WHY KENYA, UGANDA RELATIONS ARE KEY TO EAC

Last week President Museveni paid a state visit to Kenya on the invitation of his counterpart Uhuru Kenyatta.

It made sense that Museveni would overfly the capital Nairobi to start the visit in the Mombasa, the de facto gate way to the region. According to port authorities in 2017 Uganda accounted for almost a quarter of all trade through the port. Seven million tons out of a total of 30.35 tons of cargo that pass through Mombasa were registered to Uganda.

Museveni eventually went to Nairobi, riding on the Standard Gauge Railway (SGR) first leg.

During the visit a series of agreements to allow greater access of Ugandan – sugar, dairy and poultry products and Kenyan goods – beef in the respective countries were signed off. The intention to lease 

Uganda land to build a dry port in Naivasha, one of the terminal’s of the SGR was also announced.

"Before Tanzania came under British mandate after the First World War it was just present day Kenya and Uganda, stitched together by the Uganda Railway, which had landed in Kisumu in 1901. A steamer service led to the construction of an 11 km line from Port Bell to Kampala. The line via Malaba to Kampala was completed in 1931.

The real core of the east African community is Uganda and Kenya, where the trade figures between the two countries is concrete evidence of their symbiosis.

In 2017 trade between the two countries stood at more than a billion dollars. A similar figure for trade between Kenya and Tanzania is about $500m.

It is clear that our relation is not based on sentimentality. Even during the 1970s when diplomatic relations were at their lowest, trade continue along the common border and over Lake Victoria, that once relations normalized was easily reformalised in the 1980s.

If there is one country that has provided sustainable economic benefit to Uganda it has to be Kenya. Their demand for food alone is slowly transforming our agriculture from the limbo of subsistence it has been stuck in to more commercial enterprise.

We have had a few moments of madness in the past.

In 1976 Idi Amin decided it might be a good idea to revisit an old map of the region which had the Ugandan border starting at the Kenyan Rift Valley.  Kenya’s Jomo Kenyatta – father of the current president, massed his troops on our common border and swore, “Wacha ajaribu, atatutambua!” (Let him try and he will find out who we are).

A second time was at the end of 1987 when there was shoot out at the Busia border, that led to a border shut down for a few weeks. Both countries traded accusations with Uganda accusing Kenya of habouring anti-government rebels and Kenya claiming its neighbours troops had crossed onto their side.

Speculation mostly unproven, was that Kenyan commercial interests were unimpressed about noises from Kampala pushing for a resuscitation of our industrial capacity so as to wean ourselves away from Kenya’s manufacturers. Kisumu’s industry built up during the 1970s was targeted at supplying Uganda.

In both instances sanity prevailed quickly because there were real economic interests at stake beyond brotherly love.

"It has been proven time and time again, that trade relations are the more sustainable glue that holds communities together and prevent wars...

The Europeans put a stop to centuries of fratricidal conflict after the second world war, with the creation of the European Coal and Steel Community, the precursor to the current European Union, which has allowed the free movement of goods, service and people.

This has had the effect of creating specialisations, with countries doing away with what they cannot produce competitively, choosing to import what they don’t produce and export their surpluses. This interdependence means war or even diplomatic rows have little fuel to sustain them.

The opening up of our markets will come with some short term pain as some industries are outcompeted by more efficient ones across the border, as is already happening. But as suggested above it will sharpen our businessmen’s sense of what they can produce competitively, so that they specialize, scale up their operations and gear up to supply our neighbour’s $75b economy’s needs.

There are those who will argue that our industries will need protection as they are still in their infancy, they will say that is how industries elsewhere survived. What they do not talk about is the opportunity cost in effort, resources – human and financial, that will be expended in ensuring that these uncompetitive industries stay afloat.

"If there are public funds to be spent they will be best employed helping uncompetitive companies retool or wind up, than subsidizing them to stay afloat, because as we have discovered they can’t seem to wean themselves off the subsidies once they have started to enjoy them...

