THE ISIMBA HICCUP, WHAT IT SAYS ABOUT THE ELECTRICITY SECTOR

Last week the power station at Isimba dam was flooded forcing its shutdown and the subsequent loadshedding that has been experienced since.

"They say that, you will know who was swimming naked when the tide goes out and this incident did not only raise questions about the dam and its running but also whether the electricity sector is being run as it should....

Reports have it that the flooding was due to human error but it is also suggested that there were some structural concerns about the 183 MW dam.

On one hand it shows how far the sector has come when a major plant can be shut down and there is no total black out. The public annoyance with the lack of constant power outages was understandable as we have become used to uninterrupted power. It is no longer a privilege but a right, for the two million or so consumers on the grid.

On the other hand, the incident highlighted how far the sector has to go in ensuring consistent power. In a way its fortunate that this incident happened now, than if it had happened in the future when we would be talking about billions of dollars in lost economic activity.  This incident, minor, seen against the bigger scheme of things, is a wake up call the industry’s overseers need to heed to avert future catastrophe.

Since the major load shedding of the early 2000s that ended with the commissioning of the 250 MW Bujagali dam in 2012, the country has more than doubled its power generation capacity to almost 1000Mw dominated by hydropower but also including a mix of thermal and solar power.

Against a peak demand of about 500MW it came as a surprise that the country found itself in a crisis with the removal of Isimba’s 183MW. We made the painful discovery that there is a difference between installed and effective generation capacity.

Of all our installed capacity between 850MW and 957 MW depending on who you talk we have an effective generation capacity of between 550MW to 710 MW. The electricity Regulatory Authority (ERA) reports an installed capacity of 1237.49 MW as of October2020.

Effective generation capacity is lower because, among other things, power losses, it is not prudent to run your turbines a maximum capacity, you also have to allow for down time due to maintenance but also because you have thermal plants, which are only switched on in emergencies or when the other plants are down for repair or maintenance.

So, horror of horrors, we do not generate as much power as we think.

Energy minister Ruth Nankabirwa said as a way to bridge the deficit they plan to import 60 MW from Kenya. Industry sources were however skeptical of the practicality of this as they thought Kenya was unlikely to commit that kind of power given the delicate situation they are in, following the recent general elections.

Uganda Electricity Generation company Ltd (UEGCL) turned on the Namanve thermal power plant but as of writing this Electromaxx, which operates thermal power plant in Tororo has not be caused to switch on their generators.

"With increased industry, the issue of power reliability is no longer an issue of pacifying heckling, middle class consumers but has a huge bearing on economic production. It can not be business as usual...

Relatedly, while the Karuma dam which is almost four years behind schedule, original commissioning was for November 2018, will bring 600 MW online, we are long over due to begin construction of another dam.

Due to our red tape, it takes between five and seven years to take a power project from inception to commissioning. With the continued growth in demand, it is conceivable that by the time all the turbines at Karuma are commissioned next year it won’t be long before the grid is living on the edge as it has been in the last two weeks.

As inconceivable as it looks if the energy sector does not grow beyond lurching from one crisis to another, we will find ourselves back in the days when we had day long loadshedding.

 South Africa, which has an installed capacity of 52,000 MW has forced power utility Eskom to enforce loadshedding of up to six hours daily. This disaster has been coming for the last 20 years. A failure of planning and run-away corruption has taken the great industrial nation to the point we were in the early 2000s.

The problems of our sector go beyond one dam. The industry overseers, in the energy ministry and at ERA, need to get back to the drawing board yesterday.

There is a silver lining to this tragicomedy. After dropping the ball in precipitating the current crisis UEGCL engineers as of writing this had brought back 45.7 MW online at Isimba and were working around the clock to restore full capacity. This may very well be a much-needed stress test for UEGCL, which is set to take over operations of Nalubale and Kiira dams next year.

RUTO KENYA VICTORY A LESSON FOR AFRICA OPPOSITION

William Ruto this week upset the apple cart, beating Raila Odinga to become the fifth president of the Republic of Kenya.

"It was always going to be a strange race, but the conventional wisdom did not allow for a Ruto victory...

Ruto has deputized President Uhuru Kenyatta for the last ten years, an alliance which in itself was an unlikely one at the time it was forged. Both men stalked by the International Criminal Court (ICC) for their alleged involvement in post-election violence in 2007 where they were in opposite camps, came together to beat Odinga in 2012.

