OUT WITH THE OLD AND IN WITH THE NEW

My friend is practically dancing in to the new year. In 2022 he had a eureka moment, which led him to track his financial progress.

My friend, lets call him Jack, had heard it all before, “What you focus on expands” , “You cannot manage what you do not track” etc etc. In fact he was guilty of giving other people advise on how to track their finances.

Jack in the evening of his working life, at the beginning of the year wondered what he had to show for all his “hard” work.

So, he put pen to paper and drew up a balance sheet of his life. At first it went beyond his finances, but the state of his finances stood out, among all the other things he was tracking. The others were his physical, mental and spiritual progress.

In the “Millionaire next door” authors Thomas Stanley and William Danko recommend a standard to determine whether you are doing well in how much you keep of what you earn – your wealth. Their formula – your net worth (assets – liabilities) should be more than your annual gross income multiplied by your age divide by ten, their measure of whether you have been an efficient accumulator of wealth or not...

Say you are 50 and have an annual income of sh100m you should have a net worth of 50 X 100/10 or sh500m. Your net worth is the sum of all you own, assets, minus what you owe, liabilities. So, if all Jack’s assets – house and other properties come to sh500m what he should owe no one anything. Of course, if he owes the bank some money it means his assets must be more than sh500m to qualify as doing well.

While at the beginning of the year Jack was comfortably over the mark – he had a net worth of just under sh800m, it was too soon to celebrate.

His salary constituted his major income and his assets were bringing in barely half of his annual income, so his assignment was to find ways to make his assets sweat more. This was the eye opener for him. That cut off from his job he wouldn’t get though half the year at his current lifestyle, despite a healthy net worth

He had always understood what asset rich and cash poor meant, but seeing himself as such drove the point home much better.

All along he had been walking around thinking he was successful but the reality on paper showed him he was a paycheck away from financial disaster.

Starting in the new year he started tracking his income and expenses, assets and liabilities and particularly trying to figure out how to earn from his assets and in he event he acquired more whether they made him money or not. He did this on a monthly basis.

His income from assets has not moved much but there has been an almost total shift in his mind set. He now has as his phone screen saver the saying “The goal is to be rich not to look rich” He has learnt that wealth is not loud. That the movements in his personal balance sheet will take a long time to be recognized by the general public.

"He has debunked the idea that you need to eat the sweat of your brow, that when you make money it is time to blow it. That was his previous mindset...

That, money is not for eating but for making more money. While he did not agree with that at the beginning of the year he has come around to that way of thinking more and more as the year comes to a close.

On the surface of it, it sounds like a miserly way to live, but he has since discovered that if he earns a thousand shillings and recommits sh700 to reinvestment and eats the rest his consumption is still sh300 more than it was the day before.

It doesn’t sound like much but if he maintains the discipline he will be eating sh3,000, the sh30,000, then sh300,000, then sh3m…. you get the drift. But before he can eat more he has to invest more.

By watching his numbers every month is much better able to make financial decisions than previously when he was guessing. He now knows how will allocate every shilling he gest to him the income from his assets rising throughout the year.

He now knows better, and wonders why he did not know this years ago. But he did, it was just not his time to appreciate it.

In the new year let us be like Jack lets track down our balance sheet, but more importantly how much money we are getting from our assets.

Merry Chirstmas and Happy New Year.

 

 

 

 

BEST OF THE BEST FARMERS AND THE RIPPLE EFFECT ON UGANDA

A week or so the New Vision celebrated the best of the best farmers from 2014 to 2018 Best Farmer competitions.

 Since 2014 New Vision has been profiling farmers who qualify to compete to determine who is the best.  The winners in addition to getting help to improve their farms, are flown to the Netherlands to learn from farmers. Another major sponsor of the event is dfcu bank.

"A better country than the Netherlands to use as an example, it would be hard to find. The Netherlands is second only to the US in terms of agricultural exports, in 2019 recording

€94.5b (sh366trillion), it accounts for a third of world chill, lettuce and cucumber trade and a fifteenth of apple production. Uganda’s agricultural exports in 2021 came in at about $5b(sh18.3trillion).

They produce four million cows, 13 million pigs and 104 million chicken annually. And as if that is not enough they have 24,000 acres or an area half the size of Kampala, under greenhouses.

This made all the more amazing when you realise that the Netherlands occupies about 42,000 km², a sixth of the area of Uganda.

Interestingly they have managed this high agricultural productivity while reducing water usage by 90 percent and ferterliser use just as dramatically over the years.

Just by looking at the numbers one can tell that the Dutch farmer has attained a level of efficiency and productivity, we can only dream of in Uganda, with our better weather, more arable land and double annual seasons.

One local ranch owner with a herd in the hundreds and lands stretching over a few square miles, on return from Netherlands years ago, concluded that we were joking in Uganda. He was put to shame by a farmer he visited who with a fraction of his herd and situated on barely 10 acres of land was producing more milk than he, many times over, with only he and his son as the permanent workers on the farm.

So, one of the tests of the best of the best farmers is whether they had improved their farming practice after their return from the Netherlands.

All the best farmers have returned from the Netherlands with the expanded outlook, improved their farming methods and increased their productivity.

Since 2014 the Dutch embassy and KLM Royal Dutch Airlines have sponsored the travel of 58 farmers, a motley crew that represent every region of the country. The best farmers have not only improved their farms but have proved useful resource for their communities. Many of them set up training institutions to transmit their knowledge...

It is not a stretch of imagination to think that if each of the farmers influenced 100 other that is 5800 farmers and if each of these influenced another ten and then … you get the drift.

There is a difference between politicians urging us to turn to agriculture or extension workers directing us what to do, but when we see one of our own working under in our context working and succeeding it is a higher level of learning.

And if the New Vision can keep facilitating the travel of our best farmers to the Netherlands the rural landscape can very well be transformed in our lifetime.

"While industrialization is what we aspire to, most countries transformed by first ensuring that they produced food surpluses. This did two things it ensured food security, which meant they reduced on their use of vital foreign exchange to import food and secondly, the surpluses beyond exporting them formed the basis of their agro-industries.... 

One of the things they learnt in the Netherlands is how to add value to their products and many of the best farmers now have cottage industries, processing their produce for use in their communities. Will be surprised when these same farmers become the backbone of our future agro-industrial base?

But the highlight of the event for me is when I sat with Flora Kakande of Pumpkin King. Her company grows and process pumpkin into a variety of products, but in addition is working to help farmers grow pumpkin, including refugees in western Uganda. Everything of the pumpkin is usable and have huge health benefits.

After hearing their story I wondered aloud why people like them do not make noise about what they do as the idlers who make more noise in begging ‘Gavumenti Etuyambe”

“But we are working when do we find time to make noise,” was her quick rejoinder.

MAKING SENSE OF THE BUSINESS OF SPORT

Last week former MP Odonga Otto lit up social media with claims that Uganda’s sports bodies, more specifically football governing body FUFA and the Uganda Olympic Committee (UOC) receive millions of dollars a year from the international parent bodies to support sport but that the sportsmen do not benefit.

The former MPs diatribe was prompted by the question “Why isn’t Uganda at the World Cup?”.

Interestingly movie streaming company, Netflix, released a docuseries “FIFA Uncovered” a damning expose of how football governing body is riddled with corruption.

All this was happening against the backdrop of one of the most exciting World Cup’s in recent memory.

I think the honorable Otto’s claims should be looked into, if only so our sportsmen can get the much-needed facilitation they sorely deserve. But that is a story for another day.

However, what piqued my interest this week was the release of Forbes annual list of highest paid sportspersons.

Its an exciting list, like all such lists go.

"At the top of the list was Argentine footballer, Lionel Messi who last year made $130m (sh480b) before tax on and off the pitch. Messi, 34, took a salary cut to join Paris St Germain from Barcelona but business partnerships with Adidas, Budweiser and PepsiCo more than made up for the shortfall and then some...

There were other household names in the world of sports on the list like basketball’s LeBron James ($121m), Stephen Curry($92.8m) and Kevin Durant($92.1m); Soccer’s Christian Ronaldo ($115m) and Neymar ($95m); now-retired Tennis player Roger Federer ($90.7m) and boxer Canelo Alvarez ($90m) among others.

