COCA COLA, AGRICULTURE: UNLIKELY BEDFELLOWS?

The bottlers of Coca Cola, Century Bottling Company, recently released a new product onto the market – milk!

Yes. You read right! Their new brand of beverage going under the brand name Climb Up is bottled flavoured milk -- Vanilla, Mango, Strawberry and Chocolate flavours.

That would be as interesting as it got, were not for the fact that the new product is drawing largely from local producers and suppliers.

For the second half of this year, the beverages company plans to consume 13.5 tonnes of powdered milk and 18 tonnes of sugar, with a commensurate amount of labelling, packaging and plastic bottling all provided by local suppliers.

The local producers and suppliers now being allowed a look in on the multinationals marketing and distribution network, it is safe to assume will cause dramatic changes in those industries.

Take milk.

"It takes 8.5 liters of milk to get a kilogram of powdered milk. So Century Bottlers current powdered milk commitment will account for about 114,750 liters of fresh milk. While this demand doesn’t dent Uganda’s current annual 2.5 billion liter production, there is cause for optimism looking down the line...

There are few other companies in Uganda that can stand toe to toe with the Coca Cola makers marketing reach and experience.

One can expect that with the company’s marketing and distribution network being brought to bear on their latest offering, their demand for milk will grow exponentially.

The latest news from the Dairy Development Authority (DDA) is that thanks to our increased exports of milk to our eastern neighbour Kenya we have reversed the historical trade imbalance between our two countries. And as if that is not enough we have just overtaken South Africa as the continent’s largest exporter of dairy products.

Industry players say there is still a lot of potential for milk production in western, eastern and northern Uganda and it is reasonable to think that Century Bottling will play an instrumental role in this endeavour.

BUCKLE UP, THERE IS STILL A LOT OF WORK TO BE DONE

Little mentioned in the press, but since the beginning of the month the contractors have been impounding the reservoir at the $590m Isimba hydro-electric power dam.

Impounding, I learnt, is the act of filling the dam reservoir with water. It is estimated that it will take about two weeks to fill. This ahead of the anticipated commissioning of the 183 MW dam early next year.

Not unlike watching paint dry, I imagine, but this event is still an exciting time for all concerned.

While this was going on I paid a visit to the Karuma dam in northern Uganda. The finishing touches are being done at the dam, which will produce almost thrice as much power as Isimba dam.

"The $2.2b project has been in development since 2014 and is only the second of its kind on the continent, the other being the Ruacana power station in Namibia...

The unique feat of engineering will see water from the Nile diverted down the to the power station that is almost 100 meters underground, before the water is then ejected about 8 km downstream to re-join the river on its journey to the Mediterranean.

I simplify, of course.

Deep in the bowels of the dam – they say enough rock to fill 15 Nambole stadiums was excavated to make it happen, it hit me like a sledge hammer how much more work this country needs to do.

If the target is to generate 17,000 MW or the equivalent of 28 more Karumas, in the next ten years we are way behind schedule.

For starters going by the current average of $3m per MW cost this ambition will cost $51b or twice the size of the Ugandan economy to make it happen. Just makes you want to lie down and give up doesn’t it?

But giving up is not an option given that the population is set to double every 24 years.

Over the last three decades the economy has grown at an average of six percent during that time the economy has grown almost six fold to the current $25b but poverty persists among many Ugandans, as unemployment grows every year and the cost of living rises.

This only makes sense when you understand that a small part of the population, the educated urban elite, have benefitted disproportionately compared to the rest of the mostly rural population. They have enjoyed rising incomes and improved social services, which add up in many cases to upper middle income economy lifestyles and in some cases even first world lifestyles.

A major reason for this is the concentration of infrastructure and services in the urban areas especially in Kampala.

Unlike in the rural areas where people still need to walk some distance to a health center or a school or even a water source in Kampala everything is within easy reach and now more and more a few clicks on your phone away.

