BANKS CONTINUE TO PULL OUT OF COVID SLUMP

Uganda’s banking industry continues to grow across all measures but slower than last year in a trend experts suggest, is explained by the opening of the economy in 2021 from the total lock down of 2020.

In 2022 total assets grew 11.2 percent to sh46.1 trillion in 2022 from sh41.4trillion in the previous year. In 2021 assets grew 16.8 percent compared to 2020.

While loans and advances grew 11.1 percent almost level with 2021there was a marked slow down in growth of government securities. In 2022 these grew 35.5 percent compared to 57.73 percent in the previous year, this was result of government trying to cut back on its borrowing from the public more than a shift of emphasis to more private sector lending.

Observers have often complained that the government was crowding them out of the market by continuing to borrow at high rates from the public using its government securities. A slow dow in growth in this market may point to good things ahead for private borrowers.

Customers deposits held by the industry continued to grow, jumping 12 percent last year a slower rate than the previous year when they were up almost 15 percent.

"Net profits after tax declined marginally by 1.9 percent an improvement from 2021 when they dropped almost six percent...

The improvement was due largely to a slow down in bad loan provisioning which while there was a 45 percent growth in provisioning it was much better than the near doubling of provisions for bad loan in 2021 compared to 2020.

In addition, an indication that the sector continues to shake off the hangover from the covid lockdown, the sector’s ability to withstand shocks improved as indicated by a 24.9 percent improvement in the total capita ration compared to last year’s 23.5 percent improvement.

The industry continues to struggle with forcing the costs down as cost to income ratio went up to 71.1 percent in 2022 compared to 68.8 percent, largely due to and 16.2 percent increase in operating expenses across the industry. This has a bearing on the cost of lending and may signal a reluctance this year to lower lending rates, among other signals.

Agency banking continued to gain traction ad total transactions jumped to 9.16 million n 2022 from 8.21 million the previous year.  This was driven by an increase in agents to more than 7000 from about 6,000 active agents in 2021. Since its inception four years ago agency banking has helped banks reach further afield with minimal costs.

"With economic growth projected for about five percent this year, the industry expects a continuation of past trends where profitability normally doubles GDP growth. The industry further expects that with reopening of China the wholesale and retail segments of the economy, which took  a massive hit during the lockdown, will bounce back strongly giving a further boost to the sector’s profitability. A cooling off of inflation will also help...

There are concerns that bad loans will weigh down their balance sheets as the restructuring of loans in response to covid begin to come due. The relief was merely a postponement of the obligations abut not a wipe out.

New capital requirements that will see banks boosting their paid-up capital to sh150b from sh25b may very well see some bank mergers and capital inflows coming in to beat the end-June deadline.

The sector results for which the banks stopped finished reporting in April, indicate that growth continues in the sector and suggests the sector is going some way to shaking off the Covid blues.

For the man on the street we can expect bank services to continue coming closer to us either through agency banking and/or on our mobile devices. The paring back of costs that this suggests should give us hope of lower lending rates some time in the future, as long as government reduces its reliance on open market operations to fund the budget...

We want the banking industry to thrive, if only so they can better play their mediation role and increase the efficiency of mobilizing funds in the market. An increase in customer deposits,  a lowering of government appetite for public borrowing and stronger balance sheets will force the industry to be more innovative with its products and even lower borrowing rates.

We will continue to wait in anxious hope for the day.

 

PROF EDWARD RUGUMAYO: THE POLICE’S LOSS WAS UGANDA’S GAIN

Professor Edward Rugumayo will be turning 90 at the end of next year. By virtue of his longevity, he has seen a lot. Being a Ugandan, more so. He may not have seen the heights to which his country can rise but he has definitely seen the depressing depths to which it can descend.

You wouldn’t tell when we met for an interview recently. Physically he is in relatively good health, a laugh not far below the surface, testament that the depravity of his country’s past has not infected his soul.

He loves his country, so much so that he once threatened a colonial administrator that for refusing him a passport, leading to his failure to study in the US, he was going to jump into politics and see English back to their country.

