HOW TO GET MORE OF THE ECONOMY IN LOCAL HANDS

Over the last thirty years the government’s adoption of liberalised economic policy has resuscitated an economy that was all but buried.

The key pillars of the shift in economic thinking were the privatisation of parastatals, the liberalisation of produce marketing and foreign exchange trading and removal of all price controls.

The truth be told, Uganda did not adopt these donor prescriptions willingly. The reality of empty coffers and a gutted productive sector, necessitated the shift that would have been political suicide for a new government trying to find its feet.

"Resistance to the changes were based on the fear that the “commanding heights of the economy” would be taken over by foreigners, that the shift would be painful and drawn out, and that it wold make an already poor foreign exchange situation worse...

As it turned out all these fears came to pass.

Today the biggest companies in Uganda, easily nine in ten are foreign owned; it is true that we are still working through the repercussions of the imposed austerity measures. While we see more and more repatriation of dividends by foreign companies, we are also seeing the revival of the export sector, growing income from tourism and an explosion in remittances from Ugandans living abroad – at last count this was about $1.2b (shs4.3trillion) or about four times the annual coffee receipts.

However the realisation has been growing for a while now that this growth – we averaged above five percent per annum over the last three decades, fuelled by donor money is not being felt across the length and breadth of the population and therefore it must be broken or worse fictitious.

It is not difficult to see why this has been so.

Most of the growth during the period has been in the services, construction and industrial sectors which account for less than a third of all Ugandan workers. In agriculture where at least seven in every ten Ugandans derive a living the story has not been as rosy with growth stubbornly in single digits through the period.

The logic is simple, that the biggest beneficiaries of the NRM economic boom have been mainly the urban elite. This group has seen their income jump in leaps and bounds, as the service and industrial sectors have found their feet...

However this buttered minority, while they have had it good, own very little of the wealth generating assets – the businesses and factories, that have been dragging this economy along by the boot straps.

So their affluence while not illusory, is transient and can be scuttled by the slightest distress to the economy.

Seduced by the easy picking of the aid fuelled growth they have chosen to mostly sock their money in real estate rather than the productive sectors of the economy – agriculture and industry.

This is not surprising as building an agricultural or industrial enterprise requires disciplined and diligent work and sacrifice over years, even decades.

While they have argued that the main impediment to going into business was the high lending rates that have been a feature of the last three decades, the main challenge is actually a lack of organisation.

Over the last few years as economic growth has slowed, a hunkering for the days of the state enterprise is beginning to rear its ugly head. Proponents of this solution to what ails our economy say that this will help create jobs and retain more of our hard earned currency.

They argue that profit should not be an end and that a loss making enterprises – as all of them will inevitably be, will make up for this with jobs and services. When you ask them who will pay for the losses; Point out that these will mean cuts to health, education and infrastructure to plug the holes, which would mean poverty for the majority, they shrug and continue with their spluttering ranting.

They clearly did not learn or do not know the reasons, that drove the previous parastatals into the ground.

There is no doubt that a robust, vibrant local capital class is important, even critical for this country going forward, the question how to seed, nurture and grow it.

"Idi Amin thought he had the solution. He bundled off the biggest portion of Uganda’s business class, gifted his cronies their confiscated assets and hoped that with this single stroke he would have resolved the issue. The failure of these indigenous businessman, totally obliterated 40 years later, was not because they were not businessmen, conscientious workers or even intelligent, but there is a process to growing a business class that cannot be shortcut by populism...

You do not promote a P1 kid to P7 because you want him to graduate faster and start making money for the home.

So what do we need to do?

We need to get it into our heads that the journey is long and success is not guaranteed. That government hand outs, while they will put money in a connected individuals pockets instantaneously, will not build us the business class we want, no, the business class we need, to take this country to the next level.

And most importantly that our businessmen need to get more organised – in their businesses and among themselves, as a solution to the problems of high interest rates, “unfair” competition from abroad and to break into regional and foreign markets.

Happy NRM day!!!

IN 2018 LET US ADOPT THE RELIGION OF COMPOUNDING

It’s that time of the year either by discipline or to keep up with the Jones, we need to make some resolutions.

Despite popular opinion a person who makes a resolution in January and gives up on it in February is better off than a person who doesn’t make a resolution at all.