This access to everything to the already educated has a compounding effect on their standard of living which sets them far apart from their rural cousins.

"In order for the rural populations to play catch up we need, no must, increase electricity coverage nationwide. Access to electricity would ensure better health services – incubators, oxygen machines, refrigerators, theatre lights are all powered by electricity; better education achievement – kids would be able to study longer; more agro processing facilities to suck up rural produce and hence higher incomes....

That the growth has not be spread more evenly – using access to electricity as a measure, means we have a long way to go and particularly in financing these much needed projects.

Two key things have to happen. One, we need to step our resource mobilisation, not only local tax revenues but also our ability to save. Secondly, we have to ensure that the relevant agencies to deliver these infrastructure projects are well manned and resourced.

For starters we do not have the resources locally to generate all the power we need, but with improved tax collections we would be able to afford to borrow a significant proportion of it. The people arguing that we are borrowing too much have it wrong, we actually are not borrowing enough to bridge our infrastructure gap. This due to our low revenue collections – about 14 percent of GDP compared to a sub Saharan average of 16 percent, this alone puts a cap on our ability to repay the loans and hence not make us a very bankable proposition.

Given the growing economy and our huge informal sector just tweaking the political will to collect from more people from whom tax is due would go a long way to resolving our revenue issues.

And the second point about competent agencies that would deliver on this project is why the current slapdash attempts at rationalising government are dangerous. Enough said.

WE CANNOT ERADICATE POVERTY WITH MONEY

When still finance minister Gerald Sendaula once said in response to a question about solving the poverty question,  “You cannot throw money at poverty and hope to eradicate it.”

At the time I thought the statement was strange.

If poverty is absence of money and you throw money at it haven’t you sorted it out?

Sendaula has been proven right many times. We have seen money being donated to people and communities around the country. There is an initial improvement in welfare, more form the euphoria than anything else, before the beneficiary communities fall back into poverty.

They are probably worse off because they have now tasted the “good life” so their impoverished state is now even more painful.

"The idea that money is the solution is based largely on the flawed analysis that the main – and sometimes the only, reason our start-up businesses are floundering is for lack of cash...

The other day a report was released, which showed that only 2.8 percent of the youth in the country have access to credit and as way to ease access some youth have suggested that financiers should take their academic transcripts as collateral for the credit.

Hopefully it will not be taken seriously because if it is, it will only aggravate an already bad situation. 

This kind of suggestion is clearly made from a position of ignorance of how financiers operate.

I suspect most research done into the plight of entrepreneurs, whether youth or not, is done by people who have not been entrepreneurs themselves.

To read these papers they put lack of capital at the top of the agenda, that if the entrepreneurs, youth had capital all will be alright.

Tell that to a retired NSSF saver who blows his millions on enterprise after enterprise and now has to find a job again. Tell that to the lottery winner, the sensible one who decided that with his winning he would start a business and today has little to nothing to show for it. Tell that to any number of people who have earned a windfall by virtue of their position or birth or luck and have tried to go into business and have seen their windfall slip right through their fingers.

What these youth need urgently is some training in financial literacy and business management, but more importantly mentorship by someone who has already travelled the path they want to follow.

And if they are faithful to the process, described as being beaten down seven times and getting up eight times, they will understand that money is not the problem.

In fact, in reality there is too much money flying around all one has to do is reach out and grab it.

Using mobile money as an example, last year about sh54trillion was transacted over all mobile money networks which comes to about sh31 million every second. If you think about this money is going from mobile account to mobile account through space, wheezing past, over, under and even through you. And we haven’t even started talking about the many more trillions that transact through the banks.

The trick is how to get a piece of this action.

"To begin with, the youth need to understand how a company works. A company beyond sharing risk, is a universally understood structure for creating value. The company brings together resources and if it is efficient, the output is value. If not there is a loss of value and the company’s promoters either change the way they do things or the company goes bust....

And when I talk about a company, I am not talking about registering – any fool can register a company, I mean do you know how to make it work.

