MORE MONEY TRANSACTED ON MOBILE MONEY THAN UGANDA GDP IN 2022

A few weeks ago Bank of Uganda reported that the value of mobile money transactions in 2022/23 jumped 22.6 percent to sh191trillion from sh156tillion in the previous year.

This was driven by more people signing on to mobile money, up 11.4 percent to 42.9 million from 38.5 million in 2021/22.

The value of transactions at sh191triliion or $51.5b is the first year that transactions on mobile platforms overtook the national GDP and is expected to remain above, as more people take up mobile money and the transaction values overtake that of money transfers. This trend was already registered itself in neighbouring Kenya with Safaricom’s Mpesa years ago.

At the current rate of growth of mobile money transaction values, these will be doubling every four years. Its just amazing to think about it.

In my mind this is an exciting trend when viewed against the fact that more than 90 percent of transactions are “low value” transactions of less than sh50,000.

The way to think about this, is that if mobile money platforms were not there these are monies that would have been in our pockets, not being helpful to us or to the general economy.

But also, that there are millions of people who were not in the formal financial sector who are now in and set to reap the benefits that come with this that have been denied them for generations.

Since this money is in the formal financial sector, we are earning interest from it and its being lent out to those in need.

On the surface of it, it is not difficult to deduce that this has an effect on the wider economy.

Earlier this month GSMA, an international organization unifying the mobile ecosystem, released the results of their research on the effect of mobile money on economies.

The researched showed that in Sub Saharan Africa total  contribution of  mobile money to GDP  was almost $150b, accounting for 3.7 percent growth. In eastern Africa a comparable figure is $60b, 5.9 percent increase in the region’s GDP.

The research had four major findings.

One, it showed what was widely known that mobile money is biggest in Sub-Saharan Africa, But they went further to show that a 10 percentage point increase in mobile money adoption can translate in up to one percent in a year.

Their research went further and showed that increased adoption was leading to increased usage with average annual transaction values rising to $800 in 2022 from $500 in 2013.

Thirdly that increased ecosystem transactions -- buying goods and services, rather than cash-ins and cash-outs had a greater impact on GDP growth.

And finally, that effect of mobile money adoption on GDP increases with more users.

It makes sense. By getting more and more money in circulation into the formal financial it activates the value of that money – money in your pocket is no good to you or anyone else. Probably more important is the inclusivity of all those people who have been unable to engage with the formal financial system as it was previously constructed.

Prior to mobile money about 80 percent of money in circulation was outside the formal financial system one would think this position has improved dramatically in the last decade.

So, improvements in the GDP would follow as a result of more money in the formal sector but also the improved efficiencies in the flow of money around the economy...

We take these efficiencies for granted. But there was a time, while western economies had long adopted “plastic” – credit cards, we were still doing everything with cash.

Most people kept their money with themselves, doing nothing for themselves or the general economy. The few who held bank accounts had to transact at the banks’ convenience. Opening hours were from 9am to 1 pm and only on weekdays.

ON a weekend and in need of cashflow as in the bank you were in trouble. Hence people keeping on themselves more money than was necessary.

When the now defunct Greenland Bank, leveraging on technology started opening later into the evening and on weekends, it was no surprise that people flocked there. The high street banks responded by unleashing ATMs, but even their best efforts meant just fraction of the population was involved.

And it is scary to think with increased uptake of mobile money and innovations in the industry, what the financial landscape will look like in 10 years. Our biggest financial institutions will have been born of mobile companies, everybody with a mobile account, services extending beyond money transfer, commercial transactions, to making physical cash irrelevant.

The dream of a cashless society I used to report about in the 1990s is coming to life in the least expected ways, with a speed that is positively breath taking.

 

PERSONAL FINANCE FROM FIRST PRINCIPLES

I got around to thinking the other day how would I give a talk on personal finance and do a good job of it if my talk was restricted to 20 minutes.

After much huffing and puffing I came up with a talk that would pass.

Ladies and Gentlemen your personal financial situation is determined by how you spend your money. There are only two ways to spend money, either you consume it or you invest it. Which of the two you did more of in the past explains why your finances are the way they are today.

"If your spending was biased towards consumption and away from investment, you are barely making ends meet, regardless of your salary. If on the other hand your spending was biased towards investment and away from spending, you probably are better off than the average person around you....

My talk should really end here but let me expound.

