OF SMALL, THE MOBILE PHONE AND THE ECONOMY

There was a celebration to be had. Everything – the cake, the drinks, the guestlist, were in place. The last call was to be to Small, a far from small lady, who operates out of Kumbuzi on Gayaza road, and delivers the most succulent roast goat, the one which easily falls easily of the bone and its juices so tasty that closing your eyes as you chew, is the natural reflex.

For the first time ever, Small could not be contacted. Her phone was off. Demand for her offerings are so high that a drive to Kumbuzi was imperative. She was there suffering a slow day because her phone was stolen only hours before.

After making the appropriate sounds an order was placed for her world beating goat ribs and some chicken. The bill? sh147,000. Sh147,000 money she would have missed on a slow Sunday.

But it also made me wonder how much money she makes when her systems, read her suppliers, grill and weather, are all on go.  But most especially her phone.

In 1999 Uganda’s GDP growth jumped to 8.1 percent from 4.9 percent the previous year.

There had been no coffee boom, the donors were a bit pissed with us for going back into the Democratic Republic of Congo (DRC) and had withheld aid, 1998 was the year of El Nino, the freak weather pattern which manifested as uncharacteristic heavy rains, so harvests were affected.

"But in the previous year South African telecom MTN entered the market and in 1999 we were the first country in Africa in which mobile phone connections exceeded land line connections. Which was not saying much, as at the time there were 50,000 land line connections ...

I like the to think MTN’s huge investment in trying to stretch their reach around the country, had some thing to do with it but more importantly it is the greater efficiencies to business that came with this new connectivity that made a major difference.

Small is anecdotal proof in the 21^st century how connectivity is helping business. In 1999 this must have been nothing short of revolutionary. Traders no longer needed to guess at the availability of supplies and prices; meetings could be called or cancelled with a phone call; you did not have to chained to your desk phone to stay in touch.

They may look like small things, but they add up when they were spread over 100,000 new phone users.

Of course, since that mobile phone has increased phone coverage is now national, about 70 percent of the population now have access, but in addition we are now also connected to the internet via our phones, and can now send, save and borrow money using our phones. Each additional capability is increasing business efficiency and opening up new business avenues.

"A few weeks ago I asked at one restaurant, part of our largest chain, how much of their business is done physically against their delivery service option. Off the top of his head the manager said 60 percent of their business is delivery. That was mind boggling because the popularity of this restaurant is such most time seating space is at a premium, which ever day you visit....

He went further to describe one time he was at Kigungu landing site in Entebbe, kilometers away from the nearest branch and was shocked to see their delivery bikes there, delivering nojitos.

The efficiency of the telecoms system cannot be overemphasized (thanks god the government company no longer enjoys a monopoly). It is so important that a breakdown can become a national issue.

I remember about a decade ago I was in Nairobi and telecom operator Safaricom’s mobile money service went down for a few hours, the uproar was such that the management of the company were called in by government to explain how this could happen.

Small’s experience last weekend reminded me how critical an efficient telecom service is to the continued growth of the economy. But also, as a tool for reducing the inequality of opportunities in the economy.

"Access to opportunity is a function of there being opportunities to begin with and good infrastructure for entrepreneurs to take advantage of those opportunities. In badly serviced economies it is an infinitely small percentage of the population who have access to opportunities. Good, efficient telecommunications can even paper over other infrastructural deficits, like bad roads.

In the twenty first century governments have to walk a tight rope between expanding access to mobile phones and throttling this with unnecessary taxes and arbitrary regulation.

As if the point needs overemphasising, one boda guy after his phone suffered the same fate as Small’s, got a new line, filled his tank and rode around to wall his clients informing them of his new number.

 

THE NSSF PROBE AND THE LUBOWA PROJECT

As an interested observer of National Social Security Fund (NSSF), having been a saver since the 1990s, I have been following the Fund’s probe quite closely.

I was waiting for jaw dropping revelations and headshaking moments. I am still waiting. Maybe because I have heard worse in the past from NSSF and everything I hear in this probe pales in comparison.

