UGANDA EX-VP BUKENYA RODE THE TIGER

When history is written it will be said that former vice-president Professor Gilbert Bukenya broke all the forty-eight laws of power and then some.

"An intelligent man, a personable mobiliser, an effective communicator all this counted for nothing when he came up against the rough and tumble of politics, where nothing is as it seems, principles are dynamic and the impermanence of alliances can live your head spinning...

His academic history suggests he was no ordinary mind, coming through St Mary’s Kisubi, doing Medicine at Makerere University before doing his post graduate studies in Public Health.

His vaunted academic career – he eventually served as the Dean at Makerere’s Medical School and international exposure, allowed him to operate with ease among the high and mighty, while his humble upbringing – his tuition was largely met by the earnings from his mother’s waragi business, gave him an earthiness that allowed him to connect with the lowliest of society.

In hindsight therefore it should not have come as a surprise when he found his way into politics, rising to the second highest office in the land. The May reshuffle brought to a close his eight year tenure as Vice President.

His lost bid to become the NRM secretary general earlier this year and his current battle in court, where he is charged with fraud in relation to CHOGM procurements, are seen by many as the final act in a political career where the barrel chested professor dropped the ball at a most crucial turn.

At the beginning of his tenure he embarked on an ambitious program of rural transformation. The plan seems to have been to introduce a highly in-demand crop that was easy to grow and which the rural farmers could find ready market for. Enter upland rice.

The crop, which unlike paddy rice needed less water, could grow anywhere in Uganda and after piloting it in his Kakiri home area was soon out in the country spreading the gospel. The natural progression of the plan was that once farmers had a steady income from the rice and other suggested agricultural ventures, they would own bank accounts, which would allow them into the formal financial sector and one step away from better housing and mechanized agriculture.

At the height of the program’s success the professor gave an interview in which he alleged that a powerful clique of cabinet colleagues wanted him out of cabinet. Apparently the attention the good doctor was garnering countrywide for his upland rice, was making more ambitious men jittery.

He might have survived that round, but the less than transparent procurement processes – which he was in charge of as head of the cabinet sub-committee to ready Uganda for CHOGM, always meant he was going to be an open target for his political enemies – imagined or otherwise.

It is no secret that his stellar mobilisation skills aside, the decision to appoint him Vice President was informed by his being Muganda Catholic and it was always going to be that he would be the man to watch in case he decided to leverage these two historically powerful constituencies.

"If he had taken the bullseye on his back for granted, it was made very clear to him by the time he cried “mafia”...

He narrowed his options by defying the NRM earlier in the year to stand for the position of Secretary General, which left a bad taste in the party’s leadership's mouth. And for better or worse the NRM for the forseeable future will always be a credible force to reckon with that you would rather have for you than against you.

Whereas there maybe some sympathy for the man, his court case is not likely to have him coming out smelling of roses.

And if you have not torn all your hair out by now, his announcement this week that he is going to retire entirely from politics one thinks was ill advised and not well thought out. His remaining an MP is probably his last card. While out of the inner circle – either in government or the party, he could still keep in touch with the heartbeat of the party and wait for another day.

"It maybe too early to write sixty two year old Bukenya’s political obituary but the signs are not good for him looking to the future...

YES, WORKERS SHOULD HAVE A LIVING WAGE

Last week the issue of the living wage reared its head again.

Members of Parliament called on government to set a minimum wage to stop worker exploitation by investors.

They argued that despite the rising cost of living businessmen have continued to pay their workers peanuts.

In 1995, sh75,000 was recommended as the minimum wage for unskilled labour. This was never effected.

Proponents of the move say that improved wages will lead to higher worker productivity.

While government and opponents of the minimum wage bill have argued that to raise labour costs would dissuade investors, because one of Uganda’s main attractions for investors is low-cost labour.

As with many of these arguments both sides are right but not in the way that either intended.

One of the things holding back the economy is the low productivity of the Ugandan labour force. Compared to our neighbours the Ugandan worker produces less per unit input compared to his Kenyan or Tanzanian cousins.

The State of Uganda’s Population Report released at the end of last year showed that six Ugandans are employed to do a job that can be done by one Kenyan. Also, one Tanzanian national can do a job that is done by four Ugandans.

There are questions about our people’s work ethic, while this has something to do with our dismal figures, low productivity is more a function of how much capital is injected into our work processes.

A farmer using an ox plough is using a much more capital intensive approach to his farming than his hoe using neighbor.

