainment while they last but they mask an insidious trend creeping up on us, that if it plays to its logical conclusion could have far reaching and dire repercussions not only for the economy but for national stability.

In western economies, in the UK for instance, if you whipped out a $100 bill to do your shopping the shop attendant would do a double take. In economies where most of their money in circulation is in the formal financial sector, where everything can be paid for using plastic, only criminals walk around with such large denomination notes.

In Uganda our largest denomination note is the sh50,000 note, and nearly all our transactions are in cash, we will be forgiven for waving these large notes around willy nilly. But when a group of people of no known occupation start using wads of notes for construction and are blasé enough to show it off on social media, the conclusion can only be one.

On a moral level these ostentatious shows of wealth are misleading and demoralising. Misleading because impressionable minds, especially the youth, looking on think this is the way one should spend money and that such money is only made by “shrewd” people.

It is demoralising because honest workers, exercising brain or brawn, begin to think they must have missed a memo. They may even get distracted from their diligent work to look for the one deal that will set them on easy street like these “tycoons”. What happens when the real producers in the economy stop producing?

"Drawing from that there is a real danger that these “tycoons” are serving as the backdoor for criminal gangs to come and entrench themselves in this country. It is not by mistake that enough of them are cooling their heels in jails from China to Dubai and from Kenya to South Africa...

The nature of organised crime is that it is not content to go about its business quietly. It is keen to co-opt influencers, government officials and security agents into its nefarious ways and if given half a chance to take over whole governments in order to facilitate its nefarious ways.

In South America governments are diverting massive resources in their war against drug cartels, who have, in many instances superseded their respective governments as the law in the areas over which they lord. And from these bases they have extended their influence across borders and oceans, extending their networks and financing other networks – smuggling, human trafficking, gun running and money laundering rings, that facilitate their work.

In the 1990s Montenegro in order to circumvent EU sanctions and raise revenues, leased outs port and airstrips to smugglers. The better intentioned fashioners of this policy probably thought that when the country was back on its feet they would kick out the criminal rackets and normal service would be restored.

But no, the criminals inserted themselves in every aspect of Montenegrin life to the point that a few years ago Italy put out an arrest warrant for the then Prime minster Milo Djukanovic for his role in a cigarette smuggling ring.

The state had been hijacked by the thugs and pimps.

Uganda’s central location in the world makes it a strategic node in a potential criminal network.

In the US the Internal Revenue Service (IRS) comes knocking if you start living beyond your means. Our own URA and the Financial Intelligence Authority (FIA) should take more than a passing interest in these “tycoons” when they pop up.

It may be the difference between becoming a gangster nation or not, somewhere down the line.

IS STANBIC BUSINESSES’ WHITE KNIGHT?

Last week Stanbic bank signalled a shift in how they do business with the launch of their “Wealth Value Proposition”.

The new offering will go beyond the traditional banking services to include introducing their clients to their insurance and wealth management products provided by their affiliates Liberty and Stanlib, respectively.

The bank by gaining an intimate knowledge of how they make and spend their money, advising on saving and investment and helping them plan and protect their money, will help its clients improve their financial health in the short term and ensure they leave behind a durable financial legacy. This service will be offered to their individual and corporate clients.

"If executed properly this single initiative will not only boost Stanbic’s bottom line (as if they needed any more help) but be good for the economy as a whole....

For the bank it will be a shift away from churning out products to actually paying attention to what their clients’ aspirations are, putting their resources and expertise at the service of attaining these goals.

For individuals it will bring for the first time, in the vast majority of cases, an appreciation of financial literacy in a very practical way, not the “information”  being peddled by snake oil salesmen.

But the real benefit will be to businessmen, particularly the Small & Medium sized Enterprises (SMEs).

According to the bank, in Uganda only one in four businesses opened live to see their third birthday. The fold because mostly because they don’t know what to do and don’t know where to go for help.

Relatedly there are serious gaps in the financial industry that make it difficult for small business to access appropriate credit for their stage of development.

As it is now the financial industry is dominated by the commercial banks, which are ideally suited to working companies with regular or growing revenues, dealing in predictable products and services.

Between scrapping together personal savings and relying on the generosity of friends and family to the point where a business can gainfully engage with commercial banks, there is a dearth of the kind of financial services SMEs require to not only rise to the next level but to survive.

In other markets there is vibrant business support services segment  – often run by the government, which helps small businessmen with help in market research, incubation, mentorship programs, grants and loans.

If a business outgrows this help it might then be taken over by the venture capitalists, people who are willing to finance and handhold a business’ through its teething pains, for a share in the company. 

The private equity crowd are more the same but they play at a higher level.

While attrition rates are not very different around the world, the difference under such circumstances is that the surviving businesses have a better chance at growth and durability than our own businessmen who rarely ever reach that point of sustainability.

This is what Stanbic is getting itself into.

"It is inevitable because once the bank gets intimately involved with its clients’ businesses and works to come up with solutions, they will find themselves going down paths, creating products they had no clue they would be involved in. Which is as it should be...

Now imagine if this new initiative, rolled out across Stanbic’s nationwide 72-branch network, is executed half as well as is intended and even one  hundredth of the bank’s half a million clients  or 5,000 business are touched, the ensuing sea change in the economy would be huge.

Imagine the businessman who up to this point has seen the bank only as an avenue for banking and withdrawal of those same monies, then now learns to organise his books (he thought that was only for big companies), to think strategically ( how do you spell strategy?), to identify and appraise opportunities ( he thought he would be shopkeeper till he died), how to protect his hard earned wealth (he thought he would eat all he made by the time he died) and provide for future generations.

