TRUMP REVOLUTION THROWING UP UNCOMFORTABLE FACTS

Since the beginning of February the new US Department of Government Efficiency (DOGE) has cancelled more than a billion dollars in government contracts that were deemed unnecessary and therefore wasteful.

It would be interesting to see what these savings are channeled towards in coming days.

Trump, a member of the economic elite in America, which has argued for lowering taxes for businesses, has decided to answer critics of this initiative by showing that by cutting out the “waste” in government the country can very well afford the tax cuts he intends to ram through.

"The revelations from DOGE are that a lot of money was being funneled to programs with questionable benefits to the US people or the people they are intended for.

Hence the shutting down of USAID.

That being said, Trump’s actions are being driven by a right wing ideology that calls for leaner government and more benefits for businesses. The critics say, by business we are talking about the rich. It doesn’t help that Elon Musk, the world’s richest man now heads the DOGE.

The principle for pushing for government efficiency is hard to argue against. You may frown at the way it is being done, but one can argue that when you are going up against entrenched interests, the slowly-slowly approach may not work. Shock and awe may be the way, so as not to allow the said interest groups to regroup and retaliate.

This column has argued previously that wealth inequalities within populations are more a factor of government inefficiency than the failure of the market.

The market generates the wealth and governments, through taxing economic activity and the budget distributes this wealth. Not by handing out money at street corners, but by funding security, infrastructure, social services and public goods, which when taken advantage by the population will give more and more people a chance to benefit from the market.

The US, the world’s biggest economy has got there by leveraging the power of the private sector. However, the US has major wealth and income inequalities – many lesser developed countries have better stats, whose responsibility can be put squarely at the government’s feet.

What the DOGE is finding out bears this thesis out. Millions of dollars were being paid out for dubious projects inside and outside the country, while major initiatives in education, health and general infrastructure went begging.

In my ideal world, the government is in place to serve the people. It does this by primarily ensuring safety of life and property for everybody. This does not only mean having a functional security apparatus, but also ensures that the legal system works for everyone and corruption is eliminated.

In such an environment business can thrive, in the process creating jobs and paying taxes.

The taxes collected are then deployed to improve and expand public goods, which then allow more and more people the opportunity to benefit from economic growth.

So if your economy is growing but less and less people are not enjoying its benefits, look to government and not business...

To that extent DOGE is a long overdue initiative in the US. That would probably be the work of the Inspector General of Government (IGG) here in Uganda.

It is interesting that businessmen are pushing this agenda in the US. Because government inefficiencies have a way of affecting business and weighing it down.

In the real world things are not as cut and dried. The first thing that happens when people get into government is to ensure they stay there. In our part of the world this maybe by force of arms, but also by catering to your supporters.

That is where the trouble starts, because in pandering to these loyal constituencies, government efficiency is compromised.

That is why it is not wise for government, any government, to be in business. Because business sustainability, which comes with increasing profitability and growing market share, are secondary to the need of government to retain power...

So in a country like the US where all business is in private hands, the temptation to expand government to accommodate supporters, is the next logical thing. And as night follows day, results in growing inefficiency.

Trump and Musk seem to be flipping the script. Their actions suggest that government efficiency is more important than kowtowing to cronies. They are betting on improved services for the people being the incentive for the people to keep them in power. That they will not rely on cronies for that.

While the current push for government efficiency has affected us in faraway east Africa, it will be interesting to see how it plays out in coming months.

Will the bureaucrats mount a fight back or have they been scuttled and their threat dissipated.

Time will tell.

 

CHICKEN COMING HOME TO ROOST WITH USAID SUSPENSION

US President Donald Trump’s administration has thrown the aid industry into a panic with suspension a week ago of his country’s charity arm, USAID.

It has been reported since, that billions of dollars have been put on ice, thousands around the world will be out of a job and millions of beneficiaries are looking forward to a very uncertain future.

Created in 1961 by the John F. Kennedy administration, USAID has been involved in supporting, among other things global health, food security, democracy and governance initiatives.

The Trump administration accuse them of being fat and lazy and even worse, of being corrupt and money launderers. Allegations have been rehashed of how only a fraction of the aid actually reaches the intended beneficiaries, with the bulk of it going to administration, procurements and high living.

