LESSONS FROM 2020, A YEAR TO FORGET

Last year was supposed to be the year that everything fell in place and we would take off to greater heights.

It is the year, we found out about a place called Wuhan in China, we forwent shaking hands and hugging without being branded anti-social, sneezing was taboo and we almost went bat crazy being in isolation.

They say,

"If you want to make God laugh tell him your plans...

In the best tradition of turning lemons into lemonades, here are some lessons learnt from a year we would all love to forget.

1. You never know when the rainy day is coming

It is a fact of life that things will be going well until they don’t. And like a thief in the night the bad times never announce themselves. Who would have though that a flu-like disease would shut down the world – literally?

So if there is one thing that 2020 showed us is the importance of saving. We don’t save for lack of cash or lack of willingness but because we don’t know how to save. When we get our paycheck, we intention to save something after we have catered for all our expenses and inevitably we don’t save. The trick is when you get your paycheck save some predetermined amount first and spend what is left. 

This simple, but not easy, shift in perspective will make a world of difference in beefing up your savings, and therefore readying us for the inevitable rainy day.

2. Multiple streams of income became real

With paychecks being cut or lost altogether, the old say about keeping all eggs in one basket took on a new importance.

Beyond your major income do you have other income streams you can count on, on a regular basis? Are they diverse enough that if some dry up others will be there to take up the slack?

And how do you build up these income streams? You can earn income from your selling your expertise – consulting or from a hobby you pursue in your free time. The trick is to provide value and make known what you do – marketing. Once you build a reputation guard it with your life.

With your savings you can start investing to build these income streams. Do it like the banks, build your asset base from near cash assets –  savings and fixed deposits, to treasury bills and bonds to shares in companies and eventually to more fixed assets like real estate. 

"The mistake many of us make is to jump straight into fixed assets, which while a good store of value, return very little cash-on-cash and can often leave us asset rich and cash poor...

Systematically building this pile of cash generating assets, may make the difference between returning to your parents house at the next crisis or weathering the storm with a smile or at least a grin.

3. The personal brand takes work

In our office space, working in a functioning organisation, doing what we do best, can be deceptive. No one but your immediate colleagues and boss know or appreciate your value. That is all very well as long as you are in the job you are in. As soon as you lose that job you realise you are not so hot as you thought. Not that your expertise or experience disappears in a puff of smoke, but because not enough people in the wider world appreciate your value.

Just because you have all the letters of the alphabet after your name doesn’t mean you deliver value.

So personal branding became important in 2020. The market will pay you according to the perceived value you can deliver. The market can not divine your value. You need to communicate your value deliberately, systematically and consistently for it to be fully appreciated.

This takes work, work we should be doing every day and especially in the good times when hakuna matata.

4. Social capital was key

When things are going well – the money is flowing in, we are covering our bills, with some left over to have a good time we forget the value of social support systems. The people around us – at home, at the office, our alumni became useful in getting us through the darkest, loneliest periods. The extent to which they were useful depended on how we had watered these relationships in the good times.  

Ironically despite the world being more connected we are actually more detached from our social networks. 

We need to invest in these more ahead of the next crisis. In the words of Dale Carnegie, “be interested to be interesting”. Speak to our people, find out what makes them tick, be available, help when you can, accept help where you can (a friend in need is a friend indeed) and generally be more friendly, even if to two other people in your life.

5. Invest in your inner resources

But when all was said and done, regardless of if you had a village supporting you or you were alone, it was really up to you to struggle through the year.

There is a case for building your inner resources – mental and spiritual during the good times so that your inner peace is not easily disrupted when the hard times come along.

Mentally you need to keep learning and that means you have t o maintain an open mind that is easily teachable. Hanging on to fixed positions for security, means that when the upheavals come we will not have the  mental flexibility to adjust.

A continued quest of self discovery will eventually bring one to the universal truths that religions have tried to codify down the ages. Finding ones own truth – not the turnkey solutions parroted by charlatans, is a continous and arduous journey. The end benefit is that the journey grounds you, more than any religious dogma does and when the hard times come along you will have an anchor. 

Otherwise Happy New Year to you all and may 2021 be more easy on you – on us all,  than 2020.

