THE CHALLENGE OF BUDGETTING FOR A POOR UGANDA

Last week Spanish Prime minster Mariano Rajoy in a text to his finance minister urging him to hold out for a better deal in negotiations for a bailout of Spanish banks said. “We are the number four power in Europe. Spain is not Uganda.”

When the text was released the Uganda social media chattering classes went into overdrive, so much so that the furor became a story on the BBC.

Spain is a much richer country than Uganda based on per capita figures alone -- $31,000 for Spain and $1,250 for Uganda adjusted for living standards ion the respective nations. But their economy is in much sorrier state. Their economy is contracting, they are suffering the after effects of property bubble burst and their banks are hobbled with so much bad debt that their collapse could threaten the future of the Euro zone. The bailout of the banks could cost upwards of $100b according to conservative estimates.

Finance minister Maria Kiwanuka read her second budget on Thursday and it was very hard to see the glass as half full.

The economic growth halved to 3.2% from the previous year, revenue collections came in short of budget and more than 10 million people are living in abject poverty, more if you do away with the subhuman requirements – living on less than a dollar a day, abject poverty calculations entail.

"Our situation compared to Spain is not unlike the situation US billionaire Donald Trump found himself in the 1990s when pointing out that the beggar on the street was much better off than he was. Whereas the beggar had nothing to his name Trump was indebted to the tune of billions of dollars. The pan handler is probably still where he is while Trump is now stronger than ever....

Faced with the challenge of making investments that will spur more and more growth – good economics, and on the other hand dribbling in the hard decisions over time versus all at once – good politics, you had the sense Kiwanuka was struggling.

With our ratio of revenues to GDP largely unchanged for the last decade and donors tightening their purse strings while our expenditure demands continue to grow with a rising population, something has to give. And that most likely will be a tightening of our own belts in the short term or until investments like the power dams and roads push up productivity and hopefully improve our lives in the process.

Our needs are huge. In the budget the minister pushed up the works ministry’s budget up almost twice in order to steer more and more of the budget towards road construction and rehabilitation. We upped the education budget almost by a fifth. These two are key to future growth of nations.

Analysts who started watching China three decades ago reported that they were investing a lot on building ports, road, rail and other communication networks. They poured in prodigious amounts into their education systems especially science and technology. They have been doing this consistently for more than 30 years and are not letting up now as the second largest economy in the world. The challenge with infrastructure and more so health and education is that the returns on investment may take decades to show...

Political pressures often prevents countries from making the long term sustained investment required to attain take off.

The noises from government suggest the they are prepared to take the tough political decisions to lay the foundation for takeoff. We have done it before and we can do it again.

In the 1980s the Ugandan economy was a pale shadow of its current self: Revenues were anemic, the public sectors were hemorrhaging even the little we were collecting and in addition stifling the private sector through its monopoly corporations. In order to turn it around government privatized the companies liberalized the markets and focused on stabilising the economy. All politically unpopular decisions at the time, but we bit the bullet and as an economy we are better from the experience.

Back to the #SpainisnotUganda protest. Spain has the advantage of having access to the bigger markets of Europe and so access to credit, expertise and all it would take to turn it around are all within reach. But Spain is going to have to take many politically unpopular decisions, expect a series of fallen governments as they try to dig themselves out of their current economic woes.

As for Uganda expect more belt tightening in coming years as we try to make the long term choices needed to move us to the next level.

ONLY IN UGANDA: THE STRANGE CASE OF ALICE KABOYO

Last week former State House official Alice Kaboyo dodged a bullet.

Charged with abuse of office leading to the loss of up to sh1.6b GAVI funds along with former health ministers JimMuhwezi, Mike Mukula and Dr Alex Kamugisha, Kaboyo pleaded guilty and was let off with a slap on the wrist – a sh20m fine or a two year jail term if she failed to pay the fine.

As an individual she was charged with causing a sh250m loss, money that was meant for immunization programs in the health ministry.

The ruling was received with a worrying disinterest.

Was it that it has been a long time since the case kicked off that we have all forgotten what it was about (stealing life savings vaccines from the babies of Uganda)?

Was it that the conclusion of the case was a forgone conclusion, harking back to the crocodile and tilapia analogy of one retired judge?

Are we so desensitized to the shenanigans of our rich and powerful that we can shrug off such a case and go on with the tough job of getting along?

