REBECCA KADAGA, THE END OF AN ERA?

This week Rebecca Kadaga made way for her successor Jacob Oulanya after weeks of acrimonious campaigning, that was brought to a decided close when the National Resistance Movement (NRM) top organ nominating Oulanya as the party flagbearer in the race for speaker.

After her Sunday snub by the Central Executive Committee (CEC) Kadaga opted to break ranks with her party and run as an independent the next day.

"Only the romantics thought Kadaga had a chance in a house firmly in the grip of the NRM. President Yoweri Museveni, filling in for the Chief Whip made personal calls to key members to ensure Oulanya took the day...

The drama that preceded the count however masked another interesting story, that Kadaga is one of a pioneer group of politicians that benefitted from the NRM’s overhauling of the country’s politics.

When the NRM took over Kampala in January 1986 they were the most formidable fighting force but were politically weak on the ground. Were elections to be held within the next 12 months they may very well have been sent packing back to the bush.

To their credit they could have decided not to bother with politics, like Idi Amin before them but they decided they need to create a political base. They did this by suspending political party activity and allowing people to run for office on individual merit.

The first change froze the parties in place and the second allowed budding politicians to jump the party queue and compete for office, an opportunity that may not have turned up soon give the party processes of the time, where a small clique of men decided who run or did not.

Not only did Kadaga benefit from these two moves but also the introduction of the women’s district seat in the 1989 National Resistance Council (NRC), another initiative that ingratiated the NRM with the woman vote and expanded their political base even further.

Apart from the Constituent Assembly, where she did not participate, Kadaga has been the woman MP of Kamuli District since 1989.

"Kadaga was the last man standing of a crop of politicians that included former vice presidents Specioza Kazibwe, Professor Gilbert Bukenya, former prime minster Cosmas Adyebo and a motley crew of ministers like Victoria Sekitoleko, Francis Babu and Aggrey Awori who maximized on the NRM’s initial political machinations...

It is arguable that while in their individual rights they may have climbed through the original party structures and enjoyed some success, it is probable that they would not have risen to prominence as quickly.

And the trend has continued. Of all the MPs that were in the last house only three in ten managed to make it back to the house. Individuals in the constituency do not have to pledge allegiance to the party structures there to present themselves as would be the case before.

The trend is particular pronounced in the ruling NRM where in some constituencies dozens can show up to try and win the party flag.

Initially, as stated above it was a way to build a political base, for which it has proven extremely successful. Today it continues to renew the party at every poll. As an example the only ministers from the original cabinet in 1986 there remains only Prime Minister Ruhakana Rugunda, who is ex –officio. Kahinda Otafire, who has only just returned to the house after an electoral loss in 2016 and General Moses Ali.

"One of the better legacies of the NRM will be that they flung open the doors to political office like no one before them. The party has remained coherent despite the regular bloodletting and it is not expected that Kadaga’s exit will change that...

That being said high profile politicians like Kadaga and Kazibwe before her have shown, especially young women, that politics is a field in, which they too can aspire to and perform in.

That may not be a stated legacy of the Kadaga two decades in the Speaker’s office but it is one that will reverberate down history.

Her ouster while not a hard departure from the past, is a useful marker of when the Movement made a final break from the old parties and now runs largely on its own steam, with leaders who have been nothing but movement or even have known no other party in their life time.

Me thinks it also marks another interesting milestone in the NRM project that will be revealed in the fullness of time.

THE PRICE IS WHAT YOU PAY AND VALUE IS WHAT YOU GET

My favorite American, Warren Buffet says price is what you pay and value is what you get. Value for money is when you pay as little as possible for good value.

This is at the core of his investment philosophy but it is really common sense, or not. If it was common sense Buffett would never have become the richest investor in the world.  He has made his billions from the lack of common sense of other investors.

He looks to buy companies – whole or off the stock exchange, that are selling at a discount, hence representing good value and holding them “forever”. Benefitting in the short term from their dividend payouts and in the long term from their appreciation.

Interestingly his company Berkshire Hathaway doesn’t pay a dividend, it paid out once in the last 50 years and Buffett thinks he must have been in the bathroom when that happened.