WHO WILL VOTE FOR BOBI WINE?

With about two weeks to go we are fast approaching the business end of the 2021 presidential elections.

The recent poll commissioned by the New Vision to determine the way the presidential elctions will go, threw up no real surprises.

One, that President Yoweri Museveni is leading in the polls. This election is really his to lose. With the end-to-end network that the National Resistance Movement (NRM),  a reversal of their fortunes is improbable, if only because they have the biggest organisation.

Secondly, that Ugandans don’t want confusion and that this too – like the last five contests, is going to be a two horse race. That Robert Kyagulanyi aka Bobi Wine has taken over the dissenting vote from Kizza Besigye, has been clear for a while now, with all the usual suspects trailing miserably in his wake.

Will the balance change in coming weeks?  Will Museveni’s numbers slip below the crucial 50%+1 mark by mid-January?

Prophesising the winner of this election is out of the scope of this column, more interesting though is to divine how people will vote and which segments of the electorate will be the game changers, or not.

"Broadly there are two types of voters, those who will vote for Museveni and those who will not.

But if you drill down further, these are subdivided further into five groups....

The NRM voters are divided into three groups. 

The first group – The diehards, are those who will vote Museveni whatever the ills of his government and his own personal shortcomings. These are often people whose fortunes or very survival is directly tied to the continued stay in power of the NRM.

The second group – the pragmatists, is of those, who while they turn up their noses at the excess of the NRM, would vote for Museveni anyway. Their logic is a pragmatic one, they are in business or at the peak or approaching the peak of their careers, they don’t want anything or anyone to rock the boat. They calculate that a continuation of the Museveni administration, will not hurt them much but in fact lead to their continued prosperity. Also they don’t think the alternative candidate offer much promise for their prospects.

The third group of people  -- the apolitical, who will vote the NRM are those who will stay away all together from the process. Abstaining from voting is often times a vote for the incumbent. The fact that you don’t vote for the ruling party means you are against them, a vote which would do some good for the opposition. That is why it is always key for the opposition to turn out the vote, as Barrack Obama showed in 2008 and Joe Biden in 2020 in the US elections.

That leaves two groups who will vote for the opposition. 

The first group, I-would-vote-for-a-jerrycan-rather-than-Museveni, is convinced that the NRM is irredeemable and would vote for anyone who puts himself up for election against Museveni. The core of the group are people who have been shut out of power by the NRM’s continued existence and want them toppled by whatever means necessary. A fear of instability is a greater risk to take than the continuation of a Museveni administration.

The second group don’t think an NRM loss is a possibility, but want to, on one hand create a protest vote that will hopefully make NRM look up and take notice. Also within this group are those who want to create a momentum that will hopefully build up to the point that they can see the back of Museveni and his NRM in the near future.

Interestingly these could have easily fallen into the second group of NRM voters – the pragmatists, but they are more moralistic and can not countenance voting for the NRM, which they see as corrupt and worse, evil. They don’t believe that the end justifies the means. Grudgingly they will admit that the status quo is not bad for them.

While the opposition has hyped up the nearly five million new voters who have come onto the role – they have turned 18 since 2016, it would be wrong to think the youth vote is an omnibus one. While youth opinion is less coloured by a wish to maintain the status quo, because they have accumulated little property, for instance and, which as a result tends to shift them towards rebellion against their elders and the status quo, there still those who recognise that their parents’ fortunes could be undermined by change, that their career path is best served by the status quo or that they cant be bothered to vote anyway.

So the voters who will make a real change in this election are the NRM pragmatists and the apolitical/abstainers....

The pragmatists will have to be convinced by the opposition that their boat will not be rocked by a change of government.

The apolitical/abstainers’ disgust with the NRM will have to be raised sufficiently enough that they can be convinced to get out of bed and vote against the NRM. Or be convinced that an opposition win will threaten life as they know it, which they think can be better but they would rather settle for the current situation than chaos, that they turn up to vote for the NRM.

The recent polls cement the perspective that this is not a popularity contest. People’s decisions will be governed by self interest – “what can you do for me”, more than whether I like this candidate or the next. At the risk of sounding obvious the balance of self interest between the pro-NRM, anti-NRM and the abstainers, will determine who wins the next presidential election. It always does.

