MAKERERE ENDOWMENT FUND, BETTER LATE THAN NEVER

IN clear case of better late than never Makerere University last week launched its endowment fund board of trustees led by Dr Martin Aliker.

The fund which will be funded by existing university surpluses, donors and alumni of the university will be used to alleviate the institution’s financial deficit.

This is a long overdue initiative as the university is staggering under the burden of providing quality education to thousands of students only funded by government’s inconsistent contributions and the fees from students.

"The reality is that over the years the government has shifted its emphasis more towards primary and secondary education, feeling little need to fund university education. And the university can only raise its tuition fees so much before they compromise their mission to provide university education as widely as possible....

A third way had to be found and the endowment fund may just be the answer if managed well.

It’s not a new concept. Universities around the world have built up huge endowment funds, the most famous being Harvard’s, which last year reported assets of $37.2b or almost double the economy of Uganda.

These universities have used a portion of these funds to pay for operations and capital development.

Makerere’s fund is going to kick off with £800,000 (about sh3.5b) that has been managed up to now by Crown Agents in London.

Anecdotal evidence suggests that beyond this fund Makerere can leverage its huge holdings in real estate, on Makerere hill and around the city and intellectual property to fund itself.

There is probably some work to do in revising the law that Makerere or public universities operate under allowing them to raise money and invest for themselves but we are off to a good start with setting up the endowment fund.

It will liberate the university from its dependency on government funding and reduce the pressure to raise fees out of reach of the majority of Ugandans.

But more importantly in my mind, it will open our eyes to how much resources are floating around but are ineffective because they are not aggregated into meaningful sums.

By accident or design (I think more the latter) we have been wed to this mentality that when there is a need we have to look for someone else to resolve it, our brightest minds at the university are not averse to this way of thinking.

"Makerere is a microcosm of the Ugandan condition. Sitting on an embarrassing bounty of resources – human and land, but cash poor and hard to really feel sympathy for...

It is all very nice to say government has a responsibility to its citizens to educate its citizens but what happens when government cannot or is lukewarm about its commitment? You roll over and die?

Recommendations on how the university can raise money is through the building of multipurpose income generating structures like amphitheatres, halls of residence, computer labs and cafeterias. In addition it has been suggested that staff residing on the campus vacate to make way for paying students. The possibilities are endless.

But let us just take the sh3.5b that will kick off the endowment fund and for which there already plans to examine the possibilities.

The 364-day Treasury bill yield is now about 11.8 percent. Assuming the university invested this money in 364-day bill they would get an income of about sh400m after a year. Assuming the yield remain constant for the next decade and Makerere kept rolling back the profit they would have grown this single amount threefold to sh10b. And we haven’t even started on fund raising drives, sale of properties, income from property etc.

Of course they have to have good money managers and not fall prey to the snake oil salesman hawking products with no real returns.

Its fantastic that Makerere is at last taking the bull by the horns and the other universities both public and private should pick a leaf.

Ideally Makerere should have launched the fund decades ago but you know what they say, “the best 

time to plant a tree was 20 years ago, the next best time is today.”

THE HONOURABLE SPEAKER HAS IT BACKWARDS ON LIBERLISATION

Deputy speaker of parliament Jacob Oulanyah returned last week from travels abroad.

Straight off the plane he launched a scathing attack at the country’s liberalised economy and how commercial banks are reaping off their clients with extortionist lending rates. He also argued that the parliament is too large relative to the size of Uganda, compromising the quality of output from the august house.

By design or accident, raising the issues side-by-side Oulanyah touched on an interesting causal loop.

Part of the reason the bank rates are too high is because we have too huge a public administration, in which I include parliament.

We shall come to that later.

There are many reasons lending rates are high, among them rising business costs, high lending risks, and the bankers will be best suited to talk about those, but one of the major reasons the high rates on treasury bills and bonds.

Treasury bills and bonds, also referred to as government paper, are the way government borrows from the public to control inflation on one hand or finance the budget.

As it stands now the 91-day treasury bill rate is currently at 9.4 percent and the Central Bank Rate stands at 11 percent. It is against these two rates that banks decide how to price loans.

It is only natural and prudent that banks charge individuals or companies more than they do government, which is considered the safest borrower.

"So if Oulanyah wanted to influence lending rates he might want to start with helping government lower those bench mark rates...

