THE SUNKEN BOAT AS AN ANALOGY FOR OUR ECONOMY

Last weekend a boat capsized in Lake Victoria. At last count 32 people were confirmed dead of the more than 100 revellers who were on the boat.

According to survivor accounts the boat had slowed to a crawl, was taking in water, when its engine failed, the lights went out, the music stopped and it went under.

Fingers have been pointed at the boat owner, the marine authorities and the partygoers. It is clear that all parties shoulder part of the blame for the tragic disaster. I hesitate to call it an accident.

"I couldn’t help feeling that the whole event had an ominous resemblance to our economy...

To begin with we are overloaded not for the size of the country --- England about half the size has a population of 55 million and no one is complaining, except the Brexiters who don’t want any more people coming in.

 It’s the size of our economy which is the problem as the engine was for the MV Templar. It was stuttering and stalling, grinding and groaning under the weight of the merry makers on deck. Our economy of $25b is barely keeping us afloat at $600 per capita.

A combination of historical accident, the total collapse of the economy in the 1970s and 1980s, while the population continued to grow, set us up very badly for today. The boat it is said was dragged out of the “garage” for the weekend event with the mechanics still below deck tinkering with the engine, whose model we would not be surprised had long past its sell by date.

Our economy too seems to be stuck in a time warp, our planners still stuck in their “Economic for Eastern Africa” by Livingstone & Ord, text books. The fundamentals remain the same its true, but we seem unable to build on those fundamentals to keep up with the information age in which we are living.

"But like the ill-fated weekend revellers living a fiction up on deck while the people below are engaged in a futile effort to shovel water out, we continue with our lives refusing to make the sacrifices (pay taxes) to not only keep the economy going but get stronger and stronger...

Our tax revenue collections to GDP are at about 14 percent, which is why we cannot finance our own budget and need to go out to borrow to bridge the deficit.

The insufficient life jackets are a useful parallel for how the economy cannot finance adequate services for all. The people who enjoy the services are those who are connected or those who know how to access the services, through their connections or being in the right place at the right time.

The boat management instead of charging everyone a fair rate so they can provide each with a life jacket, opted to charge a minimal fee that will attract numbers and forget about the safety precautions.

The loud music and copious amounts of alcohol are enough to keep  many oblivious to the  impending doom just like in our economy because we are relatively secure, healthy and getting along we do not pay attention to deficiencies in the institutions supposed to deliver public goods – the police, the health and education sectors. Until it is too late.

A constant theme that run through many survivor accounts is that they sat up and took notice when a speaker fell into the water, when the ship begun to keel over.

But there was no more ambiguity about the situation when the engine died, the lights went out and the music stopped.

We need to shift the economy into production and away from donor dependency. To do this we need to raise our revenues, emphasise quality education for all, improve the business environment and accelerate our infrastructure development.

To do all this will take hard decisions, many decisions which seem unpalatable as long as the music keeps playing. It will also take sacrifice by all, especially the urban elite who have had it so good for the last three decades.

"The signs are there, we don’t have to wait for the speaker to fall into the lake for us to start doing something....

HOW TO TELL AN INVESTMENT FROM A SCAM

Last week arrested the Charles Lambert Nwabuikwu, a Nigerian born Briton who through his Development Channel promoted a Ponzi scheme that came crushing down months after it was opened. But not before he had separated hundreds of Ugandans from their hard earned cash.

In another news event National Social Security Fund (NSSF) announced that the option to take out their accumulated savings in phases was open for those who qualify to withdraw their savings.

A saver with NSSF who attains the age of 55, is rendered invalid, leaves the country or attains the age of 50 and is out of work for a year qualifies to withdraw their savings. However it is not mandatory that they withdraw it all in one lump sum.

The Fund’s research has shown that after barely two years of withdrawal of their savings about four in five people are totally broke and have nothing to show for the windfall. Popularising the partial withdrawal is their way of guarding against this for other members.

The challenge with happening upon a huge sum of money, we assume that because we have a lot of money we have now become super businessmen or have become investment experts. We labour under the widely publicised illusion that the solution to our money problems is more money --  “If we had more money our business would survive/thrive”

Here are a few common sense tips is you fall into things, NSSF or otherwise to determine an investment from a scam.

1.       How do they make money

If someone approaches you with a investment or business proposition understand first how they make money. Most propositions are a variation of the buy low, sell high theme. So they will buy maize, beans, coffee, whatever at price X and sell its (X+costs +100) shillings, which 100 shillings they share with you. If you understand the way the business works you are off to a good start. That is why you are advised to invest in what you know, it saves you the learning curve that comes with costs.