The people of the two countries will be the eventual winners working for competitive sustainable companies and enjoying better goods and service in return.

POWER GENERATION THE CHALLENGE OF OUR TIME

Two things struck me while deep inside the cavernous bowels of the 600MW Karuma power dam on a recent visit to then northern Uganda facility.

One, that it is an amazing feat of engineering.

Basically some of the River Nile’s waters will be diverted underground, a 70 meter drop at the bottom of which it will turn six turbines and finally be ejected about 8 km to rejoin the mighty river on its journey north.

"And just to get a sense of the extent of the work already done, in preparation for the dam enough rock to fill 15 Namboole stadiums was evacuated to make way for the $2.2b project. The Karuma power dam is only one of two such dams on the continent, with the second being the Ruacana power station in Namibia.

My second realisation was that considering the size of Karuma, which will be the biggest power project in the country when commissioned at the end of 2019, we have a long way to go to meet the stated target of 17,000 MW generation capacity in the next ten years.

With only 20 percent of Ugandans connected to the grid, it is clear there is a lot of suppressed demand locally. This is before you consider, the potential uses in the mining, agro-processing and other industries or the unserved external markets of South Sudan and Eastern Congo and those looking to bridge their own capacity gaps in northern Tanzania, Rwanda and Western Kenya.

The real challenge for this country is how to finance these projects.

Given the average cost of $3m per MW according to the recent large hydro-power projects it will cost $51b or twice the current size of the Uganda economy to finance this ambition. Of course all the power will not be generated by tapping our hydro-electric power generation capacity, at last count 4000MW along the Nile alone.

Internally with a tax to GDP revenue of 14 percent and savings to GDP of 15 percent our scope for local mobilisation of the resources needed to rather limited. On the up side it also means there is also a lot of leeway to collect more revenue or to encourage more savings by the citizens.

However even with oil revenues, this unlikely to be managed fast enough.

So we are going to have to rely on loans and private capital to meet our obligations.

It has to be said that we had it relatively easy with the financing for the Karuma and 183 MW Isimba dam as we were dealing with one financier.

With a past project the 250 MW Bujagali dam there were multiple financiers led by the World Bank’s private sector lending arm the International Finance Corporation (IFC).   Multiple financiers is standard practice for big projects, as the lenders seek to mitigate the risk by sharing the burden with other partners. Despite the best efforts of the government and the project promoters, the financing was still pricey. As a result government has had to help refinance the project to ensure a lower tarrif.

The point is, the way to get cheaper money is to lower the perceived risks of such projects.

"In working out risk of a project financier’s look for four broad parameters does the project resonate with their mission, is the project viable, can it support the desired return and finally is the management credible and competent....

This last part is important in view of the government’s plans to recreate the old Uganda Electricity Board (UEB) by merging the distribution, transmission and generation companies as part of a wider restructuring of the government departments, agencies and commissions.

The restructuring being sold as money saving initiative may in fact cost the government more in lost specialisation.

For instance Umeme, the company that runs the distribution concession has done in the last 13 years of its concession what its predecessor UEB could not do in almost 50 years of operation. It has revamped and expanded the distribution grid, it has added a million consumers to the grid from the 280,000 they found in place, it collecting almost all the money due to its from clients and has reduced losses on the grid significantly.

They have been able to achieve this because they have specialised distribution of power which is different from transmission and generation.

This improved competence has opened them up to external financing and allowed them to invest heavily about $600m since the concession opened in 2005.

Umeme in its own right, is going out into the open market to tap the markets for cash to finance its capital expenditures and this is not by mistake. Over the last decade or so they have developed verifiable competence in what they do and their ability to do it profitably, year after year and as a result they tick the aforementioned boxes of what financiers are looking for in potential clients.

Using this as an example, this why a return to the old UEB would be a bad idea. While UEGCL is now building capacity to build and manage power generation facilities, subsuming them in amorphous structure would not only throw away the benefit of specialisation but will short circuit an ongoing process of creating capacity for it to stand on its own and drive our ambitious power generation targets.

