THE YOUTH BULGE, A CHALLENGE WE CANNOT IGNORE

Outside Johannesburg in the town of Germiston is the Ekurheleni East College (EEC), a modest campus that serves as part of a pilot project to head off South Africa’s looming disaster.

The technical and vocational training institution is the beneficiary of an African Development Bank (AfDB) grant geared at better skilling its students – youth and SMEs for the workplace.

Students at the school learn vocational skills like a metalworking, electrical installation, plumbing and business studies.

"The need is urgent. South African officials estimate that at least six million people – or 30% of the working age population, are unemployed most of whom are youth...

The South African economy, growing at paltry two percent, can’t promise to create enough jobs for its jobless masses. It is hoped that if the pilot one of three, prove successful in getting their graduates employed or open up businesses, they can roll it out across the country and forestall what is widely seen as a ticking time bomb.

Apartheid biased development towards a white minority – South Africa has the widest wealth disparities on the continent, and as a result there are thousands of youth roaming around thinking that they are no better off 25 years after apartheid was dismantled. This frustration has shown itself in the country’s high crime rate and the attacks on foreign workers earlier this year.

A corruption which has almost ground the economy to a halt – they suffer up to 16-hour load shedding on some days, has not helped issues.

It’s the story of the continent – without the apartheid hangover, but in contexts that are no less daunting.

In Uganda more than 80% of the population is under the age of 35. According to 2016/17 Uganda Bureau of Statistics (UBOS), 13.3% of Ugandans between the age of 18 – 30 are unemployed. Other numbers have varied more wildly but don’t stand up to anecdotal evidence.

That being said the economy not creating enough jobs in the formal sector to absorb the thousands turning up in the job market every year. So like South Africa practical and entrepreneurial skills will have to be emphasized going forward.

"Conspiring against efforts to create jobs for all by the year 2040 or whatever the number is now, the increasing automation of processes across sectors. Every industry from manufacturing to banking to retail, even garages are looking to employ fewer and fewer people to gain efficiencies and cut costs....

While manufacturing jobs is what drove the industrial revolution in the 20^th century I am afraid it will not have as significant a role in the 20^th century.

New plant and machinery now need fewer workers to do more work. Unlike the workers of the industrial age these new workers need to be better educated than the automatons of the last century too.

That being said there will always be a need for a carpenter, mechanic, plumber especially as we become more urbanized. But even more importantly there is a need for good entrepreneurs who understand not only how to set up businesses but run them sustainably.

This last point is critical. An engineer who leaves university knows the subject inside out but is unable to start and run a firm, that can not only do construction but also employ more and more people and grow. Is it any wonder that after today we have no major indigenous contractors winning major jobs in this infrastructure development boom?

"The biggest companies were first small companies. And for every big company hundreds even thousands have fallen by the wayside. The ones that have survived the natural selection process have done so often because they have been deliberate and systematic in growing their capacity over time... 

In more advanced economies this has happened over generations, here in Uganda maybe over the last three decades, at least.

In addressing the youth unemployment challenge, government needs to recognize that throwing money at the challenge is at best a stop gap measure at worst will see our youth addicted to handouts. 

What government needs to do is improve the environment for doing business – we are 112 out of 189 in the Ease of Doing business rankings, commit more resources to providing vocational and entrepreneurial skills.

If done systematically then even the government handouts will be better utilized in serving the end of job creation.

At Ekurhuleni they don’t stop at graduating technicians, but work with industry – the surrounding industries actually nominate the students to the college, provide internship slots and often high them eventually.

Those who are not so lucky graduate with a toolkit to help them set themselves up in their own communities.

"South African trade ministry officials know it’s a race against time – at the college they are employing a semester system that allows them to train double the students given the facilities. When fully rolled out in a decade or so they intend to be annually passing out at least ten percent of the unemployed youth annually or 600,000 graduates....

We wish them luck. We will all need it.

FINTECH TAKING OVER, FOR THE BETTER

Activities to commemorate the financial inclusion week culminate this week with The Africa Fintech Festiva,l which starts tomorrow, (5th November) here in Kampala.

The festival’s theme is “The role of fintech in Africa’s digital economy”. The word Fintech has come into everyday use in the last decade or so and is used to describe the use of technology in facilitating banking and financial services.