For these and many more accusations, the aid industry has come under heavy criticism for decades. These accusations are not new or unique to USAID.

The industry’s record has been spotty at best and dismal at worst.

"For instance since the 1960s Africa has been a recipient of more aid than the Marshall plan, that reconstructed war torn Europe after the second world war, but remains riven with poverty, disease and war...

Aid campaigners would blame that on poor governance on the continent. On the flip side others would argue that bad governance on the continent is a direct result of over reliance on aid. A situation that did not arise by mistake.

The history of development shows that countries advance by mobilizing their own resources – land, labour and capital, to improve the living standards of their people. This has forced governments to move from autocratic monarchies to more inclusive democracies, as the political elite had to negotiate with the people to pay taxes to finance development.

The monarchs of Europe thought they would have their cake and eat it, taxing their subjects to finance their lifestyle and questionable wars, without being accountable to the people. They did this for a time –for centuries, before the people rose up and said enough is enough. Many monarchs paid with their heads for resisting the new power sharing arrangements with their subjects.

The lesser developed countries of Africa were promised they could short circuit this development process by first colonizing us and then in post-colonial Africa, by providing us with aid.

In hindsight aid has not been about transforming society or development, but about influence peddling. Aid has been the carrot that kept us in line. And as long as we kept in line, it mattered little what our leaders did with the money, hence the eruption of corruption in post-independence Africa and the lack of economic transformation.

Aid has given African governments a free pass not to develop relationships with their people (democracy), by abrogating funding responsibility to the aid industry. That is why for instance we are tearing our hair out because USAID was a central player in the health industry and their departure is an existential threat for many.

It is easier to fly to Washington (per diems all around) and negotiate for more money than it is to negotiate with your population to pay more tax.

The truth is we have been lulled into a false sense of security with all this aid sloshing around.

Shortly after the NRM came to power there was a school feeding program instituted because, coming out of war, harvests were not the best. By 1990 it was determined we did not need that food aid any more. I remember the end to that food aid – mainly chicken curry and tinned fish, almost caused strikes because the school kids had developed a taste for the tinned food and could not imagine living without it.

Today its inconceivable Uganda would need food aid, but one can see how dependency could have been easily created.

The suspension and possible closure of USAID should be cause for soul searching.

"We need to ask ourselves how a foreign entity can be so central to the health of our people? An entity, which on the face of it, may have altruistic motives but is susceptible to the political vagaries of a country for who our welfare is not top of their agenda?

The record will show that aid is insidious in its creation of dependency. Because we have aid we cannot marshall home grown remedies to our lack of revenues to finance our development. Why think hard when someone is falling over themselves to throw money at you.

I am not hopeful, but this event should make us take a long overdue look at how we can mobilise our own resources and how we prioritise the expenditure of those resources.

But as I said I am not very hopeful, especially since USAID or a variation of it, will return within the year.

 

USAID: TIME FOR A HARD RESET

So USAID may be closing office soon. A big blow to our health sector for one. USAID is key in provision of antiretrovirals, anti-malaria fight and everytime we have a haemorragic fever outbreak or the other.

With a health budget of sh3trillion or about sh65,000 per Ugandan, the argument for help with our health budget is not difficult to make.

It would make sense that if USAID was suspended we would have to rearrange the rest of our budget to fill in the gaps that have ensued. We would have to take a long hard look at  our health priorities and arrange expenditure to reflect this.

We would have to ask ourselves some hard questions. Do we need such a big government or not? Can we cut back on our travel budgets with their attendant per diems and readopt virtual meetings? Do we need to stop the lip service and go after the corrupt without fear or favour?

We would want to look again at our taxes. Do we need to raise them? Or at least put more effort into roping more people into the tax net? Collecting less than 20 percent of GDP is nothing to write home about.

"Interestingly this situation we find ourselves in, has a lot to do with the donor largesse we have enjoyed over the last four decades...

The progression of development went roughly as follows. 

When the monarchs of Europe wanted more money to fund their lavish lifestyles and fight more wars, they looked to tax the people more. At some point the people said enough, we need to have more say in the way our taxes are spent. Under pressure the monarchs allowed for the creation of parliaments to, among other things, make sure their monies were being spent for the benefit of the tax payers. Monarchs who resisted, had their and their families´ heads lopped off.

