UGANDA SHOULD HANDLE LAND INSTITUTIONALLY

 

This week President Yoweri Museveni disbanded the land unit operating out of state house and handed over their function to a special committee in the Lands ministry.

On Tuesday lands state minister Aidah Nantaba who heads the committee got off to a running start announcing that they had identified at least 500 land titles that should be rescinded.

The committee consists of officials from the police, UPDF, solicitor general’s office and the judicial service commission.

The committee is on some Robin-Hood mission to save peasants from illegal evictions. The minister has already cut herself out as the scourge of the large landowners, staying evictions and resettling people with much bombast and drama.

In the process the junior minister has won much popularity among the squatters and has not endeared herself to many landowners, many of whom are legitimate landowners and have been hard done by her overbearing ways.

Uganda’s land tenure system – most of which is informal and may not stand up in a court of law, is fraught with problems and is politically sensitive. It is also hampering farm productivity and holding back agricultural commercialization.

The way to handle this is to regularize the land tenure system so the established institutions like the Uganda land commission, police and courts of law can handle land issues – as they are supposed to.

As it is now by perpetuating, even accentuating, the informality of the land ownership by creating parallel structures we are doing more harm than good.

The government needs to bite the bullet. Fund the land tribunals proposed in the land law and step aside as the relevant institutions take the lead in sorting out land issues.

The challenge of course is that not only will the process of regularizing land ownership be a long and arduous process, but it might very well anger a lot of rural people who have settled on land that is not rightfully theirs and may go from land lords to squatters in a blink of an eye.

The reason there is no systematic action being taken on the land issue is the realization that these kind of “pretend” owners maybe a significant enough number as to cause a political threat. So apolitical decision has been made to kick the tin down the road, postponing any real action on resolving the issue at worst or at best employ someone to kick up a storm and make as if something is being done about the issue.

The land issue is critical for our ambitions to take this country to middle income in the next three decades, one because by regularizing the tenure system and in effect commoditizing land you can have the land becoming more productive and raising incomes of the land owners and the people they employ on the land.

And secondly, how the government handles land ownership rights sends a powerful signal to not only people wanting to go into agriculture but also to investors interested in other asset classes. The logic would go that if the government can be so blasé about land ownership what’s to stop them from waking up one day and doing the same to real estate, plant and machinery?

From a political point of view it probably not in a seating government’s interest to regularize the land tenure system. As mentioned before it may cause a lot of tempers to flare and hurt them at the polls. But also if land is regularized and taxed we can expect those unable to pay tax to sell out and migrate to the cities, fail to be gainfully employed and resort to crime and provide fertile ground for a credible opposition to launch itself from. That is politics.

Something has to give. Either the government takes the tough decisions – regularize land tenureship and tax the land, regardless of the political fallout, knowing that it will be benefit the country in the long run or go on sidestepping the issue and hold back progress for decades.

 

SIGNS THAT THE BUKENYA CHALLENGE IS CREDIBLE

 

Former Vice President Professor Gilbert Bukenya last week announced his bid for the highest office in the land.

It did not take anyone who is anyone by surprise.

The good doctor had previously stated that in the event that President Yoweri Museveni stepped aside he would present himself as a candidate.

"Whatever has prompted him to go back on his previous resolution – advancing years, dimming presence on the national scene or pre-planned agenda, is for him to know and for us to guess....

Over the last 27 years we have seen challenges to Museveni’s hold on power, many of which have been heat of the moment declarations, which collapsed as soon as they were mouthed. Some have been frivolous, fizzling out as soon as the heat was turned up and one has been persistent, irrepressible and a thorn in the side of the NRM for the last decade.

It is too soon to categorise Bukenya’s challenge, but it raises eyebrows on several accounts, not least of all that he intends to wrest from Museveni the role of NRM flag bearer and ride the party’s momentum to state house.

Here are the four things that will have to happen for the former vice-president to launch a credible challenge against his mentor, not necessarily in the stated order.

1.      Evidence of senior party member support

The NRM is a clannish operation with Museveni as its head. Opposition to him from within is more likely to be frowned upon as betrayal than say Norber Mao, Olara Otunu or even Mugisha Muntu taking him on. To take on Museveni – and hence the patriarch, in the NRM, senior leaders with the gravitas that comes with historical contribution dating as far back to at least the bush war, will have to throw in their hat with Bukenya as a signal to the rank and file that an open consensus is growing towards a change away from Museveni.