The financial sector has always been ahead of the curve in the adoption of technology, but its only in recent times that applications have brought these efficiencies to the man on the street.

The speed of innovation and adoption has made us forget how traumatizing it was to deal with banks and financial institutions.

There was a time when banks were only on Kampala road, opened from 9 am to 1 pm, never on weekends and account opening and minimum balances were so prohibitive as to serve as a barrier to entry.

At the time banks would keep hand written ledgers that had to balanced every day, hence the early closure and the reluctance to go for the mass market. As competition increased, banks had to seek new clients forcing them to rack their ties and jackets to mix it up down town. New technologies helped them cope with the increased volumes of transactions and operate longer hours.

The introduction of the mobile phone created a new platform, nearer to most than their local bank branch, which has seen an explosion in accounts.

A few weeks ago the Bank of Uganda reported that mobile money users had grown to 25.8m last year compared to 22.7m in 2017. But while the value of transactions reduced to sh66.9trillion from sh73trillion the previous year the number of transactions nearly doubled to 2.5 billion from 1.3 billion.

These numbers are interesting because commercial bank accounts in Uganda last year were just under eight million, a third of mobile money accounts. This speaks to the fact that people want to and see the benefit of engaging in the formal financial sector, but for most of them it has been difficult to participate. As a result the benefits of credit and other financial products have eluded them and in effect hobbled their prospects of climbing up the social ladder.

And we will only see an acceleration in the innovation and adoption of fintech. On a micro level it will make us more efficient and productive. It has been said that the Ugandan worker is not as productive as his counterparts in the region. While a part of it is our laid back attitude to work, there is also the fact that our processes have not been as capital intensive as our neighbours.

With miniaturisation computers are becoming faster and smaller. Its barely two decades ago when 256MB CPU was adequate for our desk top computer. Now you hold that power many times over in the palm of your hands. You can now spare yourself the ordeal of visiting the banking hall depositing and withdrawing funds, receiving and making payments off your phone or computer.

The potential of an economy can be seen by how fast money moves. The time spent filling forms, standing in line, moving to and from the bank, is everyday being reduced to its bare minimum, which will and is having a ripple effect through the economy.

The beauty of technology is that upgrades are flying off the shelves almost every year, meaning “old” technologies are becoming less costly, guaranteeing that even the poorer members of the society will be hooked up faster than ever.

In Uganda today mobile phone coverage stands at about 76% across the border in Kenya it is at 105%. And it shows. Last year about sh393b daily was transacted across all mobile money platforms in Kenya, the comparable amount here is less than half that at about sh183b.

The relative sizes of the economy aside, Kenyans are well ahead of us in the use of mobile money to not only transfer funds, to provide credit, insurance and facilitate business transactions to the point that a cashless economy is a very near possibility.

One of the major challenges of our economy is that we are not aggregating our resources into meaningful sums be they human resource or land but especially capital. It is not a stretch of imagination to see how fintech will provide a real solution for our inability to aggregate capital.

Believe it or not some people don’t deal with banks out of some deep seated phobia, dealing with their phone not so much.

It’s become so pervasive that we forget that fintech is still in its early days, services are still more costly and there are still a lot of legal gray areas that have to be ironed out before it can reach its full potential.

Fintechs potential to mop all the loose change lying around, fashion products for the lowest of low as well as increase efficiency in the whole financial sector is scary. Scary in a good way if it makes all our lives easier.

MAKERERE UNIVERSITY RUNNING OUT OF ROAD TO KICK THE CAN

The events at Makerere University this last week were saddening but not surprising.

Students took to the streets to protest a planned 15% increment in their fees and came face to face with security agents who were deployed to quell the fracas.

It was never going to end properly if they army were unleashed – untrained in putting down civilian unrest, on the students. It was even more ominous when the press were kept off the campus.

It took the intervention President Yoweri Museveni for some kind of settlement to be arrived at. The university authorities did a climb down, announcing the 15% increment would only be applied to tuition and not to the facilitation fees.

Strikes -- protesting low pay by the teaching and non-teaching staff and increments in students fees, have become a perennial affair. After a few days of disagreement, a band aid solution is arrived at and normalcy returns to the University, but just for a while.

"The government and leadership at Makerere have been content to kick the can down the road year after year, ensuring that the real challenges not the symptoms fester and boil over every year.