One reason people give up on their resolutions is because the completion is supposed to happen at some distant date – 31^st December.  How about we change that?

Never trust the silver bullet, the one that will solve all your problems. However there is one that might do a world of good if we slotted it in the chamber.

"Albert Einstein called it the eighth wonder of the world. It is what prompted Bill Gates to pronounce that we overestimate what we can achieve in a year and underestimate what we can do in ten years. And it is the realisation that it is not will power that will help you achieve future goals but habit...

Yes, will power is required to get started but once you establish a routine habit takes over and you often surprise yourself when you achieve or even surpass your initial goals.

Improvements in our lives assume that growth has happened. For growth to happen there has to be input. Input of time. Input of knowledge. Input of effort. Input of money. Take your pick.

V_F = V_I[1-R]^T

That is the formula for compounding.

But for the layman the rule of 72 will suffice to illustrate the power of compounding.

The rule of 72 says if you have a rate of increase say 10 percent, divide 72 by the number, the answer will be how long it takes to double what the rate of increase is being applied to.

So for instance Uganda’s population is growing at about three percent annually. When you divide 72 by three you get 24 years, the time it will take for us to go from the current 40 to 80 million citizens. 

Or the economy of Uganda is growing by about six percent a year over the last three decades, divide 72 by that figure and it shows the economy will double in the next 12 years assuming we continue growing at the same rate. 

If NSSF continues paying double digit interest on your savings – say 10 percent a year, it will take just about seven years for your savings to double, assuming you never added any more savings during the period.

So assuming we need our business to double revenues by December 31^st all we would need to do is divide 72 by 12 ( six percent) to determine what rate our revenues need to grow a month or divide by 52 (1.4 percent) to  determine the weekly increase or even 365 to determine the daily increase (0.2 percent).

Here are a few things we can compound in the New Year.

1.       Reading

Imagine if we commit to waking up 30 minutes earlier than we have and read for thirty minutes a day. That would mean 3.5 hours of reading a week, 14 hours a month and 168 hours a year.

But that is all linear progression.

To benefit from the compounding choose a subject – geography, investing, anatomy, any subject you want to understand and the benefits begin to compound. With every new reading you will be building on prior knowledge, this will deepen your expertise in the subject. This important because eth experts get paid better.

2.       Saving

Let’s commit to saving dollar a day. At the current exchange rate that would be sh3680. At the end of a week you will have sh25,760, a month sh103,040 and at the end of the year sh1,236,480.

To let compounding come into play, if you put your money in a savings account at say three percent a year you could double this money in 12 years. But if you keep with the formula maybe even increase to saving two dollars a day in 12 years there will be a lot more money than we are talking about now.

3.       Investing

I read an interesting article a few weeks ago in our Harvest Money pull-out about a man who had grown his chicken population to hundreds from an initial group of under 10 birds. The science of breeding not withstanding this compounding.

Or imagine you plant a tree a day for a year you will just about cover an acre of land using a 3 by 3 metre spacing. At sh2000 a seedling with an expectation of getting sh20,000 a tree in 10 - 15 years, you could cash out sh9m or a compound of 25 percent annually. It could be better or worse.

The point is let us break up our goals in to bite size portions that we can start executing, create the habit and voila!

IT’S GRADUATION SEASON

Thousands of young men and women have been and will be, over the next few weeks, graduating from one or the other university in the land.

Graduation is the culmination of years of sacrifice (often times we would rather have been playing), pain (corporal punishment is still alive and real) and tears (invoked by the first two but also by exam failure, puppy love gone sour and everything in between).

It is also the time when, whether all that hard work was worth it.

Not to rain on any ones parade here are some hard truths about the real world our graduates will find themselves flung out of the gates of university on to.

1.       Your degree means nothing

I lie. But hear me out.

Our current education system is a carryover from industrial age Europe and is designed to churn out automatons to work in factories. Seeing as we are not yet an industrial nation there is a place for the education you have amassed. However the suggestion is that we may leap frog this industrialisation thing altogether, which would be a worry for the tens of thousands filing out of campus this month.

With technological advances we do not need all that labour, to put a bolt on a screw all day long for instance.

