WE HAVE COME A LONG WAY

On March 19^th the New Vision in commemoration of its 33^rd birthday reproduced the inaugural edition.

The grainy, black and white production launched a multimedia empire that now straddles the industry like a colossus.

In its first year the it had revenues of sh9.13m and made a loss of sh9m. The company has seen better years but last year it registered revenues of sh90.6b and a profit of sh2.3b.

The anecdotes of the companies’ first days would leave jaws on the floor with amazement at how difficult it was to put out the eight-page first edition.

These days the presses not only turn out the 40-plus page New Vision but also the Luganda daily Luganda daily. On three other days Orumuri, Etop and Rupiny are published alongside the two dailies.

It would be interesting to go back in time to put the media house’s humble beginnings in context.

It was just under three months after the NRM had taken over power in January. Some people didn’t give the new government until the end of the year before it in turn would be turned out. There was still a sense of insecurity in the air. Days were kept short and the night life – clear, bitter and served out of a small glass, served as you sat on a rickety bench, was concentrated around people’s homes.

The New Vision’s whole print run was carried to town on the head of a single porter. The Taxis on Jinja road were an infrequent occurrence and the company did not have a vehicle to its name. And maybe couldn’t afford the fair for the porter?

The newspaper’s sh300 cover price could not have stayed that way for long with inflation raging at 240 percent, meaning prices were doubling every three months.

The paper sold a paltry 17,000 copies all year, that is less than the daily sales of the New Vision or Bukedde today.

But then again who was buying?

The population was a third of its current size. GDP was a paltry $3.9b. Today GDP stands at about $25b.

Not unlike today the buying public was concentrated around Kampala. The difference is that then there were no readers outside Kampala. Copies of the newspaper that would one day boast was the leading daily trickled up country along the bus and taxi routes, not always whole, often as wrapping for everything from meat to underclothing...

Besides it was near impossible to have national coverage of the newspaper as it was a nightmare getting around on the 1,500km of roads, a number that was unchanged since 1971. They were so badly riddled with the portholes that normal traffic rules did not apply as drivers weaved left and right to choose the more benign porthole that their car could tolerate.

As if the distribution issues weren’t a challenge almost half the economy was operating in the non-monetary economy, basically that people were battering goods and services rather than using cash for payment. It is unlikely though that the New Vision would accept eggs in exchange for a copy – eggs don’t lend themselves to the rules of double entry.  I wonder how much an egg cost?

It was nice to see the commissioning of the 183 MW Isimba dam last week. With one stroke we turned on three times the amount of power that we were capable of generating in 1986. No surprise then that apart from the printers unable to read the Russian manuals for the presses, the frequent power outages were such that it took more than a week to produce the two sheet paper.

But then again electricity demands were not that high. The only need for power in the newsroom then was for the bulbs. The typewriters were all manual and even the tea was brewed in a tin kettle on a sigiri behind the printer. Oh yes. The presses run on power.

You know what they say about work expanding to fill the hours, the same can be said for appliances multiplying to take advantage of the new power generated. So now we have PCs, TVs, mobile phones, electric kettles, fridges and even the lighting – fluorescent tubes, are many multiples of the handful of dim bulbs that attempted to light the newsroom.

Of course their downsides to this growth of the New Vision in tandem with the economy. In 1986 the workers of the new vision lived in places like Mbuya, Kololo, Naguru and Ntinda. They needed to because they either walked or rode bicycles to worker.

There were no cars in the car park and the surrounding streets were so empty, it is not hard to imagine tumbleweed rolled down the street, helped along by the wind, unhindered by cars to break its progress. Now the company’s pool cars and staff have filled the car park and flowed out into the street, dominating Industrial Area’s first and third streets. Mostly second hand Japanese types. Maybe in another 30 years we will have brand new European sedans in their place.

