YOU WANT TO BUILD A FORTUNE? START NOW

At the end of the week we were rolling in the aisles after reading the alleged leaked prayer requests of the recently deposed managing director of Uganda Broadcasting Corporation (UBC), Paul Kihika.

Among his requests were that his new board be disbanded and the minister of information Rose Namayanja – his erstwhile boss, be reshuffled from her position. Is there such a thing as taking your faith too far? Or maybe misplacing your faith?

But what really caught my eye was his prayer “to build business that will bring over sh100m profit per month.”

I am going to imagine that Kihika understands the difference between sales or turnover and profit, basically what is left over when all costs are deducted from turnover.

Let us do the math.

The profit he envisages will amount to sh1.2b a year, a nice hefty sum. So what size of company would one need to generate such returns?

Banks are notorious for having low return on assets and Stanbic Bank is not typical but they may serve as a useful indicator. At the end of last year Stanbic’s total assets stood at sh3,242b and made an after tax profit of sh102b. A very rudimentary calculation would show return on assets of about three percent. Using this figure Mr Kihika would need to build a business with at least sh40b in assets.

The New Vision Printing and Publishing Company has an asset base of sh66b as of the end of 2013. It has taken 28 years to build,  has a staff complement of over 1000 workers and a distribution network that spans the nation, the globe actually, because the company has a website.

But assuming Mr Kihika has the cash on hand, how much would he need to generate his sh1.2b in annual profit.

At last week’s Bank of Uganda Treasury bill auction the weighted average yield or the return on the 364-day Treasury bill was 12.379 percent.  At this rate Kihika would need about about sh9.7b in cash, considerably less than the sh40b to realise his target,.

This is Uganda.

Going by the stories surrounding corrupt contracts and procurements it is more likely that someone will hit a “deal” of sh9.7b than stick it out over 28 years building a sh40b asset. It is not even risky – for every corrupt official convicted we would hazard 100 get away scot free.

The prayer request is probably not unusual and such lofty dreams should be encouraged. But we need to take it a step further, work backwards and calculate what – in addition to fervent prayers, it would take to fulfil our dreams.

We will assume Kihika is a man of upstanding moral rectitude.

After writing down his prayer request he should have gone to a financial planner to get a sense of what it would take to get him from where he was – in terms of financial standing, when he wrote the prayer to where he wanted to be.

Everybody should do that.

His advisor might ask him what his target date for achieving the dream, which would have to be viewed against his current age – he might want to enjoy his cash way before 28 years. On that basis he may score the business landscape for an enterprise that promises the rates of return to make his dream come to fruition. The sooner he wants the dream to happen the higher the rate of return he would demand.

A rule of thumb is that the higher the anticipated rate of return the riskier the venture will be.

Given his ambition it is unlikely he can achieve it without a functioning organisation, it’s unlikely there is a legal briefcase business model that can make this happen.

To cut a long story short there are no short cuts. When we see the wealthy among us, we see the finished product, we need to dig deeper to see what it took to get them to where they are.

You can be sure that along with spadefuls of faith, one needs copious amounts of elbow grease, because there will be no gain without sweat.

AFRICA’S US DILLEMA

If it is possible at all you, have to feel sorry for the US.

Assuming altruism, a real desire to help Africa, as well as make some money in the process and put the brakes on China’s determined inroads into the region, corporate America and US officialdom were presented with quite a dilemma last week.

Imagine the scene Barack Obama stands before 40 African leaders at the US-Africa Leaders’ Summit, wondering how to make an impact on them with his words, trying to work out who among them is the first among equals and who it would be important to get onside so all the others fall in step.

A useful analogy would be the relative from the village, slumped in your sofa, “Get me job. Anything,” he pleads.

It would help if he had an education. Even better if he had some working experience. But it would be immensely useful, even valuable if he showed a willingness to make it easy for you to help him. Or at least in very concrete terms, show how it would be in your interest to help him.

On paper the relationship between the US and Africa should be decidedly lopsided.

The US annual economic output stands at about $11 trillion (that is twelve zeros) while Africa is just above a trillion. The US consumes more than 20 million barrels of oil daily compared to Africa’s figure of under 5 million barrels. The US defence budget is larger than the next 11 countries defence budgets combined. Africa as a whole is not even in the top ten defence spenders in the world.

"By whatever measure you look at it the US is in a whole different league, not unlike them playing in the English Premier League while Africa is in the fifth division, where to dream of playing with the big boys would invite uncharitable questions about your mental health...

That being as it is the US, more specifically its business community, have not had as pervasive a presence on the continent as they are capable of.

The US had a good thing going since the end of the cold war in a unipolar world, where Africa’s importance as a frontline against communism has faded.

