BIDCO: A DEVELOPMENT DILEMMA

One year after the inception of a $150m (sh278.2b) palm oil development on Kalangala island, project sponsors BIDCO are soldiering on, despite incessant attacks from environmentalists and sniping from entrenched local industry interests.

One year after the inception of a $150m (sh278.2b) palm oil development on Kalangala island, project sponsors BIDCO are soldiering on, despite incessant attacks from environmentalists and sniping from entrenched local industry interests.

But despite being the most vocal opposition to the project, the environmentalists admit they are hard pressed to put a monetary value to preserving the island’s ecosystem that would outweigh the anticipated value BIDCO is bringing to the island.

They argue that by slashing forest cover to make way for the plantation, the islands will lose out on their unique species of vegetation, alter the climate of the area and suffer massive soil erosion.

In 2004, the Government gave BIDCO a go-ahead to establish an oil palm project. Under the terms of the project, BIDCO was to establish a 26,500-hectare oil palm growing operation and set up a plant to process the palm oil from the plantations.

BIDCO would provide the expertise and the funds to get the project off the ground, while for its part, the Government would make the land available allow a 25-year Corporate Tax holiday and 12-year Value Added Tax (VAT) deferral for the plantation project.

Currently, about 3,500 hectares have been put under palm trees out of the 5,500 hectares provided by the Government so far most of which has been on land reclaimed from the forest.

"First of all, we are not burning the forests. We just cut down the trees and leave them in the fields to rot. The bio diversity is not being lost. It is just migrating to the forests we are not touching," Kalangala plantation manager Lim Choon Meng said on a recent tour of rows and rows of plantation.

"Secondly, the impression is that most of the island is covered in forest. That is not true. So far, we have planted about 1,500 hectares of grassland with the palm trees," he said.

Meng also pointed out that they are adhering to an agreement to maintain a 200-metre strip of trees between the plantation and the lake shore and growing cover crops between the palm trees as preventative measures against erosion.

He said he plans to plant an additional 1,000 hectares before the end of the year, but he was desperate for more land on which to plant seedlings.

"I have about 500,000 seedlings waiting for transfer to the fields, some of which are more than a year old and need to be transferred now or I will have to lose them but the land is not forthcoming," Meng said.

According to the managing director of the Uganda project, Kodey Rao, under the agreement, the Government was supposed to have provided the whole 26,500 hectares within a year of signing the agreement, which has not happened.

"We have about 5,500 hectares available, but need the whole component as soon as possible to ease planning," he said.

Partly as a result of BIDCO’s activities, the island is experiencing an economic boom.

"Land prices are rising, Kalangala town is growing and immigrant labour is swelling the island’s numbers.

"The wage bill for our workers is higher than the wage bill for Kalangala district administration and we have not even begun commercial production," Rao said.

BIDCO employs about 1,500 workers whom it pays twice a month, which invariably leads to higher sales for shops in the nearby trading centres.

"The improvements around here since BIDCO touched down are amazing," the district agricultural officer, David Balilonda, said.

While agreeing that the workers’ salaries have brought increased liquidity into the Island’s economy, he sees more fundamental benefits.

"The project has opened up roads where there were none. Communication and trade across the island has been greatly improved," Balilonda said.

A new ship, the 108-passenger MV Kalangala, was commissioned in February and sets sail from Entebbe compared to the old one which docked in Masaka. That has improved access to the mainland.

"We are seeing more tourists especially Ugandan tourists since the new ship started," former MP Mulindwa Birimaso, who owns the 30-room Palm Beach Hotel Resort said.

"Everything has an impact on the environment, even your breathing. The question is: what is being done to mitigate this impact?" Rao asked.

"We think we have put together an environmentally-friendly package while at the same time putting together a project that will have a transformative impact on the island’s economy, ".

Rao estimates that the $150m injected into the project will have a six-fold multiplier effect on the economy through saved foreign exchange, job creation and support services.

On the project’s outgrowers scheme, the company projects that on a hectare of land (about 2.5 acres), a farmer will be able to get $1,000 (sh1.85m) per month.

Environmentalists are having a hard time countering these benefits with evidence of their own that shows that the islands trees will have as great an economic impact.

"Building a case for non-monetary benefits is difficult," National Forestry Authority’s spokesman Gastor Kiyingi said.

