THERE IS NO MONEY TOO MUCH TO FINISH

From Zimbabwe last week, came the news that former President Robert Mugabe’s vast wealth, accumulated over 37 years of rule, was dwindling and dwindling fast.

Choice assets – dairy farms, mines and real estate, are falling into disrepair, their assets auctioned off to pay debts or been encroached on by squatters.

The story in the African Report entitled "Mugabe’s business empire, the death of a dynasty” was a bit extravagant (this was not dynastic wealth), but painted a dire picture.

People don’t believe it, but

there is no money too much to finish...

At the height of his power Mugabe was reported to have properties worth hundreds of millions of dollars in Zimbabwe alone and frequently flew abroad with his histrionic wife, Grace on shopping junkets, while his administration had reduced Zimbabwe from the food basket of the region to the economic basket case it is today.

Us mere mortals labour under the illusion that when money has been accumulated it does not go anywhere. That once we are rich we will always be rich.

A cursory study of history shows that this is not so.

A friend of mine is continuously baffled at “corrupt” officials who do not seem able to reach a point in their thieving ways and say enough. My attempts to explain to him that the only way they can sustain the loot is by stealing more and more, falls on deaf ears.

I have already shared with him the Mugabe story.

"Money is made and wealth is built by delivering value to society, the more people you can deliver value to the richer you can become....

From an employment perspective you would rather be working for a company that is delivering value to millions of customers than one that is delivering value to thousands. The former company if run efficiently should pay better than the smaller company.

From a business perspective you want to be fishing in the biggest pond possible. Small markets will only take you so far in terms of accumulating wealth.

That’s why Mukwano went into bar soap manufacture or Mulwana manufactured plastic plates, mugs and basins or why Sekalala went into chicken and the list goes on – all of whom except Sekalala would struggle in Europe or the US selling what they do here.

So once you have found your market the trick is to exploit it efficiently – earn more than you spend to deliver the product or service to market. In a competitive market people are not obligated to buy your product unless they recognise its value in their lives.

Compare this to the corruption “business model”. This model dictates that you reap where you did not sow.

"The major investment you make is the suspension or elimination of any qualms you may have towards stealing funds....

under your charge. Another investment would be enrolling in the network of like minded individuals.

Because there is no cost of money, so to speak, you can then indulge your insecurities by showing off that you have arrived, safe in the knowledge that there is more money where the money you got came from. 

The problem is that this model is not sustainable because  resources are not infinite and also because the network of like minded thieves will grow with time and you will have to feed them by stealing more and more. This will eventually catch up with the thief, either because they end up eating the goose that lays the golden eggs or they knowingly or unknowingly get on the wrong side of some one who can do real damage to the “eating” network.

Once the thief is kicked out of the network, as always happens, if they don’t die first, they quickly realise they can not operate in the real world where money has a cost and to make it grow and sustain the lifestyle they had become accustomed, to they need to apply themselves beyond dipping their grubby fingers in the till.

So what happens next, they find a way to get back in the “eating” network by whatever means necessary – at this point they will lap up their own vomit if need be. And if they can not get back in, they fight the network from the outside, but always ready to do an about turn at a moment’s notice if the “network”  changes its mind about him.

For the “network” to remain happy the economy they operate in, be it a country or a company needs to keep growing. This is critical because if it starts stuttering the “eating network” will not cut back on their eating, in fact they even pump it up further. 

"When you continue to milk the cow without feeding it the end is inevitable....

Mugabe is a classic case of how a country can be brought to its knees because the “eating network” has to be fed. It got so bad that they started preying on the productive sectors – commercial farmers, to sate their rapaciousness.

They become like the Ebola virus, killing its host regardless  of if it needs the host to stay alive.

What if Mugabe had negotiated with the owners of capital, got them to concede not too much that they do not kill their productive capacity but enough that his government would be able to spread the wealth around by providing public goods that would improve his people’s living standards? 

It would take longer – maybe decades to see real change, compared to the immediate gratification of grabbing a viable commercial farm by the network.

But that is not how the “eating network” operates.

OF UGANDA BANK FEES AND EU RESOLUTIONS

Last week in leaked correspondence between the finance ministry and the central bank, the former proposed imposing a duty on cash withdrawals from banks.

The revelation triggered off a firestorm online from the chattering masses, who complained that this constituted double taxation of their incomes and threatened to empty their bank accounts in protest, talk about cutting off the nose to spite the face.