As a result, the New Vision worker is no longer lean and dark from continuous exposure to the elements but soft and light from travelling while seated in their cars or from riding in the taxis or bodas to and from work.

We have come a long way at the New Vision and as a country and the good old days weren’t all that.

HOW WILL WE FINANCE OUR DEVELOPMENTAL AMBITIONS?

Away from the news about the Uganda-Rwanda border and suspicious bullion van robberies, the issue of government’s plan to build a multi-billion-shilling specialized hospital has caused heat under some collars.

Government has contracted a consortium Finasi/Roko Construction to build the $380m(sh1.4trillion) International Specialised Hospital of Uganda. Under the deal the government will pay for the hospital over six years starting from when it is commissioned and will issue promissory notes to the contractors – as the name suggests, promising to pay them in the future.

Sections of the media reported this news as if government was borrowing money to give the contractors to build the hospital. Also lost in translation was the fact that the land on which the hospital stands belongs to the government.

"What is true is that the government is building the hospital on credit. The hospital belongs to government. As does the land....

However, this project signals the alternative financing government is going to have to rely on in coming years to bridge the country’s huge deficits in infrastructure and even human resource.

We shall require 17,000 Mw of new power generation capacity in the next ten years. At the current rate of this would cost us $51b, or twice the size of the economy to finance.

Uganda National Road Authority (UNRA) has set itself the target of paving 1,000 km of road a year, which would cost at least a billion dollars annually. And even then they will be making little inroads into our road infrastructure deficit. The average middle income country has at least 88 km of paved road per 1000 square kilometers of surface area; Uganda with its 5000 km of paved road has about 20 km of paved road per 1000 square kilometers of surface area. Simple arithmetic would suggest we would need at least 21,000 km of paved road at a cost of at least $21b.

And these numbers are reflected in everything from railway lines to housing and everything in between.

Even in our human resource capacity there is a lot of work to be done. Currently we have about seven doctors per 100,000 Ugandans, far below the World Health Organisation (WHO) recommended 17. 

It takes about sh70m to train a doctor, to bridge the gap Uganda would have to more than double its 4,000 doctors, which would not only be about training but also build facilities to exponentially increase medical training.

"Unfortunately for us, not only are we behind the curve but also the demands for infrastructure --- both physical and soft, are rising every day and becoming ever more urgent....

However, our own internally generated resources are not keeping up and will not for a long time.

Folding our hands and waiting for the heavens to fall on our heads is not an option and hence the need for alternative funding mechanisms as has been demonstrated with specialized hospital at Lubowa.

A similar model has been employed for the Jinja Express Highway for which the government is now procuring contractors. The winning bidder will be expected to source their own financing for the construction and government will top up resources from the planned toll gates to pay for the construction.

The thermal power plants in Namanve and eastern Uganda were built with a variation of the same financing model, where the owners built them and government pays for them for the budget over the duration of the concessions.

In Kalangala government is paying for a road built by a private contractor and the services of the ferry from Bukakata to Kalangala.

In the case of the Bujagali power dam the construction is being paid from the power tariff, which is spread over the 30-year life span of the concession.

It has been mooted but being fought viciously, that government should contract a company to manage its huge fleet of cars. As it is now government buys brand new vehicles and writes them off after five years.  The inefficiency of this is seen when you consider that private citizens and companies buy ten-year-old cars and drive them for another ten years.

A rationalization of the government fleet and its management some have suggested, would save the country millions of dollars a year, which savings can be directed to more effective uses than wheezing fat cats around the country.

As has been mentioned earlier thanks to the lost 1970s and 1980s our infrastructure has not kept pace with the population growth. While population doubled between independence and 1986, the economy had contracted by almost half during the same period. It’s clear we are playing catch and not doing it very well...

Since we cannot pay our way out of our pocket and our borrowing options are narrowing – our debt stock currently stands at just under the 50 percent recommended for developing nations, the use of more esoteric financial models will become the norm going into the future.