What this means is that school is not yet out. The biggest lesson from all those years in school is that you now know how to learn. To be a winner in a world of fast change, you have to able to learn faster and faster, discard old perspectives and even dare to reinvent oneself entirely – scientist becoming writers and artists becoming accountants.

2.       Hunger, load shedding and the midnight cold will not kill you

It was a blast while it lasted. In the real world you can’t party till the morning and appear blurry eyed for an eight o’clock. You can’t just reach into the fridge and pull out a soda unless you put it there yourself. And if it rains turning over in your bed to catch a few more winks is not an option.

In short you have to grow up. And grow up fast.

Going without a meal because your salary can’t take you through the month will not kill you. Load shedding – or running out of yaka, is not the end of the world. And enduring the biting cold of a night shift does not make you a lesser man.

In fact the sooner you experience all this the better for you. There is nothing as pathetic as learning these lessons in your middle age.

3.       Humility will be your best ally

You might have been the big man on campus, the guild president or the sports captain. Leave all that at the gate. Humility will be your biggest ally in manoeuvring through life from here on. You might know more than the boss, speak better English than the traffic policeman or even smell better than the taxi tout but it will serve little good to point it out. There are some battles you will do well to pass on.

Humility will help in keeping your eye on the long term and not get distracted by the rabbits on the path of life.

4.       The consequences of your actions will live with you forever

Your transgressions can no longer be overcome with a teary outburst and feigned apology. Your actions have real consequences that will live with you for a life time. Staying on the straight and narrow is the best percentage play. Aim for sustainability over the one off pleasurable experience; accumulate experience rather than seek the elusive deal of a life time; treasure the quality rather than hanker after quantity in your relationships. And have a higher calling than just your egotistical desires to steer you on.

5.       Amidst all this you must keep hope alive

Many times, hopefully only sometimes, life is going to come at you from all angles, throwing you challenge after challenge and it would really be bad form, not to mention bad manners, to go wailing to your mummy every time this happens.

You are young and alive. Going on probability you are going to live a long life – well at least until you are 59 (the national life expectancy), it is not the time to give up.

Through it all keep hope alive. Hang on to it like your life depends on it, because it does.

Otherwise congratulations to you all and may you come out the other side with a smile on your face and a spring in your step!

LEAVING A BITTER TASTE IN THE SUGAR INDUSTRY’S MOUTH

In recent days there has been talk of there being a shortage of sugar in the market that necessitated the importation of sugar tax free to alleviate the shortage and force prices down.

Currently sugar retail prices are hovering at around sh5000 a kg.

The claims first came to light in a dubious press report which claimed government had allowed the importation of the tax free sugar. Trade and industry minister Amelia Kyambadde refuted the claims and the sugar industry came out to deny that they had run out of sugar.

"Word on the grapevine is that the people pushing this story and hoping to force government’s hand have already brought the sugar in and set to start churning it out to the unsuspecting masses ahead of the festive season...

This would be just another story were it not for the fact that the sugar industry is the biggest employer in this economy, sup ports the government not only through paying taxes but also in creating infrastructure and providing social services in the places it operates.

A collapse of this industry, which is what would happen if we allowed the importation of cheap sugar from abroad, would have a ripple effect through the rural economies of eastern and western Uganda.

Is this being alarmist? 

As a recently as a decade or two ago Mumia Sugar in Kenya was crushing 10,000 tons a day, employing thousands directly and indirectly and supporting a supply chain that stretched across the region. However a connected elite, that the Kenyan press resorted to calling the sugar barons, not only helped bring it to its knees but also won themselves concessions to bring in tons of imported sugar hammering the final nail in Kenya’s sugar industry.

Mumias is now down to crushing 1,000 tons a day on account of mismanagement but also a gutting of it’s out grower farmer scheme.

This last point is important because in Uganda we are seeing the same happening and given the Kenyan precedence it’s not a stretch to foresee the collapse of the Uganda sugar industry.

And when that happens the blame will lie squarely with the trade ministry.

For starters they have licensed 23 sugar companies in the last few years, 13 of which are now operational.

In a well regulated industry licensing of sugar companies ensures that they do not feed off each other’s plantations, which mean there should be a minimum distance between operations to ensure this.

As it is now sugar companies are mushrooming in eastern Uganda around the more established Kakira Sugar Works and Sugar Corporation of Uganda Ltd (SCOUL). Their intention is clear, to feed off the two giants out grower networks, without suffering the investment to build their own.

