NEWS – NSSF IN RECORD 2017/18 INCOME, MEMBERS LOOK FORWAD TO GOOD INTEREST PAY OUT

KAMPALA – National Social Security Fund (NSSF) earned a record sh1.6trillion before members’ interest and taxes in 2017/18 a 77 percent jump from last year’s sh912b due to an increase in investment income and higher member contributions, the financial institution has said.

The Fund’s assets under management rose to sh9.98trillion up 26 percent from the same time last year when Sh7.92trillion was reported.

“Uganda experienced improved economic growth of 5.8 percent compared to 3.9 percent the previous financial year, which meant that generally, the investment environment saw significant improvements at macro level, “ NSSF boss Richard Byarugaba said in a recent news conference.

“We were also aggressive in the market, seizing opportunities present by growth in regional markets especially in Uganda and Kenya.”

Growth in income was buoyed by higher interest income and strong recovery in regional equity markets. The shilling’s depreciation during the period also boosted investments in the region.

“For the first time in in the Fund's history, we recorded over a trillion shillings in collections from our members. This is a result of steady rise in compliance levels, now at 81 percent over a three months’ period, and contributions from the Fund’s voluntary members,” Byarugaba reported.

The Fund, the largest in the region by value, saw contributions grown 14 percent to Sh1.05trillion from sh917b the previous year.

Costs continue to be kept under control with the cost to income ratio declining by a percentage point to 12.6 percent from the previous 13.4 percent. Costs of administration remained unchanged at 1.3 percent of total assets.

Benefits pay out rose to sh360b from Sh278b in 2016/17.

Members eagerly await the announcement of the interest on their savings which will be unveiled at the 6th Annual Members meeting set for Tuesday 28^th August in Kampala. The Fund has committed to paying at least two percentage points above the 10 year inflation rate moving average.

Last year the Fund paid its members 11.23 percent.

ENDS.

MAKING SENSE OF UGANDA POLITICS

So if you jetted into Uganda and asked “What’s Going on?” depending on who you were talking to you would get two answers that broadly follow these lines.

In no order of preference.

Story One – The ruling NRM is facing an existential threat. Their unpopularity is growing. 

Honourable Robert Kyagulanyi alias Bobi Wine is perceived as the lightning rod for this dissension and his challenge should be snuffed out. There is a critical mass of people who want a change away from the NRM and in this situation of growing inequality and economic sluggishness, is the time to strike.

Story Two – The opposition is scrambling for relevance. They need to create a state of tension literally or at least create the perception of it. Having failed to make political gains in the house or at the local government level this is their last ditch attempt. Bobi Wine committed a crime, his political importance or not, and he is not such a major factor nationally as the opposition wants us all to believe.

As you are chauffeured from the airport both narratives play out.

On the one hand you can see evidence of a poor country. The standard of housing. The unpaved highway. The small enterprises by the road side. The age of the cars, trucks and mini-vans. The street kids with their emaciated, supplicating hands once you reach Kampala. You wonder about all those gun totting policemen.

On the other hand you can’t help but notice the bustling energy of the people. The Entebbe expressway, while pretty standard engineering, the green that straddles it takes your breath away. 

Kampala city when you get to it seems organised. And thankfully you see little evidence of a personality cult being rammed down the people’s throats by the president of the day.

As with everything in real life the truth is a mixture of both. And is why we are where we are today.

"When history is written all we are going through now, the uncertainty and sense of confrontation will, if it makes the history books, be summarised in a sentence. Something to the effect that growing unrest in response to a slowing economy and long administration of the NRM set in motion  a series of events which led to blah, blah....

Or that in the third decade of the NRM administration protests intensified but were soon neutralised as the economy improved and the government focused on narrowing the economic inequalities by curbing corruption and increased investment.

Which of the two scenarios will play out history will tell.

The point is that we are living history, which while it will be abbreviated into a single line in the textbooks it will cost time, lives and property. Not forgetting reputations and ambition. We are in the forest, we can’t see the forest for the trees. We can’t see the broader picture because we are too enmeshed in the detail.

