THE CASE FOR AN AUTONOMOUS NSSF

Last week National Social Security Fund (NSSF) released it financial results for 2022/23 which at the bare minimum showed the institution had shrugged off the political attacks on its management earlier this year.

Realised income was up 24 percent to sh2.20trilion from sh1.78trillion in the previous year. Last year income was depressed by the introduction of the mid-term access that led to a slide in revenue from the previous year’s sh1.85trillion.

The midterm access continued to drive up benefit payouts but despite this the Fund broke the sh2trillion mark in revenues for the first time in its history. Benefits paid out rose marginally to sh1.20trillion from sh1.19trillion in 2021/22.

"Member contributions rose 15 percent the fastest in the last five years, to sh1.72trillion from last year’s sh1.49, a function of improved compliance after the Covid-19 lockdown and new contributors under the new voluntary scheme, which while the law has not been operationalised has not stopped existing members from contributing voluntarily beyond the statutory requirements....

All this against the backdrop of an increase in asset under management to sh18.56trillion giving management confidence that next year, a year ahead of target, the Fund will meet its target of sh20trillion in assets.

The change in the law which was passed in 2021 that widened the scope of contributors to all employers regardless of whether they had less than five employees and the voluntary contributions from anyone wanting to save with the Fund, may have come just in time.

The rate of growth in the assets under management has slowed down, falling to below double digits growth for the first time since 2018/19, suggesting maturity may have set in with the old model and we were due for a revamp.

On the other hand drops in the three regional equity markets it is involved in, was a major contributor to the slowing down in their portfolio growth.

With the new law NSSF management have set themselves the ambitious target of almost tripling their asset base between 2025 and 2035 to sh50trillion.

"The long and short of it is that NSSF continues to perform and the entrance of new members, previously unserved – the fund wants to cover half of Uganda’s workforce by 2035, may ensure it maintains its winning ways...

But as the fund becomes bigger and critical to the economy, where it currently controls more than 90 percent of long term savings, the issue of political interference needs to be addressed.

Its centrality to the economy like the Bank of Uganda, it should be insulated from political interference even if government continues to supervise.

The temptation for politicians to dip their fingers in the till at best or finance whimsical projects at worst, is a very real one and our politicians need to be protected from themselves.

It is a human condition that when the money starts rolling in, we get all sorts of ideas on how to spend the money, especially when the source of the money – the regular member contributions seem limitless.

NSSF pledged more than a decade ago to pay members interest that is two percentage points more than the 10-year moving average inflation. This now stands at under five percent.

"Maybe its time to revise this, raise the bar, so the NSSF management can be forced to exercise their brains a little more to optimize asset allocation and maintain cost discipline. Political interference can put paid to such efforts...

In 2011 the Bank of Uganda noticed that money in circulation was growing at unsustainable levels. In February they started mopping up excess liquidity, which lead to increases in lending rates and much gnashing of teeth in the business community.

The politicians started jumping up and down. Baying for the blood of then governor Emmanuel Tumusiime-Mutebile’s head. They even hauled him before parliament where Mutebile, who did not suffer fools gladly, informed them he was there as a courtesy but nothing they could say or do would change the central bank’s course on monetary policy.

Despite the central bank’s efforts inflation that year peaked at 30 percent in October, the highest it had been in 19 years. One shudders to think what would happen if Mutebile had caved in to political pressure how high inflation would have reached.

NSSF’s size, its importance to the economy and the specialty required to manage money are justification enough to make NSSF a more autonomous agency, like BOU.

WHY THE OPPOSITION IS STILL IN THE WILDERNESS

This week the Forum for Democratic Change(FDC) split was formalizedwith the calling of an extraordinary delegates meeting that saw the party president  Patrick Oboi Amuriat and his secretary general Nandala Mafabi thrown out of office.

The delegates conference called by party chairman Wasswa Birigwa installed Lord Mayor Erias Lukwago and Harold Kaija in their place.

The Amuriat clique dismissed the move as inconsequential and as far they are concerned, they are still in place.

It is a sad event, an inevitable one that came as no surprise to those who have been watching Ugandan politics for the last few years.

"While the opposition’s most obvious challenge is the uphill task of unseating President Yoweri Museveni and the National Resistance Movement (NRM), maintaining internal cohesion has proven just as, if not more difficult...

Because the promise of power is seems to be drawing further and further away, the romance of voluntarism is fading away fast.