"But the calamities that come with such environmental degradation do not take long to show themselves," he said refering to the ill- advised move to build a dam parallel to the old Kiira power dam, a situation that has caused a larger than usual outflow and is partly responsible for the reduced water levels on Lake Victoria.

Today, people are looking for political advice but neglecting professional advice, Kiyingi said.

That maybe but for the time being, the locals remain unconvinced.

PS This was published in teh New Vision 20 years ago.... an update long overdue

UMEME EXIT AND THE END OF AN ERA

As of writing this column Umeme’s 20 year concession will come to a close today Monday, 31^st March.

Last week the Auditor General submitted his final report putting what the government owes to Umeme as a final pay out at $118m, below any previous estimates. According to Umeme the government owes them $234m, previously the Auditor General had estimated the payout at $201m, while Electricity Regulatory Authority (ERA) the overseer of the concession had put their figure at $127m.

The payout is compensation for assets not fully paid for through the tariff.

It was curious how the discrepancies between all the players were so wide and I guess this will be resolved in the fullness of time.

It has been an interesting journey and a test case for the management of such Private Public Partnerships (PPP), as we will probably need to do more of in the future.

At the tail end of the privatization process, at the end of 1990s, the big infrastructure companies like Uganda Electricity Board (UEB) and Uganda Posts & Telecommunications Corporation (UPTC) came up for sale.

Unlike previous privatisations for which it was enough to liquidate, sell their assets or sell them as is, these companies demanded different treatment.

In the case of UEB a total overhaul of the electricity sector was required to attract funding into the sector.

"For starters the tariff had to be raised, as the prevailing tariff, around US4cents a unit at the time,  did not allow for the sector to be run sustainably, leave alone promise a return for intending investors...

Critical too to the reforms was the breakup of UEB into its constituent parts – generation, transmission and distribution. This was done because it was easier to get investment for parts of the company rather than the whole. As has proved true.

Billions of dollars in investment have been sourced by government and private players in the generation and distribution sector. Government has had to follow suit with comparable investment in the transmission part to keep up with new interest up and down stream.

Umeme came in at a time when we were suffering day long power cuts and as if that was not enough, around that time the water levels on Lake Victoria fell dramatically, affecting power generation at the Kiira-Nalubale power station.

Government opted for expensive thermal power, which raised tariffs even higher and saddled government with trillions of shillings in subsidies to the sector to keep the power tariff manageable for the paying public.

It is only when Bujagali came on line 2012, with the sector seeing surplus generation capacity for the first time in decades, eliminating loadshedding, did Umeme really take off. It should be noted that Bujagali’s commissioning was delayed almost 10 years as politicians and environmentalists threw roadblocks at every turn of its development.

With increased generation Umeme had to ramp up the last mile distribution grid, accelerating account numbers to around two million currently from the 300,000 they inherited.

Of course once it is done everybody jumps up and says it was not that difficult after all, anyone could have done it.

But there certain key things that allowed Umeme to do what UEB could not do.

For starters the managers of Umeme were only dealing with one part of the electricity chain, albeit the crucial one, because if Umeme was not paid transmission and generation would not have been paid. It should be noted that the installation of yaka in 2011, which Umeme were initially reluctant to undertake, because of the huge initial capital outlay, has with a single stroke increased billing to almost 100 percent.

In addition the higher tariff  Umeme has enjoyed has allowed them to not only maintain the grid but expand it almost five fold during the concession to 70,000 km from the 16,000 km they inherited.

Secondly, Umeme has been able to invest almost $800m over the last 20 years, because on the strength of the balance sheet, go to the market to source funding, and not rely on treasury for funding. This was critical for speed of execution of many of its programs...

It helped too that with increased digitization greater efficiencies have been enjoyed that UEB could only dream about. Though on the other hand the profit motive can be a strong incentive to push innovation and early adoption of new technologies.

Unfortunately the concession seems to have come to an acrimonious end. But the management of Umeme can leave l knowing they have set bar against which its successors will be measured. Umeme may have benefitted from being measured against the low bar of UEB, the same will not be the case for its successor.

 

HOW TO SUPPORT LOCAL ENTREPRENEURS

Everywhere you turn it seems like government is trying to give a leg up to this businessman or the other. The general theme seems to be for promotion of indigenous capital.

A cursory look down the list of the biggest companies and even tax payers, will show that easily nine in every ten are enterprises owned or controlled by foreigners.