But if history is to be our guide and assuming prosperity and democracy are to be the end result, we probably aren’t even seeing the light at the end of the tunnel yet.

A lot of things still have to go right.

"The economy needs to shift more towards industry, which is our hope of employing more of the tens of thousands of youth flowing out of education system annually. When we have the majority of the population gainfully employed in the economy, our politics will change. It may not be that we will have the traditional stratification of labour versus capital, but hopefully there will be some cross cutting issues about the economy or environment that will transcend our tribes and religions, that will act as the bedrock of a new political order.

But before we get there the drama will continue fuelled from within and without, stocked by the political actors desire to remain or gain power. Depending on the economy the youth bulge will either peak in a decade or two or continue to mushroom, with real consequences for our politics.

Or it could all go wrong and we descend into a dystopian bleakness from which there is no return.

Only time will tell.

RWANDA OR THE REST OF THE EAC, WHO IS RIGHT?

This week the US followed through on a threat to suspend Rwanda’s duty free exports of textiles to its shores.

The suspension comes following a demand by the US earlier this year for the East African Community (EAC) to shelve imposing higher tariffs on second hand cloth imports. EAC countries had resolved to ban the importation of second clothes by 2019, starting by increasing taxes on their importation.

The EAC is a major second hand clothes market accounting for 13 percent of global imports of second hand clothes or about $274m (one trillion shillings) in 2015. So a halt to this trade would move global markets in the second hand clothes industry.

US lobby group Secondary Materials & Recycled Textiles Association (SMRTA) did not wait around to see what would happen, petitioned the office of the US trade representative. They argued that this ban would cost up to 45,000 jobs – a figure that has not been verified, and $124m in exports from the US.

Of course they did not mention that the reason the EAC was going down this path was a means to resuscitate the textile industry, which employed tens of thousands a few decades ago, as a means to climb out of poverty to the level of middle income economies.

"Uganda, Kenya and Tanzania capitulated and will not been banning second hand imports. Rwanda stuck to its guns and hence the suspension...

On a purely technical note the US is within its rights to demand that if it allows free access to its market they should expect the same. But if there was any genuine desire to uplift the EAC out of poverty then the current action paints another picture of what their “development” agenda is.

For development – the general improvement in the people’s welfare to happen two things must happen – Economic growth and improved household incomes.

Both have to happen because you can have economic growth without a general rise in household incomes, but it is near impossible to have an increase in people’s incomes without economic growth.

The mere building of roads, dams and railways can move the needle on economic growth. It is then how efficiently this infrastructure and the institutional capacity surrounding is employed to improve the business environment that creates jobs and therefore raise incomes.

"Viewed against this is Rwanda correct to stick to it guns? President Paul Kagame also argues that it’s a matter of dignity, how can Rwandans dress in the cast offs of other people? Or Kenya, Tanzania and Uganda showing greater pragmatism in forgoing internal markets for the promise of the huge US market?...

Kenya already exports $600m worth of textiles to the US annually, which is not a figure to thumb ones nose at especially for little economies like ours. Their local industries have been totally decimated by the second hand clothes market. They are probably calculating that if they can get a firm foothold in the US market they will be able to increase investment in their textile industry more than if they had tried to sate the local or regional markets.

Rwanda on the other hand is thinking that if it can protect its local market it can serve as a launching pad into export markets. Also that in the event of fall outs with the US or European markets their local market while not absorbing all the output of their industries would serve as a useful buffer, keeping the industry afloat as they wait for a change in relations. But given that its neighbours have done a U-turn on banning second hand clothes, Rwanda cannot count on its neighbours as market for its textiles and apparel.

It will be interesting to see how these two scenarios unfold in coming years.

That being said the US market is not one to pass up, its challenge is the volumes and strict timelines it demands of its suppliers. The Kenyan press recently reported that the textile exports to the US were beginning to slip because they clients were demanding increasingly shorter turnaround times from time of order to time of delivery.

