THE ARSENAL DEAL AND RWANDAIR

Last week Rwanda was in the news with their breakthrough shirtsleeve sponsorship of English Premier League’s Arsenal Football Club.

The “Visit Rwanda” logo on the left sleeves of Arsenal players will be viewed by more than 30 million people on match days.

Clearly this deal is to supplement Rwanda’s efforts to promote itself as a top tourist destination. Other components of this strategy are Rwanda’s improving hospitality and conferencing infrastructure, its cleverly packaged tours and events and its airline. More about the airline later.

About twenty years ago a UNDP sponsored consultant, I forgot his name, did a study on where Uganda can maximise its potential in order to make a great leap forward in its development.

"He highlighted eight areas – agro-processing, health, education and financial services, tourism, ICT, mining and electricity generation. While he got paid, he might weep when presented with the little progress we have made on all this fronts...

But seeing how Rwanda is progressing on the tourism, health and ICT fronts, I sometimes wonder whether they are not using that same presentation for their own purposes.

The way they have focused on tourism is probably their highest visibility effort. They have zeroed in on making Rwanda not only a leisure tour destination but are also focussed on MICE (Meetings, Incentives, Conferences and Exhibitions).

In recent months with the completion of the Kigali Convention Center in 2016 – a five star hotel, conference hall and information technology park, they have hosted several high profile conferences. The Gorilla Naming ceremony, an annual event gaining in popularity also keeps the visitors coming as do their hiking trails.

And they have developed this systematically, over the last two decades to the point that the small east African country has seen their visitor numbers almost reach two million from zero.

Which brings us nicely around to their national airline. In order to boost their tourism they needed a regular transport in and out of the country, seeing as for a long time the only airline servicing them was Sabena Airlines, which became SN Brussels.

So in 2002 – coincidentally barely five years since the UNDP consultant was in Kampala, they launched Rwanda Express, which became RwandAir in 2009.

According to recent reports the airline is yet to make a profit and were it not for government support would have gone bankrupt by now. One may argue about how long the government can continue to support the airline, which has swallowed more than $150m in government handouts in the three years to 2016 and whose losses have eaten into the airlines capital to the point that its technically insolvent.

"But I think it stands to reason that without RwandAir their MICE strategy would have no legs.
Clearly they have a long term strategy. And for them clearly, a long term strategy is longer than the near 20 years of the airlines existence...

But they also recognise that people do not come to your country just because you have an airline. Think about it, you haven’t been to Moroto or Arua or even Garuga, just outside Kampala, because there is a road that leads to it.

You travel for a reason, because there is something to do or see where you are going. Hence their deliberate effort to package their natural endowments and create new reasons to fly to Rwanda.

The business plan for the revival of Uganda Airlines is being held close to the works’ ministry’s chest. For good reason. They don’t want people poking holes through their plan before government has released a cent.

But the outer outlines of the plan are in the public domain. The justification for the airline can be distilled down to these three points that, visitors by air to Uganda have increased fivefold since the collapse of the old airline – 1.5 million from about 300,000 in 2000, so a national airline is now viable; more visitors will come to Uganda once you have an airline and the clincher, that it need not be profitable because it is like a road, whose benefits are the spinoffs in increased tourism and exports, I saw a figure like an economic return of  30 percent being hazarded by the promoters...

With that last one, they hope with one stroke, to silence all the naysayers and remove the necessity of a business case for the airline.

What that means is that the managers will be under no pressure to make the airline self-sustaining, like Ethiopian Airlines for example. In fact Ethiopian Airlines is the spoiler, as all other airlines on the continent are loss makers our national carrier promoters can point to in justifying the revival of our own.

The promoters are putting out some low ball figures -- $400m (sh1.5trillion) to get it up and running, and once government commits the first few millions of dollars, they will have to continue to shell out the hundreds of millions of dollars more over the next few decades to keep it afloat.

It reminds me of the builder many years ago who gave us a low quote for building the foundation of our home. The figure grew day by day, by the time I worked out what was happening it was too late and we just had to bite the bullet and go all the way.

It’s doubtful if we knew the full extent of the financial commitment we would have started building then.

So while we look to RwandAir’s “success” at driving numbers to its shores, we need to deconstruct the underlying strategy.

Years ago we reportedly paid a million dollars to get some mentions on CNN, whose impact on the news network’s viewers was questionable, Rwanda is reported to have shelled out about $40m on the Arsenal sponsorship over three years.