I heard about squabbling unionists, some benefits accessed before they were due, Workers’ House encumbered title, difference in opinion between the seller and the buyer about land off the Entebbe Expressway and a host of other administrative issues, which truth be told, did not need parliament’s intervention. The real action was about meetings outside official hours and places, billions requested by the gender minister from NSSF and not the consolidated fund, which made me think the wrong people are in the dock...

But what really got me going was the suggestion that NSSF’s real estate investments were strange and  the membership did not have first call on them.

Real estate development has been the waterloo of many NSSF CEOs before. The development of Workers House put paid to the tenure of Abel Katembwe; the development of Nsimbe Estate cost Ronald Mpiima the top job and at the heart of David Jamwa’s dismissal was issues surrounding the development of Temangalo. Real Estate is messy business for NSSF’s bosses.

So when questions were raised about Lubowa estate I paid attention. The net concern about Lubowa estate development was that the houses were priced out of many NSSF members’ reach.

Last year president Yoweri Museveni launched the sale of the  Solana Lifestyle Residences at which the entry price for the phase launched was about $150,000 (sh570m). At the time NSSF management explained that the cost of laying down infrastructure – roads, electricity, water& sewerage, were such that it was hard to push the price lower.

During the probe some people seemed to suggest that the NSSF should have built less grander houses in order to bring the price down to managable levels for the average NSSF member.

"From a purely statistical standpoint the average saver in NSSF is good for about sh13m – I took the full asset base of sh17trillion and divided it by the 1.3m members. What does a house that a sh13m man look like?

Lubowa situated between Entebbe Road and Entebbe Expressway is a prime property. In order to maximise its return, it requires that development be tailored towards a higher tier of the society.

Patrick Bitature, a man who knows something about real estate development, suggests that to derive optimal value from commercial real estate you need to invest at least ten times the value of the land, the market allowing.

Going by this rough rule of thumb the 600 acre Lubowa development, which had a book value of sh305b in June 2020 would require at least a sh3trillion investment to make sense.

Not to overstate the obvious, simple arithmetic would indicate that that would be sh5b invested per acre.

Put another way, you would not build a bungalow on Kampala Road, if you are to maximise your piece of land’s earning potential.

That being said NSSF is in advanced stages of completing the first phase at the Temangalo development, 17 km outside Kampala, which houses will be more price friendly – starting at sh90m.

The point is that you cannot criticize a project based on your pain point.

That being said NSSF’s main mandate is to ensure social security for its members when they are out of work. This entails that it keeps the savings they contribute and provide an adequate return that will ensure, at the bare minimum, the value of their savings are not eroded by inflation.

"We judge NSSF on what we will get when our working days are over  first. Other things like its asset allocation are secondary to us the members...

But because of its size NSSF also feels a greater responsibility to society. In its investment it also seeks to have a transformative effective on the environment it invests in. So it would be a disservice to the wider society to under invest in Lubowa to accommodate its members.

I know most people are biased towards fixed asset investment; they would rather have NSSF more involved directly in the real estate development. I don’t share the sentiment because there are better returns elsewhere than in real estate. But I can understand that NSSF, with its sh17trillion war chest is an anomaly in our dysfunctional society that cannot be left alone.

To he who is given much, much is expected of him.

 

BOOK REVIEW: BEYOND ENTREPRENEURSHIP 2.0

Author Jim Collins is always a joy to read. Whether he is unlocking the secrets of how great companies climb above their peers in "Good to Great" or why some companies endure for generations and others don't in "Built to last" or why companies implode  and collapse in "How the mighty fall" and why some companies survive and even thrive among the chaos of constant change and others fail in "Great by Choice".

"Beyond 2.0" is his latest book but also h is oldest book, in that its a reboot of his earliest book co-authored with fellow Stanford University don Bill Lazier.

It is probably his best book yet and most relevant for the majority of businessmen, because it speaks to how to build a company from the ground up. His previous offerings have often analysed the multibillion dollar corporations that populate the Fortune 500, which while pointing out universal lessons for business, dabbled in the rarefied atmosphere of success that nine in ten businesses will never attain live alone dream about.

But it is also  his best because he brings the lessons from his other best sellers to bear on his first book, also called 'Beyond Entrepreneurship" published in 1992. So between its covers it has the audacity of youth and wisdom of hindsight.