To make it work takes hard work and sacrifice –  you learn, among other things, that as the owner of the company you get paid last. In the initial stages you may not get paid at all.

This is important and answers the issue about a lack of capital.

The companies that work, that is that produce value, never lack for capital. If the youth have no access to capital it’s because they have not understood how to organise themselves into a company, essentially to work together towards a shared goal.

A financier – a lender or investor’s most important consideration is “How will I get my money back?” Failure to satisfy this most basic of conditions is what leads to a lack of capital.

It is true too that Uganda has no formal financing options for startups. Our financial sector is dominated by commercial banks, who at best lend only to going concerns. But our youth will still have a better chance than not if they learn and practice how to operate like companies.

Key to operating as a company is to have financial statements, which without visiting your operations a financier can get a good idea of your enterprise’s viability and make an informed decision on whether to invest or not.

If you understand all tis you will see why your engineering or medical or even accounting degree cannot serve as collateral for your business.

It does not answer the financier’s key question “How do I get my money back?”

WE DON’T WANT UEB BACK

I remember it like it was yesterday. Then energy minister Richard Kaijuka had just had his attempt at amending the UEB (Uganda Electricity Board) Act thrown out by parliament. Government needed to create a law that would allow for the unbundling of UEB.

This was necessary to attract investment into the sector and create specialities that would lead to a greater efficiency within the sector.

“The problem with this country is politics,” Kaijuka complained then. “It is a small economy, a small portfolio in a European investment bank. It can be turned around were it not for the politics.”

The economy is now three times as it was when Kaijuka said those words on the steps of parliament in 1998 but the politics continues to dog its every step.

The ministry returned to the drawing board and brought brand new laws that eventually split up UEB into its component parts, generation, transmission and distribution and in addition spawned the Rural Electrification Agency (REA) and the Electricity Regulatory Authority (ERA).

As a result of this action billions of dollars have been invested in the sector that is doubtful would have happened under the amorphous UEB.

And yet we want to reverse this inspired bit of policy today. Many times in this country you don’t know whether you want to cry or laugh.

Under the new plan to rationalise the government Uganda Electricity generation Ltd (UEGCL), Uganda Electricity Transmission Ltd (UETCL) and Uganda Electricity Distribution Ltd (UEDCL), essentially the former UEB operations, are to be merged as a way to create savings.

"With every strategy there is a trade-off. In this case government is signalling that it is trading off the created efficiencies in the industry for spurious savings, which would not stand up to serious scrutiny...

Of all the turnarounds in service delivery that came out of the privatisation and liberalisation drive of the 1990s the electricity sector in this country has to be up there with telecommunications and banking.

For one thing there has been increased investment to the sector to the point that at power generation has jumped fivefold from the 180MW of the Nalubale dam and power consumers have followed suit rising to the current 1.5million from a paltry 240,000 in 2005 when Umeme took over the distribution concession.

In both generation and distribution government still owns the assets under the respective holding companies UEGCL and UEDCL.

The natural progression is that these holding companies grow to invest, manage and attract investment in their respective sectors. With electricity enjoyed by barely one in five Ugandans there is great scope for expansion.

As it is UEGCL is getting ready to take over the Isimba and Karuma dams, whose completion is expected in the next year or so.

To return UEGCL into some amorphous structure will not help its mandate. As it is now they are already working with their hands tied behind their back.

In the computation of the end user tariff UEGCL accounts for under one percent of the tariff, but this is artificially low as they are not allowed to provide for return on equity and depreciation of assets as the private concessionaires – ESKOM and Bujagali are allowed to do.

What this means is that when UEGCL takes over Isimba and Nalubale it would have to still resort to government for funds, even if the dams have the potential to be commercially viable.

The last thing any self-respecting manager wants is to be reliant on government for hand-outs. With government priorities change, revenues do not come in as budgeted and any other number of things that would prevent one from getting their fair share of the budget.