Invariably a lot of this financing will come from abroad, as we have done a less than stellar job mobilizing our own resources. It is therefore imperative that we continue to strive towards improving the environment for business to thrive in our country.

Foreign investment and financing is being courted by everyone and they are willing to settle for a lesser return on investment which is certain, than high return in a risky environment, which explains why South Africa with all its challenges is still the top destination for foreign direct investment on the continent, despite its relatively lower return on investment.

It’s not very long ago – almost 30 years ago, that some of us were ready to go to war because government was privatising the shells of once profitable companies. A few years down the road that single policy initiative has boosted production, created jobs and jump started tax collections to the point that now we want to go back to the state enterprises.

C’est la vie!

DO NOT UNDERESTIMATE THE POWER OF SMALL BEGINNINGS

The New Vision Staff Savings & Credit Coop – an organization I am intimately familiar with, last week released its financial results for 2018.

The organization which turned 13 last month has seen the savings of its members grow to sh4.6b from sh62.4m at the end of the last year; its top line has exploded to sh1.3b from sh2.4m and its profitability following suit to end last year at sh701m from sh2.3m in 2005. Its asset base now stands at sh7.8b from sh66.1m in its inaugural year.

These results which represent double digit compounded annual growth over the last 13 years, have come from collecting member savings – now about 1,500 strong, lending the same monies back to them and any surpluses are invested in government paper – The coop’s account with the central bank stood at sh2.3b at the end of last year.

Growth has slowed in recent years, a natural progression as any organization grows bigger, but even using conservative estimates, continued growth would see it double its asset base over the next ten years.

If you had told the founders of the SACCOS those many years ago that the enterprise would be a 100 times bigger by assets today, they would have laughed you out of town.

There several pointers I take away from this SACCOS’ “success”.

1.       1 + 1 =11

The minimum savings per member per month is sh60,000, some savings multiples of this figure and most save more than that. It is just enough to ensure members save regularly but not enough to expect a huge pot at the end of the year. But spread across 1,500 members this comes to a minimum of sh90m per month, what is actually received maybe double that amount in savings alone.

The incentive to save is real as members can only borrow up to three times their savings. Which means the more you save the more you can borrow.

Most members have benefitted from this lending to further their academics, buy land, build homes and help with their household necessities. While they would have eventually come around to achieving all these, I believe, it would have taken a lot longer. By getting some of their base needs out of the way they can now move to planning for more serious investments, which as the coop grows will be able to help them finance.

The larger point is that the whole is larger than the sum of the individual parts. That synergy works and when it does one plus one is not two, but 11...

2.       Keep It simple, stupid!

Everything that the SACCOS does is dictated by three objectives – to provide a safe savings space for its members, to avail credit at affordable rates and finally to serve as an investment vehicle for them.

As the  SACCOS has grown in its capacity to help its members save and borrow, it has also grown as a viable investment for its members – probably the best they have ever had.

A recent revaluation of the shares showed that the members who had bought their shares by 2008 had seen the value of their sh10,000 investment grow to sh1.59m by the end of 2016 or a 88 percent compounded annual growth rate during the period.

But there is no rocket science in achieving these results. As stated above members saved, they borrowed money from the same pool and any surpluses were invested in government paper, which has been offering double digit returns throughout most of the life of the Coop.

Could they have seen higher returns if they had dabbled in more esoteric investments? Maybe. But the risk would have been higher, losses more frequent and performance more volatile.

 But who is going to lose his job for consistent double digit returns in a depressed economy?

3.       Service first, profits later

Profit is good, but it is only an opinion and only comes after the delivery of a service. While we all budget for profit the best way to get it is indirectly, by focusing on service.

Members can withdraw or borrow any working day of the week. Going forward with the technologies available there is no reason by this time next year it’s not a 24-hour, seven day a week service. Interestingly the more available their money is available to them members will save more, lending will go up and as long as costs are managed and our asset allocation doesn’t go haywire, profits should continue to roll in.

