OF TAXES AND CORRUPTION

Here are some rapid fire figures that you may or may not have known.

Uganda Revenue Authority (URA) is celebrating its 30 years of existence this year.

In the year URA opened its doors for business, the size of the Uganda economy was $3.32billion according to the World Bank.

Last financial year URA revenue collections came in at sh19trillion or about $5.3b.

So, URA last year collected one and a half times the economic output of Uganda in the year that it was launched. Assuming everything remains the same (Covid-19 emphasized how redundant such an assumption is), URA will collect at least, the equivalent of the country’s GDP in 1991 every year into the future...

That is an interesting statistic on several fronts but two leap to mind.

One, is that despite these consistent gains in revenue collection, we still need to collect more revenue as 13 percent of GDP, which last year’s collections represent, cannot support our development goals.

And secondly, to think how small the economy was in 1991 relative to today shows how far we have come. If all goes well, we will be saying the same thing 30 years from now about the size of the Uganda economy today.

Unfortunately, as it often is with Uganda every achievement comes up against an equal or more dramatic downside.

This week the new Inspector General of Government Betty Kamya reported that corruption accounts for sh20trillion annually. I thought there must have been a printing error because that would have been half of last year’s budget or as pointed above all our tax revenues gobbled up by rapacious public officials. It is inconceivable that government would have been able to function to any level, if half the budget was stolen.

Kamya explained that sh131.2b was due to lost taxes, sh233b in regulation related losses, sh451b losses in the education and health sectors, sh459.2b to misuse of public facilities, sh590b in procurements these are the ones we know and come up to about two trillion shillings. A heftier sum than estimates of a few years ago of sh500b lost to corruption annually. Clearly there has been some steady progress in this respect.

To this number the new IGG added losses due to absenteeism of about sh2trillion and to round it off sh15trillion in losses due to environmental degradation.

"While it was a relief to know that the rapacity of our public servants had not hyper inflated, there is still a lot of cause for worry....

In my book corruption is one of the biggest causes of inequitable distribution of the benefits of the growth of the last three decades.

The budget this year stands sh44trillion assuming a population of 44 million that means the government plans to spend a million shillings per Ugandan. So the two trillion lost in taxes, procurements and misuse of public facilities is the allocation for two million Ugandans gone into a handful of people’s pockets. And after denying the two million Ugandans security, infrastructure and social services what do this handful of officials do with their ill-gotten gains? They improve the security around their mansions, fly their children to school out of the country and themselves for annual health checks, that is before we talk about lavish holidays in the Seychelles, Cape Town or the French Riviera.

It is already bad enough that government is spending a miniscule million shillings annually on every citizen without some rapacious officials keeping for themselves the entitlement of thousands of Ugandans at a stroke of a pen.

But by widening the definition of corruption to absenteeism and environmental degradation the IGG is saying that corruption goes beyond stealing funds in the present to also the medium term effects of cutting work and the long term effects of environmental degradation.

The rich man who fills up the neighbourhood wetland today to build his apartment complex may not only be depriving the community of a water source today but is also causing flooding and its attendant effects on the community. The factory owner allowing untreated effluent into the lake is raising the cost of tap water and therefore denying poorer communities of safe drinking water. Cutting down trees to develop massive agricultural enterprises may contribute to climate changes that kick the ladder from under the poor. And on and on and on.

It is useful attempt to come to grips with the full extent of what constitutes corruption and hopefully then makes the fight against the vice more effective.

But it has been said before in this column that the fight against corruption will only begin to gather traction if we demonise to the point that the perpetrators are shirked like the man who defiles his infant daughter. There has to be social censure, we have to agree that this is a vice that affects us all even if the money is eaten in faraway Kampala...

As it is now our corrupt officials are given p[ride of place at Sunday service at our weddings and other functions. The message to all is that you have to take private advantage of your office wherever you are in order to be taken seriously in our society. Therein lies the problem.

