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.