After winning a second term in office in 2017 the two men fell out spectacularly, which laid to Uhuru backing the opposition candidate Odinga against his own deputy in the just concluded race, making Odinga the establishment candidate, a role that did not seat well on the perennial challenger. This was Odinga’s fifth attempt at Kenya’s topmost office, a 25-year odyssey that has always ended in tears.

So Ruto the deputy president was the opposition candidate. You will be forgiven the cognitive dissonance.

The accepted wisdom is, being in opposition means that you cannot leverage the government’s infrastructure to drum up support. Being in opposition means your agents will be harassed like stray dogs at every turn. And the ace in the hole is that if you are in opposition, you have no chance to “influence” the result if it is not to your liking.

Nearly 60 years of unbroken electoral practice in Kenya means that the opposition have sued for and won some space to maneuver, so their fate is not as dire as some of their counterparts in the region. But that space has been paid for with blood, sweat and tears over at least half a century. Odinga, who was at the forefront of fighting then president Daniel arap Moi to open the space for multi-party democracy has been exiled, detained, teargassed, seen his friends impoverished, maimed and killed, suffering any number of indignities in the process....

But to take advantage of that crack in the door, required the skills and will of a political operator like Ruto.

From his first parliamentary victory, where he beat Moi’s favoured candidate in 1997, Ruto has shown himself to be a meticulous organizer. In this election in particular, his pinching of the Kikuyu vote – the country’s most populous tribe, from under the nose of the Kenyatta backed campaign was the game changer. That did not happen by mistake.

Ruto was not only battling the state apparatus but also the media – official and independent, were unashamedly rooting for the Odinga campaign. They as shellshocked as the establishment at the turn of events. They say when perception comes up against fact, perception wins all the time. Ruto has shown otherwise.

The media harped on his vast wealth as a sign he was corrupt, in a country where you cannot spit without hitting a corrupt official in the eye.

Ruto’s campaign while making the expected denials nevertheless worked hard to position the candidate – the chief hustler, as one of them and not one of the entitled political dynasties, which themselves have a lot of unexplained wealth hanging loosely on their persons.

|"Ruto’s ability as a challenger to go toe-to-toe with Raila in every constituency except in Odinga’s Nyanza province backyard is a function of his organizational capacity. On the flip side the are stories of how Odinga’s campaign was shambolic, suggesting they were complacent.

Some will argue that Ruto is a rich man and therefore has the resources to splurge on his campaign, but who is richer than the state? And haven’t we seen people with money being beaten in elections by lesser advantaged opponents in constituencies around the country?

So the Ruto campaign in its own strange way has powerful lessons for the opposition on the continent. One, that wrestling power from the status quo is a process not an event. Ruto leveraged on the gains won by the opposition to make the electoral process in Kenya more transparent to win.

Secondly, that regardless of how disenchanted the population is, organisation that shows the opposition as a worthy alternative is critical. In the end people are not foolish, they vote their interests and in the face of great uncertainty, vote the status quo either physically or by staying away from the ballot.

And eventually the cause has to have a champion who is not only credible but can stick on message. Despite massive provocation for Ruto to lash out and validate the narrative the Odinga allies had drawn around him as an impulsive, violent and even callous operator, he remained largely calm and did not allow the bad press to stick.

The Odinga camp has threatened to appeal to the court as is their right, which if they do will only improve the democratic space in Kenya. But for now, Ruto is the toast of the town and its hard to begrudge him his victory.

 

 

 

THE 100 MILLION SHILLINGS CURSE

It is a simple question, on the surface of it.

If I gave you sh100m right now and here, what would you do with it?

The answers to the question would fall in two categories – consumption or investment.

Consumption would be buying cloths, food, travel, cars -- things or experiences with no financial return, while investments would include saving, buying, government paper, shares, land or real estate.

"Given the distribution of wealth in the world, we can expect that 10 percent, or less, of responders will choose the investment route while the remaining 90 percent will choose the consumption route....

According to the World Economic Forum (WEF) 10 percent of the global population own 76 percent of the world’s wealth, while the bottom 50 percent of the population only own two percent.