They did not have the benefit of foreign aid, maybe when they went out and colonized countries and appropriated their resources for themselves. But for the most part they had to rely on their own resources to develop.

What this meant was taxing their populations. But you couldn’t just tax your populations any howly. There had to be a negotiation -- If we pay you more we expect more. And if you don’t leave up to our contract we kick you out at the next polls.

And that is how democracy evolved as a continuous dialogue and negotiation between the power elite and the citizen.

Unfortunately for us, this process was short circuited by first colonialism and then by aid.

Now our governments, when their budgets fall short, the knee jerk reaction is to fly abroad to beg for alms. It is much easier than negotiating with your people for more taxes...

As a result not only has the evolution of democracy been stalled but we are also very corrupt. After all it’s not our money we are stealing and as long as the government pays it back, who cares. Imagine though if more people paid taxes, than the less than two million who currently do, there would more noise about corruption.

So by bailing out our governments the aid industry encourages corruption, frustrates the development of institutions and then it is no wonder that after billions of dollars have been thrown at the continent over the last seven decades, we have little to show for it.

But one can see how this state of affairs is unlikely to reverse soon. 

"The US needs the influence that comes with USAID’s activities. The recipient governments need more and more aid to forestall the hard discussions they will inevitably have to have with their populations. A vicious cycle that cannot be broken without much discomfort and pain...

This USAID situation should serve as time for intense soul searching, leading to a hard reset.

 

COMPOUNDING, THE EIGHTH WONDER OF THE WORLD

Book Review: The Joys of Compounding by Gautam Baid

If you pick up The Joys of Compounding expecting just another book about stocks, numbers, and financial charts, think again. Gautam Baid takes a well-worn topic—value investing—and turns it into a much broader conversation about lifelong learning, decision-making, and self-improvement. Yes, it’s about making money. But it’s also about how small, consistent efforts in every part of life—whether it’s learning, relationships, or career growth—add up to something extraordinary over time.

Baid’s journey itself is pretty inspiring. He started out working in a call center on the night shift, far from the world of high finance. But through relentless reading, discipline, and a deep love for learning, he broke into the investment world, proving that compounding knowledge is just as powerful as compounding wealth.

My big takeaways from this book.

1. Investing Is a Long Game

One of the core messages in this book is that wealth isn’t built overnight. Baid is a strong believer in value investing, a strategy made famous by Warren Buffett and Benjamin Graham. The idea is simple:

• Buy stocks that are undervalued (i.e., trading below their real worth).
• Hold onto them for the long run, letting time and compounding do the heavy lifting.
• Avoid chasing trends, hype, or short-term gains.

Baid explains how margin of safety—buying a stock at a price lower than its intrinsic value—protects investors from big losses. He also emphasizes the importance of patience. If you’re looking for a get-rich-quick scheme, this book isn’t for you. But if you want to understand how smart investors consistently win over decades, you’re in the right place.

2. Mental Models: Thinking Like a Winner

One of the book’s strongest sections is about mental models—frameworks for making better decisions. Baid borrows heavily from Charlie Munger (Buffett’s right-hand man), who believes that understanding concepts from multiple disciplines—psychology, economics, history—helps you make better choices.

Some of my favorite mental models from the book:

• Inversion Thinking – Instead of asking, How do I succeed?, ask What will make me fail? and then avoid those mistakes.
• First-Principles Thinking – Break a problem down to its basic components instead of just following conventional wisdom.
• Compounding Knowledge – Read every day. Study different subjects. Over time, knowledge layers onto itself, making you smarter and better at decision-making.

Baid argues that financial success isn’t just about money—it’s about thinking clearly, avoiding cognitive biases, and making rational decisions.

3. Lifelong Learning and Self-Improvement

Baid is obsessed with continuous learning. He makes a strong case that knowledge compounds just like money does. Reading a few pages of a good book every day, writing down key lessons, and reflecting on them consistently can lead to massive personal growth over time.

Some of his practical tips for lifelong learning:

• Read widely—finance, history, philosophy, psychology, anything that broadens your worldview.
• Take notes and review them periodically.
• Surround yourself with people who challenge you intellectually.
• Stay curious—don’t get comfortable with what you already know.

