WE ARE POOR NOT FOR LACK OF MONEY

Social media has been awash with images of the house that Hamis Kiggundu has built on the shores of Lake Victoria.

It’s a huge, stately house with high ceilings, a sweeping staircase, chandeliers and complete with swimming pool and marina. Reports say the palatial mansion has 25 bed rooms, while experts estimate that with a living space of more than 1,000 square meters, the build must have cost at least $1m (sh3b).

Reactions have been mixed.

Some people envy the 31 year old owner’s good fortune at being able to build himself such a fantastic residence. Others wonder what the point is of such opulence, question the source of his funds while others are left gobsmacked, shaking their heads in befuddlement at the spectacle.

For those who dismiss it as conspicuous display of wealth, one cannot help but detect a certain amount of sour grapping. They probably have never been exposed to such luxury, they cannot conceive being enveloped by it, they probably break into a cold sweat at the thought of it.

For those who are enthralled by the marvel they probably wish it was they who owned it, lived in it and enjoyed it. They probably returned to their prayers, their intensity heightened by visions of the house that Ham built.

To each one his own.

"Not to begrudge the young man his money, but his home is symbolic of a lot that is wrong with this country...

As a country, and people, we are not poor for lack of resources but because we misallocate our vast resources.

We are continually seduced by short term gains over the long term sustainability. We are quick to copy others even if we do not understand the rationale of their actions. And we are always on the look out for the one big deal that will set us on easy street, application and diligent work are to be avoided at all costs.

There are only two ways of spending money one, by eating or consuming it or by investing it.

If expenditure is slanted towards the former rather than the latter, poverty is eventually guaranteed, regardless of how well one lives currently.

If on the other hand one invests, allocates money to activities with a good chance of receiving a return one can expect a life of ease over the long term as the investments begin to pay off and spawn other investments, which in turn throw off even more cash.

Why it is so difficult to invest rather than consume, is that investment requires faith, belief in a future benefit that is not guaranteed, while consuming now guarantees immediate gratification.

People who have built wealth sustainably over years, decades, even generations are men and women of great faith, never mind that they might not subscribe to your favourite pastor.

As human beings we are not designed to think long term. Our attention spans, unless trained otherwise, are unable to concentrate for long periods of time live alone project into the distant future.

The downside of this is that we tend to overestimate what can be achieved in one year and underestimate what can be achieved over ten years.

Whereas this a human condition and not unique to Ugandans, it is the attitude that glorifies those among us of questionable wealth over those who put in an honest day’s work at their jobs or businesses day in, day out over years.

It is this kind of thinking that makes us envy Kigundu, that he has made his money – never mind how, while he is young enough to “enjoy” it, by that we mean that he can now “eat” his money presumably finish it before he is dead.

Judging by his mansion Kigundu seems to have fallen for this way of thinking.

"It is not only that the mansion is too big for the needs of any one man, it is that all those billions of shillings have been tied down in concrete, steel and glass, monies which would have been released into the economy to generate more economic activity. As if that is not enough you have to take into account the millions that will be spent in upkeep and maintaining of the property annually....

But Kiggundu is probably better than the rest of us who have dotted the countryside with country homes that they barely spend a week in all year, but which cost millions to put up.

At least Kigundu will live in his castle by the lake.

ZIMBABWE: HOW TO RUN AN ECONOMY INTO THE GROUND!

(This article was published in May 2014 only got around to uploading it now!!! prompted by this article which boosts my soothsaying credentials)

In case you missed it Zimbabwe is in danger of falling into a recession, a situation when economic output declines and the economy contracts for two consecutive quarters.

You have to feel for the people of Zimbabwe.

The economy was just beginning to grow again after eight years of contraction and bringing their hyperinflation under control. I don’t think Hyperinflation describes what Zimbabwe went through. It is estimated that inflation peaked at 500 billion percent in 2008. This means that average prices in the once food basket of southern African were rising at least 150 times a second!

"So between the time you punched the amount you require from your ATM and the money actually being spat out it would have become literally worthless...