 

THE OPPOSITION: ANOTHER SHAKING MY HEAD MOMENT

A week or so ago another political group, the People’s front for Transition (PFT) was launched and promptly announced Kizza Besigye as its leader.

Something had been brewing for some time. Besigye it has been reported, has been holding meetings with opposition leaders since the January election in which President Yoweri Museveni retained his seat and Robert Kyagulanyi came in second. This was the first election since 2001 that Besigye has not been on the ballot paper, an omission that maybe prompting his latest maneuvers.

The public reaction to this latest move is mixed. On one hand Besigye’s critics think he really cannot stand to be out of the center of Uganda’s political stage. People were clamouring for him to step aside, which he did and see what happened. His successor flag bearer at the forum for Democratic Change (FDC) Patrick Amuriat polled under five percent of the vote in the January presidential polls.

Those sympathetic to Besigye see him as the only credible counter to Museveni, never mind he has lost in all the four challenges he has mustered. They think he is too important a political figure to be left out in the cold as seemed was happening in recent months.

For the neutral observer Besigye’s most recent reincarnation raises some disturbing questions.

"If one of the biggest criticisms of the National Resistance Movement (NRM) is Museveni’s dominance, near omnipotence in the party and how it has stifled the upward mobility of other potential replacements to him. In Besigye they see a similar trajectory in the FDC and in the opposition as a whole....

Kyagulanyi’s challenge for the presidency while it ended in defeat, served to reconfigure the composition of parliament, with his nascent National Unity Platform (NUP) uprooting FDC as the leading opposition party, while at the same time engineering an ejection of all NRM’s bigwigs in central Uganda. That being said there are doubts about whether Kyagulanyi has the stature of Besigye and the ability to similarly carry the opposition on his shoulders.

Relatedly what does the opposition’s over dependence on Besigye do for attempts to build institutional capacity in the opposition? If there was any proof that FDC is institutionally weak was the dismal performance of the FDC at the beginning of this year.

It was a double loss for the opposition. By finessing Mugisha Muntu out of FDC and replacing him with Amuriat, the general was out at sea without FDC’s near top of mind awareness country wide and failed to make an impression.

This ambivalence has allowed Besigye to step back into the limelight in a way his predecessor Paul Ssemogerere was unable to do. Ssemogerere run for the presidency in 1996.

But Besigye is not the irresistible force to Museveni’s immovable object. A rethink of how to unseat Museveni has long been overdue and with Besigye’s reemergence we can expect such plans to build up party capacity will not get much voice...

 

Besigye it seems has worked out that all he has to do is bid his time, remain relevant for the day that Museveni steps off the stage. As the second most recognized politician in the country the presidency would be in better sight than before, whatever the NRM can throw against him.

Of course, whether Kyagulanyi can sustain his momentum for the next few years may very well put paid to Besigye’s assumed strategy.

So Besigye’s return to the center has a net negative effect on the opposition, especially the ability to build their internal capacity.

In recognition of this there is rumour that plans are afoot to cause a constitutional amendment that would return Uganda to a parliamentary system. Under this system there would be no direct elections of the President but the party with the most seats in the house would have the right to choose the country’s president.

With one stroke this change – if true, would force parties to build up internal capacity, while reducing reliance on dominant personalities. And very well play into the NRM’s hands.

MTN AND THE SHORT VERSUS THE LONG VIEW

Last Monday telecom company MTN opened the sale of 20 percent in itself to the general public.

The sale or Initial Public Offer (IPO) will last till 22 November 2021, during which it is expected about 4.5 billion shares will be sold to the general public. Each share goes for sh200 and 500 are the minimum number shares one can apply for.

"MTN has thrown in a further sweetener, that if you buy the shares using your MTN number you get a bonus ten shares for every 100 shares. If you buy via other means – direct through the brokers with payment done in cash or through the banks, you get an additional five shares for every 100 you buy.

