MAKERERE HAS REACHED THE CROSS ROADS

Last week the government shut down Makerere University following a strike by the campus' staff over pay arrears. The students also went on strike to protest the staff strike.

Times have really changed.Who would have thought the day would come when students would strike because they are not being taught.

"Jokes aside Makerere finds itself once again at a cross roads. At issue is the remuneration of the staff, further still, how the university should be funded. This question has been the source of previous impasses...

In hindsight those disputes were left unresolved, token increases were given with promises of better to come in the future.

Every kicking of the tin down the road, has brought us closer and closer to the realisation that the model on which we run our public universities has long passed its sell by date.

The model based on the UK public universities has not kept up with changing realities. The original universities were designed as  institutions intended to train the ruling elite. Higher education was never supposed to be a mass product but a means to cement class distinction especially in the industrial age.

But an explosion in school enrollment in lower levels meant university enrollment had to follow suit.Its one thing to teach primary school kids under trees and another to lay down the infrastructure for a functional university. And soon governments realised they could not bankroll this new academic invasion.

Uganda realised this at the beginning of the 90s with the introduction of private students, something of second class citizens then, but are now the dominant number in the university system.

The idea is that government would continue to support the universities and student fees would serve as a useful addition to the universties' resources.

Clearly it's time again to revisit the model.

"To come to a long term solution it has to be recognised that in the face of other pressing priorities we don't have the resources to fund quality university education on a scale that our development ambitions demand....

Secondly, that the vast majority of university students cannot pay the full tuition fees for a quality education.

Our options range from a closure of all public universities since we can't afford them, not as a crazy an option given the falling quality of our public universities output. Or on the other end of the pendulum is to privatise these universities, let businessmen charge full fees and those who can pay, pay and may the devil take the hindmost.

For a number of reasons, not least of all political, neither extreme is palatable. A solution somewhere in between is where the answer lies.

"The truth is with the embarrassment of wealth in the form of real estate and intellectual property, our public universities would not be beholden to government to the extent that they are today...

Our universities are not unlike our country, Uganda, asset rich but cash poor. What is preventing the universities from unlocking the cash is inadequate management.

The way our public universities choose it's management, based on seniority, is at the heart of the universities' problem.  Companies with asset bases the size of Makerere 's cannot rely on a recruitment policies that hands the keys to the vault to people who have neither owned or run a business enterprise successfully.

The defenders of the current system argue that running university is not like a business hence the way they recruit their management, but the facts do not bear out this urban myth.

Business is about leveraging land, human resource, capital and entrepreneurship to show a return. 

The more efficiently you do this the higher the return.How different is that from churning out quality graduates, if you chose the quantity and quality of your graduates as a measure?

"Our kneejerk reaction against private sector involvement is born of discredited propaganda and a push back by interest groups benefiting from the current unsustainable status quo....

Others argue that government has a responsibility to fund university education. There is no such law. However how government meets this unwritten obligation depends on the context in which we find ourselves.

There is a wider reason why public universities must succeed, and if that requires a greater role for the market so be it, and this is that university education can only be as good as what public universities offer.

If your public universities are shambolic then private sector need only be slightly better, which is not very good, to operate.

So clearly we need to hire more entrepreneurial managers for Makerere, who will be appraised on the quality and quantity of graduates and research the institution churns out.

Secondly the same management needs to be freed of any shackles to its ability to raise money and restructure and rationalise the once "Harvard of Africa".

For the rest of us, we need to shed our attachment to unworkable models. The truth is, if these public universities collapse under the weight of our expectations, because they were not given a chance to succeed, universities will revert to the old reality where university education was the preserve of a select few, who are not necessarily deserving....

LET IT: THE RENTAL MARKET WILL REGULATE ITSELF

A new law that will regulate landlord-tenant relationships is coming to parliament with some clauses which will have a negative impact on efforts to bridge our housing deficit.

The Landlord & Tenant Bill 2016 has some laudable clauses that regulate certain aspects of the relationship like house repairs, security deposits, liability for utility bills and eviction circumstances. These have been handled by the members in the relationship by ear but a more formal prescription will be useful.

