CAN’T SEE THE FOREST FOR THE TREES

Sometimes we are in danger of not seeing the forest for the trees, meaning we are so caught up in the day-to-day grind that we fail to see the big picture. Many times it takes a new pair of eyes to give you an alternative perspective. This week I came across a report on Africa’s future prospects as an investment destination. The report, by the McKinsey Global Institute paints a picture of Africa – despites it chaos, disease and political uncertainties, on the verge of take off albeit with many challenges none of which the report thinks are insurmountable.

"A snap shot of the Africa of the future shows a continent with a collective GDP of $2.6 trillion, a consumer expenditure of $1.4 trillion, 128 million households with discretionary spending – an annual income of $5000 or more and a more urbanized population with 50% of Africans living in towns. All this by 2020....

. Over the last few years Africa’s economy continued to grow despite the global economic slowdown and this was due to more than higher commodity prices. The report titled “Lions on Move: The progress and potential of African economies”, was therefore prompted by an endevour to identify the continent’s sources of economic growth and whether this growth is sustainable. To begin with the growth since the nineties has come from improved political and economic stability and adoption of policies to kick start markets. Uganda’s experience with macro-economic stabilization, trade liberlisation and privatization illustrates this point in real terms for us. Looking ahead the report’s authors suggest that growth will be sustained by increased demand for natural resources, greater urbanization, the rise of the middle-class consumer and expanding labour force, which will be larger than that of India or China in 10 years. However the exploitation of these factors will not be uniform across the continent. Dividing Africa’s nations into pre-transition, transition, oil and diversified exporters the report shows that differing development paths will be necessary. Uganda was categorized as a transition economy where per capita incomes are largely below $1000, agriculture and resource sectors account for a third of GDP and two-thirds of exports but have fast growing economies. Assuming the compounded average rate of economic growth for the first eight years of the decade of eight percent, Uganda’s economy would double every nine years.

To sustain this rate Uganda – as a transition country, will have to beef up its infrastructure, increase the productivity of its oagricultural sector and improve the quality of its human resource.

 

In this respect the challenges are enormous. Africa’s average power usage is less than half of the emerging markets of Brazil, Russia, India and China whose road and rail networks are five and two times denser than our own. The World Bank estimates the continent needs to invest $118b a year to address the shortfall, which $46b more than is currently being laid out on infrastructure development. For agriculture to be a greater growth driver – and this can apply specifically to Uganda, opening u p new lands, increasing yields through use of better technologies and a shift to high value crops, will be critical. And of course it goes with out saying that beyond increasing school enrollment the quality of our education will need to improve substantially. Two things struck me about the report. Firstly, that it talked about Africa as one big continent, not homogenous but as if as one country and that is the way we need to be thinking in order to harness our potential. In registering the trend towards greater urbanization and the emergence of the middle class I was surprised the report paid short shrift to the political upheavals that these two trends signal.

With greater urbanization and improved incomes the clamour for more inclusive and transparent politics – read democracy, will mount and depending how it is handled will either slow growth on the continent or halt it all together for indeterminate stretches of time

. The report’s tone seemed to be regardless of our lack of planning, corruption and poor infrastructure the continent is on the move, governments will be best advised to stabilize the environment – political and economic and get out of the way.

OF JIGGERS, ILLITERACY AND DEVELOPMENT ECONOMICS

Jiggers were discussed during a cabinet meeting. It would be hilarious were it not for the irritation and pain this little creatures can inflict on the human body and spirit.

It reminds me of a book written in the seventies, “You have got to cry to laugh” and it too I believe was about the African condition.

My holding to the conventional wisdom that jigger infestations are about a lack of hygiene were shaken this week when someone asked “So what about all the beggars, street kids on the streets of Kampala, how come they do not have jiggers?”

Yes. In the 21st century we have been reduced to discussing jiggers.

But then again as President Yoweri Museveni told us more than more than 20 years ago we are backward and we better acknowledge that and do something about it.

Just because we have layered ourselves in bad English, cheap suits, counterfeit black berry’s and second hand cars does not mean we have ascended into the league of developed nations or peoples.