Relatedly, or maybe not, The European Union (EU) parliament passed some recommendations on Uganda in relation to the just concluded elections, the EU’s continued engagement with Uganda and human rights abuses.

Depending on who you are the EU’s recommendations were met with glee or outright disdain.

But back to the bank withdrawal fees.

In 2018 when the government announced the 0.5 percent levy on mobile money withdrawals there was a barely a squeak from the banking sector.

By that point the mobile money platforms had done in about eight years what the banks had failed to do in a hundred years, which was allow access to credit to the lowest of the low in society.

By the time the withdrawal tax was slapped on mobile money, 

mobile money accounts stood at about five million but have since jumped to about 30 million today...

The total number of bank accounts today is about four million.

On mobile money platforms the masses found a way to access financial services, even if in the beginning it was just to transfer money. Today people save, borrow, transact and insure themselves off their phones. And one can expect that the pervasiveness in the community will only increase.

Going by the success they have had with taxing mobile money withdrawals it was always a matter of time before they swung around to banks. 

Classic divide and rule tactics. Especially since with the introduction of the mobile money tax in 2018, while transactions have been growing annually, the average value of the transactions is decidedly lower than when the tax was introduced. Where did the high value transactions go? Maybe to the banks? 

The banking industry has complained that levying the tax would affect their business and lead to a fall in deposits.

Unfortunately the test case of  mobile money does not suggest this. The value of mobile money transactions has since grown to  sh80trillion last year --- twice the national budget  or 70 percent of GDP. As if that is not enough mobile money accounts have jumped to 30.5 million.

So what is good for the goose should be good for the gander.

That being said the banking industry has proposed in reaction a scraping of the tax on withdrawl amounts and instead maintaining the 15 percent excise duty on the transactions charges, on both bank and mobile money withdrawals. 

This is unlikely to raise as much revenue as government would have with the initial proposal in the near term. And it is hard to see how government would forgo the billions it has been racking in from mobile money.

It is only fair that whatever applies to banks should apply to mobile money transactions.

Some people would argue though that with mobile money’s penetration, providing access to financial services to a wider population, they should be given preferential treatment. That maybe a discussion for another day.

Back to the EU recommendations, they can seat in Brussels and send edicts to far off Africa, like Zeus hurling lightening bolts from atop Olympus because they donate and lend us a lot of money annually. And why not? They are within their rights to insist that governments that they help behave,  display acceptable behaviour – after all they have to sell and seek permission for these donations from their tax payers.

It therefore follows that

if we are tired of their lectures we should pull up our socks and pay more taxes...

It is common sense isn’t it? Unfortunately – for us, its easier to convince a European technocrat to release a few million Euros than it is to widen our own tax base!

CHARITY SHOULD BEGIN AT HOME

Last week ABSA Bank released the fourth edition of their Africa Financial Markets Index (afmi) 2020, which noted that it was a difficult year for the continent’s markets it was not all doom and gloom.

The index measures the capacity of the continent’s capital markets to efficiently carry out their functions – mobilising resources internally and from abroad.

An additional function that capital markets play is that they serve as an objective indicator of the health of an economy.

Government can say all they want about their economies, but the countries markets, in what state they are, are a reflection on what investors think about the country’s economy.

The afmi measured the capital markets in 23 countries on the continent. It tested for market depth, access to foreign exchange, market transparency. Local investor capacity, macroeconomic opportunity and the legal framework and enforceability  of key  market agreements.

 

"Uganda held its 10th position for the second year running scoring  well on market transparency, tax and regulatory environment, macro economic opportunity and access to forex....

While you would like to perform well on every score you want to do particularly well on market transparency. 

This means that players in the market can determine what the rules of the game are objectively, that they are practical and predictable. Without this any investor worth h is salt will struggle to see how they make money or if their investment can be returned in case they change their mind.

Capital  hates uncertainty, steers clear of it like the plague and would rather settle for the promise of lesser returns than risk getting involved in uncertain markets.  

It was also interesting that we scored second only to South Africa in the perceived access to foreign exchange. 

This a very powerful incentive for portfolio investors, the type of whom buy our shares or bonds from abroad. It means when they receive a dividend or cash out on their investment they don’t struggle to repatriate their earnings. This is important because to attract credible investors they have to be sure that when they want they can not only get their money but convert into a hard currency of their choice. It one of those counterintuitive things about capital, the easier it can flee your market the more it will be likely to park there. 