This applies to everything, not just investing. Want to get better at your job? Read and study. Want to be a better writer? Write every day. Small improvements add up over time.

4. Character Matters More Than You Think

A refreshing part of the book is how much Baid emphasizes ethics and integrity. He points out that plenty of smart investors fail—not because they aren’t intelligent, but because they’re greedy, impatient, or dishonest.

He shares Warren Buffett’s famous quote:
"It takes 20 years to build a reputation and five minutes to ruin it. If you think about that, you’ll do things differently."

His advice? Play the long game. Be honest. Build relationships on trust. In both investing and life, the people who operate with integrity and patience are the ones who ultimately win.

If you’re serious about investing and want to learn how to build wealth the right way (i.e., slowly but surely), this book is a must-read. But even if you’re not that into stocks, The Joys of Compounding offers invaluable lessons on thinking better, learning smarter, and making good decisions.

It’s a book about money, yes—but more importantly, it’s about how small, consistent efforts in every part of life can lead to extraordinary results. If that idea excites you, give it a read.

 

UEGCL PROFITS UP, FINANCIAL SUSTAINABILITY IN QUESTION

Uganda Electricity Generation Company Ltd (UEGCL) saw profits jump 60 percent to sh54b in the year to June 2024 from sh34b the previous year, on the back of increased income from their power stations.

However, the Auditor General questioned the company’s long term viability due to its huge debt obligations and a tariff that does not cover its costs.

UEGCL has a huge debt overhang, about sh5.6trillion, whose servicing is straining their working capital.

According to UEGCL’s financials the debt to asset ratio is above 50 percent.

“The undesirable ratio is attributed to significant on lent loans for Karuma and Isimba HPPs (Hydroelectric Power Plants) and inadequate loan repayment on both loans,” the auditor general said in his report on UEGCL. The report showed that interest of about sh529b towards the two dams’ debt is in arrears, as of June 30^th 2024.

“This signifies a high financial risk given that the company majorly relies on debt to fund assets. Furthermore, it might hinder the company’s access to future loans, limiting its financial flexibility.”

The Auditor General went on to warn that, “the company’s current assets are insufficient to cover its short term obligations… the company’s liquidity position is unhealthy.”

The Auditor General advised that the on lent loans, amounting to more than sh4trillion for Karuma and Isimba, be converted to equity. Essentially that government shoulders the burden of paying the loans Improving UEGCL’s financials and improving its leeway to not only maintain current infrastructure but also develop new plants when needed.

While the Auditor General noted that UEGCL was more than able to meet its interest obligations on its outstanding debt – interest cover ratio of 4:1 versus a desirable rate of 2, he noted that interest payable or interest payments still due, rose in the year to sh530b “which may cause potential challenges in meeting future interest payments.”

"This looming cash squeeze is as a result of the inadequacy of the tariff, which is not reflective of cost, UEGCL is charging for the power it generates...

The Auditor General recognized this and advised UEGCL “To renegotiate the power purchase agreement (Karuma, Isimba), so that invoicing is based on capacity rather than energy sold. In addition, the license for Nalubale-Kiira power plant should be reviewed to provide a more cost reflective tariff.”

 A cost reflective tariff would factor in operational expenditure, taxes, capital recovery and an allowed return. As it is now none of the UEGCL operated plants recovers the investments made by government nor earns a return.

 UEGCL is at a decided disadvantage because of the difference in Power Purchase Agreements (PPA) it is operating under its major plants at Karuma and Isimba, compared to its contemporaries in the private sector.

A recent report of the contribution to the end user tariff of the various power plants showed that the 250 MW private player Bujagali accounted for $2.1 cent or 16.9 percent of the tariff or about the same as the combined tariff of Karuma and Isimba with a combined total capacity of 730 MW.

UEGCL is paid for only the power it generates at Karuma and Isimba, whereas the private sector players are paid for capacity they have available whether or not they sell power to the grid.

This is part of the reason the Auditor General has complained that UEGCL is not making optimal use of its assets, going by its low return on assets of 1.25 percent, considerably lower than the acceptable five percent.