If you had sh10,000 on you spending it maybe going and buying two beers or three or one, depending on the bar you patronize, which beers you may very well leave in the bar’s toilet before you leave. Investing the same sh10,000 may look like buying data on your phone – my provider can get you 2.6GB with that, which you proceed to use on improving your knowledge, that may result in higher income in future. I saw a saying the other day, “Income does not far exceed personal development”

If you has sh100,000, spending it may look like you buying data on your phone with sh10,000 wining and dining at a higher end restaurant than you are used to and posting your frolicking on social media for all to see and admire. The sh100,000 could be used to buy a 20-year bond which would give you 15 percent interest a year for 20 years. The difference between the two is that in the first instance everyone in your social media universe will know you had a blast at such and such a restaurant or bar – maybe even envy you and want to be you, while in the second instance no one will know that you are going to earn sh300,000 over and above the sh100,000 you invested – unless you go on social media and announce your bond purchase. You are unlikely to get more likes than there are fingers on your right hand.

If you had sh1,000,000 you could spend it by hiring a four-wheel car for a day, bundling your friends in it and heading out to jinja and have a few drinks by the river Nile – all documented for your social media fans. Or you get those one million shillings and by a bond or a few thousand shares on any number of shares on the Uganda Securities Exchange (USE) and benefit from future dividends and capital gains. Umeme shares for example have doubles in value since last year.

Let’s take it abit further and you have sh10,000,000 you could spend it by getting on a plane, export your frolicking to the beaches of Mombasa or Zanzibar and again document it on social media. Or you could take that same money and buy a 20-year bond and make sh1.5million annually.

It is easy to see why we would rather eat than invest our money.

"Eating our money provides instant gratification and also has the added bonus of making us “look” rich. While investing our money, not only will the benefits come sometime down the road but also chances are people will not know about it and therefore will not know that we are rich....

Eating our money is not unique to Ugandans, it is a human condition, at least for the majority or 99 percent of the population who are struggling financially.

The remaining one percent of the population bias their spending towards investment and when the join the blasters, years or even decades later at the source of the Nile or Zanzibar, the spenders will say they are lucky, which deal did they do to get money to start partying.

Many years ago, in the 1990s an interview with the Financial Times our own Sudir Ruparelia was asked how he has amassed his fortune and he joked that it is an old Indian trick, where you earn 100 shillings invest 90 shillings and 10 shillings. Repeat until rich.

I also saw a quite the other day that goes “Money does not like noise”. I understood this on an intellectual level but came face to face with it during the NSSF release of the mid-term access funds last year. People complained that NSSF was delaying to release their monies but as soon as they were in the bank, it all went silent.

And finally, if there is one other lesson to be learnt from this talk or kept in mind when we decide how to spend our money is that in all we do with our money, the goal should be to get rich not to look rich.

Thank me for your time.

 

IS IT POSSIBLE FOR SMOKE WITHOUT FIRE?

MPs are up in arms at what they see as an unfair bailout of thermal power generator Electromaxx, controlled by businessman Patrick Bitature.

They claim government has paid $13m (sh48b) for the Tororo 90MW thermal power plant, particularly annoying prospect when government is in the throes of a cash squeeze.

Such stories serve to score cheap points against the government to the detriment of economic players, until they are put under a microscope.

While the politicians will not let the facts get in the way of a good story, the truth will set us free.

Electromaxx has a Power Purchase Agreement (PPA) to produce power at the thermal power plant.  The plant uses Heavy Fuel Oil (HFO) to generate power which is fed into the grid via the substation in Tororo.

The PPA stipulates the generators obligations and government’s as well, which among other things outlines how they will pay for power. We will not get bogged down in the details of the PPA but let us just say that government owes Electromaxx millions of dollars in back payments under the agreement.

To back track a bit. To build a plant of that magnitude – it was reported to have cost $60m (sh200b) to set up, no one, fishes in their pocket to pay for the massive civil works, the generators and the installation. You borrow the money from the bank. The loan it is envisaged will be paid serviced using the money you will get from generating power according to the contract.

So, when government does not pay you as planned, inevitably you are going to come under the gun, especially from your creditors – not only the banks but your suppliers as well.

As a way to extricate themselves from this unfortunate situation, it was agreed that government takes the plant off Electromaxx hands.

The politicians argue that why should such a deal be done when we have hydropower surplus. Thermal power plants are often used as back up capacity, if you have them and don’t need them now you keep them available for the time when they are needed.

While we enjoy relatively consistent power now, most of our power comes from hydro power, which can be affected by the vagaries of nature and climate change. A drop in water levels or damage to one plant or the other – all events we have witnessed in the last few years, can cause the grid to trip and throw us into darkness. Also in the recent past vandalism of transmission lines have cut off parts of Uganda off the grid. It was envisaged that the Tororo plant will serve a s a stop gap measure to sustain power in the Tororo industrial area, eastern Uganda and for power exports to Kenya.

