ON UGANDA CORRUPTION AND WHY IT IS DIFFICULT TO FIGHT

In recent weeks several public officials have come under a determined barrage of allegations on social media about their misuse of public funds.

President Yoweri Museveni’s pledge to move on corrupt individuals during the state of the nation address two weeks ago, that was quickly followed by the arrest of several MPs, has only served to stoke the flames.

Some people have argued that the word corruption is too polite and that people caught stealing public funds should be branded thieves so there is no ambivalence about what they have done. I would agree only that corruption goes beyond stealing public funds to include, misappropriation, intentionally causing financial loss, favouritism, nepotism and a host of other ills intended to unfairly advantage the corrupt official...

According to the Transparency International Corruption Perception Index 2023, Uganda was ranked 141^st out of 180 countries with a score of 26, where 100 means not corrupt and 0 means totally corrupt. We have never threatened to rise above the bottom quartile of the index since it was first published in 1995.

These were just numbers until we learnt that personal generators bought with tax payers money were being given precedence over the more urgently needed generators in up country referral hospitals. Even more galling was that the generators being procured for the senior government officials were surplus to requirements for even the hospitals.  

This column has argued that corruption apart from distorting the market, it concentrates resources in a few hands and widens inequalities.

The current case illustrates it properly. The three referral hospitals according to the health ministry serve 6.5 million people. Before we go into details of the costs of the senior officials' generators – three times more than market rates, this means that the two officials are consuming the equivalent of 6.5 million people’s resources.

So the public will be forgiven for not swallowing the perennial lament that government is short on cash.

There is a concept called opportunity cost, which means that when you use resources on one thing you have invariably denied another project the resources.

So if you spend half a billion shillings on ensuring a cushy existence for our senior officials you are denying more than six million people, lifesaving services. It would be interesting to find a place where this can make sense.

Even more scary to contemplate, is that this is only the tip of the iceberg, if we took a second glance at the accounts of parliament, where this largesse was being doled out, you will need to be of stronger constitution to keep your food down.

But it also suggests that there is complicity across government. How is it the Auditor General missed this? Where was the Inspector of Government? The Criminal Investigations Department? Parliament’s own internal auditor?

And it is not even over yet. There is widespread complicity by us, the rest of society. When we know that there is no way our father and mothers, sisters and brothers, sons and daughters, can sustain their lifestyle on a public servants’ salary and yet we still give the pride of place at our weddings, funerals and even churches.

Society’s message being, the end – riches, justify the means.

Many years ago in a discussion among friends, someone made a huge sigh of relief because a recent audit had failed to discover that she had been abusing her fuel allocations. She put it down to her Christian background, “God protects his people.”

"That is how bad corruption has become, to the point that we can explain away our maleficence because we are God’s children...

And therein lies the challenge of fighting corruption in Uganda. More than the fear that fullscale assault on the evil may very well topple the state – because the thieves will not just lie down and die, they will fight tooth and nail to keep their loot, is that it is so baked into our DNA as to totally overturn our moral sensibilities.

Many years ago a minister had solicited a million dollar bribe to grant access to the president, when he was he was aprroached by the media to explain himself, he complained that they were unfair exposing him when there were bigger thieves in government.

So where does one start?

Some quick wins can be gained by carrying out a lifestyle audit of all officials signed up to the leadership code. Our corrupt officials have reached such levels of impunity that they enjoy their loot in full public view.

If government can survive that exercise, it can then go on two restructure and strengthen the law enforcement agencies concerned with white collar crime. The laws will have to looked over to especially what kind of people, from a moral standpoint are allowed to hold public office.

Let government survive those two first before we can talk about long term measures.

"Ideally we should get to the point where the disgust shown a public official mirrors that of a father who defiles his toddler daughter, then we will see progress...

 

UGANDA NATIONAL BUDGET: SPEED IS OF THE ESSENCE

The excitement of the budget reading ended a long time ago. Last week by the time finance minister Mathia Kasaija read the budget, we knew all there was to know about the 2024/25 budget.

The budget making process had been going on for nine months and was passed at the end of May. The budget reading to a large extent, is a constitutional requirement now.

But even before that, with the liberalization of the economy and privatization of state owned enterprises, government has no direct control on prices.