THE COVID WAR IS TAKING NO PRISONERS BUT ....

The COVID-19 pandemic forced the lockdown in March – the restriction of movement and congregation, which ground the economy to a near a halt. 

For the first time since the second world war, the effect was felt globally, nobody was spared.

In Uganda economic growth contracted in the first half of the year, after growing about seven percent in the last half of last year. As a result the economy grew by 3.1 percent in the financial year that ended in June. For the whole of 2020 we will be lucky to make three percent growth.

But those are the big numbers. The smaller numbers, which add up to the bigger numbers, are beginning to trickle in to confirm the anecdotal evidence all around us.

As far as James Ngetich was concerned 2020 was going to be his year. He had secured land in eastern  Uganda on which he was growing to grow barley and sorghum, key inputs in the beer industry. He had been preparing with the local agent to go in aggressively – he was going to put just under 10  acres, under grain hoping to scale up in coming seasons to 50 acres available to him.

"When he toasted to the new year, Ngetich was seeing only dollar signs, well into the future...

He was not alone. Easily another hundred farmers around the village were also throwing in their lot with the project or were already actively involved.

Then Covid-19 happened. The hospitality industry – bars, restaurants hotels and concerts were shut down. The breweries demand for his and his friends crop evaporated and literally collapsed the economy of the county.

People dug up their fields and replaced their crop with maize and beans. This whole event left a bad taste in their mouth.

The partial lifting of the lock down in June did not salvage the situation. 

The events of the last week, with the hosting of an illegal concert and the arrest and release of the Nigerian highlighters, only served to accentuate the pain the hospitality industry is going through.

Using the beer industry as a proxy the effect up and down the industry has been nothing short of devastating.

"While the bar owners have been the loudest in advocating for a reopening of the sector, with good cause, as they are the biggest employers along the value chain, millions are licking their wounds in relative silence....

Grain farmers like Ngetich saw their revenues plummet sh19b from the pre-Covid figure of sh76b. And that is an average figure some farmers suffered a total loss of income as their harvests were not taken up or they didn’t bother planting.

The numbers while dramatic belie a greater suffering than they can capture.

Oguttu who found work as a turn boy loading and offloading beer crates off distributor trucks in Kampala, was laid off unceremoniously and this meant more than loss of income. 

His sh7500 daily income – lunch was provided, allowed him to propose to his girlfriend with the Kwanjula set for June. With the loss of work in February, his girlfriend got tired of endless stories and drew the line on  postponing the Kwanjula. He is now single, searching and trying hard to get back on his feet...

Oguttu's earnings, while merger are life changing to him, can be counted among the sh1.7trillion lost in the distribution arm of the beer value chain.

"Bar" owner Mama boy in a Kampala suburb is thankful too that schools were closed otherwise she doesn’t know how she would have paid for her six  school going children – two are her own and the other four are nephews and nieces.

As the “manager” of a bar, whose whole furniture component is two benches, outside her friend’s shop she has seen a total collapse in her take home, even despite the June secret reopening of her bar – everyone has to buy at least a samosa before they can buy a beer, to justify the addition of restaurant to the establishment’s name.

She maybe one of the smaller ones but bars have seen their revenues more than halved to sh1.1trillion from sh2.8 trillion according to industry numbers.

And  the bleeding goes on and on wherever you look.

"Its hard to be sympathetic to the breweries, revenues are down by  sh416b  from the pre-COVID number of about sh900b, but they anchor a value chain that sustains more than six million people....

These standard Operating procedures (SOPS) in the fight against COVID are washing hands, wearing masks in public and social distancing all of which are hard to enforce in the hospitality industry, which by their very definition require a coming together of people.

But like all else in life, there is the other side of the coin, which in this case is the millions of Ugandans deprived of a livelihood because the hospitality industry continues to be under lock down. 

Infections have been spiking in recent days – we are set to hit 30,000 cumulative infections by year end, but the case for loosening the restrictions on the hospitality industry is a hard one to ignore. This is bigger than the beer companies and the bars.

Let government talk with the industry to determine how they can hold them accountable in enforcing SOPS, let the industry organise themselves to ensure its members adhere to the SOPs.