So you want to start a business and your initial preoccupations are with raising capital, finding premises and attraction customers, even hiring decisions are far away down the line. The book deals with none of the above, but instead emphasises the often ignored, forgotten or ignorance of the soft skills needed to improve a company's success and eventual longevity.

Collins counsels that in our businesses we should place more emphasis on people, leadership style, vision, strategy, innovation and tactical excellence.

When you are a businessman in the thick of things, trying to survive let alone thrive, these softer issues seem like something for somebody else, no wonder you will not last five years.

There were many lessons in this book --- I underlined almost 250 of them, but these are my five lessons, in no order of preference.

1. The only way to build an enduring great company that makes great products is to have the right people working in the right culture.

He says to be a good leader is a choice and not bestowed upon you by your title or by genetics. Leadership is key because it determines the culture of companies and enterprises. Culture is what is allowed and comes from mimicking what the leader does. Culture flows from the top to the bottom and never the other way around.

This is important because good people will work where the culture allows them to thrive and fulfill their potential. And also because great companies are made by good people more than good ideas.

Related to leadership Collins believes the key metric businesses should be measuring -- not profit margins or ROIs or ROEs but "the percentage of key seats on the bus filled with the right people".

2. The number one responsibility of a leader is to catalyse a clear and shared vision for the company and to secure commitment to and vigorous pursuit of that vision.

What do most of us do, we just jump in start selling. The vision sets a destination, the bigger the vision committed to  the better the chance of long term success.

Of course most businesspeople even of the most lauded companies did not get around to articulating their vision until years into the business but Collins argues that once this is done and shared a major inflection point was reached.

But even more important is sharing it and having universal commitment to it. Everybody must know his part in making the vision come to fruition, as a way to ensuring that the company will live beyond the founder.

3. Don't grow too fast. You need to grow slow enough to develop good management. If you push too fast you lose your values.

Once a company fails to live to its values, which underpin its vision, strategy and culture, success is not assured. if for no thing else rapid expansion should be discouraged.

The temptation for rapid expansion is always there when opportunities present themselves or you are flush with cash. But speed kills or at least makes holding everything together all the more difficult.

4. The real challenge isn't how to be creative but how to become self-disciplined while keeping vibrant the full force of your natural creativity

To be an innovative company is critical to survival to success. The temptation for the autocrats and the micromanagers is to stifle rather than enable creativity and innovation. But the key to keeping the creatives on message is to ensure they know and appreciate the company vision and then let them run.

5.The last lesson I will let Collins say in his own words

"Good people attract good people, who, in turn attract more good people and so on .... The primary assessment of good should be "Does this person for with our values? Is this person willing to buy into what we're all about? Is this person likely to live with our precepts?"

Which brings us full circle... You cannot build a great company without good people; you cannot have good people if you are not clear about your values and culture; you can not be clear about your values and culture if you are not clear about strategy; and you can not be clear about strategy if you are not clear about the vision for your company.

First vision then strategy then tactics.

An all around good read for anyone going into business or planning to build an impactful enterprise in any endeavor.

UGANDA SUGAR GETTING A BITTER TASTE

When history is written the NRM (National Resistance Movement) will be credited with resuscitating the sugar industry and then killing it.

For the first time in almost 10 years sugar production fell in 2022 on account of falling sugar cane production and a concentration of a sugar mills in the Busoga region, which has triggered unfair and unsustainable competition.

This has led to jump in sugar prices and jeopardising of a recently won sugar market in Kenya.

When the NRM came to power in 1986, years of neglect from the 1970s led to the collapse of the sugar industry – factories fell into disrepair and fields were abandoned.

The NRM helped the three major players Kakira Sugar Works, Sugar corporation of Uganda Ltd (SCOUL) in Lugazi and Kinyara Sugar ltd in Bunyoro, to get back on their feet. Over nearly three decades the three rehabilitated and expanded their plants and use of sugar cane out growers to the point that by 2014 total production had grown to 438,000 tons enough to meet local market demands of about 350,000 tons and a surplus to export to the region, especially Kenya where there own sugar industry had collapsed....

In addition, the industry was directly employing 20,000 workers and many thousands more indirectly up and down the value chain.