The challenge of Makerere and other public universities is one of leadership. Inadequate resources, the falling quality of the output and now the perennial strikes are all but symptoms of poor leadership.

How is it that the square mile with highest concentration of brain power in the country, maybe even in the region, has failed to solve the simple equation of admitting a youthful population, accommodating them in relative comfort, imparting knowledge and graduating useful members of society without drama?

In fact the market is becoming increasingly dubious of its graduates, which suggests the former Harvard of Africa is not keeping up with the times. You shall be judged by your fruit, they say.

"It starts with the way the university’s chief executive officer is selected, an archaic process that rewards popularity rather than competence....

You can paper over the leadership inadequacies when you have a student body of less 500, like at Independence – making it a privilege not a right, you have a monopoly on university education and you are operating in an analogue world, where change takes place at a glacial pace.

But when you have a student body of 35,000-plus whose numbers have outstrip the infrastructure, competing with several other institutions for government support and with added baggage of a reputation the selection of the CEO has to go beyond academic cronyism.

Assuming a student body of 35,000 paying on average a million shillings a semester, for an annual revenue of at least sh70b annually, wouldn’t you have a truly competitive process to select the best possible business manager for the job?

As it is now the university’s CEOs in recent memory have been doctors, computer scientists, chemists, biologists, lawyers, all upstanding gentlemen and a lady, but none a business manager.

That is what Makerere and other public universities need, business managers, people who can take the raw input of youth, capital and the assets the university is endowed with and efficiently graduate productive members of society.

"It is a crying shame that Makerere still gets into fights about money with the staff and students, given the combination of the aforementioned brain power on the hill and the assets under their stewardship....

Nowhere in the world do university students pay the full cost of their education. A clever use of fundraising efforts, income from endowment funds and some state contribution manage to bridge the deficit between student fees and the real cost of education.

It was shocking to learn that student fees have not been increased at Makerere for the last 13 years! At the bare minimum there should be some allowance for inflation. This smacks of cheap populism ignoring good economic sense and digging a deeper hole.

Government has a lot to answer for the chaos at the university. The popular move to open up university education to a wider public, while failing to increase investment in line with the increased enrollment is at the heart of the current crisis.

Makerere is a shadow of its former self, its crumbling halls of residence are testament to this. And how is it that no new hall of residence has been added to its portfolio since CCE was was established in 1982.

This continued failure will force the government to make unwanted decisions. A reality that increases with every day.

On the one hand they maybe forced to close the university all together because it can’t continue to carry it. It may be cheaper to pay fees for students to other universities than pretend to run Makerere. Or to privatize the university, as a going concern, which may invariably lead to a cut back on student numbers but of a better quality.

Neither of the two options are palatable.

Basic education is important for an industrial economy, but tertiary education is critical for the fourth Industrial revolution, where better skilled workers than the automatons of the industrial age will be required.

Government has to make some hard decisions. To divest itself of its universities or commit significantly more resources – financial and managerial, towards university education. Maintaining the status quo is just postponing a major crisis.

WHY ISN'T UGANDA MORE INVESTED IN SOLAR POWER?

Recently a solar power plant was launched at the Kololo Indpendence grounds in a low key event that the afternoon down pour did not dampen.

The 516 kw plant, basically solar panels on the pavilion and a room full of batteries, will be used to power the National Identification & Registration Authority (NIRA) offices and data banks on the premises. But only 200 kw of it will be consumed by NIRA with the remaining 300kw to be sold to the national grid.

According to industry estimates 516kw can power about 500 Ugandan households during peak periods.

Baroness Verma, the chairperson of UK based company Nexus Green who installed the plant, said the monthly savings will amount to the total power bill of $9000 or about sh30m and this is without factoring in the potential revenue to army of selling excess capacity to the grid she said.

During the occasion defence minister Adolf Mwesige said the Kololo installation was pilot project and that his ministry intended to roll out similar plants to all military installations around the country.

A relief he said, because as it is the army consumes sh19.7b in power a year but only budgets sh7.4b for that expenditure, a deficit that keeps getting rolled over year after year.

"With costs of solar power technology falling every year – the cost of a solar cell has fallen to $0.26 per watt in 2016 from $76.67, a visitor to Uganda, which enjoys sunshine year around would wonder why power especially for domestic use is a challenge at all...