It will not be splitting hairs to point out though, that companies that operate in Uganda are registered Ugandan entities and therefore local corporate citizens. A distinction that is often ignored or forgotten by the “champions” of indigenous capital.

If you are a fairly successful business in Uganda, for every sh1000 you make, you pay out half of it to local labour, utilities and other costs of doing business, of the sh500 remaining as gross profit you  pay the tax man another sh150 leaving about sh350 in after tax profit. Depending on the maturity of the company the owners can keep up to 70 percent of this for themselves, with the rest retained to keep the company going.

From this example alone the suggestion is that almost sh70 percent of the company’s topline revenues stay here.

Often “foreign” companies have been accused of keeping more money from themselves by any number of dodges but we leave that for another day.

So the champions of indigenous capital’s main argument is to keep more money (100%?) in the country we, the government and the people (not always the same thing), need to take more control of the commanding heights of the economy.

That has a nice ring to it and can be sold to gullible citizens, who do not have the benefit of the knowledge of the aforementioned breakdown of where a company’s monies go.

How the government then has tried to go about it over the last 40 years, but with seemingly more urgency in recent years, is to take back companies that were once private e.g. Umeme or dish out money to some businessmen who have the ear of the higher ups in government.

In the first case, the deprivatisation of companies, these companies are often lucrative going concerns and some geniuses in government think that they will continue like that under government management. It does not take a business guru to predict that this will not be the case.

To explain, you have to go back to the reason many of these companies were privatized. Due to political interference – cronyism, nepotism and general corruption, these companies were mismanaged and became a drain on the public purse. Their lack of money came from mismanagement and not the other way around.    

We can expect that a few connected individuals, who have failed to compete in the market, will be the major beneficiaries of these deprivatisations – getting jobs, winning contracts and supplying air, and these companies will suffer for it and the general public as well.

I wish I would be wrong but it is hard to see how this will turn out any other way.

The second way by which government is trying to giving local businessmen a leg up is by giving them cash, in many instances billions of shillings. Billions whose outcome if measured by the conventional metrics of measuring business success, have nothing to show for the billions they have swallowed.

A caveat would be in order here. In some instances where established businessmen have been coopted at least we can find expanded services and even increased revenue collections, but one wonders what government gets for its equity stake in the venture.

Given government’s dismal record in supporting businessmen, where failure is recorded as lack of improved service or return on investment, one would wonder how best to do it.

We need not reinvent the wheel. Businessmen are being supported by governments the world over with better degrees of success.

First of all government needs to create an enabling environment for all business to thrive --  guaranteed security, improved infrastructure, objectively applied rule of law and social services.

To be supportive of the indigenous capital government needs to ensure practical education, good health services and a robust safety net for all citizens.

Then government needs to support businessmen through capacity building for them to be better businessmen.  This maybe effectively done by incentivizing the private sector to invest in these kind of education.

In order to make credit accessible to businessmen and at affordable rates too, they should encourage savings mobilization. The challenge of lack of accessibility and high lending rates is one, mainly of inadequate savings in the economy.

With more savings more players like venture capitalists and private equity players  -- major gaps in our financial sector, can be attracted into the economy.

All the above can be assisted by government having a well thought out national strategy, not one drawn up only by bureaucrats, with no business acumen, but with inputs from businessmen at home and abroad.

It would not be a stretch to say government’s inability to nurture a formidable indigenous capital base, is for lack of a robust national strategy that would have saved us from running around like headless chicken for the last four decades.

It is not rocket science.

WHY WOMEN EMPOWERMENT MAKES ECONOMIC SENSE

In 1991 government allowed women 1.5 points towards their entrance into public universities. At the time male students feeling a bit hard done by the initiative, but not wanting to show it, turned it on its head as more evidence of why women are the lesser of the specie.

They soon got tired of the teasing, as the men on campus were not really the aggrieved parties. They had made it to campus anyway.

Recent graduation ceremonies at Makerere university suggest that the ladies are having the last laugh. For the last five years or so, more ladies have graduated with first degrees than men, despite the fact that more men are enrolled to the university in each of those years.

To dismiss this as just numbers –“What have the female graduates done for their fellow women?” is to miss the point or worse to totally ignore the power of example that these ladies in their various endevours provide for younger females looking up to them.

Since independence we have seen that education has been the best tool for social climbing. Most of us reading these pages are probably second generation educated, meaning our parents went to school, immediately after independence you could count them on one hand, those families with parents who were literate and they were most concentrated in central Uganda.