"A whole generation of Ugandans do not know the excitement of waiting for the finance minister to pronounce on the price of milk, petrol and sugar. It is now generally accepted that the finance minister has no business setting commodity prices. Which is as it should be...

Believe it or not, by liberalizing the market and privatizing government companies the economy has become more efficient in generating wealth and some may argue, distributing it as well. But that is more testament to government inefficiency down the years, because the market is not the best distributor of wealth.

While official figures show otherwise --  Kasaija reported the economy grew six percent, there is a general feeling the economy is not working for the man on the street.

Kasaija left some clues as to why this is so; debt repayment as ratio of revenue collections will jump to 40 percent from 33 percent, way above the acceptable threshold of 20 percent. This means more and more money is going to paying off debt and not to building infrastructure and social services. The minister pointed out though, that most of the debt has gone to infrastructure development which is underpinning our current growth.

Looking at roads alone there is not much to write home about. Ten years ago then finance minister Maria Kiwanuka reported that the country had 5,224km of paved roads, last Thursday her successor reported we now have 6,338 km of paved road. In ten years we have added 1,114km or about 100 km a year during the period. We know of course that the issues around procuring the projects and compensation slow down these projects, but how does the problem persist decade after decade?

We have all seen it in the suburbs, how there is an explosion of economic activity once some tarmac is laid down. It therefore follows that a faster road construction, to at least keep up with population growth, might just ease our economic pains. As it is now our stock of paved roads are growing at barely two percent a year compared to the population growth rate of about three percent.

Interestingly, Kiwanuka said there were 1700 km of road in the works, are some of those roads only just being done now?

Minister Kasaija also said last week, the government has earmarked sh200b for paying arrears, a pittance when seen against a total stock of nearly sh8trillion. In mathematical terms, if the government owes you a million shillings it will repay you sh20,000 in the next financial year. So there are many businesses, maybe hundreds of businesses, which will fold or will endure unbearable hardship as the wait in anxious hope for government to repay them.

The pain of course is shared by their employees and suppliers and hence the general feeling that this economy is not working for us.

For the man of the street, it is hard to reconcile his hardship with the economic progress of the last ten years.

"Ten years ago, Kiwanuka was making do with a sh15trillion budget or about half what we expect Uganda Revenue Authority (URA) to collect in taxes in the next financial year. In 2014 the size of the economy was about $32b compared to $53b now. It is safe to say we are well into middle income status now – per capita GDP over $1,100 but in 2014 per capita GDP was about $897...

We also feel a bit hard pressed because they are many more demands on our shilling these days than was the case a decade ago. Mobile phone users were about 20 million in 2014, a number that is what MTN reports as its subscriber base today.

But beyond voice calls we are using data at a prodigious rate. I was shocked to learn a few weeks ago that more than half of MTN data usage last year was on the short video app Tiktok! We no longer walk, why when there is a boda boda within spitting distance of anywhere. And of course our night life has continued to flourish as every suburb now has a half decent bar or two, within walking distance of every home.

So while there are issues of macro-economic inefficiency and government priorities, our own spending habits are making us feel harder pressed, even if the statistics show that the Uganda economy is on a tear.

 

MAKING THE FAMILY BUSINESS WORK

Recently the Musizi Sustainable Business Institute facilitated the world renown Drucker School of Management to hold a workshop on generational wealth.

My friend Charles Ociici, boss at Enterprise Uganda used to have a statistic about a decade ago, that there was only one indigenous business that has transcended a generation, that has outlived its founder and gone on to survive and thrive.

At this workshop the Institute’s founder Elaine Alowo Matovu, said that statistic may have improved but not by much, with only one in five Ugandan businesses transcending a generation. And of those most were not indigenous founded businesses.

She also pointed out that in the next decade or so there will a massive wealth transfer – about $84trillion, between generations, but almost of all of this will be in the global north.

Should we care?

My understanding is that after creating wealth, our families cannot seem to hang on to it, if only for the benefit of future generations. This trend is worrying because statistically you cannot build meaningful companies in one generation. As one friend of mine once said, the problem with Uganda is that we do not have enough wealthy people. And he was not talking about commission agents and air suppliers.

People who have built wealth independently think different from the rest of us non-producers and are key to driving a nation forward. The fewer they are, their voices are drowned out by the mediocre and society does not progress.