This amounts to a five to ten percent discount on every share you buy...

Shares will go on sale on the Uganda Securities exchange (USE) on 6 December 2021.

Since the opening of the sale of shares the chattering masses have gone into overdrive, analyzing the share issue, nine times out of ten without even looking over the 90-page prospectus, available to all online.

So to that extent you can imagine what the quality of discussion was, showing how financially illiterate we generally are.

For one thing people cannot make the distinction between an investor and a trader, therefore arguing at cross purposes.

While both are looking to preserve capital the trader is looking to make quick gains due to price fluctuations, while the investor is looking to buy into a durable company that can be held for longer periods benefitting from dividends and capital gains – price increases in the share price over longer periods. The two have different mindsets on the same issue.

So the argument tended to take the tone of there is no short term gains to be made in the offer versus those looking to longer term gains and arguing there is good value in the offer.

Even among the latter group there was some disagreement about whether there is scope for long term gain or not.

"It was like a sprinter arguing with a marathon runner about what the average speed is ideal to win a medal. On the surface of it the argument should not arise...

It was also interesting how we suddenly had a proliferation of stock analysts. As of last week there were 40,000 Securities Central Depository (SCD) accounts – many of whom have come on board in recent weeks due to a recent initiative to make it easy to register online and using mobile phones. The SCD account allows one to trade on the Uganda Securities Exchange (USE).

Given those few SCD accounts as a proportion of the national population or even the population of Kampala, who are all these authorities jumping out of the woodwork?

But it was an interesting study in investment psychology. You know how it is, you put your money together and decide to open a shop. There is something to say about consulting widely but anyone who has committed his funds to any enterprise knows how you will mostly get negative feedback, the shrillest from those who have never opened a shop.

"It is a human condition and not only peculiar to Uganda. That is why 90 percent of any population’s wealth is controlled by five percent of those populations. This small number are the ones who can break above the chatter and do what the majority are not willing to do to succeed...

It’s the same way MTN took a chance on Uganda – their first market outside South Africa, when we had a per capital GDP of less than $300 and other investors thought Uganda could not sustain a mobile phone market.

Twenty-three years later as a $1b-plus company, MTN is coming to the market. They have done all the heavy lifting and been paid handsomely for it, so we are being offered the finished product with a lot of the startup risks managed. The company has not reached its peak, if the experience of Safaricom in Kenya is to be referred to, so there is still a lot value to be created and shared with new shareholders.

Risks still abound and to the extent that they can MTN has outlined them in the prospectus.

There are no sure deals in life. In Uganda only death is for sure. Investors in the new MTN offer will hopefully appraise themselves of all the risks and if they think they can stomach the risk they will buy shares if not they will wait for the next deal.

BOOK REVIEW: THE HOUSE THAT MUSEVENI BUILT

 

The House that Museveni Built will catapult you, almost instantly, beyond a linear philosophical inquisition, into a powerful appreciation for the genius of hindsight. All through, it is brimming with that delectable blend of incisive content and punchy delivery that defies any attempt to be put down or skimmed through.

Armed with a dossier holding an unprecedented wealth of records painstakingly curated to account for the major contexts and game-changing events spawning over 15 years from 2005, PAUL BUSHARIZI leans into Uganda’s premium legacy debate with much gusto.

Like a storytelling maestro, he orchestrates the rebirth and placement of individual, seemingly unconnected pieces of the recent past into an articulate narrative that unravels the central themes of the Uganda experience, spotlighting the consistent presence of President Yoweri Museveni’s signature.

"The book is relentless in stripping bare the layers of ignorance, misinformation and outright deception insulating the past from accounting for the present...