However it has some clauses that, while clearly pandering to populist sentiment will do irreparable damage to the development of the sector.

There are four particular clauses that caught my eye. 

The first one was the provision that all rent shall be charged in shillings. Tenants have complained that charging in dollars makes it difficult to plan their expenditure or keep up with the fluctuating shilling. And that in circumstances like last year when the shilling shed as much as 40 percent of its value against the dollar rents will become unmanageable. It’s hard to ignore the pain of the tenant.

But the other side of the coin is the landlord’s side. For lack of long term affordable capital in this market it’s possible the landlord would have borrowed in hard currency where lending rates are in single digits unlike locally where mortgage rates are in double digits, and in order to hedge against those same fluctuations he passes on the exchange risk to the client.

"In a situation where landlords are restricted to charging in shillings you may very well see a slowdown in development, a subsequent shortage of rentable space and the dreaded rental increases we are hoping to prevent...

Secondly the law proposes that landlords should not demand for more than three months in advance. 

Currently landlords can ask for unlimited rent in advance but the figure has come down over the years to anything between six and three years. To legislate this period is wrong because like the first case we do not know how the land lord financed the project and his demands are in line with his repayment schedules.

And then what has got to be the craziest proposal is the one that seeks to cap rental increases annually to six percent. How they came up with six percent is not explained. In a year when inflation shoots to 30 percent and the shilling depreciates 40 percent – all recent events that have happened in this country, how does a landlord manage? A landlord should be allowed to respond to market forces promptly in order to make his investment viable. This amounts to a price cap and can only lead to bad things down the line.

And finally the provision that a rental increase should not be effected within 12 months of the last one. Once again what happens when the market or economy dictates otherwise?

It has been reported that Uganda has a deficit of quality housing of about eight million units with 2.3 million of these needed houses in the urban areas. The last thing you need is for non-market laws to come into play which would stifle current private sector efforts to bridge the deficit.

If landlords are charging in dollars, asking for six month or more in advance and raising rates at unfair intervals it speaks to the fact that it is still a sellers’ market. That the stock of housing is less than demand and therefore the owners of the properties can do what they want.

"One of the most visionary things the NRM did as regards the housing sector is to resist calls in the 1980s to control rent on property. By letting the market determine what is fair rent, the boom in construction was spawned that has led to thousands of rental units being built...

The housing situation was so bad that renting someone’s garage as living space was not uncommon. 

Imagine paying sh300,000 a month for nothing more than four walls – ventilation maybe optional!

The construction industry is one of those sectors with really multiplier effect through the economy, with the masons, materials and transporters locally sourced many people are happy when there is a construction boom. We want to keep those happy times going.

We need to let the industry grow largely unfettered, especially since government has shown a lack of capacity to build houses itself.  The natural progression is that house supply will match demand and all these practices of charging in dollars, asking for advances and unnecessary rent hikes will become a thing of the past.

What government needs to address is why the increase in the stock of housing is not matching the rising demand and to try and address this.

"To bring the cost of housing down government should consider underwriting the infrastructure into the residential areas – the roads, electricity lines, water and sewerage network. By some estimates these account for half the cost of development...

We also need to lower mortgage rates. The high rates again are a function of low supply of long term funding. Maybe it’s time government increased the mandatory rate of borrowing of workers towards their pensions and gratuity. The current five percent has been in pace for 30 years! With more long term money in their coffers banks maybe forced to lower lending rates. And not only prospective home owners but developers will benefit from the decrease.

In a nutshell what government should be doing is encouraging credible investors into the sector by improving the environment for real estate development and prices will take care of themselves not try to legislate into law things that are determined by the market.

This does not take much intelligence but the repercussions will set us back.

ICC NEVER REALLY HAD A CHANCE WITH AFRICA

South Africa has started the process of exiting the International Criminal Court (ICC). Its leaders argue that being part of the ICC compromises their role as a regional peace broker.

The Burundian parliament has voted to leave and Gambia became the latest country on the continent to declare its intent in the same direction. Gambia’s decision could prove an embarrassment to the ICC’s chief prosecutor Fatou Bensouda, a native of the small West African nation.