It may not see tourists bashing down the door to enter Rwanda but you can bet the awareness of a country called Rwanda will rise significantly in the next three years.

UGANDA’S PROBLEM: WE PAY THE WRONG GUYS

The sugar industry in Uganda is under siege. Not only has cane production plummeted as a result of some dubious decisions by the trade ministry to license an unsustainable number of sugar factories in the Busoga region. But also because officials are looking the other way as sugar is smuggled over our eastern border and sold in our shops at knock down prices.

As a result our own producers cannot sell their stock, which has now grown into mountainous piles in their warehouses.

Thousands of jobs stand to be lost, billions of dollars in revenue have gone unpaid and as our politicians and technocrats drag their feet on the subject, the sugar industry is in the intensive care unit. And recovery is not guaranteed.

This is sad because the sugar industry is the best example in the last 30 years, of what success can come from Public, Private Partnership and provides a useful model of what our industrialisation path can look like.

The sugar industry while leveraging our natural endowments of land, human resource and weather has not only created sugar but also spinoffs like industrial alcohol and electricity.

Contrast this with the speed with which the parliament have proposed to double their basic pay in the new budget. One has to commend them for their uncharacteristic stealth in presenting a fait accompli, with not a whisper getting out as they put the scheme together.

According to the proposal an MP’s basic pay is set to more than double to sh24m from the current sh11m. This will amount to a threefold increase in the house’s total wage bill in the coming year.

The audacity of the proposal even as a negotiating position takes ones breath away.

As my friend likes to say, “The lightening that is going to strike these people is still doing press ups!”

As with an individual, it is easy to tell by a country’s expenditure patterns whether future prosperity is a mathematical certainty or a distant pipe dream.

There are only two ways to spend money either you consume it or you invest it.

In the former case there is no real return except for a full stomach or the passing pleasure of a new toy. In the latter case there is the possibility of a return on the investment, which can be reinvested and if repeated with even passable results will lead to wealth.

In the case of nations consumption often takes the form of shelling out money on recurrent expenditure – salaries, official travel and incidentals. While the investment is seen in the development budget, in the building of infrastructure both hard and soft.

Using the above example and applying it to the near death experience of the sugar industry versus the “eat, drink and dance, for tomorrow you die” mentality of the MPs, is it a surprise that we are writhing in the throes of an economic downturn?

Of course the role of parliament is crucial in any functioning democracy. It makes laws to ensure safety of person and property and holds the executive wing of government to account, restrains them from running rough shod over the population. They are supposed to serve with an eye on the greater good of society.

Clearly

our MPs cannot be mistaken for the paragons of selflessness and public service....

History is littered with the economic carcasses of societies that diverted resources away from the productive sectors to the non-productive sectors of society. It never ends well.

 It’s not economics, it’s just plain common sense.

GLOBALISATION IS HERE, FASTER THAN WATCHING PAINT DRY

In recent weeks we have been entertained as the rivalry between the distributors of Plascon and Sadolin has played out on our radios.

The clever ads are only the surface of a competition for a share of the multibillion shilling Uganda paint market.

Last year AkzoNobel South Africa Ltd went into an agreement with Regal Paints Ltd to distribute its Sadolin brand of paints.

But even before the paint had dried on the agreement The Common Market for East & Southern Africa (COMESA) Competition Commission (CCC) announced it was investigating the partnership to determine whether it , “is likely to affect trade between member states and has as its object or effect the prevention, restriction or distortion of competition within the common market.”

Previous distributor Sadolin Paints East Africa was acquired by Japanese firm Kansai Plascon and gave up its right to distribute Sadolin. They now distribute the Plascon brand of paints.

"The CCC notice, which was issued earlier this year, with a 23^rd February 2018 deadline for interested parties to submit their views on the subject, came five months after AkzoNobel announced its new partnership in Kampala...

And now towards the end of May no decision has been made on the partnership, eight months later.

While AkzoNobel officials previously dismissed the CCC’s interest as a formality it can have very serious repercussions for the partnership.

According to the CCC, breech of their anti-competition rules can lead to the agreement being cancelled, a fine to up to a tenth of turnover and liability for claims by customers or competitors who claim they have been harmed by the uncompetitive behaviour.

This is just one example and maybe one of the few that affect us in Uganda.

Another one is the takeover of the company that owns Java House by middle eastern private equity firm,  Abraaj Group. But that is unlikely to raise as much attention as fate of the Sadolin paint brand in Uganda.