Interestingly despite the recent global crisis, sportsmen’s earning have been seen a lot of inflation. A decade ago the highest paid athlete was boxer Floyd Mayweather who earned in ($85m) and Ronaldo was the only soccer player in the top ten.

A decade further back Tiger Woods was the top earning sportsman pulling in $69m that year. There was no soccer player in the top 10 that year. 

Clearly more and more money is being thrown at sport, are we seeing a corresponding jump locally?

Our sports associations are largely run by volunteer administrators, who while not getting a regular income (so we think), hang on to their positions like grim death. If you line them up they are not the most altruistic members of our society, so you have to wonder why they keep in office for so long. For the love of the game? Puleez!

That aside the explosion in incomes for athletes around the world is a reflection of the need for content to feed the media. Revenues from broadcast long outstripped matchday seat sales for premiership teams.

It makes sense, the more people watching a sport, the more people will pay to slap their logos on those athletes to gain top of mind awareness with the consuming public...

So that seems to be a logical place to start, how do we attract eyeballs to our sports? With internet and the falling price of data It is easier than ever before to do this.  A half decent smartphone positioned to film from a strategic place and live streaming on any number of social media would be a good start.

For people to consume your media product they need they need consistency and quality and then the numbers can be sold to corporate clients. Its not automatic that the numbers will flood to your uploads that is a function of awareness building and marketing.

The following that comes with that can then be leveraged for sponsorships. Increased revenues can then be used to beef up sportsmen welfare and improve existing infrastructure

I simplify of course but it is actually a linear logic.

The sports administrators will complain that this needs money anyway. True, but the administrators need to cross the table to the side of the corporate sponsors to see things from their perspective.

The man with the budget is looking to see how much bang he can get for his buck, the assurance that if he gives you money, he will be able to report more sales of his product or greater brand awareness. If you can show him that, it makes it that much easier to loosen the purse strings. Its sales 101, show me value and I show you the money...

The money man on the other side of the table want also to see organization, so that he is sure that at the minimum his money will be good use and better still there can be a long-term relationship built. So, our organisations need to get organized (ironic?) before they can get money. Is it in anyone’s interest to keep them disorganized?

By the time Ronaldo commands $55m in off field income, his agents can point to the more than 690 million social media followers around the world, as a guarantee of eyeballs on him. These are independently verifiable. And by the way Ronaldo has all these followers due somewhat to momentum – I am following Ronaldo because my friends are following him, but more because his followers came from a deliberate marketing effort. You try to get a thousand followers on social media and you will see how hard it is to raise numbers.

KAMPALA SHOULD LOOK BEYOND SOLAR LIGHTING

I am currently eyeballs deep into the book “Power Play” by Tim Higgins, a book about the building of electric car company, Tesla.

Tesla is the company responsible for vaulting South African-born Elon Musk to the top of the wealth rankings last year.

It is an amazing read for anyone interested in getting the unvarnished view about how to build anything – the discipline, the struggles and how often successful founders come to the edge of failure only to survive mostly on the strength of a lofty vision.

And it is also an interesting book about the issues surrounding the future of cars and their use as we know them.

One of the biggest challenges for rolling out the Tesla was that you needed charging points around the car routes, otherwise the market for the car will always be limited. It reminds me of a time when, if you wanted to make a journey say to Mbarara, you had to make sure you filled your tank at the start of the journey, because of lack of fuel stations along the way, which is not the case anymore.

A combination of private capital and government concessions have made it possible for Tesla to dot a lot of North America, Europe and urban China with their charging points.

Which brings me nicely to Kampala City.

Plans are afoot to install lighting on the streets of Kampala. This is long overdue given the hundreds of kilometers of paved roads that have been laid in the last decade or so.

The plan as I understand it, is that the lighting will be solar powered.

Before reading the Tesla book I might have been sold on the solar plan, but I have reason to rethink this given our current context and the future.

First off, we are going to have an embarrassing abundance of hydroelectric power within the next year with the long-awaited commissioning of the 600 MW Karuma dam. This is power will need consumers and street lighting will be a good place to start. We know of course that this will cost money to the City authorities but I am sure government would be amenable to some concessionary tariffs for streetlighting. Package it as a security issue and the argument will get a lot of traction.

But money will not be an issue if we repurposed these street lights to not only provide lighting. They can serve as the basic foundation for electric vehicle charging points, starting with electric motorcycles and eventually cars. These cannot be serviced by the solar panels that would be installed for lighting.

The beauty of it is that while solar power is green power, what better green power is there than hydroelectric power.

But looking into the more immediate future, plans are underway to introduce 5G and other communication technologies. 5G technologies will require small cells to be installed at regular intervals for the efficiency of the system to work and these will require power 24/7. It would make sense to design the new poles in such a way as to accommodate these new technologies, which the current solar lighting poles are not designed for. By using the streetlighting poles even services like location finding would be much better than they are today and make ecommerce all the more efficient.

"One of the challenges of Kampala is that we do not have common conduits for infrastructure. That is why every time one utility or another wants to lay their infrastructure they come and tear up our roads and compounds. This is expensive and inefficient.....

If KCCA thought beyond just streetlighting, they would help in alleviating this problem. The streetlighting grid can serve as a useful backbone on which all these other technologies can ride if it uses hydroelectric power and not the current limited solar powered solution.

In the world of finance there is also now a lot of green funding as the west tries to assuage its guilt for messing up the planet. So, funding this project if well packaged might be much less costly than anything else.

And the icing on the cake for KCCA, these applications – EV charging, 5G networks and whatever other uses are planned for the future, will be growing revenue streams for the city as we shift towards electric transport and use our phones more and more in our daily lives.

And for the citizens of Kampala reduced disturbances from workers tearing up our roads every other day to lay this or the other infrastructure.

 

THE BUSINESS OF THE WORLD CUP

It has been 40 years since I was introduced to the football World Cup. The World Cup in 1982, held in Spain, was won by Italy.

The tournament also introduced us to the Tango Espana, the official ball of that World Cup, and the last genuine leather ball to be used in the World Cup. That ball, a more stylish option to the old black and white ball, was a collector’s item in the playgrounds that I grew up on.

It was the year that Italian Paulo Rossi, previously suspended for match fixing, was top scorer and player of the tournament. He is one of only three players to ever have won all three – World Cup, Golden Boot and Golden Ball in a single tournament. He fired up our childhood imaginations, we all wanted to be Paulo Rossi.

This year’s World Cup did not seem to be accompanied with the funfair I was used to. Maybe because of my lowered expectations, I have been pleasantly surprised at how I have enjoyed the matches. It helps of course that the underdogs are upsetting the form book, as well.

But ahead of this edition of the World Cup, the story of how much Qatar had spent to host the event was big news.

"According to who you believe Qatar has spent about $300b (sh1,100trillion) over the last 12 years in preparation for the event. To put this in perspective Qatar has a GDP of $180b so they almost spent twice the size of their economy on this World Cup. Or to put it in better perspective over the last 12 years they have spent the equivalent of the GDP of Uganda every year to prepare!

And even more jaw dropping is that the Qataris expect the games to bring in $17b over the mouth long event, not even ten percent of the initial cost.

The figures are further mind boggling when you see that this World Cup is going to cost more than 15 times the $15b spent in the 2014 Brazilian edition, the next most expensive World Cup ever.

The Qataris are asking, who says we should recoup our investment at the World Cup?

The investments? They have built eight stadiums from scratch of which seven will be dismantled after the games; They built 108 hotels to house the estimated 1.3 million visitors they expect during the month-long event; They have doubled the capacity of their airport and built a whole new railway system under the desert.

Most immediately this huge government expenditure is driving Qatar’s economy, which has been growing steadily for the last decade and set to grow in double digits this year.

"But while the World Cup has triggered this massive outlay, it is only part of a larger plan to make Qatar a global transport hub. Of the reported $300b only $10 billion was spent on infrastructure specifically for the World Cup, which means developments will continue after the final whistle is blown.....