But maybe its not our fault. Recently economist Bill Easterly wrote about the findings of a research he participated in which showed that, on the whole, countries which had not attained certain basic technological advancements by 1500 AD – oceangoing ships, paper, printing, firearms, the magnetic compass and steel, remain underdeveloped to this day.

Even more worrying is that these stratification occurred much earlier.

Luckily we are not doomed to perpetual poverty and underdevelopement, as North America , Australia and New Zealand has shown. Technology can travel.

But as the history China has shown, to resist technology transfer can be detrimental to your world standing. In the 15th century China was ahead of western Europe in technological advancement, but a series of paranoid ruling dynasties closed China off form the outside world, purged its scientists and thinkers and allowed the western world to overtake them.

In just over 30 years by opening up to the outside world and encouraging technology and innovation China’s is taking back its place as a leading world power.

And why is technology so important? Because technology is a building block of future innovation which in t urn drives economic growth.

But for technology to take hold or to be transferred you need an educated people. Education allows for technology transfer.

So it was with much shock that I read this week about a survey of the efficiency of our education system.

The survey done by the Uganda National NGO Forum showed that despite our reported high enrollment figures the quality of the product walking out of our school gates is shockingly bad.

Eight of ten children between six and 16 who were tested on a P2 math paper failed while 19% of the P3 students tested in the 27 districts surveyed could not read the alphabet.

If you can not read or count your educational foundations are fundamentally flawed and your chances of advancement economically or careerwise are seriously hampered, but more importantly for the nation is that the adoption of new technologies will be more laboured, putting a ceiling on economic development.

Technology is not only about machines but in the broader sense is about the way things are done.

At the end of the day the people of the jigger infested areas have only themselves to blame, no government or authority figure can rid them of jiggers if they are comfortable living with them.

But an epidemic of jiggers is a very manifest sign of underdevelopment not only of the infested but of the whole country. It points to a technological backwardness that does not augur well for future economic growth.

But since apportioning blame is a favourite past time in this country here is what Easterly wrote on his blog this week,

“What the history of technology tells us …Top-down development programs simply don't work. In fact, the principal beneficiaries of Western largesse today -- African autocrats and dysfunctional regimes -- are themselves the main obstacles to development. If there's anything that "must be done" to spur future development, it's to create the conditions necessary to empower the ordinary individuals who will create new and unforeseen technologies out of old ones.”

SALVATION IS IN THE SMALL COMPANY

Did you know that, of the ten biggest economies in the world six of them are companies? Today US, China, Japan and Germany are joined in the top ten by Walmart, Royal Dutch Shell, Exxon Mobil, Toyota and Japan Post Holdings all with revenues last year of more than $200b.

It boggles the mind.

A few years ago during a visit to the Johannesburg Stock Exchange, I noticed that the top companies listed on the exchange, were valued at more than the GDP of the East African Community.

“Some of us are really pretending to be countries, we should just be taken over by some of these companies and stop the charade,” a Kenyan colleague suggested, when faced with the fact of how puny our economies are.

If it is any consolation every big company was first a small company.

Last week the Uganda Securities Exchange and accounting firm Ernst & Young sponsored a workshop for Small and Medium-sized Enterprises (SMEs) to moot the idea of selling shares to the public through the exchange.

Going public has its benefits and challenges but if planned well the advantages far outweigh the disadvantages.

Listing on the exchange allows a company to raise relatively cheap capital but more importantly improves the companies’ processes, making it more competitive in an increasingly competitive world.

The main sticking point I gathered from the workshop participants was the loss of control that comes with selling to outsiders a part of your company or variations of the same theme.

A few years ago a report showed that Uganda was the most entrepreneurial country in the world. However Uganda’s businessmen were overwhelmingly necessity entrepreneurs, setting up businesses to sustain themselves and their families, as opposed to opportunity entrepreneurs, who identify gaps in the market, set up and grow companies to fill those gaps.

Invariably the vision of the respective entrepreneurs will differ with the necessity entrepreneur having a narrower, shorter term vision compared to his counterpart.

If for nothing else preparing to list one’s company on the exchange extends the owners’ vision. A business can only grow as big as the owner’s vision.
This is important for Ugandan business because of the changing economic landscape they are increasingly finding themselves up against.