But first a quick recap. When the NRM come to power in 1986 they froze party activity, which means there was no renewal within those parties. When party activity was freed again 20 years later, the leaders of 1986 were still in place.

That means a whole generation of leadership that should have taken over from the party grannies were still waiting and whole a new generation were pounding the doors for their turn at the pie.

Inevitably tensions mounted in parties, with many decamping to join new formations like FDC, to short circuit their route to the top.

With Museveni’s continued stay in power, opposition parties are being forced to renew themselves without having been in power. The tension between older leaders who think power is around the corner, if only they could hang on a little bit longer and the young turks, who think the old guard have failed dismally to wrestle power from the NRM, and should bow out gracefully or be shoved out with ignominy, is playing out now.

"The net effect is an increasingly fragmented opposition, which will ensure the continued stay of the NRM in power, unless they implode themselves...

The NRM does not suffer such upheavals for now, as they are the ruling party and can distribute patronage though government to keep everyone onside, even those who have their own presidential ambitions.

An NRM out of power would struggle like any of these parties, hence the unity of purpose at Kyagwe road when the elections come around, regardless of the internal mutterings and grumblings between elections.

Time is not the friend of the party out of power. It took an almost about face in their ideology away from the left, for the UK Labour Party to win power in 1997.

The same can be said for a party in power for a long time. It loses its idealism and dynamism as parochial interests get entrenched, clogging down service delivery and perpetuating corruption. But the power of incumbency is such that they can paper over these cracks, longer than the much less resourced opposition parties can.

Leadership, more so in the opposition than in the ruling party, has to be unwavering in its commitment to the cause and able to transmit this conviction to the rank and file. If the leadership are there for their own personal enrichment and aggrandizement the foot soldiers will feel it quickly and their own commitment will suffer.

Opposition leaders often sell to their followers the promise that power is just around the corner. The thing they tell their supporters and the reality are often different. The trick is to maintain morale when the promises don’t come through as sold. The leaders own commitment to a far off vision is what is crucial and will allow him to keep selling a dream to the supporters.

And finally, the role of the state. No state is going to let you prosper when you are scheming to unseat them. Lost in the current drama is that the straw that has broken the back of the FDC is a quarrel over the distribution of monies whose source is not known, but highly suspected to come from intelligence.

Spreading dissension in enemy ranks is a legitimate tactic of war and politics. Such tactics find fertile ground in places where the leadership is infiltrated (stock in trade for the intelligence) or ambivalent in its commitment.

The death knell for the FDC was sounded with their dismal performance in the last election where they ceded their leading position in the opposition to National Unity Platform (NUP).

As a result of all of the above sadly FDC may very well be going the way of the Democratic Party (DP) and Uganda People’s Conference (UPC), both of which have succumbed to the inexorable march of time.

 

POOR GOVERNANCE BEATS LACK OF CASH FOR OUR BUSINESS COLLAPSE

 In the wake of some high-profile companies’ assets going under the hammer last week, our knee jerk reaction seemed to be government should step in to bail them out as major tax payers and employers.

The business community is grappling with a lot of challenges, but somehow it has come about that we think that the greatest of which is lack of capital.

We are under the illusion, including government, that if we just give people money everything will be ok.

The Uganda Bankers Association (UBA) conducted a study that shows this may be far from the truth.

"According to the study “Dealing with Financial Distress” released earlier this year showed that in every single case of financial distress in companies there were questions poor management and decision making...

The usual suspects of high lending rates, high taxes and macroeconomic factors were much further down the line as cause of financial distress.

For some it may be something to brush off but it has repercussions on whether the company can be salvaged.

"The same study reported that the major challenge of supporting distressed firms to recover include limited and poor information from the clients, which is a function of governance. Coming a distant second were capital adequacy, increased risk, high and increasing operational costs, cashflow challenges among others.

It came as no surprise therefore that the report led with a recommendation to rethink management process with emphasis on staff performance management, before other recommendations for financial rescue were suggested.

The full report is on the UBA website and should make for good reading for anyone interested in the latter.

In more organized business environments good governance came about as a need to be more accountable to shareholders. Which makes sense because if you want my money, I better have full disclosure to make an informed decision. With time this accountability spread to other stakeholders like the financiers, employees, government and the tax man.

This was important because to take advantage of growing markets, one needed to stay onside with the shareholders, who one would have to resort to for more and more funds.

