THE VICIOUS CYCLE OF CORRUPTION

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The latest Transparency International survey puts Uganda as the most corrupt of the five East African Community countries.

That is not a headline that would sell newspapers in Kampala. Sad because it means the general society have accepted corruption as a normal thing. But even more disturbing is that it’s not something that is restricted to a politically connected elite, but runs right through our society across all age groups, tribes and classes.

None of us is willing to throw the first stone because we know we are all not without sin. So corruption continues because society does not have the will to beat it back.

As we stagger through the fiftieth year of our existence us a nation, one cannot help but think we let down a generation of patriots who fought for a break from our colonial tethers to provide a better life for the native population.

It has been said that service provision was much better in colonial times than it was now and some years ago one neophyte politician based his campaign on a return to colonial times in order to see service improvements.

The premise of the campaign was flawed on several fronts. One of which of course is that at the time of independence the Ugandan population was small to begin with. But even within that small population services were concentrated on an even smaller group. So for example at independence there were less than thousand A-level students around the country.

One of the independence struggles biggest drawing cards was that these services would be more widely spread around the general population. Hence the rush by the first Obote government to dot the rural areas with schools and hospitals.

They say the road to hell is paved with good intentions, so it is that the roots of corruption can actually be found in this rapid expansion of services in post-independence Uganda.

With clear capacity deficiencies merit was thrown out of the window for fulfilling the political promise of African empowerment.

Idi Amin did not help matters with the no real human capacity improvements – in numbers or quality, recorded in his eight years at the helm of this country’s affairs.

The second Obote administration was not only saddled with an economy in terminal decline but also distracted by a draining civil war that forced improving human capacity down the list of the administration’s priorities.

The NRM then inherited this litany of woes. Growing from a low base the rapid economic growth papered over our capacity inadequacies, but not for long.

We are corrupt because we can be.

Despite the thousands of graduates from university and tertiary institutions we are nowhere near bridging our human resource deficiencies. For example we have one doctor for every 11,000 Ugandans, the World Health Organisation recommends at least one doctor for every 7,000. We graduate about 200 doctors a year, so assuming the population does not grow and we even churn twice as many doctors as we do now it would take ten years to bridge the gap.

This desperate situation is replicated in every other profession – engineering, teaching and accounting.

Sadly the resources needed to redress this state of affairs are being shoveled into the accounts of government bureaucrats and their henchmen in the private sector, perpetuating a vicious cycle that will prove hard to break.

That because we are a God fearing people – given the large numbers that patronize our churches and mosques, and therefore that we can appeal to our higher moral selves to clean up the system is a romantic notion at best. In fact some of our most “religious” have been shown to be the most rapacious thieves, believing because they are God’s anointed they are safe from reprove on earth.

The anti-corruption fight will have a real chance of success when we invest more in the institutions to fight crime – the police, Judiciary, Inspector General of Government, Auditor General’s office among others.

Given the current context you may very well recruit battalions of corrupt competent officials – or is it competent corrupt officials, but as long as you cannot man the relevant institutions adequately a corrupt free society will always be a pipe dream.

PROFESSOR DDUMBA HAS HIS WORK CUT OUT

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This week Professor Ddumba-Ssentamu was named the new Vice Chancellor of Makerere University.

Ddumba, the last man standing after a two month selection process that has been dogged with controversy, has his work cut out for him.

His predecessor Professor Venansius Baryamureeba had started a revolution, he was unable to see through but which the new VC will do well to study.

In comments following the announcement of his ascension to the top job Ddumba said he would look to boost the institution’s research capabilities and the dissemination of this research.

He also added that he will seek to maintain or cut student numbers to improve the quality of education provided at the once venerable campus.

His ambition to push the research agenda is laudable. A university that is not involved in research, which is furthering the boundaries of the knowledge and supporting innovation, is not worth its name.

Years of political instability stunted Makerere’s growth, while government’s rolling back of its interest in higher education has caused an explosion in numbers at the Makerere campus wit h the introduction of private students.