Two things can happen for the ox-plough farmer.

To begin with he needs considerably fewer workers for the same piece of work, invariably increasing the productivity of his labour, meaning he can cultivate more land.

Secondly, with the increase in revenues and the reduction in staff numbers he can afford to pay his workers better even if his neighbour’s workers are toiling “harder” and longer. It is also in his best interest to pay his workers higher because they now have higher skills that are not readily available in the area. But also he needs to pay them higher to discourage his rivals from poaching his already trained workers.

Using this analogy the opponents of a living wage are right that a higher wage will dissuade investors from setting up shop on our shores, but the investors it will be discouraging are the investors who cannot or will not invest in higher technologies or capital intensive industry. Our low labour costs make us ideal for the “hoe-farmer” investor.

The pro-living wage lobby are right that low wages offer little incentive for higher productivity, but not for the reason they suggest. A higher living wage will force businessmen to invest more in technology, cut down on their workforce and pay the higher skilled labour a higher wage.

It seems like a chicken and egg question. Do high wages cause higher labour productivity or does high productivity raise wages?

Our poor productivity numbers are related to the low quality of the investors we attract.

The question then will be, what will we do with the newly, inevitably redundant workers?

That is where education comes in. The smarter workers will look to constantly upgrade their skills, keep in touch with the latest technologies and improve their own work processes. Government too should be constantly be revising curriculum at the school level and encourage an adult education industry to help workers retool.

So yes for the greater good of the economy and to catapult us to the next stage of development, we need to set and enforce a minimum wage for our workforce.

MAKERERE DONS GOING ABOUT IT THE WRONG WAY

Makerere University has been closed indefinitely following a breakdown in talks between the campus staff and government over pay increases.

The staff at the university are pushing for a minimum monthly wage for assistant lecturers of sh8m.

I will be the last to begrudge anyone their wage demands, after all you get paid according to what you negotiate, but I think the dons of the ivory tower are going about things the wrong way.

According to sources familiar with the situation the teaching staff of Makerere want government to pay their salaries because they know they have reached the limit of how much they can reasonably extract from students in fees and secondly, the demands are based on the fear that in an increasingly competitive sector Makerere will earn less and they need to secure their salaries by insisting on a vote from the treasury.

I have heard it said that Makerere was once referred to as the Harvard of Africa (must have been long before my time) so I shall refer to how the original Harvard handles its finances as a pointer to how Makerere should be thinking.

But first of all, the desire to be paid by the government is a losing strategy on two fronts.

To begin with the incentive for Makerere staff to be more productive in terms of teaching students will be removed. As it is now teaching staff’s pay is also pegged to the size of the class one teaches. This incentive system has glaring weaknesses but at least it ensures that lecturers make an appearance in the lecture theaters. It does not take rocket science to work out what will happen when lecturers start drawing salaries from the consolidated fund.

And related to that improvements in staff productivity will not be recognized as readily at the finance ministry, as it may if spending decisions are controlled by the Makerere Administration.

A man after dreaming about acres of diamonds sold his land and set out into the world in search of his fortune. He went prospecting all over the world failing miserably sometimes or striking it rich only to squander all his wealth. Frustrated and dejected he returned to his village where he expected he could throw himself at the mercy of friends and family. On arrival at his old home he found it was a flourishing diamond mining enterprise fuelled by diamonds from his old plot.

Everybody except the dons of Makerere do not realize how much gold they are seating on.

It’s a stretch to compare Makerere with Harvard, but for illustrative purposes America’s oldest University has some interesting pointers.

In 2008 before the credit crunch Harvard had an operating budget of $3b a year. However the university managed an income of $9.3b the previous year of which only(!) $600m or just over 5% came from student fees. And we know Harvard’s student fees are not to be laughed at.

So where does Harvard get more than 90% of its income? About half of the budget is met by income from its $35b endowment fund – this was the value before the credit crunch, and then in order of size donations, merchandising, publishing and from licensing of patents the University holds. This is aside from the fees from hiring out their buildings and land or consulting. Meanwhile they earn about $1m a year from ticket sales when University teams are playing.

Yale is not very different with student fees account for just under ten percent, with the bulk of income coming from their own endowment and the medical services.

These vaunted institutions of learning do not create new revenue streams because they like to but because they long came to the realization that there was only so much they could charge students to enroll.

Makerere University’s intellectual properties (if it has bothered to license them at all) are worth millions of dollars if only their value can be unlocked for the benefit of the institution.