4.       It’s the vision thing

The vision of the New Vision SACCOS is “To be a vehicle for financial freedom for our members”.

The simplicity of it belies the enormity of the task. Financial freedom for the members means that the income they would get from the SACCOS – interest on their savings, dividend payouts and the appreciation in the value of their shares, sometime in the future would be enough that they would not need a salary from anybody else.

This year the coop will pay out sh380m in interest and dividends, which if split evenly among the 1500 members should come up to just under sh255,000. But the lowest paid staffer at the New Vision grosses about sh10m annually. There is still a long, long way to go.

Thirteen years is but a blip in the greater scheme of things. Given the enormity of the task, this is not the time for the SACCOS to rest on its laurels. In the pursuit of our elephant we cannot be distracted by the smaller game meat that crosses our path.

THE BUFFETT LETTER AND DANGOTE

Last week US billionaire investor Warren Buffett released his annual letter to the shareholders. A much awaited document that he has penned for almost half a century as the head of Berkshire Hathaway, it spells out in detail his philosophy on business and life.

As he has done over the last several years in his annual letter, he laments that there re no big companies, selling at price that would meet his criteria and tempt him to commit some of the $112b held in cash by the company.

At 88 he has learnt over a long investing career, that started when he was 11, that waiting for the good deal may very well be the best use of his time and his investable capital...

Buffett is a billion air many times over and this is thanks to his investing process, which entails looking for good companies selling at discounted prices to their intrinsic value and holding forever. 

His search from value has been fine-tuned over the years to the point that is company is valued at just over $500b today or 20 times the size of the Uganda economy or thrice the size of the East African Community.

Which brings me around to our African billionaire Aliko Dangote. The Nigerian’s wealth has evolved from a commodities trader to a huge industrialist. The cornerstone of his empire has been his cement manufacturing operations strewn across the continent – his Obajana operation alone churns out 1000 trucks of cement daily.

The jewel in the crown will soon be the 650,000 barrels a day refinery that is under construction outside Lagos that will cost $12b. Uganda, using current estimated reserves, will be pumping out 200,000 barrels per day.

While not an exact fit Dangote may be the continent’s Buffett in the way he seeks out assets, in our case natural resources, and invests to extract their full value.

Anybody who knows anything knows that Africa is not poor, the challenge is that unlocking the value of its people and natural resources has been subverted by bad politics, foreign interference and poor business skills...

Africa as Dangote is showing, so dramatically, is a deep value play and the best people to fully unlock that value have to be us. Africa does not conform to the modern investment critea that are employed in western boardrooms. Investing in Africa takes a faith that the atheist west has long lost. Investing in Africa requires that’s its people are seen as useful partners and not statistics in market research report.

So why don’t we have more Dangotes around Africa.

It helps that Dangote came from a longline of businesses. One can only guess that every generation has improved on the business quality. So if Dangote’s forefathers started with trading cowrie shells in the Trans Saharan trade their descendant has overlaid industry on that foundation of business practice.

It helps too that he is Nigerian. In the most populous nation on the continent you either do big or go home. With this outlook ingrained in his DNA it should come as no surprise he has no qualms jumping onto his private jet to explore opportunities not only in West Africa where he has presence in Nigeria, Ghana, Cameroon and Benin but further afield in South Africa, Zambia and Tanzania.

He is more of a hands-on manager compared to Buffett, who rarely leaves is Omaha, Nebraska base to visit the constituent companies of his conglomerate. But maybe that is what is needed, face to face meetings with his mangers on site, if only to drum in his vision and their part in fulfilling it.

Apart from the aforementioned retained earnings in his company, a lot of the financing for Buffett's ventures is got from his insurance companies, whose “float” – the premiums policy holders pay out net of claims, is the gun powder he uses for his acquisitions.