With the coming into effect of the East African common market in July, goods, services and labour can now cross our regional boundaries free of most encumbrances than previously. What this means is that Uganda companies and their products find themselves in direct competition with the regional companies – a euphemism for Kenyan companies.

Our landlockedness has it disadvantages in terms of the cost of doing business here and the relative maturity of the Kenyan companies is such that they can command scales of economy – among other things, thus lowering their production costs to the disadvantage of our operators.

The global momentum is towards freer trade, it is unlikely that our government can shield our businessmen from this post-cold war impetus. It’s up to our businessmen to step up their games if they are to have a chance at survival.

The exchange has two listing avenues the Main Investment Market Segment(MIMS), whose conditions for listing are more onerous and suited to the larger business concerns, and the Alternative Investment Market Segment (AIMS).

A lot of our businesses would be candidates for a listing on the AIMS with an eventual upgrade to the MIMS.

One of our biggest challenges as country is our failure to aggregate our resources, be they financial, management, talent and other human resources or even land to expand output.

Listing on the exchange would help in this direction.

Seating in the workshop my sense was that our businessmen are too wed to their businesses and the thought of sharing ownership is a fearful one. The way I see it the alternative are much more dire. One’s company maybe in seeming good health today but tomorrow competition from leaner, meaner opposition will bury even the little our business owners are trying to cling onto.

It is a cliché but it’s truly the survival of the fittest and our businesses are going to be forced to be more open minded to new ideas if they are to extend their legacies beyond current generations.

Published in New Vision on 9th October 2010

UNLOCK UGANDA'S TREASURE CHEST

It came around the corner to face us head on. There was no room on the road for both of us, so one of us had to give way. Our guide was very helpful, providing the detail that in the Murchison Falls National park, the biggest elephants weigh up to 10 tonnes!

My natural instinct was to shift the mini-van into reverse and move as far away from the lumbering hulk as I could.

Our guide and driver counseled that it would be suicide and proceeded to stop the van and rev the engine. After about a minute or two, which seemed like hours, the elephant stopped in its tracks and veered off into the bush.

At some point in the 60s and 70s, there were more than 16,000 elephants in the Murchison Falls National Park alone. The instability of the last 30 years, however, saw that figure fall to below half - but is now recovering.

Hippo, buffalo, giraffe, zebra and a variety of other game abound. The Madhvani Group is looking to take advantage of this revitalisation of Uganda’s largest national park with the opening of their new Chobe Safari Lodge, a $13m investment along the River Nile. It joins Para Lodge and Mweya in Queen Elizabeth as part of the group’s portfolio.

“A fusion of local materials blended with modernity has created a signature luxury safari style that is unique to Chobe Lodge. We are confident this will become the gem in Uganda’s tourism crown and one of East Africa’s top holiday destinations,” said the group’s director of tourism operations, Mani Khan.

On a boat ride up the Murchison falls, one could not help but wonder at how under-exploited our natural resources are. The Government’s role in the realisation of our full potential needs to be re-examined.

Through the privatisation of state enterprises and liberalisation of the economy, it was hoped we would be able to attract private capital and unlock local entrepreneurship.

The policy has worked in the context of the circumstances in which it was applied, but given that we continue to sleep on billions of dollars of unexploited natural potential, one has to wonder whether we have not hit a ceiling with that policy.

A U-turn to the day when the Government was involved in business in ways we knew should be discouraged.

That leaves us with the challenge of understanding the investor mind and providing the enabling environment that will attract them.

Nirvana for the businessman is a low cost environment with a growing market for their products and services.
By keeping costs low, profitability is almost certain an ever-increasing demand coming with the promise of business growth. The Government has a critical role in making both these conditions come through.

Lowering costs would involve guaranteeing safety of life and property, eliminating corruption, improving transport, energy, education and health infrastructure.

There also has to be extra efforts to market the country beyond sending delegations abroad and hoping for good press.

The quality of the people will increase their capacity to earn, and therefore, improve the effective demand of our market.