What Makerere needs is time-tested, entrepreneurial managers who can unlock the billions of shillings of assets that Makerere owns and controls.

But maybe we should not be too harsh on Makerere’s the same syndrom is coursing through the general society. When we have a need our first instinct is to look outside ourselves for help while we have all we need around us – as individuals, institutions and even as a country.

Makerere does not need handouts from government, in fact it is Makerere’s best interest not to need them.

SELL MABIRA TO SAVE IT

Mabira forest is back in the news.

Four years ago it emerged that the Sugar Corporation of Uganda, Lugazi (SCOUL) had wanted a piece of the forest to expand their sugar production. This sparked off angry protests that culminated in a failed demonstration and a few deaths. The government backed off the issue. And so did the protestors. Until now.

President Yoweri Museveni has once again sparked off angry debate by declaring his intention to cede some of the forest to the Mehta family’s company.

The environmental lobby has jumped on this and has even threatened to sue the government if it attempted to do as planned.

Putting our natural resources to optimal use for the benefit of Ugandan citizens on the one hand and the need to conserve forest cover and our natural diversity on the other seem to be the underlying principles of the two positions.

I don’t think these positions need be diametrically opposed as they are being presented now.

In fact Ugandans’ best chance of saving the natural endowment that is Mabira forest is to privatize it...

As it is now Mabira forest like many other forests around the country is being encroached upon and its trees being felled for a variety of reasons most especially for firewood.

National statistics show that Uganda is losing its forest cover by almost ten percent annually at this rate of doing things it is estimated that in 20 years we will have no forest cover to think of.

There is no reason to believe Mabira is not being decimated at all.

The reason for this plundering of the natural resource is not hard to find. To begin with we get most of our energy from firewood and charcoal and secondly, the public stewards of these natural resources are not up to the task of warding off the pressure for fuel – mostly for lack of resources but also because they – the forests are public goods.

There once were four men Everybody, Somebody, Anybody and Nobody. There was work to be done and Everybody thought Anybody would do it but it turned out that Nobody did it instead of Somebody.

That is the way public goods are treated. The truth be told we are frothing at the mouth because it is a big company – Asian at that, that wants to take over the forest for their business. We are however not emotionally charged by the smalltime encroachers eating away at the forest year after year, maybe because they are black Africans?

Twenty, thirty even fifty years from now if things continue our children and grandchildren reading history will look at the bare land that was once Mabira and wonder what the farce was about. It will be gone anyway.

The solution and it’s not an original one, is to concession off the forest to private operators. These maybe tourist, pharmaceutical, research, conservation or any enterprise
that at once conserve the natural environment and show return on their own investment.

So for instance if you concessioned off a quarter of the forest to hotelier. It would be in the best interest of the hotel to keep the environment intact and doing so would have to invest resources in the protecting, regenerating and even expanding it.

SCOUL need not be disqualified from this process as well as long as they can show how they conserve the environment.

Understandably there will be some clearing involved to make way for the infrastructure to support any enterprise but this would be nothing compared to the saved forest cover from creeping, unplanned human activity going on.

The concession would be audited every so often against the conditions laid down by government and it would be renewable every few decades or so.

"We all know that our public enterprises are ill equipped – materially and morally, to conserve our environment, so let us not fool ourselves that because it is in government hands it is safe for all eternity...

We need to weed ourselves of this knee jerk reaction against private interests and look for creative win-win solutions if if we are to secure not only Mabira but also other pieces of our natural heritage.

URA SPEARHEADING TRANSFORMATION OF THE ECONOMY

The Uganda Revenue Authority(URA) has lurched onto a new way to collect income tax.

Starting in June this year URA has taken advantage of property transactions – cars, land and buildings to collect income tax. How it works is if you want to buy a property, when paying stamp duty to effect the transfer URA will check whether you are tax compliant if not the y will deem the sum you paid for the property as undeclared income and will slap a 30% tax on it. This is for transactions over sh50m.

It is estimated that up to 70% of the Ugandan economy is in the informal sector, meaning a lot of transactions are done under the radar, mostly done using cash, whose source is also hard to pin down.

Our money makers to secure this money in solid assets, buy land and houses, explaining Kampala’s property boom of recent years.

Personally I think this initiative is long overdue. URA’s overreliance on international trade to meet its targets was not going to be sustainable in the long run. Of course URA is one of the major beneficiaries of a depreciating shilling but that is a short sighted approach to taxes.