WE WERE RIGHT TO PRIVATISE UGANDA COMMERCIAL BANK

Last week Stanbic released their annual results which were really more of the same.

Revenues were up to sh661b from 636b in 2017. Profits followed suit growing 7.5 percent to sh215b in 2018 from sh200b in the previous year.

But the number which caught my eye was the income tax expense. These leapt 25 percent to sh81.5b from sh65.2b in 2017.

The Sh81.5b check to the treasury would be cause for celebration in itself but if we looked further it has much greater significance.

Using the US dollar sell rate as reported in the Friday New Vision of sh3,730, Stanbic’s tax bill amounted to about $21.9m.

In 2002 Stanbic Bank bought the Uganda Commercial Bank (UCB) for about $20m!

"This means Stanbic is now making more money, many times over the buying price and after all expenses are deducted, the net is then taxed and this year is about equal to what they paid for the whole bank 17 years ago!...

Let that sink in for a bit.

That assuming continued profitability from the bank and relatively stable shilling we can expect the Stanbic Bank to pay us annually from here on end, the equivalent of the price they paid for UCB those many years ago.

And I am sure UCB successor is not the only one ringing the tills at the treasury. The same can be said for the breweries, the hotels, Umeme and any number of enterprises that prior to their off-loading were dead weight on the government budget but are now more than carrying their weight.

A perusal of the press at the time showed that many of the fears people had of flogging off UCB were unfounded.

A Joshua Musoke writing in the New Vision of August 31, 2001 was concerned that selling the bank to a foreign bank would leave the small saver in trouble.

“What will happen to the thousands of civil servants and small time savers if UCB is sold to a private bank … whose opening and minimum account balances are beyond the reach of many Ugandans particularly in the countryside.”

The bank can speak for itself, but going by the way deposits have grown since Musoke put pen to paper that fear didn’t hold up. In addition, since then we have had no minimum balance accounts introduced across the industry.

Another reader who preferred to remain anonymous argued that since public confidence had returned to the bank, there was sh100b in new deposits that came from depositors fleeing other collapsing banks, and since it had become profitable again — it made sh19b in its final year, though he acknowledged this was due to the bank’s portfolio overweighed towards government securities, there was no need to privatize.

But for the bank to fufill its full potential to Ugandans it needed to make its money lending to the private sector, and not to the government, the core of its business. If they had maintained that stand to date they would have helped mightily in keeping inflation down without lending much to the private sector.

From near zero lending to the private sector in its final year of existence, in 2018 Stanbic’s loan book stood at sh2.5trillion or about $670m!

There is a lot wrong with our financial sector, not least of all that there is little to no support for startup enterprises and the small businesses are treated as inconveniences to be suffered rather than supported.

But that is a function of structural issues and a lack of entrepreneurs with the muscle to fill in those gaps.

"The privatization process was a response to the reality that state enterprises were proving a black hole for government funds, were not producing and causing a lock jam in the economy, as most of them our monopolies....

With it came better management practices and new money that could unlock the assets. In UCB at the time of its sale in its various branches it had a multitude of computer platforms many of which did not only not to talk to each other but were invisible to each other. So where at its peak the bank held more than half the industry’s deposits they were of little use as they could not flow efficiently from places of surplus to places where they were needed.

But the naysayers will not go away. They argue that by handing over the bank to foreign capital rather than hold on to it, we have abrogated our duty to direct the economy through the strategic allotment of funds.

And they could be right. But at the time it was a choice between resuscitating the dinosaur, empowering to stimulate the economy or hold on to it content to let it sleep so it does little damage to its surroundings, when foreign owned banks continue to do what banks are supposed to do anyway.

Private lenders are not averse to supporting government programs – the South East Asians have proved that for the last several decades. Its juts that it will take more intelligence than having a “supporter” seating in the CEO’s chair and receiving chits all day, because truth be told that’s what many people think government intervention should look like.

"Congratulations are in order to Stanbic but they are just the poster boy of a farsighted policy that has helped unlock some of the potential of this country, that is yet to reach its full potential in everything from beverages to manufacturing; hospitality to transport....