It has been found variously that Uganda is the most entrepreneurial country in the world. This is no mean feat. The challenge is that companies that emerge, are not sustainable as evidenced by their inability to live beyond the founder.

For us mere mortals, we may blame bad luck for this, but there is actually a science to it.

Enter the Drucker School of Management and more specifically the Drucker School Global Family Business Institute, who have made it their raison d’etre to understand and help family businesses navigate the minefield of family dynamics and generational succession planning.

Lauded as the father of modern business management Peter Drucker, whose name the school carries, has had his methodology, previously tailored to public and professionally managed businesses, adopted to the unique challenges of the family business.

"During the workshop that was held over three days, participants explored issues of their money philosophies, shared family dreams, advising and creating business systems designed for family  businesses....

But the subject that caught my attention for its universality beyond business was “raising children… with batteries included.”

It is a no-brainer that in order for the kids to take over from you and thrive, even take the business to the next level there needs to be some formative training in that direction, the question has always been how does one do this?

Communities like the Indian business families seem to have hacked this process, bringing in the children into the family business and slowly handing it over in a process for there seems to be no written manual.

The Drucker School has distilled it into six keys to raising children to take over the business.

First, they need to know where they are from, they have found that children who know their families and family histories tend to be more resilient in the face of life’s challenges.

"We need to bring up our children to be grateful rather than entitled, the latter being a killer of business sustainability. If they feel gratitude for the business and what it has done for the family they are more likely to want to carry it on and to the next level.

That our children need to have a dream or goals because “If they don’t have a target they will wander and wonder.” Relatedly, do they have the grit or resilience to thrive as adults? If they are not reaching beyond themselves to achieve future goals and overcoming the ups and downs to attain these, how will they develop any resilience?

We need to align our children’s relationship with money to that of wealth creation, shift their tendencies towards saving and investment over consumption.

And finally the million dollar question, are spending time with your kids, to pass on your values and the vision for your business. Educating them well is all very nice but it does not mean they will want to or be ready to take over the reins of your business when the time comes.

"That planning for generational wealth starts early, is intentional and follows some formula should provide some consolation to our businesses grappling with this question every waking hour of their day.

It was an eye opening event for all the participants who made the workshop and the Musizi Sustainable Business Institute intends to make it an annual event and central to their elevation to a university in the near future.

 

MTN’S SECOND BITE AT THE CHERRY

Last week telecom giant, MTN offered seven percent of its shares to the public. The shares on offer, were shares first offered to the public in December 2021, that were not taken up and which they are under regulatory obligation to sell by December.

"In the company’s much awaited Initial Public offer (IPO) in December 2021, MTN offered 20 percent of itself to the public but only 65 percent of the offer was snapped up. It came as a great shock, as lesser companies have been oversubscribed in previous offers...

Industry players today think a repeat is unlikely.

At the end of 2021 the global economy was only just finding its feet after the Covid-19 lockdown. In addition, in a bid to beat back inflation interest rates had risen in western economies and monies had fled our shores to go back home.

The selling of shares to the public by MTN was a condition of the renewal of the license, it is arguable that given a choice, given the economic situation of the time, even MTN may have wanted to hold off a little. They did not and the IPO fell short.

Since then though, trading in MTN shares have provided a boost to the Uganda Securities Exchange (USE) and even if the share trading at sh170 before suspension of activity on the bourse to allow this new offer, is lower than the effective IPO price of sh180 from two years ago, consistent dividend payments, thrice a year have more than made up for that slight dip in price fortunes.

This time around the sentiment in the economy is markedly improved and MTN CEO Sylvia Mulinge is confident that a repeat of the IPO debacle will not happen this time around.

“We have been transparent about our progression of growth since we listed and we are confident we will get some real engagement. The appetite is there,” she told a news conference last week.

The company has thrown in a sweetener, with every 140 shares bought, buyers will be entitled to an additional 30 shares. With the share selling at its market price of sh170, the effective price of the shares on offer is then sh140, an 18 percent discount.

"In theory if trading reopens at sh170 every shareholder will see an immediate sh30 a share gain...

As if that is not enough all shareholders will be eligible for the sh6.4 per share dividend that will be paid out on 25^th June.

As a short term play the benefits are obvious.

For the investors, who intend to hold the share for the long haul, they too will not be left out.