2.      The ability to ride out the inevitable sniping from the holier-than-the-pope crowd

By the time of publishing one can expect that criticism of Bukenya’s planned bid would already be loud and incessant, like hail on a tin roof from the usual suspects. It’s hard to tell many times whether this heckling is sanctioned from the top or whether it is  party officials looking to find favour with the top, but it can often be vicious and unrelenting. Bukenya has not been a paragon of virtue (who is?) and his underbelly is fatally exposed. The true test will not be whether he can he ride over these attacks and come out unscathed but whether he can turn opposition to his bid  around and show the attacks as unjust persecution of a man who thinks it is his turn in the queue.

3.      Pander to some archaic constituency and let them come out openly in his support

Uganda is not Kenya. So pandering to tribal allegiances is unlikely to be successful. Religious divisions have also lost their potency with the rise of the Pentecostal movement and the increasingly younger population. That being as it may, the Catholic church coming out openly to endorse their son for a run at State house, if only for its symbolic value, may add some credibility to his run. The long term repercussions in terms of a return to religious factionalism, which has been rolled back over the last 30 years, may not however seat well with the an older generation who have seen its debilitating effects.

4.      Museveni winks in his direction

But the surest deal for a successful challenge is for Museveni to step aside, indicate that he is the intended successor and back him to the hilt against all other comers. This last eventuality may be prompted by Museveni’s desire to personally manage a smooth transition to the next generation of leaders, spit in the eye of his critiques who claim he is orchestrating a handover of power within his family and live up to his reputation of unpredictability and dislike of being second guessed.

Bukenya has been in the system for a long time now. He knows it is unlikely that Museveni, his lieutenants or possible rivals will usher him into state house without a fight.

"To mount a credible challenge the honourable member from Busiro North will have to muster the political cunning, personal flexibility and the intestinal fortitude for the fight of his life. Everything he has experienced before this is just a prelude.

SIR ALEX’S LESSONS FOR UGANDAN BUSINESS

 

Its old news. Sir Alex Ferguson stepped down from the leadership of Manchester United last week after 26 years at the helm. His career at the club is unparalleled in sports history, not only for its longevity but for the consistency of success – on average he won a premiership title every other year.

With such staying power the memorable moments are many. That night in May 1999, in Barcelona has to be up there with the best. The Champion’s League final.  Manchester United had been on the backfoot all night smothered by a Bayern Munich side captained by Lothar Mathieus. Teddy Sheringham and Ole Gunnar Solskjaer put the Germans to the sword in extra time to give United their first Champion’s League trophy under Ferguson.

The match gave new meaning to the phrase snatching victory from the jaws of defeat.

The moments of brilliance have been many and not far apart, blending into the most consistent performance of the any English team ever.

Forbes last week estimated that $386m (sh962b) of the club’s current value can be directly attributed to the Scotsman.

The club is currently valued at $3.5b.

“Ferguson accomplished this feat by consistently winning on the pitch and leading with class, which enabled Manchester United to build one of the most valuable brands in sports. The strong brand, in turn, has fueled revenue growth superior to Manchester United’s English rivals,” Forbes’ Mike Ozanian wrote.

The clubs revenues have risen 13-fold to $502m last season from $39m in 1992 the first season of the Premier League. To further underline the stature of the man, the club accounts for 13.4% of the 19-team league’s total $3.76b revenues.

Businesses are the vehicle through which value and therefore wealth are created. Ferguson was the face of management but obviously there was an administrative structure behind the man that took care of the business end while Ferguson worked at creating a winning brand.

We would not expect any of our business to build a multi-billion dollar enterprise soon but there are lessons to be learnt from the Sir Alex reign.

Three lessons come to mind.

Underpinning his success was his stated mission to build Manchester United in to a club not just a team. He understood that for long term success it was not only about the 11-odd players on the pitch but the whole business needed to be viable to sustain his long term goal, which stated less charitably, was to knock then giants Liverpool of their vaunted perch.

A mission also meant Sir Alex never succumbed to the trappings of success, blunted his desire for more and more success or made him get too big for his boots.

