LESSONS FROM SHEILA GASHUMBA

Last week it was reported that Kampala socialite, Sheila Gashumba had thrown a private party to celebrate the acquisition of her Range Rover.

While the doyenne of Kampala’s socialites, Bad Black claimed the 2022 car cost sh700m, a cursory look over the internet suggests that sh300m is more a realistic figure.

As expected such ostentatious displays of wealth by someone so young – Sheila is not yet 30, had tongues wagging, with the haters leading the pack.

We shall take her father, Frank Gashumba’s word for it, the she has worked hard to buy herself such a car, but this column would like to glean a few lessons from this recent episode of “Our City, Kampala”.

First of all, you have to give it to her, that Sheila’s working endeavors pay her enough that she can buy such a car.

We would however caution other young girls against following in Sheila’s footsteps.

A wealthier man once said “Money is not for eating but for making more money”. In a roundabout way he was talking about opportunity cost. For every use of money, you have foregone another. There are only two ways to spend money, you either eat it or keep it.

If you eat it, there will be some transient pleasure that will soon be forgotten, but if you keep it, invest it, you can build wealth, where your money works for you and you will one day not need to work. This is important for Sheila whose chosen profession – Club Hostess, has a short lifespan.

Like a professional sports person, she has five to ten years to maximize her income, investing most of it for the long life ahead when she will no longer be the flavor of the month. Because as they say, the beautiful ones are not yet born.

Former undisputed boxing heavy weight champion, Mike Tyson once was paid $20m for a fight in the 1990s, but was recently tittering on the edge of bankruptcy. It’s not difficult to see why. During his career, while he made millions, he blew away millions in high living, as if his income would last into perpetuity.

Subsequent champions from Floyd Mayweather to Anthony Joshua, have learnt from his downfall, investing their monies in real estate and business, ensuring that they families may never need, for generations to come.

While it takes years of pain, blood and sweat to become a champion and earn those millions, it is even harder to keep them and grow them.

Just for illustration, Sheila’s Range Rover is depreciating by the day, losing value. Chances are she will have to sell it for less than she bought it. In addition she has added fuel and maintenance bills that will at best swallow more and more of her hard earned cash or force her to work harder to sustain the beast. While she is the toast of the town, she has actually dug a deeper hole for herself.

But imagine she had taken those hundreds of millions – let us work with sh300m and fixed it at her bank for say 10 percent a year, it would earn her sh30m annually or sh2.5m a month, which we dare say would cover her rent in a suitably upmarket apartment.

Or she could have gone and bought a treasury bond that would give her double digit interest of between 12 to 19 percent or sh36m to sh57m a year for up to 20 years to come.

Or if she had bought Stanbic shares at sh50 each before 21 October, she would now own six million shares in Uganda’s leading bank and on 22 November would receive about sh14m as her dividend from the bank – just in time for Christmas. And did we mention that Stanbic has got into the habit of paying dividends twice a year?

Or if she went out and bought a three bedroom apartment in any of our suburbs, she would have saved herself the hustle of dealing with landlords, owned a piece of fast appreciating property for as long as it served her purpose.

We can go on and on and on. The point is, that its not what we earn that makes us wealthy but how much we keep of what we earn.

Most normal working people’s earning power peaks in their 40s and 50s, for Gashumba that would be sooner and hence the need for her to be more aggressive in keeping more of what she earns than consuming it.  

But consumption is fun, it is good for the ego, so no wonder when we get money the first thing we think about is how to eat it.

But here is another fact, according to the World Economic Forum (WEF) 10 percent of the world’s population own 76 percent of the world’s wealth. I think in Uganda that figure maybe a bit more skewed, like 10 percent own 90 percent of the country’s wealth.

The genuinely wealth have become so by accumulation not by consumption.  

So the lesson from Gashumba really is, how not to spend your money, if you want to be financial free in your lifetime (of course when you are dead you are financially free).

She is still young and probably hitting her peak earning years in the next few years, she can still improve her financial position for the long term.