The emergence of China has changed all that.

The US strategists projecting into the future see a real challenge to their economic dominance and once again Africa is where the battles will be decided. Some observers put 2027 as the year that the Chinese economy will overtake the US while others say it will be much sooner.

The US has come late to the party. Between 1998 and 2006 exports to China jumped 20 fold while exports to the US during the same period have grown four fold.

Hence the need for last week’s US-Africa Leaders Summit.

"Looked at another way Africa is once again the flavour of the month, courted by Asia, Europe and the US. The question then becomes how do we leverage our new advantage for the benefit of the continent?...

Trade not aid is becoming a well-worn cliché, but is still a relevant catch phrase. The limitations of the African Growth Opportunities Act (AGOA), mostly that we are severely lacking in capacity to service the US market, is a useful learning point.

Africa needs to resolve itself around two things. One, do we need the US and secondly, if we do, what do we need them for and how can we extract maximum benefit from the relationship.

That no one wants to be on the US bad side is a moot point. The sheer size of its output makes it the lodestone of the global economy. The ability if it’s military to project Washington’s will anywhere on the planet provides the big stick to ensure they have their way.

So then the second question is the more pressing one.

The American market is highly competitive to the point of saturation that their companies need to break out into the world in order to continue thriving.

It was reported recently that Warren Buffett, arguably the world’s best investor, is seating on a cash pile of $50b. The amount, which is more than half the total economy of the East African Community, has accumulated for lack of big enough deals to do.

It is with this kind of mindset that you see why the US insists on seeing Africa as one big country. Corporate America will only arise from its indifference to the continent when we present it with big enough opportunity. Even Nigeria and South Africa as standalone economies will not trigger a mad rush for Africa.

"Like our needy cousin from the village we need to help America to help us. We need to accelerate the establishment of our regional blocks. Railway, road and telecommunications networks fanning into the hinterland, thousand-plus megawatt dams or gigantic ports servicing whole regions rather than individual countries  are the kind of things that will not only present tantalising attractions, but when done will unlock the vast potential of the continent, which we hear of only in consultants’ presentations...

US cash will always come to Africa but for it to be the kind we want and in sufficient volumes, the one that triggers enduring and sustainable benefits, we need help ourselves fast by taking a hammer to our artificial boundaries.

THE COURT ACTION, ONE MORE STEP TOWARDS DEMOCRACY

Last week the constitutional court annulled the Anti-Homosexuality Act on the grounds that when it was passed the house did not have enough MPs seating to make it law. For a bill to pass into law at least one third of the voting members of parliament have to vote on it.

And then within days the constitutional court ruled against the continued tenure of Chief Justice Benjamin Odoki beyond the statutory 70 year old age limit, despite the extension granted by President Yoweri Museveni last year.

In the heat of the moment it is easy for the supporters of contrary positions to be displeased with the two court rulings. 

The opposition in both these cases maintained a deafening silence, not criticising the courts for their lack of impartiality as they have done in the past.

If we describe a democracy as a rule based society, with laws made by the legislature, operatlionalised by the executive and interpreted by the courts, the events of the last fortnight are good for democracy.

The ideal is to have a country where institutions and not individuals, are the guarantors of our freedoms, long term stability and progress.

Of course first you have to have the institutions, then you have to make sure they work.

"It is all very nice to write these institutions into law and even man them with competent officials, but in order for them to grow and take their place at the center of events, this institutions have to be exercised....

We might have our misgivings about this or that institution but we give them no chance to improve and serve us if we do not put them to the test.

Take for instance, someone breaks into your house and steals a few things. Because you have your doubts about the capacity of your local police post you neglect to report the incident. When they are drawing up the budget for the police post next year they will look at the incidents of the past year as an indicator of how much to commit to your local police post. Invariably because your incident and several others were not communicated police HQ will decide that the one sleepy constable and a bench for a desk will continue to be adequate.

"By choosing not to deal with the police because you doubt their competence a self-fulfilling prophecy is set into motion....

The building of a democracy is not something that other people do, it’s something we all help with in whatever way we can. 

In an attempt to win political points people may argue that the government should know better and not put society in a place where it has to challenge it. But governments are political animals, they will get away with whatever they can depending on the vigilance of the people.

Of course there is a danger that government business can be paralysed and swift action bogged down in red tape, but that is the price we should be prepared to pay to live in a democracy.

"Stronger institutions will guard against the excesses of political expedience, the arbitrariness of dictators and even save our more benevolent leaders from themselves, after all, they say, the road to hell is paved with good intentions....

And finally by testing our institutions and allowing them to grow into their roles we can expect a level of predictability about our environment and guarantee that in the future we will have recourse to these institutions even if we are no longer in power or aligned with the powers of the day.