This is something that our businessmen may not have factored in their operations, that trying to expand into the region or go into partnership with other players, can come up for scrutiny from regulators far from home.

The idea of regulating competition has gained in importance since the rise of the super companies in the US at the beginning of the last century and the growth of the multinational corporation after the Second World War.

It is a recognition that big companies can take unfair advantage of their size and reach to squelch smaller competitors and perpetuate monopolistic tendencies. This denies the consumers choice, discourages innovation and frustrates the market vibrancy. All of which have adverse effects on the customers and revenue collections.

It is also recognises that companies can grow their dominance in one market unfairly, eventually spreading this dominance to the other markets. In signing up to these protocols we need to not only understand what they entail but also appreciate what they mean in practical terms. Often times we will sign anyway as we have little choice if we are to belong.

The idea that the market through its own mechanism can regulate against competition and in fact become more and more efficient is fallacy that has long been disproved. The truth is that market leaders, like any other wielders of power, tend to concentrate power to themselves. Hence the need for an “independent” adjudicator to step in and ensure an even playing field is maintained.

The need for a regulator is also a recognition that while the market has been shown to be the best mechanism for wealth creation, it is the worst distributor of these gains. Hence the role of government in the collection of and distribution of taxes to help the trickle-down effect along.

"Unfortunately you can have a booming private sector and impoverished population because either government is not collecting taxes and therefore has nothing to distribute or it is collecting the taxes or its agents are pilfering them...

So these are the kind of rules we would have to succumb to as we open our markets to the region and the world.

The argument against regulating markets is that the regulators, often bureaucrats, are not in touch with the market and therefore slow to respond or risk going overboard when they try to pre-empt market imbalances.

There is also a mutual distrust of each other. With market participants seeing regulators as shakedown agents, levying fees that makes it increasingly difficult to show a return. The regulators of their part are always suspicious of market players’ demands for concessions as attempts to cheat governments of revenues.

The tension will always exist. None of the parties either the market players or the regulators are going away.

The case of AkzoNobel will be one to watch in coming months, as it can very well determine the long term shape of our paint market and also make us seat up and take notice of the COMESA Competition Commission headquarted hundreds of miles south in Lilongwe, Malawi.

NEWS -- UBA UGANDA SETS SIGHTS ON DOMINATION

KAMPALA – The United Bank for Africa (UBA) is targeting Uganda’s youth population and closing large ticket transactions as part of plans to dominate the Uganda banking industry, officials have said.

“We plan to introduce new products and services that will transform the industry and UBA. We are confident that these developments and the customer at the center of it all. We shall achieve our goal of market dominance,” the Uganda unit’s managing director Johnson Agoreyo said during a recent press engagement in Kampala.

The Nigerian based bank across its offering will focus on delivering excellent customer performance and its retail segments will be targeting its youthful customers with its mobile and agency banking, as well the UBA Facebook assistant, Leo, a first for Uganda.

In the whole sale space the pan African bank will be leveraging its $12b asset base to finance projects in infrastructure, agriculture, oil and gas. To that end it will be looking to strike strategic partnerships with key ministries and departments.

UBA opened shop in Uganda in 2008 and since then has opened 11 branches and offers a wide range of projects in the wholesale, retail and digital space.

ENDS

SAFARICOM AND PEEK INTO THE FUTURE

Last week Kenyan telecom company Safaricom, released its results for 2017. The results were met with glee by the shareholders, head shaking by competitors and head scratching by regulators and officialdom in Kenya and much further afield.

For the shareholders the company reported revenues of Kshs212b (about sh6.5trillion) up a respectable nine percent from last year’s Kshs195b. As a result they will paying out a shilling a share in dividends. More impressive than it looks especially for people who bought the share at its initial public offer price of Kshs5 or even better when the share hit rock bottom at Kshs3.

For the competitors they may have to be content battling for second.

"Safaricom controls about 72 percent of the market with 28 million customers, a figure that grew by 11 percent from last year. Voice while still bringing in the bread and butter, is no longer driving the business with their mobile money solution, M-Pesa and data services doing the heavy lifting...

Revenues from voice have been growing four percent on average over the last five years, which pale in comparison to revenues from data service and M-Pesa, which have been galloping at an average 34 and 20 percent respectively.

Regulators will be looking at Safaricom’s meteoric rise and licking their chops at how they can initiate tax initiatives now so they can harvest mightily well into the future.

Safaricom paid the taxman KShs22b (sh728b) last year, a figure that has grow by an annual average of 22 percent since 2013.