It comes as no surprise that in the darkest days of the Zimbabwe economy the largest denomination note was for the Z$100,000,000,000,000 or a hundred trillion Zimbabwe dollars – that is 14 zeros for you!

The situation got so bad that the country was forced to abandon the Zimbabwe dollar and adopted a basket of currencies including the South African Rand, US dollar and Chinese Yuan as legal tender in the country, which was ironic because President Robert Mugabe always want to make out as the bastion of anti-colonial resistance.

Well using other people’s currencies to run ones economy is the ultimate capitulation to the “colonialists” and their evil schemes to take over your economy.

So how did a revolutionary leader sell his country down the river like this? How did a once vibrant agricultural and industrial economy come to this?

Mugabe came to power at the head of a struggle for majority rule in Zimbabwe. The grievances of the people were the usual clamour for the right to self-determination and a need to redress wealth inequalities, which meant mainly land redistribution.

With black self rule in the bag came the sticky issue of land redistribution. Sticky because the white owners had raised the productivity of the land to the highest probably on the continent and it would not do to destabilise that part of the economy.

As often happens early land distribution was hijacked by the “revolutionary” which meant the majority still had little or no access to land while a new class of black middle class or super rich emerged.

So the white farmers went on with their business while for the new black nouveau rich life had never been better and the black everyday man wondered whether what they had signed up to by supporting the “revolutionaries” as their collective lot had not improved, and in many cases even deteriorated since 1980.

Fast forward to 2000 and the government decided to give tacit approval to the landless to forcefully takeover the commercial farms of the white farmers.

In Uganda we need no explanation to what came next. The blacks unable to sustain the commercial concerns – I don’t think they even tried, regressed into subsistence farming and that was the end of Zimbabwe as a net exporter of food.

Lowered productivity affected tax collections and donor inflows forcing government to print money to sustain itself and meet its obligations – a clear recipe for inflation. Inflation happens when there is too much money – government money printing presses were working overtime, chasing too few goods – production had collapsed.

"So to redress the issue the revolutionaries had to swallow their vomit, ditch their currency and adopt foreign currencies, as this column had predicted they would in 2008 ( we take no credit for that, it was the inevitable conclusion to Harare’s total disregard for basic supply-demand economics)...

This had two immediate effects one, it meant inflation had to drop because Harare could not print the foreign currencies even if it wanted to but the other consequence was that it became harder and harder to find the money to make critical imports of medicine, fuel, plant and machinery needed to jumpstart the economy after all exports had collapsed.

Which brings us to the current threat of recession.

How does Zimbabwe punch its way out of this downward economic spiral?

For beginners the politicians need to put a lid on this uncalled for talk of indeginisation of foreign companies. There is a strong case for increasing the equity holding in these immensely profitable companies but there are structured ways that this can be achieved without affecting the long term economics of the company. Of course seeing how the government treated the white farmers capital is not going to wait around to see how Mugabe and his cronies will go about redistributing these company stakes. The proof of this is that factories are closing.

Zimbabwe needs to produce and export to earn the foreign currency that will jump start the economy.

Zimbabwe is a 21^st century test case of what happens when bad politicians come up against the economy. We should take heed!

WHAT WE NEED IS A STRONG VENTURE CAPITAL INDUSTRY

It gets a bit confusing.

The official statistics show the economy remains on a growth path, but on the ground business is slow, shops are shutting down and the real estate bubble is suffering a slow puncture.

"Clearly the overall economic picture is good, but not for everybody. It could mean either the economy is sputtering to a halt or is winding up for the great leap forward....

I choose to believe it’s the latter rather than the former.

One, because this is the only country I have and it would better if it worked and two, because the government is clearly committed to making the key investments in physical infrastructure that will power the economy to the next level.

On that second point however you can have all the infrastructure in place and nothing happens. It’s not automatic that because you have power that economic growth will ensue. The Bujagali dam is currently operating at an average of 65 percent of its capacity because demand for power is not uniformly higher.