He also counselled that the finance ministry should fund the Namanve capacity charge, which he thought would provide more stable revenue streams that would enhance the company’s cash position. This would not be necessary if these costs were included in the tariff instead of as a subsidy from government.

"This recommendation flies in the face of recent announcement by the Electricity Regulatory Authority (ERA) where they reduced the tariff by five percent, ostensibly saving the end user sh155b. Were the tariff to be kept stable, those savings could have been used to rehabilitate plant or pay down Umeme’s concession for instance.

Policy makers will do well to listen to the Auditor General who advised in his report that the tariff at Nalubale-Kiira should be increased to be reflective of cost, the Karuma and Isimba PPAs, which only allow them to charge for power produced and not installed capacity, are hobbling the company’s operations a situation that is not sustainable.

The Auditor General echoed the findings of a 2023 report that used Kenyan counterpart KenGen as a benchmark.

That exercise’s main recommendations were for the institution of a cost recovery-based tariff, conversion of Karuma and Isimba debt to equity, a sale of shares on the Uganda Securities Exchange (USE) to improve its balance sheet and stabilization fund to meet UEGCL’s current and most pressing obligations.  

While Uganda with its fairly stable power supply and huge surplus, is currently the envy of our neighbours, this situation maybe a temporary one if the industry is not managed with a view to long term sustainability.   

NRM DAY: THE LIBERALISED ECONOMY IS THE GIFT THAT KEEPS GIVING

Yesterday we commemorated the National Resistance Movement (NRM) day.

This time 39 years ago, the NRM had taken over control of a country riven with political instability and an economy that was barely on its feet.

As President Yoweri Museveni’s government tried to establish control over all of Uganda, the resuscitation of the economy could not wait.

"The economy had regressed to below 1970 levels, industrial production had collapsed, infrastructure was dilapidated and barely any new capacity had been added in two decades, coffee dominated the economy, providing most of the tax revenues and almost all export receipts...

This would have been all very fine if the population growth had followed the economy’s negative trend, but there were twice as many Ugandans in 1986 as at Independence, putting increasing strain on a stuttering economy.

From a purely intellectual level the solution was simple, increase production to create jobs, mobilise tax revenues to support, much needed infrastructure rehabilitation and key social services.

Easier said than done.

At the time, government had dozens of companies doing everything from supermarkets to fishnet making, that were producing below capacity, remitting little to no revenues to the treasury, while their payrolls and running costs were putting immense pressure on the budget. They were mismanaged, had fallen into disrepair and to resuscitate them would cost a lot of money. Monies the government did not have.

Initially, government since there was little tax revenue coming in, thought it could print money and finance the rehabilitation of these industries, get production up and running and everything would be ok. But the laws of economics will not be mocked and they soon found themselves battling runaway inflation, which frustrated any efforts to get the economy up and running again.

At the height of the inflation pressures , prices were doubling every three months.

Inflation the increase in prices, is a disincentive to production. Because it is difficult to plan for the future, discourages consumption, putting a ceiling on demand, hence frustrating expansion of production. A vicious cycle.

So to get the economy up and running they had to source funding abroad. The external funders were not our mothers. There was little charity to be had. They offered to lend us the money, on condition that we liberalise the economy, especially by breaking up the state owned monopolies, selling them off and opening up their respective sectors to competition.

The idea was that if we instituted these reforms, they would have a better chance of getting repaid.

While foreign capital with greater pools of money to back it up, ended up taking the juicier companies, removing the yoke of state owned monopolies, gave opportunities for Ugandans to go into general trade and industry.

Now the retail trade, transport, real estate development and most other economic activity is dominated by private players and the Ugandan consumer is the better for it, enjoying wide availability and choice of almost any commodities.

This liberalization of the economy, which unlocked individual initiative, has made the general economy more robust and able to weather the occasional storm, may be the biggest economic legacy of the NRM in general and Museveni era in particular.

I shudder to think what would have happened if government still had a monopoly over supermarkets, transport, telecommunications and banking, how things would be today.

The critics argue that today the economy does not work for the everyday man,  that a few people – mostly the urban elite, are benefitting disproportionately from the economic gains of the last four decades. And they will be right.

But their recommendation to disband the market economy and revert to a more centrally controlled economy would be wrong and setting the economy up for failure.