There are obviously many reasons why this is so, not least of all because poverty can be passed down generations, but when you strip away all the excuses, whether we become wealthy or not is down to our spending decisions. More precisely the balance between consumption to investment in our decisions over time.

It really is as simple as that.

When I get onto the financial literacy circuit my talks will begin with that reality, that there are only two ways to spend your money –- consumption or investment.

The trick is to reorient your thinking. 

Easier said than done. I used sh100m in the question above but what about if it was sh100,000 or sh10,000 or sh1,000?

In school there was always this one kid who was a trader. They often took all their pocket money at the beginning of the term, which in those days may not have amounted to much, bought sweets or cigarettes or whatever other small knick knacks to trade with other kids. I don’t remember them being spectacularly rich, though maybe this was a defence mechanism to guard against those who tended to reap where they did not sow, but also they were never broke – especially if there was a good deal to be had.

I imagine as they grew and dealt with larger sums, they are much richer today. But first they had to learn the discipline with small sums.

"Many of us think that we will really begin to make money when we have big monies. The truth is if you have bad financial habits – consuming rather than investing your small monies, you will carry this indiscipline when you have bigger sums....

If we operated in a vacuum it would be much easier to acquire this discipline, but since the majority of us do not think like this –see the WEF statistic above, most of us are doomed to a life of poverty or at least living way below our financial potential.

The societal inertia, which urges us to consume rather than invest is not easy to beat back. Because, think about it, what in practical terms would this mean, investing instead of consuming.

You would have to forgo, for a while, new clothes and shoes, eating out as often as you want (or eating altogether), riding in taxis to work instead of buying a car or staying in amzigo instead of renting in a high maintenance area , which is adequate for your needs and only costs sh100,000 a month. Sacrifice.

Not easy when everyone, or at least nine in ten people around you is consuming not investing.

The interesting thing is, done of long enough, this accumulation takes on a life of its on and begins to seem like magic. The magic is called compounding, unfortunately few of us  are in it long enough for compound interest to take hold.

My favourite American, Warren Buffet turns 92 this year. He started investing at 11 but most of his wealth has been made after he was 50. And its not just because he was investing larger sums, but more because the compounding curve of his experience and knowledge went exponential after 50.

This is enough to discourage most. Who wants to wait so long to become rich? What is the point of accumulation if you are not going to eat your money (Buffett is notoriously frugal despite being worth more than $100b)?

"Whether you shift your spending habits or not, the time will still pass, so why not use the time effectively?...

But Buffett is oceans too far.  In the late 1990 The Financial Times interviewed local businessman Sudhir Ruparelia at the end of the interview they asked him how he had accumulated so much wealth – I imagine they were wondering how he did it in such a poverty-stricken country. Sudhir responded something to the effect t, “It is an old Indian trick. Make ten shillings, eat one and reinvest the remaining nine shillings in the business. Repeat until rich.”.

 

POWER ONLY RESPECTS POWER

 Recent events locally and internationally have cemented the fact that power only respects power and two, that those involved in the game of power are always on the look out to extend their own and minimise their opponent’s advantage.

Locally we saw the National Resistance Movement (NRM) first coopting Democratic Party (DP) president Norbert Mao (Its not clear whether the party is coming along) to its agenda and then pulling out all stops to win the Soroti East constituency.

Internationally, we saw Russia continuing its campaign in Ukraine despite the world’s criticism. For Russia the campaign in Ukraine is not another thing on the day’s to do list but a real existential threat, the loss of which will come with consequences to dire to bare.

And finally, US house speaker Nancy Pelosi made a symbolic visit to Taiwan despite loud protestations by Beijing. US official policy remains for a one-China policy. Pelosi’s visit was a case study in the separation of powers in practice I the US government.

"In all these cases it is clear power seeks to always concentrate more power to itself and loath to allow it dissipate away from itself....

When you are at the top of the hill you have a strategic advantage and most of your effort is expended in defending that position from challengers. This may entail fending off the challengers’ attacks head on or spread dissension in their ranks with the aim of blunting their resolve.

Its not time to seat on your laurels once you have attained power, something the NRM knows all too well.

On one television talk show an opposition member was whining about the NRM wanting to win everything even a “small” constituency like Soroti East. For the leader nothing is too small, as losing even once can be blown out of proportion by the opponents to give them impression that this is the beginning of the end. And in the game of power, perception trumps fact often enough.