The year 2014 is important because it’s from around that time that new sugar mills licensed irregularly by the trade ministry begun production and started a boom-and-bust cycle in the industry that threatens the gains of the existing investors and a future collapse of the industry.

“The trade ministry aided by some local politicians in Busoga  pushed for the licensing of these new mills, without insisting they have their own nucleus fields, which means they started stealing cane from the existing outgrowers who were licensed to Kakira and Lugazi,” an industry player told Business Vision.

The major investment in the sugar industry is not the plant and machinery but the development of the plantation and setting up outgrower schemes. The new players sought to short circuit the process by setting up plants and hoping to poach cane from the existing players.

The business model has been that the millers have a nucleus estate – Kakira has about 23,000 acres and has developed an additional 15,000 acres in Kayunga for a total of 38,000 acres, SCOUL has about 30,000 acres and then develop an outgrower network, which is often multiples of the neucleus estate and supports thousands of farmers.

“Politicians complained that out growers were being paid peanuts for their cane but they did not factor in the inputs the big millers had put in –- ferterliser, pesticides, research, extension services, transport and even some loans to tide the farmers over the periods where they had no cash. All these costs came off the price of cane delivered to the factory,” the industry source.

 Farmers excited by the new dynamic increased sugar cane production – with production jumping from 334,000 tons in 2013 to 438,000 tons. But supply and demand factors came into play and the once lucrative prices they were getting for their cane fell leading to a plummeting of production to 344,000 tons in 2017. With low supplies prices went up again and the industry recovered with production jumping to 622,243 tons in 2021.

With increased production prices went down to sh90,000 at the beginning of 2022 but ended the year at sh220,000 a ton.

This is a result of two factors farmers having decided to ditch the crop when prices collapsed but also because immature cane has been harvested in previous years affecting current production.

"Sugar cane in our part of the world matures at 18 months, when the optimum sugar content is achieved. Harvesting before that time means you will need more cane to produce a unit of sugar, but also jeopardise future harvests....

The instability in the industry has far reaching ramifications for livelihoods in the sugar growing areas, future investments in the sector and may put paid to our future export plans.

As it is now there is more sugar milling capacity in Busoga and Buganda than there is sugar cane to crush, as a result most the millers are operating at less than half of their full capacity. Existing players have no incentive to invest more.

“The assistance farmers is reducing, Why should I support the farmer when I am not guaranteed of his cane on harvest?” the source said.

As a result farm yields have fallen around Busoga from about 120 tons of cane per hectare to half that amount. This means famers now need twice as much land to produce the same amount of sugar, which has far reaching consequences for food security in the area.

“When prices jump farmers forget about food production and commit more of heir land to sugar cane production. So as cane prices fall hunger can be a very real problem in the region.”

To add salt to injury there has been a proliferation of weigh bridges in the area. Weigh bridges have been set up by private individuals who can take possession of sugar cane and pay the farmers cash. Originally farmers used to deliver straight to the factory, where not only quantity but quality was checked.

“Now these illegal weighbridges are just checking for quantity. So immature cane is taken as well,” the source said.

The seduction to the farmer is obvious but even more so for the growing middlemen who operate between the farmer and the mills.

“Now the roads are lined with trucks loaded with cane and the traders phones are beeping all the time with price quotes from this miller or the other. When they get a price they like the send the trucks off to the miller,” a trader told Business Vision.

"As it is now cane prices are high making our sugar uncompetitive in the export market. That may not be a problem as a soon cane prices will crash again. But our export markets cannot wait....

“Kenya government has accorded permission to import 100,000 tons duty free sugar from India/Thailand for home consumption,” a senior industry official complained. “And once the importers get a foothold, we will go back to the Kenyans fighting our exports.”

Our export price was up to $957 per ton dramatically up from $648 earlier in the year.

And the solutions industry players say, are within reach.

For starters government needs to stop the licensing of millers in the Busoga region and all existing factories must develop a nucleus estate of at least 2500 acres; weigh bridges should be shut down and farmers deliver their cane directly to the factory and an advisory committee be set up as stipulated under the Sugar Act 2020, which will have the power to implement decisions within the legal framework immediately. Ian addition government should undertake a study and zone the sugar growing areas to allow for orderly expansion and proper development of the sector.