In our local situation the demands on accountability are less because our businesses are often begun on our own resources and because our markets are not growing that fast or our businessmen are not ambitious beyond feeding their own families, the need to go out in search for funds is limited to the banks, whose interests are short term and limited to whether you can make good on the loan or not. Strategic issues are all see through these tactical lenses.

Many businesses have introduced outside shareholders, thinking it will business as usual after the monies land in the coffers, but are shocked when their new partners want more information about the business’ workings. The differences have often led to collapse.

"It is often hard for them to come to terms with the fact that their days of dipping their fingers in the till on Friday evening, are over...

Sadly, as with many transformational changes they need to be prompted by crisis. One would argue we have enough crisis to prompt these movements here. Slow post covid recovery, increasing regional and foreign competition, high cost of funding among others.

As has proven over and over again when we get organized, meaning mostly that our governance practices are easily understandable, lending comfort to potential partners, the funds follow as if by magic.

We fail because we don’t want to release control of our enterprises. It is not unique to us. Business promoters in more developed economies release absolute control of their companies because the market economies dictate it.

As mentioned above to compete and expand there is a need for more long-term capital and calling in more partners is often the best way to do this. This takes a certain level of sophistication that can only come with practice and experience.

None of this is to downplay the struggles that our businessmen are going through now. But if they were to take a step back from their babies and ask themselves if they are running them the best way to maximise their efficiencies, better still get an outside pair of eyes to look at the business and give an objective opinion on the matter, we may see the change we want happening.

It cannot be over emphasized that with increasingly open borders, survival will only become tougher. Calling for protection from outside players sounds good but it is increasingly impractical, because if we put barriers against others’ goods what will stop them from doing the same to us...

Easier said than done, of course. But that’s the reality our businessmen are faced with and clearly they are going to do the things they don’t like to get the things they want.

 

 

ZIMBABWE, THE LESSON THAT KEEPS GIVING

Last week it was reported that 20 years after they were sent fleeing from their farms by war veterans, white Zimbabweans are returning to work the fields.

The once productive farms, even the ones taken over by former president Robert Mugabe's clan, have seen production collapse and in many instances stopped altogether.

Good sense has overridden bad politics. It helps of course that former president Robert Mugabe ego is not in the way or more importantly the political imperative that led to that economic suicide does not obtain.

First off a bit of background. When the English colonised Zimbabwe they carved off the best land for themselves and relegated the African to the marginalised land...

The white farmer proved so successful that Zimbabwe became the breadbasket of the south, building a strong agricultural sector to complement their mineral resource endowment.

No doubt an injustice was done. An attempt to redress this in an orderly fashion with the return to black majority rule in 1980 was squandered by Mugabe and his cronies. In 2000, facing mounting opposition and an imploding economy, Mugabe let war veterans loose on white farmers, occupying their land without compensation as the state looked on.

This was wrong on many fronts but two stand out for me.

This was a blatant attack on the property rights not only of the white farmers but by extension all Zimbabweans.  This is critical because if property rights are brought into question the willingness to invest in the country suffers. Who wants to build a house, open a shop or start any business when they are not sure if tomorrow the government, which sworn to protect life and property, will go beyond coveting to taking over their business?

Secondly, hate them or love them, the white farmer was the backbone of the agricultural sector, which not only fed the population but provided significant hard currency, in support of an economy we envied for its good infrastructure, quality health and education services.

The inevitable happened. The economy went into a tailspin and Zimbabwe is not even a shadow of the shadow of its former self.

"In Uganda we are no strangers to this suicidal political thinking. Idi Amin on a whim, chased the Asians, our dominant commercial class, to win cheap and dubious political points and with no thought to how the gap would be bridged. Its no surprise that 50 years later, hungover from that trauma, Ugandans cannot save long term and as a consequence have few long term investments to mention.

As a result, we lost almost 30 years of economic progress – we only recovered to our 1970 level around 2000.

The thing about history is that those who don’t pay attention to it are bound to repeat the same errors.

Zimbabwe is in a desperate situation that calls for desperate solutions. They have just come out of an election which saw Emerson Mnagagwa re-elected. Inflation was last reported at 176 percent, an official figure that understates the problem and a currency that is not worth the paper its printed on.

Its hard to see how southern African economy can be turned around under a truly democratic dispensation.

Again, we have been there. Harare will have to cut down public expenditure, especially unsustainable subsidies, sell off hemorrhaging public enterprises, break up inefficient monopolies and liberalise the economy...