South Africa’s decision, which became official with their writing to the UN came as a surprise and the worry is that it may galvanise other African country’s to act out their own desires.

"One can say the momentum to leave the ICC on the continent begun with the refusal by the court to drop a case against Kenyan President Uhuru Kenyatta, for his alleged role in his country’s post-election violence a decade ago. The ICC’s adamant stance turned off previous supporters on the continent and has since been easily spun as a racist attempt to subjugate Africans...

This perception has not been allayed by the fact that nine out of the ten cases for crimes against humanity are against Africans. The appointment of Bensouda to replace the tenacious Moreno Ocampo has not helped matters much.

There is a lot wrong with Africa, not least of all how human and civil rights are trampled upon by the high and mighty without any fear of repercussions.

It helps that a better educated population, with a growing middle class is increasingly appreciating democracy or at least that people have certain rights and is forcing leaders around the continent to tamper their heavy handedness.

However the institutions that Africans would ideally turn to for justice are underfunded, understaffed and fit like a square peg in a round hole in a cultural context where the big man still reigns supreme.

The ICC’s case is not helped by the fact that it is essentially an institution, designed, funded and backed by the west, despite its veneer of international respectability. African leaders probably fell over themselves to sign onto the Rome Statute, which established the ICC, to keep in favour with a donor community that was tearing out its hair at the medieval bloodletting going on the continent while feeling powerless to stop it.

Not necessarily because they have any sympathy for us poor Africans, but more because insecurity was getting in the way of accessing valuable natural resources in the jungles of the Congo or the savannah of South Sudan or the river banks of Liberia.

"It is easy to make the case that foreign self-interest is pushing some of these otherwise noble initiatives, especially when the nine out of ten cases are African and while places like Iraq, Afghanistan and Libya lie in ruins with not a squeak out of the Hague...

Whether South Africa’s decision will trigger a mad rush for the exit by Africa, only time will tell but clearly its not difficult to mobilise against the court, as Kenya showed recently.

That being said we cannot sweep under the rag the wanton human rights abuses happening all around the continent.

The more sustainable solution is that our courts should be empowered to handle these cases themselves, a solution which would evoke sceptical tongue clicking around the continent.

Let it not be forgotten that we are not reinventing the wheel or that Africans have a particular penchant for brutality and savagery. European history is drenched in accounts of genocide and gratuitous violence that have only been tempered in recent years – at least in Europe,  by economic interconnectedness and military balance.

The good news is that Africa will get there one day, as our borders fall away and we begin to focus on mutual benefit as opposed to parochial interests. The bad news is that external interference may stall this natural progression.

Until that is sorted out the ICC may have to wait.

CRANE BANK AND WHAT IT SAYS ABOUT OUR ECONOMY

Last week the central bank took over Crane Bank. Bank of Uganda (BOU) said the bank was significantly undercapitalised and was putting its depositors’ money and the entire financial sector in danger.

Industry sources say all stops were pulled out to prevent Crane Bank’s eventual fate but they came to nought.

There is little else you can say about that story without making a bad situation worse, but if there was any doubt about the shakiness of this economy, the bank’s takeover should put these to rest.

It is true that the economy has become more sophisticated in the last 30 years. In 1986 coffee exports accounted for more than 50 percent of taxes and more than 80 percent of export receipts. Today coffee exports provide little revenue to the treasury and accounts for less than half our exports of goods and services.

It is also true that the economy has been growing consistently over the same period but this growth has been lopsided towards construction and services, with agriculture the biggest employer, growing at relative anaemic rates to the economy as a whole.

The net import of this is that the created wealth is being concentrated increasingly in to a few hands.

The national household survey carried out in 2013 showed that under two in every ten Ugandans or about 7.2 million Ugandans earn more than a million shillings a year or about sh80,000 a month. 

Think about that!

"Our ability to speak passable English, wheeze around in second hand cars and wear suits to work is but a thin veneer for an economy that is actually not very deep...

What this means is that all our thousands of businesses are scrambling for a small piece of a small pie. So when there is any stress in the economy – a slow down or disturbance the fall out is bound to felt by more people.

