THE WORLD CUP … IT’S THE ECONOMY STUPID!

I suffered withdrawal symptoms last week when, on Wednesday and Thursday there were no World Cup matches to watch.

It surprised me because I thought I was not emotionally invested in this year’s edition in Russia. Clearly I was wrong.

I have also been rereading my copy of Soccernomics, the enlightening book by Simon Kuper and Stefan Szymanski, whose promise to explain, “Why England lose, Why Germany, Spain and France win and why one day the rest of the world will finally catch up” caught my eye, when I bought if before the last world cup in Brazil....

There is a new updated version that came out earlier this year.

Using data the authors unravel the mysteries of why Africa teams struggle on the international stage, that football clubs are best when they make losses, how the health of populations determine whether a country will be successful or not and that World Cups do not make money for hosting nations among other subjects.

It’s a veritable page turner.

What interested me was the author’s assertion that to be successful on the soccer world stage a county needs to have a GDP per capita of at least $15,000.

They worked out by going over hundreds of data points this was the magic number as it suggested that such countries have taken care of their basic needs and have enough money left over to build the infrastructure to identify and nurture world beating soccer players.

In World Cup history of the eight countries that have won the World Cup only two countries have economies that do not meet this criteria. Interestingly they are all from South America. Argentina winners in 1978 and 1986, Brazil in 1958, 1962, 1970, 1994 and 2002. Uruguay who lifted the cup in 1930 and 1950 have a per capita GDP of $18,000. Brazil and Argentina’s numbers come in at $10,224 and $14,000 respectively.

But interestingly even those countries all European, which meet the criteria, the catchment area for their stars was the poorer sections of their society.

The explanation was that the middle class kids have school and other extracurricular activities while the poor are not only playing all the time but are more likely to give up their education to pursue a professional sports career.

With differing degrees of sophistication all these winners have an extensive soccer networks with teams at every level from toddler to the professionals. The Europeans have more sophisticated infrastructure compared to the South Americans, famed for learning their skills on the street using everything from oranges to stuffed socks.

They also showed that these countries are exposed to a lot of competition. Not only are their respective leagues very competitive, they have very competitive continental tournaments and play a disproportionately large number of friendlies annually.

And finally the corporate backing of the sport in all these countries is significant but it is underpinned by functioning governing bodies. Football associations who facilitate the recruitment, nurturing and placing of talent....

The long and short of It, the book, shows is that making it to the World Cup leave alone winning it is not the sole responsibility of the respective football federation. To paraphrase, it takes the whole country to win the World Cup.

There are no miracles. And whenever there is overnight success in soccer know it has been years in coming.

So we want to go to the world cup and even win it.

To get a seat at the table – you will not get a chance to win the World Cup if you are not participating in it, we need to grow our economy significantly.

At $15,000 per capita at the current population we need to grow our economy to $600b – about the size of Taiwan’s economy, from the current $25b.

Assuming the current economic growth rate of about 6 percent it would take us 55 years to hit the target.

A daunting prospect.

In order to increase the economic output this level investments infrastructure would have to remain consistent for the said period. We have a long way to go. For instance just to get to a middle income economy we have to quadruple the stock of paved roads to at least 88 km per square km of land from the current 20 km per unit area. And we would have to then quadruple it again to even come close to a $600b economy.

We need to get our power consumption to at least where Brazil’s. A 2014 estimate put Brazil’s power consumption per person at 287 kwh per year. At the same time Uganda’s was about 70 kwh per person.

And we haven’t even started talking about the quality of our human resource, which is key because you can have all the infrastructure in the world but if the quality of your human resource isn’t at a certain level this would count for nothing.

"There are no shortcuts. We will not fluke our way into the World Cup if our context is wrong...

If winning could be forced a former communist country would have been one of the eight winners of the World Cup. Only Czechoslovakia and Hungary have ever made the finals.

TO TAX OR NOT TO TAX …

This week protests burnt the wires as everybody who was anybody, complained about the new taxes on social media and mobile money transactions.

It was interesting to me that the loudest noise was made about the sh200 daily tax on social media and not the one percent tax charged every time you touched your screen to do a mobile money transaction.

Strange, because there are about one million internet users in Uganda and about ten million mobile money accounts.