When you learn of the quiet trauma of a nation trying to tear itself apart to flee its own identity; or you are immersed in the profound valour of a people, desperately spinning wheels in the death clutch of economic predators yet set on escaping the cold abyss of poverty; or you are made to see the rabid fears of an inner circle, inexorably trapped between untold riches and ruthless power games; or you get to see how messages of hope and helplessness have simultaneously burgeoned into monsters of hyper paranoia; it is never without credible attribution. You are subliminally invited to connect the dots in a myriad of ways. The haze is lifted, questions become answers, answers morph into questions. You read again.

The articles are brilliantly sequenced to provide surprising insights into the man, the machinery and the mentality that have sedated a restless people for more than 35 years and built a mammoth chicken - egg contest between a master strategist and an overwrought project. Did Museveni make this Uganda or did this Uganda make Museveni?

"It takes unbelievable courage to blow away the dust of time like a scene-of-crime detective, and reveal the fingerprints of the main protagonist without being judgemental....

The House that Museveni Built is a masterpiece that will strongly contend as the preeminent reference for any credible study of Uganda’s first 2 decades of the 21^st century and that uncharted subject - Musevenism. Yes, because the feet on the same body cannot walk away from each other.

The book is available HERE

MTN’S JOURNEY FROM START UP TO THE STOCK EXCHANGE

I remember it like it was yesterday. The first day that telecom company MTN opened for business. I stood in line to get my MTN number, one of hundreds with sh70,000 clenched firmly in one hand and phone in the other. The sim card cost sh30,000 the rest was loaded on the phone as airtime.

Up to that point the sole mobile phone provider Celtel, used to charge for airtime in US dollars and had a punitive service fee  – it cost $10, which lasted a weekend when time was up you could neither receive nor call out.

Their airtime too was very expensive because in November 1998 – my first full month on MTN, the accountants had to call me in because my MTN airtime claim had fallen to sh200,000 from $400 paid to Celtel the previous month, for the same volume of work. The dollar then was about sh1,300.

"But our joy of shedding off the shackles of Celtel were short lived as the MTN system soon, within the hour crashed under the weight of the new numbers. I later learnt that MTN had installed a 14,000-line switch at Mbuya, the planners thought that would be good for a few months were soon back to the drawing board...

I would have paid to be a fly on the wall at the swanky new Celtel headquarters, which they bragged had cost sh4b, when they saw their subscriber numbers fall off a cliff that day.

At the time Uganda was at the tail end of its privatization effort and was moving into the more intricate liberalization phase. I covered the search for a Second Network Operator (SNO) as a journalist and one of MTN’s target as the SNO was to sign up 89,000 new subscribers within five years.  That doesn’t seem like much today but at the time Uganda Posts & Telecommunications Corporation (UPTC) the state owned telecom company had 50,000 subscribers. It was later split in to, which was split into UTL, Posta and Postbank.

By the end of the next year MTN had surpassed its 89,000-line target and I heard there were mutterings in the corridors, that the condition was for copper lines – used by the old analogue phones and not mobile phone lines. Probably a shakedown operation.

MTN has never looked back and to see them in action now one would think they were the pioneers of mobile telephony in this country.

But it’s not only the telecom industry that was shook up.

A few years later MTN went to the banks to borrow the billions it needed to keep up with the huge suppressed demand. I don’t remember the details but the bond the issued for the money was supposed to last five years but after the second year they wanted to pay off the debt. One bank refused to take back their money. Their argument was that they had planned on those cashflows coming in over the next few years and to take the money back now would throw their budget off.

So today when MTN – this country’s only billion-dollar company, announces the details of their share offer, it will belie an adventure the South African company embarked on in 1998 that, along the way, has paid off handsomely for its investors, the economy and its users.

Because people forget that Uganda was MTN’s first market outside South Africa and the one, which pointed to the huge demand for the unique kind of service they could provide, having cut their teeth in the townships of South Africa.

"It’s the Ugandan experience, which emboldened them to go into Nigeria, which long overtook South Africa as its biggest market....