First of all, the market does not promise equitable distribution of benefits. In fact, left to its own devices it will ensure that the rich become richer and the poor become poorer. The promise of the market is that in the right environment, it grows the wealth of the economy. There is no other known mechanism that can do that more efficiently.

The distribution of this expansion of wealth lies solely with the government.

If the private sector is failing to grow wealth, blame the government for not creating the conducive environment for them to thrive. In an environment where the economy is growing consistently, but the income and wealth disparities are widening, blame it on the government.

Government through the taxation of economic activity funds, the maintenance of peace and security, building of infrastructure, social services and other public goods. In so doing they not only enhance the enabling environment for the private sector to thrive, but also improve the citizens capacities to take advantage of the improved economic situation.

So from the above, if an economy is working and but not for the everyday man its an indictment on government and not the market.

The people calling for a return to the controlled economy, think, wrongly, that the economy collapsed in the 1970s and 1980s for lack of money, and now since the government revenues have risen 100 fold they can take back the “commanding heights of the economy”.

That’s the reason they tell us all.

Me thinks, failing to operate in a competitive environment, they want government to get back into business so that criteria, other than merit and performance – like family and tribe, can once again apply to accessing opportunity.

 

 

OF AFRICA’S BUSINESS LANDSCAPE AND WHAT UGANDA NEEDS TO DO

At the beginning of the year The Economist had an interesting feature titled “Africa’s has too many businesses, too little business”, lamenting the lack of enough big businesses to speed up transformation of the continent’s economies.

They argued big businesses are “productivity powerhouses. They bring people, ideas, technology and equipment together in ways that make workers more efficient, which makes people richer.”

The Economist reported that there are only about 345 companies on the continent which pull in revenues of a billion dollars annually. None of which are in Uganda.

The counter argument is that small businesses are the ones that create the most jobs in all economies, so we should watch about throwing out the baby with the bath water.

This column has argued until blue in the face, that a nation’s economy is only as viable as its private sector. So if we are to not only grow the economy but also ensures it works for all, then its health is a subject that needs serious consideration.

Another report showed that while Kenya attracted the most venture capital of any country on the continent at $638m (sh2.4trillion), Uganda was left far behind only attracting $19m(sh70b).

Venture Capital (VC) bridges that gap between the friends, fools and family who are often the earliest backers of business ventures and the commercial banks and higher finance that deal only with viable going concerns.

The venture capitalists often provide funding in way of equity or they buy shares in your company, but also provide technical expertise where there are deficiencies.

There many reasons venture capitalists choose one country over another, not least of all the size of the market, hence the potential to scale a business and the general business environment.

Uganda’s landlocked nature maybe an impediment, but the growth of the East African Community (EAC), which technically stretches from the Indian to the Atlantic Ocean and allows the free movement of goods, services and people is making that less and less of an issue. The EAC currently constitutes the largest export destination for Ugandan products compared to the rest of the world.

In 2023 more than a third of Uganda’s trade was with the EAC, compared to two decades ago before the EAC kicked off and the similar figure was barely over single digits.

However, non-tariff barriers continue to hamper our traders, making us less attractive to investment flows.

Uganda continues to struggle in the World Bank’s ease of doing business survey, regularly featuring in the lower half of the 190 country survey.

While this is all well and good the report on attraction on venture capital tells us another story too, about the capacity or inability of our business community to tick off various criteria. Among which  ability to demonstrate the market opportunity, the capacity of their teams to exploit that opportunity, that they have unique value propositions, which can be determined initially through their well kept records and finally that there is a feasible exit mechanism, in the event that they want to sell.

"The government can say all it wants about continued GDP growth, lucrative returns on investment and liberal market economy but businessmen listen to businessmen and to the extent that outside investors cannot identify partners they can work with locally, is the reason why the attraction for our country as a VC destination is much lower than Kenya...

Interestingly, for the last five or so years, Uganda has been leading the charts in attraction of Foreign Direct Investment (FDI) in our region. How come the contradiction? Billions of dollars are going into the oil industry – it estimated that by first oil at least $20b will have been invested n the oil & gas sector.

Most of the money will go to the foreign companies doing the heavy lifting. But thanks to some local content provisions, we are hoping to back at least a fifth of that money.