In rural areas the uptake of solar power is growing. The major cost element of solar power is the installation costs. In many cases in order to make it affordable for rural households, traders in these systems request a relatively small upfront sum and recover the rest over a period.

A combination of the falling costs of the technology and the overwhelming demand means the private sector is way ahead of the public agencies in powering up country homes.

The challenge though is that the batteries needed as part of solar systems have not seen prices drop as fast as the cost of solar panels.

It makes sense to shift as many domestic consumers to solar power and release the power generated by our hydropower dams to industry. In fact with adjustments to the law individual households can even become suppliers to the national grid like happens in Germany and other European countries which encourage solar power generation.

If this were to happen it would even mitigate against one of the disadvantages of power plants that the occupy too much space in relation to the power they generate. It is estimated that it would take two acres or two soccer pitches to generate a megawatt of power.
But if we all planted solar panels on our roofs and generated enough power for our individual households it would save us the land needed to establish a solar farms. We currently generate 50 megawatts of power by four solar farms around the country.

It reminds me of the massive savings we made barley a decade ago by shifting to energy saving bulbs. In a New Vision story from the September 2007 it was reported that 30 MW were saved during peak periods by replacing 750,000 normal bulbs with energy saving bulbs.

While the urgency to save power may not be there now – when the 600 MW due from Karuma comes on line later in the year we will have a surplus capacity of about 1000 MW, we need to be making hay while the sun shines.

Which brings us back to Nexus Green. The company has an understanding with government that it will set up a plant in Kapeka to assemble solar systems for irrigation. It is not inconceivable that if it takes off and its prices are pocket friendly they may very well end up expanding their market to domestic users.

Solar power is an opportunity That has gone begging for far to long.

To illustrate world Solar power generation currently stands at about 500 Gigawatts and of the eight major generators only Australia and India are in the tropics.

REALISING UGANDA’S FOOD BASKET POTENTIAL

For the longest time possible we have heard how Uganda has the potential to the bee the region’s bread basket.

Our fertile soils – we have almost half of the region’s arable land, our abundance of water --- a fifth of the country is under water and our benign climate – three harvest in a year are within the realm of possibility make this no ideal boast.

A combination of rudimentary farming practices, poor marketing and bureaucratic inertia has meant that this has remained a pipe dream and embarrassingly too, has meant that some part of the country suffer perennial famine.

Enter Agilis Partners who in the space of under decade have become the largest grain producer a leading grain exporter to the region from Uganda.

It all started humbly with a wish to feed pigs.

In 2009 working as a volunteer at an orphanage outside Kampala,in the year before he went to college Benjamin Prinz, co-founder of Agilis Partners, wondered how the orphanage’s operations could become more sustainable.

“So we thought we would help them build a pig farm. Instead of giving them cash we wanted to give them a sustainable source of capital,” Prinz told the Business Vision.

They bought 150 pigs and quickly found out they consumed a lot of maize.

“We realized how challenging it was to get a stable price, good quality and consistent quantities of maize to feed the pigs,” he said.

Then came another discovery.

“In Uganda we found that the maize market is not a commodity market. By definition a commodity is a product that has a definable quality standard and can be liquidated quickly into cash,” Prinz said.

Three different suppliers of maize can have differing moisture content and qualities as to render them not the same product from a marketing perspective.

“So clearly the commodity markets were undeveloped and fragmented. But we also realized Uganda was feeding East Africa and the region was eating $3b worth of maize alone. The challenge that we were facing as a small business trying to feed our pigs was a big economic challenge for the region.”

The light bulb moment led to, in 2013, Benjamin, his brother Philip and Argentine Eduardo Brown starting Joseph Initiative, a business intended to better market the maize grain inside and outside Uganda. This eventually morphed into Agilis Partners, which is the holding company for Joseph Initiative and Asili Farms.

Agilis Partners head office is located about 200 kms north of Kampala on the Kampala-Gulu Highway. The spartan office block also serves as the head office of Asili Farms.

Asili Farms, comprises four farms in western Uganda on which maize, soya bean and sun flower are grown. On these farms about 13,500 acres are under cultivation.

“Last year our farms and outgrower farmers produced 25,000 metric tons of maize, soya bean and sunflower,” Finance manager Caroline Aoja told Business Vision in an interview conducted on a makeshift bench and table.