WHAT TO DO ABOUT THE HIGH LENDING RATES

About two weeks ago in a seminar hosted by the Bank of Uganda the vexing question of what is causing high lending rates rared its ugly head again.

In one presentation, “Determinants of interest rate Spreads in the Uganda banking system,” presented by financial sector deepening, Uganda boss Rashmi Pillai narrowed it down to the high cost of capital our banks are working with.

She showed that

viewed against regional operators our banking industry is not abnormally lucrative and neither are the costs of doing business unusually high....

She showed that  only between three to 38 percent of the people use the banks. The lower figure representing the poorest 40 percent of the population and the higher percent is the Kampala population.

Interestingly between 28 and 45 percent of Ugandans belong to savings groups. Even 41 percent the poorest 40 percent use the savings groups.

They didn’t examine in much detail why we opt for the savings groups over the banks, but I imagine apart from ease of dealing with the savings groups for most, people are intimidated with dealing with banks.

Despite the strides the industry has made in opening more branches, though the truth be told their coverage is still anemic at best, and easing  their processes people are still wary of the banking system.

"What mobile money has shown us is that we are not averse to saving we just need more convenient channels. A few years ago it was reported that on people were living a few hundreds of thousands on their mobile money accounts for months untouched.

To lower the cost of funds to the banks we need to save more with the banks, which are now relying on the more expensive shareholders funds and high cost fixed deposits to finance lending.

The question is how to incentivise people to save more?

It helps that inflation is within managable levels, the average inflation rate overt he last decade is just above seven percent, it could it be lower were it not for the 19 year spike in 2011, when inflation peaked at 30 percent.

Encouraging, rather than discouraging savings group is also good, because these deposit their funds with the banks. The ten year moratorium on tax on income for SACCOs was useful.

In the new NSSF bill it will affect employers with less than five employees  as was required in the old law. Hopefully this will encourage more people to save or at least NSSF will compel more employers to sign on their workers.

Unfortunately, efforts to make monthly savings tax deductible was defeated. In western economies they make retirement savings tax deductible to incentivise people to save more. Maybe more negotiations are in order to allow this to pass. It should be that the more one saves the better the tax break.

Government should even consider increasing the mandatory savings for retirement to as much as ten percent of a workers’ income.

Increased monies flowing into the banks will force them to shovel it out the door any which way they can. Banks making money by lending – to government or private sector. Government  appetite for debt while huge is finite and as this wanes, as it should, banks will have to create new products for their clients.

As it is banks are seating easy with on average less than 50 percent of their assets in credit to the private sector.

It is why you can be a client of a bank for more than 10 years and only doing salary loans. They have little to no incentive to wonder what you do with their credit and how can they interest you in other products – a mortgage or asset financing or something. They have it too easy.

Of course there are people who want things to remain just the way they are. Who don’t want to rock the boat. 

Bankers looking to meet their profit targets easier, for one. With lower lending rates they would have to work harder to meet targets.

"It seems like high lending rates will have to stay for us for a while. With tax revenues slipping and the donor community looking more inward to their own countries, government is being forced to borrow more and more from the public...

Given a chance between lending to government and the public the decision is an easy one for any bank manager. While individuals pay higher they are a higher risk proposition.

In India a few years ago as a way to curb corruption they banned all high denomination notes. They gave people are deadline to submit these notes and of course if you parked a bullion van outside your bank the revenue authorities would be on hand to get their pound of flesh and the equivalent of the financial intelligence authority got a chance to ask some tough questions. 

In our case we ban the use of sh50,000, sh20,000 and even sh10,000, not too far fetched given our increased use of electronic means of pavement. The poor who rarely interact with these notes and also have no access to electronic payment means, would barley feel the inconvenience.

One of the by products of this exercise in India was that bank deposits jumped and there was fall in lending rates.

There will be a lot of gnashing of teeth in the hills of Kampala – Nakasero, Kololo, Mutungo and Naguru, but they will be fine and we would all be better for the exercise.

THE EAST AFRICAN COMMUNITY MUST WORK FOR UGANDA

In December 1987 there was shoot out in Busia, on the Uganda-Kenya border. Kenya claimed that Ugandan troops entered their country and were stopped in their tracks. Uganda at the time complained of rebels attacking Ugandan villages from the Kenya said. Presumably our soldiers were in hot pursuit.