Not the subject of this discussion but why he doesn’t pay dividends is because he argues that his shareholders will be better served by him reinvesting the dividends for them as there is no better investment vehicle on the horizon. A share of Berkshire Hathaway, at the time of writing this was trading at $431,421.70 (about sh1.55b).

Buffett and his investment philosophy we shall shelve for another day.

If you took his quote and flipped it around it would read something like, how much you get paid is commiserate with the value you deliver to the market.

I got to thinking about this when I passed a driver who had broken his seat, was sleeping, feet on dash board as he waited for his boss.

And I thought this guy has one of the most valuable commodities in the world hanging loosely on his hands – Time.

Then I wondered what could he do with his time to increase his value to his boss or in the job market or to the general economy?

If Buffett is correct the more value you deliver the more you get paid.

"You are not being paid enough (who is?) either because you are not of much value or the market does not see your value. So the question for everyone who wants to get paid more is, how does one increase their value and have the market recognize that value?

This probably is a whole course unit, or should be, in some university somewhere so we will be only be scraping the surface of the subject in the 700-odd words that we are allowed here.

To begin with value is determined by the market and not by you. You can go to Harvard and master in rocket science and come back to Uganda, you may die a pauper despite the high price of your education and the sophistication of the subject you are a specialist in. If you stayed in America you are more likely to be paid better, especially now that the private sector is sending rockets to the heavens.

On an individual level you increase your value by increasing your knowledge and experience, that’s why a university graduate would be paid more than a S4 dropout. But an S4 drop out can study and become an accounts technician and by the time his contemporaries are off to university will have a job and by the time they come out after three or four years, he could have got his ACCA and be more valuable to the market than his graduate friends.

A combination of experience and marketable qualification will make the difference.

If you are in business the value of your company will increase to the extent that you can develop a competitive advantage – develop production processes that cannot be replicated that produce a quality good that many want. Again you would have to invest in the knowledge of your people and processes and develop the competence that only come with time.

Back to the driver dozing in his boss’ car what would he do to increase his value to the market?

Going back to school is not practical, in the traditional sense, but maybe he can use his smart phone for more than just Facebook and premier league scores. He could improve his English, learn business administration, acquiring the skills of a personal assistant – in addition to his driving skills, and become more valuable to his boss.

If he used those same skills to start a business, he would serve more people than his boss, immediately increasing his value. There in is a major trick, to make more money you need to serve more and more people. And to do this successfully you not only have to have built in yourself or business, value but communicate it to the market. It will not serve you to have the sweetest rollex around when no one knows about it.

 

RACE FOR THE SPEAKERSHIP TO END IN A PHOTOFINISH

The decision or non-decision by the ruling party’s Central Executive Committee (CEC) not to name the party’s choice for  the race for speaker earlier this week, was the shot heard around the world.

Two term speaker Rebecca Kadaga  wants to retain her place and her deputy Jacob Oulanya wants to unseat her. Both are members of NRM’s CEC.

CEC passed the buck to the parliamentary caucus to decide who between the two, will be its champion in the race for speaker.

"On the one hand the move may signal a vote of no-confidence in Kadaga, who has not endeared herself to the party’s apex body, by declaring they have no business deciding who will be speaker....

On the other hand, it may be that CEC is not convinced by Oulanyah’s bid, or not convinced enough to throw their fellow veteran under the bus.

A few weeks ago a discussion on Urban TV’s Cross Fire show concluded that the open campaigning by the two, which President Yoweri Museveni put a stop to, was playing to the CEC gallery. That CEC would decide and that the new MPs were not the target market for the acrimonious campaign.

Now CEC has thrown all those calculations out the window.

But prior to the CEC decision Prime Minister Ruhakana Ruganda wrote to parliament asking that the elections, which were supposed to happen today be pushed back. His argument was that the NRM MPs needed time to caucus and decide on the matter.

This serves as a good show of democracy, after all why should CEC be deciding for MPs who will lead the house.

"But if the NRM was behind Kadaga they would need no time to send out the signal that Kadaga is their favourite....

The need for time suggests there is still more work to be done whipping some MPs into line. The former chief whip Ruth Nankabirwa, for who there is no love lost with Kadaga, lost her seat and that gap will be felt in coming days as someone else is chosen to keep NRM MPs in line.

The NRM’s chosen one will most definitely be the next speaker of parliament. 