Also to be noted that despite the hit from Covid-19 macroeconomic opportunities are still there. While growth took a bad hit and the election period dampened economic activity, there is still opportunity going forward given how the economy was handled during the crisis.

Uganda fared dismally in local investor capacity, legality and enforceability  of key agreements and market depth.

Our failing is where the action is. The index measure the local capacity variously but most tellingly as pension assets per capita --$76 in Uganda’s case compared to the more than $1000 in the top five countries and also against the market capitalisation, in Uganda’s case that was a lowly 38 percent compared to continental champion Namibia, which had more pension assets than the capitalisation of their capital markets.

We know that the pension markets is very shallow with NSSF accounting for more than seven in ten shillings in pension assets. The need to get more players is a valid one especially since only about three million of the 14 million working force is enrolled in a pension scheme of any sort.

At an individual level the importance of having savings can not be overemphasized, but this is even more important if countries can pool resources, especially long term money, which can be deployed to finance those development projects that the banks short term money can not help.

But even if we mobilised larger pools of long term savings the challenge in Uganda, afmi shows, is that our markets lack depth in terms of the variety of securities and bonds one can deploy.

There are 15 companies listed on the exchange of which nine are Ugandan and the liquidity, how much shares change hands, is low and concentrated among just three companies.

The government has it within its power to compel more companies to list, especially the private companies. In addition government can look to off load some of its public enterprises – not many now, but they could serve as a good boost to the questions surrounding the lack of depth in our markets.

In this uncertain times it is even more important that we have our own mechanisms for raising local funds, beyond going bowl in hand to western capitals. And it is not impossible.

The treasury bill and bond auction are an example of how we can raise billions of dollars a year in local currency by ensuring the credibility and consistency of these mechanisms. Granted that there has been little love for these instruments beyond the primary market but at least the mechanism is there it has been tested and shown to be durable for the last 25 years at least.

The afmi should be referred to by all people involved in ensuring the economic well being of this land. Especially because the kind of credible investors we are trying to attract are paying attention to it.

SOMETHING IS GOING TO GIVE

A week or so ago, it was reported that parliament had earmarked a budget of sh165b or sh300m for each of the 520 MPs to buy a car.

Understandably there was a public uproar. In this time when we are trying to recover from the Covid-19 related down turn in the economy, when many are seeing lower incomes or loss of jobs altogether, when businesses are shutting down up and down the street,

this shameless show of public gorging at the trough was worse than a slap in the face of Ugandans....

History shows that among the main  reasons for economic collapse, is when countries starve or eliminate the productive sectors of resources in favour of consumers.

We saw it in the 1970s with the expulsion of the Asians by Idi Amin.  The Asians at the time dominated the commercial space – as they did all over East Africa. You might not like the Asians, business skills are passed on through mentorship not through presidential edict. It is the reason why some of our most respected businessmen have learnt their skills at the feet of Asian businessmen, and why too, Kenya’s indigenous business community is more robust than our own.

It happened more recently in Zimbabwe, where Robert Mugabe in a last desperate attempt to hang on to power dispossessed white businessmen of their land. The result was that Zimbabwe went from a net exporter of food to a recipient of food aid today.

In the 21st century less brutal means are being used but work nevertheless. 

When MPs get sh165b for cars to whizz around the country, sectors like tourism – our largest foreign exchange earner, have been allocated sh176b in the 2021/22 budget. Gold has overtaken coffee as our largest export earner, but only sh81b has been allocated to mineral development.  

The winner has to be that government has allocated sh102b to digital transformation. 

Last year if there were any doubts that this country needs to fast track the adoption of ICT technologies, the Covid lockdown removed all doubt. Businessmen were forced to adopt electronic payment systems and online delivery to stay afloat. We need more government investment in infrastrucure and training as well as forward looking policies that will ensure we keep up with modern trends. Consumers need faster internet speeds and those who don’t have, should not be left behind.

Maybe the sh100b earmarked for digital transformation is enough but it speaks to what our priorities are.

Parliament, which has grown to an ungainly 520 members while our revenues are expected to fall short of the projected sh21.8trillion by sh3trillion. It is common sense – or at least it should be, that when your incomes is falling you have to cut your expenses, but clearly not in Uganda.

It would be funny if it weren’t frightening...

People forget that the reason we had to suffer the Structural Adjustment Programs (SAPs) of the 1980s and 1990s, at the heart of it, was that we were not collecting enough revenue to meet our costs. So we were forced to cut back on our costs as a condition to borrow the money to jump start the productive sectors of the economy.

