NEWS -- UBA UGANDA SETS SIGHTS ON DOMINATION

KAMPALA – The United Bank for Africa (UBA) is targeting Uganda’s youth population and closing large ticket transactions as part of plans to dominate the Uganda banking industry, officials have said.

“We plan to introduce new products and services that will transform the industry and UBA. We are confident that these developments and the customer at the center of it all. We shall achieve our goal of market dominance,” the Uganda unit’s managing director Johnson Agoreyo said during a recent press engagement in Kampala.

The Nigerian based bank across its offering will focus on delivering excellent customer performance and its retail segments will be targeting its youthful customers with its mobile and agency banking, as well the UBA Facebook assistant, Leo, a first for Uganda.

In the whole sale space the pan African bank will be leveraging its $12b asset base to finance projects in infrastructure, agriculture, oil and gas. To that end it will be looking to strike strategic partnerships with key ministries and departments.

UBA opened shop in Uganda in 2008 and since then has opened 11 branches and offers a wide range of projects in the wholesale, retail and digital space.

ENDS

SAFARICOM AND PEEK INTO THE FUTURE

Last week Kenyan telecom company Safaricom, released its results for 2017. The results were met with glee by the shareholders, head shaking by competitors and head scratching by regulators and officialdom in Kenya and much further afield.

For the shareholders the company reported revenues of Kshs212b (about sh6.5trillion) up a respectable nine percent from last year’s Kshs195b. As a result they will paying out a shilling a share in dividends. More impressive than it looks especially for people who bought the share at its initial public offer price of Kshs5 or even better when the share hit rock bottom at Kshs3.

For the competitors they may have to be content battling for second.

"Safaricom controls about 72 percent of the market with 28 million customers, a figure that grew by 11 percent from last year. Voice while still bringing in the bread and butter, is no longer driving the business with their mobile money solution, M-Pesa and data services doing the heavy lifting...

Revenues from voice have been growing four percent on average over the last five years, which pale in comparison to revenues from data service and M-Pesa, which have been galloping at an average 34 and 20 percent respectively.

Regulators will be looking at Safaricom’s meteoric rise and licking their chops at how they can initiate tax initiatives now so they can harvest mightily well into the future.

Safaricom paid the taxman KShs22b (sh728b) last year, a figure that has grow by an annual average of 22 percent since 2013.

It is a moot point now, but Safaricom is a major driver of the Kenyan economy.

This it does by lowering the cost of doing business, by easing connectivity, as well as an efficient money transfer service, through M-Pesa which also doubles as a savings account, offers a credit facility and is fast replacing cash in the retail industry.

Government’s need to be asking themselves how they can enable the telecom industry’s in their selective country be more and more of an enabler in their respective countries.

This would involve not shackling them with too much tax, incentivising investment in low economic potential areas and seeking to actively partner with them in research & development to create greater efficiencies not only in telecoms and their services but also in the general economy.

The World Economic Forum recently reported the curious fact that a disproportionate number of mobile apps were being developed in Sweden. In looking back they discovered that it dates back to the 1980s when the Swedish government made a commitment to have every household own a computer.

The children who grew up with those computers are today’s innovators and developers 30 years later.

"Beyond the easy pickings now government needs to come up with a plan of how it can harness the energy of these fast growing sector to lay a foundation for future innovation. In 1980s Sweden it was the desktop in 21^st century Uganda the pervasive spread of the smartphone is as good a place to start....

Thankfully Safaricom is operating in a market that is culturally closer to us than Sweden. Kenya is being touted as an East African ICT hub thanks in no small measure to Safaricom, which through its dominance has brought the phone, a powerful computer, within arm’s length of anyone with an aptitude for computing.

My first desk top computer was 250MB IBM, a reconditioned machine from Sweden (surprise!) that set me back a million shillings. It is now dwarfed by my little phone, which has eight GB of memory and one GB of processing power.

And this is much more processing power than put the first man on the moon in 1969.

The point is this that in dealing with the telecom sector or any sector of the economy for that matter, we should resist the temptation to tax it to death or throw impediments in the way of its development.

Allowed to grow with minimum impediment the small pickings we are hankering for now will be much greater in future.