MTN plans to sell about one trillion shillings’ worth of shares over the next six weeks to the public. The price of a share will be announced today but following what is becoming our rule of thumb, one can expect it will be cheaper than a bottle of soda.

While the Umeme share offer of almost 10 years ago raised more than sh100b more than the Stanbic offer, the bank’s offer has been the most exciting to date, but MTN’s offer is set to move the excitement needle beyond red. Not only is it almost ten times bigger than the Umeme offer but MTN’s top of mind recognition among the public is universal and that will count for a lot.

Interestingly across the border the Safaricom initial Public Offer (IPO) in 2008 was also the most exciting share offer on the older Nairobi Stock Exchange (NSE) at the time. At the time Safaricom dominated the mobile phone market, accounting for almost four in every five subscribers and was just getting into data services and M-Pesa – their world renown mobile money service. They have maintained their dominance in the market, some would say have cemented it, and their share price has risen eightfold since the IPO.

MTN now is around where Safaricom was then.

 

 

 

 

 

INDPENDENCE DAY AND THE DUBAI EXPO

Tomorrow we commemorate 59 years of independence. This year’s celebration comes hot on the heels of an outcry about our underrepresentation, misrepresentation or representation at the Dubai 2020 Expo.

The long awaited Dubai Expo opened its doors to the world last week and for the next six months will be the one place to go to explore countries from around the world, what they are about and what they have to offer.

Uganda has a stall at the Expo and thanks to the magic of technology, Ugandans at home got near real time pictures and video on what we were up to. The criticism came fast and thick after pictures of a few tins of milk, boxes of tea leaves, handwoven baskets and pictures of gorillas came through.

"The critics were scathing in their condemnation --- a lot of it knee jerk reaction and the default mode of the chattering masses online....

The net reaction is that again we had embarrassed ourselves with a sub-standard display, we did not get value for money and of course the top heavy delegation came in for particular flack.

I had to look again.

As I said the critics were either being unfair, disingenuous or downright nasty. I couldn’t think of many other things other than the ones I saw on display that Uganda can be globally competitive in.

The now permanent secretary at the finance ministry, Dr Ramathan Goobi pointed out a while back (when he was s till a mere mortal) that the incoming lane on the Jinja-Kampala highway was lower than the outgoing lane, an indication that the loads coming in are much heavier than the loads going out. A useful proxy to indicate that we import more than we export.

According to the last Uganda Bureaus of Statistics (UBOS) figures in 2019 we imported $7.7b worth of goods while shipping out goods worth $4.4b.

Going by these stats alone it should come as no surprise that Uganda’s shelves at the Expo are a bit bare.

But we don’t have to travel all the way to Dubai for this truth to be evident. Our supermarket shelves are dominated by foreign imports. Granted, its less now than a few years ago but the bias is there.

So the Expo emphasizes a greater challenge, one that dogs us almost 60 years as an independent nation, that we produce little that is internationally competitive – our raw coffee beans, tea leave and fish are about it, low value commodities when we should have got around, a long time ago, to exporting these processed. We would have managed to have a foot in the door of those insanely competitive markets and by now be exporting meaningful quantities.

It can be argued that we have been up to our eyeballs in the business of digging ourselves out of the hole of the 1970s and 1980s, but that line can only go so far.

"The truth is to export we need to ramp up production to multiples of what we consume locally. So currently the only things we produce that could possibly sustain a local industry, let alone meet export demands are coffee, fish, tea, milk and grain...

To show how inadequate our production is, I learnt recently that we produce about 14,000 tons of tomatoes a year, all of which we consume. A cursory look online for plants to process tomato paste, I happened on one which could manage to process 2000 tons daily or would sort our national output in a week and be redundant for the remaining 51 weeks of the year. Ok even if we got a smaller plant that would process 100 tons daily it would have taken 20 weeks to sort out the nation’s harvest.

To have a tomato paste industry in Uganda we would have to increase production by multiples of its current number. And this goes for any other crop we produce.