She said they supply the World Food Program in Uganda, export to Kenya and, until the border closure earlier this year, to Rwanda. From one of their two processing units in Kasese, the other is in Masindi, they export maize flour to Democratic Republic of Congo (DRC).

Owning farms was not part of the original plan. The initial intention was to be a grain marketing company, organizing grain in places of plenty and transferring it to places of scarcity.

“We had invested all this capital in storage and handling infrastructure, built a prominent market network and we find we weren’t able to get enough supply from the local farmers,” Prinz recalled.

So in 2014 they started a pilot scheme on 20 hectares of land, which failed spectacularly because the instructions for growing maize were useless.

“Our third partner helped us access know h ow from Argentina on how to grow maize on large scale. In our second season he looked at how we were trying to grow maize and said they were prehistoric but said, “Wow! There is great potential here,” he said.

Their agronomist Juan Acutain, is Argentine and has helped improve the farming practices on the farms.

But what Agilis is particularly proud about is how they have worked with local farmers to not only supply the Joseph Initiative but improve their won productivity and standard of living.

“We work with at least 15,000 farmers with and average acreage of one hectare each,” said Martin Jadribo, the company’s, small holder farmer mobiliser.

The farmers are categorized according to the acreage they are willing to commit, trained not only in agriculture, but financial literacy and benefit from seasonal demonstrations on the farms, where new methods or inputs are introduced to the farmers.

The benefits have been tangible.

“We have seen yields jumping from six to 18 100kg bags an acre with some of the farmers we started with. Not only because they have improved their farming practices but also because they know they have a ready market for their crop,” Jadribo said.

He said that previously there were at least a dozen middlemen – each taking a cut, between the producer and the end market but now through their 80 collection sectors – 30 in Mubende and 50 in the Masindi-Kiryandongo area, farmers are getting a bigger percentage of the market price.

But beyond that Agili farmers is working with the farmers to grow them into commercial farmers from what they were previously, subsistence farmers.

“In our interactions we get them to think about a growth plan – this year we producing so much we should produce more next year; a business plan – that does what we are doing make business sense and then an investment plan – so once we have made this surplus how do we invest it,” said Jadribo.

About 20 km down the Kigumba-Masindi road Agilis has one of its two processing centers. They have a storage capacity of 10,000 tons and during peak season process 250 tons a day.

“Currently the Asili farms provide 70 percent of our input, with agents and the farmers providing the remaining 30 percent. Ideally we would like a 50-50 share,” Paul Murungi, the processing facility’s operations manager told Business Vision.

Murungi explained that at the plant they receive, clean, dry, store and bag. Plans are to expand the processing capacity to a daily 500 metric tons, which will mean a rumping up of production by both the farms and farmers.

Which goes back to the original challenge for Prinz and his partners, how do we commoditise maize in Uganda?

“The way agriculture is practiced here it is a zero cash system. The small farmer uses seed from the last season, uses the labour of the family and they sell what they either eat all they harvest or eat some and sell some and they do this year after year even if it is not profitable. But they keeping doing it because they don’t have another source to liquidate or being paid for their labour,” Prinz explained.

“There is difference between making money an actually generating an economic return.”

So as a first step agriculture needs to become commercially viable for more people he explains, and for his farmers helping them improve their yields, the quality of their produce and providing a market for them.

That’s a start but because agriculture the world over is a capital intensive endeavour he said, we need more farms of between 150 to 200 acres, a process Joseph Initiative is helping its farmers with.

But obtaining financing for agriculture is notoriously difficult.

“I agree our financial institutions do not understand the risks of agriculture, partly because they are so many, “ he said. Price fluctuations, weather variations

Agilis Partners benefitted from locally sourced credit for their project from Agriculture Credit Fund, which while he was unwilling to divulge the extent of, was used to put up the Masindi processing facility, which could easily have cost a few hundreds of thousands of dollars.

“We were able to do this because remember, we started as a marketing company, the cash flows from which could justify the loan and we had market access.”

Prinz said integration – production to marketing was one way they were managing the risks associated with agriculture.

“We are not just a farming business, we are not just a trading business and we have a vision to invest in protein as well. Fully integrating the whole value chain starts to mitigate the risks and makes us a more bankable project.”

But he warns that equity is key in agriculture.