In order to become a middle income country by 2020 we must widen our tax base and rely more on income tax than import duties.

One benefit of taxation that is rarely discussed is its impact on a nation’s productivity.

Fortunately we have recent history to call on. In 2006 government scrapped graduated tax. The arguments that it was too expensive to collect and was regressive won the day. It also helped that it was an election year. When political expediency comes up against economic good sense, the former often wins the day, to the long term detriment of nations. Ask the US.

Five years down the line the fall out is a reduction of productivity, as villagers feel no compulsion to produce more than they eat and city youth with no incentive to work, resort to stone throwing as a welcome past time.

We forget why graduated tax was introduced. In order to get us to grow cash crops for British industry the colonial government introduced poll tax, payable by every able bodied man. The only way to get the money to pay the tax was to grow coffee, cotton or tea. That is how we became a big coffee and cotton growing nation. Do not believe that our forefathers grew these crops out of the goodness of their hearts.

Arguably we are unproductive because we are not taxed enough.

I know URA is going to come under a lot of heat from the urban elite to drop this initiative altogether and I will be impressed if the tax authority gets any overt political backing. But they are just scratching the surface in potential collections they can extract from the people.

For example we have a few landed families wallowing in poverty despite the square miles of land that have been passed down the generations. The land which is encumbered by unlawful occupants is a dead weight on both parties for the similar reason that neither can unlock the full potential of the land’s value.

In the west all landowners are taxed. The net effect of this is that as a land owner you need to make a choice, does it make financial sense to hold on to the land or not. If it doesn’t you sell it off to someone who can put it to productive use and pay the tax.

With this single move the supply of land in the market will increase lowering prices and increasing national productivity – since all land will be productive or at least more than is now.

And what will happen to the now landless masses? With their “new found wealth” the y can go and rent land or rent housing either way there will be more incentive to work.

This move will be even more politically explosive than what URA is currently implementing, but if we are serious about graduating into a first world country, these tough decisions have to be made yesterday.

As a country we are poor not for lack of resources but because we do not put our resources to optimal use. URA can help us with this by taxing everything that can be taxed, and when history is written the URA like the IRS in America, will be go down as having been a major driver of Uganda’s future prosperity.

FIX THE INCENTIVES TO FIX THE ECONOMY

If there was any doubt the economy was in trouble the doubling of sugar prices last week dispelled them.

While just a symptom of a larger problem, the sugar price hike was loaded with symbolism.

"The older generations will remember the days when sugar granules were as big as rice grain, not as sweet on the tongue and was a luxury more than a staple at the breakfast table. A queue formed instantaneously outside the neighbourhood shop (there were no malls or supermarkets then) on the rumour that the owner had just got sugar...

Sugar shortages would remind us of those days.

The sugar price hike has its roots in the expectation of a lower than projected sugar production at Kinyara Sugar Works, the second biggest sugar producer in the country.

A refusal by some outgrowers to grow sugar cane this season on account of poor prices for their cane has dampened Kinyara’s projected output for the year, that may lead to a shortfall of up to 21,000 tonnes this year. It is estimated that as a country we consume about 370,000 tonnes of sugar annually.

Looking to cash in on this development some traders moved in to corner the market, buying large volumes and hoarding it in anticipation of higher prices. President Yoweri Museveni put paid to this little scheme when he announced last week that in light of the shortages his government will reduce restrictions on sugar importation to bridge the gap.
Since then we have seen a normalization of prices.

But as I said the shortage is only a symptom of major structural problems in the economy.

Our economy is geared towards consumption and away for from production. Its basic common sense that if you keep consuming all you produce or you consume more than you produce, disaster is not far away. Ask the US.

"As an illustration we have a 140 megawatt (MW) electricity deficit at night as opposed to a 50 MW deficit during the day. This statistic is very telling because it means that when our factories are working during the day we need less power than when we are cooking, watching TV or boiling tea at night...

Its not a straight correlation but an indicator of what ails this economy.

Compare this with the electricity utility in the UK where the power consumed by factories is more than the power consumed by commercial offices, state schools, hospitals and domestic use combined, with some to spare. This despite the fact that the UK’s economy is largely dependent on its financial services sectors.

Despite our posting laudable economic growth figures over the last quarter century on closer scrutiny services – financial, telecommunications and transport and the construction sectors, manufacturing growth trails all these.

Some people may argue that the manufacturing-driven economic model is obsolete but they would be wrong.