"The unplanned licensing of new millers by the trade ministry, without insisting they develop their own fields and cane supply chains, is leading invariably to the collapse of the sugar industry in Busoga. Ministry officials were unavailable to comment on the subject.

It has happened before. In the 1970s and 1980s Uganda sugar production supplied the region. The giant millers at Mumias and Chemilil  in western Kenya, both parastatals were brought to their knees through poor management and connivance with importers. The use of pirate millers was instrumental in bringing about that scenario.

“If we continue like this (licensing new millers) we will kill the industry and the suffering to the region is hard to calculate. These new players do not care about the regional or national economy, they just want to make money whether the industry survives or not,” the industry source said.

 

 

TAXING THE RICH HARDER WILL NOT END POVERTY

Around this time of the year two things happen. The World Economic Forum (WEF) a gathering of the world’s rich and influential, happens in Davos, the Swiss alps ski resort town, which prompts aid agency Oxfam to release its annual report on how the rich are getting rich and the poor are getting poorer.

I don’t know who said it but when capitalists meet in a room they are conspiring against labour, the consumer and whoever else who is not them. Maybe that is why Davos has become a fly trap for all the dogooders, who want to take pot shots at the rich and influential. Maybe for good reason.

The WEF is described as a lobbying organization, which turned 50 a few years ago. When the rich and influential meet at the WEF, the conversation is not about who is seeing who or who has been naughty or what did you do during the holidays. With all that concentration of power you can expect its more about scratch my back and I scratch yours. National policies are shifted, billions of dollars are committed in investment, research and charity and the geopolitical map is reordered.

So the envy is understandable.

Oxfam have taken it a step further and pegged their call for a reduction in wealth inequalities to the event. Oxfam has worked out among other things, that world poverty is related to the greatest accumulation of wealth the world has seen and one way to redress inequality is by taxing the wealth of the world’s richest.

"I am a big fan of people accumulating as much wealth as they can within the law. Its good for the economy if people can be incentivized to be wealthy....

But first let us clear up some misconceptions. If Elon Musk is the richest man in the world and his wealth is valued at $300b or ten times the GDP of Uganda, it does not mean that Musk has $300b seating in the bank. His wealth is held in shares that he owns in his various companies, which if quoted on the stock exchange, see their value change from second to second.

Its only poor people and thieves, who hold on to cash.

For all his billions, Musk may have only a few thousand dollars in the bank. The story is told that when he sold PayPal he took all the money and used it to invest in his electric vehicle company, Tesla, his space exploration firm, Space X and Solar City, his green energy company. For a while he was so “broke” he would borrow from friends to meet his living expenses and was not averse to sleeping in their guestrooms or at the factory. The rich are in a constant effort to deploy their cash to make more money.

And that seems to be what piques people like Oxfam’s ire. “Why do they need all that money?” The truth is, they don’t.

How is money made? At a fundamental level money is made by trading a good or service. To be extremely rich you have to trade your good or service to more and more people. To wake up suddenly and decide you have made enough money and therefore you should stop deploying your money to trade your good or service, would be to deny people who don’t have the opportunity and make the world a poorer place.

But even then you may place your money in a bank, which money will be used to finance other companies, increase production and consumption.

What us mere mortals don’t seem to understand is that money is the by product of delivering a good or service, it is not an end in itself. It is only the poor who think money is the end...

I agree with Oxfam and company to worry about growing inequality, but I disagree (not that it matters to them) that the way to redress is to tax the wealth of the rich.

It’s interesting they are going after their wealth because many of the rich don’t earn much salary from the companies they won.

US investor Warren Buffett, who is worth more than $100b has earned $100,000 annually for the last 40 years. So even if you taxed him at the highest rate it would be a miniscule fraction of his total wealth.

Besides that the rich pay less tax because their income often comes from dividends and capital gains, which are taxed at a lower rate than personal income. But then there is Buffett who has received only one dividend payment from his company Berkshire Hathaway in the last 50 years.

So because we cant get much in tax from their incomes let us go for their wealth. Good luck!

A bad idea if ever there was one and suggests a lack of appreciation of why the rich are where they are and the rest of us are where we are.

If we got all the wealth in the world and distributed it evenly to every one, within a few years the  original wealthy will be back at the top of the pile.