But I really would not count on it, if only because it is easier to eat your money now, than build assets that will guarantee you and children income well into the future.

 

BUILDING POSTBANK FROM THE GROUND UP

Numbers like hips, do not lie.

Post Bank, hived off from the Uganda Posts & Telecommunications Corporation (UPTC) has struggled to shake off its dusty, sleepy reputation.  But in the last five years, the company seems to have caught a second wind and if its CEO Julius Kakeeto has anything to do with it, will be challenging for industry leadership in a decade.

In the last five years that Kakeeto has been at the helm, the Bank has seen revenues nearly double to sh207.6b last year compared to sh110.6b in 2019; profits have outperformed this, more than trebling to sh27.5b from sh8.4b in the same period suggesting the achievement of greater efficiencies. The cost to income ration plummeting to 65 percent in 2023 from 85 percent five years ago. The industry average in 2023 was 73.5 percent last year.

Subsequently  the general health of the bank has dramatically improved with the asset base more than doubling to sh1.11trillion from sh490.6b in 2019.

So what accounts for this turn around, which is nothing to thumb our noses at. 

Clearly it was not a case of economic momentum because the stage was set for takeoff during the covid lockdown, a time of historical economic constriction...

A major cultural shift was required.

“When we started talking about performance, most of my colleagues were in shock. They were just not used to being held accountable, being held to deliver results,” said Kakeeto.

“I kept on reminding everyone here that, yes, we maybe government owned, but we are competing with private sector owned institutions. The entire industry is private sector led. So they are competitive. They are very aggressive. And for us, we cannot sit back and we think we shall survive operating in that kind of environment.”

 Kakeeto, who had previously worked with CitiBank, Equity bank and Orient Bank knew what he was talking about.

 A reorientation of the workforce’s mentality had to go hand in hand with other more tangible changes.

 “We had a lot of obsolete technology in the organization,” he remembered, shuddering at the memory.

 “We had long queues. People would line up on the street in many of our branches. … Your ATM card would take six months to receive, once you open an account. So you would have an account, but you could not even access your money. If you have a lunch hour from work to go to the bank, there is a long queue up to the streets, you couldn’t get your money in time. You have to go back. But then the other platforms were not working. You can't access it on the phone, you can't access it in the banking hall.”

 Their 20th century technology was further exposed during the Covid lockdown. Bank operations remained manual with no capacity for the staff to work online and their clients suffering consequently.

 Kakeeto’s career at PostBank was almost done before it begun, as the lock down happened five months into his tenure.

 

"They turned lemons into lemonade however, using the lock down to upgrade their systems with the results beginning to show in 2021 onwards. Currently 80 percent of their transactions are off their online platforms with over the counter transactions accounting for the rest. The clear opposite from five years ago...

 

Interestingly the huge investments in revamping their systems they were able to achieve under their own steam.

 The kneejerk reaction for many government companies is to look to government for funding.

 “We shifted the conversation to let's stabilize it. Let us make it perform. Let's reorganize, restructure it. Let's convince the regulator that we're in shape for a commercial banking license after that you can grow and scale . If more funds become available, well and good. They come as a bonus, but they should not be the primary driver of our journey. So yes, we've we've achieved that,” he said.

 The quiet of the Covid lockdown also allowed Kakeeto and his team to think harder about strategy and how they were going to win market share.

 “At the time our discussion was always around, how can we sustainably drive financial inclusion and not just look at opening branches. Opening branches is not a solution, because how many branches are you going to open? Opening a branch is very expensive.… that same investment can reach out to more people if you find a better solution,” he explained.

 “That's how we came up with the with the wallet, Wendi. And the whole idea was, with the wallet, you can bank everyone, not just your customers.”

 

"This along with other digital initiatives means they are firmly on the way to doubling their client numbers from 700,000 at the beginning of the Bank’s restructuring. It helps too that you can now open a post bank account in under ten minutes and have your ATM card, compared to waiting six months for your ATM card previously, for which Kakeeto is justifiably proud.