For UEGCL imagine a turbine at the dam goes down but government cannot release money because government needs the money for something else or doesn’t have the money anyway.

ERA needs to allow UEGCL and even UEDCL – which accounts for 0.4 percent of the tariff, to charge depreciation and even return on investment is that when they take over they need not revert to government every time they need to replace plant and machinery.

"The logic of unbundling the old UEB still stands nothing has changed to suggest a rethink of the sector. Just because the sector has grown does not mean we reconstitute UEB. In fact the contrary is more true now than ever, the industry has developed a momentum of its own and we should allow this mature especially as the president has said that we need 17,000 MW in ten years to fuel our development ambitions...

It is conceivable that, like the electricity generating company Kengen in Kenya, UEGCL will one day take over the Nalubale and Kiira power plants and even Bujagali to add to Isimba, Karuma and any number of power generation plants they will have developed.  

We will be going against established logic and good practice to fold them back into some amorphous entity and in addition we cannot tie their hands behind their backs and hope for a miracle. In fact if we do that we will come back full circle to where we were in 1998 looking to unbundle the new UEB – again.

IS THE ECONOMY LOSING MOMENTUM?

Last week the World Bank released its annual Ease of Doing Business survey and Uganda had dropped five places to 127 out of the 190 economies surveyed.

It is common sense that for businessmen to operate or thrive in an economy certain things have to be in place like macroeconomic stability, predictable policy environment, an efficient bureaucracy, usable infrastructure and  quality human resource.

The World Bank annually goes around measuring these and other metrics to determine whether a country’s environment is suited to doing business.

Being who they are, their judgement on a country’s economy is carries some weight in many circles.

The story is told of how MTN happy playing second fiddle to Vodafone in South Africa, had to convinced to invest in Uganda because the official reports on the economy  -- we had a per capita GDP at the time of just under $300, did not reflect the suppressed demand for everything from phone services to electricity.

When they finally made their way here --- not kicking and screaming, they were pleasantly surprised to an economy more than ready for mobile phone services.

"So while you are advised not to take all the World Bank and other donor agencies at face value there are certain fundamentals that cannot be ignored...

So say you are investor with billions of shillings to spare, rather to invest and you decide to take a punt at Uganda.

When your assistant plops the report on your desk, you decide it’s really not much to look at.

I mean they have a GDP of $25b, which can fit in a corner of Boston; an urban population of under 10 million, little industry and not enough energy to power a city in the US. Nothing really jumps out at you.

Maybe they are in advanced stages of forging an East African federation of about 140 million people, with an urban population of 40 million.

In the country’s lack there is opportunities to be had all over the place of course.

Maybe you could be involved in power generation, the potential on the River Nile of about 4000 MW has barely been tapped. Or maybe you could get involved in the hotel business, they barely have 5,000 beds. Or maybe you could dabble in agriculture, produce beef say? Can you believe they only produce 107,000 tonnes of beef annually. Texas alone produces at least $10b worth of beef annually – or about half the size of Uganda economy.

But somehow you find yourself at the carousel at Entebbe Airport one morning, watching it going around and around, waiting for your luggage. Just when you think it may be lost or stolen (you have heard such stories about Africa) it pops out and you are off to see what Uganda has to offer.

It helps that you can hail an Uber at the airport. It helps too that you can get to your air conditioned hotel room in under an hour, though half the time was spent in traffic after you exited the swanky new expressway to your hotel. It helps too that they have clean, bot overpriced hotel rooms and the food is recognisable to your palate.

You decided to hit the ground running with a series of meetings in the afternoon but no one is on time or meetings have been shifted around or worse cancelled.

To fill up the time you try to ask around, investigate how long it takes to get anything going and you realise your three day stay ( you were worried about the mosquitos) will be embarrassingly  less than adequate to get anything done.

The facilitating agencies and associations you are used to at home are clueless or non-existent altogether. No one really knows what works and can explain it to you in a way you can understand for consumption by your business managers.