WE ARE NOW IN THE ATTENTION ECONOMY

Imagine a world where all your entertainment needs are at the tips of your fingers and can be accessed from wherever you are. Not only in real time or live, but recorded and retrievable at a moment’s notice. But also off the same facility you can be listening to music in the background as you watch TV and keep updated on the latest news as headlines scroll at the bottom of your screen.

That is not hard to imagine because it is happening now.

What would be more difficult to wrap our minds around, is a world where to get entertainment you had to be seating in front of a TV. If you were lucky you had a video deck and would watch films off video cassettes. And your radio was limited to short wave frequencies which crackled or were inaccessible if you moved your radio from one room to another.

The latter is long gone reality that the majority of us can not relate to.

At the most basic level media organisations are battling for your attention. Will you buy my paper? Will you listen to my radio? Will you watch my TV channel?

In a previous time when in Uganda for instance there was one TV channel, one radio station and one English daily, media houses did not have to think every hard about capturing and retaining attention.

But today a plethora of media, not only traditional but also off the internet, means our attention has been dispersed making it even more difficult to commend anyone person or group’s attention for an extended time.

Last week at the 2018 Digital Dialogue Conference media leaders from around the continent grappled with this growing challenge.

But beyond the specific concerns of the media the conference, convened by South African based video entertainment company, Multichoice, explored how this new reality is changing the people’s behaviour around entertainment and news, but how the trend is accelerating living little room for one to catch their breath.

So what is the value of your attention?

Studies conducted in more advanced western markets show that people’s attention patterns are shifting. Affected by what we consume from, and the possibilities that are presented by, the media we have settled into a pattern where we are in constant interaction with our gadgets.

Our relationships are now more managed by our phones or other handheld devices than through face to face interaction. On one level what this means that our peer pressure no longer comes only from the people around us but from people across the world from us.

Which can be a force for good, because we can widen our horizons and expand our ambitions beyond what we see in our immediate environment. On the other hand the negative effects of may include adopting behaviour which is considered normal elsewhere but may cause tension in your own context.

The world even beyond the real world, has shrunk to fit in our pockets. And this trend is projected to continue.

Futurist Paul Papadimitrou says the drivers of this development are the ever lowering cost of technology, the networks we are now tapping into and the numerous platforms we can now access.

To illustrate he pointed out that in less than a decade voice over internet service Skype accounts for half the international calls and social media platform WhatsApp has overtaken SMS as a way to communicate via mobile phones.

The net effect of this is that as consumers we have become nomadic, tribal but also singular; we have also moved from being passive admirers to being active doers and with the accelerating technological trends these distinctions can only sharpen.

Which brings us back to the value of your attention. By the simple laws of supply and demand, your attention is becoming increasingly valuable as more and more media platforms and networks take up your attention.

As a result, “The people who can capture our attention can sell it,” Anthony Lilley, professor of creative industries at Ulster University told the conference.

Which explains why in the last decade or so technology companies Apple, Google, Facebook, Netflix have overtaken traditional companies like Exxon Mobil, BP and GE as the most valuable companies in the world.

"We have gone from manufacturers to services to now attention brokers as the main drivers of the  economy

a trend that is already upon us.

The business community through its use of big data is becoming adept at ferreting you out, cataloguing you and inundating your with messages you are very likely to respond to.

Search engine Google is the poster child of this trend but so are social app Facebook and online retailer Amazon.

Increased interaction with this media reveals your affinity for one brand or another and therefore peg you as a source of revenue.

This interaction with the media is changing us surreptitiously, suddenly and irreversibly.

So what are we becoming? “Eighty percent of people in western economies are fans … a person who has a connection, through his identity or a social connection … what do you get out of being a fan? Comfort,” Professor Lilley explained.

Fans have affinities and sustain attention on the people, events or things that they are interested in.

It is human nature to want to belong but now with the variety and availability of people to notice, events to follow or things to like, we are becoming more tribal,  more singular.

Interestingly this realisation is probably a snapshot in time, with the speed of change and disruption, don’t be surprised if the changes to ourselves or the categorisations businesses choose to give us, change.

LANDLORDS SHOULD STOP WHINING AND JUST PAY THE TAX

This week Uganda Revenue Authority (URA) once again declared their intention to tax rental income.

Once again, because they do it every so often when they are under pressure to meet even higher revenue taxes or they are in danger of posting a deficit.

The landlords of course are jumping up and down, protesting the “out of the blue” move and threatening to pass on the tax to their tenants.