As an economy one of our key challenges in ensuring sustainable economic growth, driven by the private sector and not on the steroids of government spending, is that while we have a lot of start-ups they don’t last for a combination of reasons, but most especially for lack of support from the environment.

Foreign Direct Investment is all very nice, but as along as indigenous capital is not given a chance to rise and thrive, the trickledown effect will always be a pipe dream.

People are coming to this realisation and a rethink of the liberal economic policies of the last two decades have been mooted. The suggestion is that we should bring back the parastatals, God forbid!

At the heart of their thinking is that government companies can be used to force lending rates down, channel cheap finance to businesses and invest in things like a national airline, which the private sector has failed to do.

The people pushing this agenda have either been seduced by the TGE (Tushabe gavumenti etuyambe) mantra or see these entities as easy ways to get jobs and contracts having failed to match up in the private sector or both.

If there has to be government intervention this intervention should come in bridging the gaps in the financial sector that will lend much needed support to Small and Medium sized Enterprises (SMEs).

As it is now we only have commercial banks, with their extortionist lending rates. In other economies in addition there are venture capitalists, private equity companies and any number agencies to help small businesses transition into bigger companies.

It’s important that small businesses are supported because you can’t have big businesses without first having small businesses. All big businesses started as small businesses.

Uganda Development Bank (UDB) is good. There is even a place for Uganda Development Corporation (UDC). But if government is really serious it needs to invest in the venture capital industry. And I am not talking about running out and starting a state venture capital fund but investing in creating the infrastructure – policy, regulatory and human resource, to support the industry.

Venture capitalists (VCs) not only provide the high risk capital to support start-up businesses but also hold the small companies’ hand in its transition to a bigger company.

Our commercial banks are not geared to provide this service. VCs mostly provide equity funds rather than loans, this means they only get paid when the business becomes profitable or is sold. VCs because they are intimately engaged and familiar with the business have an interest in seeing it succeed so not only will they pony up more funds during the company’s stages of development but will also provide technical assistance to ensure the company survives.

Commercial banks on the other hand need you to service your debt regardless of whether you are profitable or not.

Because even in the best of economies only about one in ten companies survive to see their fifth birthday, VC take on huge risk that commercial banks cannot justify to their investors. If VCs are competent the one company that comes good will pay for all the losses they took with the other companies.

Even in this industry governments are not the best promoters – I can just see billions of shillings going to relatives and connected people with nothing to show for it at the end of the day. But laying down the necessary infrastructure and even some small time attempt by a desk in UDB, maybe what is needed to set the private sector on to this potentially lucrative industry.

"As it is now Ugandans might be the most entrepreneurial people in the world, which they are, but the sink or swim environment in which the operate means that we are wasting this at a criminal rate considering the urgent developmental needs of this country...

So yes government needs to step in to grow indigenous capital but not by starting more parastatals.

BRUCE TO CAITLYN JENNER AND WHAT THE FUTURE HOLDS FOR US

In the 1976 Montreal Olympics Bruce Jenner won the gold medal in the decathlon.

The decathlon is an event where athletes compete in ten separate field and track events and their performances are collated to determine the winner.

Needless to say, due to the degree of difficulty of the event the unofficial title “World’s greatest athlete” bestows a certain virility upon its holder.

Fast forward to the present day.

Last week Bruce Jenner came out as Caitlyn Jenner on the cover of the Vanity Fair magazine. On the surface of it his transition to woman – with cleavage and curves in the all the right places, has been complete for the 65 year old.

It’s safe to say that the larger majority of people regardless of their open mindedness are bewildered first, by Jenner’s need to make the change so late in his life and secondly, at why he would need to make such a public spectacle of a decision that is a private one, which at worst would deeply impact his relatives and friends.

For the people grappling with transgender issues Jenner’s coming out is a godsend for them. With this single stroke he has brought transgender issues into the wider arena from the dark musty corner that it has lurked since the beginning of humankind.

For minority groups of any form or shape, a global recognition of their issues is a first step to wider acceptance.

However the furore that followed Jenner this week is our latest indicator about how technology and communication is changing the world.