If we are not careful we may find ourselves back in the same place and not because of war and destruction...

As it is now one in every three shillings of the budget – sh15trillion is going to go towards debt repayments. This would not be a problem as long as the economy is growing and tax revenues are following suit, but that is not the case.

And since we don’t want to tighten our belts we have to borrow more to cover the deficit, and who approves government loan requests? Parliament. What a racket!

To be fair there are other questionable expenditures up and down the budget – did you hear about the sh481b the Bank of Uganda did not want?

So God forbid one day we will wake up a we can not service our debt and the foreign lenders will  return us to SAPs. Hopefully one of the fist things they will insist on, is to take an axe to parliament’s ballooning budget. And of course parliament will mobilise us lemmings to protest against the “imperialist” agents, yet they are the ones through their own profligacy, that will have sunk us into the hole. Unfortunately health, education and infrastructure budgets will be cut slowing down our development ambitions.

Some may argue that the sh165b is to cater for cars over the next five years, but it is still a one off hit on next year’s budget.

Ok given that the MPs need transportation to carry out their “important” duties in their constituencies, but there are much more cost efficient ways to do this.

For instance government can lend the MPs the money to buy their cars. Even if they gave them interest free loans that would be much cheaper than what is currently happening. One advantage of this is the MPs would be forced to cut their coat to fit the cloth and we might have a more  rational distribution of cars, not all fuel guzzlers as it is likely to be now.

But even cheaper for government is if it got a fleet management company that would own  and maintain the cars. Also in addition they would rationalise the fleet, there is no reason why the Kampala Central MP should have a car of the same capacity as the MP from Arua, Kabong or Kisoro.  This will have real cost saving implications not only in the cost of the cars but also the cost of running them. 

And those are a but a few options we should, no, must adopt, in order to come out of the current economic crisis standing.

Unfortunately this is not going to happen.

Our public servants and officials see the treasury only as means for accumulation and self aggrandisement and to hell with the rest of us....

Imagine where this country would be if those same MPs set their minds to building enterprises that can sustain them in the lifestyles – sh20m a month salary, they have now become accustomed?

RESOLUTION 2021: CHANGE YOUR MIND

The other day someone tapped me for financial advice. Whenever I hear such a request I am torn between rolling my eyes and running for the hills.

As it often turns out they want a quick fix solution, “By this time next week/month/year I don’t want to be poor like this. Banange!” Immediately you know that whatever you say will not be unlike throwing pearls to the swine.

But I am always thinking how can I give a distilled message that will lead to a deeper discussion about their finances or at the bare minimum send them off nodding knowingly, never to return.

I think I have I worked it out.

To begin with it starts in the mind.

"Thoughts lead to action, which lead to habit, which lead to the desired wealth or undesired poverty...

. It is impossible to improve your financial situation without exercising your brain, and you don’t have to be a rocket scientist.

Sounds so mundane and cliché but you will be shocked how few appreciate this.

But that is not my “silver bullet” for financial literacy.

Here it is. 

There are only two ways to spend money, you either consume it or you invest it. You are broke or rich because of the balance between consumption and investment in your financial habits.

For me I think if that is the first principle – at least until I think about something else.

Consumption is easy to understand, spending without promise of future return (there maybe immediate gratification but that is all and doesn’t last) and investment is the opposite – spending with a hope of future return.

The poorest among us consume all they earn. The lowest earners spend it all on the basic necessities – food, shelter, clothing. The highest earners spend it on keeping up with the Jones – high living and ostentatious consumption. At the end of the day they are all poor. 

The latter group – the high spenders, do not realise that its not how much you spend but how much you keep that makes you rich. With their actions they have decided that they would rather look rich than be rich.

The wealthiest among us have their spending patterns shifted towards investment and away from consumption. The lowest earners in this group invest more than they spend on themselves. 

They told me a story of the Asian accountant who only came to work with two bananas. He had them for lunch with water from the office fridge. He did this for close to near three decades of his career, with some variations of course.

At the end of his career he had not only put his children through school, paying for their university education in the finest institutions in the world but could retire to a life of leisure.

The challenge for

many people when they hear this story is they want to “eat’ (consumption) life now because tomorrow may not come. Then they live to the ripe old age of 85...

On the other side of the pendulum the wealthiest spend a fraction of a fraction of their income. Because their investments throw off so much income they can live, what seems,  a life of luxury.