Good luck to them.

"First of all the tax on rental income has been a fixture in our books since at least the Income Tax Act of 1997. For 20 years! But it goes back even further because I remember landlords not amused at being assessed tax as far back as 1995, when I rented my first house. So the claim URA is springing this out of the blue is the landlords admitting ignorance at best and being disingenuous at worst. 

If it is ignorance, it is criminal because how can one invest hundreds of millions, even billions, of shillings without understanding the tax code. It brings to questions the source of ones funds, if you can put such huge sums on the line without appraising oneself of the obligations and risk involved in the investment.

It is being disingenuous for the same reason.

In fact these landlords have been evading taxes. They would rather comply quietly than make noise and URA throws the book at them.

There is a deficit of good housing in Uganda. The national housing policy puts this shortage at 710,000 units, adding that the annual need for new housing is 200,000.

The argument could be made that the industry needs some relief to quickly bridge the gap. In fact by enforcing the tax on rental income URA is laying the ground for our housing shortage to be addressed in a more systematic manner.

As it is now depending on, who you are, who you know or whose palms you can grease, you have not been paying taxes on your rental properties. Unfortunately this relief was not applied uniformly. This caused uncertainty for serious investors.

To bridge our housing deficit we require investors who can lay down at least scores of units at a time or even better hundreds of units. However an investor of that sort looking in would be hard pressed to commit funds when his competitors are financing their real estate enterprises with stolen money, held afloat by evading tax while not adhering to basic building standards.

Last year an official of US Overseas Private Investment Company (OPIC) said they would not be interested in anything of less than a billion dollars and a few hundred units. For that kind of investor they need more certainty than we can currently offer.

"That being said at a fundamental level all economic activity should be taxed. Taxes are the price we pay for civilisation...

Landlords cannot on one hand complain of poor infrastructure, inadequate security and below par uitilities and with the other evade taxes. If anything this is to perpetuate the very ills you are protesting.

Let’s be honest we don’t pay taxes because we want to keep more of the income for ourselves. If it was for the benefit of our tenants we would improve the standard of the housing to compensate for the bad roads and inadequate public services that is not what is happening.

Many of our houses if assessed according to the existing building code would not even pass the most basic of tests.

As for the threat to raise rents. There is only so much tenants can pay in rent beyond which they will leave your house. Thanks to the 20 year tax “break” the stock of housing units is much more than it was in the 1990s.

That being said government needs to get serious with the housing issue. One way is to finance the laying of infrastructure in residential areas, a major cost in any development project. On another level it should look to craft industry incentives that are objective and offered without bias to potential developers.

THE ECONOMY: WE HAVE REACHED A CROSS ROADS

The government’s latest budget proposals show that the country has come to another cross roads in its economic journey.

Government has announced a raft of tax measures, most unpopular (are taxes anything else), many punitive ad some just outright regressive and bad ideas. You can feel in the boxes depending on where you stand.

"The net import of this large swathe of new taxes, arguably the most extensive since they introduced Valued Added Tax (VAT) in 1996, is that it signals a new urgency for revenue, which while long overdue threatens to put the speed bump on much needed economic growth...

The new taxes do not indicate a widening of the tax base, which is what observers have been urging for years, but lays a larger burden on existing tax payers.

It was incredible when a government official argued that Uganda’s tax to GDP is low and so the additional taxes are not overburdening the population.

There is reason why collecting more taxes was not an issue a decade or so ago.  Then we were content to just let the economy’s momentum increase taxes year on year without being innovative or looking beyond existing tax payers. Then too we still had a very cozy relationship with western donors who were falling over themselves to fund our poverty eradication plans.

With the sudden realisation that we need to rump up our investments in infrastructure significantly, the same western donors reluctant to help and counselling that not only can’t we afford those plans but that we don’t need all that electricity or kilometers of paved road, we have had to turn to China, whose money doesn’t come cheap.

So the new debt, not on concessional terms, has saddled us with new obligations and hence the need for more taxes.

The problem was that while our bureaucrats were lulled to sleep with poverty eradication money, we forgot to enable the productive sectors of the economy – agriculture and industry, whose increased economic activity we would tax to support our development ambitions.

So now the need is on us and we have nowhere to look than the less than a million actors who have, and continue, to support the budget.