Another thing is that power is amoral. The end justifies the means. You cannot appeal to its better nature or shame it into good behaviour. For those out of power, raising moral objections to the actions of power is a way to appeal to the court of public opinion and hope the public will be disgusted enough to do something. Hope though, is not a strategy....

As we have seen in Ukraine, Russia on one hand is fighting the Ukrainian forces but also working to demoralize the public through “accidental” bombings of malls, theaters and residential areas. It is also working to weaken the EU’s unity by denying the gas, critical for heating in the coming winter season. Western observers are crying themselves hoars about war crimes, but the Russians are continuing along their merry way.

The issue of war crimes is also a hazy one. When war is declared who are the enemy? The man in uniform seeking to end you, is clearly an enemy combatant but what about the civilians who cheer them on, offer them refuge and would not be averse to shooting you in the back in support of their own forces? The theory is clear but in the chaos of battle, clarity is a casualty.

In the last week, the US killed Al Qaeda strong man Ayman al-Zawahiri believed to be responsible for the September 11, 2001 bombing of the Twin Towers in New York and the earlier bombing of the Kenyan and Tanzanian embassies in 1998.

Using high precision missiles fired from a drone Al Zawahiri was killed as he stood on his verandah. There were reports that the missiles do not explode but rather use blades to kill only the target, minimizing collateral damage. However, footage released later showed the top floor of the building Al Zawahiri was believed to be in, was flattened. Its hard to believe any one in his vicinity survived. War crime or not? Who decides?

Power only understands power. If there is no equal and opposite reaction, power will have its way.

The US argues that while the official policy is to recognize one China with Taiwan they cannot interfere with the working of the legislature for which Pelosi is the speaker of Congress. China would have cognitive challenges understanding how all arms of government do not work in unison. The truth of course is that Taiwan continues to exist as an independent nation because the US has promised to defend their independence. Without that you can rest assured they would be back in the China fold quicker than you can say Chiang Kai-Shek.

"The point is power operates according to a different moral code than the wielders of power preach to us. Power has little use for the golden rule – treat your neighbour as yourself. It has its uses, in indoctrinating Sunday schoolers.

MTN: END OF AN ERA, THE FUTURE SHOCKINGLY BRIGHT

Last week MTN CEO Wim Vanhelleputte gave an exit press conference to a group of journalists in Kampala, during which he looked back with pride on what the company achieved during his six years at the helm and looked forward with some optimism to the company’s prospects in coming years.

By any standard the company’s progress over the last six years is admirable but also point to a company which is yet to reach full maturity.

In Wim’s first year at MTN revenues stood at sh1.3trillion while last year the company made sh2.1trillion,a more than 50 percent increment. More interesting is that profit after tax jumped more than fourfold to sh387b from sh96b during the same period. Wim explained that the company as becoming more efficient, the economies of scale are beginning to kick in.

Total subscribers almost doubled to 15.7m today from 8.6m in 2016.

But what was even more impressive was that despite all the work and investment MTN has poured into Uganda – more than sh900b in telecommunication equipment alone, there is still a lot more opportunity...

Wim noted that data revenues were outpacing voice and even mobile money and yet they have not rolled out their 5G networks and only starting to lay down cable for their fixed data network.

As a proxy for the industry MTN may not be perfect, when Airtel opens its accounts to the public later this year, we will have a better sense of the total industry.

One can expect that data and the fintech arms of the industry will be the main drivers of growth in coming years. Last year for the first-time revenues from MTN’s voice service was less than half total revenues.

With the benefit of time it would be interesting to determine the ripple effect of these mobile phone companies to the economy. How they have affected us on a day-to-day level.

Almost three in every four Ugandans now has a phone.

When MTN set up shop in 1998 we had 50,000 landlines belonging to UTL and another about 5,000 Celtel moblie phone lines. With a population then of about 23 million, there was a phone line for every 400 Ugandans. It must be one of the fastest improvements in phone coverage in the history of the industry.

So in the Vision Group which has about 1200 workers we would have three phones to share. Unthinkable today.

But imagine what this meant in terms of losses of time and money.

"Whole industries like bodas bodas, delivery services and the whole money transfer industry would be stuck with snail mail. Our relationships would still be quite manual (which may not have been a bad thing) with having to travel from place to place to keep in touch. We would still have to line up in banks for service....