It has happened before.

"On the collapse of the Soviet Union the communist economists thought they could privatise all the state enterprises by dishing a piece of the companies to all the workers. The financially literate among them, borrowed money and bought the shares off their less financially literate colleagues and that is the genesis of the oligarchs in Russia. It happened in South Africa as well, after the fall of apartheid....

And why do I think a wealth tax is bad idea? Oxfam is suggesting something like a one percent tax on fortunes above $550m. That presupposes that the tax revenues will go towards lifting more people out of poverty. In our part of the world that is laughable.

That aside, the rich will have to borrow or sell off some of their property to pay the tax, but they will most likely do is hide their wealth to avoid this nuisance tax, so they can continue providing more and more goods and services.

So the man has a mansion with a hundred bedrooms, a garage with as many cars and flies his own private jet, because he does not want to mix with unwashed masses. That is his reward for risking his capital, creating jobs and paying taxes – because their companies do pay taxes.

"Leave the rich make money. Make sure they do it in legal and ethical ways. Invest in educating people in financial literacy as a way to even out the disparities, I am sure the rich would not be averse to chipping in to finance such an endevour. In addition, assure clean, efficient government to properly distribute the taxes in education, health infrastructure and general rule of law, essentially ensure government is good in its distributive role....

All this presupposes they are making money legally. I am sure it is possible to be grow fabulously wealthy legally.

The people at Oxfam think that the wealth is a finite resource, that there is not enough to go around so the rich need to share what they have accumulated. That is not true. If you improve financial literacy and improve the business environment, more and more wealth will be created and we will all be just fine.

 

NSSF SHAKING OFF THE CONTROVERSY

This week National Social Security Fund (NSSF) reported on its half year performance for the period ending December 2022, which suggested the operations of the fund remain solid despite the distraction of the leadership stalemate.

The renewal of former CEO Richard Byarugaba’s contract has been held up by gender and labour minister Betty Amongi pending an investigation by the Inspector General of Government (IGG) into allegations brought to light by the minister.

The developments have kicked up a storm, making some worry that the Fund’s operations may be affected.

On the contrary acting managing director Patrick Ayota reported that contributions were up 22 percent to sh786b from sh643b over the same period in 2022. In addition, income was up to sh1.054trillion from sh900b during the same period...

Payouts to members nearly doubled to sh712b from sh364b during the same period in 2021 driven mainly by the additional sh185b paid out to those who qualified for mid-term access.

As a result, the Fund is set to grow to meet the target of just under sh19trillion by the end of June, which is the end of NSSF’s year, from sh17.9trillion at the end of December. In addition while new employers subscribing to the Fund are set to double to 4,000 from 2078, new employees saving with the fund are expected to more than double to 150,000 from the current 67,277 brought onto to the books in the last six months of 2022.

The true test of whether people were ignoring or taking the controversy seriously would be the rate at which voluntary members would signing up. Unfortunately, the gender ministry has not yet operationalised the voluntary membership clause since the law was accented to by President Yoweri Museveni in January last year, so its hard to tell whether the controversy is keeping members away or not.

NSSF is no stranger to controversy.  Its last four managing directors left the fund under a cloud – to put it mildly. None of them lasted as long as Byarugaba or controlled even a tenth of the resources that he has.

"When Byarugaba joined the fund in 2010 there were about sh2.5trillion in assets under management. The seven-fold increase in assets did not come by mistake...

This has been made possible by an emphasis on compliance by employers – contributions are up to more than a trillion shillings a year compared to sh472b in 2012; a conservative asset portfolio – about eight in every ten shillings in fixed income with double digit yields and a greater efficiency in administration -- cost to asset ratio of just over one percent compared to the global average 2.2 percent for a fund of this size.

NSSF has survived previous storms because its members are mandatory contributors by law. Workers contribute five percent of their gross pay and their employers top it up with 10 percent.

At the bare minimum members were captive, unlike banks where if there had been such controversy around a bank, savers would beat a hasty path for the door.

In addition to this NSSF now has more than a decade of stellar performance – has managed double digit interest to members in all but two years, which allows its members to give it the benefit of doubt.