There is an Energy Policy, drawn up in 2018 that recognizes this risk. In the policy it is required that the energy generation mix includes 10 percent thermal power, among more than one plant.

 So, it makes sense for government to control the Tororo plant as it does the Namanve plant which it took over after operator Jakobsen Elektromaxx concession came to a close last year.

I would imagine the Electromaxx owners would have been loved to paid a nice bulk figure, but government’s cash situation is that that is not possible.

So, the tow parties have agreed that government will take over the Tororo plant, but maintain Electromaxx as the operators for the next five years, allowing them to get paid over that time.

Essentially, they have changed the agreement from Build Operate & Own (BOO) to a Build Operate & Transfer (BOT) arrangement, which is a fundamental change in the agreement which would change the nature of the PPA.

Meanwhile the millions of dollars government owes to Electromaxx remain outstanding, which negotiations remain ongoing.

Two things stand out for me in this whole sorry saga. It is prudent for a country, which has aspirations for industrialization to have a steady supply of power. Contracts especially export contracts, can not go begging because you had power outages. The penalties for such can bring down whole industries. So inbuilt redundancy in the network is prudent. Ofcourse one can argue that right now we are running surplus generation capacity but when more than 90 percent of your generation capacity is hydropower, even that surplus is at risk.

Secondly, the backstory to this is that it is extremely difficult do business with government. As at the last budget reading government had domestic arrears of sh8trillion, for which they have provided sh200b, isn’t it any surprise that the gains of the last 30 years are not being felt equitably around the population?

DO NOT MESS WITH THE LAWS OF SUPPLY AND DEMAND

It was interesting how the problems surrounding Kenya’s fuel pump prices have gone largely uncovered in the Uganda press.

Ahead of the last election the government of Uhuru Kenyatta, in a populist move to win votes for Raila Odinga, decided to hold the fuel prices at a certain level. Pump prices were rising very fast.

At the time the war in Ukraine and the hangover from the Covid lockdown, which had disrupted global supply chains, was pushing up pump prices all around the world.

Nairobi decided that they would pay the oil companies for any cost incurred above the price they had fixed.

There were snide remarks from our side of the border, with people saying that that is how real governments work to cushion their people from bad things. I was not one of them and in fact predicted in this column that it would end in tears. 

It is a common saying in the market that the market will remain irrational longer than you can be liquid...

It was not long before government was reneging on the deal or rather, they run out of money to pay the oil companies to hold the price stable.  The oil companies responded by turning off the taps, until their bill was met.

Soon there were fuel lines in Nairobi – but not in Kampala, where government had wisely let the pump prices find their level.

A few weeks ago the Kenya government issued the fuel companies a bond in lieu of cash payment. The bond would ensure a regular payment from government and could be used as collateral for alternative financing, that is if the market trust the Kenya government.

And finally last week it was reported that Kenyans have decided to leave their cars at home as in September fuel consumption had fallen to its lowest level in five years.

There is a famous experiment of about boiling a frog. That if you threw a frog in a pan of boiling water it would jump out immediately, unable to stand the heat. On the other hand if you put the frog in a pan of cold water and continued to heat the pan slowly, it will take longer to feel the heat and jump out.

When you try to hold prices artificially, its like boiling the water before throwing the frog in. When you can no longer hold the subsidy (read the frog has to be put in the pan) the price will jump or fall dramatically, making adjustment all the more painful. Kenyans were shocked when the prices jumped to the real level earlier this year and have responded by parking their cars.

Ugandans on the other hand, while they complained about fuel prices crossing the sh5000 liter mark last year, adjusted to the price adjustments the best way they could, and for a brief moment earlier this year prices dipped below sh5000 again. Of course, no one reported that. Now that they are climbing back up above sh5000 the chattering masses have gone into overdrive.

The naysayers will say that even the more developed economies provide subsidies for certain essential goods and services. Two wrongs don’t make a right and no one talks about the cost of these subsidies...

The trillions of shillings the Kenya government owes the oil companies will come the expense of health and education services, infrastructure development and other public goods, denying the majority of Kenyans the chance to climb the social ladder by improving their living standards.

Interestingly at the heart of every subsidy there are a few connected people who make disproportionate profits from them. So the biggest beneficiaries are not the little man as the politicians would like us to believe.