For a long time government paper was used to mop up excess money in the economy. This was and still remains important because too much money sloshing around causes inflation. We don’t need any lecture on the dangers of inflation in Uganda.

Inflation is often driven by government spending gone amok, as we saw after the last election. So a good place to start reducing the risk of inflation and therefore making it unnecessary for the Bank of Uganda to withdraw money from circulation, is to cut down and control government spending. And one of the best way to do this is to downsize government. Government’s don’t spend money it’s the people in government who spend money, the fewer they are the less money government will spend, beyond just the payroll.

 

So in complaining about the size of parliament he is knowingly or unknowingly touched on one of the reasons for high lending rates. 

I will put it down to Oulanyah’s speech not being reported correctly, but it’s hard to see how too much liberalisation is causing high lending rates.

The deputy speaker has it backward. The reason our lending rates are too high is because we don’t have enough competition in the banking sector and therefore we might not be liberalised enough.

It is fashionable to blame foreign banks for high lending rates but even when we had local banks they did not particularly show Ugandans any preferential treatment. Unless of course you mean the massive loans that were lent to the cronies and family of local bank owners, which eventually sank those banks.

The process of liberalisation of the economy entailed breaking up of government monopolies and selling off loss making state enterprises.

Everyone who has been around long enough knows that the economy’s liberalisation was necessary, even critical, to allowing the country progress the little way it has in the last 30 years. Liberalisation mobilised private resources and ingenuity at a time when government had little to no resources to invest in state owned industries.

Oulanyah is right, that in liberalising the economy government seems to have washed its hands of its role in directing the economy – through strategy formulation and regulation of the liberalised sectors, in order to fulfill our national ambitions.

The foreign companies, which dominate our economy, while they are predominantly manned by Ugandans, answer to their shareholders who care little about our own aspirations as a country.

"We should not begrudge these companies the profits they make, but as a country we have the right to participate in their development plans to ensure they are aligned with our own goals....

In line with that, here is a suggestion for how Oulanyah can leverage the powers of his good office to help pull down lending rates. Raise the people’s savings rates. Help legislate that all public servants be shifted to a contributory pension scheme like NSSF and in addition raise the proportion of people’s salaries that they are mandated to save.

Currently workers are mandated to save five percent of their income with NSSF, with their employers contributing another ten percent.

"Raising the level of national savings will lead to more money being held by banks. Banks make money by lending and it costs them money to hold savings. Higher savings will force banks to lower their lending rates to get more money out the door....

The east Asian nations worked that out a long time ago. Singapore for instance, a country that was poorer than Uganda in 1962, aggressively mobilised local savings by increasing social security savings requirements. These long term funds were then invested in the private sector raising production, incomes and eventually savings. A literal virtuous cycle.

The rest as they say, is history

WESTERN UGANDA CHAOS, A CASE OF DEADLY BRINKMANSHIP

The violence in western Uganda caught everybody flatfooted and while it is being dismissed as tribal clashes, there are disturbing undertones to the whole incident that require that we all seat up and take notice.

At the beginning of the month dozens of people were killed during coordinated attacks in the districts of Bundibugyo, Kasese and Ntoroko in western Uganda.

The attackers, some armed with guns, pangas, spears, bows and arrows attacked police stations, army barracks and private homes in an operation that was quickly snuffed out but, which has left the region in a decided state of disquiet.

This week 125 people rounded up by security agents have faced the court martial for their alleged involvement in the fracas. 

As part of the process of getting to the bottom of the problem at least eight Rwenzuru Kingdom ministers remain in custody in connection with attacks. An event which has set tongues wagging and fuelled rumours that more arrests even of the Rwenzururu king maybe in the pipeline.

It has been suggested that the Rwenzururu kingdom may not have looked too kindly on the installation of the Bamba king, in effect giving them autonomy from the Rwenzururu kingdom.

The Rwenzururu Kingdom too came out of a settlement with rebels who had fought to breakway from the Tooro kingdom.

That is a broad outline of the background to the story. It is obviously more complex than that.

In the 1990s government restored the traditional Kingdoms, which were abolished in 1967, as cultural institutions with no political or territorial authority as compromise. As a result several other traditional institutions have asserted their right to exist, often breaking away from the larger kingdoms and rubbing the bigger cultural institutions the wrong way.

The bigger institutions allege a ploy by government to control them through some divide and rule policy.