This may have worked against them in the 1970s when the elite were spat upon and worse. In the last 40 years we have accelerated literacy levels and therefore the competition for the few formal jobs the economy can generate a year.

In patriarchal society where women find themselves always coming from the back, you can imagine what would have happened if there was no active effort to get them advanced education. Of course, the drop out rates in lower levels for girls is still atrocious, speaking to a need from a more holistic solution for girl’s education, but that can be a subject for another day.

With increased university enrollment women over the last 30 years have been given a better chance to compete in the market place than they would otherwise have. Credit to them they have embraced the opportunity and run with it. You can take a horse to the well but its another thing altogether to get it to drink.

Beyond expanding the ranks of the educated women on a macro level it makes so much sense to empower women, in any society, but especially for underdeveloped countries like Uganda.

For starters to pull us out of our underdeveloped state we need all hands on deck. It does not make sense to disenfranchise more than half your population due to some outdated male chauvinist hangover. The reality should not allow it.

 As the economy becomes more formalized and global, the skills needed, especially the ability to learn, have their roots in formal education.

And as women have got more empowered, especially by being more knowledgeable but also through accumulation of property, their relationships have changed. Because women now have a better sense of self. This is inevitable and both sides of the gender divide will have to acknowledge this and deal with it-

While the work of balancing the genders will never be done, the next frontier of achievement for women will have to be property accumulation and business ownership.

Initiatives to make credit more easily available to women is a step in the right direction, though I believe like all other businessmen, improving financial literacy and business management would show a better return on investment than cheaper credit.

But also Uganda’s businesswoman does not have very high standards to aspire to, as their forerunners – the men, have been content to keep their businesses only as big for their own subsistence.

The other day I was listening to a podcast about Nigerian businessman Aliko Dangote and you have to marvel at the vision of the man. His refinery, which can handle 600,000  barrels of oil a day – more than the consumption of NIgeria, has been in production barely a year.

Dangote is clear that his efforts in oil – cement and wheat flour before, are not about serving Nigeria only but about uplifting the whole continent. So with a man like Dangote at the head of the Nigerian community, one shudders to think what dreams Nigerian businesswomen are habouring.

 

MTN AND THE CASE FOR ECONOMIC LIBERALISATION

Last week telecom company MTN released their 2024 financialresults.

They reported that revenues grew 18.9 percent, crossing the three trillion shilling mark – the first company in Uganda to do so, laying the ground for a 30 percent jump in after tax profit of sh641b.

Last year revenues came in at sh3.17trilion. In 2023 revenues and after tax profit came in at sh2.67trillion and sh493b respectively.

While voice calls – sh1.26trillion, continue to be the single largest contributor to the company’s revenues, data and fintech sales registered higher growth --  30.5 percent and 22.8 percent, cementing a trend that saw  voice revenues fall below 50 percent for the first time three years ago.

Data and fintech revenue streams are set to cross the trillion shilling mark this year, assuming continuation of current growth trends.

An interesting detail from the results is that MTN subscribers last year grew to 22m from under 20m in 2023. This is interesting because the population of Uganda in 1998 the year MTN entered this market, was reported at 20.6m.

In 1998 all told there were about 50,000 telephone lines in Uganda.

A condition of their second network operator license, was that they were supposed to grow the network to 89,000 lines in five years, a figure that was surpassed in their first year of operation.

The telecom sector in Uganda serves as the posterboy of the possibilities that come with the liberalization of the economy.

While one can argue that the South African based company has rode on a superior technology and therefore the old Uganda Posts & Telecommunications Corporation (UPTC) maybe excused, that argument flies out the window when you consider how the state operator continues to flounder to the point of insignificance.

"The liberalization of the economy, allowing private players to participate, has been the key driver of the economy over the last 40 years. With a single stroke it attracted billions of dollars into the economy and increased production of goods and services...

Liberalizing the economy unlocked individual initiative, which has paid off handsomely for those who have gone out to take advantage.

Liberalisation’s detractors, less vocal now than in 1998, argued that the government was selling out to foreign capital and this would be detrimental to the economy. While they gave little in the way of alternatives, by logical extension they were suggesting government should recapitalize the old state enterprises, with which money is anyone’s guess and lock out foreign capital. Thank God they were not listened to at the time.