One indicator that this is happening is that for the 13 mills to be sustained today, crushing about 3,000 tons of cane a day the land under sugar cane would have to rise to 214,500 hectares. Currently the land under sugar cane in Uganda is about 120,000 hectares.

The biggest expense in the sugar industry in Uganda is the building and sustaining the nuclear plantation and the out grower networks.

There is a proposed sugar policy that has been seating on the shelf for at least a decade which prescribes that to set up a sugar milling operation one must 500 hectares of plantation and not be within a radius of 25km of an existing operation.

Despite the pleadings of industry players government has been dragging its feet on putting these rules in place.

"As a result of the cannibalism within the sugar industry the older players who were supporting outgrower farmers are scaling back their support which has resulted in production not growing to expected levels with the 13 players not producing as much sugar as the big three were producing last year...

The correct thing to do wold be to operationalize the sugar policy as a basic framework on how to guide the industry.

Mauritius, trailblazers in sugar production worked this out at least a decade ago. IN response to the World Trade Organisation (WTO) rules that prohibited preferential treatment between nations they have had to rationalise their sugar industry, consolidating from the more than 20 sugar plants in 2006 to the current four.

This has allowed them scale to not only produce more refined sugar but also to produce power, industrial alcohol and additives for the construction industry.

The current confusion in the industry overseen by the trade ministry will lead to the eventual collapse of the sector and the rise of powerful sugar import cartels which will frustrate any revival of the industry.

This is unfortunate too, since the same ministry is spearheading the Buy Uganda, Build Uganda (BUBU) initiative.

NSENENE AND THE PUSH FOR A MIDDLE INCOME

The Nsenene (grasshopper) season is in full flight (forgive the pun).

I read fantastic stories last week of how sacks of the insect are criss crossing the nation. The major supply areas seem to be the central region, where in a given night you may see contraptions made of iron sheets, drums and high intensity light being used to trap grasshoppers.

Friends of mine who have been following the market, say that a few weeks ago as the season was just getting started a tumpeco (half-liter mug) of nsenene was going for sh20,000! And a sack of nsenene was selling for up to sh500,000. She thinks the season has peaked as the same quantities are now going for sh3,000 and sh20,000.

The snacky treat is prepared by stripping it of wings and legs and frying it in its own oils.  I am told one can add tomatoes and even garlic to taste.

There are two nsenene seasons around April and November, the latter being the major season.

So if one got to thinking, what would it take to rare nsenene and therefore ensure a year around supply? Would the market demand fall off because as they say familiarity breeds contempt? Maybe we can export the treat, what would it cost to break into those foreign markets?

That last lesson is key to our quest for transformation of the economy.

It is not a secret but to take our economy to the next level – surpass the $1000 per capita magic number, we need to export stuff, the higher up the value chain they are the better.

"As it is now total world trade is estimated at $24trillion shared between goods and services $18.5trillion and $5trillion respectively. Drilling down further of the goods traded $13trillion were manufactured goods, $3trillion natural resources and $2trillion agricultural products....

The low proportion of the global figure assigned to agriculture explains why the continent accounts for less than $5 in every $100 dollar of world trade and therefore why poverty stalks us.

Beyond doubling or tripling the number of bags of coffee we export a year, in an increasingly competitive market – Vietnam now offloads four times the amount of robusta coffee we do onto the world markets, the attendant increase in land under the crop may be hard to sustain.

Maybe when we attain those volumes we may be able to seriously consider adding value to our coffee and grit our teeth to try and break into the processed coffee market, already in the stranglehold of non-coffee producers from Europe and the US. We will grind our teeth to the gum before we can even cause a dent in that market.

Same maybe said for our tea, cotton and even sugar.

The sensible thing to do would be to squeeze ourselves into the trade in manufactured goods. This may not be as daunting a prospect as it may have been in the last century.

No one makes all the components of all they produce any more. For instance Apple has at least a hundred suppliers mostly in South East Asia but also in Israel, Ireland, Mexico, Austria and the US of course.

The same can be said for Mercedes Benz or Sony or Boeing.

The trick to inserting ourselves in these value chains would be a productive workforce, and most especially cost effective, reliable and efficient infrastructure.