BAT WIN IN EA COURT FOR ALL OF US

On Tuesday this week British American Tobacco Uganda (BAT) won a landmark case in the East Africa Court of Justice (EACJ) where they challenged the Uganda’s discriminative excise duty levy on goods manufactured outside Uganda but in the Community.

Some background will serve this story well.

In 2013 BAT wound up its cigarette manufacturing in Uganda, they had a plant in jinja. They then started importing cigarettes for distribution in Uganda from Kenya. In 2017 there was an amendment to the Excise Duty Act which required that Uganda Revenue Authority (URA) charged imported cigarettes more than the ones produced locally.

BAT challenged this successfully in a judgement that not only saw BAT receive a sh325m refund on taxes they had already paid, but also declared null and void any provisions in the law that are contrary to the EAC laws.

Kiryowa Kiwanuka of K & K Advocates, which represented BAT, said after the ruling, that the net effect of this is to make the EAC one country for tax purposes.

It was his opinion that manufacturers around the region will be forced to compete on the cost of production and distribution and not on tax levels.

Clearly this is an earth shaking precedent we probably missed because we were focused on imaginary assassins this week.

"It is a double edged sword.

On the one hand one can now expect that our products that were suffering arbitrary barriers to entry in the EAC like sugar and milk, that will be a thing of the past.

On the other hand there are products we are producing that face direct competition from companies in other member countries, some of which can be landed in Uganda cheaper than we produce them here...

With a level playing field they may very have to become more efficient or fold altogether.

So one can expect in the region there will be companies very in support of the new ruling --- the exporters and other companies for whom the new wave of imports will pose serious existential threats.

The principle of the common market is that there will be free movement of goods, services and people through the region. The common market will then be attractive for investors to make a bet on.

The community has a population of about 170 million at last count, of whom 34 million are urban dwellers.  These are just numbers unless the requisite infrastructure and enabling legislation is in place to allow for it to be one market.

The challenge then for individual countries would be their ability to attract the investors to their shores. If you are a country which is irredeemably corrupt, have port hole ridden roads and the quality of your workforce is imbecilic you will fare badly against your better endowed members, in terms of attracting investors.

However, the theorists argue that the improvement’s in living standards of the people from the increased trade will more than offset the loss of investment.

So for example if Uganda becomes the hub of grain production and production in the region, because it can produce at much lower cost that its neighbours, investors in the sector in Kenya and Tanzania will either have to shut down or relocate their capacity to Uganda. There will be job losses in Kenya and Tanzania but there will be some relief at the cheaper products on the shelf.

The workers though might find themselves in the absorbed in the soda ash industry. Soda ash – sodium carbonate, is only mined in southern Kenya, and is a compound in many industrial uses like dyes, ferterlisers and synthetic detergents. The Kenyan indsutry will have to ramp up production to serve all of the region and any other such operations elsewhere in the region would have to shut down.

One big advantage that would come with a full operation of the open market would be that individual countries would be forced to stick to their competitive advantages. There is no point why anyone else in the region should be trying to produce matooke other than Uganda for instance. This specialization will encourage efficiencies that can only make us stronger as a region.

"And that is why too the freedom of movement of goods and services has to go hand in hand with the ease of movement of people, because if I have just been laid off from a steel making plant in Uganda I should be able to relocate to Kenya to work in their plants...

Some people may think it unfortunate that its BAT that won the case, but the benefits of the ruling are not restricted to them. We can all benefit.

WE HAVE COME A LONG WAY

On March 19^th the New Vision in commemoration of its 33^rd birthday reproduced the inaugural edition.

The grainy, black and white production launched a multimedia empire that now straddles the industry like a colossus.

In its first year the it had revenues of sh9.13m and made a loss of sh9m. The company has seen better years but last year it registered revenues of sh90.6b and a profit of sh2.3b.

The anecdotes of the companies’ first days would leave jaws on the floor with amazement at how difficult it was to put out the eight-page first edition.