Potential is all around you can tell, but little evidence of the facilitators to unlock this energy.

How many opportunities for this country have gone begging because we can’t keep time? That is before you realise you cannot get any actionable information from anyone and this is even before someone has tried to shake you down.

Many years ago I visited Mauritius and was shocked that everyone wanted to help me with directions. It was obvious I was a visitor, my colour of course. My impression was that everyone was wired to make visitors comfortable because tourism is a big thing on that small island of four million. They have 300 five start hotels – real five star hotels!

"The point is, the attraction and retention of investment – local or foreign,  is not the job of one agency or another. It has to be a collective effort. And if your agencies work in silos like they do here, it will show straight from the airport carousel....

So the World Bank ease of doing business, its shortcomings notwithstanding, is a measure of how coordinated as a country you are to helping business along and we are not only talking foreign investors.

ALLOW UNRA TO BECOME ANOTHER NWSC

When history is written one of the best things the NRM did to this country was to privatise the state owned enterprises and break up their monopolies in everything from telecommunications to produce marketing to power generation.

At the time these things were happening in the 1990s the hecklers said we the economy was being handed over to the foreigners, they would gut it, bury it and hand us back the scraps.

If these people had their way we should never have privatised these companies, just injected more capital in them (from where your guess is as good as mine), if not hand it over to local businessmen and keep the companies in local hands.

In life there are things that look good but don’t work and things that don’t look good but work. Which side of the table would you like to be.

We forget that for the first four years the NRM listened to these “nationalistic” voices – some of them are still shamelessly among us, and in order to support this baggage of non-performing companies, government was haemorrhaging the little money it had – we were collecting less than five percent of a very small GDP, in revenues. And if that failed the government printed money to support these carcasses which sent inflation shooting through the roof.

"In the budgets of those years the finance minister, embarrassed to report the annual inflation figures, would talk about inflation in months. So you would hear that inflation had dropped to 25 percent per month, which was actually about 300 percent a year. Now when inflation reaches 30 percent a year like it did in October 2011 we “walk to work”...

Inflation comes when there is too much money chasing too few goods. So government was printing money to pay salaries for companies that were not producing.

The problem was not that these companies did not have money, they lacked management –an executive floor full of MBAs is not necessarily good management and the context or environment in which to manage well.

Culling these shells from the government budget did a number of things but more importantly, it saved the government billions of shillings – in the case of Uganda Airlines Sh10b monthly or about $10m at the time, that they could deploy to other more pressing needs and secondly, and just as important, in released the new owners and management of these institutions from the stifling, often corrosive burden of government oversight.

I shudder to think what the situation would be today if government still had a strangle hold over the electricity, telecommunication and produce marketing sectors. It would be a disaster.

However there were exceptions to the rule.

Last week the Global Credit Ratings company, a leading emerging markets credit rating agency, judged National Water & Sewerage Corporation (NWSC) a good credit risk, essentially that money lent to them has a better than good chance of being repaid.

You cannot wish such things into existence. These rating agencies check not only your financials, but the systems and structures that deliver these results as well as the market one operates in.

This is a culmination of work that started with Dr William Muhairwe’s  promise, nearly 20 years ago to turn the company, which was on its last legs, around in a 100 days. Truth be told Muhairwe, as with other managers of the time, was charged with preparing the company for privatisation. His mission got lost in translation and he did not play to the script.

The import of that credit rating is that NWSC has access to unlimited funds in a way that few other companies in Uganda – public or private, do.

It is an outlier.

"For national pride or whatever you want to call it, it would do us good to identify credible management teams that deliver on their mandate and let them run with the ball...

Which brings me around to the rationalisation of government departments and particularly the reabsorption of Uganda National Roads Authority (UNRA) into the works ministry.

Despite struggling to restructure the authority over the last three or so years, the management has managed to deliver projects, in time and cheaper than previously, and is on the verge of achieving take off. It has not reached the level of NWSC but has revived lender confidence in its capacity to absorb funds and deliver on projects.