For a long time Manchester United was the moneybags of the premiership and accused of being able to buy any player they chose. In latter years however Chelsea and then Manchester City have muscled United, but this has not stopped Ferguson making key buys and keeping the winning ways going.

People might have attributed supernatural powers to his ability to buy players who clicked almost immediately, but the answer may lie in more mundane places. That he had a strategy and vision of the kind of soccer he wanted and picked players who would fit into his vision. It should be the same for our businesses. Blessed with a windfall our businessmen are more likely to upgrade to a bigger four wheel drive car than buy assets that can advance the company’s fortunes. In fact when I see a new businessman buying a bigger car I start counting down to the eventual demise of his business.

Beyond picking them Sir Alex was known as a great motivator. With experience he seemed to have perfected the delicate art of  knowing when to praise or criticize his wards; when to  dismiss their excesses or when to wield a stick and never ever to criticize his men in public. The ultimate man manager.

Businessmen pay lip service to the importance of their workforce but maybe because of the nature of his profession Sir Alex couldn’t afford that luxury. He couldn’t afford to imagine that the stadium or pitch were the club’s biggest asset. Our businessmen need to pay as much attention to their workers than they do their machinery or buildings, because it’s the workers who extract value from the plant and machinery. You can have a business without plant and machinery but you can’t have a business without workers.

The fans and the market – United’s share price shed 5% on the news, may have reacted to the departure of the gaffer but there is no suggestion that the team will come crumbling down in the wake of his exit.

While Sir Alex was the one constant at the club for the last 26 years clearly a structure was built around him to ensure success. The consistency of the success regardless of which players left or came in, is testament to more than structure.

Maybe that will be the final test of his time at Manchester United, whether he built a credible enough structure to carry on from where he left off.

UGANDA BANKS NEED TO SPREAD THE LOVE

 

Last week the deadline for reporting of the banks’ financial results came with the traditional flurry of last minute activity.

According to a cursory survey of the top banks, profits were up 23% cumulatively.

A closer look at the results shows that while most banks cut back on lending or grew slower than in previous years they made more in interest compared to last year, presumably because of the high lending rates.

The banks justify the high lending rates as a function of the higher risk they take in this market, but the bad loans have remained stubbornly under or about five percent across the industry, suggesting their risk managements systems are quite robust therefore scuttling their logic.

There is a small financial institution, which using rudimentary financial analysis worked out that inflation would be reined in and therefore raising lending rates was not necessary. They tightened on their expenses and were more stringent in their lending policy. Not only did they lend more money out year-on-year they also made more profit than the year before and with no dramatic leap in bad loans.

So why is it that our high street banks, with more analytical processing  power can’t do the same?

The difference is in the incentive structure that the banks’ managers operate under.

Their bonuses are pegged to bringing in more businesses at the least possible cost.

With this in mind, in times of trouble the banks are wont to raise lending rates, cut back on lending and shovel almost-free customer deposits into the safe treasury bills and bonds. Even after a windfall year you never hear of deposit rates rising.

At the small financial institution I alluded to earlier the management are driven by a desire to provide a safe haven for clients’ savings and provide cheaper-than-market-rate loans. In times of hardship they cut back on administrative costs rather than raise lending rates to ensure a continuation of the cheaper than market rate loans.

So not only did the institution’s clients benefit from cheaper loans they also enjoy a five percent interest. Higher than any high street bank is offering on its savings accounts.

As if that is not enough the clients who also double as shareholders have seen their initial investment in the institution jump eighty fold in the last five years and this year for the first time enjoyed a dividend payout that was thrice their initial investment in the institution.

With our banks the benefits accrue the other way around.

The owners who are not depositors or borrowers or Ugandans for that matter, have benefitted the most from setting up in Uganda, while the depositors and borrowers almost all of whom are Ugandan have suffered anemic interest on their deposits and extortionist lending rates on their loans.

The shareholder equity, or the owners interest in the bank has grown threefold even quadrupled since 2005 in some banks. This represents up to 20% annual growth the last seven years.

We don’t have to look very far for how well shareholders are doing.

In 2004 dfcu listed its shares on the exchange at sh230 a piece. Shortly after they offered each shareholder a share for every four they owned, effectively making each initial share worth sh184. Today a share in dfcu is trading sh1,000 more than a fivefold increase in value since its listing.