The company last year paid a total dividend of sh18 a share, a 13 percent return on their money, better than the average fixed deposit rates in this town and higher than the yield on the 364-day treasury bill, which at last week’s auction was 11.926 percent.   

The final dividend for 2023 is a 13 percent improvement from the previous year’s dividend of sh15.9 a share and expectations are that this trend will continue.

While the share price has barely moved over the last 12 months, growing three percent, investment experts are confident that this is a temporary situation.

"They base their thinking on – among other things, on the company’s continued growth in profitability, averaging about 16 percent over the last five years, a figure they say was affected by the Covid pandemic. Last year net profit grew 21 percent....

They expect this to continue with the increasing subscriptions to the network – in May the company logged its 20 millionth subscriber and recorded a growing up take of data services – subscriber numbers jumped 22 percent to 8.2 million.

While mobile money has been growing by leaps and bounds – subscribers were up 10 percent to 12.1 million in 2023 and transaction volume had jumped to sh133trillion from sh92.3trillion the previous year, in 2025 it is set to be spun off from the telecom.

“MTN Uganda intends that all existing shareholders will continue to benefit from the company’s financial technology and infrastructure businesses, whether in the form of listed or unlisted interests and irrespective of any potential restructuring that may be undertaken,” a company statement.

The growing importance of the mobile money arms of the telecos, splitting the entities was part of the renewal of the contract.

"MTN Mobile money had sh1.5trillion in deposits, which would have made it the eighth largest financial institution in Uganda by customer deposits.  Deposits grew 23 percent to sh1.5trilion from sh1.2trillion in 2022, assuming this rate of growth is maintained MTN’s mobile money army would have matched Stanbic bank’s current sh6.3trillion in deposits by 2030...

Whichever way the restructuring goes existing shareholders stand to gain.

With millions of Ugandans yet to acquire mobile phones or log onto the internet or access mobile money services, MTN with its lead in market share in all segments has to be given serious consideration by investors.

ELECTRICITY AS AN EXPORT? WHO WOULD HAVE THOUGHT

That year we were the brightest of the brightest. The instructors set us a quiz to determine our knowledge of country.

The one question I will never forget was “What are Uganda’s cash crops?” Chicken feed for the 1,000 of us seated on the floor of the grass thatched classroom. Coffee, tea, cotton. What about maize, they asked. And cassava? And beans? Aren’t they cash crops?

Credit to us, we all fell silent as we let these new “facts” register, rather than protest and make bigger fools of ourselves.

All our school lives, 13 years up to that point, we had parroted in exam after exam, coffee, tea and cotton as Uganda’s cash crops.

Fast forward to 1997. I found myself on the commodities trading floor of HSBC bank In London, where they told me $150b in transactions passed through that room daily, Uganda’s GDP at the time was $6b, and I happened upon a research note that said coffee we would fall below 50 percent of the country’s total exports by the turn of the century.

That was a mind bending proposition, because in that year coffee exports accounted for six in every $10 of our exports, down from 90 percent in 1986.

"In today’s Uganda where coffee exports not only account for 30 percent of export value, but the sale of the aromatic bean has been overtaken by gold exports, that’s not news. It was at the time.

A quarter century later and the brightest of the brightest of our youth are probably due for another mind bending moment.

In April, the Kenyan media reported that their imports of power had hit an all-time high in the first quarter of the year. They imported 408.78 gigawatthours (GWh) up 42 percent from the same period last year. The source of their imports? Uganda and Ethiopia.

Uganda Electricity Transmission Company Ltd (UETCL) reports exports of electricity were back to pre-covid levels at $44m (sh170b) last year, small when seen against total receipts of $5b but significant none the less. Going by the growth trajectory of the last four years this number is set to double by 2028.

We have always exported power to Kenya but with new generation capacity we are exporting more and more, especially now we are a member of the East Africa Power Pool (EAPP), which is connecting power generators to the region so power can be transmitted wherever it is needed in the region.

Trade in electricity within the EAPP has grown six fold to 3400 GWh annually since 2005 when it was begun.

So it makes sense to increase our generation capacity – one study showed we have at least 4000 MW of hydroelectric power potential, but also invest more in the high voltage transmission lines required to evacuate the power.