It makes sense. While the leaders of Qatar are not beholden to their people in the “western” democracy sense, they needed a big event like the World Cup to not only trigger the massive expenditures we have seen, but also announce to the rest of the world that they are open for business. Which better event to use than the World Cup?

Understandably, one of the major winners of this construction boom is the Qatari construction industry, which given the capacity they have built will be able to move more aggressively to take up contracts at home and abroad.

But given the growing momentum of the green energy movement, the oil sheikhs of the middle east have seen the writing on the wall and preparing to pivot away from reliance on oil revenues. Dubai was the early bird on this.

In the late 1970s and 1980s China went on a similar spending spree on infrastructure and human capacity development. At the time western economies were similarly unimpressed and wondered what they will use all that capacity for. China is still building but is also now the second largest economy in the world and may very well rise to the biggest economy within the decade.

"The narrative has been, up to this point that these big extravaganzas – including the Olympics, are just gravy trains for the ruling government and their cronies, that actually leave the tax payers picking up the tab with little benefit to themselves....

The Economist last week had an infographic that showed that apart from the World Cups in Mexico and Russia in 1986 and 2018 respectively, all other World Cups since 1966 have spent more than they earned during the event.

It may just be that after Qatar other governments may start scrambling to host future events, planning them to have longer term benefits to their respective economies way after the event.

Of course, planning is one thing and the reality is something else altogether. The Qataris have set their plan in motion we should return to this space in a decade or two to see whether it actually panned out. See you then.

IS UGANDA’S DEBT SITUATION A WORRY?

Uganda’s debt burden has grown dramatically over the last decade, during which we have recently crossed the psychological important 50 percent debt to GDP line.

Observers warn that we are moving into dangerous territory, fearing that more and more of our budget will go towards debt servicing and not towards improving education, health and other public goods necessary to drive development.

The critics are right and wrong.

I went back 25 years to a time when our debt burden had reached unsustainable levels, to the point where we were bunched into a new category, Heavily Indebted Poor Countries (HIPC) with 38 other countries.

In 1996 we had debt to GDP ratio of more than 50 percent with debt stock of $3.7b against a GDP of $6b in 1995/96 for every hundred shillings of revenue we were collecting sh21 went to debt servicing.

Fast forward to today and once again our debt to GDP ratio has touched the 50 percent mark and we are spending about sh30 of every sh100 collected to service our debt.

On a purely numbers level we are back to where we were in 1996 and if there were concerns then about the economy then we have a right to be concerned now as well.

From our personal experience the thing about debt is whether you can earn enough to cover your obligations and have something left over to live on. Maybe even more important is what you spend your debt on, on things that will earn you more money in the future – easing the pain of repayment or spending on things which will incur more costs and guarantee that your debt will chock you.

As for people so for countries.

So, while our debt levels have jumped to about $20b, a more than fivefold jump from 1996, GDP during the same period has jumped more than six-fold to $40b from $6b....

In theory it can be argued that we did a good job in employing the debt to generate more economic activity. How efficiently we did this, maybe a debate for another day.

The thing with debt is that when you contract it is always a race against time.

For instance, when you borrow money to stock your shop, you are hoping the sales you make from the new inventory will pay for the loan. However there maybe delays in getting the stock on the shelves or God forbid! Another lockdown and suddenly your well laid plans will count for nothing.

But whatever happens you will have bought stock, which it will be reasonable to think will be sold one day. You could do worse for yourself and buy yourself a car and instead of increasing your income will actually increase your expenses – fuel, service, parking stickers among others. So, in addition to paying off the loan you are bleeding money to run the car.

In respect of this, in 1996 Uganda Revenue Authority (URA) were collecting sh646b while this financial year they are aiming to collect sh22trillion a 34-fold rise in revenues.

Revenues come from taxing economic activity. Of course, it could very well be that URA is becoming more efficient in collecting revenues but the bigger reason is that economic activity has increased during the period.

How do you increase economic activity? You maintain peace and security; you build infrastructure and you improve the capacity of your human resource through education and improved health services.

Lower economic activity, a hangover from the Covid pandemic, is forcing government to cut back on spending causing a lot of pain up and down the economy. But expectations are that the economy will return to its pre-covid growth ways by 2024 and the worst of this episode will be behind us.

It goes without saying too, that the economy’s ability to pay off our foreign debt is much better. In 1996 we had exports of $715m. Exports are important because its where we get the dollars to service our debts. In that year our debt service bill was $132m or about 18 percent of our export receipts. Last year our debt service bill of $760m was covered eights by our exports of$6.34b.

However, government has to improve its efficiency in converting debt into economic enabling assets. Projects are taking twice as long, if not longer to take projects from conception to commissioning. The time wasted has cost implications and also mean delaying economic activity that will reduce were debt servicing woes....

That is why the fight against corruption should go beyond lip service. Corruption beyond concentrating wealth in a few people’s hands, diverts resources from service delivery, depriving the majority the opportunities to climb the economic ladder.

But while we are on the discussion about debt sustainability, according to Bank of Uganda figures, about 20 years ago in 2003 our debt to GDP ratio peaked at 71.5 percent, and we are still here.

 

FACING THE CHALLENGE OF POVERTY ERADICATION: AN EU AND UGANDA STORY

What is poverty? What does it look like? What would it take to pull out of it, for the individual or eradicate it for whole communities?

At a very basic level the poor man cannot sustain himself. He cannot take care of the basics – food, shelter, clothing to a satisfactory degree. From a purely material standpoint the poor person has little or no income to speak of.

Going by that, getting an income has to be the first thing to look into.

A poor society is characterized by much the same, the only difference being it is scaled up to cover many individuals, many families, many communities. For communities you would still have to raise individual incomes but in addition ease access to market.

The 11th European Development Fund (EDF), which run from 2014 to 2021 sought to address this question among some selected communities around Uganda.  The €578m (sh2.2trillion) fund has bankrolled 120 projects and focused on transport, food security and agriculture.

While handouts can give the temporary and artificial effect of improved income, to increase income sustainably, one has to increase their value to the society. You do that by adding to your knowledge and experience. In the video above the turnaround in Laurence Kayeswa’s life from petty criminal to in-demand tailor is an apt illustration.

He learnt how to be a tailor, a skill clearly valued in and around he slums of Bwaise going by the success he has had in building a steady, reliable income, that he uses to support himself and family.

It may be of added advantage to teach him some business skills, that would help scale up his enterprise, serve more people and earn him more money. But for now, he is out of poverty and as a minimum target this was achieved.

The farmers of Mount Elgon Coffee and Honey Cooperative were an interesting example of how communities can be transformed. Already coffee farmers by the time an EU affiliated project the Market Access Upgrade Porgram (MARKUP), knocked on their door, its probable that they were only just making ends meet.

Under the program the coffee farmers were not only helped improve their farms, through improved coffee husbandry methods but were also encouraged to keep bees to improve their coffee farms and as anew revenue stream.

But beyond that, the project organized them into a cooperative that allows them to negotiate better terms from suppliers, bulk their produce and even add value. Value addition should mean the farmer would get a greater proportion of the shelf price for his crop.

User-owned cooperatives, if managed properly are an effective means of ensuring producers get a fair shake from the market. Many times our poverty is a function of our inability to aggregate our resources, be it land, labour or capital.

Similar benefits were seen among the cocoa farmers in Bundibugyo where MARKUP is present.

It is still early days to assess the long-term impact of these initiatives on their respective communities -- there are still thieves coming out of Bwaise and poverty continues to ravage the slopes of Mount Egon and Bundibugyo, but the basic principles are sound.

The EDF has done another important thing for these communities, creating examples from which the communities can learn. By designing the individuals and farmer organisations to stand alone, it is likely that the projects cannot only be self-sustaining but can be self-perpetuating in the surrounding societies.

It will be interesting to return to these individuals ten-, 20-years from now and see what has become of them. We may be pleasantly surprised.

EU ALLEVIATING POVERTY THROUGH SKILLING

Laurence Kayeswa has turned his life around from a common thief to a productive member of his society.