"The threat maybe, made in the heat of the moment was taken seriously enough that Miss King, the provincial education officer, within two weeks managed to wangle a scholarship for the young Rugumayo to go and study in the UK....

But before that Rugumayo was born in Mukole, in the current Kyenjojo district.

“We grew up in a huge polygamous but Christian family,” he couldn’t resist a smile at the contradiction. “I was the youngest of my mother’s children, but the other mothers were much younger”

Going by his account he seems to have been a hyper active kid eating everything and anything, running the village paths at will and getting up to no good. It took the firm hand of his mother – her kitchen he once burnt down, to set him on the straight and narrow.

“One day I skived, I did not go to school. I went up a mutoma tree and one day my mother looked for me found me up there pulled me down and dragged me back to school. I never played truant again… this was about P1,” Rugumayo remembered with a laugh.

"A voracious reader from an early age, Rugumayo wanted to be a detective after reading Sherlock Holmes, but his elder brother dismissed his plans of being a pipe smoking sleuth, arguing it was a waste of time and a good brain....

He wanted to be a reverend but that did not last very long.

After completing his schooling at Nyakasura School he wanted to be a doctor, but Makerere University did not offer him medicine but instead stuck him in Agriculture.

The hot headed Rugumayo protested this gave up his place at Makerere and returned home.

“My argument was that the colonial government only did research into cotton and coffee and not on food. That was my excuse,” said Rugumayo, who even now shakes his head at the fallacy of his youthful exuberance.

Back home he worked at the kingdom headquarters but was interested in a scholarship to the US to study facilitated by Dr Hosea Nyabongo. He had two options to go to Central State College in Ohio to study Mathematics or to University of Georgia to study pharmacy.

“I was no longer picky. After being in the village for three years with no real future prospects I was ready,’ Rugumayo said.

But fate was not done with him. Apart from the colonial administration throwing a spanner in his plans to go to the US, he met and fell in love with his first wife, Nesta. Their wedding almost did not happen as two weeks to the wedding he was diagnosed with appendicitis.

“When they did an enema to prepare me for the operation, I felt fine and told the nurse I was ok. The doctor checked and discharged me ‘this man had a special case of constipation he is ok,” he said. He has never suffered appendicitis since.

All these events put paid to his US ambitions and led to the fateful confrontation with Miss King. And his getting a scholarship to the UK. To study what?

“Education at Chester College.”

He eventually studied Botany & Ecology at the University of London before returning to Uganda. But he did not stay around much as he posted to Ghana to help author biology books.

Rugumayo taught briefly at Kyambogo, before he was recruited to the president’s office to do research. While there he had a regular Friday/Saturday column in The People newspaper, Katondokahozi.

During one of those days the newspaper got information about irregular allocation of government flats in Bukoto Housing Estate. According to the information, senior government officials were allocating flats to their mistresses.

On the night the column was published Rugumayo got a midnight call from his friend Pincho Ali. “Edward you are in trouble… we have been summoned to the president’s office,” his friend said down the line. The column had ruffled feathers in government.

He reported to the president’s office with his editor Ateker Ejalu and Pincho Ali. They were seen into the office where President Milton Obote, secretary to cabinet and head of civil service Frank Kalimuzo, inspector General of Police Wilson Erinayo Oryema and Akena Adoko head of the General Service Unit.

The journalists were grilled about the article, whether they did research and eventually asked by Obote, whether they knew it would land them in jail.

The tension in the room was so thick you could cut it with a knife. The journalists were by now quaking in their boots, fearing the worst. But Oryema and Kalimuzo diffused a potentially sticky situation by dismissing the article as the work of over enthusiastic youth.

"Just before he left the room Obote spoke to him directly, “Rugumayo…. Let us see how you will behave when you get into power.” This must have been around 1970, Rugumayo thinks.

Rugumayo eventually served in Idi Amin’s government briefly, was instrumental in the transition from Amin to the Obote II government and served severally in the NRM government as ambassador and minister of internal affairs and eventually trade minister.

The good professor not wanting to give up too much in his book, called the interview to an end.