2.       What is their experience

Management is everything. You can have two businesses in the same industry, one thrives while the other struggles or collapses. More often than not the difference in their respective fates comes down to the management of the businesses. Do the people you are handing over your money to have any experience in the business they are hawking? In this case the experience you are looking for is that they know how to make money doing the business, not just that they worked in the industry as employees or managers.

3.       How long before you get your money back

The promoters of Ponzi schemes seek to dazzle you with this in the hope that you forget to ask the hard questions above.

Development Channel for instance was selling tablets for sh750,000 with a promise of a monthly payment of sh350,000 a month for life. This a return on your money of 460 percent per year. What this means is that you will get your money back in just over two months. Is this a fair return or not? The best to know is by comparing with other investment opportunities in the market.

The safest investment in the market are treasury bonds and bills, these represent debt the government borrows from the public.  As of November 7^th an investor can earn an annualised 11.25 percent on the 91-day treasury bill and 17.50 percent annually on the 15 year bond.

So far these are safest best in the market, meaning that any investment proposition should promise you, better still pay you higher than these rates. The higher the risk the higher they should pay you.

So when Development Channel comes along and pays you more than 20 times what the government is offering you alarm bells have to go off.

Two questions immediately arise, how risky is this business that they are willing to offer so much and secondly, remember whatever they are paying you is after they have taken off their own cut, that means the business is actually showing a higher return than 460 percent! What are they dealing in to show such returns? Drugs? Black dollars?

If you are in doubt about the returns see #1.

4.       Does the “investment” bring meaning to your life

And if you have convinced yourself of the above the final test would be whether this investment is in line with your morals, does it have meaning for you. So for instance out of religious convictions you might not be interested in investing in money lender or banks or condom factories.

Of course the more money you have to invest the more detailed the vetting process would be. If all the above four criteria are met to your satisfaction only then can you begin to consider the investment if it is one.

IS UGANDA BECOMING A GANGSTER NATION?

There is a lot to worry about our beloved country not least of all the proliferation of “tycoons”. No sooner has one passed on or been jailed, than three others pop out of the woodwork to take their place.

This week a video went viral of one of these “tycoons” stacking up wads of notes in his bedroom. No sooner had we caught our breath, another one was being plucked out of the ceiling of his unfinished mansion. The police has put out multiple summons for him, which he had flippantly ignored (Who does that?). We have one languishing in jail in the United Arab Emirates (UAE) and another in a South African prison. Another disappeared into thin air, the last we knew he was a “guest” of the Kenyan state, a status which probably still persists...

And these “tycoons” are not hard to spot. They have two defining characteristics – among others, they burn through money like they have fire in their pockets and no one knows the source of their billions.

They are good entertainment while they last but they mask an insidious trend creeping up on us, that if it plays to its logical conclusion could have far reaching and dire repercussions not only for the economy but for national stability.

In western economies, in the UK for instance, if you whipped out a $100 bill to do your shopping the shop attendant would do a double take. In economies where most of their money in circulation is in the formal financial sector, where everything can be paid for using plastic, only criminals walk around with such large denomination notes.

In Uganda our largest denomination note is the sh50,000 note, and nearly all our transactions are in cash, we will be forgiven for waving these large notes around willy nilly. But when a group of people of no known occupation start using wads of notes for construction and are blasé enough to show it off on social media, the conclusion can only be one.

On a moral level these ostentatious shows of wealth are misleading and demoralising. Misleading because impressionable minds, especially the youth, looking on think this is the way one should spend money and that such money is only made by “shrewd” people.

It is demoralising because honest workers, exercising brain or brawn, begin to think they must have missed a memo. They may even get distracted from their diligent work to look for the one deal that will set them on easy street like these “tycoons”. What happens when the real producers in the economy stop producing?

"Drawing from that there is a real danger that these “tycoons” are serving as the backdoor for criminal gangs to come and entrench themselves in this country. It is not by mistake that enough of them are cooling their heels in jails from China to Dubai and from Kenya to South Africa...

The nature of organised crime is that it is not content to go about its business quietly. It is keen to co-opt influencers, government officials and security agents into its nefarious ways and if given half a chance to take over whole governments in order to facilitate its nefarious ways.

In South America governments are diverting massive resources in their war against drug cartels, who have, in many instances superseded their respective governments as the law in the areas over which they lord. And from these bases they have extended their influence across borders and oceans, extending their networks and financing other networks – smuggling, human trafficking, gun running and money laundering rings, that facilitate their work.