It is a moot point now, but Safaricom is a major driver of the Kenyan economy.

This it does by lowering the cost of doing business, by easing connectivity, as well as an efficient money transfer service, through M-Pesa which also doubles as a savings account, offers a credit facility and is fast replacing cash in the retail industry.

Government’s need to be asking themselves how they can enable the telecom industry’s in their selective country be more and more of an enabler in their respective countries.

This would involve not shackling them with too much tax, incentivising investment in low economic potential areas and seeking to actively partner with them in research & development to create greater efficiencies not only in telecoms and their services but also in the general economy.

The World Economic Forum recently reported the curious fact that a disproportionate number of mobile apps were being developed in Sweden. In looking back they discovered that it dates back to the 1980s when the Swedish government made a commitment to have every household own a computer.

The children who grew up with those computers are today’s innovators and developers 30 years later.

"Beyond the easy pickings now government needs to come up with a plan of how it can harness the energy of these fast growing sector to lay a foundation for future innovation. In 1980s Sweden it was the desktop in 21^st century Uganda the pervasive spread of the smartphone is as good a place to start....

Thankfully Safaricom is operating in a market that is culturally closer to us than Sweden. Kenya is being touted as an East African ICT hub thanks in no small measure to Safaricom, which through its dominance has brought the phone, a powerful computer, within arm’s length of anyone with an aptitude for computing.

My first desk top computer was 250MB IBM, a reconditioned machine from Sweden (surprise!) that set me back a million shillings. It is now dwarfed by my little phone, which has eight GB of memory and one GB of processing power.

And this is much more processing power than put the first man on the moon in 1969.

The point is this that in dealing with the telecom sector or any sector of the economy for that matter, we should resist the temptation to tax it to death or throw impediments in the way of its development.

Allowed to grow with minimum impediment the small pickings we are hankering for now will be much greater in future.

WE ARE NOW IN THE ATTENTION ECONOMY

Imagine a world where all your entertainment needs are at the tips of your fingers and can be accessed from wherever you are. Not only in real time or live, but recorded and retrievable at a moment’s notice. But also off the same facility you can be listening to music in the background as you watch TV and keep updated on the latest news as headlines scroll at the bottom of your screen.

That is not hard to imagine because it is happening now.

What would be more difficult to wrap our minds around, is a world where to get entertainment you had to be seating in front of a TV. If you were lucky you had a video deck and would watch films off video cassettes. And your radio was limited to short wave frequencies which crackled or were inaccessible if you moved your radio from one room to another.

The latter is long gone reality that the majority of us can not relate to.

At the most basic level media organisations are battling for your attention. Will you buy my paper? Will you listen to my radio? Will you watch my TV channel?

In a previous time when in Uganda for instance there was one TV channel, one radio station and one English daily, media houses did not have to think every hard about capturing and retaining attention.

But today a plethora of media, not only traditional but also off the internet, means our attention has been dispersed making it even more difficult to commend anyone person or group’s attention for an extended time.

Last week at the 2018 Digital Dialogue Conference media leaders from around the continent grappled with this growing challenge.

But beyond the specific concerns of the media the conference, convened by South African based video entertainment company, Multichoice, explored how this new reality is changing the people’s behaviour around entertainment and news, but how the trend is accelerating living little room for one to catch their breath.

So what is the value of your attention?

Studies conducted in more advanced western markets show that people’s attention patterns are shifting. Affected by what we consume from, and the possibilities that are presented by, the media we have settled into a pattern where we are in constant interaction with our gadgets.

Our relationships are now more managed by our phones or other handheld devices than through face to face interaction. On one level what this means that our peer pressure no longer comes only from the people around us but from people across the world from us.

Which can be a force for good, because we can widen our horizons and expand our ambitions beyond what we see in our immediate environment. On the other hand the negative effects of may include adopting behaviour which is considered normal elsewhere but may cause tension in your own context.

The world even beyond the real world, has shrunk to fit in our pockets. And this trend is projected to continue.

Futurist Paul Papadimitrou says the drivers of this development are the ever lowering cost of technology, the networks we are now tapping into and the numerous platforms we can now access.

To illustrate he pointed out that in less than a decade voice over internet service Skype accounts for half the international calls and social media platform WhatsApp has overtaken SMS as a way to communicate via mobile phones.

The net effect of this is that as consumers we have become nomadic, tribal but also singular; we have also moved from being passive admirers to being active doers and with the accelerating technological trends these distinctions can only sharpen.