“When I used to grab people’s phones, I was always under tension. I was truly living by God’s grace,” Kayeswa, a resident of Bwaise, a Kampala suburb said recently. Income was unsteady, life was cheap -- it was not unusual for thieves to be killed by angry mobs for stealing less than a phone and understandably he had a phobia of the police.

“Because of my trade I could not face the police because you never knew whether they were coming for you or not.”

Thanks to an EU funded project run by Action for Fundamental Change and Development (AFFCAD) Kayeswa has been able to turn his life around. AFFCAD is a youth focused nonprofit organization seeking to transform the living conditions in Kampala’s poorest slum by empowering the youth and women using education, health and economic programs.

In search of a more sustainable livelihood Kayeswa enrolled with AFFCAD for a six-month course in tailoring. On completion he bought himself a sewing machine to which AFFCAD added another.

Kayeswa now runs a small team that sews everything from clothes to bags and his work has found a market.

“People are shocked that I can make these things and are eager to buy them. I now not only support myself and my family I now no longer get scared when I see a policeman coming down the road.”

AFFCAD has linked up with the government’s directorate of industrial training and these courses are now certified.

“As it is about 65 percent of graduates start small businesses and become more useful members of their societies,” said co-founder and social enterprise director Jaffar Tarzan Nyombi.

While charity is welcome in marginalized communities for it to have maximum impact it has to be targeted properly.

“Our experience is that it is essential to leverage private sector investment, in that way create more jobs and more growth,” said Caroline Adriaensen, head of the cooperation of Eu delegation in Uganda.

Such progams are part of the 11^th European Development Fund (EDF) to Uganda that run from 2014 to 2021. The fund which saw €578m (sh2.2trillion) disbursed during the period has supported 120 projects around Uganda in the areas of transport, governance, food security and agriculture.

Interventions like the above where people are taught how to fish rather than giving them the fish, have enduring transformations not only on the individuals but on whole communities.

Sometimes lifting people out of poverty is more an issue of showing them improved ways of doing what they already do than introducing them to a new income.

Through the Market Access Upgrade Program (MARKUP) EU support has been instrumental in helping small holder farmers around the country improve their production methods, access markets and improve their incomes in the process.

Julius Mkaboona inherited his cocoa farm from his father. The Bundibugyo area, bordering the Democratic Republic of Congo (DRC), has been known for producing cocoa but farmers stopped seeing the benefit of the crop leaving their fields to the elements or cutting down the trees altogether.

“But thanks to the training of MARKUP we have improved our production methods, our post-harvest handling, improving the quality of our produce and as a result get better prices for our produce,” said Mkaboona, standing in his lush green garden outside Bundibugyo town.

Across the country in eastern Uganda on the slopes of Mount Elgon MARKUP has helped farmers there increase production, improve the quality of their crop, do some value addition and brand their output.

‘We have moved from simply producing coffee to value addition and producing a high-quality coffee that some are shocked can come from Uganda,” said Noah Welihe, operation manager at Mt Elgon Coffee & Honey Cooperative.

The cooperative has a membership of 700 small holder farmers that not only produce the aromatic Arabica coffee but also honey for export.

These are but a few stories of the EU’s interventions around Uganda in helping families raise incomes and improve their livelihoods.

The formula of going to these communities and assessing what the best interventions are possible using the existing infrastructure is a winning one whose benefits are sustainable and replicable anywhere in the country.

 

 

LEADERSHIP AND CLIMBING OUT OF POVERTY

President Yoweri Museveni is reported to have been shocked at the poverty in the Mayuge region last weekend on his way to commemorate Bishop Hannington Memorial Day.

Museveni is reported to have refused to return to the area unless things improved markedly. He took particular issue with their lack of a tarmac road.

Which begs the question, how do communities climb out of poverty?

"Thankfully most of us are a generation or two away from our peasant ancestry, so examples abound of how to climb out of poverty....

I know one particular gentleman who was a toddler when his father returned from the second world war. His father was offered a bursary for one son to study.  This man whose brothers were much older, some married already, benefitted from the bursary instead of his siblings.

Years later there was marked difference between the family of the last-born son who went to school and that of his siblings.

So, lesson number one, education is a prerequisite for climbing out of poverty.

Part of the reason is that this man, call him Jack, was able to move away from the village, whose main activity was subsistence farming, to the big city where there was a lot of high value economic activity and plenty of opportunity for a person with an education.

Economic activity is concentrated in urban areas because the infrastructure -- energy, transport and communication, are concentrated there and make it easy for business to set up. But also just as important, if not more important, is the concentration of quality human resource.

Lesson number two, is that you have a better chance of climbing out of poverty in the urban areas than in the rural, that is dependent of course if you are educated or skilled to take advantage of urban opportunities.

Urban areas are also critical as markets for rural production. The concentration of populations means it more convenient to supply them than populations spread across huge areas. However, to satisfy those markets, production has to be scaled up beyond subsistence. The farmer who makes the most money from supplying urban areas is that one who can scale up his production or/and organize other producers to supply that market. Also the farmer who can do this and is closer to the urban area can earn more of the final shelf price.

The recent “Uganda National Household Survey, 2019/20” offers some clues as to why Mayuge and the general Busoga area may be lagging behind, despite its proximity to major urban areas and good agricultural lands.

The Busoga region is second only to the Buganda region in population size.  That may not be a problem, but for the region’s dependency ratio, which is only behind Karamoja areas at 108 per 100 working people. The dependency ratio describes how many people depend on the working people of the area and is often an indication of the average age of the population. The younger the population the higher the dependency.

Kampala, which has the lowest figure has 53 dependents per 100 workers. Its commonsense, more dependency less economic activity.

Interestingly, the Busoga area has a higher primary school enrollment 83.7 percent than the national average of 80 percent. The same for secondary school enrollment, which is 28 percent, higher than the national average of 27. Percent. While adult literacy falls off to 61.4 percent compared to the national average of 72.4 percent, the people of the region can not be accused of being illiterate.

As a further indicator of human productivity, the people of the area are not necessarily more prone to illness than the national average and 83.8 percent are within three kilometers of a health facility higher than the national average of 76.7 percent.

A look down the numbers also shows that the proportion of houses with iron sheet roofs, cement floors and built of bricks are all higher than the national average.

Given these figures its safe to say that the people of the region are just as likely as any region in the country to have lower poverty numbers.

However, 55.2 percent of the families are involved in the subsistence economy as compared to the national average of 39.2 percent. In Kampala this figure is 3.3 percent...

But maybe they can not be blamed, because to grow beyond subsistence agriculture one has to have access to the market to which you can sell the surplus. In terms of paved road network, the Busoga area is painfully down the pecking order with 254 km. The Buganda region has 1,594 km.

Access to the electricity grid is 13.3 percent compared to the national average of 18.9 percent.

It seems to me that the people of the Busoga region, while their dependency rates are off the charts are just as educated or literate, healthy as the rest of the nation. What seems to be lacking is the access to opportunity as reflected in their relatively poor road coverage and access to electricity.

These are public goods which are often a function of the leadership in the area’s ability to lobby than anything else, given that the area has voted consistently for the ruling NRM.

And this is important because a major ingredient of lifting communities out of poverty is leadership at every level. The leadership to mobilise people, aggregate and deploy resources. The extent to which an area is poor, especially when the area lies in the lap of abundance is a reflection on that area’s leadership....

Leadership is required to identify the most pressing issues of the day and provide direction on how to resolve them.

The story is told that after the end of the Korean war in 1953 the leadership decided that the most sustainable way to develop the country would be to export. But they had nothing to export. Or so they thought. The leadership identified a market in wigs and mobilized the people to cut off their hair for export. Today South Korea is a leader in high technology exports.

Left to their own devices the people can not move but with good leadership anything is possible.

 

RUTO IS RIGHT ON UGANDA MILK, OBVIOUSLY

Last week Kenyan President William Ruto called for an elimination of all barriers to importation of Ugandan milk.

Ugandan milk production companies have been unfairly targeted in recent years understandably because thy posed a potent threat to market leader Brookside Dairy Ltd. The company is partly owned by the Kenyatta family.