 

Their new strategic objective “Fostering Prosperity for Ugandans” is hinged on increasing financial inclusion on one hand and relatedly, supporting entrepreneurship and services.

 This has taken them into rethinking how they support rural Uganda, where they have learnt to support whole ecosystems rather than cherry picking the more lucrative parts of the agriculture value chain.

 “The moment you say, I'm going to foster prosperity, you cannot do it partially. I cannot for example, you process beans to sell to World Food Program (WFP). And I come and I tell you, I finance your contract for buying beans and processing them. And you have 100 workers. Your workers need salary loans. And I said, No, those ones I don’t want, I only want you. It doesn't work like that;” he explained.

 Driven by their new strategic imperative, Kakeeto is not ashamed to raise the bar of his ambition for the bank.

While aware that the dramatic success of the last years were coming off a relatively low base,  Kakeeto is confident for the future of the bank.

  “I remember at the beginning of my time I mentioned that we were going to become a tier one bank.  

We are now. I kept talking about, we want to become a top half bank, like top 12 and we are there. So I won't be shy to talk about being a top six bank in four years.” Kakeeto said.

 

WELL DONE ON KARUMA BUT …

Last month the 600 MW Karuma dam was commissioned by President Yoweri Museveni too much fanfare.

"The dam which increases the country’s installed capacity to about 2000MW, is a marvel of engineering design and should set us up as a major player in alleviating the power deficiencies in our part of the world...

But the story of the dam’s development should serve as a cautionary tale and also a lesson to prevent such disasters recurring in the future.

The dam whose construction begun in 2013 was supposed to be commissioned in 2018, so it is six years behind schedule. Such delays have real money consequences, for example, that we started repaying the loan before we had evacuated a single Megawatt, because its five year grace period had expired. The delays alone suggest that the dam’s promise of cheap power may actually be a mirage. Time will tell.

The delay had its origins in the energy ministry, which so botched up the contracting of the construction of the dam and that of Isimba, further upstream, that sympathies are in order for Uganda Electricity Generation Company Ltd (UEGCL) who have been charged with running the two installations.

Those in charge of contracting for the billion dollar project flouted procurement procedures, ignored judicial, parliamentary and cabinet oversight and it took the president to exercise some Solomonesque justice to award the contact for the building of Karuma to SinoHydro and that of Isimbe dam to CWE. If the ministry officials had had it their way the award would have gone the other way.

Out of that chaotic process have resulted in cost overruns, shoddy work and a multitude of issues that UEGCL will take years – hopefully not generations, to unfurl.

As a reminder, the people of Uganda are poor, but Uganda is not poor...

Beyond our benign climate, arable soils and bequtifuul scenary, about a decade ago an aerial survey of our mineral wealth showed that if we wer to fully exploit the minerals under our feet, we would have to move all Ugandans out of the country first. We are that rich.

The reason the people of Uganda however continue to wallow in poverty, is because of our inability to exploit this our natural endowment for our benefit.

The development of Karuma dam is a case in point.

The site’s potential of 600MW or more, has been seating there for eons unexploited. And when we decided to do something about it, public officials charged with overseeing these assets, in trust for all Ugandans, put their personal enrichment first and the people of Uganda be damned. In more serious countries these people would be strung from trees rather than awarded medals.

But the drama is not over yet.

Uganda’s peak time demand is about 800 MW, which means at the best of times 1200MW of capacity goes begging. Painfully we pay for that power whether we use it or not.

Even in Karuma and Isimbe, where we do not have onerous power purchase agreements, the creditors get paid whether you use the power or not.

"The challenge with the electricity sector, like other sectors in Uganda is that we all work in our individual silos, with no seeming regard to ecosystem around us...

One of the delays to the dam completion, apart from all the remedial work that had to be done because no sooner had the dam been built than huge fissures started showing up all over the dam, was that we had not completed the transmission lines to evacuate the power.