The VC numbers speak better to the earlier Economist report.  Our low numbers compared to the Kenyans suggest that on one hand that VCs cannot see opportunity here to make good money when they scan the landscape or that and somehow related, when they look around they think they can just start new companies from scratch as there is no competition around.

The economic chaos of the 70s and 80s means our business community’s development was stunted or snuffed out altogether, so it would be no wonder that we fail to attract partners.

So beyond the government providing a stable macro-economic environment, it has a responsibility to improve the ease of doing business in Uganda – improve infrastructure, access to credit and the rule of law, enable capacity building in the business community so our indigenous businessmen are not left behind.

Ugandan on their part need to grow beyond subsistence to opportunity businessmen. We need to have a higher vision for our business than just sustaining an ever increasing capacity to consume, to building bigger companies that will create more jobs, bring in more tax revenue and spread beyond our borders.

No economy was ever sustained on rent seekers and commission agents.

 

THE UGANDA ECONOMY 2025, GET A GRIP ON DOMESTIC ARREARS

Various observers predict good things for the Uganda economy this year. The Bank of Uganda maintained their projection of a 6.5 percent growth for the financial year, but ballooning domestic arrears, monies owed by government to the private sector, could dampen these and future prospects for the economy.

With the budget cut by at least 25 percent and the date for first oil pushed back at least another year, one can expect that government will not have its huge stock of domestic arrears, touching sh7trillion at last count, at the top of the agenda.

We all need to appreciate that domestic arrears are not just a number, but have real implications on people’s lives and livelihoods.

"While the economy is reported to be going from strength to strength, suppliers to governments are having to jump through hoops to stay alive, as payments are often delayed for months and even years. It is so bad now that many banks will not accept invoices to government for working capital facilities...

 In the daily workings of business, one may not have all the money at hand to meet various obligations. The banking industry can however provide working capital against invoices for work done. Basically if someone has done work and is due payment of say sh100m in future the banks can lend you money against that promise of future payments.

So if banks are not taking government invoices you can imagine how squeezed our businessmen are for liquidity.

This has the knock on effect of limiting businesses ability to invest, expand or even just stay alive. Given that government is the biggest client to the private sector most, if not all businesses are affected by this ever increasing inability of government to honour its obligations.

The deafening silence around this issue in government communication makes one wonder.

"An economy is only as vibrant as its private sector, as the former communist countries showed us, government’s mounting debt to the private sector in contravention of all measures to guard against this can, only spell doom for the private sector and by extension the economy...

But one can not help but wonder about certain contradictions in the economy. Given how government is squeezing life out of the private sector, it came as a surprise when Uganda Revenue Authority (URA) reported it had beaten the half year revenue collection targets by sh300b.

This should be welcome news for any economy. It suggests that revenue administration is improving, that URA is not only plugging the holes but also widening the tax base. The worry may be as the domestic arrears continue to bite even URA will struggle to collect.

The worrying thing for URA and the economy as a whole is that many of these businessmen will not just roll over and die. They will seek to survive by any means necessary. It is not a stretch to imagine that many of them will revert to informality if only to stay one step ahead of the tax man.

But beyond that these unmet obligations will erode confidence in government with far reaching implications for things like the cost at which we can contract loans in the open market. Lenders will not be averse to adding a point or two on interest rates to provide for government’s risk of default.  

Again this rising number is not one we can hide under the carpet.

The remedies seem obvious. For starters government really needs to rein in its accounting officers. The Public Finance Management Act not only provides a legal framework for managing government resources, but in addition in the Charter of Fiscal responsibility mandates timely payments to avoid arrears accumulation.

The government’s laissez faire attitude to accumulating domestic arrears flies in the face of this and clearly no one is being held accountable...

With that we can at best stop the accumulation of domestic arrears or at worst slow down their accumulation.

Which still leaves is with almost $2b of domestic arrears to grapple with.

 A policy needs to be drawn up if it hasn’t been, to prioritise the clearing of these arrears and regular audits to confirm and validate outstanding obligations. And there need to be credible sanctions against officials who ignore these initiatives. Up to now it seems they are not even getting a slap on the wrist for their impunity.

