UGANDA AIRLINES WILL BE A POISONED CHALICE

A few weeks ago I put out a public request for the business plan for the revival of Uganda Airlines. Nothing happened until a few days ago, when the full feasibility study that justified the project fell in my laps. So to speak.

According to the writers of the feasibility plan, which was the National Planning Authority (NPA) the justification of the airline is based on the assumptions that it will facilitate tourism, stimulate economic growth, promote exports, improve our widening trade deficit and reduce cost of air transport.

They also added that it will help break foreign dominance of our airspace, help market the country abroad and create employment opportunities for Ugandans in the aviation industry.

The planners set the start-up costs at $400m (sh1.6trillion) which will be spent on buying six planes -- $330m, start-up costs $20m and contingency money of $70m or about three months of expenses assuming no revenues.

The airline will fly seven international routes – London,  Brussels, Dubai, Doha,  Mumbai, Johannesburg and Lagos and 18 regional routes, which would include all capitals of the East African Community as well Kinshasa, Juba, Khartoum, Asmara, Addis Ababa, Lusaka and Harare.

From this point on things begin to get fantastic.

According to the plan the airline will manage a passenger load factor – a measure of how many passengers they will carry per flight compared of available seats, of 49 percent. In other places in the plan they put the load factor in year one at 62 percent.

This is important because the more people you can carry from day one the faster you can become profitable, if your costing is correct.

Industry experts have pointed out two flaws in this scenario. 

One that it is impossible, especially given the anaemic advertising budget of less than $5m per year in the first four years.

Secondly and related to that the airline, business is dependent on reputation and loyalty, neither of which the new Uganda Airlines has. As a new entrant they will be starting from scratch in an extremely competitive market, so to have half a chance of working they need to have a bigger marketing budget.

And the competition is real to Brussels, Dubai, Doha, Johannesburg, Addis Ababa and Nairobi, the new airline will be flying into hubs with established competition on those routes. Even with bilateral flying agreements between the respective points, one should not expect those airlines to roll over and hand over their market.

One aviation veteran pointed out that there can be no Uganda Airlines without an Entebbe-Nairobi route. But that route happens to be one of the most lucrative for Kenya Airways and it will be a fight to the death for them to even give an inch. The failure to gain traction on this single route has been the downfall of all airlines trying to fly out of Entebbe.

"The choice of routes is also curious because the promoters of the airline have consistently argued that the airline would provide non-stop flights from tourist markets that are not currently served. That rationale flies out the window with the plan to compete directly with existing players....

Their argument would have been supported by routes to Frankfurt or Barcelona or Tokyo or any number of other destinations serving potential toursim markets.

Experts are divided on whether buying planes or leasing them is the better option.

One expert said the better deal would be to buy the planes and do away with leasing costs which would come due whether the plane is flying profitably or not, but that is if we can buy them cash down.

The feasibility study does not forsee such a scenario, so have provided for borrowing to finance the $330m plane purchases. They plan for interest and amortisation payments of at least $14m annually from the third year onwards.

Another industry source said  buying the planes is a bad idea because it would be locking all that money in planes with no guarantee of traffic. All the projections in the feasibility study are not realistic, he said and he hoped the planners did not think that because it is Uganda Airlines, Ugandans will be falling over themselves to fly it.

“There is no loyalty in this industry. Passengers are looking for reputation and convenience. We won’t care about Uganda Airlines,” he said.

The money he suggested would be better spent in the first two years code sharing, where an airline sells tickets but passengers fly other airlines, to establish some traffic before you invest in the airplanes. This money would be used to heavily market the airline in the meantime.

"There was unanimity though that there was no way that the airline would attain profitability by the fourth year....

“That would be a world record,” one industry expert said as he all but rolled in the aisles with laughter.

“You are building a reputation, especially reliability. You cannot believe how many empty flights you are going to make to all your destinations before passengers begin to take you seriously. That is all money. But in this industry it’s an understandable cost of business.”

In fact he added, that $70m they have budgeted for contingency will be done in a sooner than three months.

Across the border Rwanda Air, which has been flying since 2001 have never made a profit. A few months ago they gleefully announced that they had cut losses last year to one million dollars.

The supporters of the project however counter that the benefits to the economy in job creation – all of 439 jobs over five years, promotion of exports and lower fairs out of Entebbe will more than make up for the losses the airline will make.

On exports the planners had a curious insertion about exports, 

"It would seem that the limitation to the development of a good export industry has been the lack of regular air services to transport what is produced in Uganda to other markets."

This seems to suggest that if we have our own planes suddenly people will start exporting by air.

Most of our exports – coffee, maize, beans are bulky and more cost effectively shipped by land than air. We have some fish and horticulture products, which can be flown out, but this has been going on for the last two decades without our own airline. Thank you.