One would imagine that if we are to build a dam, we need to start planning simultaneously for how that power should be evacuated. One would imagine that Uganda Electricity Transmission Company Ltd (UETCL), whose job it is to evacuate the power, would be put on formal notice, with funding and timelines, beyond them reading about it in the press. It did not happen.

So UETCL only just finished the transmission lines last year, five years after the original date of commissioning of the dam.

We would be forgiven if the government was run by some bumbling fools from an earlier era. We would shake our heads, click our tongues and understand. But that is far from the truth.

In a country where less than half the households have access to the national grid, this kind of mismanagement is criminal. While it is difficult to see the cost to the people who have not had power in generations, we can see by the transformation in the lives of those who have access, to get a sense of what the rest are missing.

"The net effect is that Karuma like Kiira, is in danger of being a white elephant, too big to be swept under the carpet, but an example of how not to develop a project never the less...

The management at the energy ministry, UEGCL and UETCL are relatively new, as they all came in when the Karuma project had been set in motion, so they maybe exonerated from the mess. But as Ugandans we expect better from them and value for money for all these beautiful dams that do not generate power.

BIG COMPANIES, BE KINDER TO SMALL COMPANIES

My friend Jack is at his wits end for what to do for his business. While the rest of us entered the job market, Jack opted to go off on his own, starting a market research company at its core, he branched off into deliveries and event management. He has done everything in between.

He has made a better than average living for himself over the years.

But lately he is beginning to feel the walls closing in on him and long term survival seems to be fading away.

While URA the bane of every small businessman, have something to do with it, it’s more to do with the payment cycle of his big clients.

For many of his clients he does the work and then invoices for the job after it is done. The problem is that the big companies pay for work done up to 120 days after invoicing. So his life is an unenviable cycle of looking for financing to do the job, then chasing payments from the big companies (it is not paid automatically during the stipulated time) and then ducking and dodging from URA, money lenders and any number of debtors...

After all is said and done, and yes there is the company official who wants his cut to get the job and the one whose palm you have to grease to ensure payment, he barely breaks even.

For the amount of stress and worry he juggles it is a wonder he has not greyed yet.

Government’s cash squeeze is causing a general slowdown in economic activity especially in the retail sector.

Not only is government cutting back on spending they owe the private sector over sh4trillion shillings, with some suppliers going unpaid for up to three years...

Government being the biggest consumer of goods and services, when it sneezes we all catch cold.

 But my friend Jack argues that that should not affect him. Many of his clients already have the cash; the telcos have most of their services prepaid for. The breweries? Try getting beers on credit at the depo. The banks are not only seating on stacks of money deposited with them but charge fees to keep  that money, so cash is not their problem.

I suspected that these 45-day plus delays of payment are a throwback to a time when company accountants used to pore over oversized legers, reconciling accounts from far flung reaches of the company and therefore need time to reconcile and then pay suppliers. It seems to me then, that with improved technologies, where reconciliations are done in real time, these time savings should have done away with these long waiting times suppliers are suffering.

But industry players say that is not true. Companies are managing their own cash flows to the detriment of the small man selfishly, plain and simple. A company holding on to monies for even a day can see them earn a point or two by placing those monies in a bank or conversely would mean they do not have to draw down their overdraft with the bank and incur additional financial costs.

And URA? The law is that you should pay your VAT on any invoice issued by the middle of the next month. So small businessmen are having to dig into their pockets or worse, borrow money to meet their tax obligations, invariably looping them into a vicious cycle of debt and tax default leading to tax evasion.

It is true that all over the world it’s the small businessman who is the biggest employer. But you have to fear for the fate of the worker in the small business if the big businesses, not to mention government, is treating small businesses like unwanted orphans.

In corporate Uganda and the world over the buzzword is

ESG (environmental, social and governance). At its core is the realization by businesses that profit is not everything and that they have a wider responsibility beyond their shareholders, to ensure that more stakeholders benefit from their good fortune...

It common sense that of you are affluent in a see of poverty in the short term your progress will hit a ceiling and in the long term the  impoverished will eat you – literally and figuratively. So it make sense to ensure in your pursuit of profit everybody around you ´get a fair shake.