Maybe we empathise with the poor woman’s frustration with our a convoluted justice system and do not begrudge the good lady cutting a deal any which was she could to extricate herself from the process?

As easy to read as we seem as a people, the muted reaction following the conviction of Kaboyo on her own plea is hard to fathom.

"But maybe that is what makes the Ugandan or African for that matter so resilient. In the last few centuries of our existence we have been sold into slavery, gunned down, colonized, diseased and spat on by foreigner and non-foreigner alike and we are still here. In fact we are growing at such a fantastic pace that people other than ourselves are most concerned about it.  We are the original turners of the left cheek...

One would have to check but this must be landmark case in Uganda. By pleading guilty and paying her fine Ms Kaboyo is thumbing her nose at us, she is admitting to the crimes we the people of Uganda accuse her of and is asking us “What are you going to do about it?”

All other people who have been accused of corruption have protested their innocence relentlessly, played at remorse and if convicted have gone kicking and screaming to serve their time.

But the truth is Kaboyo is a bit player in a larger phenomenon.

A culture of impunity that courses right through the narrative of our everyday lives.

The President has always argued that our society is far away from true democracy because we don’t have very credible stratifications that cut across the largely artificial boundaries of tribe, religion and ethnicity around which we can organize to compete for political power.

It’s a hard argument to counter.

But I think we are now getting there. Not in the way that we may have intended but we are getting their anyway.

The divide between the have and the have-nots is sharpening. Where the haves are the educated, driving, chattering classes, who to the have-nots, live totally unattainable lifestyles that the have-nots are convinced can only be attained by corruption, theft and crude accumulation.

The have-nots of course, not advantaged by access to education and technical know-who eke out a living often working for us, jumping out of the way of our second hand cars and  having to display sickening obsequiousness to obtain our favour.

"You see, when the revolution comes, the distinction some of us make between pilfering government officials and the rest, will not exist for the wretched of the earth...

Which reminds me of the story of my friend who is as Ganda as they come. During the unrest a few years ago in Kampala this friend was hauled out of his car around Makerere and made to prove his identity. After passing all the tests, the angry youth remained unconvinced about the pedigree of my friend. You see my friend just happens to be dark as night, whose height and loud self-confidence may suggest he is a nilot.

In view of such a context when the brown stuff starts flying,the English speaking elite will close ranks against the rest, purely out of self-preservation, regardless of whether we are angels or demons. A totally unnecessary but inevitable situation the way things are going.

Is there any hope for us? Maybe, if the purveyors of such impunity can repent of their sins and turn away from their sins … but then again this is Uganda!

GROWING UGANDA'S INDIGENOUS CAPITAL

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The issues of the continent’s economy vexed the best development experts last week at the Africa Development Bank annual meeting in Arusha.

Africa’s economy continues to grow albeit slower than past years but a note of caution was sounded that even this growth might be under threat in coming years.

Uncertainty in the Eurozone and slowing growth in the leading emerging markets may see a lowering of demand for the continents commodities, reduced investment and aid flows will bet the key events to watch out for.

In crafting an African response to this renewed global turbulence the issues of the infrastructure, quality education and cluster formation – concentration of related industries, will be priorities in the short and long term.

But the continent is in agreement t that the private sector will drive this growth. The private sector is the creator of wealth and jobs.

The challenge then is how will the private sector be enabled to take its place as the engine of growth.

We not look very far beyond our borders or very  far back into history at the experience of western economies or even Japan’s post second world war experience to glean some clues.

Amedee Darga, the Chairman of Enterprise Mauritius, has it all worked out.

Speaking during the session “Embracing the service sector as a key driver of Africa’s future economic growth”  at the AfDB’s annual meeting Darga said he thought there was too much talk on the continent and little action.

“It’s simple. You decide on a desirable outcome in the future, keep it in mind and work progressively towards it,” he said with a hint of impatience.

“In Mauritius we decided that we were going to diversify away from sugar, we now have eight sector pillars holding up the economy.”

Enterprise Mauritius – almost like our own Uganda Investment Authority, is charged with accelerating the development of world class companies, but there has been and continues to be a price to pay for this ambition.

“Any government that thinks it can get something from the market without a trade off … it never works,” he said. He explained that to develop into an offshore banking center over the last 12 years they had to allow expatriate labour in to startup the industry because they did not have the required skills locally and provide concessions that other countries balk at.