A few months ago when the debate about bailing out businesses struggling under the cloud of a underperforming economy were muted Ash Mukungu, formerly of the African Development Bank warned that the business failure will soon lead to bank failures. I thought he was hyperventilating.

And clearly our bureaucracy does not feel a sense of urgency around this subject. According to the finance ministry report for the first quarter of the financial year sh68b was budgeted for debt arrears but only sh28b was released.

The main cause of stress for our businessmen is the government not paying for supplies and services it has contracted. As at the last financial year this figure stood at sh1.3trillion. Other sources say however that even this figured cannot be nailed down.

So you have an economy that is barely trudging along and a government biting off more than you it can chew and you wonder whether Crane Bank’s woes are not just the tip of the iceberg.

One can expect that as a result of Crane Bank’s fate, it is the third largest bank by assets, there will be a slowdown in lending by mere virtue of the bank’s situation and as other managers make sure they are not haemorrhaging cash at a time when BOU is on the prowl. This does not help the economy’s growth prospects.

Clearly the need to return to the drawing board came yesterday, but today will do.

"We need to include more people into this miraculous economic growth we have been enjoying for the last three decades, if only so that businesses can stop depending on the small pool of Ugandans who earn more than a million shillings a year...

In the short term you focus on increasing agricultural productivity in a more systematic way than empty sloganeering. Invest in extension services so that our farmers can improve their practices. In the medium to longer term improve our health, education and other social services, its common sense that a better educated, healthier population will be more productive and earn more.

Secondly we need to take the burden of driving this economy off the backs of commercial banks. Commercial banks ideally should be financing going concerns not dominating the lending to startups, agriculture and development financing none of the latter do they do well. We need angel investors, venture capitalists, small business grants, trade financing and development financing.

Greater specialisation at these different levels will ensure better support for various sectors of the economy, more credit dished out and at lesser risk.

And finally there is no getting around it, we need to be more determined against corruption. Not only do the corrupt take money from the mouths of babes but they distort the business environment -- inflating asset prices and undercut genuine businessmen. But they also overturn the incentive system with people uninterested in innovation and focusing on being commission agents and rent seekers.

We need to be more interested in boosting the substance rather than shining the form of his economy. Crane Bank’s fate is our wake up call.

KCCA IS DAMNED IF IT DOES, DAMNED IF IT DOESN’T

On Wednesday the minister in charge of Kampala Beti Kamya issued a directive that all vendors be taken off the streets in the capital city.

The directive came after city traders threatened to evict the vendors themselves if government did nothing about them. City traders argue that the vendors constitute unfair competition and are driving them out of business.

The vendors do not pay taxes, rent or any city dues which allow them undercut the shopkeepers but as if that is not enough vendors, by congesting the pavements, often block paying customers from getting to the traders’ shops.

"From a purely economic perspective this is a difficult case to argue against and one can see why Kampala Capital City Authority (KCCA) too would be concerned; a contagion of business collapses in the city would not only single out the capital as place not to do business, but would also hit them where it hurts most, in the pocket as revenues from businesses collapse...

In addition the vendors can be an eye sore, litter the city and can even pose security risks.

The irony of it is that the street vendors probably have ambitions of taking out space in a shop to sell their wares or owning their own shops altogether one day. Their future ambitions would be scuttled if the street vendors entrenched themselves in business culture of the country.

Other countries have managed this by organising flee markets, outdoor markets organised every so often where mostly second hand wares are sold, but their main selling point is that customers can find bargains there.

We shouldn’t forget that street vendors are often good citizens who rather than turn to theft and burglary, forced against the wall they have decided to cobble together some capital, buy some goods and hit the street.

But KCCA have the force of the law behind them.

The challenge of course is that the vendor issue is not an entirely economic one.

The politics is murky as these things often are, but the vendors may represent a failure of government policy. That government is not creating a good enough enabling environment for job creation to at least match the available job seekers. This of course poses an opportunity for political rivals who would side with vendors as a way of scoring political points.