"In an attempt to sustain itself the university enrolled more and more students without parallel investment in staff and infrastructure compromising education and welfare standards on the hill....

Ddumba is right and wrong to want to limit the number of students going to Makerere university. Right in that by rationalizing student numbers it would reduce the pressure on staff and infrastructure and hopefully improve the output of the university. But this is at best a short term measure.

Makerere being a public university has an obligation to educate all students, along with other public universities, that qualify. He is wrong because restricting numbers is really not an option.

This is the dilemma of managing of public institutions, how do you expand public services without compromising quality in a situation of increasingly diminishing resources?

The university needs to turn away from believing government should be its main benefactor. Ddumba will also need to perish the thought of charging students the full cost of a university education. He will find himself between the devil and the deep blue sea.

Makerere does not need a bureaucrat, it needs an entrepreneur.

A bureaucrat operates optimally in a situation of adequate resources and a predictable environment, while for the entrepreneur resources can be none existent, the working environment in a constant state of flux and failure is not an option.

"Makerere’s challenge is not a lack of resources – the concentration of human capital on that hill if quantified would be astounding, Makerere’s challenge is to unlock its potential, which is a function of management....

Unlocking the institution’s assets will require, lobbying for changes in the law, refocusing of the university’s core strengths and reenergizing an institution weary from living up to high expectations in an often thankless job.

Ddumba will have to find the inner entrepreneur in him.

Clearly the VC’s office is not a holiday camp and Ddumba who has served the institution for three decades should know that better than most.

We wish him the best, especially because future generations of Ugandans will fail and thrive depending on how well he can meet this challenge.

MELES ZENAWI AND THE AMBIGUITY OF THE AFRICAN LEADER

At the relatively young age of 57 Ethiopian Prime minister Meles Zenawi passed away leaving behind a somewhat mixed legacy for his supporters and critics to chew over.

Along with President Yoweri Museveni, Eritrea’s Isaias Afewerki and Rwanda’s Paul Kagame, Zenawi was described as one of a new generation of African leader by former US President Bill Clinton in the mid-nineties.

The sheen has come off this “elite” group of African leaders in subsequent years as they have come under attack for human rights abuses, less than perfect election wins and for sliding back into the big man politics blamed for the continent’s current woes.

If the eighties were Africa’s lost decade then one can understands the appeal for the “New Generation” of leader, men of action who were quick to embrace the changing reality of the post-cold war era by allying with western donors to jumpstart their economies, while demanding to retain the right to determine their own development paths.

Zenawi oversaw an economy that averaged 7.7% growth in recent years, diversified the economy away from coffee and beef to now include floriculture, beverages and car manufacturing and is now in the process of building the largest power dam on the continent that will generate 6000 MW of power on completion in four years’ time.

He proved a useful ally in the fight against terror sending troops into Somalia to root out Al Shabab.

Zenawi would never be mistaken for a liberal democratic. He tolerated no dissent, his government jailed the political opposition and harassed the press.

Nothing is black and white. You find not only that are there grey areas but that even those come in many shades of grey.

So this is the challenge of leadership particularly in our part of the world.

In an environment where there is little or no institutional capacity the incentive for one man to fill the void and become the alpha and omega is probably irresistible.

Driven by the ambition to do well by your people the temptation to paper over institutional failure with presidential edict in order to get things done, becomes the normal order of business, centralizing the final say in one man’s hands.

The net effect of this is that institutions are stifled while a powerful personality cult emerges.

In the development of the societies institutions became necessary as faceless, impartial arbiters of disputes.

So whereas previously it was just a group of  families hunting and gathering and therefore disputes could be settled face to face, settled on the strength of the mutual respect for an elder or recognized authority figure, in larger societies where kinship is not widely shared an independent arbiter whose authority is respected by the general society was required.