In the 529-member house the NRM has 336 or about 63 percent of the seats. The vote for the speaker is decided by simple majority, so they already have the numbers. And if there is any doubt there are the NRM-leaning independents who are most of the 74 Independents in the house.

Of course, you can expect that the opposition MPs will gladly vote for an alternative NRM candidate as a way to spread dissension in the ruling party’s ranks but its doubtful that they can make an impression on the proceedings.

The stakes are understandbly high for Kadaga and Oulanyah. 

Kadaga has made it clear that there is no other position in government that can appease her, she will take the speakership or nothing.

"After two decades in the speaker’s office – she deputised Edward Sekandi for two terms, It would take some getting used to warming the back bench and living without the influence of the speaker’s office....

While in Oulayah’s case, to fail to become speaker may mean another stint in the political wilderness.

Oulanya’s ill advised leading of the no-hope Aggrey Awori presidential bid of 2001 set his political ambitions back. Joining the NRM and  encouraging the perception that he engineered the north’s cold shouldering of the opposition in favour of Museveni, suggested it was only upwards and onwards for his political career.    

Hovering over the debate is Museveni who has not come out openly in either candidate’s favour, but for who, the person who occupies the speaker’s seat is critical for his government.

A cooperative speaker and by extension a pliant parliament is good for him.

Nevertheless the race looks too close to call. 

"The NRM doyens may want to sway the vote one way, but if not properly induced, the rank and file have shown a disturbing propensity to vote the other way...

The antagonists must be biting their nails down to the quick and spending sleepless nights with their strategists, but for the rest of us mere mortals we are rubbing our palms in glee in anticipation of high drama next week.

A TALK WITH THE ROLLEX MAN

I had to stop and look again when the neighbourhood rollex guy took delivery of four trays of eggs on a wet and cold morning.

Just in case you missed it four trays of eggs contain 120 eggs. I could not believe he could sell in a day all that rollex, the popular street food which is basically an omelette rolled up in a chapatti. I had to hurry off to a meeting but made a mental note to talk to him about his business on my return.

An hour later he was down to three trays.

The rollex guy, let’s call him Musa, for sh2000, the cost of a rollex, agreed to field some questions to the extent that he could.

From his work station, a small box with a tin roof, he told me he sold at least 50 rollex a day and that all the eggs went into the omelets none in the chapatis. So assuming at least two eggs an omelet he had projected he would sell 60 rollex that day for gross sales of sh120,000 every week day...

After all expenses – wheat flour, cooking oil, charcoal, he reckons and what sounded like protection money, he pockets about sh30,000 to sh50,000 a day. He wasn’t quite sure.

He has been at the same spot for at least three years, he said. The Covid-19 pandemic has however dented sales. Before the lockdown he says he was selling much more.

A hundred rollex? I asked. He was not sure but it is possible, he thought.

I had slowed down his chapatti making so I had to move along.

Maybe he was content with his lot but as a thought experiment I wondered what for starters he would need to do to attract investors to his business.

An investor is defined for our purposes as one who is looking to commit money where there is promise of return.

"There are the four Ms the investor is looking for, which should jump out at him when assessing a business, before he can reach for his wallet...

Does the business have meaning for him, beyond that it will make him money. Food is a very emotive subject and the investor who understands, enjoys, appreciates food would be a good place to start. He might even understand the vagaries as the industry and will not cut his losses at the first down turn.

Does the business have a Moat. In medieval Europe the castles were surrounded by a ditch filled with water, with access restricted to a draw bridge. The ditch is called a moat and kept the enemies or competition in our case away. Essentially does my man Musa have a competitive advantage that we can exploit to sell more rollex or increase the price.

The third M is management. Is the investor confident in the manager’s ability to show a return. In serious companies this may be reflected not only buy consistently good returns on investment annually but also a steady increase in equity, the share of the company that belongs to its owners.

And when all is said and done is there a good margin of safety between the value of the business as calculated by taking its projected revenues and the price at which it is being offered. Essentially can he buy the company at a discount to its actual value.

So back to my man Musa the key questions to answer will be the last three, I am going to assume anyone wanting to invest in a rollex stand enjoys food, or at least rollex.

Musa may struggle to show his competitive advantage. I looked up and down the road and at interval of at least 100 meters there was another similar stall doing the same thing. And I am willing to bet the taste of rollex stand do not differ significantly. It also seems to me that startup costs don’t seem to be enough of a deterrent to other players getting into the market.