So on one side you would have opposition politicians agitating to keep them on the street while government would rather sweep them away under some long forgotten carpet.

Sadly once the vendor issue is shifted away from the economics and into the realm of politics, the vendors invariably suffer.

We tend to treat the symptom – deal with the vendor rather than the cause of why they need to seek a livelihood on the streets.

"In other economies these vendors, who constitute surplus labour would be snapped up by industry. Unfortunately for us our attempts at industrialisation have not kept pace with the number of graduates we are churning out annually at all levels of education....

So the question has to be why isn’t big industry not setting up in Uganda? For one they owe us nothing. Show them that we can be a viable proposition and they will beat a path to our door.

We have a huge regional market, but we are a high cost production center compared to our neighbours; We have a huge labour force, but their skills are inadequate at best and non-existent at worst. We boast of high returns on investment for businessmen who set up shop here but there are numerous hurdles – access to capital, land acquisition, qualified personnel and corruption to dodge before we can collect on the promise of high returns.

In short we are too hard to business with and it does not help that we do not have enough local business to play as hand holders for bigger concerns coming into the region.

So yes the vendors may have been swept off the street but its only a matter of time and the fundamental issues which remain unaddressed will see them back on the street in a little while.

WHAT IF INDEPENDENCE HAD HAPPENED DIFFERENTLY?

Last week New Vision to commemorate Independence Day had a 40-page plus supplement of stories and accounts surrounding the events.

The serialisation of Phares Mutibwa’s book “Uganda since Independence: A story of unfulfilled hopes” was an eye opener whose excerpts showed that the political manoeuvres by the key political actors sent against the background of a country divided by tribe and religion meant the Independence project got off to a shaky start at best.

"But even beyond that the country had serious deficiencies in social and physical infrastructure that meant the new government would, even with every citizen behind it, struggle to deliver the promise of a better Uganda for its citizens quickly enough to forestall any unrest...

But to go back even further the colonial project was not intended to empower Ugandans to take over the reins of power sometime in the future. Its main objective was extractive, to use our raw materials to stock Britain’s industry. With that in mind the British administration wold build only as many roads, railway lines, school only so many people as was necessary to execute the project.

It is unlikely if they had stayed any longer this state of affairs wold have changed.  One of the major reasons we got independence when we did was because Europe was reeling from the aftermath of the Second World War and was all but bankrupt. It did not have the resources to continue the political project in the shape and form it had since the beginning of the 20^th century.

In addition even those colonial powers that sought to hung on struggled once the momentum for independence was set in motion beginning with Sudan’s independence in 1956.

As a bare minimum a better educated population – only 700 students graduated from O-level in 1960, may have tempered post-independence tensions. To put this in perspective if we were graduating O-Level students at the same rate today we would only have 3,600 graduating to go to A-level. Today there at least 1.3 million students in O-Level and even these are not enough.

Unfortunately it takes at least 13 years of schooling to produce a clerk and while the post-independence government went on a tear in building schools for political purposes, white administrators had to be replaced by indigenous Ugandans immediately, often regardless of competence.

A long serving bureaucrat has suggested that it’s these capacity inadequacies that triggered the continent’s endemic of official corruption. He argued that we blame the Amin era for our descent into darkness but he pointed out that the same is happening in much more peaceful Kenya and Tanzania, which inherited similar if not worse human resource deficiencies.

Our physical infrastructure was just as lacking. The argument would have been that with adequate infrastructure we could have imported manpower as our own learned the ropes and we would be fine. 

To show how far behind we are comparisons with South Korea, which it is sometimes suggested we were at the same level of development in 1960, would be instructive.

"In 1960 the stock of South Korea’s road network stood at 27,000 km in Uganda 56 years later our road network stands at about 20,000 km. In the 1960s South Korea consumed about 1,500Gwh of electricity we currently only just double that number. Currently South Korea consumes about 5000 Gwh of power a year....

And to crown it all we had serious leadership gaps at independence. Our leaders really had no clue what they were getting themselves in to, did not have the tools or predisposition to run a modern state and were clearly out of their depth.