Ruto’s argument was simple one. Ugandans produce milk cheaper, Kenyan dairy industry should focus on adding value to their own milk and export it and consume the Ugandan milk locally.

"Kenya’s president recognizes that Uganda has a competitive advantage in milk production, noting that the cost of production in Uganda is a fraction of that in Kenya, and instead of resisting the inevitable should cede ground and look for other markets...

The naysayers of course will argue that without a local foothold, in Kenya, expanding into foreign markets will not be easy.

This column has argued now for more than a decade, that one of the best things to come out of the common market is that competitive advantages will be sharpened. So for example Uganda can easily produce food for the region that should be recognized and should be reflected in our development policies and actions. Kenyans have their own competitive advantages that they can exploit and so do other members of he community.

Trying to duplicate ourselves is inefficient, raises unnecessary confrontation and is unsustainable in the long run.

The challenge of course is that many times interest groups ossify around these inefficiencies and fight tooth and nail not to give them up. At great cost to the population and economy, because ethe energies expended to perpetuate the fallacy would be better employed in developing industries where we have a better chance of success...

Imagine for example if the farmers of western Uganda got it into their heads that they are going to go int o sim sim production and compete with the farmers from northern Uganda. Or the farmers of northern Uganda decided they are going into matooke production to compete with the farmers of central and western Uganda.

They would soon realise they could not compete. Then they would come together and ban the importation of matooke by the north and sim sim by the west to support their farmers. A real waste of time.

This does not happen because of the free movement of goods through the country. The people of the west don’t bother with sim sim because if they want it they can buy and the people of the north don’t bother with matooke because if they want it they can order for it.

As result the sim sim and matooke production expand in their respective areas to cater for the expanded market. Economies of scale come into play and specialization means the quality of the respective crop improve.

That is what will happen with the actualization of the East African free market.

As mentioned above it will be fought by entrenched interest groups, looking to safeguard their interest at the expense of the consumer and national interest.

For the above reasons I always cringe when I hear people talking about import substitution, it only serves to build up a small group of connected people while making us endure substandard products.

"The success of the south eastern Asia economies comes mainly from refusing to be seduced by this import substitution argument. They recognized early on that to lift their people out of poverty and develop their economies they needed to aim for bigger external markets...

Following this thinking the governments biased resources towards businessmen with export ambitions over those with import substitution as the main driver of their business. Of course, in an effort to target foreign markets the local market is used as a stepping stone but that is all it is, a stepping stone. They also did not try to do it themselves through state enterprises. The rest is history.

Of course, for Ruto now he has to seat down with the existing dairy industry and see how his government can support them increase their production capacity – they are welcome to use Ugandan milk if they want, improve quality standards and help them break into foreign markets.

Uganda too has export ambitions for its milk and they will do well to see how the Kenyans do it, before they launch their own effort.

 

 

 

THE REASONS BEHIND THE INDIAN RISE

Earlier this week history was made when Rishi Sunak became prime minister of the United Kingdom. History was made because Sunak is of Indian origin.

Kenyans have claimed bragging rights, as Sunak’s father was born in Kenya. His mother is from Tanzania. It will not be a stretch if Uganda claimed a few of his uncles.

But Sunak is only the most recent of high performing individuals who claim Indian origins.

Understandbly, it’s in the private sector, which is more of a meritocracy that the Indians (writing of Indian origin is painful) have excelled.

"A list has gone around of Indians who have led more than 20 globally renown companies in the last decade or so. Google, Microsoft, IBM, CitiGroup, Pepsico, Nokia and Motorola are included among that number. No mickey mouse organisations. And these are the ones we see in the news, there easily hundreds other flying just under the radar in companies, academia and every other occupation you can think about.

This is no mean feat. Not only because these are among the biggest companies in the world, but because they have achieved all this as immigrants. While most of them have adopted the citizenship of whichever country they work, they are still considered outsiders.

Sunak’s achievement is therefore even more remarkable, never mind that he ascended to the highest office in the UK government through a party vote. It would be interesting to see whether he could lead the Conservative Party to victory in a general election.

Given the numbers of Indian super performers around the world, we can agree that this is no fluke.

To begin with is the population of India, about one billion and the that of their diaspora, more than 30 million by some accounts. Success is a numbers game. For every Sunak there are probably thousands of others who would have been PM, had they not taken a wrong turn at school or in their career or in their marriage. The trick therefore is to put out so many, increasing the probability that at least a few will come through.

This has been true from the reproductive process. Millions of sperm have to be expended to produce one child.

It goes without saying that all these high performers are well educated, but even more importantly they have all gone to the best universities be it in the US or the UK. This is important, even critical, because to climb up the corporate ladder takes a lot of “know who”. In western economies this often boils down to which university you went to and who was there when you were there. Getting a western education is more about where you go to school than just going to school there. The same is true everywhere you look.

The power of the network is what we ignore or are ignorant about. Its what makes the difference between climbing up the ladder or not. You can bet Sunak with his first-class degree from Oxford or all these CEOs were not necessarily the brightest of their respective cohorts. But they plugged into powerful networks that recognized their worth and usefulness to the collective.

"There is value in good people, talking good things about you when you are not there....

The biggest network the Indians find themselves in is that they are English speakers. English is the international language of commerce and trade, spoken by billions of people, whose numbers are growing every day. The more people you can communicate with the more influential you can potentially be.

There is something to be said about the phenomenon of the tiger mum, used mostly to describe immigrant mothers from south east Asia – China, Japan, South Korea, but could as well apply to Indian immigrant mothers. The way it is told, these mothers instill an iron clad discipline in their children and not only push their children to excel in academics, but even chart their academic path. Their children do no indulge in whatever catches their fancy but are pushed from an early age to excel in English, math and science.

The Indians have been immigrants for decades and have only just hacked the system. Given the above we can expect that hundreds of more Indians are going to make the transition, now emboldened by the example of their predecessors and within a generation it will not be unusual for Indians to run Fortune 500 companies or lead the major nations of the world.

Is it systematic? Not as far as I can see. They are not like the Chinese who we here send hundreds of youth to study abroad, return them and insert them in their own systems.

At the bottom of it maybe is that India places no restriction on its citizens movement in and out of the country, and dare we say, they may be even relieved if some go away and never come back...

I think it’s the purest form survival of the fittest. Their vast numbers and emphasis on education means it was always going to be a matter of time before Indians

This will one day make for an interesting study if its not already being studied.

VIPERS SC; A CASE STUDY FOR SPORTS TEAM OWNERS

I have never watched a Vipers SC football match, ever.

A function of me not making the habit of watching live soccer matches – I have only watched one half of a live match. This was between the Uganda U-23 and Zimbabwe, maybe 20 years ago.

Vipers SC is enjoying major success. Last weekend in the southern DRC city of Lubumbashi, in the CAF Champions League, they wrestled favourites TP Mazembe to a goalless draw. In the ensuing shootout they overcome major nerves to beat TP Mazembe – who are five times Champions of Africa, in front of their home crowd. The final score, 4-2.

The victory meant that for the first time in Vipers SC history, they will play in the group stages of the tournament. While the local press were excited by the guaranteed sh2.1b they are set to earn, I marveled at the work it has taken to get that to that point.

I have had my eye on them for a while now. And not for their on-field prowess.

This is the story of Vipers SC, as I know it.

In 2001 teacher and entrepreneur Lawrence Mulindwa opened St Mary’s Boarding Secondary School - Kitende off Entebbe Road. The school first made a name for itself by churning out high scoring candidates at O- and A-level, upsetting the dominance of the traditional schools.

But it also started to dominate in soccer, emerging the best soccer secondary school in Uganda ten times and in east Africa 13 times, including 11 times in a row between 2004 and 2014...

Mulindwa did not stop there. He took over straggling Bunamwaya FC changing it to Vipers SC. This served as a useful up taker of his school’s talent. The team has won the premier league five times since 2010.

The success of his team makes for good reading on the sports pages, but the real untold story is the behind-the-scenes work needed to bring on this success.

Starting with a school to source and nurture talent was an inspired move. Owning a team to funnel that talent was the logical next step.