Clearly the mobile money users were feeling the pain. It was reported that in the first few days of the tax transactions collapsed to a fraction of their previous levels.

There was no evidence that social media activity had gone the same way, but then again the protesters had switched to the Virtual Private Networks (VPN) which bypassed the mobile network operators.

"How is it that such a relatively small number can make so much noise? Or were they actually? Isn’t it that I am also on social media, that I felt the incessant fury of the chattering masses? The vast majority of mobile users were probably oblivious to this noise...

It’s not worth my time to protest against the social media tax. I am more interested in the mobile money tax(es).

If we step back a bit from the forest.

According to the 2018/19 budget the government has earmarked sh32trillion to be spent on providing security, education, health, infrastructure and other public goods. This comes down to about sh800,000 for every one of the 40 million Ugandans.

I hope that number provided some pause for thought. 

That sh800,000 is for the whole year. Chances are that anyone reading this column by virtue of the fact that they can read English, shell out sh2000 for this paper or know someone who does, would not begin to even contemplate getting by on sh800,000 a year.

Food, rent, transport, school fees, power, water etc etc would consume that sum before the three months were done. And I am obviously being very conservative.

And we know government is struggling to provide.

Look at the state of Universal Primary Education (UPE), our public health system, our security and even our roads. I will be the first one to point to corruption as a key driver of these inefficiencies but even I wonder how much government can do, even if they spent everything as was planned. Not very much I fear.

Across the border in Kenya the government will spend the equivalent of sh1.6m on each Kenyan or double our own government’s outlay. Anyone who knows people in Kenya, they make the same complaint about inadequate service delivery. From afar their corruption seems makes our own practitioners seem like they are in kindergarten, but you have to wonder about the amounts, even there.

The equivalent for little Botswana in the south is 3.2m.

"The figures suggest to me as a Ugandan that the government is spending way too little on me. It is even shocking when you see how much the government plans to spend on health, sh57,000, Education, sh78,000 and security sh53,000. All these figures are for the whole of the fiscal year 2018/19...

And how much does government plan to collect from every Uganda this financial year, on average? Sh400,000!!!

Now if you are Pay As You Earn (PAYE) payer like I, you must have done a double take at that figure. If I speak for myself, if my annual PAYE bill was sh400,000 you can charge me sh10,000 a day in social media tax and I would not care.

The point is that a small group of us – about a million workers out of a workforce of 11 million, are shouldering the burden of the government budget. No wonder nothing works and us the same workers who fork out the money to provide health, education and security still have to pay for the same services privately.

I and the other tax payers are the real victims of Uganda’s poor economy.

So some of us vote with our feet and leave this god forsaken land.

If we were to land in the Netherlands, the government would spend the princely sum of sh11m per person and we would get free education, health, credible security and all the other good things that come with a functioning government.

However, my share of that government expenditure would be sh10.2 million in taxes or 92 percent of the Netherlands taxes come from domestic revenues. They have no donor countries to help them. They are the donors.

The point is clear if we want world class services at home like we see when we land at Schipol or Heathrow or John F Kennedy airports we have to pay up....

Which brings me to the mobile money tax.

The mobile money tax as designed and at the rate being asked is a disincentive to the whole payment ecosystem that has grown around it and by extension it’s doubtful whether the government shall get the taxes it planned for.

The logic is sound. As the finance ministry pointed out this week last year sh54trillion coursed through the mobile money networks but 70 percent of that money, the income which generated it was not registered at the URA’s data base. We know we are a largely informal economy so how better than to catch the untaxed monies than using mobile money?

The President on Wednesday evening clarified that the tax was not to be leveled on deposits to the system, effectively a digitisation of money, and that the rate should come down to 0.5 percent, this is great but still punitive when you levy it on two sides of the same transaction.

With the above being said government needs to walk the tight rope between extracting maximum tax and throttling the goose that lays the golden eggs.

"A comprehensive review of the mobile money tax is long overdue – a week into its implementation...

IF YOU BUILD IT, THEY MAY NOT COME

Earlier this year the World Bank reported that Ethiopia’s economy grew the fastest in the world last year at over eight percent.

These prodigious growth numbers that have been sustained for a decade, have been driven mainly by the big infrastructure investments in road, rail and power generation the country has been engaged in since 2010.