But maybe a competitive advantage can be developed. One of the impediments to selling even more rollex Musa said is that some people are wary of buying food off the street. An investment in some white paint, to whitewash his shed, a white apron and chef’s hat may improve the perception of cleanliness around Musa’s stall. A source of running water too, besides the grimy jerry can he now has.

A menu in full view may help too in not only attracting clients but further differentiating himself from the competition.

Make sure he is current with all municipal dues and is the worst came to the worst, organize for the competition to get a friendly visit from local authorities, harass them off the street.

Musa’s ability to show he is a good manager would be helped by him organising his books. No serious investor will bet good money on Musa’s flowery tales of how his revenues are increasing without some intelligible records. Does Musa have a bank account? I didn’t ask, but that would would be a good place to determine the businesses cashflows. Maybe he has a SACCO or mobile money account.

Ralatedely, the investor cannot determine the value of Musa’s business and therefore how much he can commit to the venture. If Musa can demonstrate that he actually makes sh50,000 and show that this happens over a longer period—six months say, the investor may be able to get a rough value of the business.

The point is that Musa will struggle to find investors to take him to the next level in his current state, what he might get is charity, the kind where the giver has no interest in his business and its future progress.

Musa is not unusual.

UGANDA AIRLINES, FLOGGING A DEAD HORSE

This week news came out that the board and the top management of Uganda National Airlines Corporation had taken accumulated leave, been suspended or been sacked, depending on who you speak to.

This came hot on the heels of an Auditor General report that questioned the assumptions made in the business plan that set up the airline, especially since they had failed to meet revenue targets they had overshot their cost budget.

The evidence shows that even in the best of times it takes years for a new airline to break even. RwandaAir was set up in 2001 and todate has not reported a profit, with the government shoveling millions of dollars into the carrier annually. That Uganda Airline was going to make a loss in its first year was not a surprise, except to the people who drew up the airlines’ business plan...

In the business plan they projected that Uganda Airlines would be profitable from their first year in operation. This may have come to bite them in the backside, because the Auditor General commented that it was hard to judge them against their business plan whose, ”timelines with in which certain activities were to be accomplished had not been specified.”

Industry players were highly critical of the initial business plan, smelling a rat when it was based on the assumption of profitability in the first year.

For obvious reasons business plans cannot work to the letter. The people who draw them up are not prophets.

That being said, the quality of a business plan depends on the assumptions made for and against the success of the business and a reliable assessment of whether it will work or not. The business plan is an indicator of how much thought has been put into thinking about the business, speaks to the quality of the promoters and whether it would make sense to back them.

Against this background you can see how the judgement can be made that government has a lot of money lying around. It is amazing that on the strength of this business plan, government committed to release at least $400m -- $330m to buy six planes, startup costs of $20m and $70m for contingency money.

Would we be wrong to assume that the promoters of this project sugar coated the figures so that the “ignorant” people in charge of the treasury can release the money?

This story is sad, even tragic on many levels.

Businessmen with more bankable projects with more immediate impact on the wider society,  are crying daily about the difficulty of accessing patient capital, capital which the owners are willing to wait years for a return or never.

This money being flushed down the toilet represents real opportunity cost.

The sh1.4trillion would have made a real difference in a child’s life whose education would have been enhanced by an extra blackboard or roof over his classroom; it would have meant life or better health for a child born in a rural health center III; at a million dollars a kilometer these monies would have opened up opportunities for a rural community previously unserved by a tarmac road.

Going by past estimates this money would have been good for at least 50,000 primary school classrooms or treating at least a million in patients at Mulago hospital. This is before you factor in the losses the airline is expected to make for years.

Believe it or not I have no problem with a national airline, a state owned one at that. My argument has always been that for what we want to achieve – greater tourism numbers never mind building “national pride”, there must be more efficient, more cost effective ways of doing this....

First of all people do not come to your country because you have an airline, they come because you have something that they want. So for starters can we inform/market  the country better abroad? For a fraction of a fraction of the cost, we can add a few thousand visitors from abroad through a deliberate, systematic and consistent marketing campaign.