"As a country if we are going to take maximal advantage of the Africa Growth Opportunities Act (AGOA) – since we have ceded out internal market to the second hand clothes industry, we need to check the whole value chain, from research into high yielding seeds, to farm practices, post-harvest handling and manufacturing to the logistics of getting it to US markets....

This is important because while second hand clothes trade will show up on GDP growth figures it will not create as many jobs as a well-oiled cotton to textile industry would, hence there will not be a significant increase in general income levels.

Economic growth is good, desirable even critical but wit will mean nothing to us if it does not show up in our wallets and purses.

YONA WAPAKABULO: QUIETLY CONFIDENT, CONTENT TO LET HIS WORK SPEAK FOR HIM

It always bugged him when people did not apply themselves, “Monkeys!” he called them.

Born on 8^th January 1972, he was a Capricorn and had the characteristic self drive of his star sign. He needed little to no external impetus to achieve his ambitions and often succeeded in spite of the outside circumstances. Hence his impatience with “monkeys”.

After a life first in Tanzania, where his father worked at the East African Community secretariat in Arusha and then in Papua New Guinea, Yona returned to Uganda with his family in 1986.

He first came to the attention of his homeland through his exploits with bat and ball, first at Kings College Budo, then Makerere College School, during which times he moonlighted for local clubs, played for Uganda where he was the linchpin in the team that won East & Central Africa Council in 1991.

In a 1992 league match he left an indelible impression on the history of Ugandan cricket, swatting away the opposing team’s attack to put on 212 runs in a single innings for his club Wanderers, a performance that had never been bested before or since....

After his A-Level he took a gap year to further his cricket ambitions in England. But Yona had lost time and, by his own admission, could not be competitive in a way that he thought he should be at the highest level of the game.  With some prompting from his father he went back to school and got his degree in marketing before returning to Uganda.

Never one to dwell on past glories he left his cricket accolades in his past to pursue a career in sales, marketing and communications.

It is testament to his success in this field that in the biography in the order of service book at his funeral, his cricket success occupied only two lines of the whole narration.

He really came into his own when he joined fledgling PR firm WMC Africa Ltd in 2003. Following the death of the founding partner, the affable Andrew Wandera, two years after he joined the firm, Yona took over the reins and led the firm to the next level.

Unimpressed by big names, he managed to cobble together a formidable young team, that now represents such blue chip companies as Stanbic Bank, Multichoice, The Bill & Melinda Gates Foundation but previously MTN Uganda, British Airways and Umeme.

His greatest legacy may still be that he built WMC ltd into a admirable business that, one of his contemporaries remarked, was growing when other industry players, squeezed by the economic downturn were cutting back on activities and staffing.

Given his achievements in his first and then second life, it would have been easy for Yona to be an insufferable braggart but he wasn’t. Gauged against where he wanted to be, he often said there was nothing to boast about, yet.

He was greatly ambitious for his business, spurning a juicy offer for the purchase of the business a few years ago; ambitious for his family, his children – Myles, Zora, Aurora, Diah and Shalom, who he was keen to give every opportunity to unlock their potential and he was ambitious for himself content to delay gratification to build a greater future.

Yona had no qualms denying himself for future progress, arguing that even if he passed on there would be someone else who would benefit from what he had laid down.

His worldview, shaped by his success at cricket and business, was that in order to do what one wanted to do, one first had to do what they had to do, the often unglamorous, grunge work and sacrifice, many are unwilling to do today.

"He was not flamboyant, by design, choosing to work his magic in the background, often spurning the praise and visibility that came with success, content in the knowledge that the ones who matter would notice...

Yona, averse to the limelight, took some convincing before he put up a signpost at his company’s recently acquired plot 101, Bukoto street, office block. He argued that he had no walk-in clients, laboring under the romantic notion that if his company was any good it wouldn’t need a sign post. He worked to that end.