This will on one hand, liberate the individual initiative of Zimbabweans and attract new investment, while at the same time leading to massive job losses and further economic strain.

Unlike Uganda where our food supply comes from small holder farmers, who whether hell or highwater, will always produce food, the Zimbabweans don’t have that buffer and therefore economic reform will be that much more painful.

All this will be politically costly for any government to attempt. For the last two decades faced with this reality Harare has been reluctant or unwilling to make the hard decisions to turn the economy around, because of this.

The use of anything but the Zimbabwe dollar as a currency, makes drastic economic reform all the more urgent. What it means is that Zimbabwe has little room to manoeuvre when its money supply controlled by Washington or Pretoria. Zimbabwe’s priorities are not necessarily those of the US or South Africa.

A situation not unlike the former French colonies of western and central Africa whose budget is controlled by Paris, has led to intergenerational poverty and has served as the trigger for recent coups.

Zimbabweans are a nice people and they do not deserve this. No one does.

The lesson of course is that bad politics, with no reference to the people, leads to poor economics which in turn leads to bad politics. A vicious cycle that needs strong leadership to break out of. Whether Mnagagwa and the ZANU-PF are up to the task, only time will tell.

HARNESSING THE POWER OF THE SACCOS

Recently I had the pleasure of attending a training workshop for savings & credit cooperatives conducted by the African Confederation of Co-Operative Savings & Credit Association (ACCOSCA). The training was aimed at renewing our appreciation for the cooperative’s philosophy.

An intense program that saw us seeing double after three days, served among other things, to renew my faith  in the power of collective action.

Among the SACCOS represented were the UPDF's Wazalendo and the police's Exodus SACCOS. Both easily the biggest SACCOS by membership and the former the largest SACCOS by any measure in Uganda and among the top 10 biggest on the continent.

Wazelendos cooperatives CEO, the unassuming Colonel Joseph Onata had my jaw on the floor when he casually mentioned they made a surplus of sh71b last year with assets approaching trillion shillings.

The numbers are impressive enough but for me the wonder is that this has been accumulated by among the least paid workers in Uganda. It is testament to the wisdom of starting where you are and the power of consistent action over time.

Beyond the numbers the SACCOS is serving as vehicle for improving member welfare through supporting individual development and eventually ensure members have something to start with when they leave the forces.

I never tire of saying that the reason why our continent is poor is our inability to aggregate our resources, be it land, capital or human resource. Needless to say it starts with the fragmentation of the continent into 50+ countries.

The concept of the cooperative does not cease to show the power of numbers and more importantly how much resources we have lying dormant around us.

In addition, this column has argued that our problem is not a lack of funding  but a lack of organisation – when we get organised the money comes, as if by magic.

I learnt that there are at least 30,000 SACCOS in Uganda, the majority formed opportunistically to take advantage of government largesse. I am willing to bet only a handful of these will be alive and thriving a decade from now, because money is not the problem but organisation.

While channeling money through SACCOS is not a bad idea, it’s the execution that dictate the suboptimal results that will arise.

The apex body of the SACCOS Uganda Cooperative Savings & Credit Union (UCSCU) is building a liquidity fund that is building capacity to operate as lenders last resort to the industry. The more efficient thing may have been to deposit the funds with UCSCU, encourage citizens to sign up with their nearest SACCOS to access these funds.

At least two outcomes would have been achieved with this approach, a strengthening of the sectors ability to self-regulate through UCSCU and strengthening of existing SACCOS. As it’s now the resources – a few billion shillings, have been scattered helter-skelter across the countryside defeating the intended purpose. Once the dust settles the cream will rise to the top as the poorly organised SACCOS collapse, and their members having appreciated the benefits of the SACCOS join the more credible SACCOS. A process which would have been shortened had we designed the program better.

Currently regulation is in limbo. Under the urgent law the largest SACCOS with savings of more than sh500m are supposed to be supervised by the Bank of Uganda, on the surface a good idea but deeper analysis a potentially disastrous move.

Given the growth of the sector the need to safe guard member savings at the bare minimum is a critical one. However, the central bank has neither the capacity nor the temperament to regulate SACCOS.

Currently there are at least a few dozen SACCOS that have savings of more than sh500m – and growing, this supervisory load will be added to the 20+ commercial banks Bank of Uganda already oversees. While it is correct the central bank should have more than a passing interest in the sector their direct supervision is not necessary nor desirable.