There was exchange of fire for a few days until President Yoweri Museveni and his Kenyan counterpart Daniel Arap Moi broke bread in primary school compound in Malaba, the other major border town north of Busia.

At the time there was some mickey mouse outfit – The Force Obote Back Again (FOBA), which was more bluster than substance allegedly operaing in eastern Uganda and working out of western Kenya.

The hostilities were snuffed out within the week.

The Kenyans closed the borders and we had a fuel shortage, which did not do any good for our inflation which that year was running high at 215 percent. 

There was a parallel narrative behind the shooting. 

"That Kenya having considered Uganda a captive market, for almost two decades by that time, was not amused at Uganda’s noises about economic self sufficiency....

The industrial base in western Kenya was predicated on Uganda continuing to be a basket case for a long time.

So the shoot out and subsequent border closing was a shot across Uganda’s bow. A warning that our eastern neighbour can do major damage to our economy if they want. That we should just lie down and continue to be Kenya’s market for finished goods.

Fast foward to today and it seems Kenya is up to its old tricks.

Ugandan exports to its eastern neighbour has been growing in leaps and bounds. So much so that in 2017 we reversed our trade balance – we started exporting more in value than we import from Kenya.

Whereas that is mostly the export of raw materials from Uganda, our manufactures are beginning to  climb as well.

In fact, one of the major drivers of our increased exports to Kenya in 2017, was a jump in processed milk.

In 2019 Uganda’s exports of milk to Kenya came in at $150m bettered as an export earner by only gold and coffee.

Uganda Manufacturers Association (UMA) complained a week ago that Kenya was throwing up non-tarrif barriers against Uganda exports that went against the spirit of the East African common market protocals.

Kenyan technocrats and enforcement agencies, were questioning the origins of Ugandan products, claimed our exports were counterfeit, had institutionalized  harassment of our exporters, raided Ugandan warehouses and were issuing quotas on how much Uganda could export to them. 

"These were all the more painful because Kenyan products were being allowed free access to Ugandan markets....

The EAC common market is a godsend for businesses in the region. It expands markets, can lead to greater job creation and eventual economic transformation.

It also should sharpen competitive advantages. With Uganda beginning to live up to its potential as the regional food basket, it will become increasing obvious that food production should be left to us.

"Trade wars are often triggered by one country trying to protect powerful lobbies at home...

. The offending country will try to couch their actions  in populist rhetoric, claiming to be protecting jobs but in truth it is to protect the interests of a well connected elite.

On the surface of it Uganda’s bargaining position seems weak – we are a landlocked country, who need the markets to expand production at home.

But on the other hand even if our trade balances with Kenya has shifted we are still a major market for their goods. 

Government should consider some retaliatory action against Kenyan goods, which will at least make the EAC secreteriat in Arusha seat up and take notice.

"While an eye for an eye will eventually mean everybody goes blind, its hard to see what choice Uganda has at this point....

IS IT TIME FOR UGANDA TO REMOVE THE KID GLOVES?

Last week the Uganda Manufacturers’ Association (UMA) complained that unfair trade practices by our East African Community (EAC) were proving detrimental to our local businesses and that government should muster a more robust response than it has currently managed.

According to UMA, Uganda which has served as a market for Kenyan industry for decades is finally coming into its own, seeking to not only manufacture things we previously imported but also to export the products of our factories.

However, they complain that while EAC common market guarantees the unfettered free movement of goods and services between member states our neighbours are not playing ball.

Kenya for instance continues to throw up non-tarif barriers – questioning the origins of our goods, they claim they are counterfeit, smuggled, there is institutionalized  harassment of Ugandan trade, road blocks and raids on Ugandan warehouses and issuance of quotas, all of which are against the spirit of the common market.

UMA complains too that frequent tariff tampering by Tanzania and the border closure by Rwanda has shrunk their share of regional trade.

"These are important complaints that need to be taken seriously in the context of our drive to transform the economy and eliminate poverty...