By focusing on lowering the cost of doing business, enterprises will thrive, jobs will be created, taxes collected and these, directed back into lowering the cost of doing business. All very obvious textbook stuff, you say.

The development of nations follows a simple formula: that your expenditure should shift increasingly towards investment and away from consumption.

It cost us sh500b at last count, to host CHOGM, a four-day event that benefited a small group of people and therefore a loss to the nation. That same money would have had wide reaching benefits if we had for instance, offered to carry the exchange risk of our industries and service providers.

As a country, we are not unlike the poor man who sleeps on a chest of gold, refusing or unwilling to open it because of some strange fixation with it remaining closed.

DELAY IN OIL EXPLORATION WELCOME

Last week our very own locally produced soap opera went into an ad break.

The show which trickled into our collective conscience as a rumour at the beginning of the last decade of oil finds in western Uganda, steadily gathered momentum three to five years ago as front page headlines of oil finds literally rained on us, this was proof of billions of barrels of oil under our very feet. We were rich!

But the plot begun to falter last year when oil explorer Heritage opted to sell their interests in the oil fields, after all they are an exploration company and their job had been done.

Hollywood could not have conjured the cast of characters – bickering government officials, Italians dressed to the nines offering a deal we could not resist, a motley crew of journalists dizzy from being bounced off one side or the other and a hodge podge of do-gooders; MPs, environmentalists, NGOs all also trying to muscle in on the action.

Tullow made a last ditch offer and paid $1.5b for Heritage’s stake in the oil fields to snatch it from Italian firm ENI.

This Kinauganda production would have ended there – and we would have all bumped off (potholes) into the sunset were it not for the small little issue of $404m in taxes Uganda felt was due from the transaction.

But wait a minute.

Heritage who were liable to pay tax had already fled,

“Having offloaded its stakes in the Lake Albert fields, Heritage declared it would not be paying $404m capital gains tax due on the deal. (Heritage CEO Tony) Buckingham … cleared his men out of Uganda with military precision,” the Financial Times wrote this week leaving Uganda empty handed and Tullow holding the bag.

Like a slighted lover Uganda lashed back repossessing the most lucrative oil fields from Tullow and hinting that since she did not recognise the transaction between Heritage and Tullow even one other oil field’s fate was up in the air.

That is the current state of play.

Oil was supposed to be gushing out of our wells, its proceeds sealing our potholes, furnishing our primary schools and stocking our hospitals in 2009. The latest is that the earliest we can expect to see those miracles

In hindsight we see that Uganda was truly out of its depth and the current impasse, which has put pause to progress is blessing in disguise. Maybe now we can take a step back and re-examine ourselves – what do want to achieve and how do we want to achieve that, set up the necessary conditions before we can jump back into the fray.

Of course people in the know argue that Uganda has a very progressive oil policy (which somehow did not work as seen above) and that we will not know how ready we are until oil production begins. The suggestion being that we should jump into the pool and find out whether we can swim once inside.

"Abraham Lincoln once said that if he was given eight hours to fell a tree he would spend the first seven hours sharpening the axe. Uganda should do likewise...

The risk that we can go the way of Nigeria, Equatorial Guinea or any number of countries that have squandered their natural resource in a blaze of corruption, consumption and white elephants is a very real one for Uganda regardless of what our government says.

To begin with let’s look at how much money will accrue to Ugandans, as it stands now taxes and a few shillings on the side seem to be all. But that need not be the case.

In the Middle East and Asian governments negotiate a stake in the oil producing companies so that beyond taxes they can also benefit from retaining a share of the profits. At a later stage these same stakes can be floted on the Uganda Securities Exchange so regular Ugandans benefit too from the spoils of the land.

The government’s insistence that a refinery should built in the country is a laudable one and one that should be supported by all of us. Refining our own oil rather than expect crude oil can spawn beyond the oil refining, ferterlizer, pharmaceutical and other petrochemical industries.

The feasibility of this endeavour is still under review but commonsense dictates that we extract maximum benefit from our own resources.

But because even our billions of barrels will run out sooner than later, that’s why we need to plan assiduously for this resource. The lull in excitement – until the next episode, is time we badly need to prepare.