“It goes back to what outcome you are looking for and what are you willing to pay top attain that objective.”

Almost in the same breath he had a caveat.

“If you think your economy is going to develop on FDI alone you are lying to yourself. You need an indigenous entrepreneurial class. And you have to make a conscious decision to grow this class,” he said.

But how do you prevent against the wrong people but with connections in government taking advantage of such an initiative at the expense of more deserving and competent entrepreneurs – crony capitalism?

“That is where governance comes in. The criterea for support is well laid out and parliament has oversight over the process. And  also don’t support one enterprise but several those who do not meet the objectives are cut off and we continue to support the winners,” he said. A response which makes you want to pack up and move on to the next subject.

Interestingly Garda said the major local winners in Mauritius are just about ten families, who have come through the Darwinian process and continue to benefit from government support based on their proven track record.

For Uganda then formula seems simple; earmark the strategic sectors you want to develop and what it would take to develop them, two identify the players in those sectors worth supporting and have a monitoring system that ensures that the support is being utilized the best way possible.

Even with this system there will be failures but these should serve as lessons going forward.

A credible indigenous capital base is critical if not only because they will invest more of their profits locally but can also serve as conduits for technological development and transfer in a way that the multinationals headquartered abroad can do.

WHEN CAPITALISM COMES UP AGAINST THE UGANDAN STATE

The headquarters of Mount Meru Group is a Spartan affair arrived at via a deeply portholed all-weather road that winds through the Arusha industrial area.

Arusha is an unusual site for an enterprise that has regional ambitions but Managing Director Atul Mittal likes it that way.

“I relocated to Dar es Salaam briefly …. I was born here everybody knows me. Here I am a person in Dar when people seem they see money,” he says.

The center piece of the complex is an oil refinery that processes up to 50,000 tonnes of oil seed annually. Not the biggest of its plants but it is the stepping stone off which Mt Meru is expanding aggressively into regional seed oil production.

Starting as a petroleum product distributor in 1978 the company branched out into oil seed oil production in 1993, and two years ago set up camp in Lira to mill soya seed oil.

“At 200,000 tonnes per annum production capacity it is the biggest single investment in northern Uganda,” Atul said.

He estimates that up to 30,000 farmers supply the $30m (sh75b) plant but laments that it is operating at barely a tenth of its full capacity.

“We made the investment on the promise that certain incentives will be afforded the industry but these have not come through,” Atul said.

Soya farmers in the region bumped up production to 30,000 tonnes from 5000 tonnes before Mt Meru entered the fray.

For the last three years Mt Meru Millers have been spearheading a Uganda Oil Seed Producers & Processors attempt to have products manufactured from local oil seed be VAT zero rated.

By making them zero rated the manufacturers would not charge VAT on their finished goods while being allowed to claim VAT they had been charged by their suppliers.

“So if assuming I now charge sh118,000 for a 20 liter jerry can of cooking oil if I am zero rated I will reduce my price to sh100,000 of the 18% I have  cut of the top of the price about 3 to 4% would go to the end consumer, 10 – 12% to the farmer in increased prices for his crop and the rest to me as the manufacturer,” Atul said.

The logic would be that the farmer thus incentivized would up production to benefit from the better prices and it seems to have worked in Tanzania.

In 2010/11 Tanzania made all products from locally produced seed oil zero rated a year later Finance minister Mustafa Mkulo reported that as result of this measure oil seeds -- sunflower, ground nut and sesame production had doubled.

“This is the only sustainable way Uganda can support the industry – the farmer wins, the manufacturer wins and the government wins because of greater job creation, more investment into the sector and therefore more taxes,” he said.

However numerous presentations to government have come up against a stone wall, but it is hoped that government’s new drive to make economic growth more inclusive in coming years will smile favourably on the proposal.

Finance ministry officials were unavailable to comment at the time of going to press. In private one official said the proposal is unlikely to be included in next week’s budget as government was struggling to save every bit of revenue they could get their hands on.

Almost a decade ago the umbrella body Oil Seed Processors and Producers had lobbied to be afforded the same benefits as palm oil investor BIDCO, but government officials at the time argued the two sectors were not comparable with the perennial crop palm having a longer gestation period before full production in 15 years.