And in case Mulindwa had not made believers of us yet, he went and built a 25,000 capacity stadium to house Vipers SC, the biggest built in the country in almost three decades – Mandela Stadium was opened in 1997. And it is the only privately owned one that meets CAF’s standards to host its matches.

And suddenly Mulindwa, if it wasn’t clear before, was no ordinary soccer team owner.

Mulindwa’ stated ambition is to make Vipers SC the best team in Africa. If that is so the work has only just begun.

His actions suggest he understands what it takes to build a soccer team from the ground up. He has understood correctly that for success to happen the team has to be driven by an “impossible” vision, have a pipeline of talent and has to be able to sustain itself beyond his own means.

And this last part, building a self-sustaining organization to support the team, is what will give Vipers SC the best chance of attaining the dream, and ensuring that it joins the continental dynasties of the game.

There are richer teams on the continent than Vipers Sc that have not attained the heights they have. More than money will be the way the team improves its institutional capacity, its corporate governance. It’s a cliché these days but one that cannot be ignored.

At the most basic level it means the club will formalize how it earns and spends its money and how it plans for long term viability. The team will become an asset on the books like the stadium. The organization will supersede the team and must supersede its owner.

This is true because I suspect the team has gone as far as it can go on the will power of one man. But I am sure Mulindwa knows this and is working towards this end, otherwise he will not realise his dream.

As an indicator the most successful team in African football is Egyptian team Al Ahly. Al Ahly was started in 1907 and is thought to be the most valuable team on the continent, valued at $28m(Sh104b). In 2021 they had a budget of $129m(sh477b) and a transfer budget of $12.7m (sh47b).

It has a seven-man board, management and branches dotted around Egypt. It is no wonder that they are among the most successful teams in the world by trophy count –115 and have endured for so long. Long after their founders and their children were dead and buried.

Al Ahyl boosted by its tens of thousands of paying members and corporate sponsors is gone beyond being a soccer team with teams in the national basketball, handball, tennis and gymnastics leagues.

To be the best on the continent Al Ahyl are the ones to watch.

 

 

BANKS IN FOR A ROUGH RIDE AND WHY WE SHOULD CARE

Last week the Bank of Uganda announced the fourth increase of the Central Bank Rate(CBR) in as many months to 10% in a bid to beat back inflation, which rose in September into the double-digit range for the first time in more than a decade.

In July 2012 inflation stood at 14.3% working its way down from a high of 30% in October of the previous year.

Inflation or a general rise in prices, is caused by too much money chasing few goods. This may arise because there are general shortages of goods or because there is more money in circulation than necessary.

The most recent inflation has been driven by external shortages, a hangover from the covid-19 lockdown and accelerated by the war between Russia and Ukraine. Another major driver was the increases in global oil prices earlier in the year.

The short-term way to fight inflation is to decrease money supply, which is what the Bank of Uganda is attempting to do by increasing the CBR. In determining lending rates banks take a cue from the CBR, when it goes up they raise rates when it goes down they follow suit. A raising of rates tends to lead to a slow down in borrowing but even more worringly an increase in loan defaults..

Predictably we have seen increases in lending rates to keep up with the Bank of Uganda’s recent actions. This has the effect of dampening the demand for credit.

"Whereas the borrowing public may grit their teeth at the banks’ speed to respond, which they have little choice as the cost of their money is pegged to the CBR, banks are bracing themselves for hard times ahead....

According to a Uganda Bankers’ Association (UBA) report released earlier this year, in 2021 lending to the private sector grew by eight percent but this growth was down from 12% the previous year. This was on account of low economic activity through the worst of the Covid-19 lockdown last year.

An increase in lending rates, apart from the bad press, invariably leads to a rise in bad loans. Bad loans not only affect banks’ profitability but also their appetite to lend.

The full effect of the higher lending rates will be felt in 2023 as the BOU’s anti-inflationary actions have come in the second half of the year. We can reasonably expect that rate of growth in lending will slow down or fall off altogether.

Other instruments at the central banks disposal to check the growth rate of money supply are treasury bills and bonds.

In 2021 bank investments in these and other tradable securities grew by 10%, much higher than the rate of increase of lending to the public.

That maybe where the danger is for the borrowing public, this more than the higher lending rates. That given a choice between lending to government and lending to the riskier private sector and individuals that banks will shift their attention more towards government paper.

Sadly, this has been a trend in the making with the ratio of how much of customer deposits do they lend out falling to 61% last year from 71% in 2015.

In case anyone needed any convincing, the overall health of the banking sector is key to whether growth continues at acceptable levels or not in this economy. A stressed banking will hamper its ability to support the private sector. While the investing in government paper is critical to stabilizing the macroeconomy, that is not supposed to be the core activity of the sector.

The truth of the matter is that while the central bank has the sole right to print money, it’s the banking sector that actually determines money in circulation through its lending practices. The ability to execute this function depends on the health of the sector.

The knee jerk reaction would be to blame the banks. This would be wrong.

The central bank’s major mandate is to ensure there are no dramatic increases or decreases in prices, they do this with the limited tools at their disposal, designed to reduce money in circulation. The more sustainable thing in the inflation equation is to increase production to balance the money in circulation. The nature of this jump in prices is a function of things happening outside out borders and therefore the central bank cannot control.

“Unfortunately, restoring inflation to low and stable levels involves taking medicine with some temporary side effects. The fight against inflation is not a painless battle,” wrote deputy bank of Uganda governor Michael Atingi-Ego in the press last week...

The hope is that the banking industry comes out the other side intact as it will be needed to reignite the economy.

UGANDA ECONOMY 1962-2022: WHAT A RIDE

The story goes that an official Ministry of International Trade & Industry (MITI), responsible for the rehabilitation of Japan after the second world war, was asked what he thought were the effects of the French revolution on world history.

He thought for a bit and then answered, “Its too soon to tell”. The French revolution happened around 1789.

The anecdote may or may not have happened, but was used to show how farsighted Japanese planning is.

Yesterday we commemorated 60 years of Uganda’s independence from colonial rule. While 60 years is not as good a psychological divide as 50, it’s a good time to take stock of progress or lack of thereof.

According to World Bank figures the Uganda economy has grown to a GDP of $40.43 billion at the end of 2021 from $450m in 1962. This is an average annual growth rate of just under eight percent....

If you break it down into 20-year segments the fastest economic growth recorded was between 2002 and 2022 at 9.84%. The next fastest growth period was between 1962 and 1982 – 8.21% and finally the 1982-2002 period which grew by 5.34%.

Drilling a bit more under the surface makes for interesting observations, conclusions.

The first two decades of independence had as its major economic events were the declaration of independence to begin with which saw the expansion of services and unleashed a suppressed initiative from Ugandans. Obote’s attempts to “move to the left” – embrace socialism did not gain traction partly because they were not thought through but also because he run out of time with the 1971 coup which brought Idi Amin to power.

The descent into chaos under Amin seemed not to have dented the post-independence growth momentum, with GDP per capita peaking at $258 in 1977 before collapsing to $100 in 1980. This suggests that the economic foundations set up by the colonial administration and the first Obote administration were robust enough to hold for about five years before terminal decline set in. The reality on the ground of course was economic hardship was already being felt.

The expelling the major commercial class and the descent into widespread insecurity meant businesses were operating below their full capacity or shutting down all together. This is important because it’s the private sector that grows wealth and not the government. So, if you hobble the private sector, even the government fails to play its distributive role of using taxes to uplift the living standards of its people through provision of law & order, social services and infrastructure.

Saddled with an economy that had regressed into subsistence and the breakout of the bush war in 1981, the 1982 – 2022 period started off on a false note. The last contractions of the economy happened in 1984 and 1985.

The return of stability in central and western Uganda after 1986 allowed the pullout from the decline of the previous 15 years to begin in earnest...

During this period major economic shifts came with the currency reform, the liberalisation of the exchange rate, the liberalization of commodities trade, brining inflation under control, the opening up of the telecommunications sector to introduce mobile phones and the sale of Uganda Commercial Bank (UCB). This among other initiatives unleashed individual initiative and attracted foreign direct investment.