Which brings us back to the value of your attention. By the simple laws of supply and demand, your attention is becoming increasingly valuable as more and more media platforms and networks take up your attention.

As a result, “The people who can capture our attention can sell it,” Anthony Lilley, professor of creative industries at Ulster University told the conference.

Which explains why in the last decade or so technology companies Apple, Google, Facebook, Netflix have overtaken traditional companies like Exxon Mobil, BP and GE as the most valuable companies in the world.

"We have gone from manufacturers to services to now attention brokers as the main drivers of the  economy

a trend that is already upon us.

The business community through its use of big data is becoming adept at ferreting you out, cataloguing you and inundating your with messages you are very likely to respond to.

Search engine Google is the poster child of this trend but so are social app Facebook and online retailer Amazon.

Increased interaction with this media reveals your affinity for one brand or another and therefore peg you as a source of revenue.

This interaction with the media is changing us surreptitiously, suddenly and irreversibly.

So what are we becoming? “Eighty percent of people in western economies are fans … a person who has a connection, through his identity or a social connection … what do you get out of being a fan? Comfort,” Professor Lilley explained.

Fans have affinities and sustain attention on the people, events or things that they are interested in.

It is human nature to want to belong but now with the variety and availability of people to notice, events to follow or things to like, we are becoming more tribal,  more singular.

Interestingly this realisation is probably a snapshot in time, with the speed of change and disruption, don’t be surprised if the changes to ourselves or the categorisations businesses choose to give us, change.

LANDLORDS SHOULD STOP WHINING AND JUST PAY THE TAX

This week Uganda Revenue Authority (URA) once again declared their intention to tax rental income.

Once again, because they do it every so often when they are under pressure to meet even higher revenue taxes or they are in danger of posting a deficit.

The landlords of course are jumping up and down, protesting the “out of the blue” move and threatening to pass on the tax to their tenants.

Good luck to them.

"First of all the tax on rental income has been a fixture in our books since at least the Income Tax Act of 1997. For 20 years! But it goes back even further because I remember landlords not amused at being assessed tax as far back as 1995, when I rented my first house. So the claim URA is springing this out of the blue is the landlords admitting ignorance at best and being disingenuous at worst. 

If it is ignorance, it is criminal because how can one invest hundreds of millions, even billions, of shillings without understanding the tax code. It brings to questions the source of ones funds, if you can put such huge sums on the line without appraising oneself of the obligations and risk involved in the investment.

It is being disingenuous for the same reason.

In fact these landlords have been evading taxes. They would rather comply quietly than make noise and URA throws the book at them.

There is a deficit of good housing in Uganda. The national housing policy puts this shortage at 710,000 units, adding that the annual need for new housing is 200,000.

The argument could be made that the industry needs some relief to quickly bridge the gap. In fact by enforcing the tax on rental income URA is laying the ground for our housing shortage to be addressed in a more systematic manner.

As it is now depending on, who you are, who you know or whose palms you can grease, you have not been paying taxes on your rental properties. Unfortunately this relief was not applied uniformly. This caused uncertainty for serious investors.

To bridge our housing deficit we require investors who can lay down at least scores of units at a time or even better hundreds of units. However an investor of that sort looking in would be hard pressed to commit funds when his competitors are financing their real estate enterprises with stolen money, held afloat by evading tax while not adhering to basic building standards.

Last year an official of US Overseas Private Investment Company (OPIC) said they would not be interested in anything of less than a billion dollars and a few hundred units. For that kind of investor they need more certainty than we can currently offer.

"That being said at a fundamental level all economic activity should be taxed. Taxes are the price we pay for civilisation...

Landlords cannot on one hand complain of poor infrastructure, inadequate security and below par uitilities and with the other evade taxes. If anything this is to perpetuate the very ills you are protesting.

Let’s be honest we don’t pay taxes because we want to keep more of the income for ourselves. If it was for the benefit of our tenants we would improve the standard of the housing to compensate for the bad roads and inadequate public services that is not what is happening.

Many of our houses if assessed according to the existing building code would not even pass the most basic of tests.

As for the threat to raise rents. There is only so much tenants can pay in rent beyond which they will leave your house. Thanks to the 20 year tax “break” the stock of housing units is much more than it was in the 1990s.

That being said government needs to get serious with the housing issue. One way is to finance the laying of infrastructure in residential areas, a major cost in any development project. On another level it should look to craft industry incentives that are objective and offered without bias to potential developers.