Unfortunately a commensurate flow of Foreign Direct Investment (FDI) has not followed the infrastructure development and as a result Ethiopia is now facing a foreign exchange crunch – it has been reported the country’s reserves have fallen to a month of imports. Three to four months of import cover is considered safe.

It is hoped that this is a temporary bleep, but it nevertheless holds important lessons for Uganda, which has been ramping up infrastructure development spend for almost as long as Ethiopia has.

"The rationale for the aggressive infrastructure development is based on the simple premise that we have a huge infrastructure deficit and in order to enjoy continued economic growth we need to bridge it, fast....

Looking at the road network alone, for a typical middle income country they have about 90 km of paved road for every 1000 square km, Uganda’s comparable figure is about 20 km. Similar figures or worse can be quoted for power generation, railway coverage or any other infrastructure including telecommunications where, while we have almost universal coverage, our use of the attendant technologies is woefully poor.

Infrastructure lowers the cost of doing business and therefore improves the attractiveness to investors wanting to commit to a country.

However we should not fall into the same trap as Ethiopia by believing that “If we will build it, they will come”.

For starters infrastructure is only part of the overall picture of what businessmen look at in planning to invest. Beyond infrastructure, affordable infrastructure, there are things like the sanctity of property rights, the policy consistency of the relevant governments and the politics of the country...

Politics, in as far as it will not threaten their investment, through unpredictable policy environment that may come from a lack of and inability to implement a strategic vision or worse,  political upheavals.

And even if we have all that in place will anyone know about it?

This speaks to the important role of marketing, which makes this week’s fracas at the Uganda Investment Authority (UIA) all the more saddening.

"You can have all the infrastructure in the world all laid out and functional and no one turns up to the party....

An aggressive marketing plan synchronised with the time lines of these projects is critical to ensure the fully and timely utilisation of our spanking new infrastructure.

Related to that our officials need to stop operating in silos and emphasise the building of ecosystems beyond the individual infrastructure projects they are championing.

So for example the Standard Gauge Railway (SGR) is supposed to be a key driver of the nation’s industrialisation agenda. But how is it linked to the plans to boost power generation or the oil production efforts or the development of industrial parks around the country or even the expansion of Entebbe airport.

To extend the argument, is there a deliberate and systematic plan that synchronises the development of these infrastructure and the increase in production of any number of things from coffee to fish to a planned petrochemical industry to the attraction of increased tourist numbers?

The point is, by now a prospective investor wanting to tap into Uganda’s power surplus should be able to see from afar, not only how far along we are with increasing our power generation capacity, but how too we are priming regional markets for our future investors.

The pushing for the free flow of goods and services in the region is visionary. And while most people didn’t see the point, we are beginning to see how this will help alleviate the job issue as we boost our production to serve the region.

A potential investor would be heartened by the progress in that direction.

"An investor wanting to invest in tourism would be glad for the Entebbe express way. But it does not help if he can wheeze from the airport to Kampala in half an hour, but then can’t get around as easily to our prime tourist sites or guarantee the safety of his guests or their health....

A few years ago while visiting Paris I was shocked that there was no bottled water in my room. Thinking it was an oversight by the staff of the small business hotel, I made the “omission” known to the staff at the reception the following morning.

“But there is water in the tap,” the man at the front desk told me, mirroring the surprise on my face with his own. I could see him wonder how I couldn’t have worked that out.

Well where I come from, it is not recommended to drink tap water.

This was a small illustration that tourism is not the business of the tourism sector alone.

One last lesson from Ethiopia, or to emphasise the previous points. They say markets can remain irrational longer than you can remain liquid.

Again we hope Ethiopia after all the work and sacrifice they have put in, that this is just a temporary situation, that investment will begin to flow, production will jump and they can export their way out of their current predicament.

Unfortunately the market is a brutal task master and is often wont to mete out the test, in order to teach the lesson, not the other way around like in the classroom. We need to plan accordingly.

THE PROMISE OF REGIONAL INTEGRATION

This week was a hectic one as far as regional diplomacy goes.

In Khartoum erstwhile enemies President Yoweri Museveni and his Sudanese counterpart Omar El Bashir brought together rival leaders of South Sudan, President Salva Kiir and Riak Machar to sign a peace deal, which it is hoped will bring the near five year blood bath in our northern neighbour to an end.