The Government signed an agreement with BIDCO in 2003, which included a 25-year corporation tax holiday, a 17-year holiday from VAT, zero import, customs and excise duties on imported equipment and zero withholding tax on interest on loans.

BIDCO, which has gone into limited production, was also promised 36,000 hectares of land to lease, but currently has under 10,000 hectares under palm.

But Atul argues that incentivizing oil seed will have little no impact on BIDCO’s project.

“Uganda’s oil seed demand stands at about 150,000 tonnes annually, currently total local production is about half that so there is he scope for growth and it would be in government’s interest to support as many players as possible,” he said.

Besides he added that palm oil’s natural habitat in Uganda is confined to the islands and Bundibugyo so other farmers around the country would not benefit.

Uganda is key to Mount Meru’s investment plans but Atul remains unfazed.

“By this time next year our plants in Rwanda and Zambia – which will be the biggest refinery in Africa outside South Africa will have gone into production, Uganda will take some time but I know it will come through one day.”

AKAMBA AND THE BUSINESS LIFE CYCLE

Last week it was reported that after 50 years of ferrying the region’s travellers between capitals, Akamba Bus Services was winding up. Recent travellers report that the company was already in decline with poor time keeping and constant breakdowns, which did not help in an increasingly competitive market.
   The final nail in the coffin is the company’s inability to meet its financial obligations to its lenders, who are now forcing a firesale of its assets to redeem the company’s debts.
   In other news the Kenyan partners of fast rising supermarket chain Tuskey’s are in conflict and have gone to court to resolve their issues.
   Both companies have been highly successful companies, growing from national to regional businesses, turning over millions of dollars a year and employing hundreds.
   For a business to get through its initial teething pains where revenues are low, profits are nil and the future is uncertain is a feat of herculean proportions, going by the statistics that less than ten percent of businesses have survived past their fifth birthday.
   But going by how many businesses do not transcend a generation in Uganda enough businesses have not factored in the challenges that comes with subsequent growth. They struggle to manage their success in a way that will ensure further longevity.
   Business management guru Charles Handy thinks he has the answer. He likens the life span of a business to a sigmoid curve, where there is low growth at the start moving to steady growth, wealth and success and then the inevitable decline.
   He believes the curve is applicable to life, the economy and any other endevour for which there is a learning curve.

   As a business grows it increases in complexity – more workers, more money (hopefully) and more shareholders, managing these new stakeholders will mean the difference between further success or failure.



   The root of the implosion at Akamba or the current internal wrangles at Tuskys are not clear but one can almost bet that a  difference of opinion in what the company’s vision is going into the future is at the bottom of it.
   When you are a single proprietorship your needs can be met with a few million shillings in dividends. But as soon as you invite more shareholders they will need multiples of the millions you were taking home. You can increase the dividend payouts nad thus eating into much needed capital for expansion and face the inevitable collapse. Or you have to struggle to grow the business so the increased profitability can match future increases in dividend payouts.
   Multiple shareholders may not all share a long term view of the business which in its extreme would be no dividend payouts, with all profits reinvested to build the business with eyes on bigger payments in the future. Some prefer to start seeing a cash return on their money yesterday.
   It is this tension that undoes businesses – often at the beginning but especially when some success has been attained.
   A business can only grow as far as the size of the promoters’ vision.
   If the business is meant to meet the day to day needs of the founder(s) it will only grow that much, but even the promoters dare to dream of national, regional even international ambitions then the business has a chance of growing that far. There are no accidents.
   Back to Handy, he suggests that to overcome the inevitable decline that comes with age, businesses at the growth stage blessed with money, people, networks and reputations businesses should find ways to reinvent themselves --  branch out into new endevours, shed off excess or redefine their products or industry.
   And these can and must go on numerous times during the life cycle of a business.
   Which bring us back to Akamba. Akamba was a 50 year old enterprise that must have grappled with the challenges of the sigmoid curve more than once in its life span. Maybe Akamba’s management this time around failed to beat the curve.

THE ELUSIVE SEARCH FOR WEALTH

Moses is a budding entrepreneur with a small restaurant and washing bay near Munyonyo.  From his road side operation Moses services all types from the mason on a very tight budget to the hung over sufferer on weekend mornings. He plans to be a household name in five years’ time with branches of his restaurant dotted all over the city’s suburbs.