Zenawi was not blind to the issues of governance and maybe to the inadequacies of his own style of leadership —even if only on an intellectual level,

“We believe that democracy, good governance and transparency and fighting corruption are good objectives for every country, particularly for developing countries. Where we had our differences with the so-called neoliberal paradigm is first on the perception that this can be imposed from outside. We do not believe that is possible. Internalization of accountability is central to democratisation. The state has to be accountable to the citizens, and not some embassy or foreign actor,” he once told Peter Gil, author of the book “Famine and Foreigners: Ethiopia since Live Aid”

The challenge then is how does one build institutions? The experience even here in Uganda is that effective institutions cannot be written into existence. To be effective institutions have to backed by the potential to censure offending parties.

In a situation like Ethiopia where Zenawi straddled the political scene like a colossus institutions were unlikely to flourish. Even the best intentioned of leaders faces this dilemma.

And this where the tension lies. Human nature is such that we cannot and should not allow power to be centralized in a single individual however much they act in our best interests, the challenge is how do you prevent this from happening?

Those waiting for a quick and ready solution will be sorely disappointed.
 

The history of the world shows that the process of evolution from the rule of the personality cult to more inclusive government is a long one taking generations even centuries of contestation between various often evenly matched power centers, to materialize into the form we are now familiar with in western democracies.

Zenawi’s legacy shows that the days of pigeonholing African leaders into ogres or saints are long gone and in judging their achievements be prepared for brain wracking ambiguity.

UMEME; A PRIVATISATION CASE STUDY

Umeme is the messenger we love to hate.

At the tail end of the electricity value chain, Umeme has borne the brunt of the criticism for the inability of power generation capacity to keep pace with our insatiable demand for electricity.

There was a time when the then Uganda Electricity Board (UEB) used to generate and distribute 60 MW and people probably don’t remember loadshedding as an event, since supply was infrequent and unsteady.

Attempts were made in the 1990s to add some generation capacity – the then Owen falls dam’s capacity was increased to 180 MW and the network got a partial overhaul. We even  built a second 200 MW dam that never quite lived up to the hype. But the economic growth of the nineties meant that supply was inadequate and loadshedding entered our vocabulary.

As a response to these shortcomings in the sector government broke up UEB into its generation, transmission and distribution arms. The idea was that by breaking it up we could bring the benefits of specialization to the industry and therefore greater efficiency.

The government sold off the generation business to South Africa’s Eskom and the distribution to a consortium led by the Commonwealth Development Corporation (CDC).  Actis Capital a spinoff of CDC later took over Umeme.

"Since it took over the business accounts have jumped by more than half to 458,000 at the end of last year from 292,000 in 2005, while the Umeme has invested almost $150m over the same period....

The largely dilapidated distribution network Umeme inherited notwithstanding a general lack of power hampered their operations. With the coming onto the grid of the Bujagali’s 250 MW Umeme has suffered fewer arrows in its back.

Looking back the privatization of the government’s distribution business ranks next to the banks, the breweries and hotels as a success story, in terms of getting the service to more and more clients and returns to government.

Its still early days but adding more than 200,000 consumers to the grid more than the government parastatal did in 40 years, collecting virtually all the money billed  compared to one in every five shillings going missing seven years ago and paying sh21b into the treasury last year are not achievements to be smirked at.

The private sector works where parastatals fail not because of the poor quality of the management but because of the different incentives to the respective managers.

The public sector manager can get away with running a loss making corporation as long as services are delivered to an acceptable level often in support of a political over a commercial objective. So public corporations provide a service, often times inefficiently at a low cost that cannot cover expansion or maintenance of equipment. And if the corporation is not a monopoly it locks out competitors with its artificially low tariffs.

The private sector manager on the other hand is not only supposed to extend his service as widely as he can, winning more market share, he has do it efficiently so the business can be profitable – he has to maximize revenues while managing costs.