These days the presses not only turn out the 40-plus page New Vision but also the Luganda daily Luganda daily. On three other days Orumuri, Etop and Rupiny are published alongside the two dailies.

It would be interesting to go back in time to put the media house’s humble beginnings in context.

It was just under three months after the NRM had taken over power in January. Some people didn’t give the new government until the end of the year before it in turn would be turned out. There was still a sense of insecurity in the air. Days were kept short and the night life – clear, bitter and served out of a small glass, served as you sat on a rickety bench, was concentrated around people’s homes.

The New Vision’s whole print run was carried to town on the head of a single porter. The Taxis on Jinja road were an infrequent occurrence and the company did not have a vehicle to its name. And maybe couldn’t afford the fair for the porter?

The newspaper’s sh300 cover price could not have stayed that way for long with inflation raging at 240 percent, meaning prices were doubling every three months.

The paper sold a paltry 17,000 copies all year, that is less than the daily sales of the New Vision or Bukedde today.

But then again who was buying?

The population was a third of its current size. GDP was a paltry $3.9b. Today GDP stands at about $25b.

Not unlike today the buying public was concentrated around Kampala. The difference is that then there were no readers outside Kampala. Copies of the newspaper that would one day boast was the leading daily trickled up country along the bus and taxi routes, not always whole, often as wrapping for everything from meat to underclothing...

Besides it was near impossible to have national coverage of the newspaper as it was a nightmare getting around on the 1,500km of roads, a number that was unchanged since 1971. They were so badly riddled with the portholes that normal traffic rules did not apply as drivers weaved left and right to choose the more benign porthole that their car could tolerate.

As if the distribution issues weren’t a challenge almost half the economy was operating in the non-monetary economy, basically that people were battering goods and services rather than using cash for payment. It is unlikely though that the New Vision would accept eggs in exchange for a copy – eggs don’t lend themselves to the rules of double entry.  I wonder how much an egg cost?

It was nice to see the commissioning of the 183 MW Isimba dam last week. With one stroke we turned on three times the amount of power that we were capable of generating in 1986. No surprise then that apart from the printers unable to read the Russian manuals for the presses, the frequent power outages were such that it took more than a week to produce the two sheet paper.

But then again electricity demands were not that high. The only need for power in the newsroom then was for the bulbs. The typewriters were all manual and even the tea was brewed in a tin kettle on a sigiri behind the printer. Oh yes. The presses run on power.

You know what they say about work expanding to fill the hours, the same can be said for appliances multiplying to take advantage of the new power generated. So now we have PCs, TVs, mobile phones, electric kettles, fridges and even the lighting – fluorescent tubes, are many multiples of the handful of dim bulbs that attempted to light the newsroom.

Of course their downsides to this growth of the New Vision in tandem with the economy. In 1986 the workers of the new vision lived in places like Mbuya, Kololo, Naguru and Ntinda. They needed to because they either walked or rode bicycles to worker.

There were no cars in the car park and the surrounding streets were so empty, it is not hard to imagine tumbleweed rolled down the street, helped along by the wind, unhindered by cars to break its progress. Now the company’s pool cars and staff have filled the car park and flowed out into the street, dominating Industrial Area’s first and third streets. Mostly second hand Japanese types. Maybe in another 30 years we will have brand new European sedans in their place.

As a result, the New Vision worker is no longer lean and dark from continuous exposure to the elements but soft and light from travelling while seated in their cars or from riding in the taxis or bodas to and from work.

We have come a long way at the New Vision and as a country and the good old days weren’t all that.

HOW WILL WE FINANCE OUR DEVELOPMENTAL AMBITIONS?

Away from the news about the Uganda-Rwanda border and suspicious bullion van robberies, the issue of government’s plan to build a multi-billion-shilling specialized hospital has caused heat under some collars.

Government has contracted a consortium Finasi/Roko Construction to build the $380m(sh1.4trillion) International Specialised Hospital of Uganda. Under the deal the government will pay for the hospital over six years starting from when it is commissioned and will issue promissory notes to the contractors – as the name suggests, promising to pay them in the future.