His book “Why fireflies glow” will be launched tomorrow 20^th May in Fort Portal and will be available in leading bookshops and for delivery from mahiribooks.com

THE FUTURE IS HERE. ONLY JUST.

Last week two of the region’s biggest telecos released their annual results. In the case of MTN it was the release of their annual report.

Kenya’s Safaricom continues to post jaw dropping numbers. The company, the biggest in the region, posted revenues of kshs311b (sh8.5trillion), net profit of Ksh62b (sh1.7trillion), this on the back of capital expenditures of Ksh96b(sh2.6trillion) most of this Ksh55b directed to setting up their new operation in Ethiopia.

But my favourite Safaricom numbers are those of their mobile money platform, M-Pesa. 

First off, every second 856 transactions are done over M-Pesa, these include transfers, withdrawals, business payments, remittances from abroad and lending. The network has a capacity to do 2600 transactions a second.

Think about the efficiency this brings to the Kenyan business environment. That’s why everybody from the lowly vendor on the street to businesses carry out transactions with M-Pesa. According to Safaricom 32 million Kenyans have an Mpesa account and three million businesses are signed up as merchants.

With that kind of network, it should probably come as no surprise that Kshs36trillion (one quadrillion Uganda shillings) flowed through it last year. To give some perspective this figure is about ten times the amount transacted on the MTN mobile money platform last year or just over half the GDP of Uganda.

And because Kenyans are so plugged into M-Pesa, withdrawals from the system is the only service not growing in double digits. Why withdraw when you can pay for everything off the phone?

Also interesting is that $20m in remittances from abroad came on the M-Pesa network and going by last year’s growth, this figure is set to double every five years, probably faster as the service gains traction.

MTN, the only network whose full results are publicly available, are beginning to follow the trend. In 2021 was the first time in the company’s history that revenues from voice slid below 50 percent of total revenues. A trend that continued last year but in addition revenues from voice came in less than in 2021, the first-time voice revenues have fallen year-on-year.

Meanwhile revenues from both data and fintech grew by 24 percent and 25 percent respectively, going by this, revenues will be doubling every three years, which further means revenues from data and fintech will each surpass voice revenues by 2026...

Unlike in the story books, in real life revolutions take time to happen.

This column has argued for a long time that one of the major challenges of our economy is that we do not aggregate our resources, be they land, labour or capital, into meaningful wholes that can then benefit the greater society.

For the longest time we have been gritting our teeth on how to get more Ugandans into the formal financial sector. This is important because all that money that is lying idle in our wallets and under our mattresses, if banked can be used to finance people who need the money.

And it is quite significant by some estimates more than half the money in circulation is lying around doing nothing.

With the introduction of agency banking the banks have managed to extend their reach, more than they have since independence. But now imagine that the 25 million or so mobile phones can extend this reach even further.

In the 14 years since mobile money was introduced to this country between them MTN and Airtel reported about two trillion shillings in deposits, at the end of last year. In MTN’s case assuming they maintain 25 percent growth in deposits they will reach Stanbic Bank’s current six trillion shillings by 2030...

Like in Kenya where twice the GDP of the country was transacted over M-Pesa last year, mobile money will soon be major component of our GDP.

By first mopping up our small monies and then reducing the friction that comes with using cash, the growth of mobile money is set to bring greater efficiencies to the economy.

I remember in the 1990s reading an article about a town in the UK that was going cashless. The story was that the town would issue cards to everybody, essentially debit cards and these would be accepted by all traders.  At the time we had only one Atm in the country, at Barclays Bank, Kampala Road and it would take stretch of imagination to imagine cashless society here.

It is still early days, but the people at MTN Momo are grappling with the challenge increasing transactions using their platform, they estimated less than a million of 11 million subscribers actually transact over the phone. But a 90 percent growth in transactions was reported last year, helped by the tripling of merchants to 173,000 last year from 53,000 in 2021.

In addition, they are looking to revamp their overdraft offering to go alongside their small loan product.