It did not help that the issue of Buganda’s status at the heart of an independent Uganda remained unresolved and sat like a ticking time bomb at the center of our collective conscious.

In hindsight its clear we really did not have a chance. The deck was so stacked against us as to guarantee failure. It was a matter of when not if the implosion would come.

WHAT IT WOULD TAKE TO MAKE A NATIONAL AIRLINE WORK

If there was any doubt that we are going ahead with a state airline President Yoweri Museveni’s word at the Independence Day celebration last week put them to rest.

My own opposition to the airline revolves around two questions.

What is it that the state airline would do for us that the existing players cannot do for us? Supporters of the project have never come up with a convincing answer for this except for a few vague mumblings about national pride.

"And secondly the issue of opportunity cost. That in spending the hundreds of millions of dollars required to make the project halfway viable, do we realise we will be denying more pressing needs in education, health and infrastructure the badly needed resources they need to deliver adequate service?...

The proponents don t seem to have a comeback for this one. Some have hazarded that we waste money on parliament and in corruption so why not on an airline.

That’s when I switch to another whatsapp conversation.

But since it is a fait accompli what would we really need to do to make this adventure work?

Project supporters point to the increased number flying into Entebbe – 1.5m last year compared to about 350,000 when Uganda Airlines folded, as a sign there is enough business for one more airline. 

The logic of that argument is lost on me. So the extra passengers will stop flying the time tested Emirates, Etihad, KLM, SN Brussels and even Kenya Airways to jump onto the untested new airline?

That being said it should be noted that these airlines feed into their respective hubs where they have onward flights to other destinations. Industry players estimate that only about 15 percent of travellers out of Entebbe are end-end users. This means for example that there are very few users who fly and stop in Addis Ababa or Dubai or Amsterdam or Nairobi for that matter. Most catch onward flights to elsewhere. Who would want to fly to a destination and have to change airlines? It’s a headache we would all rather avoid. Put that way it further narrows the numbers the new airline will be competing for to about 250,000 passengers a year.

Industry experts remember that the reason the initial Uganda Airlines collapsed was because it was undercapitalised and couldn’t take advantage of the lack of competition, then relative to now. Today the competition is much stiffer, with upwards of 15 airlines flying in and out of Entebbe which by extension would mean we would need more money to start-up the airline and keep it afloat.

"They point out that start-up airlines work on a business plan which sees revenues matching expenses after between 18 to 24 months, with break even coming much further down the line. RwandaAir started in 2002 and is still waiting to break even...

What can be expected is that there will be a long period of loss making, which losses, ongoing costs of operations and maintenance and continuous investment will have to be covered by the government.

To buy a brand new Boeing 737, the smallest of the company’s line, will set us back anything from $50 (Sh165b) to $90m (sh300b). To be competitive we will need several so already we can expect that on planes alone we will shell out at least $100m.

We could lease planes but industry experts are against this option as leasing costs will be a loadstone around the airlines neck especially when business is low. But assuming we used the leasing option to lease the same Boeing 737 with crew would cost us about $2500 an hour or $21.9m annually as this figure is regardless of whether the plane is flying or not.

And this is just the planes, we haven’t started talking about fuel, landing fees, staff costs, marketing and branding.

"To cut a long story short industry experts say for the airline to have half a chance of survival the government wold have to buy the planes and to buy back ground handling services from ENHAS....

One of the reasons for Uganda Airlines collapse was that the main cash cow of its operations, ground handling was hived off and sold to private operators. Observers say that a one off sale may mean at least $100m pay-out to the ENHAS owners given their annual revenues estimated in the millions of dollars. With more than 26,000 flights in and out of Entebbe annually and the cost of handling the smallest plane at $500, these cash flows would go a long way to easing the losses of the nascent airline.

Given this out lay one can expect that government would have to indulge in some predatory behaviour favouring the new airline over other airlines. This wouldn’t be bad if quality standards are what passengers have been used to but the flip side is that other airlines may have to start rethinking their investments in Uganda much to the discomfort of the passengers.

The key of course is whether the government will have the stomach to keep pouring money into what can develop quickly into a financial blackhole, as they wait for it to become profitable.