It is inconceivable that government can clear these in one budget cycle. However, government can go to the bond market and borrow money to be paid over years. While this will increase our domestic debt, which now stands at about sh55trillion, it would revitalize the private sector and the economy. We can not continue hoping for first oil in the hope it will give some much needed impetus to the economy.

Last week government raised sh990b from the bond market. Imagine we could ring fence a bond auction a month for clearing domestic arrears, we would have done commendable progress by the beginning of next year.

The privatization of the state enterprises and the liberalization of the economy starting in the 1990s, unlock individual initiative making the economy more robust and vibrant. As a result we have been able to shrug of many shocks – local, regional and international.

It is in our best interest to make sure our private sector is strong and able to continue bringing us through these tests.

Resolving our domestic arrears issues would be a good place to start.

 

LETTER FROM A FRIEND

Dear Paul,

 

Be grateful for making it through 2024 in relatively good order. But we are back on the tread mill and yet another year is ahead of us.

You had a good year in 2024, despite being retired and the trick now is not to rest on our laurels (we may do that in 10 years’ time) but maintain commitment to our financial discipline. We have got to keep at the fore of our mind that our financial health in coming years will depend on the balance between consumption and savings/investment. The process should see you consuming less and less, while investing more and more of your income. That will be your measure of success.

At the risk of sounding like a broken record, here is what you should be doing in the New Year to ensure we end it on a high, like we did last year.

1.       It is not how much you make but how much you keep

We all want to be paid. Being paid is always sweet. But what will improve our financial fortunes is how much we keep of our income through saving and investing than how good we look spending our money. Easier said than done. They say save your money today so it can save you in the future.

Saving 50 percent and investing 25 percent of all your income is a good start. We should maintain that discipline with a view to pushing up your investing ratio in 2025 to between 30 - 40 percent. We will only be able to do that if we stay the course in 2024.

 

2.        Shed your ego

There is no amount too small to save or invest. Us “corporates” we dream of investing big numbers and therefore miss the chance to build over time. No wonder we are so corrupt. We are waiting for the big deal. Hence the story of the big boss and his driver, who when they were both retired, the driver was well off because he was not afraid to put aside a bag of cement when he could. A bag of cement is not even drinking money for the big boss. But because of not taking care of the cents through his career the big boss finds himself with few shillings from his investments, with huge expenses built up during the good old days.

 

3.       When you see risk, seek  knowledge

Everything you do will come with risk. In the face of risk you can choose to back off and not give yourself a chance at good returns or research the deal before you turn it away. Knowledge is the greatest mitigant against risk. Money is being made everyday in this economy. The ones who are making the money are silent, allowing the ones not making money to be the loudest. But if you paused and looked  harder there is opportunity everywhere. The problem is that when you are not in the deal, you don’t know the deal, and think everyone is gnashing their teeth like you.

But about risk. You would think nothing of driving from home to town – you have been driving for 30 years, the risk is minimized by your knowledge and experience. How much riskier does the same trip look if you had the car keys to your ten year old child?

Go further than copying your neighbor in researching new opportunity.

 

4.       Don’t overestimate what you can achieve in a year

The cliché that the race to your financial freedom is a marathon not a sprint, bears repeating. This time next year you should be better off than you are now or not. But expect to be only marginally better. But seen against the rest of your life, that small gain will be the foundation for the gains of the next 20 years. Stick to the process, the results will take care of themselves. If you can grow your portfolio just 10 percent a year, at the end of 20 years it would have grown nearly sevenfold and the ensuing income with it. Think about that. You need to be in bed with compounding rather than at war with it.

5.       Guard against lifestyle creep

Maybe I should have started with this. With increased income the temptation to consume more will be your biggest battle. If you are consuming 25 percent of your income now, let it remain at that percentage but preferably lower as your income increases. A wise man once said he makes ten shillings eats one and reinvest nine, repeat until rich.

We have talked about this before all of the above is simple but not easy to do. No enterprise of real value is easy. The battle is really with yourself. We are seduced by complexity but its really simple and we should not be suspicious because the process is simple.

Low income, bad investment environment, your friends blasting while you are lying low like an envelope, are all outside your control. You can only control your attitude and effort. Focus on that.

Otherwise Happy New Year, wish you the best  and see you on the other side.

 

Sincerely

$