At the heart of the idea behind the common market was that it would boost our individual industries, create jobs and spur economic transformation. When some countries thin they would rather be protectionist rather than open the cause will be lost.

That being sad this kind of shenanigans are not unique to us. Building common markets is a labour of love that takes ages to create anywhere  in the world.

However, there is a genuine need to speed things along.

It seems Uganda is getting the short end of this stick. While diplomatic protests have been made to the offending parties they seem to ignore them.

President Yoweri Museveni, for who this has been his pet project for decades, should jump into the fray and try and get his counterparts to orgainise their technocrats and enforcers.

"And if we cannot rely on the goodness of the hearts of our neighbours, though not desirable, restricting their access to our markets must be considered until we get an amicable settlement. 

WHILE YOU WERE AWAY, THE ECONOMY HELD UP

While we were all fixated on the drama surrounding the presidential campaigns this week, the World Bank released its Uganda Economic Update, a forward looking report that rose above the noise of the day.

The bi-annual report titled “Investing in Uganda’s demographic transition,” addressed itself to the ongoing demographic transition from a largely youthful population to one, which in a few years will have a much huger workforce that can either be a loadstone on the economy or a force for continued growth.

But while that was happening a report from financial information services provider, Bloomberg filtered through, which said that Uganda’s economy is set to grow by 2.1  percent in 2020. Much lower than in 2019 when the economy sprinted to a 6.7 percent growth, but still amongst the fastest growing economies in the world.

The report said that Uganda will  be the fifth fastest growing economy this year, behind Bangladesh, Ethiopia, Vietnam and China and ahead of Cote D’Ivoire, Egypt, Ghana, Rwanda and Kenya.

The report gave no details about Uganda’s growth outlook but noted that

African countries, which made up seven of the top ten fastest economies, had seen the shift away from raw material exports to becoming ICT hubs accelerated by the COVID-19 crisis...

Local observers pointed out that ICT output grew 33 percent compared to contraction in the last two years, driven by an increasing reliance on e-commerce and mobile money.

It was also reported that agriculture was among the sectors that grew, as rural-urban supply chains were left open and recent initiatives to push up farm production continued to pay off.

However, while this macroeconomic resilience is cause for celebration but will mean nothing to the everyday man, if they don’t trickle down to the man on the street. 

"The trick to doing this is building an economy that not only fosters economic activity but also uses these gains to ensure continual improvement of the business environment and invest in its citizens, through education and health services to make them more productive....

Unfortunately for Uganda, after years of neglect and mismanagement, we have huge deficits in infrastructure and human capital.

This is a dilemma because we have the choice to try bridge all these deficits simultaneously or on the other hand try and sequence the investments.

We don’t have the luxury of doing either. In the first instance because of our wanting resources and in the second instance, because it cant be an either or question – do you let school enrolments stagnate as you build transport, communications and energy infrastructure or the other way around.

Truth be told we have leaned towards the latter rather than the former.

The World Bank counsels though, that a better balance has to be found if we are to reap a demographic dividend in coming years.

The demographic dividend refers to the benefits from a huge working population that is skilled and productive and contributing to the country’s growth.

Uganda will have to double its annual investment in education and health over coming decades if it is to reap this dividend.

Given our current population growth rate the population is doubling every 25 years, which means beyond the doubling growth in these investments, these will have to at least match population growth rates.

The World Bank doesn’t say it but

a huge youthful population without gainful employment is a recipe for social unrest and chaos...

The challenge is financing these investments – at the same time ploughing money into infrastructure.

We have to collect more taxes. The existing tax payers are already overstrained and hence a need to rope in more people into the tax base. Taxing land – all land, can not be put off much longer. With one stroke we will collect more, while making the land more productive.

Secondly, we have to plug the leaks. We cant have a connected few plundering state coffers to finance their first world lifestyles while the vast majority cant get quality health care or a decent education, ensuring that income and wealth disparities are perpetuated down the generations...

And then we must save more, by force if necessary, as a way to increase domestic long term funds to finance this same development.

Our ability to feed ourselves as a nation has continued to  support us in our hours of need – our lockdown experience would otherwise have been worse, but

if we do not take a long view and make the hard decisions that need to be made to ensure sustainability, even quack prophets can see the future.