So for instance the wealthy man who gets a million dollars monthly from his real estate investments but barely spends $65,000 on himself and family a month. The surplus $935,000 is ploughed back into the businesses or packed in other investments that throw off more cashflow.

These alternative views of money apply whatever your station in life.

So if you want to understand why you are not climbing out of the rat race look at the balance of consumption to investment in your spending decisions...

Using this as the bedrock of your financial literature you can graduate to, what are the available investments, how can they be appraised and how you can finance their acquisition.

The turn off for most is that this discipline – of  shifting the balance of your spending towards investment and away from consumption, has to be maintained for years. And in fact the day you cross over to financial freedom and wealth will not happen to you like a revelation on the road to Damascus.

Another reason why this method is a turn off, is because it can entail doing such mundane things as saving, investing in such things as one roomed apartments (mzigos) and not multi-storied apartments, growing mushrooms in your garage and not going to the farm every weekend.

We are forever seduced by the promise of quick money and an even faster life...

these slow processes don’t work for us.

In 2021 let it be a resolution to change our minds and shift our spending more towards investment and away from consumption.

This goes to the parliament of Uganda too.

Happy New Year.

ALL EYES ON UGANDA'S RULING NRM

 There are interesting times ahead for the ruling National Resistance Movement (NRM).

As the dust settles over the recent presidential and parliamentary elections and to some extent the district elections, the spoils of war have to be distributed.

Unfortunately the NRM is far from jubilant at their recent showing at the polls, and therefore some hard decisions will have to be taken.

Central Uganda was an absolute blood bath for the NRM, with the National Unity Platform (NUP) sweeping everything but a handful of seats before them, 25 in all and accounting for 13 ministers in the process.

"In 2016 in trying to account to the NRM chairmen for their dismal performance, Kampala politicians blamed Kampala Capital City Authority (KCCA) boss Jennifer Musisi and her drive to bring order to the capital. This time around fingers are being pointed at Mengo and the Catholic Church – something about coffee beans. They are fast running out of scape goats...

The NRM took a beating in Busoga while gaining ground in northern Uganda, west Nile and the western regions. The Forum For Democratic Change (FDC) which could be counted on to win some seats around the country struggled to make an impression.

As is becoming the pattern, about two thirds of incumbent MPs were shown the  exit and with the additional 100-or-so seats means the house will have a new look and texture. Though the NRM will maintain its dominance with more than 300 seats to itself, without counting the NRM leaning independents.

At the end of last week Deputy Speaker Jacob Oulanyah took exception to comments by his boss Speaker Rebecca Kadaga that she was looking to retain her position as head of the house. 

The speaker of the house is decided by the party with the most seats in the house.

Oulanyah said Kadaga was reneging on a deal – ostensibly brokered by President Yoweri Museveni, that had been made the last time around that would see her step down and Oulanyah ascend to the speakership in 2021. This was all dependent on whether both would retain their seats, which they both did.

According to the constitution the speaker is only behind the vice president in the line of succession to the presidency. Beyond that, it is a very influential position given its leadership of parliament.

What could Museveni give Kadaga or Oulanyah in order to keep the peace not only in the house but maybe also in the party?

But Kadaga’s bargaining position is a bit shaky given the president’s losses in Busoga and especially in Kamuli district, where she is the long standing woman representative.

Going for her is that she is a woman – a constituency not to thumb ones nose at and she can point to the fact that she was mostly onside over the last five years.

Whichever way it goes, with Oulanyah throwing down the gauntlet last week, this is not going to go away quietly.

"As happened last time when the opposition threatened to throw in their lot behind Kadaga, expect them again to be rubbing their palms in glee at the thought of spreading dissension in the NRM ranks....

For Kadaga no other office, other than the presidency, offers her as much influence over the politics of Uganda. So anything else she may be offered may seem like a demotion – even the vice presidency.

For Oulanyah taking over the office of the speaker, will mark a return from near political oblivion, after his ill advised support of the Aggrey Awori run for the presidency in 2001.

The former Uganda People’s Congress (UPC) young turk had to reinvent himself by joining the ruling party, win a seat in then NRM-hostile northern region and as a reward became deputy speaker.

The stakes are high and the strategists at Kyadondo road have some head scratching to do to diffuse the situation.

Will the loss of his Bukoto County Central seat mean Vice President Edward Sekandi will be passed over this time, his seat being dangled before either speaker as a peace offering to make this dilemma go away? 

Let us wait and see.