MONEY THOUGHT FOR 2024

No better time than the end of the year to assess your money situation. If you are ambitious your money situation is not satisfying at all.

Myron Golden, one of those money motivational speakers, said something in the last few days that struck a code.

“If you desire to fix your money problem, don’t try to fix the money problem, fix your money mindset …. Or your money problems will never go away,” he said.

Do you want to know if you have a money problem?

Add up all the income you made in the year and then determine the value of all the assets you own, things like cash, shares, bonds, businesses, real estate please don’t include your car, cloths and phones.

If you are in a good place your assets should be equal to or more than your age multiplied by your annual income, all divided by ten.  So, if your annual income is sh10m and you are 30 years old you should have at least sh30m in assets. If you have more than your number you are doing well, if not you need to pause and think about your life.

The formula was proposed by Thomas Stanley author of “The Millionaire next door”. It is based on a US reality so may not be directly applicable to us, but it is a good place to start.

There are more brutal formulas, like the income from your assets, passive income, should be equal to or more than your annual expenses to be able to begin to rest on your laurels.

So, if you are doing badly by the above formulae Myron Golden says the money is not the problem but your mindset.

For many of us when thinking about getting money we are like, just show me what to do and I get the money. We will be shocked to learn that it does not work like that.

To explain. There are two ways of spending money. Only two. Either you eat it or you invest it...

If you look at your finances, the balance of these spending decisions would tell an on looker immediately whether you have money problems or not.

So, if I said I will give you a sh100,000 right now, what would be your first thought on how to spend it?  For most of us we will think of food, cloths, drinks or some transient experience. There is a small minority – less than two percent of most populations, who would think first of how to invest the money.

The word invest needs to be demystified. For many of us, we equate investors with those men who are always waiting outside State House looking to get incentives and tax holidays to put up multi-million-dollar operations.

So, when asked how would we spend sh100,000, we think it is too little to invest.

This is the direct opposite of my friend Jack, when money crosses his path his first thought is how to deploy it. However, small little it is. As a result, after more than a decade of this discipline, he has built himself an asset base that is more than a billion shillings and which pays him about sh500,000 daily or sh180m a year or sh15m a month and he is not yet 50 years old yet.

Ok so he might have come upon a windfall in the last year or so, but because of his mindset, which is now wired away from eating his money, he invested it rather than blew it on fast food, fast cars, even faster women and high living.

"Mindset is key. Thoughts lead to actions, actions lead to behaviour, behaviour leads to character and character leads to destiny. But it starts with a thought.

Kampala businessman Sudhir Ruparelia in answering the Financial Times, way back in the 1990s, how he became wealthy replied, “It is an old Indian trick, earn ten shillings, eat one shilling reinvest nine shillings. Repeat until rich.”

Our knee jerk reaction is to rubbish such stories. Us we know the man has done some funny things along the way and that is why he is rich.

That may very well be, but for us it absolves us of the responsibility to try and get rich, we are convinced the rich are crooks and since we are bible slapping, church going Chiristians, we have left the wealth building for the crooks. Don’t get me going why it is convenient for some people that the gullible flock persist in this fallacy.

Crooks will be separated from the rest with the passing of time, don’t worry about that. The point is when money cross our paths the truly wealthy look at it differently from the rest of us mere mortals and that makes the difference in our fortunes or lack of thereof.

And the opportunities are all around us.

Last week investment bankers Crested Capital held a “2023 Market Round up” webinar to see what our capital markets have been doing throughout the year.

While the overall performance of our Uganda Securities Exchange (USE) was dismal, it is down 26 percent this year, the devil is in the detail.

If in January you had bought Stanbic bank shares, at the time going for sh21 each, you would make sh11.50 a share by year end. The share closed last week at sh32.50. But in addition to that Stanbic paid sh6 in dividends per share during the year.

If you had bought 1,000 shares of Stanbic at the beginning of the year for sh21,000, your interest in the bank world now be up to sh32,500. In addition, you would have earned an additional sh6,000.