A country’s economy is only as viable as the quality of its private sector. The private sector creates jobs, pays the taxes and its proprietors are instrumental in maintaining national stability. This is more so when the captains of commerce and industry are indigenous players.

"We pay lip service to helping the private sector because truth be told our government and technocrats have no clue what it takes to do business. Stanbic is climbing over the table to help their clients, if their clients thrive they thrive too. There is a very real self interest in what they are doing.

We can bet that others will follow suit in days to come, which will only widen the surface area for change and setting up the economy for the next level.

COCA COLA, AGRICULTURE: UNLIKELY BEDFELLOWS?

The bottlers of Coca Cola, Century Bottling Company, recently released a new product onto the market – milk!

Yes. You read right! Their new brand of beverage going under the brand name Climb Up is bottled flavoured milk -- Vanilla, Mango, Strawberry and Chocolate flavours.

That would be as interesting as it got, were not for the fact that the new product is drawing largely from local producers and suppliers.

For the second half of this year, the beverages company plans to consume 13.5 tonnes of powdered milk and 18 tonnes of sugar, with a commensurate amount of labelling, packaging and plastic bottling all provided by local suppliers.

The local producers and suppliers now being allowed a look in on the multinationals marketing and distribution network, it is safe to assume will cause dramatic changes in those industries.

Take milk.

"It takes 8.5 liters of milk to get a kilogram of powdered milk. So Century Bottlers current powdered milk commitment will account for about 114,750 liters of fresh milk. While this demand doesn’t dent Uganda’s current annual 2.5 billion liter production, there is cause for optimism looking down the line...

There are few other companies in Uganda that can stand toe to toe with the Coca Cola makers marketing reach and experience.

One can expect that with the company’s marketing and distribution network being brought to bear on their latest offering, their demand for milk will grow exponentially.

The latest news from the Dairy Development Authority (DDA) is that thanks to our increased exports of milk to our eastern neighbour Kenya we have reversed the historical trade imbalance between our two countries. And as if that is not enough we have just overtaken South Africa as the continent’s largest exporter of dairy products.

Industry players say there is still a lot of potential for milk production in western, eastern and northern Uganda and it is reasonable to think that Century Bottling will play an instrumental role in this endeavour.

BUCKLE UP, THERE IS STILL A LOT OF WORK TO BE DONE

Little mentioned in the press, but since the beginning of the month the contractors have been impounding the reservoir at the $590m Isimba hydro-electric power dam.

Impounding, I learnt, is the act of filling the dam reservoir with water. It is estimated that it will take about two weeks to fill. This ahead of the anticipated commissioning of the 183 MW dam early next year.

Not unlike watching paint dry, I imagine, but this event is still an exciting time for all concerned.

While this was going on I paid a visit to the Karuma dam in northern Uganda. The finishing touches are being done at the dam, which will produce almost thrice as much power as Isimba dam.

"The $2.2b project has been in development since 2014 and is only the second of its kind on the continent, the other being the Ruacana power station in Namibia...

The unique feat of engineering will see water from the Nile diverted down the to the power station that is almost 100 meters underground, before the water is then ejected about 8 km downstream to re-join the river on its journey to the Mediterranean.

I simplify, of course.

Deep in the bowels of the dam – they say enough rock to fill 15 Nambole stadiums was excavated to make it happen, it hit me like a sledge hammer how much more work this country needs to do.

If the target is to generate 17,000 MW or the equivalent of 28 more Karumas, in the next ten years we are way behind schedule.

For starters going by the current average of $3m per MW cost this ambition will cost $51b or twice the size of the Ugandan economy to make it happen. Just makes you want to lie down and give up doesn’t it?

But giving up is not an option given that the population is set to double every 24 years.

Over the last three decades the economy has grown at an average of six percent during that time the economy has grown almost six fold to the current $25b but poverty persists among many Ugandans, as unemployment grows every year and the cost of living rises.

This only makes sense when you understand that a small part of the population, the educated urban elite, have benefitted disproportionately compared to the rest of the mostly rural population. They have enjoyed rising incomes and improved social services, which add up in many cases to upper middle income economy lifestyles and in some cases even first world lifestyles.

A major reason for this is the concentration of infrastructure and services in the urban areas especially in Kampala.

Unlike in the rural areas where people still need to walk some distance to a health center or a school or even a water source in Kampala everything is within easy reach and now more and more a few clicks on your phone away.

This access to everything to the already educated has a compounding effect on their standard of living which sets them far apart from their rural cousins.

"In order for the rural populations to play catch up we need, no must, increase electricity coverage nationwide. Access to electricity would ensure better health services – incubators, oxygen machines, refrigerators, theatre lights are all powered by electricity; better education achievement – kids would be able to study longer; more agro processing facilities to suck up rural produce and hence higher incomes....

That the growth has not be spread more evenly – using access to electricity as a measure, means we have a long way to go and particularly in financing these much needed projects.

Two key things have to happen. One, we need to step our resource mobilisation, not only local tax revenues but also our ability to save. Secondly, we have to ensure that the relevant agencies to deliver these infrastructure projects are well manned and resourced.

For starters we do not have the resources locally to generate all the power we need, but with improved tax collections we would be able to afford to borrow a significant proportion of it. The people arguing that we are borrowing too much have it wrong, we actually are not borrowing enough to bridge our infrastructure gap. This due to our low revenue collections – about 14 percent of GDP compared to a sub Saharan average of 16 percent, this alone puts a cap on our ability to repay the loans and hence not make us a very bankable proposition.

Given the growing economy and our huge informal sector just tweaking the political will to collect from more people from whom tax is due would go a long way to resolving our revenue issues.

And the second point about competent agencies that would deliver on this project is why the current slapdash attempts at rationalising government are dangerous. Enough said.