Taking an industry from zero to exports has been done in our life time and the lessons are there to learn. We did it with sugar, milk and gold.

It takes the execution of a national strategy that includes increasing production, enabling market access, supporting research & development, availability of affordable financing and good management.

So the Expo has reminded us that despite our middle class speaking English and wheezing around in second hand cars, we really don’t amount to much...

One last point and which speaks to our inability to lift ourselves off the floor. The lineup of government officials who were in Dubai for the first week inspired little confidence in our chances of turning our current plight around.

While Uganda Investment Authority (UIA) was present we must know by now businessmen pay little heed to government officials in deciding to invest in one country or another. They prefer to talk to one of their own a fellow business person who has skin in the game.

If there were no serious business people to make the trip with the president at least Uganda Development Bank (UDB), Ugandan Development Corporation (UDC) would have pride of place ahead of politicians, bureaucrats and glad handers.

 

BOOK REVIEW: MUSEVENI'S UGANDA; A LEGACY FOR THE AGES

The House that Museveni Built: How Yoweri Museveni’s Vision Continues to Shape Uganda

By Paul Busharizi

 On sale HERE on Amazon (e-book)                                    

326 pages

Guest writer: David Sseppuuya

 

Paul Busharizi is onto something here. Longevity in power or an extended stint on the throne will, invariably, impact a nation for generations, for better or for worse. They still talk about the Victorian Era in Great Britain, as they do of the Thatcherite years of that country’s more modern construct. There are still reflections of Stalinism in the Russian mirror today, as there is a large Mobutu imprint on all aspects of Congolese life, whether personal flamboyance or wastage of great natural wealth or hedonistic lifestyles. Pope John Paul II’s philosophy defines much of what the Roman Catholic Church will be for the foreseeable future, as will Robert Mugabe’s legacy, within and without Zimbabwe’s borders.

In the final analysis, the weighting of long rule tends to present either of two verdicts: good or bad. Or could there be a halfway point, a job half done, as the cover of ‘The House that Museveni Built’ can be interpreted?

Is this a fly-on-the-wall account, or a bird’s eye view of an observer of society, as journalists like to self-identify? Media professionals are privy to, and are privileged to be receptacles of, many goings on in the upper echelons of society, and in this book there is the odd nugget to reflect this. As Busharizi confesses, ‘The House that Museveni Built’ was not intended to be a comprehensive account of the Uganda Museveni has forged, but more the way he has seen the country change during his time as a journalist, what he calls the “interplay of politics, economics and culture that was happening and its influence on events.”

This book is a compilation of articles and commentaries published over a decade, which gives it a panoramic view. Written in real time, they have the authentic feel of that journalistic self-description of “observer of society”. But that also means that they lack the hind view perspective that the historian has, a challenge that is mitigated by the use of footnotes.

Busharizi makes a scythe through Uganda’s politics (electoral and governance), geopolitics (regional and global), economy (trade, business and development economics), and society (people, places and institutions) by way of commentaries penned independently with the macrobian rule of Yoweri Museveni, 35 years and counting, providing the spine.

Arguably Uganda’s leading business journalist of the last 20 years, the 2000s, Busharizi’s strength and bias creeps through. If the lay of the book is the topical subdivisions, he is at his best with matters business and economic, opining with knowledge and authority on subjects as varied as the Human Development Index, the Ten Point Programme, the Bretton Woods Structural Adjustment Programme, national debt, ‘nseenene’ trade, and procurement protocols. It is little wonder, then, that at The New Vision he gravitated from the Society Desk to the Business Desk and even had a stint with Reuters, the global business news beast, as Uganda Correspondent.

 The book serves as a public journal of sorts, flagging important national developments, seen through individual players, events, patterns and trends. Others are landmark events in the lives of personalities and the effect they have on the communities and systems they are a part of. Being topical, as opposed to chronological, gives the book a dynamism often lacking in memoirs, though it is not a memoir in the strict sense of the genre.