But that is not true. They actually had the ear of the  new government after 1986, which government tried to go along with their prescription, fired up the money printing presses to capitalize the state owned enterprises and quickly sent inflation soaring to as high as 240 percent at its peak.

Most Ugandans have no concept of what 240 percent inflation looks like. What this means is that prices were doubling every three months. So if you paid a million shillings in school fees in first term by the time third term came around you would be paying sh8m.

"The worst inflation most Ugandans have seen – more than 80 percent were born after 1990, was the 30 percent inflation we saw in 2011, this again was driven by an explosion in government expenditure during that election year...

But generally with such high inflation investment is near impossible and the only sensible economic activity is speculation.

By government swallowing its pride in time, stabilizing the economy, thanks in no small part to divesting itself of the black economic holes that were the state enterprises, passing the responsibility of stimulating production to the private sector, is why companies like MTN can now be serving more customers than there were Ugandans in 1998.

Without a doubt MTN has been good for its owners.

They will pay out a final dividend of sh190b for a total of sh506b to its shareholders, but MTN and the liberalized telecom sector has done brilliantly for the general economy. In taxes alone, the company has paid about sh10tr since 1998...

I am sure the figure of the economic impact of the sector is somewhere, but going by anecdotal evidence alone it is not a difficult argument to make for the economic impact on the economy in general and on our individual lives.

One other detail to come from MTN’s results was that the total value of transactions carried out on their mobile money platforms was about the size of the country’s GDP at sh158.6 trillion. While some people discount the importance of that number, a large part of it is money that was under our mattresses, in our socks and bras, but now in the formal economy.

When the money is in your pockets it helps no one, except maybe to massage your ego, if it’s in your back pocket. But once it is in the formal sector it can be lent out – MTN lent out sh1.4trillion last year or can earn its owner money – they paid out sh40b in interest on deposits.

CASHFLOW: PLAY TO REENGINEER YOUR MONEY PSYCHOLOGY

Recently I joined a group of young people to play the “Cashflow” game. The game designed by Robert Kiyosaki, mimics our financial lifestyle, while trying to teach how to get out of the rat race, the hand to mouth existence, many of us locked into often because we do not know better.

The main aim of the game is to graduate from the rat race, by building a passive income that exceeds ones expenses. Passive income is that income earned without selling your labour it can come in the way of rent, dividends, royalties and interest.

At the beginning of the game all the players have a salary, which the leverage to buy shares, rental properties and other assets, with the deals growing bigger and bigger as the players income increases.

But like in real life you are tempted by consumption, get babies, get sacked from your job, get conned by friends and family and any other number of unwanted expenditures that slow your progress to building passive income.

There are several lessons that I learnt from the game.

1.       Money is an idea

The paper or set of numbers on our account that represent money are first appreciated in the  mind. As an example even if it was just a game played with fake money, players suffered real anxiety when faced with making decisions, experienced unbridled elation when they made deals and sunk into depression when the game was not going their way.

The game showed up our attitude towards increased or decreased income, our reluctance to release this accumulated money for investment and our competitiveness in trying to accumulate more cash than our neighbor.

The game showed that in real life our financial fortune or otherwise is a function of our psychology around money.

2.       Building passive income is a long and arduous journey

On an intellectual level everybody understood what needed to be done to get out of the rat race, but execution was a challenge. Say for example a 3 bedroom, 2 bathroom house came up for sale. It cost $100,000 but required a down payment of only $5,000 to earn cashflow of $100 monthly. The player with the opportunity has only $2500 to their name.  Often our first instinct is to pass on the deal.

The option to borrow and top up the amount required to get the house is at the beginning of the game avoided like the plague. “Me, I don’t like debt”. So they forgo the deal for the illusory comfort of keeping a fat bank account.

  

3.       Everything is negotiable

In our lives we get paid a fixed salary. When we go to the shops we pay according to the price tag. If there is a deal to be had we think the asking price is final. The game shows that negotiation is always an option, and while it is good to negotiate from a position of strength that is not always possible.

In the game deals don’t always come to you but might go to other players can you negotiate for the deal even if the other player wants it just as bad? Or to turn the tables you are not in position to execute a deal but there are players around the table who can, can you leverage your “weak” position to achieve your goals?

You learn in the game that negotiation is a manipulation of time, knowledge and power and that you learn what you negotiate for not necessarily what is due to you.