As an indicator of technological advancement the computing power in the average smart phone today is more than was used aboard the Apollo 11 space mission in 1969. This has far reaching implications for what man can now do – with computers which are now in everything from our gas ovens to our cars.

In fact computer processing power has so advanced that artificial intelligence – the ability to mirror the human brain’s capacity, is becoming a reality everyday.

Similar magnitudes of advancement have been made in the life and physical sciences.

Sexual reassignment operations have been in existence since 1931 to the point that the procedure is covered by some insurance companies in the west.

One may argue for against it on ethical or moral grounds but you can rest assured it’s not going anywhere, if anything the technology is being enhanced with every operation done.

Jenner would have struggled to get a quality surgeon a decade ago, live alone afford the procedure.

Essentially man is becoming more and more able to manipulate his environment for his benefit. The course of innovation cannot be charted accurately ahead of the fact, many discoveries are serendipitous, happening by good luck. The limits are limitless.

"There is already talk of designer babies – babies born with the desired qualities such as beauty, intelligence, athletic prowess or whatever the parents want. With increasing miniaturisation already robots are being designed that can be injected into the blood stream, feeding back important information about the host's health status on a constant basis. Growing back amputated limbs. Resuscitating the dead in the future...

These developments may have the doomsayers wailing into their soup but it’s happening around us every minute, everyday.

Related to this are the developments in communication technologies. In 1976 Jenner may have been suffering his ambiguity alone – he even got married thrice, but now there are communities online with thousands of members.

And because of their common concerns some of these communities by leveraging the internet are able to project their voice much further than the majority. Technology is turning everything on its head giving minorities the influence of majorities.

So a person in Kisoro or Kabong or Aru with only an internet enabled phone can commune with others oceans away and not only take solace that he is not alone but that improving their situation or extracting themselves from hostile environments, is within the realm of possibility.

So when Aldous Huxley wrote Brave New World in 1932 describing a world where, among other things reproductive technology, would be changed beyond recognition, he probably didn’t stretch his imagination too far, one would think, reading the book today.

The point is the adventure of Bruce/Caitlyn Jenner is a part of a larger movement in step with and aided by technological advancement that has gathered an irreversible momentum. It will force us to rethink our previous belief, prejudices and accept things that were previously abhorrent to us...

We can resist progress or try and pick and choose the technologies we want and discard the ones we can’t but that will be increasingly difficult as the world gets more and more interconnected.

FOREX TRADING'S LESSONS FOR BUSINESS

My friend, let us call him Maurus, made four years trading currencies in April this year. I am the unofficial chronicler of his journey.

I have seen him go from manic euphoria as the wins rolled in to debilitating depression when the losses came around during this journey. At the end of 2013 it looked like he had cracked the code, but after four consecutive profitable months he went into a slump that took him until September to pull out of. But his winnings in the last four months of the year were enough to ensure that he recorded his first profitable year in 2014.

Looking on I have learnt a few things from my friend’s experience, lessons I believe can be applied to any business.

1.       Initial losses are school fees

There is that thing called a learning curve. And in business it is often paid for in losses. In the beginning Maurus floundered around, jumping from one trading method to the next, his agitation fuelled mostly by wrong expectations (remember the forex traders who were offering 20% returns a month not too long ago?). The losses accounted for his first and second investments before he stabilised. He rues the losses he made then, but you cannot pay him to go back and start again without his hard earned experience. He understands now – though grudgingly, that the losses are the tuition he had to pay to get where he is today. And he knows there will be more losses in future. It’s the cost of doing business.

2.       Start small

Linked to that and maybe why he is still in good health and alive today, is because he started small. His initial capital was not even a month’s salary. This helped him learn the ropes without too much pressure. As his confidence grew he added to his capital. In addition to reinvesting his profits he hopes to keep adding to his account from external sources. Many times the thinking is that one needs to have a huge chunk of money to go into business. While that is desirable, what often happens is that that initial investment is usually eaten up as you learn and if it is very big can cause one to give up too soon. The truth is for every business it’s about staying around long enough to learn the needed lessons.