Meanwhile Ethiopia and Eritrea opened talks after almost 20 years of hostilities. The two countries went to war in 1998 over disputed land along their common border, cutting off Ethiopia from its most convenient route to the sea.

In Kenya President Uhuru Kenyatta hosted his counterparts on the Northern Corridor Integration Projects Museveni and Rwanda’s Paul Kagame. The body language of the latter two did not betray any unusual tension between the too which was a relief given the rumours that have been swirling around in recent weeks.

During the Nairobi leg Museveni said that Uganda was benefitting massively from the East African common market, reporting that the dairy and maize industries in Uganda would have long been dead had it not been for the free access they have to the region.

This last point is crucial and is one our leaders should focus on rather than any parochial of perceived slights.

The Dairy Development Authority reported this week that dairy exports more than doubled to $130m in 2017 from $60m the previous year. It would not be a stretch to assume that this jump in export receipts has something to do with regional demand.

Uganda’s ambition to be a middle income country in coming years will be greatly aided by open markets, because our market is too small. The same goes for our neighbours.

"The population of the East African Community (EAC) stands at about 170m. The urban population of the region is 34 million or just about the size of Uganda’s population...

However to unlock the potential of this market, billions of dollars in joint infrastructure investments have to be put in place. The nature of these investments and the long term obligations that come with them means that as region our leaders cannot be seen to be bickering among themselves.

For example Ethiopia has invested massively in power generation. It has more than doubled generation capacity to 4200 MW from 1800 MW, which is double their 2000MW peak demand. SA if that is not enough there is an additional 7000 MW of power generation capacity under development.

Ethiopia needs to exports its power otherwise be saddled with these white elephants. So it needs to mend fences with Eritrea, ensure South Sudan cools down and demand its power. Ethiopia has also dialed down its language in negotiations with Egypt, which is concerned about Ethiopia’s damming of the Nile. Egypt too can be a massive market for its power.

Kenya, Uganda and Rwanda need to be pragmatic about their dealings since investments in power, rail and road are critical for all three and none of them can go it alone.

Clearly our mutual dependence, for decades blurred by artificial borders, is now at the fore of driving the geopolitical agenda. Which is as it should be....

Centuries of war in Europe came to an abrupt stop after the Second World War with the creation of the European Coal & Steel Community (ECSC), the precursor to the European Union. The ECSC was a recognition that to rehabilitate Europe resources – physical and human had to be pooled for the benefit of every one.

The politicians can maintain their little fiefdoms but the economy should transcend the borders.

The people of the region have no issues. Our borders are really only on paper if one were to see how border communities interact. It is often that our leaders have their own issues that are extrapolated to the rest of us.

However increasing dependence means that our leaders will have to shelf their issues or resolve them personally to maintain their relevance in our lives. We first approaching irreversibility on regional integration and they are being forced to seat up and take notice.

THE ROOT CAUSE OF OUR POVERTY

Last week a report FinScope Uganda 2018 was released which detailed how accessible financial services are to us and it also showed why wealth seems to evade us at a persona level.

Financial inclusion is an important measure for economies.

On a personal level the more people have access and use financial services the more economic activities they can engage in which may have beneficial consequences on their standard of living and the viability of their businesses.

"On a macro level greater financial inclusion is correlated to the ability of economies to mobilise domestic resources which has consequences on lending rates and the ability to invest in long term development projects...

The recent study, the fourth in a series that dates back 2006, showed that financial inclusion in Uganda while it held steady at 78 percent from the 2013 one, showed that more people are shifting towards using formal institutions for their financial needs.

In 2013, 26 percent of Ugandans relied on informal institutions for their financial requirements a figure that dropped to 20 percent in FinScope Uganda 2018.

This trend is important. The formal institutions, in this study banks, Micro-finance institutions, savings cooperatives (SACCOS), mobile money operators and insurance, aggregate these resources and lend them out to the productive sectors of the economy. This is as opposed to the informal avenues such as keeping money at home or in savings groups, which have limited ripple effect.

The more money in the economy that finds its way into the formal financial sector the better, as my money when I am not using it can be lent to economic actors in need who would use it to support or expand businesses.

A strong trend has shown up in the last two reports and that is the use of mobile money platforms to drive financial inclusion.