No one wants a headache from thinking about the growth in wealth accruing to Stanbic shareholders. Not on a Sunday morning.

Few businessmen in this town – except maybe the casinos, insurance companies and banks, can boast such growth in shareholder wealth during the same period.

Something has got to give.

Appeals to have them lower lending rates or raise interest rates on deposits, have been met with sloth like slowness when compared with their willingness to raise lending rates – read ring in the profits.

Even the baleful gaze of Bank of Uganda governor has failed to faze them.

I suggest let them continue racking in their profits if they want – but let them share with us. Sell shares to the public. One bank has a gentleman’s agreement to sell shares on the Uganda Securities Exchange (USE) but have always found a way to dodge – for coming to 20 years now.

Clearly equity is where the money is.

Obviously it is useless trying to appeal to the banks good nature.

They argue that one sells shares when he needs money, going by the above they are having it good so they don’t need the money, we provide billions in dirt cheap money anyway.

They will tell you they are employing us, providing a much needed service and planting a few boreholes around the country for good measure.

True selling equity will still be concentrated in the hands of a few urban elite – like me, but more importantly it will boost our stock exchange as a place to raise funds.

The donors have cut off aid, we need to fire up our own mechanisms of raising finance and the capital markets serve that purpose – in fact a lot of aid is raised on the capital markets of Europe and dished out to us poor Africans who cant raise our won money.

Let government call in this favour using whatever means necessary – it is within their right. The banks really need to spread the love around more.

WHO WILL BELL THE CAT, REIN IN UGANDA'S SPENDING

The budget is being prepared.

In recent weeks we have seen various ministries and agencies trooping to parliament to defend their proposals.

"The police want their budget doubled. The army have a trillion but they want a few billions more. And statehouse is still in the habit of sprinting through its allocation before the house passes the budget...

Its business as usual. But it shouldn’t be. The donors recently pulled the plug on budget support. While aid as a portion of the total budget has fallen steadily to about 30% it still constitutes a significant portion of the monies used for building infrastructure, schools and hospitals.

So one would think good sense would counsel belt tightening but clearly not.

It’s not rocket science.

Governments spend what they earn through revenues and fees. But if their spending outstrips their revenues they borrow, as we have been doing for the last two decades and before. You can borrow from the donors or from your own population. Governments which have lost credibility with other governments and their own populations go down the slippery slope of printing money.

Money not backed by production ends up chasing few goods leading to inflation. As our recent history has shown when inflation takes hold it is hard and painful to rein it in.

And why we should be concerned with government going as if it is business as usual, the main driver of inflation is often times government spending.

One only has to look at Greece to see what happens when governments wear blinkers despite the most dire warnings. The already recklessly extravagant Greek government first doctored its books to get admission into the European Union. Once in they continued their profligate way as if it was business as usual hiding expenditures off the books and not collecting taxes. To bridge the gap they borrowed from the banks, which in turn were borrowing from international markets at lucrative enough rates that their creditors chose to look the other way.

When the day of reckoning came the earlier assumed €7 billion deficit ballooned into €30 billion deficit after they had found all the  off book entries. Banks across Europe were in trouble and Greece has been on the brink of defaulting on its loans and teetering on the edge of ejection from the EU since 2009.

It was so bad that Greece’s woes threatened the union and the credibility of the single currency, the Euro.

Borrowing is not a bad thing its what government do with the loans that causes problem. Greece of course financed the 2004 Olympics, which they could barely afford and a lot of the facilities have found little or no use after the last medal was given out in Athens.

If on the other hand, you use the debt to facilitate business by build transport, energy and social infrastructure.

"In Uganda of course with our massive government one doesn’t have to have divine powers to know that increased spending will go towards  maintaining the fat cats first before any crumbs can  be thrown to do roads, railways, schools and hospitals...

Or maybe government official’s know something we don’t?

Maybe they are banking on oil money, which will not be expected before 2016, to cover our current extravagance. That would be treading on dangerous ground.

Assuming the donors maintain their hands firmly on the purse strings we can expect some hard times ahead and these will call for hard decisions, not least of which is that we have to cut down on spending.

But who is going to bell the cat?