Across the border in Kenya, which has more developed SACCOS than we do, a separate regulator was created which has stabilised the sector and ensured its continued growth and development.

Central bank regulation as it is designed now serves to increase costs of compliance and shut out those who are already excluded from the financial system.

Seven years ago this column reported that Wazalendo had made a surplus of sh12b off assess of more than sh150b. Going by this number they have grown six fold in the interim. While they are not a proxy for the industry, they are an example of the possibilities the sector holds.

Planners and regulators need to take a long term view of the sector to not shackle them at the same time prevent the worst excesses that happen when mere mortals come into contact with sackfuls of money .

 

CLIMATE CHANGE; NO MORE FUN AND GAMES

I remember it like it was yesterday. This was 1983. At first the dry weather never bothered us. In fact we welcomed it. We wanted to play soccer and the rain was a hindrance to our childhood enjoyment and ambitions.

The year before the football World Cup had been held in Spain and our imagination was still fired up by man-of-the-tournament Paulo Rossi. We all wanted to play in the World Cup one day. Rain would only slow down our ambitions in that direction.

But soon playing soccer was nearly impossible as the school field was rendered unplayable by a network of cracks wider and deeper than  I had ever seen before or since. By the time the rains came, the field was a dust bowl with yellow and white patches, the only proof of grass.

"Across the border from us Ethiopia and Somalia were suffering the brunt of the drought. It was so bad it took an international response, triggered by the song “We are world" performed by the world’s leading artists of the time....

That same drought also brought with it the photograph seared in our collective memories of the vulture perched on a dried log, watching a badly emaciated  child,  who squatting on its haunches, had as if stopped to give up on life, its final breath seemed imminent. And the vulture knew it.

If ever there was a case for the cliche a picture is worth thousand words, that was it.

Forty years later the horn of Africa is faced by the worst drought since that drought of my  childhood, and  an ongoing “Safal Eye in the Wild Photography competition" sponsored by Uganda Baati is timely. The competition that was launched in July and ends 15^th September it is hoped in its small way, can help galvanise opinion in support of environmental conservation.

God forbid a similar award-winning photograph will present itself, but now more than ever world opinion needs to be mobilised to fight back the existential threat of climate change.

Already this year the hottest temperatures in recent  memory have been recorded . It has been so hot that forest fires have been raging in North America laying waste to half of Hawaii and much of western Canada. No lesser fires ave been reported in Spain, France and Romania this year.

On the flip side California is enjoying rain for the first time in five years but it has come with hellacious intensity resulting in flooding and massive displacement.

Nearer to home climate change has led to the aforementioned drought in the horn of Africa but also apocalyptic flooding in Malawi, Mozambique, Madagascar South Africa and Zimbabwe.

But the doubters remain, blinded to the looming threat by ignorance or worse, by self-interest.

"Climate change is being driven by growing consumerism which has led to wanton destruction of the environment, especially indiscriminate depletion of forest cover, which in the past helped to mitigate against climate change...

The trees absorbed the carbon emissions from the atmosphere, which are largely responsible for the rising temperatures and the changes in the climate that come with it.

In case you have not worked it out, for a country like Uganda which is largely agricultural there is no way we can  ignore the growing trend.

Climate change can very well affect our capacity to produce food. An issue of concern especially as our population continues to grow by leaps and bounds, putting added strain our natural resources. We have had the luxury of continuing with our inefficient farming methods because we have fertile soils and rains year around. Climate change means among other things, our soils are losing their vitality and our water sources are dwindling.

Uganda for example has seen its forest cover plummet to 9 percent in 2015 from 24 percent in 1990. Recovery to 12.5 percent has been reported but clearly the reforestation is just barely keeping up with the destruction.

But the real challenge of the battle to beat back climate change is that there has to be a global response. Environmental degradation or irresponsible carbon emissions in New Zealand or Alaska can affect Uganda’s climate in the middle of Africa.

We can plant all the trees we want, reduce our emissions through the use of clean energy and energy saving technologies, but this will count for nothing if western economies  continue with their unsustainable lifestyles.

"The case can be made that climate change is driving even the break out of civil unrest and war around the world and particularly in Africa, as governments fail to facilitate greater efficiencies in exploitation and distribution of existing resources.  Matters will not get any better with the environmental degradation and the ensuing climate change.

The need for a global response is a moot point and cannot be overemphasised. The use of visual images transcend language, culture or ideology as a means to drive the point home about the urgency of w collective call to action against climate change.