Mobile money services were launched in 2009. In 2017 the report says sh54trillion exchanged hands over these platforms -- easily half the GDP of Uganda, up from sh44trillioni n 2016.

Of the formal means of access to financial services mobile money channels long overtook banks as the preferred choice of most Ugandans. This should not come as a surprise as there are an estimated 22 million mobile money subscribers as compared to five million accounts in the whole banking industry.

With the introduction of mobile money services we do not only now have means to transfer money but now one can even pay for goods and services, borrow money and even take out insurance.

"The growth of mobile money has also dispelled the myth that Ugandans cannot save with median amounts reported in the survey at sh30,000 saved on people’s phones. Our “poor” saving culture is clearly a function of access to saving mechanisms that we can trust....

But financial inclusion in and of itself will not necessarily improve people’s wellbeing.

The study revealed several things that perpetuate our hand to mouth existence,  that need to be broken for this new access to be more beneficial.

One, that less than half or 47 percent of Ugandans keep track of the money they receive and spend. Secondly that Ugandan adults are unlikely to seek financial advice and those who do about 56 percent turn to family and friends.

And related to that last one 39 percent of adults do not have a plan to acquire the assets they aspire to.

While one of the first things to do to pull people out of poverty is help them earn or raise their incomes, for people to banish poverty people they have to keep more and more of what they earn. 

The latter does not necessarily follow from the former.

The challenge is that our expenses tend to expand to consume any new income we may make.

So beyond financial inclusion, and the report points this out, there is an urgent need for financial literacy across the population.

How does one behave around their income? How does one leverage their current income to ensure financial freedom in the future or at least financial independence? What are the available investment opportunities? How do you run a sustainable business?

"Financial literacy will also help with the knowledge that all the resources we need to improve our standard of living are within easy reach of ourselves...

It’s a cliché, but the truth is it’s a mindset thing. What’s the difference between two people of equal income one of whom saves 10 percent of his income religiously and the other who doesn’t? Or worse still two people of different income with the lower earner having more assets to his name than the high income earner?

Raising incomes is desirable, increasing access to financial services as a worthy goal but to banish poverty we need to commit to universal financial literacy and narrow income disparities.

IS THE POLICE BEYOND REDEMPTION?

On Wednesday President Yoweri Museveni gave an appraisal of the state of security in the country, allaying the public’s fears and outlining what will be done to strengthen the security situation.

The president’s speech came in the wake of the arrest of former Inspector General of Police General Kale Kayihura and several police officers.  Allegations of everything from running protection rackets, murder, arson, drug trafficking, gun running and illegal repatriation of refugees are reported to be of interest to the investigators.

And this is only what we can deduce from recent press reports.

Twenty years ago Justice Julia Sebutinde was tasked with investigating the police and making recommendations for its running into the future.

"During the nearly two yearlong inquiry, not unlike what the above officers are being investigated for, the emerging stories caused sharp intakes of breath around the country. When she was done with her work the police had been revealed as an organised criminal organisation that instead of fighting crime was not only abetting it but its officers and men were actively involved in criminal activity...

The report should have prompted a clean out of the police.

So how come the same tendencies seem to have resurfaced publically nearly twenty years after Sebutinde delivered her report to the appointing authority?

Either, the criminal elements were not entirely weeded out and continued with their nefarious deeds, inducting new recruits in to their evil ways and perpetuating the criminal gang nature of the police.

Or a new criminal element overlaid or replaced the old system, its power growing to the point that it harboured grander ambitions than just shaking down traffic offenders, abetting highway robbers and protecting drug traffickers.

It is scary to think that with the near fourfold expansion of the police since the Sebutinde report, these criminal activities spread out from Kampala and went countrywide.

It is safe to say that the breakdown in police discipline – like many other things in this country, has its roots in the Idi Amin era. Based on the British constabulary the force was designed to enforce the will of the colonial government. Brute force was their default mode. With a breakdown of law and order and inadequacies of budgets the police would find it easy to prey on the very population they are sworn to protect.

The NRM initially focused on putting down insurgencies in east and northern Uganda, left the police to its own devices. With the rebellions put down it was time to turn attention to the police. But we seem to have chosen the path of least resistance, continuing with business as usual instead of general and systematic overhaul of the force. As a result the force has never been purged of its colonial hangover nor its criminal elements and the culture has co-opted everyone who has come in touch with it and like a drug made the drunk with a sense of their own importance.....