A special strength is the occasional parallel drawn with other societies, indicative of the observant and informed professionalism that made Busharizi such a valuable asset in a knowledge environment that the newsroom is (this reviewer was his first editor when young Busharizi was still at university, quite a while back). He, for instance, cites the contrasting political leaderships of the US and the UK, the former based on personality, the latter on party machinery and society’s appreciation of a party’s positions. In analysing the staying power of top leadership, parallels are then drawn with Uganda’s ruling NRM and the opposition party, the FDC.

However each piece being a reprint of the observations penned in the immediacy of their occurrence means that there is little or no benefit of wholesome analysis. Footnotes help mitigate this.

In his musings, Busharizi makes observations such as, “The NRM, forged in the heat of the Luwero triangle and moulded into a multi-million-person organization since 1986, has made itself indispensable for anyone who has serious political aspirations in this country”. This was noted on the eve of Christmas 2014, a point in Uganda’s political history when post-1986 personalities Patrick Amama Mbabazi and David Sejusa flirted with opposition from within the NRM. It is a succinct observation, penned under the headline ‘Only Fools Don’t Change Their Minds’ that embodies the kinetics of the politics of NRM/Uganda under the leadership of Museveni.

Like that account, many of the entries are microcosms of the dynamics of Ugandan society. Take electoral politics and the never-ending popularity contests that are endemic to the governance of nations: Museveni has been good at courting the female half of the population, making many policies that advance the cause of the woman. There are the earlier policies like women representation in Parliament and affirmative action in university enrolment, which have been around for so long that many probably take them for granted. But in his political astuteness Museveni keeps renewing his appeal to that demographic: Busharizi notes that the 2021 appointment of female leaders to the Vice Presidency and the Prime Minister’s seat, two of the top three political offices, combined with the appointment of women in four out of ten ministerial positions, was more a strategic move and less of grandstanding.

 

The book does not have much of Museveni the personality; rather, as the title proposes, it is more of commentary on the systems and functionalities of the construct that is Uganda under his leadership.

Busharizi is neither an apologist nor a rabid opponent of Museveni or the political status quo, dispositions that lend credence to his analyses and observations. He therefore comes through as a credible exponent of that critical journalism ethic of being disinterested but not uninterested. Disinterest plays out in admirable levels of objectivity, while not being uninterested manifests in real passion for Uganda. The 9 February 2021 entry typifies this: in the wake of NRM’s electoral victory, secured in an environment of a Covid-emasculated economy, he criticises the bloated Parliament of 520 representatives, not with emotion as many regime critics tend to do, but by making this objective observation: “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. 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….. when your incomes are falling you have to cut your expenses, but clearly not in Uganda. It would be funny if it was not frightening.” Few would dispute that perceptive remark, whatever their political leanings.

 

This collection of reflections will serve as a small but significant record of Uganda’s political and economic history, observed and penned in real time. It is a truism that newspapers are the first rough draft of history. This is a well-crafted draft, a worthy contribution to that point in future when the Museveni years are evaluated with the benefit of hindsight.

‘The House that Museveni Built’ will be published online on October 9, 2021

dsseppuuya@yahoo.com

Twitter @DavidSseppuuya 

                                            

 

 

NSSF:TO WHOM MUCH IS GIVEN, MUCH IS EXPECTED

There was jubilation in the streets of Kampala when National Social Security Fund (NSSF) announced 12.15 percent interest on member savings for 2020/21.

I exaggerate of course. But it was a good rate, better than the previous year when they gave members 10.75 percent  and the best rate we have received since 2018 when they announced 15 percent. This is a rate better than what people get on fixed deposit accounts at the bank and rightly so.

With a portfolio which is overweight, 78 percent on fixed income – government paper and fixed deposits, it would be scandalous if they could not manage a double digit return. This coupled with their progressively lower cost of administration, down to 1.06 from 1.19 percent of assets the previous year, means they can shift more of their returns to members than other players can. Traditionally asset managers charge two percent of assets.