“The patient capital that comes with equity is key in agriculture …. We started by getting funds from friends first, our family are not well to do so that wasn’t an option,” he said.

The enormity of the challenge – feeding regional markets is not lost on him.

“Africa currently imports about $35b in food annually. That’s shipping jobs abroad. If nothing is done by 2025 we will be importing $115b we will have tripled our food importation bill....

So what would he like to see the government do to support this dream?

“The first thing I would like to see happening is an increased attention to food safety,” Prinz said, explaining that it is the biggest public health issue in sub-Saharan Africa particularly the presence of aflatoxins, a  fungus that has been shown to cause liver disease and even mental issues like autism in children. “The flour being produced in this county is poisonous because of it.”

He would also like to see the free flow of animals – chicken and others across borders.

“This is important so that our clients can expand their businesses to match the growing demand in Kenya and in the region.”

POOR GOVERNANCE, THE ROOT OF ALL BUSINESS’ PROBLEMS

A few days I ago I had a heated on line discussion with workers’ unionists about the board representation at the National Social Security Fund (NSSF).

But first some background.

The Bank of Uganda recently made its representation to parliament on the proposed amendments to the NSSF act. Among the things the central bank commented on and which was captured by the press was their objection to mid-term withdrawal of member savings.

The online discussion was prompted by senior unionist who on seeing the headline commented that BOU should stop trying to think for everybody.

The central bank among other things is responsible of money in circulation in the economy. NSSF is the biggest financial institution in this country and while BOU does not regulate it, it keeps a keen eye on it. Among other things the Fund owns about 40 percent of government debt issued by the central bank in the form of Treasury Bonds and Bills.

So as custodian of the country’s monetary policy BOU has a right, no, an obligation to have more than a passing interest in NSSF.

I responded to the unionist by pointing out too, that they unionists should stop thinking for us in NSSF when they control barely five percent of the savings in the institution. I was later corrected, union workers actually control six percent of the savings pool at NSSF...

NSSF all told has assets of about sh11trillion.

Despite their low participation, the unionists have two board seats and the other workers who contribute 95% of the savings have none.

The unionists on the forum alleged my facts were wrong –in fact MP Sam Lyomwoki hazarded that union workers account for 50 percent of all NSSF savings, and they tried to brow beat me into standing down on my stand that their representation on the board was not justified.

In a classic case of “If the facts are against you argue the law, if the law is against you argue the facts, if the law and the facts are against you pound the table and yell like hell.” The unionists accused me of, being an agent of the liberalisers who wanted to steal workers money (liberalization of the sector had not come up for discussion), being insensitive to the plight of poor workers (I did not say they should not be represented) and not being saver in NSSF (I have been all my working life which cannot be said for the honourable Lyomoki nor NOTU boss Usher Wilson Uwere).

But eventually the unionists won the day, when one of them angrily declared that the unions shall represent the workers at NSSF and there is nothing I could do about it.

The major problem of our country was captured in that discussion that night. While politicians swear that they are the true representatives of the people, all that is forgotten once in position and the self-interest takes over...

When a reexamination of the status quo is broached, the beneficiaries jump up and down, try to intimidate the person raising the issue, bamboozle everyone with bluster and bombast and hope to maintain the status quo.

It our insensitivity to governance issues in our businesses that makes it, difficult to operate, expand and lead eventually to failure. And when our businesses do fail, we blame everyone else but ourselves for the collapse.

The Ugandan economy is not an ideal environment to operate. But there are businesses that do operate here and not only survive year after year but thrive through a combination of financial discipline and prudent business practice.

Beyond getting their business models right, that they sell for profit something the market demands, all of them have invested heavily in governance and the systems that ensure their smooth running regardless of who is at the helm.

"Good governance does not come automatically. It can be forced on you by market reality, but in places where it works there is a deliberate and conscious effort to improve governance. People used to informal operations see the rules and obligations that come with good governance as detrimental to initiative and creativity – not necessarily, but good governance structures can make the difference between selling a product for sh5,000 not sh1,000 or for the value of the company being worth sh100m more or less.

The value of good governance can be see in the products or services you deliver because you are able to bring to the market day in, day out a certain quality and quantity in a timely manner. It doesn’t happen by accident.