Warren Buffett's 'business gene' built an empire that changed history

As he celebrates his 80th birthday, Warren Buffett shows no sign of slowing down. Stephen Foley looks at the secret behind the philanthropist's global success.

Warren Buffett has never revealed when he had his ego surgically removed, but it must have been at a very young age. As he turns 80 today, the billionaire investment guru remains as cheerfully good-hearted, funny and self-deprecating as ever – so much so, in fact, that it is easy to miss just how significant a figure he is in the history of American business. He has been lucky beyond his dreams, he said in his more recent letter to shareholders in his conglomerate Berkshire Hathaway. He and his business partner, Charlie Munger, were born with "a 'business' gene that allows us to prosper in a manner hugely disproportionate to that experienced by many people who contribute as much or more to our society's well-being". Indeed. His net worth of $47bn (£30bn) makes him the third-most wealthy person on the planet, according to Forbes magazine.

Forgive the highfalutin claims (Mr Buffett would choke on them), but while other corporate legends might spend their 80th birthday surveying a long career that peaked decades before, Mr Buffett celebrates his at the height of his powers, with a reputation that is stronger than ever, and cementing a legacy that will live for generations. Why?

He has created the fourth-largest company in America

Berkshire Hathaway is the name of a small Massachusetts textile firm that Mr Buffett acquired in the Sixties. By that time he had already been investing for half his life. The son of an Omaha stockbroker and politician, he had first expressed that business gene in his teens by installing pinball machines in local venues. By the time he alighted on Berkshire, he had established a strong local following for his investing nous, using principles he learned at the knee of Ben Graham, the father of value investing, who tutored Mr Buffett at Columbia University and gave him an early job.

While Berkshire itself eventually failed along with most of the US textile industry, Mr Buffett had long since turned the company into a mini-conglomerate, adding businesses in insurance and retail, and stakes in all-American staples such as Coca-Cola and McDonald's. Today it is one of the world's largest reinsurers and owns the largest US railways business, and has a market value of $200bn, eclipsed only by Exxon-Mobile, Apple and Microsoft. General Electric, the icon among American conglomerates, is worth only $160bn.

He has educated generations of investors

Mr Buffett is a teacher, by explication and by example. His homespun investment philosophy delivered in pithy bon mots – "Rule No 1, don't lose money. Rule No 2, don't forget Rule No 1" – and his determination to avoid the investment fads of Wall Street and the business school crowd won him the moniker the Oracle of Omaha and inspired a whole industry of Buffett-watching. You can find dozens of books from "How to build a business Warren Buffett would buy" to "The Tao of Warren Buffett".

But his own legacy will be those annual letters to shareholders, where he teases out the difference between short-term accounting tricks and long-term value, and makes good jokes. Meanwhile, a record 40,000 Berkshire shareholders now attend the annual meeting in Omaha, for a one in 1,500 chance of getting an answer from their guru to a question.

He proves that human relations matter in business

Author Andy Kilpatrick – whose contribution to Buffettology is Of Permanent Value: The Story of Warren Buffett, which runs to 2,000 pages over three volumes and was described by the man himself as "puny, but at least it's a start" – says Mr Buffett's winning personality is a key to his financial success.

"You can't help but be attracted to him because of the way he speaks and the way he writes. His sense of humour is what makes him different from other brilliant businessmen. It gets him in a lot of doors.

"And he can judge people well – he can look and someone and size them up – a lot of his deals are handshake deals, done by looking someone in the eye and judging whether they just want the money or whether they really want to run the business at Berkshire. That human factor has become very important, and if you look at the top of Berkshire, seldom has there been any firings, or even anyone leaving. Buffett is the glue that holds all these human relations together."

He helped saved the world economy

Under-appreciated is the role that Berkshire played in keeping the world economy from the brink during the panic of 2008, in the weeks after the failure of Lehman Brothers. "We poured $15.5 billion into a business world that could otherwise look only to the federal government for help," Mr Buffett pointed out, in a single reference in his 2009 letter. "Berkshire was a supplier of liquidity and capital to the system, not a supplicant."