Assets under management rose to sh15.5trillion from sh13.3trillion but the interesting statistic is that despite the vagaries of Covid-19 for the third year in a row NSSF is making more money from its investments, sh1.8trillion than it is raking in from member contributions, sh1.2trillion. this is a factor of the rate of growth of contributions is slowing as the compounding effect, earning interest on interest begins to go exponential...

Looking in from the outside, one is tempted to think NSSF have a tested business model and that they can now press automatic and cruise from here on, into the future.

That last statistic shows that this is not the time for the NSSF management to rest on its laurels. The fund is hitting maturity and in order to sustain the momentum it needs to increase its efficiency and find new avenues to park its money.

According to their strategic plan NSSF has as an intention to reduce its exposure to fixed income to 70 percent, increase the portion committed to equity to 25 percent and have real estate account for five percent of its total. The current distribution is 78 percent, 15 percent and seven percent respectively.

A rebalancing of the portfolio is necessary to optimize member returns, however NSSF finds itself playing in a small pond.

For the time being government paper continues to be lucrative, but that is because of government needs to finance its development agenda, with oil on the horizon will this still be an issue? The local equity market is too small to lift the needle for NSSF.  Uganda Securities Exchange (USE) market capitalization – the value of the companies whose shares are trading on the exchange is sh20.7trillion. NSSF whose equity portfolio stands at sh2.3trillion has disproportionate share of the floating shares on the USE. In real estate NSSF, with a trillion shilling in holdings, is punching well below its potential.

NSSF will always be a big player in government paper the challenge is to increase the equity and the real estate space.

Mobile phone company MTN is set to list its shares – at least 20 percent of the company on the USE by year end. With an expected sale of about sh700b expect this to give the USE a much needed shot in the arm. Airtel should be coming onto the market in a year or so down the line. These two listing may serve to increase NSSF equity holdings but not by enough.

"A strong lobby should be set up to compel more companies to list on the exchange. Companies which were privatized is a good place to start. The “gentleman’s” agreement can be invoked and they list their shares on the market....

Within the law too NSSF can set up a private equity fund, which would allow it to buy interest in local firms. This would require them to build in house capacity in this direction and have direct impact on local economic players.

In real estate NSSF is setting up very well to be the biggest real estate developer in the country. The Lubowa and Temangalo projects alone will bring more than 7,000 units to the market over the next decade. But more can be done.

How about NSSF buys a bigger stake in Housing Finance Bank (HFB), where it currently controls 50 percent of the company. This would tie in very well with their real estate development plans. A better capitalized bank would be employed to finance other developers and also provide mortgages for NSSF’s units coming to market.

HFB’s paid up capital is sh61b, half the amount NSSF collects from its members monthly.

A takeover of the troubled National Housing Construction Corporation (NHSCC) would be an interesting possibility as well. Dogged by shareholder disputes and undercapitalization NSSF could very well be the knight in shining armour the underperforming company needs.

Government should consider too, underwriting infrastructure costs in the development of real estate to lower the costs to intending buyers, not only to NSSF but for the industry as a whole.

And if, as is this government’s wont to drag its feet, we should lift restrictions on how far afield NSSF can invest its funds. International markets can swallow anything NSSF can throw at them.

I can understand the argument for keeping NSSF funds close to home, but if we don’t do anything to increase NSSF’s options locally it would cramp their style and make them fail to give the double digit returns we have become accustomed to. Government should care about this, because NSSF is our best long term saving vehicle and can be a major driver of this country’s development, as long as workers trust it and continue to save with it.

The point is for NSSF to sustain or exceed its growth trajectory while it is restricted to investing only within the East African, means it is only a matter of time before the biggest Fund in the region begins to falter in living up to the high expectations it has set itself.