Our politicians are not stupid. They know the way to tackle market imbalances is by addressing the supply-demand equation. If prices are too high, look to increase supply. If prices are too low, look to increase demand.

The problem of course is that these interventions could take time and not convenient for the politicians. Even when subsidies are used to boost production instead of consumption, they distort the market – pushing legitimate businessmen out and developing interest groups which will fight to sustain the subsidy, regardless of the economic case against it. And the day of reckoning will eventually come around.

We get around this by keeping in my that adhering to the law of supply and demand is least painful remedy. And in the event that we choose to flaunt or ignore it that we will pay the price. But what do the politicians care they will have moved onto the next flavour of the month.

 

NSSF HAS COME A LONG WAY

It was around 1996 and I was a younger business reporter.

Then National Social Security Fund (NSSF) boss Abel Katembwe and architect Henry Sentoogo made us climb several flights of stairs to the seventh floor of a two tower shell  in the middle of Kampala.

The reason for this morning exertion was to explain to members of the board the options the NSSF had for the building.

"Believe it or not lifts were not planned in the original design of the 14-floor twin towers building. The options were to finish them as separate properties or have two walk ways at the seventh floor and the top, to join the two towers or make the massive outlay on a bank of lifts, which would fit nicely between the two towers.

It seemed obvious to me that Katembwe and Sentoogo had talked about it and they favoured the last option,  but new the cost would be a sticking point.

The rest as they say is history. So the next time you are in Workers' House and waiting for the lift, know that where the lifts are was open space and also explains the 14 floor atrium in the center of the building.

The Fund, which was barely 11 years old at the time must have had assets of less than a trillion and struggling to get employers to comply with their obligations to their workers.

Nearly three decades later and NSSF has become the biggest financial institution in the country and the biggest statutory social security fund in the region.

In between the Fund has battled perennial scandal that ensured a revolving door of CEOs, before settling down over the last decade or so to post its best performance ever.

Since the entrance of Richard Byarugaba in 2011 the Fund has grown from around sh2trillion to sh18.56trillion in assets under management. This is a 20 percent compounded annual growth over the period or it has been doubling in size every four years.

It helps that more and more people are contributing to the Fund. I could not get figures for 1996 but in 2011 the fund was collecting about Sh400b annually, which is what it now collects in about three months...

It did not happen by accident.  

Increased transparency, aggressive chasing of member contributions, better strategy and most importantly, execution of that strategy have been the key to turning around the institution.

The strategy that has been executed in the last ten years has its beginnings in the short lived tenure of David Jamwa, who run the Fund before Byarugaba.

I remember at the time seeing the new strategic objectives and worried that Jamwa was smoking very potent stuff.

It looks easy, collect money from members, invest the money, mostly in government paper and voila you have a profitable and rapidly growing company.

But there are a lot of moving parts that have to move well for this to happen consistently for a decade, despite some very drastic economic events -- covid lock down to mention but the major one.

It has been clear for a while now, that NSSF is an aberration in our economy, a public institution that works.

Its main strategic objectives until 2035 is that it will grow into a sh50trillion fund and that it will have half the workforce as members...

The growth to Sh50trillion is about 9 percent annual growth over the next 12 years, considerably slower than the last 12 years, but that maybe because we are working from a larger base now.

This means that the Fund's management has to be more disciplined in their execution of strategy and also keep costs to the bare minimum. They are already the most efficient Fund in the region, they must sustain that discipline or get better.

The culture of achievement has to go on. we members have been spoilt rotten, they have given us an inch we now want a mile.

In the mean time as this column has mentioned before, NSSF has become too big for this economy, that some of the people tasked with overseeing it can not wrap their heads around the numbers it deals in.

We saw it during the parliamentary probe. The honourable members -- who do not contribute to the Fund, could not understand how staff could share a bonus of Sh200b.

This is not new, about a decade ago a former chairman of the Fund exasperated by his inquisitors bellowed, "Watch me as I spend the money," in answer to a question about the huge sums NSSF would have to invest to make good on one real estate deal...

The way I see it two things have to happen. Either NSSF as part of its working commits to widely educating the public about how it does what it does or/and a law is past which shields it from the politics of the day.

It will still be supervised by the relevant ministries and audited by the Auditor General, but its day to day affairs will be beyond the prying eyes of parliament.

It happens already with the central bank and arms of government like the Judiciary and dare we say, parliament.

And finally going into the next stage of its development NSSF should not lose sight of the fact that, to those who much is given mush is expected.

Good governance is what has got us to this favourable point, a slip here will inevitably begin to show in the numbers and returns to members.