In our desperation we are going to tax mobile money transfers, reinstate corporate tax on SACCOS, add sh100 on every litre of fuel and tax social media users. All these are taxes on enablers of economic activity, likely to slow the activities – even incentivise under the table behaviour.

In a related development we want to prevent land developers from charging rent in dollars and put a cap on how much they can increase their rents on an annual basis. Again a classic case of killing the goose that lays the golden egg.

Granted, tenants are often treated shabbily by their landlords. The landlords get away with it because the tenants are not aware of their rights and how to enforce them and because there is still a deficit of quality rental space, meaning despite the progress in the last few years it is still largely a sellers’ market.

And this is the cross roads we find ourselves at.

"Government has to make a decision either to stop throttling the enablers of economic activity by piling more taxes on them. By restraining itself these avenues will generate more economic activity that it can then tax using the plethora of taxes it has its disposal...

Or government can maintain its current course of grabbing at everything, the eggs, the chics and the chicken, regardless of the long term ramifications of this action.

If government really wanted to collect more taxes very quickly they should follow India’s route. Demobilise all notes above sh10,000 and when the usual suspects turn up with their unaccounted for billions slap income tax on them, if they  can’t justify that income.

That should be good for a few hundreds of billions of shillings. Pap!

HOW THE MOMENTUM FOR UGANDA'S PENSION LIBERALISATION STALLED

A few weeks ago the cabinet set aside plans to fully liberalise the pensions sector and opted for amendments to the National Social Security Fund(NSSF) Act 1985.

The development has stalled a determined effort by private sector players to wrestle away mandatory savings from NSSF, which has grown into a sh7trillion behemoth over the last decade or so.

The cabinet decision while not final, parliament has to debate before it becomes law, means the promoters of a full liberalisation of Uganda’s pension sector have to retreat and regroup.

The initial drive for the sector’s liberalisation was initially helped by the general drive towards opening up of the Ugandan economy and the perennial mismanagement of NSSF.

Pension sector liberalisation proponents argued that NSSF constituted a monopoly and carried with it the inefficiencies that come with that status, namely lower returns to members, ineffectiveness in expanding coverage and that this same monopoly has led to a lack of vibrancy in capital markets.

"They argue that by allowing other players access to these mandatory savings, would not only widen the choice that members have, but also drive up returns for members, increase savings mobilisation and generally bring greater efficiency to the industry...

However supporters of the cabinet position argue that the liberalisers have no empirical evidence to back their claims and argue that full liberalisation, where it has happened, has actually reduced coverage, put people’s savings at risk and as a result there is strong momentum to rollback pension liberalisation following these failures.

First, of all cabinet supporters, argue that fully liberalising the sector loses sight of the principal goal of providing social security, which is to ensure a decent retirement for the citizens in old age and would therefore be an abrogation of government’s obligation.

In line with that they argue that giving a competitive return, building the capital markets and other reasons for liberalisation are all subsidiary to the principle of giving an adequate social safety net for workers.

However, while recognising the important role of dynamic capital markets, they argue too that in more developed markets – USA, Canada, UK and Australia, mandatory savings are invested largely in the safer government paper or securities. Never the less those capital markets have thrived and in fact the voluntary contributions, double the mandatory ones in the US, have driven market activity very well.

In these countries long term savings often have a state backed pensions fund, over which is layered a state or company provident fund and then voluntary individual savings. They argue that it is these last two categories that often find their way into the equities market and which then may create the much desired dynamism in the capital markets.

As all market players are aware shares can go up or down. And in the shelved pension liberalisation law this was provided for – meaning that if your choice of fund had a bad year in the markets it would be reflected in your statement.

However, the NSSF act provides for a minimum of a 2.5 percent return on members savings per year regardless of the portfolio performance. In effect guaranteeing a return on member savings regardless.

The risk of loss of member savings is a real one.

In the 2008 financial crisis, funds exposed to the equity markets lost 37 percent of their value while those in the state funds showed remarkable resilience throughout the crisis.

"That being said the NSSF Act, defenders point out, actually guarantees more than a 2.5 percent return at its lowest.  Under the current legislation, which will remain unchanged in the new act, members contribute five percent with their employers adding an additional 10 percent of the workers’ gross pay locking in 200 percent return from the word go...