These two initiatives will not only digitize money but also provide a treasure trove of data can be mined to determine what works and what doesn’t in issues such as poverty eradication programs.

Now we do not have to go all the way to the UK – visa hustles and all, to see how a truly cashless society will look like.

A few years ago while in Mombasa I had to get an uber in the morning, when it was time to pay for my fare, the driver had no change.

Annoyed I asked him how he can start the day without change, “And you how can you not be on M-Pesa?” was his swift reply.

 

 

 

 

OF KING CHARLES III CORONATION ECONOMICS AND POOR US

By the time you read this the pageantry surrounding the coronation of King Charles III will be done and the UK will be enjoying a public holiday to extend the festivities or to work off their hangovers.

At the time of writing, it was estimated that the coronation would cost the British tax payer $125m (sh465b). But that was small fry compared to the estimated one billion pounds (sh4.6trillion) in inflows that will ensue as a direct result of the event. Observers have it that London hotels were enjoying 96 percent occupancy in the lead up to the event and tourism in general and the pubs in particular expected a £337 million (sh1.6trillion)....

I like to think that these are conservative estimates. In the heat of all the euphoria I suspect budgets – personal and public will be thrown out the window and the British economy may very well – for a few weeks, pull itself from under the dark cloud that has economy for the last two or so years characterized by the growing cost of living fueled by historically high inflation.

The party poopers – never far behind, also point out that the extra public holiday today, May 8^th will cost the economy 0.2 percent of GDP.

Just like in 1953 when Queen Elizabeth II was crowned the UK is in need of optimism. Seventy years ago, the UK was still a bombed-out shell following the Second World War, as result was rolling back its empire and the coronation, which was filmed in scratchy black and white, brought some cheer back to the British Isles.

This coronation was beamed to the four corners of the world in real time, high definition colour. More significant changes have happened to Britain in between the two coronations, not least of all how the British economy has changed beyond all recognition.

In 1953 manufacturing accounted for a third of the British GDP but today that figure is less than 10 percent with services being the major driver of the economy. At last count services – retail, finance, tourism, hospitality, social services, accounted for 79 percent of the economy.

The shift away from manufacturing to services seems the logical progression in development. The UK attained parity in the share between manufacturing and services at the end of the 19^th century.

"The just witnessed coronation ceremony is more than symbolic of the trend, where economic activity is now dominated by the intangible and ephemeral. The western economies have mustered the art of taking events and turning them in to money spinners....

Meanwhile they have shifted most of the low value manufacturing abroad or abandoned it all together for higher tech processes.

The shift can not happen by mistake but is a function of a more educated population and government sensitive to the shifting trends and looking to enable innovation.

The English Premier league is one of the biggest export of the British Isles. Though accounting for only £8b (sh38trillion) of the £3trillion economy, shows how big the services sector is.

 For countries like ours which are pre-industrial the coronation should focus to take a look at how to maximise the potential of events, not just see them as items to tick box.

I am particularly excited about the Rwenzori Run, the second edition of which is set for September this year. The Rwenzori mou3ntains has been with us forever, but we are only just creating an even to leverage its history and mysticism now in the 21^st century.

What will happen when someone looks through similar lenses at Lake Victoria, the source of the Nile, our various Kingdoms and numerous natural endowments. And that is only just sports/adventure tourism.

What would happen if the trick to improving our education and health services, would be to get it into somebody’s head the billions of dollars we can earn in foreign exchange from people coming to study here or health services?

What would happen if made Uganda regional or even continental filming hub? Our natural endowments would look absolutely stunning in HD.

The trick is to first create a narrative, that projects the country in the best possible light or not.

"When King Charles forefathers were running around the world empire building, far from the romanticized version of summer holidays in Kashmir or the idyllic lifestyle of the white settlers in Kenya’s rift valley, the empire was forged with steel, blood and a liberal doze of racism....

But with having to cede control of the empire in the last century, the brutality of colonialism was washed over and a more romantic narrative has emerged, no, generated. At the center of it is the royal family and the reality show that they are.

The house of Windsor is not only powerful in keeping their citizens the hard questions about their relevance in the modern world but are useful too for keeping our eyes on the UK.