The breakup of the state monopolies and the subsequent liberalization of the economy, underpinned by increased stability led to sustained growth of the economy. During this period too there was a coffee boom in 1994, with the failure of the Brazilian crop, which did a lot to boost coffee production and exports. In one year, the 1998 season Uganda exported more coffee than it produced, with the coffee from DRC making up the difference.

A period of dramatic rethink of our economy nevertheless only managed to bring us past the 1977 GDP per capita $248 level in 2004...

The next 20 years after 2002 as has been mentioned the economy raced to its fastest average growth rate as the liberalization policies begun to kick in, but probably more importantly the northern Lord’s Resistance Army (LRA) insurgency came to a close, allowing the northern region’s economy to reintegrate into the national economy.

Despite the war on terror, global financial crisis and more recently the Covid-19 pandemic the economy has continued to grow, with GDP per capita at $858 at the end of 2021 and poised to cross into the middle-income nation status. It helps that GDP was rebased twice during the period 2014 and 2019.

Growth is a given in this economy, as there remains a lot of untapped or unrecorded potential.

The challenge for the next 60 years is to ensure that this growth is more equitably. A situation of high growth and high inequality like Uganda is an indictment on the government. The business community builds the wealth and the government distribute it. Distribution is not by some brainless mathematical allocation of cash but by using taxes to spread the opportunities around.

Improvements in and spreading of education and health services raise the earning capacity of the population; infrastructure development opens up opportunities to more people and law & order ensures that what we work for we can keep. In as far as government is failing or unable to provide this is the extent to which income and wealth inequalities persist in an economy....

One last thing, assuming we can maintain our growth momentum on GDP per capita from the last 20 years – 6.44% by 2082 our GDP per capita will increase to over $36,000.

POWER TARIFF INCREMENT SHOULD BE DONE MORE FREQUENTLY

 The first increment in power tariffs in four years is likely to cause some grumbling as expected.

The logic behind the increments can not be faulted.  The Electricity Regulatory Authority (ERA), listed as reasons for the tariff increases an Increase in inflation, depreciation of the shilling, increases in fuel prices and a larger than expected reliance of thermal generation power in the last quarter.

"Over the last three months inflation has registered a 6.52 percent upward movement, the Uganda shillings has depreciated 6.92 percent and international fuel prices have jumped by almost a half...

In recent years an increase in tariffs seemed counterproductive to efforts to keep the economy afloat and revive it during and after the Covid-19 pandemic. In a situation of collapsed demand and profit margins the last thing businesses wanted was an increase in power tariffs.

It helped too that Isimba dam came on line just before the pandemic. A lower cost generation plant that helped keep tariffs low.

There are more considerations than a mere mortal like me would know, but I believe as a matter of course our tariff should be allowed to float – go up or down, according to some index, which takes into account the four major drivers of tariff as outlined above.

The knee jerk reaction would be to resist these regular changes, but in the long term it would let us adjust our behaviour and does not mean tariffs will always be heading up.

The well-known experiment of the two frogs comes to mind. One frog was thrown into a beaker of boiling water and understandably jumped out immediately. The second frog was put in a beaker of cold water but which was seating on a fire. It took much longer for the second frog to jump out of the beaker. In some narrations it actually boiled to death.

The point in a roundabout way, is that to allow the prices to respond to the reality on the ground, is the more humane thing to do than try to hold them to a favourable level out of some misplaced sense of charity...

Our recent experience with fuel prices and longer experiences with the exchange rate have borne this out.

Since the beginning of the year the petrol prices have broken the sh5,000 a liter barrier and quickly there after the sh6,000 a liter barrier. There has been much gnashing of the teeth in the hills of Kampala and beyond, as fuel prices crept up. People pointed to neighbours Kenya, where Nairobi committed to subsidise fuel prices and hold them to more affordable levels. Kenya under the new government has dropped the subsidy like a hot potato and prices jumped -- not unlike the frog in the hot water beaker, to reflect the market price.

The cost of subsidizing fuel prices has left a hole in the Kenyan economy, which they will struggle to fill for some time.

In this era of environmental orthodoxy, the argument that keeping power prices down to encourage use of power and discourage use of charcoal is an easy sell.

But keeping prices low prevents the forces of supply and demand to actually bring prices down.

Higher prices, more accurately market sensitive prices, will encourage investment in the sector, spreading the cost of production and lowering eventual tariff to the consumer.

We are living proof of that. Barely 20 years ago we only had two dams Nalubale and Kiira, charging well below production costs. A liberalization of the sector and adjustment of tariffs to be more realistic has seen an explosion on power generation capacity to include solar, thermal in addition to hydro-power electricity we generate.

By the laws of supply and demand if we still had only two dams with a combined generation capacity of 380 MW power would be expensive, maybe not in tariff terms, because the government would be keeping it low, but in opportunity cost that comes with economic activity that has been lost for lack of adequate power supply.

"We suffer that opportunity costs even today. With electricity coverage now of about 25 percent, imagine how much more economic activity would happen if half the population had access to power....

Thankfully its not up to me, but if it was, I would cause an adjustment in tariffs – up or down, every month. Maybe that’s why I will never be in charge.

NSSF PLAYING IN A SMAL POND

In recent weeks NSSF has been showing off the real estate developments they are involved in.

Residential estates in Lubowa and Temangolo, which will bring more than 7,000 housing units to the market – 2,417 and 5,000 respectively over the next few years, are bound to change the housing market irreversibly. Their initiative to have a rent-to-own model, with longer tenures with comparable offers, should send shockwaves through the industry.

As it is now most homeowners go through the arduous process of building their homes brick by brick, literally, years after the start of the build occupy it when it is half done (which is illegal) and put in the finishing touches at leisure.

We build our houses like this because we can. Enforcement of the building code is lax. Also because we cannot afford to buy our own houses, mortgage terms are too onerous and anyway there were not enough houses to buy.

You can see why the NSSF estates become a more attractive proposition, their seemingly high prices notwithstanding. At the Lubowa estates entry price is $150,000 (sh570m).  NSSF management argues that the additional cost of laying down infrastructure – roads, water and electricity, is the reason the prices cannot be lower.

But one has to wonder too, what is NSSF doing building houses?

In an ideal world NSSF with its mountains of cash should be funding developers to build, but not itself building. They should stick to their expertise, which is collecting money and investing it. Some would even argue that it should even outsource the investment function.

NSSF finds itself with two problems. The first is that it has too much money. A nice problem to have. The Fund is the biggest in the region with assets under management of sh17.2trillion. This too much money is a problem because NSSF needs to pay its members annual interest.

While by law they can get away with paying interest of 2.5 percent, the management has committed to paying two percentage points above the 10-year inflation average. This year they posted an underwhelming 9.65% down from 12.15% last year. Us members used to double digit interest for more than a decad,e have been spoilt rotten.

In the same week NSSF Kenyan counterpart reported they would be paying 10% to their members the highest in the last seven years they have ever paid out.

NSSF’s real estate portfolio -- 7% is dwarfed by the 78% committed to fixed income portfolio. NSSF is the biggest uptaker of government paper. But arguably this honey moon may not last. Government could lose its borrowing appetite or that appetite not grow as fast as NSSF’s need to fix money. Hence one of NSSF’s motivation to move into alternative investments, as its ability to invest outside the region is restricted.

 

Secondly, the natural partners for NSSF, are the National Housing Construction Corporation (NHCC). NHCC have already played their part in the Lubowa project. The land on which the project stands was surrendered to NSSF for monies it owed the Fund.

In an ideal world NSSF would have an equity stake in NHCC as a way to bring building costs down. NHCC borrowing from NSSF to build would just increase the price. The first phase at Lubowa estate, which is 10% of total project cost, cost $73.3m.  

NHCC financial statements are hard to come by, but in 2011 NHCC had assets of $70m. Assuming the asset base has doubled in the interim, NSSF would have to take over NHCC and add even more equity to finish Lubowa...

The truth is NSSF is playing in a really small pool compared to its potential.

Next to government it has the best business model of any company. It mobilises savings from many people with a promise to keep this safe, with interest, ready for one when they retire. As such they are the biggest pool of long-term savings in the country. Stanbic Bank at the end of last year had savings of just over sh6trillion, mostly short-term deposits, about a third of NSSF’s war chest.