"You can imagine the coordination of a global supply chain needs a high level of efficiency, especially since manufacturers don’t want to spend more than what is absolutely necessary on storage. They have taken Just in Time (JIT) delivery – where suppliers are integrated in the manufacturing process to the point that they only deliver when a component is needed, to another level....

It therefore makes sense for us to be seeking to push our power and transport costs down, necessary if we are to have half a chance of inserting ourselves in these multi-billion dollar networks.

Companies in South East Asia are doing a rip roaring business delivering switches to Apple or seat belts to Nissan or door handles to IKEA or valves to GE.

To illustrate when Apple launched its iPhone 8 it sold about 10 million units in the first week, imagine if each screen costs $10 and one supplier had the whole deal it would have pulled down $100m (sh300b)! in that first week.

It has been true for a long time. To continue to sell raw commodities to the world market is a losing strategy.

"We have no choice but to go up the value chain. However the markets are not open for us to just walk in. We need to prepare for a fight like we have not seen not only for trying to add value to our traditional commodity exports but also to break into the value chains of the world where the real money is being made.

For starters we need to stop working as if we exist in silos. Power generation is not only the business of the energy ministry but of the manufacturers, tourism industry, education and health sectors. As is the Standard Gauge Railway or the oil roads or the valley dams or fishing issues on our lakes.

Back to our nsenene.

While it may serve to provide seasonal income for some nifty grasshopper trappers it is unlikely to help vault the country into middle income status. If the foreign markets are our target a taste for Nsenene is not universal – some even gag at the idea of eating it.

A SHILLING SAVED IS A SHILLING MADE

Several events in recent days have served to remind us of government’s wastefulness and how through rationalisation of its operations we can stretch our tax shilling much further than we currently do or think possible.

The incidents in no particular order, started with the strike of the medical workers that was suspended a week or so ago. The doctors argued that they were working under terrible conditions and being paid less than they deserve, given the important role the play in the country against the millions being thrown at non-core staff in other government agencies.

The doctors laid down their stethoscopes for about three weeks saying they would not go back to work if their pay was not increased, in some cases by a factor of ten. The public gritted their teeth through the strike. We all think they should get a better deal.

Related to that, state health minster Sarah Opendi told parliament this week that the doctors will be catered for in an impending comprehensive review of public service workers terms of service in which one trillion shillings has been earmarked for pay enhancement.

She didn’t go into the details but if split equally among all 300,000-odd public servants this comes to about sh3.2m improvement in annual pay.

And then on Wednesday, the same day that the minister was at parliament, the Internal Security Organisation (ISO) released their report in which they had done a survey of government expenditures. A report commissioned by the president to look into the waste and duplicity of activities by government and its agencies.

"The ISO report highlighted several things key among which was the way public servants have enhanced their pay through allowances, consultancies to government and allowances of every nature...

Reading between the lines the report highlighted the need for a restructuring of government. The last such restructuring happened in 1992.

The restructuring is bound to find that public servants are all not lifting their weight, some should have long retired or many are misplaced and hence are inefficient and ineffective in their current position.

US billionaire investor Warren Buffet says if you find yourself in a sinking boat energy would be better spent changing boats than trying to bail out water from the doomed craft.

There really is no reason given the exponential growth in our revenues over the last three decades that public servants are not paid better so that we can bury for good the  idea that as long as government pretends to pay they too shall pretend to work.

We are not even talking about matching public sector salary scales.

Of course government will argue about that they are investing on major infrastructure projects, which no one doubts are critical to our development ambitions, but one can also argue that public servants cannot be held hostage to government’s planning inadequacies. Somebody should have foreseen that down the road there was going to be a fallout and worked towards mitigating it.

Of course we are always wiser in hindsight but that public service pay was a ticking time bomb has been common knowledge for years.

"I think what galls the most for the public servants is how they do the brunt of the heavy lifting only to see less deserving people – rent seekers, praise singers and the corrupt, skimming off the cream...

From the events above it is clear – if we needed reminding, that public servants need to be paid better, two, that a rationalisation of the public service would go some way to finding the extra money needed to cause improvement and three, that we have waited too long to get on with it.

There will be pain no doubt up and down the line but if done properly it will be for the greater good of society.