Fiercely competitive and quick to voice his opinion if he needed to, no one who knew him thought he was a pushover or anyone’s fool.

A regular at the Lugogo Tennis Club, he often spent Sunday afternoons there with one eye on an ongoing cricket match. He was keen to support the club – supporting an interclub doubles competition and founding a Saturday morning children’s tennis clinic overseen by the legendary John Oduke.

He had his faults, not least of all that he did not suffer fools gladly, among friends or family, blacking them out with a dismissive waive of his hand. Prone to introspection, some thought he was proud and aloof.

Felled in his prime by infective endocarditis on August 6^th, some solace maybe gained from the Greek saying, “Those who the God’s love, die young”

Farewell Yona!

AFRICA’S OPPOSITION WILL TAKE THE CLASS UNTIL THEY LEARN THE LESSON

This week Zimbabwe had its first election in more than 30 years that did not have Robert Mugabe on the ballot paper.

After a tense campaign for the presidency, 23 candidates but, which for all intents and purposes was between President Emmerson Mnangagwa and the Movement for Democratic Change (MDC) Nelson Chamisa, voting took place on Monday.

Mnangagawa was running as the candidate for a revitalised ZANU-PF, which he wrestled from Mugabe last year while Chamisa is the heir to Morgan Tshvangarai, who gave Mugabe his sternest test at the polls in the last election.

The first results in showed that ZANU-PF had won an unassailable majority in the house and despite Chamisa’s loud protestations, it’s hard to see how the presidential vote would go the other way. By the time this column went to press the winner of the presidential poll had not been declared.

It was déjà vu all over again.

"A youthful opposition goes up against an entrenched incumbency, plays up its chances of victory, the media always likes an upset and pumps up the narrative for all its worth, only for a “surprise” victory for the incumbent to happen...

We saw it with Mugabe. We saw it in Kenya. We saw it in Tanzania. We have seen it here in Uganda.

The advantage of incumbency cannot be overstated and more so when it is in the hands of weathered politicians like Mugabe or Kenyatta or the Chama Cha Mapinduzi (CCM) or even Yoweri Museveni.

They are adept at building nationwide support networks, that occupy ground and deliver when activated. It is useful that they have state resources at their beck and call, which means they can cover massive ground, especially long before the campaign season even opens.

This is important because our countries are largely rural, with dispersed settlements. Secondly, we are not all wired to radio and TV networks, which would make it a lot easier for opposition candidates to project themselves without physically visiting every nook and cranny of the country.

Uganda for instance is only 22 percent urbanised. While Kenya and Zimbabwe are more urbanised, they still have at least two thirds of their citizens in the rural areas.

So the opposition in all these countries have concentrated on urban voters, especially the capitals of these countries.

"These populations connected among themselves and with other international networks are then able to create an impression, disproportionate to their numbers, convincing themselves and international watchers that they have a good shot at the prize...

And when the results are announced they have set the ground for charges of an unfair elections, topping it up with the claim that the government stole the vote.

The script is largely the same, only varying in the detail.

Of course the governments in question are not made up of choir boys. It would be naïve to expect they would not take advantage of incumbency. But we have seen it before, when it is time for the old guard to exit the stage there is no amount of tampering or intimidation that will save them at the polls. Even on this continent.

"For fear of looking like blaming the victim, in all these cases it is clear that the opposition does not have a credible nationwide presence. In the period between elections there is little to no work being done to extend their influence, they are often content to heckle the government in the capital, trick them into some brutality which plays “well” on TV  and any other number of grandstanding antics.
In the short campaign period they make enough noise for those looking in from the outside to think they have a real chance at the chair. But alas....

There are no shortcuts. Work has to be done recruiting more grassroot support, nurturing and sustaining it in between elections, for real impact to be felt when the campaigns roll around. Will it be easy? Nothing worthwhile ever comes easy.

Until this happens I am afraid the opposition will continue to take the class until they learn this lesson.