So it needs partners of comparable heft in order to deliver a quality, affordable product to the public.

Which leaves the government. For starters the government would do well to underwrite the infrastructure costs on these developments. NSSF boss Richard Byarugaba suggested at the Annual Members Meeting that this would easily lope off 30 percent of the cost of the project, a savings they would happily pass on to their members.

NSSF through no fault of its own, and its struggle to show a return to its members, is exposing the glaring deficiencies in the real estate industry. Government will be well served if it took note.

 

NSSF: TO THE NEXT 10 YEARS

This week National Social Security Fund(NSSF) will be hosting its tenth annual members meeting, after a year which saw them pay out billions in mid-term access benefits and on the back of high praise from Kenya.

Since 2012 while contributors have doubled to 2.5 million from about a million, NSSF has grown into the biggest fund in the region, with assets under management growing more than six-fold to sh17.2trillion now from sh2.7trillion in at the end of 2011/12.

"This growth is in no small measure to the growing member contributions, which tripled to sh1.37 trillion in 2020/21 from sh472.86b in 2011/12, suggesting increased compliance by members. In the meantime, benefits paid out grew six times to sh642.32b from sh101.38b....

Impressive figures by any measure.

But even more impressive is if we were to project what will happen over the next ten years. Assuming growth rates remain constant, the fund will have assets under management of sh90trillion, members will be contributing almost sh4trillion annually, which will all be snapped up by benefits paid out in 2032.

Its an amazing story and no less a person than the new Kenyan President William Ruto a week or so ago, recognized this.

As part of his first order of business Ruto felt it necessary to rally his countrymen to save more. He pointed to our NSSF as an example. He said Uganda is a smaller economy – about a third the size of the Kenyan economy, and yet our NSSF is larger than their statutory social security fund or Tanzania’s, incidentally all called NSSF.

A cursory analysis of why our NSSF is bigger than theirs, shows that while they have more contributors – 2.6 million to our 2.1 million, our employers contribute more –10 percent of our gross pay or twice what the employee contributes, In Kenya the employer only matches the employee’s contribution of six percent of gross pay. In effect total contributions due to the Ugandan worker is 15 percent of gross pay as opposed to 12 percent of gross pay for the Kenyan worker. The laws of compounding are such that the three-percentage point difference stretched over long periods lead to significant differences...

According to the analysis Kenya’s NSSF assets under management are Kshs249b while ours are at Kshs420b as of 2020.

While the numbers maybe mind numbing, they speak volumes about what we can achieve if we have good laws in place and good management to execute those policies. As measure of the superior quality of our NSSF’s management compared to our Kenyan brothers, the cost of administration in NSSF Kenya is almost twice – 2.45 percent of income, that of our NSSF, which has kept to 1.28 percent...

Those extra percentage points saved are reinvested or paid out as interest on member savings and again over years, decades or even generations make a world of difference.

The free marketeers will argue that our NSSF’s dominance is not good for the economy but that argument is beginning to fall by the wayside, because after all our social security sector should work for us and what isn’t broken doesn’t need fixing. At least for now.

Two weeks ago, president Yoweri Museveni launched the first phase of the Lubowa housing estate. The development on 600 acres off the Entebbe Road is a higher income housing development with the units going for between $150,000 (sh570m) and $215,000(sh817m). To make it more accessible for more people owners will have the option of renting-to-own. Questions still surround the issue of why its being priced in dollars when management announced that about 70 percent of the inputs were local. A lower cost housing estate is being developed in Temangalo.

Beyond that NSSF seats squarely in the middle of efforts to ensure macroeconomic stability as the biggest off taker of government paper.

And for the workers, its attractive because all profits are distributed to the contributors. They are the fund's owners, with no other layer of beneficiaries, read other shareholders, coming between them and their money.

Over the last decade NSSF has been able to pay 10 percent and above in line with their pledge to keep member returns at least two percentage points above average inflation over the previous ten years. This year while inflation has been higher than we have been used to in a while, the ten-year average is not much higher than last year.

However, the huge outflow that came with mid-term access may dent returns, nevertheless we workers would not be amused if the figure is off last year’s 12.15 percent, by much.

NSSF, plagued by governance issues in previous eras, is showing that good management, that is strategic and corruption fee, can do a lot with “little” and put bigger players to shame.

 

 

 

THE RULES OF SUPPLY-DEMAND SHALL NOT BE MOCKED

Last week William Ruto was sworn in as the fifth President of Kenya. AS his first order of business he removed the subsidy on fuel prices arguing it had not achieved its intended purpose (help Raila Odinga win?) and was too expensive.

According to reports, since the beginning of the year Kenya has spent $1.2b (sh4.56trillion) or about 80 percent of all its tourism earnings on keeping the pump prices down.

Whenever the issue of subsidies comes up, however flowery the language used to justify it, I know it will end in tears...

Last year the Uhuru Kenyatta government seeing that fuel prices were rising, sought to ease its citizens pain by holding the price at a predetermined level. The removal of the subsidy saw an immediate jump in fuel prices to record highs of Ksh179 (sh5650) a liter of petrol.

They say that the market can remain irrational more than you can remain liquid. When governments try out such subsidies, somewhere in their thinking is that the adverse market changes are temporary and will soon blow over. They think the market is just being irrational and will soon return to its senses.

For Kenya of course, it was an election period – called the silly season in some parts, and one can not help but think the Kenyatta administration was thinking if they can fend off the worst of the price increases their chosen one, Odinga would win and they can deal with the fall out later.

While global oil prices have been falling in recent weeks, it was probably too little too late.

Subsidies are intended to control prices in an attempt to subvert the laws of supply and demand.

The way to influence prices is to appreciate the laws of supply and demand. If prices are high increase supply and if prices are low and you want to increase them push up demand. Simple but not easy.

If you can not influence the factors of supply and demand the wise thing to do however painful is to let the market take its course and brace yourself for the impact.

"Thankfully Uganda did not catch the monkey-see-monkey-do flu. The government stayed away from subsidizing fuel prices, even if they hit the highest they have risen ever, we tightened our belts, controlled our travel and we are still here despite warnings that we would start dying like flies....

In these hard times when we are trying to get back to pre-covid levels of economic activity, we cannot afford to start throwing money to placate an irrational electorate. When people call for government interventions they speak as if no one is paying for those interventions. Taxes are used to pay, but if tax collections are not coming as they should how are governments expected to pay? The stupid ones print more money, creating inflation, which is caused by too much money chasing to few goods and then they have to put the brakes on money supply anyway to fight inflation.

That being said, the question then arises what should governments do to prevent such crises or when they are out of control to ensure the crisis does not blow up out of proportion.

It goes back to the old wisdom of making hay while the sun shines.

When the times are good, leadership should be exercised to ensure some of the surplus is stored away for just such a crisis. What happens is that when countries have good economic times, they increase spending on consumption and place little emphasis on saving and investment.

When the effects of the Covid lockdown begun to tell, Singapore announced it would use $60b from its reserves to tide it population over the worst. They could do this because they have been prudent with their expenditure and as a result have been able to build up a reserve.

However, there is a place for subsidies, when they are used to support production and not consumption...

The Ruto government announced hat it would subsidise ferterliser prices as a way to kick start agricultural production, especially among the small holder farmers. Increased production, especially of food will help manage inflationary pressures, boost agroindustry and increase revenues. While you still will be fighting the market, the redeeming quality here is that its for production and not consumption.

The long-term goal maybe to start ferterliser production in Kenya or source cheaper supplies in future and hopefully do away with the subsidy altogether. Easier said than done, because often times powerful interest groups build up around these subsidies and fight tooth and nail to prevent their removal long after they have outlived their usefulness. All the more reason to introduce susbsidies cautiously.

The overall principle should be to stay away from trying to control prices but if we must try to intervene first understand the market dynamics, so that the intervention can be the most effective.

While political expediency may push towards an attempt to control prices, the economic realities will inevitably catch up and will have bigger political costs than those the country was trying to save.