As if we needed to emphasise it more all the strategies, the Vision 2020, 2040, 3000 …. and operational manuals will count for nothing if the right people are not in place to implement them. This is important because the public service is a key driver of any plans or development we may be dreaming of.

If they don’t work or can’t work or won’t work our best laid plans will be pipe dreams at best and delusional gymnastics at worst.

TAKING A LEAF FROM MAURITIUS

Tucked off the east coast of Madagascar is the sunny little island nation of Mauritius.

Insulated from the continent’s chaos by a 4 hour flight from Johannesburg, Mauritius has achieved the transformation of their economy that African nations can only dream about starting with much less natural endowment than most countries on the continent.

From a standing start in 1968 the country has managed to not only grow its economy almost 20-fold to its current $12.2b in 2016 according to the World Bank. In 1976 – the earliest year for which the World Bank has numbers, the country’s economy was listed at about $700m.

This may be half of Uganda’s economy but it caters for a population of 1.3m or about 30 times smaller than our own. This is why the per capita GDP of the island nation is at $9,627. In 1976 Mauritius per capita GDP stood at $779 about where we are currently at $779.

During a recent study tour sponsored by UNDP, to investigate how Mauritius has made it work. 

Following meetings with officials at government agencies and the private sector this mission came with a few ideas about how they have achieved this under-reported miracle. Below are few but n ot all the findings.

1.      The independence constitution is not a copy and paste of the Westminster model.

Mauritius was colonised by first the Dutch and then the French and eventually the British. At the time of Independence while the island population was divided mainly between the landowners and the labourers, they negotiated a constitution over 23 years which took into account the country’s unique immigrant population and a desire to equitably share the future spoils of development.

"As a result while they retained the parliamentary system with an executive prime minister and titular head of state and have provisions for coalition governments they also included seats for underrepresented minorities who are nominated through A Best Loser System. They have also retained clear separation of powers between the executive and the arms of government...

The net result of this is while they have had 11 elections and seven changes of governments since 1968 they have not suffered the upheavals that characterised mainland Africa’s population over the last half century.

2.     There is strong partnership between the public and private sectors

But Mauritius development could not have been underpinned by the good nature of its key players over the years. Pragmatism and real politick are more to blame.

The economy is dominated by handful of families who have lived on the island for decades. These however are the minority, mostly of French origin. The majority population are those of Indian descent who then drive the politics. They have a symbiotic relationship with each providing a counterweight to the other’s power.

"As a result the diversification and transformation of the economy from initially a mono-crop economy, where sugar accounted for easily 70 percent of the GDP to the current situation where they have diversified into textiles, light industry, tourism and financial services, and where sugar now accounts for less than one percent of GDP...

The development has been driven through negotiation between the private and the public sector, the public sector’s interest being to create jobs for its people and the business community’s desire to continue to remain viable.

This partnership was important because with a population that has remained steady around a million, a population that cannot support huge industry, support was needed to break into foreign markets and attract investment to the island.

More investment meant more jobs for the islanders – officials claimed there was virtually full employment in Mauritius today, but just as important the revenues from increased economic activity could be used to finance an ambitious welfare system like no other on the continent. Education and health services are free, and in addition the state provides a host of social benefits that range from basic pension, unemployment benefits and benefits for single parents.

3.     

  The welfare state is sacrosanct

Despite the huge cost the country’s welfare system places on government revenues, it is now recognised as a right so much so that when Mauritius needed to undergo some World Bank/IMF sponsored structural adjustment in the 1980s the continuation of the system was non-negotiable.

"The island’s elite recognise the system is necessary to help smooth inequalities in income that may exist and also to forestall social instability that may result from these. Of course the welfare system is also a way for government to support industry by ensuring continuous demand for their products...

It is clear that the partnership between business and public sectors is critical. If your bureaucrats look on the private sector with suspicion or worse as a source of bribes. And if the private sector just the technocrats as leeches and out of step with times and a happy middle ground is not found, its near impossible for development to happen, even if a country shows improving growth every year.

And it is this continuous give and take between the business and government and politicians that can lead to improved welfare for the general population.

However if the power relationship is lopsided as it is in most Africa, with the government lording it over the business community and they in turn looking to subvert government initiatives at every turn then the result is the chaos, stagnation and even regression of the African continent over the last half century.