Berkshire pumped $5bn into Goldman Sachs and $3bn into General Electric when they were desperate for funds. He extracted a price, of course, but Mr Buffett's vote of confidence helped stave off disaster for two companies whose collapse would have had unthinkable consequences.

And now he is raising the bar for philanthropy

A century ago, John D Rockefeller, after a pioneering life in business, was revolutionising philanthropy, establishing the modern principles for targeted donations and well-endowed foundations. Mr Buffett's friend Bill Gates (with whom he has long tussled for title of world's richest man) has retired from Microsoft to concentrate on his own foundation. Since Mr Buffett does not plan to retire ("I plan to work past 100," he said this weekend), he is blazing a trail in philanthropy in a different way.

In 2006, he pledged to give 90 per cent of his wealth away to the Bill and Melinda Gates Foundation. With typical absence of ego, he said that the organisation was already doing more effective work in areas of health and education than any foundation with the Buffett name on could hope to achieve on that scale. "What can be more logical, in whatever you want done," he asked at the time, "than finding someone better equipped than you are to do it?"

Now, he is exhorting other billionaires to pledge similarly to give away a majority of their wealth, and has induced 40 of America's richest so far to agree. It's only fair, he says – and his three children will be just fine. As he wrote in 2006: "They've had a gigantic headstart in a society that aspires to be a meritocracy. Dynastic mega-wealth would further tilt the playing field that we ought to be trying instead to level."

EVEN BECKHAM WATCHES HIS MONEY

Last week it was announced that soccer’s David Beckham and family had been advised to cut back on their staff.

According to the report the Beckhams have had to layoff 14 workers at three of their four residencies.

“David and Victoria are multimillionaires but that doesn’t mean they have to waste money – and they were hemorrhaging,” a friend told reporters.

But wait a minute.

In July, Forbes magazine listed Beckham as the best paid footballer in the world racking in at least $43.7m last year in salary and endorsement fees. To put in perspective the nearly sh100b he earned last year is almost the amounted our own Stanbic bank counted as profit after tax last year.

It is almost inconceivable that Beckham can blow all his money and retire to a life of destitution, but as a friend of mine keeps saying, “There is no money that is too much to finish.”

It is useful to note, which expenses Beckham’s advisors have urged him to take a knife to – the staff expenses at his various mansions.

Beckham has earned top dollar all through his career but he is only 35, on the verge of retirement and likely to live past his 80th birthday, so his advisors are telling him to invest more while the going is good. The idea being, that when his earning power diminishes, seeing as it is based on his youthful good looks, he can sustain his current standard of living off the proceeds of his investments.

You can tell the potential or lack of thereof, of a person or company’s financial future by looking at their expenses.

An individual headed for a life of financial hardship has his expenses slanted towards consumption or instant gratification, while an individual with a chance of a bright financial future has his expenses biased more towards investment or delayed gratification.

An interesting survey was done of millionaires in the US in the 1980s, the results of which were published in the book “The Millionaire Next Door”, it showed for example that the average millionaire in America owned a car whose value was seven per cent of their net worth. If you think about it if this criteria was adhered to, to the letter in Uganda most of us would be riding bicycles or on foot.

What it means is that when you see a truly rich man own a luxury vehicle, it has barely dented his balance sheet as opposed to the rest of us whose cars constitute a significant part of our net worth. To try an emulate the lifestyles of the rich and famous is like trying to grow a tree by planting leaves.

Given our largely Christian backgrounds aspiring to wealth is generally frowned upon, so let us think about it another way – Let us all aspire to financial security in our lifetime.

Where financial security is the ability to live without a salary, only earning income from our investments, without compromising our current standard of living.

How do you do this starting right here, right now? Shift your expenses towards investment and away from consumption. It’s simple. The initial shift away from consumption will be hard – I need my daily beer or I have to have those shoes or what will people say if we do not go on our annual holiday… I said it was simple I did not say it would be easy.

The point is, as many pensioners have discovered to their peril, no one is going to maintain your current lifestyle for you.

And if Beckham who collects his salary twice year ( when you are collecting millions of dollars in salary you don’t get paid per month) is preparing for the future by shifting his expenditure away from consumption who are you and I not to do t he same.