I remember in the 1990s reading Bill Gates book “Business at the speed of light”. Look it up. It has chapters like “Information flow is your lifeblood”, “Create a paperless office” and “bad news must travel fast” among others. These subjects are now common talk but were revolutionary in 1999 when the book was published.

Gates as the head of Microsoft at the time, of course, was at the cutting edge of the ICT industry, he could see things then, we are only beginning to appreciate now.

“A good flow of information and good analytical tools gave us insight into new revenue opportunities among volumes of potentially impenetrable data. It maximized the capabilities of, human brains and minimized human labor,” Gates said in the book.

So, while Uganda has been good to MTN, MTN and the mobile phone industry has been good to us. We need to get over ourselves and look to how the industry can be helped more so that it can lubricate the economy further.

Wim had his thoughts on the subject. His suggestion was to cut or remove altogether taxes on the low value end of the smartphone market. This would increase data usage which would increase usage from the current 30 percent of phone users. This will not only broaden information flow it would inevitably lead to a lowering of data prices.

Going by the experience of voice calls, it now costs for a 30-minute call what it used to cost for two-minute call ten years or so ago, because the there are more users, the economies of scale are kicking in and allowing telecom companies to charge less per unit time.

Secondly, he suggested that government should actively drive digital payments.  As it is now with more than half the economy informal, a lot of economic activity flies under the radar going untaxed and not helping as many economic actors as it would, if these monies flowed through the formal financial system which the mobile money networks will soon dominate...

Wim, the longest serving CEO of MTN’s local unit, moves on to take up a regional position, it would be embarrassing if we cannot build on the momentum he has created.

 

 

NORBERT MAO: AND THEN THERE WAS ONE

A deal between the ruling National Resistance Movement (NRM) and the Democratic Party (DP) received a mooted reaction from public. There was some initial surprise, even shock at the development, but that soon passed and we went back to our business.

Anyone who has followed the progression of the NRM over the last three decades was not surprised.

When the NRA took over Kampala in 1986, it showed itself to be a superior military force to the national army. But the NRM was politically weak.  President Yoweri Museveni while using the NRA to come to power recognized that to sustain his project he needed national political buy-in.

"Suspending the party activity of the traditional parties and coopting some of its leading lights, at once froze political parties in place, while strengthening the NRM politically. Ten years down the line and the first presidential election – where Museveni beat DP’s president Paul Ssemogerere in 1996, proved the success of this route....

The return to multi-party democracy in time for the 2006 presidential polls, came from external rather than internal pressure, a concession Museveni had to make to cause the lifting of presidential term limits. In case we had forgotten, the 1995 constitution had restricted the presidency to two five-year terms. It was thought by opening up parties would now gain traction and offer a more competitive political playing field.

But the party inactivity had taken its toll. The old leaders wanted to hang on, yet a younger cadre who thought their time had come, were banging incessantly at the door, demanding a place at the table. the infighting meant parties could not muster any credible challenge against a more organized and better resourced NRM. It did not help that opposition parties were seduced to adopt a big man model and forgot or ignored to build party structures and invest in the coherence of their organisations.

New parties fell away as soon as they sprouted, while the older parties were really just keeping up appearances, failing to make an impression in presidential elections or in terms of parliamentary seats.

The writing was really on the wall as far back as 2011, the last time DP and the Uganda People’s Congress (UPC) together fielded a presidential candidate. In that year Norbert Mao and Olara Otunnu were the flag bearers for DP and UPC. Between them they failed to win five percent of the presidential vote.

Mao run in 2021, but his campaign (0.56 percent) was overshadowed by the new energy of the National Unity Party (NUP), which crashed the party relegating even FDC to a distant third. NUP’s Robert Kyagulanyi won 35.08 of the votes to FDC Patrick Amuriat’s 3.26 percent.

We are wiser in hindsight of course.

"We have known all this intuitively, which explains the mooted response to the DP capitulation. The only cognitive discordance was caused by Mao in his speech at the event, repeatedly lauding Museveni’s courage in signing the agreement with DP. Less charitable people would have questioned Mao’s courage, bordering on shamelessness, in selling the party down the river....

More forgiving people will understand that DP is succumbing to the inevitable. DP’s glory days were in 1961, when it won the general election under Benedicto Kiwanuka. Ninety five percent of Ugandans were not born by then.