Sections of the media reported this news as if government was borrowing money to give the contractors to build the hospital. Also lost in translation was the fact that the land on which the hospital stands belongs to the government.

"What is true is that the government is building the hospital on credit. The hospital belongs to government. As does the land....

However, this project signals the alternative financing government is going to have to rely on in coming years to bridge the country’s huge deficits in infrastructure and even human resource.

We shall require 17,000 Mw of new power generation capacity in the next ten years. At the current rate of this would cost us $51b, or twice the size of the economy to finance.

Uganda National Road Authority (UNRA) has set itself the target of paving 1,000 km of road a year, which would cost at least a billion dollars annually. And even then they will be making little inroads into our road infrastructure deficit. The average middle income country has at least 88 km of paved road per 1000 square kilometers of surface area; Uganda with its 5000 km of paved road has about 20 km of paved road per 1000 square kilometers of surface area. Simple arithmetic would suggest we would need at least 21,000 km of paved road at a cost of at least $21b.

And these numbers are reflected in everything from railway lines to housing and everything in between.

Even in our human resource capacity there is a lot of work to be done. Currently we have about seven doctors per 100,000 Ugandans, far below the World Health Organisation (WHO) recommended 17. 

It takes about sh70m to train a doctor, to bridge the gap Uganda would have to more than double its 4,000 doctors, which would not only be about training but also build facilities to exponentially increase medical training.

"Unfortunately for us, not only are we behind the curve but also the demands for infrastructure --- both physical and soft, are rising every day and becoming ever more urgent....

However, our own internally generated resources are not keeping up and will not for a long time.

Folding our hands and waiting for the heavens to fall on our heads is not an option and hence the need for alternative funding mechanisms as has been demonstrated with specialized hospital at Lubowa.

A similar model has been employed for the Jinja Express Highway for which the government is now procuring contractors. The winning bidder will be expected to source their own financing for the construction and government will top up resources from the planned toll gates to pay for the construction.

The thermal power plants in Namanve and eastern Uganda were built with a variation of the same financing model, where the owners built them and government pays for them for the budget over the duration of the concessions.

In Kalangala government is paying for a road built by a private contractor and the services of the ferry from Bukakata to Kalangala.

In the case of the Bujagali power dam the construction is being paid from the power tariff, which is spread over the 30-year life span of the concession.

It has been mooted but being fought viciously, that government should contract a company to manage its huge fleet of cars. As it is now government buys brand new vehicles and writes them off after five years.  The inefficiency of this is seen when you consider that private citizens and companies buy ten-year-old cars and drive them for another ten years.

A rationalization of the government fleet and its management some have suggested, would save the country millions of dollars a year, which savings can be directed to more effective uses than wheezing fat cats around the country.

As has been mentioned earlier thanks to the lost 1970s and 1980s our infrastructure has not kept pace with the population growth. While population doubled between independence and 1986, the economy had contracted by almost half during the same period. It’s clear we are playing catch and not doing it very well...

Since we cannot pay our way out of our pocket and our borrowing options are narrowing – our debt stock currently stands at just under the 50 percent recommended for developing nations, the use of more esoteric financial models will become the norm going into the future.

Invariably a lot of this financing will come from abroad, as we have done a less than stellar job mobilizing our own resources. It is therefore imperative that we continue to strive towards improving the environment for business to thrive in our country.

Foreign investment and financing is being courted by everyone and they are willing to settle for a lesser return on investment which is certain, than high return in a risky environment, which explains why South Africa with all its challenges is still the top destination for foreign direct investment on the continent, despite its relatively lower return on investment.

It’s not very long ago – almost 30 years ago, that some of us were ready to go to war because government was privatising the shells of once profitable companies. A few years down the road that single policy initiative has boosted production, created jobs and jump started tax collections to the point that now we want to go back to the state enterprises.

C’est la vie!