Currently lines from Gulu-Nebbi-Arua, Kabale-Mirama and Masaka-Mbarara are in the works. As long as our electricity sector is efficient, so as to ensure demand for our power abroad, the enormous power needs locally and regionally would make such investments no brainers.

It will not help that projects, which should ordinarily take six years to develop take more than a decade 

-- see Karuma dam, as these delays are an additional cost that would price us out of the market. We are not big players, seeing by the total trade in power in the region of 3400Gwh versus our exports last year of 485 GWh. Also because the region has surplus of power generation capacity – 90,000 MW versus peak demand of 54,000 MW, it is a buyers’ market, meaning no one will take our power if it is not competitively priced.

Producing for export means we are subjecting ourselves to more exacting standards than we tolerate at home. Our trading partners do not expect frequent power outages, brown outs and power surges. They will probably sue us for such infringements unlike our pliant locals.

 Exporting power should be an exciting thing, if only because it could serve as the new trick question for our pre-university youth, something like “Which of our exports does not go out by road, rail or air?”

 

UGANDA GOVERNMENT WANTS TO SUPPORT YOUR BUSINESS? RUN A MILE

It was a tragic sight. Dozens of orange buses were being towed and trucked out of their long term parking yard at Namboole stadium. In the dead of the night, as if the owners were embarrassed by the failure of their business.

I think it still happens, but I was once bemused by people who move house at night. The explanation for this ranged from, the tenants don’t have time to move in the day as they are at work to you move at night so the thieves don’t see you to many of these tenants were fleeing rent arrears.

The orange buses belong to the Pioneer bus company, which folded for all practical purposes, a decade ago when a year into operations in 2013, Uganda Revenue Authority (URA) came calling for sh8b in import duty that had come due. They were never the same again.

By the promoters own admission, they had kicked off operations ahead of schedule, as a stop gap measure for a strike by Uganda Taxi Operators & Drivers Association (UTODA).  UTODA was facing off with the newly created Kampala Capital City Authority (KCCA), which was insisting that the then powerful association make good on its dues to the city.

Initially they were making cash hand over fist, but as they say you will know who is swimming naked when the tide goes out. Once the taxis got back on the roads after their little tantrum, Pioneer bus could not handle the competition and cracks started to appear.

A cursory look around Kampala on any given day and it would not be hard or long before a mad boda boda rammed into you, to determine that the transport system is need of a major overhaul.

The running of Kampala’s transport system has been left unregulated and to the whims of the taxi drivers and the aforementioned boda-boda operators. Leaving the market to its on devices is a good idea, until it isn’t.

The way the market works is through a series of continuous experiments. Every transaction or business is an experiment whose result is logged somewhere in some ethereal brain. There are more failures than there are successes and these failures are crushed brutally, every year, every month, every day, to make room for the successful experiments.

"Every so often in human history some people, with little or no understanding of how the market or business operates, come along, often empathizing with the losers and proceed to rig the market to guarantee one result or the other – often for their political cronies. It always ends in tears....

The market, like God, shall not be mocked.

Sadly it is not the political cronies who suffer but the tax payer, who shoulders these losses by suffering poor infrastructure, failing social services and rising crime.

Pioneer buses was in trouble from the first passenger it took on. Backed by a group of politically connected promoters, the bus company thought they could lean on government to get the concessions they needed to make the business work.

Unfortunately, the hastily got concessions did not come through jeopardizing the company’s future success and its promoters’ future prosperity (?).

 

The URA raid may have been the promoters’ road to Damascus, but the company’s fate was sealed when a more fundamental concession never came through. This was the institution of bus lanes that would be exclusively used by the company on their routes from Kampala to Bweyogerere and back...

These were important because people intimately familiar with the business, worked out that for the business to make sense at the low fare prices being proposed, each bus had to do at least eight return trips a day on the aforementioned route. The Kampala-Bweyogerere route was a pilot, afterwards other routes were to be added.

Spurred by some romantic story that opportunity only strikes once, the promoters rushed into battle without crossing their ‘t’s and dotting there ‘i’s, which left government room to renege on the deal. And that was that. But you also have to wonder about businessmen who can commit tens of billions of shillings to an enterprise without basic policy in place.

Private capital is one of the most efficient ways of running services, if only because the motives of the owners are aligned with those of the customer, believe it or not. For the business man to make money he has to serve more and more people. The days of price gorging and fat margins are gone and government too can ensure this does not happen by allowing competition. Business works under the sword of final censure, they don’t serve the customer, they die...