"While both managers are interested in keeping their jobs the private sector manager does through growing the business sustainably while the public sector manager keeps his shirt by kowtowing to the powers that be regardless of the quality of service delivered...

Of course there is a need for government regulation, to save the private sector from its own excesses and even some strategic intervention, for example investing in sectors that may not show a return for the private sector in an acceptable time.

But government should make these investments with a view to selling them off to allow private capital to maximize their potential.

The concession still has more than a decade to run before it expires and we can expect Umeme will be looking to extend its reach at the least cost possible to itself and therefore its clients to ensure the viability of the business.

However sector players anticipate that the approximately 70MW surplus the country is now enjoying will be wiped out within a year and a half, barring any new power generation coming on line and we will be back to loadshedding.

The pressure now should be on the Electricity Regulatory Authority (ERA) to ensure a conduicive environment to attract more investment into the power generation sector.

UGANDANS' ADVICE KIPROTICH SHOULD IGNORE

Our Olympic gold medalist Stephen Kiprotich would not lack for advice on how to take his career forward or  spend his millions if he asked for it on our street.

Ideally Kiprotich should be looking to do two things over the next five or so years, the most productive years of his career. One, to maximize his earnings, preferably through winning races but also through signing some lucrative endorsement contracts. And secondly, investing the larger percentage of  his earnings to tide him over a long retirement seeing as he will retire in his thirties and judging by the advanced age of his parents. Here is so me of the advice Kiprotich will best be advised to steer wide off from the bad to the worst.

#7 Buy/build a big house

A house just adds to the expenses in your life, but we waive these aside by consoling ourselves that we are escaping rent, when often times the cost of maintaining your own house is more than the rent you were paying previously. Sure Kiprotich’s earning power has just undergone a quantum leap, but that does not mean his expenses should follow suit. At the height of his career former boxing champion Mike Tyson bought himself a $30m (sh75b) house that was far too big for a single black man. The palace cost hundreds of thousands of dollars to maintain, several tens thousands more in taxes annually and more thousands in manning. When his career took a nose dive the castle was auctioned off to pay his debts incurred sustaining the mansion. The reality is that assuming his career continues on its current trajectory Kiprotich will be lucky to spend a four consecutive weeks at home in the next five years. A modest three-bedroomed house should do the trick for now.

#6 Buy a farm

The investment process is about finding the best return for your money with the least possible risk. His rural background will probably seduce him to buy himself a farm stock it with cattle and grow maize, but if the truth be told most farms are loss making, income sapping vanity projects that say more about the owners ego than their financial benefits. Kiprotich can well afford a few acres of land in his home area but let him be under no illusions that he will see an adequate return in that enterprise while his career is still on going. Let him see it for what it is a sentimental trophy to assure the villagers that he has arrived.

#5 Invest with every Tom, Dick and Harry

You can rest assured Kiprotich has already got people of all colours and shapes making a beaten path to his door with all manner of business proposals. As far as I know Kiprotich is a runner and not an investor. He is unlikely to match the well timed decision to overtake Kenyans Kirui Abel and Wilson Kiprotich with only a few kilometers to the end of the Olympic marathon a week ago if he turns to investing today. He will be best served by finding himself an experienced manager who can take care of the business side of his career while he does what he does best.

#4 Move to Kampala

There will be those whispering in his ear that he should move to Kampala. The facilities are better, the housing is better, there is more to do. These will be talking in their own selfinterest with Kiprotich in Kampala they will have easy access to him, more specifically, easy access to his millions. What has got Kiprotich to this point in his career is training in the relative anonymity of the Kenyan rift valley and he should continue to do so. Kampala has done nothing to advance his career and he owes it nothing.

#3 Buy car(s)

The boy can buy himself a car or two or even three straight off the assembly line if he chose to. He can throw in a personalized number plate, KIP RICH maybe, for good effect. To state the obvious his is the Olympic champion and he does not need the latest model of Mercedes or BWM or …. Whatever to validate him. He should habour no need to impress upon the public who he is. He is a young man who if his career continues to rise will not be in Uganda more than half the year, a sensible four wheel drive to navigate the treacherous roads of his home district. The money he would have spent buying more fancy cars can be deployed to make more money. More on that later.