It did not help that the police is operating in a situation of endemic corruption, where everybody has a price and allegiances are in a constant state of flux.

Abraham Lincoln once said that if you want to know a man’s real character give him power. With enhanced numbers and budget the police has just become more of what it actually is.

Which brings me back to the President’s statement on Wednesday.

The speech was interesting more for what he didn’t say than what he said.

In his speech the president outlined a series of measures, 10 in number, that would improve the country’s security situation. The measures among which were improved registration of the arms in security agencies, electronic chips embedded in vehicle number plates, installation of cameras on roads and highways and the building of a modern forensic lab, are all medium to long term measures.

Apart from banning boda-boda riders from wearing hoodies, there were no short term measures to beef up security.

THE CHALLENGE OF BUDGETTING FOR A POOR COUNTRY

(This article was published in the New Vision in 2011)

Last week Spanish Prime minster Mariano Rajoy in a text to his finance minister urging him to hold out for a better deal in negotiations for a bailout of Spanish banks said. “We are the number four power in Europe. Spain is not Uganda.”

When the text was released the Uganda social media chattering classes went into overdrive, so much so that the furor became a story on the BBC.

Spain is a much richer country than Uganda based on per capita figures alone -- $31,000 for Spain and $1,250 for Uganda adjusted for living standards ion the respective nations. But their economy is in a much sorrier state. 

Their economy is contracting, they are suffering the after effects of property bubble burst and their banks are hobbled with so much bad debt that their collapse could threaten the future of the Euro zone. The bailout of the banks could cost upwards of $100b according to conservative estimates.

Finance minister Maria Kiwanuka read her second budget on Thursday and it was very hard to see the glass as half full.

"The economic growth halved to 3.2 percent from the previous year, revenue collections came in short of budget and more than 10 million people are living in abject poverty, more if you do away with the subhuman requirements – living on less than a dollar a day, abject poverty calculations entail...

Our situation compared to Spain is not unlike the situation US billionaire Donald Trump found himself in the 1990s when pointing out that the beggar on the street was much better off than he was. Whereas the beggar had nothing to his name Trump was indebted to the tune of billions of dollars. The pan handler is probably still where he is while Trump is now stronger than ever.

Faced with the challenge of making investments that will spur more and more growth – good economics, and on the other hand dribbling in the hard decisions over time versus all at once – good politics, you had the sense Kiwanuka was struggling.

With our ratio of revenues to GDP largely unchanged for the last decade and donors tightening their purse strings, while our expenditure demands continue to grow with a rising population, something has to give. And that most likely will be a tightening of our own belts in the short term or until investments like the power dams and roads push up productivity and hopefully improve our lives in the process.

Our needs are huge. In the budget the minister pushed up the works ministry’s budget almost twice in order to steer more and more of the budget towards road construction and rehabilitation. We upped the education budget almost by a fifth. These two are key to future growth of nations.

"Analysts who started watching China three decades ago reported that they were investing a lot on building ports, road, rail and other communication networks. They poured in prodigious amounts in to their education systems especially science and technology. They have been doing this consistently for more than 30 years and are not letting up now as the second largest economy in the world. The challenge with infrastructure and more so health and education is that the returns on investment my take decades to show....

Political pressures often prevent countries from making the long term sustained investment required to attain take off.

The noises from government suggest the they are prepared to take the tough political decisions to lay the foundation for takeoff. We have done it before and we can do it again.

In the 1980s the Ugandan economy was a pale shadow of its current self: Revenues were anemic, the public sectors were hemorrhaging even the little we collected and in addition stifling the private sector through monopoly corporations. In order to turn it around government privatized the companies, liberalized the markets and focused on stabilising the economy. All politically unpopular decisions at the time, but we bit the bullet and as an economy we are better from the experience.

Back to the #SpainisnotUganda protest. Spain has the advantage of having access to the bigger markets of Europe and so access to credit, expertise and all it would take to turn it around are all within reach. But Spain is going to have to take many politically unpopular decisions, expect a series of fallen governments as they try to dig themselves out of their current economic woes.

As for Uganda expect more belt tightening in coming years as we try to make the long term choices needed to move us to the next level.