For a fraction of the cost we can beef up our civilian policing to ensure the country is safer for visitors. For a fraction of the cost we can set up a hospitality school to improve our waiters and waitresses capacity to ensure our visitors are comfortable.

Once we have these and a few other basics under control, we can then go to the airlines which fly into Entebbe and work at lowering the costs of flying into Uganda, if that is a major impediment to visitors coming here. And I haven’t even begun to eat into the $400m.

But that is all water under the bridge. The challenge for government is how do we make the best of a bad situation.

The smart thing maybe to cut our losses at this point, liquidate the airline and hope we recoup some of our money and pride in the process. That seems unlikely to happen.

The next best thing, maybe to go back to the drawing board – rewrite the business plan, reconstitute the board, hire new management … start all over again.

The third option may be to just flog it off as a going concern – a badly going concern, preferably to another airline who can integrate it into its existing network and make it work. And even in this last scenario, there are no guarantees the thing will not continue to bleed the treasury for years into the future.

In the greater scheme of things Uganda Airlines has hit a speed bump, but given that its set up was so shambolic, it has made it all the more difficult to get up from this mishap...

 

THE UGANDA PARISH MODEL AND THE TRICKLE DOWN EFFECT

Last week the finance ministry were biting their tongues in parliament to justify the near sh500b they had provided in the budget for the parish model.

The parish model of development, a pledge in the NRM manifesto, is as the title suggests the intention to have the parish - the LC II, as the unit of delivering development to the people. The NRM has decided that in their drive to shift the population, mainly the rural population, away from subsistence to commercial production, they need to oversee the process from closer than the sub-county level.

According to the NRM proposal this will be driven by the Parish Development Committee (PDC) which will be led by the parish chief and peopled by the LCI and II chairpersons, a member from the local cooperative society, elders, religious and cultural leaders.

Initially they will be charged with removing production and productivity constraints by helping manage logistics, dissemination of research findings, providing high yielding inputs and helping with pest control.

"The devil is in the detail, but one can see an attempt to transmit more determinedly the macroeconomic growth that the country has enjoyed over the last three decades to the rural areas. This is long overdue, but one wonders whether there aren’t analogous structures in the government that can do the same? We leave that for another day.

When the NRM came to power in 1986 the GDP – the sum total of economic activity, stood at $4b. On the ground the reality was worse than the number indicated, nothing worked – there were more potholes than tarmac on our roads, electricity was an urban myth and lining up for sugar, paraffin and bar soap was an improvement on commodity shortages; the formal economy was in terminal decline and more than 50 percent of our export receipts and tax revenues came from the export of coffee.

Today the economy stands at $35b, not much to write home about given per capita income is less than $1,000 but shows that the economy has grown more than eight fold or about three percent compounded annually over the period.

Unfortunately, this growth has only been concentrated in the urban areas. By some estimations Kampala account for 22.5 percent of GDP with only five percent of the national population, that means the per capita GDP of our capital city is about $3,500. And what is the capita GDP of Uganda? About $800.

And why should we be surprised, the concentration of infrastructure and services in Kampala by geographical area or per person is so much higher than any other place in the country. Hence the economic disparities we see in our country.

One can blame Uganda’s fast population growth rate – the number of Ugandans has tripled since 1986, but more importantly if there are economic inequalities are widening it’s an indictment on the government. The government has either failed to facilitate economic growth, which is far from true in Uganda or if the economy has been growing the government has failed to facilitate the equitable distribution of this growth...

Equitable distribution does not mean we will all equally benefit, but everyone will have a fair chance at improving their living standards and be able to take advantage of available opportunities to do so.

However, without government intervention to create market access, educate and keep the population healthy, ensure peace and security, the economic growth will be concentrated in a few hands.

Government does this by fast creating an enabling environment for business to thrive, tax these economic actors and then by providing security, infrastructure and social services enable the rest of the population to become productive and hopefully wealthy citizens.

Enter the parish model of development as proposed by the government. In principle this is an attempt – not the first and most definitely not the last, by government to facilitate the trickle-down effect. That if we teach our small producers to fish rather than give them the fish, the country will be better from the effort and the billions will have been put to good use.

Since seven in ten Ugandans derive their livelihoods from agriculture, which has not grown as much as construction, services or industry, this is a laudable initiative.