3.       Focus on risk not on gain

Most of the glamour is reserved for making money. But Maurus learnt early enough to focus on the potential loss or risk of every trade rather than on the gains. He learnt through a lot of heartbreak that if you can keep the risk minimal – he only risks 2 percent of his account on any one trade, the wins will more than cover up for them if you have a good trading method. In everyday business the returns on investment on a given enterprise may look rosy but you need to have one eye on the probability of loss, which often means keeping costs low – even if you have a ton of money to blow on an endeavour.

4.       There are no miracles only the slow grind

Breaking through to success in one blast of colour and light is a myth best left to Hollywood. Maurus has learnt that the good trades will come every so often, maybe once every two months but most of the money is made in the numerous trades, where small gains and keeping losses to a bare minimum. The hunkering after the one big deal that will set you up on easy street is dangerous and destructive to business.

5.       Failure or success is all on you

Maurus has learnt that in forex trading there is nowhere to run. Whatever happens is your responsibility. If you are losing money there is someone making money so you cannot blame the economy or a capitalist conspiracy for your losses. He has learnt when you own your losses you can learn and come back a better trader tomorrow. In business do not succumb to the seduction of blaming the economy or the weather or the gods, because you will not improve. If you are losing money someone is making money you need to ask yourself why rather than moan around.

Maurus now has a better understanding of business, not just currency trading, than he had four years ago.

He feels he has got over the worst and have developed a mental discipline that he can only build on in coming weeks, month and years to go to the next level of his chosen pursuit.

FIFA: THE TEMPLATE FOR CORRUPT GOVERNMENTS

Last week the Swiss Police raided the world governing body of football, FIFA’s annual general meeting to arrest several official to process them for extradition to the US where they await corruption related charges.

The officials, fourteen at the time of writing these, will face charges thrown by an FBI investigation of corruption in the sport administration stretching over two decades.

A lot of ink has been spent on documenting the rot in the Zurich headquartered body not least of all the books “Foul: The Secret World of FIFA: Bribes, Vote Rigging and Ticket Scandals” by Andrew Jennings and “How They Stole The Game” by David Yallop.

What comes out in these books and is likely to get a lot of play if these officials cases go to trial, is how FIFA boss Sepp Blatter has run the organisation like a personal fiefdom.

Blatter, during his 17 year tenure has concentrated power in his own hands by isolating his rivals, shielded his cronies from unwanted scrutiny, dished out billions of dollars to sustain himself in power and looked the other way as the corruption became institutionalised in the body that runs the most popular sport in the world.

There is not enough page to list the litany of sins committed by Blatter and his cronies, but I like such stories because it shows one, corruption is not the sole preserve of the African or third world elite, two that it would not take place without the acquiesce of powerful external forces who, had they acted would have nipped the whole racket in the bud and finally that corruption has a basic framework on which it operates...

Using FIFA as the template here is a rough and ready guide to understanding why corruption happens and why it thrives.

1.       Narrow the lines of accountability

In the almost two decades of his rule Blatter has reduced decision making power to a small clique within the executive committee, which is the apex body of the game.  This small inner circle makes decisions on where the World Cup will be held every four years, pocketing millions of dollars from intending candidates. This racket culminated in Qatar, not known for its soccer on or off the pitch, winning the bid for the 2022 games and throwing up the uncomfortable proposition of the first winter World Cup, because it’s too hot to play in the sun of the Qatari desert in the middle of summer.

2.       Throw crumbs to the masses to ensure they remain onside

Whereas it is supposed to be a federation of the world football association the delegates are only good for their vote, which Blatter handily buys off by sponsoring dubious sport development projects,  for which local officials around the world are not held accountable. Any attempts by local authorities to look into their respective football associations books is followed by a threat of suspension for the country from world football from Zurich.

3.       Link up with other corrupt networks

Birds of a feather flock together but FIFA has gone one step further developing these corrupt networks as described above. Football associations the world over are the paragons of corruption, since they are untouchable by local authorities and Zurich lets them operate unmolested. This hands off approach is the repaid in votes for Blatter.