"The figures suggest that for the time being the controversy around the leadership of NSSF is not affecting operations, not only does NSSF continue to collect contributions and pay out benefits, its does so at a higher level than ever before...

It may be too soon to tell, seeing that the controversies burst into the public space in December, but it must be some consolation that NSSF has not collapsed like a pack of cards at the first sign of trouble.

In the greater scheme of things this controversy is a bleep and probably a useful test of the robustness of NSSF’s systems. The challenge for NSSF’s management is not to let this learning opportunity go to waste. Larger controversies are going to come in the future – sh17trillion attracts a lot of flies, and they should not be found wanting in the same way in the future.

That being said resolving the leadership question urgently, cannot be overstated and even more importantly assuring the membership that grubby fingered officials will not have easy access to their funds is critical.

While operations seem to going on unhampered, leadership ensures the strategy continues to be executed and the company culture allows that.

 

USAIN BOLT AND LESSONS FROM THE BANKS

Last week it was reported that former speed demon Usain Bolt had lost much of his retirement nest egg – about $12m (Sh45b) when a company it was invested in went under. The company suffered internal fraud which accounted for among others Bolt’s money.

This is a retiree’s worst nightmare.

I don’t know the details but I can imagine how such a thing came about. The little-known company Stocks & Securities Ltd probably approached Bolt and his management team and promised returns above the industry average if he invested with them.

They probably bad-mouthed established wealth managers who were offering, say single digit returns annually as “conmen”, spending most of the money on fattening their owners at the expense of their clients. They were a company with a difference. Probably spending next to nothing on marketing with the savings being enjoyed by the clients.

"Given the short career spans of athletes, they hit their peak earning potential before they are 30, one can understand the anxiety to seek the best returns for their money. Better established firms, with time tested records but lower returns, seem boring and worse, thieves, exploiters, neo colonialists …and any number of expletives that can turn a poor black kid’s head.

We hope Bolt recovers his money from the fraudsters.  But for us mere mortals, there is a lesson for us in how we seek to grow and keep our money.

Banks are borrowing businesses. They receive money from the public and lend it back to the public with their margin added on. They rely on volume to make money because the margins are a bit thin, Very boring.

Even more boring is their investment process. They first keep cash, when that becomes surplus to requirements they invest in near cash instruments – fix money with other banks, buy treasury bills and bonds and then maybe build or buy a building. The last to show they are solid, to the gullible public who see brick and mortar as an indication of being solid.

With most transactions becoming digital a lot of those bank buildings do not pay their way, dead weight on their balance sheets. But that is a story for another day.

"The point is we need to invest like banks.

Stay in cash and move up the asset classes, cautiously and systematically. But no! What do the rest of us do? We start by investing in the mortar and brick as soon as we have some cash coming in. We climb the tree from the top...

Real estate is used as a store of wealth. The wealthy make their money in trading goods or services and then store it in real estate.

The logic is simple. Our initial investments need to be as near to cash as possible to cater for our daily needs and emergencies, once this is covered, we move on to invest in more fixed assets, which by definition are hard to dispose of quickly. They often have low cash-on-cash returns but can show dramatic appreciations over time, which value is unlocked on sale. That’s the sexy part.

The banks’ time-tested formula is important because when the savers come to withdraw their monies the bank cannot turn them back with explanations of how they are illiquid because they parked their money in real estate.

"Greenland Bank, which was shut down in 1999 learnt this lesson the hard way. They behaved like us, rushing to build themselves a fantastic headquarters, hotels and other illiquid assets. They made the cardinal sin of using short term liabilities to finance long term assets. This mismatch cost them. Of course there was the issue of being in bed with shady fellows, but again that is a story for another day.

Stanbic Bank, which is many times bigger in value now does not own its own headquarters choosing to stick to their core business as a financial mediator. The building I am sure, will come.

Many of us who are in employment can get away – for a while, with this inversion of the wealth creation process, because any bumps in the road will be papered over with our monthly pay check. But it would do us well to keep this logic in mind even if we have a regular paycheck.

As Bolt’s experience has shown going for the best return is good but steady and consistent returns are better...

Good and consistent returns add up over the long term. Higher returns suggest higher risks, which means that eventually the high risk will come through and God help you!