#2 Retire

The man has won a Gold medal, hundreds of millions of shillings are being thrown at him by a grateful nation, why should he continue to suffer in training? Isn’t this – securing his and his family’s financial future what it was all about? “I want to be a legend” he said before he flew out to London. That is what sets Kiprotich apart from the rest of us mere mortals, groveling in mediocrity. Going by Abraham Maslow’s hierarchy of needs Kiprotich is beyond hunkering after basic needs, personal security and need for belonging at worst he is about building his self-esteem  and at best self-actualizing h is full potential as a human being. Olympic gold medalists are made of sterner stuff than most Ugandans can even comprehend. Kiprotich is not about the money and he should keep that way.

#1 Have a blast

When Ugandans get money they think of how they are going to consume it first. The temptation to start when Bad Black left all will be overwhelming for Olympic Gold medalist Stephen Kiprotich. And there are hundreds even thousands of Ugandans who can help him spend his money. The amount of money pledged and given to Kiprotich in the last seven days is more money than many of us earn in a year leave alone in our careers, but he should not be under the illusion that there is such a thing as money that cannot be finished. Kiprotich is a runner the sooner he gets over this whole fanfare and gets back to training the better for him, and us as a country.

UGANDA PENSION LIBERALISATION LONG OVERDUE

The Retirement Benefits Sector Liberalization Bill 2011 is winding its way through the arduous journey of becoming law.

Among the proposals in the bill are that if contributors have saved for ten years will have access to 30% of their savings to leverage to buy homes.

So if after ten years of work one has saved sh10m, the sh3m can be used to put a downpayment on a mortgage.

This and proposals to lift the NSSF monopoly for mandatory savings are part of long overdue initiatives that will go some way to raising the saving rates in the country and growing the pool of long term funds needed to fund development projects.

As it is now workers in companies that have more than five employees are mandated to contribute five percent of their salary with the employer contributing twice as much into NSSF. While not discouraged few employers have an additional providence scheme for their workers because of the costs of doing it.

Under the new proposed law employees will still be mandated to save for their retirement but not necessarily with NSSF.

The introduction of competition in any sector is always a welcome thing – there is more incentive to innovate which increases efficiencies, pushes down prices and boosts up take of the product or service.

Uganda badly needs to build up its savings rate which is less than ten percent of GDP. Beyond providing long term savings, one can expect the high lending rates we have become accustomed to, to come under pressure.

The logic is simple if we raised national savings the banks which hold this money would be under pressure to on lend it to their clients. Good banks make their money from lending, in the absence of the credible lenders they lend to government. Government while being the safest borrower, offers lower interest than the private sector and also has finite appetite. If government options are exhausted banks will have to find other ways of lending more to the public.

It is not by mistake for instance that in the last ten years there has been an explosion of lending to individuals, increased savings deposits in the bank have a lot to do with it.

The proposal to allow a portion of workers’ contributions as down payment for mortgages could act as an incentive to spur savings. Government could go even further by allowing such savings to be tax exempt and giving waivers for additional savings beyond the mandatory requirement up to a limit.

In addition this one initiative can spur a housing construction boom as the demand for house can be expected to jump progressively over the years.

It seems like a no-brainer. Increase savings and hence available capital for industry, production is boosted and more taxes are collected.

Beyond that, the economy has an urgent need to bridge the gap in power generation, transport and communication networks. These gaps are holding back continued economic growth. To finance these we need long term financing the type of which around the world is financed largely by pension funds.

It really isn’t nanotechnology, what would need a rocket scientist to decipher is why it is taking us so long to get this piece of legislation out of the way.

Economics aside, as a guarantor of national stability nothing beats a property owning population. With a long term stake in the economy, property owners are like to resort to more peaceful means of conflict resolution than war, looting and wanton destruction.