DO NOT UNDERESTIMATE THE POWER OF SMALL BEGINNINGS

The New Vision Staff Savings & Credit Coop – an organization I am intimately familiar with, last week released its financial results for 2018.

The organization which turned 13 last month has seen the savings of its members grow to sh4.6b from sh62.4m at the end of the last year; its top line has exploded to sh1.3b from sh2.4m and its profitability following suit to end last year at sh701m from sh2.3m in 2005. Its asset base now stands at sh7.8b from sh66.1m in its inaugural year.

These results which represent double digit compounded annual growth over the last 13 years, have come from collecting member savings – now about 1,500 strong, lending the same monies back to them and any surpluses are invested in government paper – The coop’s account with the central bank stood at sh2.3b at the end of last year.

Growth has slowed in recent years, a natural progression as any organization grows bigger, but even using conservative estimates, continued growth would see it double its asset base over the next ten years.

If you had told the founders of the SACCOS those many years ago that the enterprise would be a 100 times bigger by assets today, they would have laughed you out of town.

There several pointers I take away from this SACCOS’ “success”.

1.       1 + 1 =11

The minimum savings per member per month is sh60,000, some savings multiples of this figure and most save more than that. It is just enough to ensure members save regularly but not enough to expect a huge pot at the end of the year. But spread across 1,500 members this comes to a minimum of sh90m per month, what is actually received maybe double that amount in savings alone.

The incentive to save is real as members can only borrow up to three times their savings. Which means the more you save the more you can borrow.

Most members have benefitted from this lending to further their academics, buy land, build homes and help with their household necessities. While they would have eventually come around to achieving all these, I believe, it would have taken a lot longer. By getting some of their base needs out of the way they can now move to planning for more serious investments, which as the coop grows will be able to help them finance.

The larger point is that the whole is larger than the sum of the individual parts. That synergy works and when it does one plus one is not two, but 11...

2.       Keep It simple, stupid!

Everything that the SACCOS does is dictated by three objectives – to provide a safe savings space for its members, to avail credit at affordable rates and finally to serve as an investment vehicle for them.

As the  SACCOS has grown in its capacity to help its members save and borrow, it has also grown as a viable investment for its members – probably the best they have ever had.

A recent revaluation of the shares showed that the members who had bought their shares by 2008 had seen the value of their sh10,000 investment grow to sh1.59m by the end of 2016 or a 88 percent compounded annual growth rate during the period.

But there is no rocket science in achieving these results. As stated above members saved, they borrowed money from the same pool and any surpluses were invested in government paper, which has been offering double digit returns throughout most of the life of the Coop.

Could they have seen higher returns if they had dabbled in more esoteric investments? Maybe. But the risk would have been higher, losses more frequent and performance more volatile.

 But who is going to lose his job for consistent double digit returns in a depressed economy?

3.       Service first, profits later

Profit is good, but it is only an opinion and only comes after the delivery of a service. While we all budget for profit the best way to get it is indirectly, by focusing on service.

Members can withdraw or borrow any working day of the week. Going forward with the technologies available there is no reason by this time next year it’s not a 24-hour, seven day a week service. Interestingly the more available their money is available to them members will save more, lending will go up and as long as costs are managed and our asset allocation doesn’t go haywire, profits should continue to roll in.

4.       It’s the vision thing

The vision of the New Vision SACCOS is “To be a vehicle for financial freedom for our members”.

The simplicity of it belies the enormity of the task. Financial freedom for the members means that the income they would get from the SACCOS – interest on their savings, dividend payouts and the appreciation in the value of their shares, sometime in the future would be enough that they would not need a salary from anybody else.

This year the coop will pay out sh380m in interest and dividends, which if split evenly among the 1500 members should come up to just under sh255,000. But the lowest paid staffer at the New Vision grosses about sh10m annually. There is still a long, long way to go.

Thirteen years is but a blip in the greater scheme of things. Given the enormity of the task, this is not the time for the SACCOS to rest on its laurels. In the pursuit of our elephant we cannot be distracted by the smaller game meat that crosses our path.