You just have to extrapolate the figures to see that if you had bought 10,000 or 100,000 or a million shares you would have bagged sh60,000 or sh600,000 or sh6m respectively in dividends alone.

Looking at your annual income surely you could have committed a few shillings to buy the Stanbic share and make some money, during the year. What stopped you from doing that? Ignorance could be an allowable defence, but I am willing to bet you ate the money.

 

THE CURIOUS CASE OF GREENLAND BANK, LUGOGO AND FAKE ARTIST IMPRESSIONS

It will 25 years next year on 1^st April since Greenland Bank was shut down.

The news announced in the last few weeks of Turkish contractor Suuma taking over Lugogo sports complex to redevelop it, more like under develop it, brought back memories of Greenland Bank.

Greenland Bank opened its doors for business in 1990. By 1994  they had a swanky new headquarters building on Kampala road, opposite the central bank.

But its biggest contribution to the industry was its abandoning of the strict banking hours other high street banks kept.

In those days banks would open for business at 9 am and were done by 2 pm. And did not open on weekends. There were no ATMs so if you had not got your money by Friday lunch time, you were in for a long weekend.

Greenland bank not only remained open until 7 pm, it also opened on weekends. And they did not have the onerous opening and minimum account balances that other banks demanded.

"It did a better job of being the people’s bank than the government owned Uganda Commercial Bank (UCB) or its cousin The Cooperative Bank....

The quicker adoption of computers must have helped. It helped too that one of the main promoters of the bank was former Bank of Uganda governor Dr Suleiman Kigundu.

During much of the 1990s UCB was being readied for privatisation, and had suffered several failed attempts, among other things, government’s insistence that who ever was to take UCB off its hands should commit to maintaining the full branch network, which by that had been scaled back to 85 from a historic high of just under 200 branches.

International banks including South African bank Nedbank.

Eventually little known Westmont Bank from Malaysia, stepped up, agreed to all government conditions, took control of the bank but suddenly struggled to raise the money.

It was then revealed that Greenland Bank had tried to buy UCB through the back door, the central bank took control of UCB and soon after sold it to Standard Bank of South Africa and it then became Stanbic Bank.

Meanwhile, Greenland’s over ambitious expansion regionally,  into hotels and grain trading soon caught up with it. Its bad loan portfolio ballooned putting depositor’s money at risk and the Bank of Uganda moved in to shut it down.

Greenland Bank’s promoters have always complained their shut down was politically motivated and that they were still a viable bank by the time of shut down.

In 2019 parliament instituted a probe into the closure of several banks between 1993 and 2016, among which was Greenland Bank.

They say if the rat lives long enough it may eat the skin of the cat.

During their testimony before the Committee on Statutory Authorities & State Enterprises (CASASE) the former Greenland Bank directors listed as one of their assets the Westmont Land (Bhd) Asia of Malaysia.

And suddenly, at least for me, it all begun to come together. Greenland bank had created a front company in Malaysia to come and bid for UCB. When the fraud was unearthed, not least of all because Greenland bank was infiltrated, than the Government pulled the rag from under Greenland bank’s feet....

In hindsight Greenland’s problems must have been a result of trying to chew more than they could swallow, causing a liquidity crunch and leading to it falling foul of banking regulations. Never mind too, that they committed the ultimate folly of banking, committing short term liabilities – people’s deposits, to invest in long term projects --- real estate development.

Because of the underhand method that had been used to control UCB, Greenland could therefore not openly get back what it had poured into UCB bank and that was that.  Not to mention they never got around to raising the balance of the price they had pledged to pay for the bank.

So when Lugogo sports complex was handed over to the a foreign contractor to develop, I couldn’t help remembering the UCB saga.

According to artistic images supposedly issued by the new developers, the cricket oval and the tennis courts are not part of the development plan. Instead of these there will be a huge indoor arena and a small hotel .

"More recently the Naguru Estate was taken over by some Irish-led developers, OpecPrime properties, whose artistic impression of a satellite city on the site has remained a pipe dream...

Meanwhile hundreds of residents were evicted and promised they would have first call on the residences that would emerge from the plan. They are still waiting, if they are alive. The land is now overgrown and some local people have been stealthily apportioning themselves plots from it.