Of course regulators will have to ensure that a lot of our savings are not expatriated but are mostly used to finance domestic projects. However it might turn out to be a disincentive if you tie the investors’ hands with such provisions when there are no local investable projects.

The challenge then for our business is to be set to absorb this money when it comes.

It is hard to overemphasize the need for long term funds in the economy and how crucial a more efficient pensions sector would be in attaining this goal, but the ball is clearly in our hands  for us to run with it or drop it.

NECESSITY IS THE MOTHER OF INVENTION

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Last week it was reported that Rwanda was finalizing plans to launch a sovereign fund.

Sovereign funds are investment vehicles promoted by states to invest national savings, with the income going to finance the budget and long term development.

Some of the most famous sovereign funds running in their billions of dollars belong to China, Singapore and Dubai.

While Rwanda’s plan for the Agaciro Development Fund was mooted last year, the timing will have observers of the small east African state nodding in understanding.

Recently the US cut $200,000 (!) in military aid to Rwanda following a UN report which accused Rwanda of aiding a rebellion in eastern Congo. The UK and Netherlands followed suit days later.

Like Kenya in the 1990s, which suffered an aid ban because of high level corruption and had to mobilize local resources to keep the economy afloat, Kigali is wise to start looking internally to fund its ambitious development plans.

I don’t think they will be a rush for the exit by donors soon, but in the event that they do, it maybe the best thing that ever happened to Rwanda.

An illusion has been perpetuated that African countries do not have the resources internally to develop themselves, this promotes an aid agenda that is not necessarily in the recipient country’s best interests.

For starters developing economies are highly informal. In the case of Uganda it is estimated that two thirds of the economy is informal, which means a lot of money in circulation – I saw the estimate placed at three in every five shillings in circulation is not in the formal financial sector.

Banks and other financial institutions aggregate our small sums into meaningful chunks to be onlent to businesses, which are the drivers of wealth generation.

In his book the Mystery of Capitalism, author Hernando de Soto says that the by formalizing property in developing countries hundreds of billions of dollars can be unlocked, more money than all the foreign aid and foreign direct  investment we receive annually.

But there is little incentive to go formal or disincentive to remain informal. That may be changing with URA’s new e-tax system however.

Secondly, in many developing country’s our natural resource potential remains the stuff of urban legend, no one knows for real – in a tangible way that can be exploited, how much minerals, timber, fish or even electricity generation potential we have under our feet, in our waters or in our abundant sunlight.

It is nearly next to impossible to attract any credible investment when our potential is so iffy. A few years ago Uganda did a geo survey of available mineral resources and this served as a good starting point for anyone marketing the country’s mineral potential. Concerns with the billions required to unlock this potential make decisions on hard facts not on sales pitches of likable heads of state.

And finally the securing of a nation’s intellectual property. As nations we have a lot of intellectual property embedded in our traditions and cultures which if secured can raise lots of revenues.
Unfortunately not only do we denigrate intellectual pursuit, hence our aggrandizement of thieves and robbers, but we do not respect intellectual property.

For example to obtain a patent for product or idea in Europe or US costs upto $40,000 a cost which most scientists can shoulder in Uganda. If government or private sector shouldered these costs it would not only secure the property to be exploited for the benefit of Ugandans but would also be the incentive needed to spur more locally relevant innovation. Innovation is important in creating greater efficiency.

As it is also our governments and companies are committing only fractions of a percent of GDP or budgets to research and development, therefore doing very little to unlock the intellectual assets of our people.

There probably a thousand other ways we can unlock the vast potential under our soils and within our people, which potential would make it totally unnecessary to contract aid from abroad, but we are so wed to the aid mantra we can not imagine life without it.

Its unfortunate that it takes donor governments annoyance at our behavior and the subsequent aid cuts for us to wake up to our own potential, but if that is what it takes so be it.