In addition because of how lucrative it is to be associated with FIFA events, especially the World Cup, even the world’s most respected brands have been forced to get their hands dirty to stay in Blatter’s good books.

4.       Bad things happen because good men keep quiet

But it’s not as if Blatter has taken us by surprise. This concentration of power and institutionalisation of corruption has been creeping on us slowly but surely. A few “good men” have spoken (it’s hard to remain clean when you have come into contact with FIFA’s evil vortex) and they have paid for it with banishment, ridicule and ruin. This has been enough to dissuade other men from coming forward with what they know.

5.       Control the purse strings

And obviously you have to control the purse strings. FIFA reports that they earned $5.7b in the last four year period leading up to last year’s World Cub. We will have to take their word for it. They do not disclose their books to the public. This money, or many multiples of what they have declared, is deployed to oil the machine and pad chosen official’s nest eggs.

Blatter has it good. He seats at the helm of a sport whose popularity grows with every match played, while he controls the ultimate power and is accountable to no one. If it were some other business it would have crumbled a long time ago.

FIFA has to be the tyrants’ dream scenario.

RWANDA, BURUNDI: A TEST CASE FOR DEMOCRACY

The killing of key opposition leader in Burundi served as an exclamation mark in an already turbulent situation in the small east African nation. Across the border however the opposition made a call for a lifting of presidential term limits in their own constitution.

With Pierre Nkurunzinza safely reinstalled in his seat after a failed coup attempt earlier this month, and the worst of the Burundi crisis seemingly behind them, despite continued protests in the street, opposition leader Zedi Feruzi was gunned on the street on the weekend.

No one has been arrested for the assassination but no one doubts that such an event further inflames affairs in Burundi. That Nkurunziza is determined to run for a controversial third term does not help matters.

Things couldn’t be more different in Rwanda. Dr Vincent Biruta leader of the Parti Social 

Democratic (PSD) called for the lifting of term limits. Biruta is also the natural resource minister of Rwanda. When we were still trying to digest this brilliant political manoeuvre, hundreds of rural Rwandans streamed into the capital Kigali and presented their petition to parliament calling for a constitutional amendment to lift presidential term limits.

With two million petitions parliament will now debate the issue for the next two months before deciding on whether to upset the status quo or not.

"The speed of developments in Rwanda has got our heads reeling and has observers of the country impressed by the political sleight of hand there...

Rwandan President Paul Kagame has always said he will respect the constitution but has also added that the fate of Rwanda will be determined by its citizens.

The term limits were adopted in various countries two decades ago, promoted as an answer to bad governments and as a way to achieve civil transfers of power. The opposers of term limits have argued that they shackle good leaders, a hard argument to rebut when the affected leaders still have the popular vote on their side.

Both cases provide some cause for head scratching for the champions of democracy.

On the one hand in Burundi there are “mass” demonstrations against Nkurunziza’s attempt at a third term, but he courts have ruled that he is within his rights to contest the coming election. Do you pander to the mob and compromise the institution building process – never mind that you suspect that judges may have been leaned on to rule favourably for NKurunziza? And if there is enough opposition surely an election will put paid to NKurunziza’s third term bid.

On the other hand in Rwanda there is no ambivalence in the constitution about term limits but there seems to be a groundswell of support for a lifting of these limits. So do you tinker with the constitution to cater for the political circumstances of the time or ignore the voice of the people and maintain that the constitution is inviolable.

"How the next few weeks play out will provide useful fodder for political thinkers...

It could very well be that Nkurunziza goes to the polls and his flattened to reflect the opposition crowds we saw on TV. Or that after two months of deliberation the Rwanda parliament dominated by the ruling Rwanda Patriotic Front (RPF) comes to the conclusion that term limits should be upheald and begin a process to replace President Paul Kagame.

Of course both outcomes seem unlikely but whatever the outcome precedents will be set that will inform the democratic process going forward.

It will not be the end of the world either way.