I am hanging on to the copy of the Lugogo complex’s artist impression to compare it with the final product.

 

KENYA PRIVATISATION, BETTER LATE THAN NEVER

Last week Kenya’s President William Ruto announced his government would be privatising 35 state owned companies.

To that end, a new law  been enacted that brings into force an agency to carry out the exercise without bureaucratic interference.

The naysayers of course are up in arms, seeing this as an International Monetary Fund (IMF) plot to take Kenyan assets on the cheap.

Even if that is true no one is asking how Kenya came into a situation that the IMF would dictate to it.

"The IMF is like the lender of last resort. When no one else will touch you with  a 100-foot poll the IMF is the one you go to. But they are not a charitable organisation, their money has a cost.

Normally others will not lend to you, because the probability is high you will not be able to repay them.

So the IMF may insist on more efficiency in the economy and the easiest thing is to flog all the deadweight companies that are sucking more out of the government than they are paying back in taxes and dividends.

Greater efficiency in the economy will make the IMF redundant, as the country will be able to go to the open market to borrow funds.

Privatisation can take many forms, selling the company as a going concern or liquidating it all together – selling the assets and paying off the liabilities.

In the last incidence the company maybe beyond salvage – up to its eyeballs in debt, in need of major recapitalisation and in a dying industry, in which case it may not make business sense to try and keep it going.

But if the company is to be sold as a going concern one can expect that the labour force will be cut (tribalism and nepotism are never an efficient recruiting mechanism), minimum efficiencies achieved, while replacing obsolete machinery before they may think about beefing up staff numbers again.

The Uganda experience shows that the labour force eventually surpasses the original numbers before privatisation. The only thing is that it is not all those who are retrenched that regain their old jobs.

"The main aim is not to raise money but to create greater efficiency in the economy...

Kenya has a fairly robust stock exchange on which some of these companies can be offloaded – if they have sound management and strong balance sheets, but chances are they will be sold to investors directly.

The critics will say that since many of these companies will be snapped up by foreign investors it amounts to colonialism via the back door.

It would be ideal that local businessmen buy the companies. But often what happens is that it is cronies of the political elite who “buy” these companies, who often can not raise capital to revamp them and end up selling them anyway, to foreign investors at multiples of the price they bought it at.

The ordinary citizen  is often conned into thinking it is better to sell to our own, not knowing they are facilitating crony capitalism with they being the eventual loser. They lose because efficiencies are not created that would see a wide supply of goods or services.

Kenyan indigenous capital would have a better chance of participating in the up coming privatisation, because not only are they wealthier but also because they know how to mobilise resources in groups. They have longer experience in SACCOS and investment groups than we do or did in the 1990s, when our privatisation process was taking off.

In the final analysis the man on the street wants better goods and services at a fair price, they really don’t care who owns the company.

In theb 1990s Russia, still hung up on their socialist dogma, privatised many of their companies by giving shares to the workers. The workers ended yup selling their shares to a few connected Russians who are today’s oligarchs, fabulously wealthy people (all men) and the workers’ plight is worse off than it was under communism, especially since expected efficiencies did not turn up in the economy. And also because they took the money from these companies to buy assets abroad, like Chelsea FC.

But if ownership is such a big deal, the Kenya government should make listing on the Nairobi Stock Exchange (NSE) within a certain time frame as a condition of sale. No gentleman’s agreement as happened here, with the eventual owners not acting as gentlemen eventually.

"The powerful interest groups in Kenya that have resisted the privatisation of companies have finally run out of runway. These companies should have been privatised 20 years or so ago. But the economic realities have dictated that  they have to go now.

Dictated because the short term suffering from privatisation can be politically costly. Ruto did not come to this decision with out the economic reality staring in the face. He needs to offload as much excess baggage on the national purse strings, if he is to have ha lf a chance of getting the Kenya economy back on track.

Again we bring such hard decisions on ourselves. If these companies were well run and making contributions to the treasury the case for their sale would be hard to sustain.

But no, people are not asking the major question, who put us in this position?