In the 1990s Montenegro in order to circumvent EU sanctions and raise revenues, leased outs port and airstrips to smugglers. The better intentioned fashioners of this policy probably thought that when the country was back on its feet they would kick out the criminal rackets and normal service would be restored.

But no, the criminals inserted themselves in every aspect of Montenegrin life to the point that a few years ago Italy put out an arrest warrant for the then Prime minster Milo Djukanovic for his role in a cigarette smuggling ring.

The state had been hijacked by the thugs and pimps.

Uganda’s central location in the world makes it a strategic node in a potential criminal network.

In the US the Internal Revenue Service (IRS) comes knocking if you start living beyond your means. Our own URA and the Financial Intelligence Authority (FIA) should take more than a passing interest in these “tycoons” when they pop up.

It may be the difference between becoming a gangster nation or not, somewhere down the line.

IS STANBIC BUSINESSES’ WHITE KNIGHT?

Last week Stanbic bank signalled a shift in how they do business with the launch of their “Wealth Value Proposition”.

The new offering will go beyond the traditional banking services to include introducing their clients to their insurance and wealth management products provided by their affiliates Liberty and Stanlib, respectively.

The bank by gaining an intimate knowledge of how they make and spend their money, advising on saving and investment and helping them plan and protect their money, will help its clients improve their financial health in the short term and ensure they leave behind a durable financial legacy. This service will be offered to their individual and corporate clients.

"If executed properly this single initiative will not only boost Stanbic’s bottom line (as if they needed any more help) but be good for the economy as a whole....

For the bank it will be a shift away from churning out products to actually paying attention to what their clients’ aspirations are, putting their resources and expertise at the service of attaining these goals.

For individuals it will bring for the first time, in the vast majority of cases, an appreciation of financial literacy in a very practical way, not the “information”  being peddled by snake oil salesmen.

But the real benefit will be to businessmen, particularly the Small & Medium sized Enterprises (SMEs).

According to the bank, in Uganda only one in four businesses opened live to see their third birthday. The fold because mostly because they don’t know what to do and don’t know where to go for help.

Relatedly there are serious gaps in the financial industry that make it difficult for small business to access appropriate credit for their stage of development.

As it is now the financial industry is dominated by the commercial banks, which are ideally suited to working companies with regular or growing revenues, dealing in predictable products and services.

Between scrapping together personal savings and relying on the generosity of friends and family to the point where a business can gainfully engage with commercial banks, there is a dearth of the kind of financial services SMEs require to not only rise to the next level but to survive.

In other markets there is vibrant business support services segment  – often run by the government, which helps small businessmen with help in market research, incubation, mentorship programs, grants and loans.

If a business outgrows this help it might then be taken over by the venture capitalists, people who are willing to finance and handhold a business’ through its teething pains, for a share in the company. 

The private equity crowd are more the same but they play at a higher level.

While attrition rates are not very different around the world, the difference under such circumstances is that the surviving businesses have a better chance at growth and durability than our own businessmen who rarely ever reach that point of sustainability.

This is what Stanbic is getting itself into.

"It is inevitable because once the bank gets intimately involved with its clients’ businesses and works to come up with solutions, they will find themselves going down paths, creating products they had no clue they would be involved in. Which is as it should be...

Now imagine if this new initiative, rolled out across Stanbic’s nationwide 72-branch network, is executed half as well as is intended and even one  hundredth of the bank’s half a million clients  or 5,000 business are touched, the ensuing sea change in the economy would be huge.

Imagine the businessman who up to this point has seen the bank only as an avenue for banking and withdrawal of those same monies, then now learns to organise his books (he thought that was only for big companies), to think strategically ( how do you spell strategy?), to identify and appraise opportunities ( he thought he would be shopkeeper till he died), how to protect his hard earned wealth (he thought he would eat all he made by the time he died) and provide for future generations.

A country’s economy is only as viable as the quality of its private sector. The private sector creates jobs, pays the taxes and its proprietors are instrumental in maintaining national stability. This is more so when the captains of commerce and industry are indigenous players.

"We pay lip service to helping the private sector because truth be told our government and technocrats have no clue what it takes to do business. Stanbic is climbing over the table to help their clients, if their clients thrive they thrive too. There is a very real self interest in what they are doing.

We can bet that others will follow suit in days to come, which will only widen the surface area for change and setting up the economy for the next level.

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?”