HOW IS IT THAT INDIANS PAY MORE TAX THAN US?

The Indian Association has made the claim that their businesses account for 60 percent taxes collected by Uganda Revenue Authority (URA).

It is an amazing figure given that our Indian community does not make up even one percent of our 40 million population.

I asked online how this was so and the knee jerk reaction was to dismiss the figure, argue that they serve as  “tax agents” collecting VAT, withholding taxes and excise duties on behalf of URA and that the direct taxes component is considerably lower.

They have a point.  In 2016/17 URA collected sh12.9 trillion. Of this the largest single individual tax head was Pay As You Earn (PAYE) charged on workers’ salaries, which brought in sh2.1trillion.  The second largest is corporation tax, levied on company profits, which was about a third of the PAYE receipts at sh764b. Given their small size in comparison to the general population the Indians are unlikely to be the highest payers of PAYE.

We know they are in business and it would not be a stretch to assume that they account for a significant proportion of corporation taxes remitted to URA. And through their business too they collect excise duties and VAT on everything from airtime, alcohol, fuel and any number of the products on which government recovers indirect taxes.

So the doubters are correct to point out that in terms of direct taxes the Indian community is not the leading contributor to the exchequer. On the other hand their contributions to the URA through indirect taxes levied by their businesses is what sets them apart.

"Clearly the Indian community in our midst is punching above its weight in its contributions to the treasury...

The knee jerk reaction to shoot down the Indian community’s claims took me aback at first but maybe it shouldn’t. Because to acknowledge that fact would raise the uncomfortable question, “What the rest of us are doing?”

Either we are working just as hard or harder and dodging taxes or we are just not as productive as our Indian friends. I suspect it is a lot more of the latter than the former.

In a roundabout way it would be nice if it was that we are dodging taxes than being unproductive, because then all URA would need to do is widen its reach and tighten its processes and we should be collecting more and more tax.

If you grew to a sizable company and were dodging taxes it wouldn’t take much for URA to find you. 

So then maybe there are thousands of companies small enough to fly under URA’s radar not paying taxes on their profits or remitting indirect tax. Which is possible given our business landscape where less than a handful of companies have successfully transcended a generation. Longevity is a factor in growing businesses, to avoid URA’s attention can only be sustainably managed if you are a small company not supplying government.

It is widely believed that many companies evade taxes. Evading taxes put a ceiling on your company’s development, you can’t for example supply government if you do not have tax clearance. 

Of course there are companies that supply government that evade tax anyway but at least they pay something.

But tax dodgers can eventually get caught and this is often fatal. The owners of one company, a highly visible company, which had been giving the taxman the run around, saw their owners miss millions of dollars because when potential buyers did heir due diligence and found they had huge tax liabilities walked away from the deal. But that was not all, I think the owners exhausted he leverage they were using to keep the taxman away and URA eventually came around to take over the company and sell it to collect its pound of flesh...

So then we have to ask the question what are the Indians doing that we are not doing. One of the doubters finally managed that the Indian businesses are more formal than our own. A double edged sword because while it means their businesses can grow it also means URA can find them easily. 

Unlike our businesses the Indians seem to have decided that paying taxes is a business expense they need to endure to achieve their business ambitions. We would rather just dodge the tax and stay small. We cut our nose to spite our face?

Informality is not a uniquely Uganda problem. Businesses all over the world start informally. They remain so because the cost of going formal is too high in term of money, time and effort. Our raking nearer the bottom than the top of the World Bank’s Ease of Doing Business rankings provides sufficient proof that this the case in Uganda.

It takes 24 days to register a company versus half a day in New Zealand, it cost you 195 hours a year to pay your taxes versus 50 in Estonia, it takes 122 days to get a construction permit versus 27 days in South Korea.

But the Indians suffer all those obstacles and formalise their businesses why don’t we?

There are four reasons to start a business – to feed yourself, to leave a legacy, to sell it or for philosophical reasons.