The beauty of manufacturing is that it can create many low skill jobs quickly, while at the same time pushing up the productivity of the work force. To try and leap frog the industrial age and into the information age is a stretch for a country like Uganda. To begin with the information age work is better educated and secondly the ICT industry does not create as many jobs as the factories. So there is no getting around it we have to start manufacturing to benefit from increased job creation and improved productivity of our workforce.

"Given that over the last quarter of a century we have been rehabilitating our economy, the low capitalized service industries were bound to take off first. But it is also true that during the last 25 years there structure of our incentives have been tailored towards easier things like services and rent seeking rather than more durable, capital intensive manufacturing...

All over the world it takes less money and effort to set up a bank or telecommunications company or consultancy service than it does to set up a factory, which will require major concessions on land, importation of capital equipment and financing to get off the ground.

In addition the management of this process by the bureaucrats will require dedication to a long term vision and attention to detail, unlikely in this part of the world where the incentive is for extracting rent and commissions from investors.

It’s unnecessarily too much trouble establishing durable industry, see the fate of the Bujagali dam, which would have been running at full capacity four years ago, or the BIDCO oil palm plantation on Kalangala or the Madvhani’s attempts to grow sugar in northern Uganda.

As a country we need to embrace big industry within limits of course, if we are to avert such incidentals as sugar shortages in the 21st century!!!

TAKE ADVANTAGE OF THE "CRISIS"

Many years ago at Singo military training barracks deep in Luwero (at the time) the question was put to a group of 1000 fresh A-level graduates, “Which are Uganda’s cash crops?”.

Drilled in an education system, even then well past its sell-by date, the eager faced young men and women belted out the usual – Coffee, tea and cotton. There wasn’t very much else we were exporting in the early 1990s.

“What about maize, cassava, mangos, beans?”

The point was made. Anything can go for cash. But frozen in our colonial mold as producers of raw materials for western industry we could not see past the usual suspects 30 years after independence.

Last week in an exclusive interview with the Business Vision, central bank Governor Emmanuel Tumusime Mutebile pointed out that Ugandan export receipts had risen more than 13 times in the last 25 years.

As recently as 1997 analysts were projecting that as a result of increasing export diversification, coffee would fall below 50% of our total exports. In 2009 total exports of goods and stood at $1.5b of which coffee accounted for $280m.

Also last week it was announced that Makerere University Technology Faculty’s designed and developed battery powered car was due to be launched soon.

Our car is not the first battery powered car in the world – there are a few thousand in production already, but as a signal of what our scientists can do, it was a potent symbol.

Still wed to the notion that labour is muscle driven we forget or overlook our huge potential as exporters of services and knowledge based products. We think our exports have to be trucked out in containers.

We cannot be blamed because in addition to our pre-independence mindset, we are still firmly stuck in the pre-industrial age...

The selling of our basic education services to the children of the East African Community counts as an export, if we define exports as a foreign exchange earners. More than a decade ago health, financial and IT services were identified as fields in which Uganda could develop a competitive advantage.

The beauty of such services is that they are little affected by the weather, seasonality or disease, like our favourite export crops are. But we have seen little effort in boost the marketability of these services.

Increasingly we are talking about a knowledge economy, where knowledge is a product created by a knowledge worker as opposed to a manual worker. An economy graduates up the scale if more of its knowledge is embedded in its systems and does not walk out the door – or country in this case, with the knowledge in its head, hence the term brain drain.

Last week again there was news of a looming famine in Somalia, Northern Kenya, Ethiopia and Southern Sudan. A lot of it to do with conflict in the area but also massive crop failure as has not been seen in the last 30 years.

Uganda long touted as the breadbasket of the region, is going to feel the pain too, some because of crop failure due to erratic rains but mostly because our own food is going to be in such great demand that we can expect a continued increase in food prices for at least the next 12 months.

This should not be. Our agricultural institutes do some very useful research – ask the breweries, we just seem to have failed to bridge the gap between research and its widespread applicability....

Our difficulty in appreciating the knowledge economy is that it turns traditional economics – the management of scarce resources, on its head. How do you manage a resource – knowledge that is infinite, using traditional economics?

The point is that for a country like Uganda – landlocked, underpopulated and poor, we need to make a break with a lot of what we learnt in the past.

Right now we are in the throes of a “crisis”, but there is no better opportunity than a crisis to rejig our way of doing things.

We did it 20-odd years ago with the remodeling of the economy – who would have thought we would buy dollars off the street? This crisis is an opportunity we should not allow to go unexploited.