Good governance can mean raise the value of the company because it means a partner or buyer knows it can work with or without its original owners. If good governance was suspended to cater for the owner’s whims, what happens when he gets hit by a bus? He dies with a significant part of the company’s value.

Thankfully the unions don’t run NSSF. But it’s still something to think about. Good governance does not begin when you are in char5ge of a business but in the way you think about creating and living in a rules based society.

THE UGANDA BANK SURVEY AN EYE OPENER

The time tested model of attracting cheap deposits and lending at higher rates may not change fundamentally in the banking industry but developments in technology and the regulatory environment mean they may be coming up to a major inflexion point, a recent banking survey suggests.

The “JSR 2018 Uganda Banking Survey” released last week by accounting firm, J Samuel Richards & Associates told us much of what we know -- that the industry is in a healthy state; some of what we guessed -- that the industry is dominated by a handful of players and that some banks are punching way above their weight.

Industry profits were up 19% to sh1,025b in 2018 from sh859b in 2016. It also showed that the top five banks – Stanbic, Centenary Bank, StanChart, DFCU and Barclays together control the lion’s share of the key metrics -- Operating Assets (61%), Customer Deposits (61%), Loans & Advances (62%) and Profits before tax (77%).

Of interest too was that operating assets – those assets that make money like loans, as opposed to those that facilitate the trade, like buildings, were up 24% during the same period driven by growing customer deposits, which grew to sh19,589b last year from sh15,584b in 2016.

That customer deposits continue to rise is a good thing for the economy and may very well help keep lending rates down...

Critics of the industry claim they go for the easy pickings, lending to government rather than to the private sector. But the survey shows that just under half the operating assets – 48% go to loans and advances and only half of that goes to buying treasury bills & bonds, which bias should be as it is.

The breakdown of private sector credit may show an emphasis on trade finance and construction by the commercial banks and a small, though growing portfolio of SME lending, but that is an industry structural issue. Commercial banks are geared towards lending to going concerns, the bigger the better.

Clearly size matters.  While industry profitability grew, of the 24 banks surveyed five made losses. But given that only seven of the banks achieved higher than the industry profit before tax margin average of 32%, there are more banks than is comfortable struggling to build deposits and therefore not lending optimally...

This may have prompted the authors of the report to suggest that a consolidation of the smaller banks may be due, due to competitive pressures or that the regulator Bank of Uganda may be inclined to raise the minimum capital requirements from the current sh25b to much higher in the not so distant future.

JSR didn’t cover it in any detail in this report, but they think that the “Increased deployment of Fintech based solutions across the finance and banking value chain, which will complement banks’ operations but also enhance competitive and disruptive pressure in the industry.”

Mobile money the posterboy of the fintech industry in Uganda last year saw more than sh70trillion transacted across all platforms, a growing trend that shows no evidence of plateauing soon. To put this in perspective this was almost twice the government’s sh40trillion budget for this year.

The banks too have jumped on the trend, all but a few offering an E-banking solution, which along with the newly introduced agency banking, are depopulating banking halls and in extreme cases leading to the closure of whole branches.

The two trends the report suggests will lead to an “Erosion of the brick and mortar competitive advantage.” It is already happening, having many branches will no longer be an obvious competitive advantage and may allow smaller banks who are quicker to adopt to new technologies, to overhaul bigger rivals...

Published before last week’s one percentage point decrease in the Central Bank Rate (CBR) to 9% JSR foresaw a continued reduction in yields in government paper which would force banks to lend more to private sector.

With inflation dipping to below two percent for the first time since May last year inflationary pressures seem to far beyond the horizon hence the Bank of Uganda’s action. The reduction will definitely impact on the yields on government paper making an already sticky situation for small lenders even stickier.

The banking industry has been the biggest beneficiary of the last three decades of economic reform and growth and it has taken maximum advantage of it.

Detractors say that the fact that the industry is predominantly foreign is cause for concern. They seem to suggest that locally owned banks would be more responsive to local businessmen and that the sticking to onerous banking rules is shutting out local capital.

"That same discretionary engagement maybe what shut down most of the local banks over the last two decades...

Apart from the fact that businesses are competing with government for a very finite pool of resources, a lack of diversification in the banking industry beyond commercial banks means it will always be a struggle for the SMEs to have products tailored to their needs.

Maybe that is a gap the local financiers should fill?