"The difference between us and Indians is that we normally build businesses to feed ourselves, for lifestyle purposes. The most basic Indian businessman builds a business to pass on to the next generation. The mentality, levels of commitment and organisation needed for either business are worlds apart...

There maybe many other reasons but if we are to examine the reality and learn from it that would be a good place to start looking.

MARKETS QUIETLY CHANGING THE ECONOMY

This week it was reported that Uganda is in danger of becoming the continent’s biggest exporter of dairy products.

According to the report Uganda’s dairy producers are in line to export $150m worth of dairy products which will put them at par or ahead of South Africa whose export receipts have oscillated between $130m and $150m.

This good news on many fronts. To begin with it means that the investments in the dairy industry over the last three or so decades are beginning to pay off. In the 1990s there was a determined effort to dot the milk producing countryside with milk coolers. These would take delivery of farmers’ milk and serve as a collection center for transporters to the processing plants. Milk which was previously fed to the calves or poured down the village paths now had new market.

Secondly, the millions of dollars in processing capacity has more than compensated for the start-stop nature of operations of the previously government owned Dairy Corporation. This has created more demand for milk products.

But what was even more heartening for me to read was that as a result of our own low milk consumption of about 65 liters per person annually as compared to the World Health Organisation (WHO) recommended 200 liters, some producers have chosen to specialise in producing powdered milk or extracting casein, a protein contained in milk and used widely in the health and fitness industries.

"However this burst of activity and in several other agricultural sectors have been spurred by the increasing connectivity in the region, which has pushed Uganda’s trade with East African Community (EAC) to $5.5b last year from $1.5b in 2005...

While greater regionalisation has increased our commercial interactions, as a proportion of total trade it only constitutes 9.4 percent. That is both bad news and good news. The bad news is that we are still locked in the colonial trade networks which mean we trade more with Europe than with ourselves.

The colonial trade networks were designed to extract raw materials from Africa for their industries and us serving as token markets. This network meant for example that we do all our trade through Anglophone Kenya and very little through former Belgian colony Democratic Republic of Congo.

The bias is seen in the transport, energy and ICT networks between Uganda and its eastern and western neighbour.

As a measure of how deficient we are in this aspect, trade with Asia accounts for almost 60 percent of the region’s trade. The same figure for the European Union is about 70 percent.

In both these instances their transport infrastructure is well developed whether road, rail, air or water compared to our in the EAC or in the continent as a whole.

The African Development Bank (AfDB), which has identified this shortfall as an impediment to the continent’s development has committed some resources to bridging the deficit. It said in a recent report it had financed the development of 400 km of cross border roads and a single one-stop border post.

They believe regional trade will be more competitive with continued improvements in transport, energy and ICT infrastructure, lowering and/or elimination of tariff and non-tariff barriers and the harmonisation of monetary policies.

The challenge of course is that our bureaucracies, slow as molasses, out of incompetence, corruption or because they are aligned with powerful lobbies that want to maintain the status quo are clearly not doing enough, fast enough.

That means on one hand there are farmers in the region either stuck with their produce, being forced to dispose of it at a bargain for lack of access to markets. While on the other hand there maybe areas of food shortage that cat be helped once again for lack of access to the producing areas. Needless stress on either side.

"In fact with improved connectivity greater efficiencies can be created around the region. Why should anyone else bother growing matooke in the region when we have the best soils and weather for it in Uganda? With improved infrastructure our banana industry would be able to deliver matooke anywhere in the region. This would allow those areas to focus on what they are best at....

As a region to take this even further we should seriously consider setting up commodity exchanges, where produce can be traded. This will ensure farmers get them most favourable prices available on the market by bulking, guaranteeing quality and as a result lowering the transaction costs of their clients.

For that to work  we need greater volumes of what we are producing.

But for a start the promise is there. All we need is greater urgency in lowering barriers to trade, accelerating the development of intra-regional infrastructure and maintenance of peace and security.