So, featured prominently in your glossy sustainability reports can you, big companies, spare space for the improved treatment of the small businessman, preferably ahead of the new boreholes you have installed in some obscure village or the new lick of paint at XYZ primary school. Thank you.

 

NSSF MUST CONTINUE ITS STELLAR RUN

Last week National Social Security Fund (NSSF) last week paid 11.5 percent interest on its members savings held with the Fund by the end of June.

This continues NSSF’s tradition of paying double digit interest, which they have done in all but one year in the last decade.

They have managed these rates by adopting a conservative asset allocation – almost 80 percent of the sh22trillion portfolio is committed to government paper and keeping their costs under control – they report cost of one percent of assets and a cost to income ratio of eight percent. It helps of course that they have the law on their side and they have not been bash full in ensuring compliance. Member contributions came in at sh161b a month in the year to June 2024.

"NSSF is also only one of three companies – the other being MTN and Umeme, that have crossed the sh2 trillion mark in revenues...

Total revenues were up 15 percent to sh2.53 trillion from sh2.2trilion in the previous year.

At an individual level the continued double digit interest rate means that at bare minimum member savings are doubling every seven years. This is because of the compound interest effect, that while members are earning those monies they cannot withdraw them, they added to their savings and subsequent interest is calculated on that interest.

While there has been some gnashing of teeth by members who want access to these monies, it is often times the best thing that happened to them, that this money is locked up for decades.

What is not widely known is that while the management has set themselves the target of paying two percentage points above the average ten year inflation rate, by law NSSF can pay a minimum of 2.5 percent. But even with that pitiful rate savers would still be winners as their employers, contribute double their contribution to the fund. The management commitment is a godsend for voluntary savers who cannot get comparable rates on the market.

More on that later.

"On a macro economic level NSSF is playing a major role in ensuring macro economic stability and that government remains in business through its participation in the government bond market. This invaluable contribution to the general economy goes understated but lays the framework for us to have low inflation and predictable returns. NSSF has about sh14trillion in bond holding in the region, but most of it is vested here in our market.

In addition NSSF has major interest in the Uganda Securities Exchange (USE) where it holds about sh500b worth of stock in local companies whose total market capitalization is about sh10trillion. NSSF interest is more significant however as it has about a quarter of all shares available for trading.

During a recent news conference NSSF also announced it is looking to becoming a market maker, which would increase liquidity in the market while being very lucrative for the Fund. A market maker is often a entity who stands between buyers and sellers, who unlike brokers can hold on to shares for a period as they look for buyers. With its deep pockets NSSF would be well placed to carry out this role for the market where average daily turnover was sh300m.

As it stands now because most of the shares are held by institutions, who hold for the long term and have little interest in day-to-day trading, and so there is relatively low activity on the USE.

"The USE is the ideal place to start ones investment journey, as it requires low amounts of funds to participate and provides useful education on investment for anybody.

But probably more interesting is the growth of the unit trust funds in Uganda. Assets under management in the last quarter, which ended in June, grew by about sh300b to surpass the three trillion shilling mark. This from below sh500b five years ago.

By NSSF providing double digit returns these  unit trust funds are being forced to offer double digit returns, with the additional sweetener that funds are more readily available. One can withdraw money from most unit trusts within 24 hours accounting for their increased popularity.

This is a lesson for other sectors that have public participation, particularly health and education. If government services are below par, it opens the door for private participation, which is not a bad thing in itself, but the private players do not have a high bar to measure against, then therefore do not feel obligated to give much better services.

If the average public school or health facility was well equipped and staffed, they would be no room for the private sector and even if they came in they would have to come in with much better facilities and service to justify their fees.

If NSSF was paying below single digit interest you can rest assured the unit trusts would not try much harder to optimizer their members returns.

NSSF’s influence in our market extends beyond the good interest it pays the members to stabilization of the economy, financing government operations and moderating the private markets in which it participates.

As a result NSSF continued success is critical and not only for its members.