Ironic as it sounds, government interests are not always aligned with the customer. Financed by the bottomless pit of tax payer money, governments can throw good money after bad and not feel the pain, especially if these businesses feed their supporters.  

Seeing how business left to its own devices can lead to chaos, at least in initial stages until the stragglers are culled, how can government support business to help it in service delivery?

If nothing else, all government bureaucrats need continuous training to understand how businesses work. This is important to help them design policy to improve the business environment and negotiate effective and sustainable concessions for intending businesses.

It will also help them recognize that without a dynamic, robust business community it will be impossible to deliver service and uplift the living standards of all citizens and therefore guarantee the longevity.

The rest is basic – a national development strategy, burnish corruption, improve the quality of human capital, beef up law enforcement agencies to ensure a level playing field for all actors and facilitate appropriate financing.

As it is now look with a jaundiced eye at any government support for your business.

 

UMEME AND THE IMPORTANCE OF THE RIVER

Last week power distribution company Umeme released its report ahead of its Annual General Meeting (AGM) at the end of this month.

We already know that while Umeme revenues crossed the two trillion shilling mark -- one of only two companies, with telecom company MTN being the other, to ever cross that mark in the history of Uganda, profits were down 92 percent. The plunge in profit was as a result of provisions made ahead of the eventual end of the company’s 20 year concession.

Umeme took over the running of the distribution arm of the former Uganda electricity (UEB), which prior to privatization was split into the distribution, transmission and generation arms.

"At the start of the Umeme concession UEB was generating 180 MW, was losing half that power through technical and commercial losses and barely managed to collect payment for 60 percent of the power billed for, which in 2005 was sh160b...

The major reason UEB was privatized and the sector was liberalized was, to attract new investment into the sector. The government at the time had maxed out on its borrowing limits, revenues were low and yet for the economy, to have a realistic chance of recovering, a more efficient power sector was required yesterday.

I hear some people arguing that the opening up of the power sector has seen foreign interest expropriate millions of dollars during the last 20 years, but they forget to mention that in order to earn those millions of dollars, hundreds of millions of dollars had to be invested in the sector first.

In Umeme’s case the company has invested $832m or about sh3trillion at today’s prices. This investment financed the extension of the grid and has seen Umeme customers grow ten-fold from 200,000 when the concession begun to about two million at the end of last year.

It helps too that generation capacity has jumped similary to 1,847MW, with 700MW of this due to the private sector. It can be argued too that the financing of Karuma and Isimba dams by government would not have been possible if the power tariff had not risen to a point where it made sense for private investment.

Government’s stated reason for winding down the concessions is because the private players are not allowing it to meet its stated aim of selling power at US5cents a unit.

As part of the concession agreements the private investors negotiated a return on investment and for government to pay for power even if it is not consumed, these invariably pushed up the tarriff but was the cost of unlocking the investment needed in the sector.

So government in a bid to force the tariff down have decided to do away with the private players. Which is within its right.

But the situations that led to the unbundling of the UEB – a need for continuous massive investment in the sector still prevail.

"UEB was not unbundled for lack of demand, as the two million customers signed to the grid will attest. UEB was not unbundled because the people running it were incompetent, electrical engineers at least in those days, were the brightest engineers around....

The power sector was privatised primarily because we did not have the funds to invest in it. Has that changed today? No.

The reason there is a cash squeeze in the economy is because we are not collecting enough revenue to finance our budget and the donors who are supposed to carry the deficit seem to be slow or are unwilling to live up to their commitments.

So where will the money come from to continue with the investment program Umeme has been carrying out for the last 20 years?

The naysayers will argue that Umeme is a going concern and therefore should have no problem sourcing more finance for new developments. The ability of Umeme to source new funds was premised among other things, on the credibility of the concession agreement they were working under. Lending to the government will be another story.

And because the investments to the sector are by nature very big, they will increase our debt burden as a country. The same people who have criticized Umeme will be complaining that government is borrowing too much.

As Justice minister Nobert Mao said last week, when people make decisions there are often the stated reason and the real reason. The real reason for not renewing the Umeme concession will be revealed with time.

But in the meantime the importance of the river will not be known until it dries up.