The way the story is told Dangote borrowed $3000 from an uncle to start his first business. Four of his companies are listed on The Nigeria Stock Exchange (NSE) and given the scope of his holding one can expect that he is not averse to mining the money markets of Europe to finance his ambitious expansion plans.

He has on several occasion dismissed suggestions that his success has been driven in no small part by his closeness to the Nigerian establishment, but even if that was so we know dozens of people close to the establishment who have had and still have access to hundreds of millions and have squandered the opportunity. That Dangote can parlay this alleged advantage into huge economic success – he is the largest private sector employer in Nigeria, tells you a lot about the man.

"Value investors like Buffett and Dangote are happy to invest when there is blood running in the streets, they are greedy when others are scared. It takes a lot – risk, pain and sweat to develop such a mentality and maybe that is why there is only one Dangote in Africa.

THE PEOPLE ARE CALLING YOUR BLUFF

Last week Major General Matia Kyaligonza and his body guards got into an altercation with a traffic police woman on the Kampala-Jinja road – to put it mildly.

The hapless police woman whose “crime” was to call them to order for breaking the traffic laws – making U-Turn where they were not supposed to, was roughed up for her trouble.

This would have been filed away as another urban legend surrounding the General were it not that it was caught on camera, with the general’s identity hard to deny.

"This country has a torrid history of military abuse. The worst excesses counted back four decades ago, when soldiers had no qualms disposing of people permanently or bundling them into the boots of their cars and driving them off to unknown destinations but certain ends.

The fact that the manhandling of Sergeant Esther Namaganda almost broke the internet on Sunday; the fact that she even could go and report the senior officer to the nearest police station; the fact that the general’s actions have been called in question loudly and publicly is a sign some would say, of how far we have come as a country.

Even more important for me is that the people are calling the bluff of the bush war veterans, “You said you went to fight for a restoration of democracy, so that is the standard we will hold you to”. Which is as it should be.

Holding those in power accountable has also been aided immeasurably by social media, where now everyone is a media house to record and transmit the happenings around them at will.

"Democracy is not an event but a process, which involves among other things, compelling the powerful to conform to the rules. Progress is never achieved in a straight line and progress often doesn’t look like it, often a case of two steps forward and four steps back...

Of course some people will argue that the only crime the general committed was getting caught, that these violations are happening every day. While very much in the public eye but far from the cameras which would alert the chattering masses to the transgressions.

Well even that is progress, that the perpetrators of the violations chose to do them under the cover of dark or away from prying eyes.

There was a time centuries ago that the kings of Europe used to have the power of life and death over their subjects, when France’s Louis XIV could declare L’etat c’est moi (I am the state) and King Leopold could use the state machinery to subjugate the people of his private possession Zaire, now the Democratic Republic of Congo and still sell it back to Belgium for a tidy profit.

These despots did not relinquish their hold on power out of the goodness of their hearts. They were compelled to do so first by the parliaments they set up, which in themselves were concessions to mounting pressure for a say in the governance of their countries, and then by the people as communication improved, word could get around faster and people could be mobilized easier.

"One thing that can be said for the NRM though is that while they were the initiators of opening the political space by, their experiment with direct democracy, sticking to electoral cycles, maintaining a vocal if not rowdy parliament and eventually lifting the ban on political parties, they have often enough shown themselves willing to go where the wind blows – not always in directions they would have liked or preferred...

Every so often there is push back, but they have their have often shown presence of mind, even sense of occasion, to sheath their claws before things got too far out of hand. Not always, but enough times to allow progress to continue.

But it is like they say, when you give a man an inch he will take a mile or that after you have given the people some they, like Oliver Twist, will beg, even demand for more. That is the natural order of things.

It is the sign of the times. Everywhere not only in politics, but also in the economy, in society generally the old command and control structures are coming under scrutiny, under threat even, and it will take a different mindset to not only appreciate these changes, but leverage them or step out of their way all together.