Interestingly, despite projecting how profitable the enterprise will be the authors cover themselves by asserting deep in the plan that the airline need not be profitable and should be considered as a piece of infrastructure like a road, which the tax payer finances without caring about the bottom line.

That is not only lazy thinking but encourages moral hazard and corruption. Given a blank check like that to start a business, what incentive would the management have to make it self-sustaining?

Richard Branson, who has started and owned an airline, joked one time that the best way to become a millionaire is to start with a billion dollars and buy an airline. He should know.

"It is an amazing plan with more holes than a kitchen sieve. No wonder it is a closely guarded secret...

We do not need an airline of our own. We have more than a dozen airlines flying into Uganda already. 

There are cheaper ways to get what we want – connectivity to the world, higher tourism numbers and export receipts.

This is particularly true in this time when we are trying hard to raise revenues to finance badly need public goods – education, health and infrastructure.

A CESSATION OF HOSTILITIES CAN UNLOCK REGION’S POTENTIAL

Last week two major peace initiatives gained much needed traction after years of stalemate.

After a week of shuttle diplomacy the two rival parties in South Sudan put pen to paper in signing a new peace deal. The deal which  brings back President Salvar Kiir and his rival Riak Machar back in the same government has taken a lot of effort by the governments of Ethiopia, Kenya, Sudan and Uganda to broker.

Analysts wonder whether it addresses the fundamental issues of the continent’s newest country, primarily appeasing all the rival factions and laying the groundwork for institution building, but agree that it is better than nothing and as good a start as any.

"The agreement failed to beat a UN imposed deadline of June 30^th for a stop to the fighting. The UN had warned that without a cessation of hostilities and a viable political agreement, targeted sanctions, including travel bans and a freezing of the assets of six individuals inside and outside the Juba administration, would be triggered...

Hot on the heels of that event Ethiopian Prime minister Abiy Ahmed made a historic trip to Eritrea to meet Isaias Afwerki. The two countries have been in a state of hostilities for close two decades following a war over disputed border areas in 1998. Eritrea once a province of Ethiopia seceded after a long civil war that led to the ouster of Haile Mengistu Mariam’s government.

Ethiopia currently in the grip of a currency squeeze, has in recent weeks moved to appease Egypt with whom they have disagreements about damming the White Nile.

Ethiopia has over the last decade been on an ambitious infrastructure building spree that has included increasing the stock of their road and rail networks, seeding industrial parks. At the center of it all is the tapping of their vast hydro-power generation capacity.

The Ethiopian Grand Renaissance dam alone will have a capacity to generate 6450 MW or more than seven times Uganda’s current capacity. The filling of the dam’s reservoirs is what Egypt is unhappy about.

When complete the dam will have a volume of 70 km³ with a surface area of 1,874 km² or assuming a square, would have one side the length from Kampala to Entebbe. Egypt and Sudan fear that filling that reservoir could cause water shortages downstream and the resulting political fallout may be hard to contain.

Ethiopia which currently employs less than half it current generation capacity during peak hours needs market for its power and long standing feuds with its neighbours do not help. So whereas the antagonists in South Sudan may be content to continue in their state of underdevelopment it is in Ethiopia’s and the region’s interest that peace comes to South Sudan so the market there can be developed.

By the time fighting flared up at the end of 2013 South Sudan had become a $200m a year export market for everything from mineral water to eggs.

"The movement towards peace in the region is being driven by more than goodwill...

The huge infrastructure investments in the region can become redundant if the sweetener of growing neighbouring markets are not thrown in for potential investors in the region.

It would not be a stretch to assume that a combination of factors – political and economic, have made the region’s leaders wake up to the fact melding these markets together is the only way to attract more and more investment into the region.

The global financial crisis and the disengagement of the donors as they sorted their own woes back home may have been the latest, meant aid flows have not kept pace with the region’s populations’ growing needs.

Prior to that the end of the cold war, where billions of dollars were sloshing bout the world to by allegiance with little regard to economic feasibility, democracy or human rights records.

The rise of China has served as useful stop gap, as a financer of grand infrastructure projects that have often been breath-taking in their scope and ambition.

The regional economies have designed spare capacity into all the projects in anticipation of future growth. But for the growth to come the infrastructure has to be employed. A chicken and egg situation. This infrastructure is intended to unlock the great abundance of resources and people in the region.

A geosurvey of Uganda done a few years ago showed that were we to maximally exploit the riches under our feet we would have to first relocate all Ugandans.

When, and not if, peace comes to the region it will because of some hardnosed economic and geopolitical considerations and not out of the goodness of the hearts of the region’s leaders. The resolution on intractable conflicts in the region is just the beginning.

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.