"The cultural institutions have been careful not to antagonise government too much in the last 20 years. Not only because a precedent has been set for their abolition but more crucially because they rely on government as guarantor of their existence and largely depend on Kampala for handouts to stay afloat...

Every so often tempers flair as these cultural institutions seek to leverage their perceived influence to sue for more concessions from government.

The existence of our cultural institutions, essentially feudal set ups, are an oxymoron in a country trying to build a democracy. They are a political compromise to appease the elite of the respective tribes who in moments of misguided tribalism, it is feared, could cause problems for the center.

Clearly the attacks were not a spontaneous outburst and even if the organisers knew they did not have a hope in hell in overrunning the security installations, they probably hoped they would shake up the establishment enough that they would strengthen their bargaining power.

What they – whoever they are, would be bargaining for is not publicly known.

The Rwenzururu king Charles Mumbere has denied that he nor his establishment has been involved in organising the attacks. We all hope this is true, because if it isn’t  this would be the height of political brinkmanship that risks the existence of the kingdom, peace in the area and would put the brakes on progress in the area. Whichever way you look at it there can be no happy ending.

OF FAT SALARIES AND THE END OF THE WORLD CUP

Was this the week that you applied for a job in statehouse?

Last week opposition chief whip MP Cecilia Ogwal brought to light a list that showed state house officials were earning up to a billion shillings a year in salaries. Frank Tumwebaze, minister of the presidency, however dismissed the list as erroneous and that his office had already brought the error to parliament's attention, as well as communicated the correct position. He accused the opposition of mischief in trying to score cheap political points with the commotion.

And with that we shelved our CVs.

That being said it would be bad economics for civil servants to be paid more than their counterparts in the private sector -- officially. It's a question of incentives.

"For sustainable development the incentive structure has to be slanted towards the productive sectors of the economy -- agriculture, industry and the private sector in general...

Governments do not create wealth. They facilitate the private sector to create wealth through the provision of public goods like national strategy, security and infrastructure.

Of course politics will always get in the way of economics. The political elite are motivated to capture power and once there hang on for as long as they can. Oftentimes this means dishing out goodies from the public trough, with loyalty not merit being the major criteria.

This happens everywhere.

In more developed economies the private sector is of sufficient size and organized enough to keep their governments in check and focused on their key role. Not an easy thing to do even there.

Maintaining that balance makes the difference between descending into a Zimbabwe-like situation where the economy's productive class has been totally decimated and there is greater competition to be in the ruling party's inner circle than there is to get private sector jobs.

Or being a Sweden, Denmark or Norway where the politics makes it possible for people to see ever improving welfare, while the private sector can also survive and thrive.

The private sector is not the panacea to our development ambitions, after all it can also run amok as it did during the recent global financial crisis and any number of economic crises in the last century and beyond.

In fact while the signal for regime collapse often shows up as increasing patronage, sucking resources financial and human capacity from the business community, trouble in the private sector often begins as the rich shift away from production to speculation...

The collapse of the Roman Empire and the lesser ones of Holland and Spain, was accelerated by this shift. A situation that observers now say is happening in the west or in the US more specifically.

This is not to begrudge statehouse officials an additional zero or a shift of comma in their take home pay, but it would bode ill for the economy generally if that were to happen -- officially.

But it is not impossible. For civil servants to get higher pay two things have to happen, one, that our tax base rises correspondingly and two, that government is cut to a more manageable size.

********

And finally the World Cup is set to come to a close tonight. It's been a month of delightful, free flowing football in Brazil, the spiritual home of the game. Amidst the flurry of goals, have been some shockers -- don't remind Brazil, some revelations -- Costa Rica? And confirmation of some old habits -- Luis "take a bite" Suarez, has he been vaccinated?

Invariably the cream has risen to the top. The finalists -- Germany and Argentina, between them have conceded seven goals through out the tournament and apart from Germany's flurry of goals against the hosts in the semifinals, both teams have not been particularly prolific in front of goal.

"At a fundamental level, especially for Germany its been a triumph of collective effort over individual brilliance. That systems and consistency trump the spectacular and solo efforts of the stars. While not pretty, with this systematic and egoless approach, the odds are that it will get the job done more often than not...

The Germans have the best record in terms of consistency in the World Cup in the last 40 years, making the semis or better eight of the last eleven events. There is a lesson for all of us.

Good luck tonight!