As if that is not enough in the last five years NSSF has paid an interest on savings  -- between ten and 13 percent,  higher than the ten year moving average of  inflation, which was as high as 8.5 percent five years ago.

As it is now of the 15 million strong workforce only two million are covered by NSSF, so not only are there enough people to go around, but under the new amendment it has been proposed that social security contributions will now be tax free, meaning even the two million may very well be able to save with other schemes too.

The need for long term affordable funds cannot be overemphasised. The need for a credible robust pensions sector too cannot be overstated.

On a macro level the question of the future mobilisation and deployment of long term funds for deployment in the economy.

At stake in this contest is not only NSSF’s trillions but billions more still sloshing around looking for safe haven, not to mention many business plans that have been premised on a full liberalisation of the sector.

Cabinet does not have the last word. The battle lines will now shift to parliament where the amendments to the NSSF Act are due for debate soon.

RENT RESTRICTIONS ARE A BAD IDEA

A few weeks ago the cabinet Okayed the Landlord-Tenant Bill to bring greater equity in the tenant-landlord relationship.

The proposed law is intended to replace and broaden the Rent & Restriction Act that was passed in 1949 and is currently in place.

Judging by the way the current bill was drafted, it is safe to say that it came from the pressure applied by tenants, especially those renting business premises. It is no wonder then that the Kampala City Traders Association (KACITA) is at the forefront of the lobby to see it passed into law as is.

Tenants in the down town malls have long complained of exploitation by their landlords, who raise rents arbitrarily, charge in hard currency and often do not provide the basic amenities like parking, washrooms and utilities to their tenants.

Hence the most nefarious clauses of the bill, which seek to discourage the charging of rent in dollars, restrict annual rent increments to 10 percent and prevent the arbitrary eviction of tenants at the landlords’ whim.

The landlords on the other hand argue that all these eventualities were covered in the old law, which when accompanied with a tenancy agreement, would more than cater for their tenants’ rights.

Like many other things that go wrong around us or to us, we often don’t think of seeking legal redress. I can bet few readers, even of this column, have an updated tenancy agreement for the occupancy of their homes or places of business.

"That being said the law in its current state, where it restricts landlords to charging in shillings, not asking for more than three months in advance, prevents rent increments of more than 10 percent annually and within intervals of less than 12 months while popular with tenants will actually create the situations that government is trying to avoid...

In crudely trying to control rents they will frustrate investment in the sector, reduce supply rentable properties and force prices up anyway.

Of course the supporters of the law will say these are just scare tactics, but history has born this out.

To begin with this issue of rent controls has come up in the last three decades and was thankfully shelved promptly.

In the early days of this administration some socialist leaning people in government were pushing for rent caps in Kampala and a banning of dollar rents. They used the usual socialist rhetoric of these being anti-people, retrogressive blah, blah blah. Thankfully the argument was nipped in the bud.

With this one decision private investment in the sector ballooned and while we have no yet bridged the housing deficit we have fewer if any middle class families crammed into garages or one room hovels.

One of the reasons the deficit has not been bridged is the lack of long term funding for real estate developers and the high mortgage rates. As a way to get around it investors have borrowed in hard currency where mortgage rates are in single digits. As a way to mitigate their foreign exchange risk they pass the risk to the tenant.

The fact that this goes on is a sign that the shortage persists. In an environment of adequate housing the competition would force the foreign exchange risk on the landlord rather than the tenant.  It has happened before.

"Many years ago mobile operator Celtel used to charge for airtime in dollars. They argued the same that their investment was funded with foreign money and therefore consumers should be charged likewise. Another foreign firm MTN came along and started charging in shillings – even though their financing was sourced abroad, and that was the end of dollar phone bills...

While there is more discomfort for tenants when the currency goes against them, as more and more people invest in the sector that will soon be taken care of.

And finally restricting the duration of tenancy to less than three months is similarly unnecessary.

In the hard days landlords would ask for twelve months in advance and you could take it or leave. 

With the increasing stocks of houses this requirement has come do to even a month. The reduction did not come out of the goodness of the landlords’ hearts but a direct response to increased housing supply, market forces.

While such a bill may give government some short term political gains, they need to show leadership and legislate for the long term good of the economy rather than for political expediency.

In the mean time tenants need to exercise their rights as stipulated in current law and local governments need to ensure all building meet their respective building codes.