I don’t know him personally, but I am willing to bet if King Charles could do away with all this fanfare he would. But he has been brought up to recognize, his role in the larger scheme of things, among which is to put appositive spin on Great Britain.

It is simple but not easy. We need to seat down and generate our own narrative (mindset change would help) on a strategic level and be more opportunistic in taking advantage of our natural endowments.

MOST OF THE ERRORS IN OUR BUSINESS ARE EMOTIONAL

Every so often in our lives something happens to us that makes us pose, do a double take, reevaluate everything we know. Strangely it may affect only you out of the many people around you, who have had the same experience. It may be that they have experienced it before, got the lesson and are applying it in their lives or they don’t get it at this time. Their time will come.

That you get it now, or previously, not yet or never does not make you superior or lesser than the next man.

I had one of those moments, last week.

A twitter handle I follow, @BusinessMind posted last week “Most of the errors in our business are errors of emotion”....

It doesn’t seem like much but think about the profoundness of that statement.

A business is supposed to solve a particular problem in society and in the process make the business’ owner some money. If it doesn’t do that, then society will reject it or if it doesn’t do it in a cost-effective way will soon shut down.

The promoter of the business among other things, needs to sensitive to the society’s changing tastes and ensure his good or service remain in step with these changes or be slightly ahead of them. The way to do that is to be in constant touch with the market. Easier said than done.

Assuming the business’ management have taken this to heart, the next thing is to ensure this understanding is not only known but appreciated at a deeper level up and down the organisation.

Whenever a businessman complains that the economy is not doing well, it is at the tip of my tongue to ask whether his customer service is a up to scratch. You will be amazed how much business is turned away by lapses in customer service.

The saddest thing – for businesses, is that the majority of customers who don’t like your service and do not complain, outweigh those who complain. We are in a liberal economy; chances are they can take their business elsewhere.

Taking customer service as one business process the negative emotion of the frontline employee can cost you millions, billions or your whole business.

But at a strategic level, many businesses sink or swim depending on their asset allocation...

Ideally asset allocation should be slanted towards those assets that bring in more revenue to the business rather than costs.

Asset allocation is one place where emotions should be stored away and decisions be made with cold blooded precision.

So, take for instance the bank which breaks the mold of the high street bank and offers attractive propositions to depositors and borrowers. Soon the funds are flowing in, at a rate that they probably don’t know what to do – a good problem to have.

Staying with the normal bank business of collecting deposits and lending seems boring in the light of this avalanche of money. The managers start thinking they have hacked this money-making business and they can do no wrong, so they start speculating with the money – going into other businesses, bankrolling startups and dabbling in the stock exchange, they even build themselves a swanky new headquarters with all the whistles and bells. But soon the mismatch between their short-term deposits and their long-term assets catches up with them.

Another bank in the same industry, much bigger than the first, sells its headquarters to finance a roll out of computer system around all its branches, while renting its new headquarters. With the new computer system installed the bank can first, have access to all the resources mobilized around its countrywide network and attract customers, because now they have access to their funds from wherever they are in the country.

Twenty years down the road the first bank is history, remembered by older members of society during beer soaked reminisces, while the second is making money hand over fist, but still renting its corporate headquarters.

"The first bankers were making emotional decisions like we make as individuals. We want to buy land, build buildings and stock ranches, so we can point them out to our friends as our own and let them marvel at how progressive we are. The failed bank did that chest thumping on an industrial scale....

The second bankers – heartless bastards, let the numbers tell the the story. And numbers if looked at with cold logic, don’t lie. They cut back their costs, shoveled the savings into making their branch network more efficient and the rest is history.

This story does not apply to banking only. We saw it in telecommunications, media and nightclubs.

So, if you are to bet on one businessman or another shun the flashy businessman with the big, latest, four-wheel drive guzzler, with a company mansion atop the hill and expense account at the five star hotel, for the business still housed in a warehouse, holds its AGMs in the car park and whose CEO drives -- a four wheel drive nevertheless, but a ten year old version.