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.