If things go as planned the momentum they have built will be invariably lost with a return to a ministry they were hived off from for exactly the reasons it should not go back.

UNRA is not any agency. It is charged with widening and maintaining our national road network. In the absence of credible railway network, it is imperative that our road network be in tip top shape. The need is there, we have a road network five times as small as neighbour Kenya’s per unit of land area, what we need is access to funds and the capacity to build these roads.

It has gone silent on this restructuring talk, which in my experience is never a good thing and means they are going ahead with it anyway. I would like to be wrong on that.

FINANCIAL INCLUSION HELPING ROLL BACK POVERTY, INEQUALITY

If you are reading this paper issues of financial inclusion do not directly affect you. Or so you think.

You probably suffer a short memory or are too young to remember the days when having a bank account was a status symbol. Or that getting a loan was for a select few who had titled land in Kampala they could serve up as collateral. Or at an even more basic level that access to financial services was restricted by geography – in the capital all banks were located on or near Kampala road. 

Or that banking services were only accessible between 9 am and 1 pm and good luck to you if you miss the Friday close of business. Not only did no bank open on weekends there were no ATMs.

Your challenges with the banks now is the high lending rates and their inability to support your start up business – commercial banks are not designed for that.

The proliferation of banks now means more and more people have bank accounts today – about five million accounts in the 24 commercial banks today.

"While banks have expanded their activities dramatically in the last two decades or so, by far the most prevalent traditional financial service available, they still struggle to reach the majority at the bottom of the pyramid....

This week is financial inclusion week and the theme is “Getting Inclusion right”.

The emergence of mobile money has with one blow answered the challenge of lowering the cost of and providing wider accessibility of financial services.

So much so that in a recent survey where respondents were asked about their usage of financial services in the previous three months, usage of mobile financial services was reported at 36 percent last year up ten percentage points from 2013. Banks on the other hand so active usage fall to seven 

percent of respondents in 2017 from 10 percent in 2013.

Improved technology is improving access to financial services – mobile money accounts have exploded to 22 million in the last ten years or so, and already credit, insurance and hire purchase services are being offered over the phone.

But there is still a long way to go. While we have improved financial inclusion from 22 percent in 2006 to the current 43 percent, the full benefits of this shift are not widely appreciated or enjoyed.

So what? Why should financial inclusion – accessibility to a variety of financial services, be so important to you and I.

On a macro level it does several things among which it aggregates more and more of those little monies lodged under our mattresses, in our socks and bras for use among more people. And relatedly it increases the speed with which money moves around in the economy generating more and more economic activity.

On a personal level it improves safety of our money, carrying all your savings around with you is an accident waiting to happen. It increases the ease with which we can do transactions – increasingly now we don’t need to walk around with cash to buy anything. We don’t know it but that convenience represent savings of time which can be gainfully employed on other endeavours.

But it also allows us to have access to leverage or debt, which in effect increases our capacity to do more with less. If you were to buy a plot of land which would cost you sh10m to try and save the money from your income would not only take time but there is no guarantee the plot would still be sh10m by the time you have saved up. Borrowing would hasten the process and therefore the speed of wealth accumulation.

So for the economy as a whole and our own individual improvements in standard of living, the importance of having as many people as possible with access to financial services cannot be over emphasised...

There has to be a discussion between the policy makers, regulators, market actors and intended beneficiaries on how to further this agenda in way that while it maximises on the benefits, guards against the possible risks of a large financial sector.

The major challenge for countries like Uganda and at the heart of the poverty question, is the inability to unlock the full value of our land, human and capital resources. In all these cases but for purposes of this argument, our financial resources are not aggregated in meaningful sums for them to be deployed to finance projects that create jobs that transform economies.

Financial inclusion therefore is a means to an end. For quality, sustainable   economic growth financial inclusion is imperative.