4.       It is personal

Like any game the temptation is to compare yourself with other players and their races. This can often lead down a black hole. The game teaches you to focus on your circumstances. You may learn from the others as the game goes along but you quickly learn that envy is useless.

Whether you come out of the rat race first of last does not matter what matters is to get out of the rat race. Same as in real life we get distracted from our own journey by our neighbours worse or better fortunes, whereas our financial health often has little or nothing to do with how our neghbour is faring in their own journey. Focus.

5.       Cash is trash

And this really is the crux of the matter. Money possesses some unhealthy fascination for us. When we don’t have it we can think of nothing else. And when we do have it we become elated and quickly look to deplete on one hand or hoard it and derive pleasure from looking at a bank account with many zeros.

The game helps to reconfigure the players thinking away from consumption to making iot work for you. On an intellectual level many of us understand this the trick is to execute.

It’s a fantastic game that I recommend anyone interested in improving their financial situation should play. A great learning opportunity that may very turn your thinking about money upside down.

 

GOVT WALKING DANGEROUS PATH IN ELECTRICITY SECTOR

Last week MPs on an inspection tour of the Namanve thermal power plant, learnt that two of the plant’s seven turbines had been shut down for lack of funds and the entire plant may be shut down by year end,if government doesn’t release funds meant for maintenance of the plant.

Uganda Electricity Generation Company Ltd (UEGCL) through the energy ministry has already requested sh61b to undertake deferred major maintenance and implementation of this year’s capital investment plan.

This has become even more urgent after last year’s release of sh19b for 2023/24 never reached UEGCL, even though it was released by the finance ministry.

The MPs heard that a total shut down by December 2025 would be inevitable, if this money was not released promptly...

UEGCL presented other concerns surrounding the Isimba and Karuma power plants, but we will save those for another day.

This a harbinger of things to come.

Just in case we forgot, our plans for developing especially through industrialization will remain pipe dreams if we did not straighten out the power sector.

Over the last two years UEGCL has repossessed Kiira-Nalubale dams from South African firm Eskom and the Namanve thermal plant from Jacobssen. And at the end of March the Uganda Electricity Distribution Company Ltd (UEDCL) will be taking over the grid from Umeme, when the 20 year concession will be up.

One of the major reasons we handed over our distribution and generation networks to private players, was because they were not only inefficient but they were proving an unsustainable drain on the treasury. The idea was by passing them on to private players they would be a net contributor of revenue to government, would raise funds to invest, thereby expanding capacity with the eventual aim of assuring power supply and bringing more people onto the grid.

Through out the concessions Eskom, Jacobssen and Umeme have contributed to government coffers rather than the reverse.

Uganda Electricity Board (UEB) from which UEGCL, UEDCL and Uganda Electricity Transmission Company Ltd (UETCL) were hived off, struggled majorly for lack of funds....

Over the last 25 years billions of dollars have been invested in the sector, most of it from private players, bringing us to the happy situation where we have a surplus of power.

Currently Uganda has an installed power generation capacity of more than 2,000 MW against a peak demand of just over 1,000 MW.

Although it has to be said, that the surplus capacity is costing us a lot of money, a failure of government execution, but that again is a story for another day.

The private sector was able to carry out these investments, because it did not have to run to government everytime they had to finance adding new generation capacity or expand the grid. The private players went to the open market and on the strength of their cashflows and balance sheet funded their operations and investments.

Meanwhile, the private players did not airlift staff from South Africa or the UK or Norway to run these private concessions. Ninety percent of their staff were Ugandans, who will remain in the country after the infrastructure is returned to government.

So the problem then, in the UEB days and now, is not that we don’t have qualified people to run the electricity sector but that government bureaucracy and inefficiency is weighing the sector down.

"The lesson of the last two decades of private sector participation in the sector maybe that the private sector is a better operator, but more importantly that government needs to keep an arm´s length distance from industry in order for it to work...

UEGCL’s experience in the last two years is proof enough of this.   

It has been done before. The experience of National Water & Sewerage Corporation (NWSC) , which was close to being flogged 30 years ago, is a good example. Government allowed management to turn it around, recapitalized it by converting debt to equity and providing the necessary cover to source financing for its major projects.

Water is more emotive than electricity so if government can do it in the water sector it can do it in the power sector.

If government is serious about the energy sector they need to recapitalize these agencies and cut them loose to operate commercially, otherwise the beginnings of a return to the loadshedding and inefficiency of the old UEB days seem inevitable.

 

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.