We want a credible opposition. Any country does. A good opposition keeps government in check. Governments that are left to their own devices tend to veer towards impunity and corruption. But opposition parties all over the world, even in the older democracies know that their place is not guaranteed, they have to fight to claim it. Any laws on the books that protect the opposition in more developed democracies were won through patience, perseverance, sweat and blood.

The ruling houses of Europe, whose kings had absolute power over the land and people, conceded these powers reluctantly. Those who did not read the signs, had their heads loped off and their bloodlines obliterated.

Given the obvious advantages of the ruling parties, the opposition parties have to invest in building structures to counter them. Any party that is not investing in that, will only last as long as the novelty factor of its new leader.

It’s a class the opposition will continue to take until they learn the lesson.

OF MBIRE AND WHY THE REST ARE POOR

Last week it was reported that Kampala businessman Charles Mbire bought about 23 million shares in Bank of Baroda.

 It was a timely buy because every one who has shares in the bank by 21 July will be eligible to a sh10 dividend per share. Do the math.

But for people like Mbire, who has been a major beneficiary of the growth of telecom company MTN, where he has a four percent stake, dividends are really the icing on the cake. While they will expect an annual dividend, beyond that they are looking at whether the underlying business can keep growing in value year on year. Wealth is what you keep not what you earn.

"For the majority of us mere mortals we get excited by the money we have in our hands, the truly wealthy get more excited by the growth in what they own. It’s a different reality that comes from a different mindset...

Every year the do-gooders tear their hair out at how wealth disparities are widening around the world.

In January international aid agency, Oxfam reported that the wealth of the top ten richest people has doubled since the beginning of Covid while 99 percent of humanity is worse off from the pandemic.

On the surface of it the difference between the top one percent and the rest is that the top dogs are the owners of capital while the rest are content to sell their labour. Capital is scalable, while labour is not – you can only work so many hours in a day, while money is not restricted by distance, space or time.

But on a deeper level it’s the mindset of the two groups that is the real difference.

Back to Mbire. On June 24 about three weeks ago he received his dividend check from MTN, along with more than 20,000 other shareholders. Given his four percent holding in the company, he would have come into about sh4b. While the rest of us mere mortals went off and partied away our money, Mbire took half of his takings and made a bet on Bank of Baroda.

I can hear you now, “But at least him he had a lot to invest, for me with my sh100,000 what did you want me to do? It’s too lito (little) to invest.”

My favourite American is Warren Buffett, the richest investor in the world. The story is told how he walked into the lift on his way to work one day and saw a coin on the floor, which had been ignored by all the other well-heeled occupants of the lift, he bent down picked it up, “This is the beginning of the next billion dollars,” he said as he held it up to the light.

It’s that attitude, more than luck or intelligence, that has informed the 92-year-old billionaire’s spectacular investment success since he bought his first share as an 11-year-old.

The truth is, our actions around small monies will be the same around big monies. Because our actions around small monies are not wealth creating, we will never reach a place where we are pulling down sh4b in dividends, leave alone investing half of it to buy other company shares and adding another few hundreds of millions of shillings to our bank accounts. There are no miracles.

Also, what Mbire sees that we do not see, is that he is buying a piece of a business. He does not need his name to be on the entrance of Bank of Baroda, he is in it for it s productive power and if no one knows he owns a piece of the company he is ok...

The wealthiest people in the world do not go it alone. My man Buffett owns 16 percent of the company Berkshire Hathaway, which accounts for most of his wealth. Last week the company was valued at $606b or about 20 times the size of the Uganda economy.

For the rest of us we are driven by ego rather than profit, we would rather point to that building or that company or that farm and say it belongs to us. We would rather own all of a small thing than a piece of a larger thing.

And finally, and related to all of the above, delayed gratification is not just a catch phrase but essential to wealth creation.

Mbire could have found a way to eat the sh2b but instead he has decided to postpone eating it or more precisely, is stretching his eating over many years into the future, essentially having his cake and eating it. For us mere mortals we just eat our cake....

While Oxfam is justified in lamenting the tax dodges exercised by the wealthy, and lower wages of workers maybe they should be focused too on bridging the gap in mindsets between the wealth and the poor. Because after all the orientation of the mindset is a learned skill not genetically passed down.