Especially as part of increasing productivity it will facilitate agricultural extension and irrigation, the two interventions with the highest rates of return in agriculture...

If executed well, this can be a real game changer. It is a scandal even criminal that the agriculture sector has the lowest rates of growth over the years and yet the majority of Ugandans derive a living from it. By increasing production and productivity of our farms, not only will the economy grow even faster but the good growth numbers we keep drooling over, will make sense for more and more people.

 

UGANDA SHOULD WORRY ABOUT THE NATIONAL DEBT, BUT FOR DIFFERENT REASONS

Last week we learnt that our national debt has risen to sh66trillion and inching dangerously towards 50 percent of GDP.

Fifty percent of GDP has become a psychological barrier beyond which we should not cross to maintain debt sustainability.

What caused jaws to drop was that 40 percent of this debt or about sh19trillion was contracted in the last year, a lot of it as Covid-19 relief. But we also continue to invest heavily in our infrastructure development mainly roads and in the electricity sector.

More fuel was thrown on the fire when it was reported that finance minister Matia Kasaija is considering going to the lenders to ask for a suspension of servicing, presumably until we get over the Covid-19 hump.

American billionaire Warren Buffett put it best when he said, you shall know who is swimming naked when the tide goes out. In good times everyone looks good but when a crisis comes along we will be able to see which people have more style than substance.

Uganda’s growth record has been good by any standard over the last three decades during which time the size of the economy has seen a near nine-fold growth to $35b to day from about $4b in 1986.

In the country’s rehabilitation effort we only managed to attain 1970 levels in terms of per capita GDP in about 2000 and so for the last 20 years we have been adding extra capacity. Put another way we are now where we should have been in 1991 if it wasn’t for the instability of the 1970s and 1980s, which just goes to show how much work there is to do.

But while there has been growth this has not been equitably spread around the population, which should not come as a surprise for two reasons.

The way GDP – the sum total of a country’s economic activity in a year, is measured, the main drivers of the economy have been in services, construction and manufacturing. The main beneficiaries of these have been in the urban areas where most of the schooled population lives.

The explosion in school enrollments since 1997 when UPE was introduced means that more people than ever before are coming into the workspace and competing for jobs in those same sectors. Unfortunately, we are not creating near enough formal jobs to absorb the half a million Ugandans joining the workforce every year.

This calls for more investment by government especially in creating a business friendly environment. It is business that will create jobs not government.

To the extent that we are behind schedule is the extent that we need to accelerate investment...

As an example the average middle income country has a road coverage of about 88 km per square km while us in Uganda with our 5000km of paved road our figure is about 16km. That means to catch up we would have to increase our investment to bring us to 25,000 km of paved road. The additional 20,000km of road would cost – at about a million dollars a km, about $20b or about sh72trillion or about one and half time our entire budget today. Even if we spread this outlay over 10 years it would cost us sh7.2trillion annually at today’s prices.

And this is only roads, there are just as big or bigger deficits to be bridged in electricity coverage or number of doctors, engineers or teachers we need to move to the next level of development.

Given that we are only collecting about sh20trillion in domestic revenue explains why we have to borrow.

Maybe we should slow down on infrastructure development until we can afford it? A real chicken and egg situation.

It would be bad politics and economics to try and develop using only our domestic revenue collections. Bad politics because population growth is not going to wait and bad economics because as shown above, we are already way behind schedule....

So the real question is not why is our debt ballooning but why we are not shouldering more of our own cost of development.

As it is now domestic revenues are coming in at about 14 percent of GDP as compared to a sub-saharan average of just under 20 percent. We are struggling to increase our revenues because it is much easier to negotiate loans than it is to rope in more people to pay taxes.

The truth is the donors will not always be around but Ugandans will always be around. Common sense would suggest that we get more people paying taxes, if only as a guard against the day when the donors withhold their money for one reason or another.

We have anecdotal proof of this. Over the last decade a shift of the budget towards infrastructure development and away from consumption is what has kept the growth figures ticking up in difficult circumstances. The shift was not necessarily popular with everyone but it will pay dividends well into the future.

"Improved infrastructure improves the business environment which increase the revenue collections which in turn makes our debt management much easier....

We have done well raising our domestic revenues over the last three decades – sh5b to the current sh20trillion, but it is not time to rest on our laurels.