It is with this in mind that Moses has presented himself to KCCA to benefit from the government’s Youth Fund, of which KCCA is one of the agents.

With the sh5m he is applying for he plans to buy new furniture for his restaurant and be able to buy his supplies in bulk. He also wants to buy new equipment for his washing bay.

During last year’s election President Yoweri Museveni made the campaign pledge to set up a Youth Fund, a revolving fund that would lend money to young entrepreneurs to shore up their businesses.

Since then the government has committed sh44b to the endeavor, channeling it through the formal banking system.

The finer details of the loans may differ but basically the loans of between sh100,000 to sh5m, will be on lent to small businessmen over three years at a about 14%. The money is intended for projects that will increase employment and which have promising futures.

As a nation we are seating on a time tomb. At current rates our population is doubling every 20 years, while our economy is not growing fast enough to meet the rising demands of this growing population. But even more worrying is that almost half of our population is under the age of 15 and in coming years will need a source of employment.

It is fallacious to think – and it has not happened anywhere in the world, that by building huge industrial concerns we will be able to absorb this youthful army. The world over it’s the small enterprises that employ the most workers.

For this reason it makes sense to offer some support to small businesses. But in addition it is these small businesses that will eventually grow into big businesses. As a long term strategy to grow big businesses we need to support the small businessman.

Government has identified a lack of capital as a major constraint of the small businessman and this is there effort to redress this. People who have studied the subject in Uganda may argue too, that entrepreneurship – the ability to convert opportunities into profitable, sustainable enterprises is what is most missing in our society.

Past studies have shown that Uganda is atop the world entrepreneurial ladder. However a lack of know how is preventing us from rising from the setting up businesses for subsistence to building national, regional and international concerns.

The know how to  form and sustain partnerships, to create and hold a vision and to create a systems based operation that can not only drive itself but is scalable and transferrable.

This knowledge cannot gleaned from the text books but learned from experience. May government may want to invest too in a mentorship program, where some of these small businessmen have more experienced businessman helping then through the hard knocks of the business world.

In Uganda we are at a bit of a disadvantage. When you ask a child in the US what he wants to be when he grows up he may answer Mark Zukerberg, the founder of Facebook but Ugandan a kid will more likely than not want to be a minister or a big public official. Which would be laughable if it were not sad, because society’s wealth is created by the businessmen and not the politician or the technocrat.

If there is one lesson we learn from the cold war is that a country is only as viable as the strength of its private sector.

Years of turmoil means that most Ugandans are always on the lookout to make an extra shilling on the side, starting up small businesses alongside their formal employment. We take it for granted but this is not normal procedure in neighbouring countries.

This is good thing because success in business is a numbers game. Since the world over only a small fraction of businesses survive beyond their first let alone fifth birthdays, the more startups you have the better the chance one of those successes will gone to expand and thrive.

So government is on the right track trying  to bridge the capital deficiency of  our budding entrepreneurs, but maybe we would get more bang for our buck if we invested in improving the capacity of our businessmen, because after all money follows good management all the time.

DOES UGANDA REALLY HAVE DRUG SHORTAGES?

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Nalongo’s son had just undergone an operation and it was long past the time he was supposed to get his final pain killer for the day.

She looked on helplessly as he whimpered in pain as his father went in search of the doctor on duty.

The nurse on duty when she came around – three hours after the 6 pm prescribed time for the young man’s doze, claimed the drugs were not in stock and that they should go outside the hospital to buy the drugs, which prescription she hastily scribbled on a piece of paper.

As it turns out the drug was very much in stock. For those in the know this was subtle attempt by the nurse to extract some money from the parents of the in-pain boy.

All this happened at the national referral hospital – Mulago.

While the end user is under the impression that our health centers are suffering a perennial drug shortage National Medical Stores is seating on tons of drugs which are reportedly in short supply.

“My warehouses are full of drugs to the point that I am asking my suppliers to hold with future deliveries as I try to work these ones out of the system,”  NMS boss Moses Kamabare told Sunday Vision.

Clearly between NMS warehouses and the end users there is a bottle neck that is preventing the end users from accessing lifesaving drugs.

Three years ago in attempt to alleviate the perennial drug shortages in public facilities, government centralized the procurement process under NMS.

Previously the procurement of drugs was decentralized to the national referral hospitals – Mulago and Butabika, the regional referral hospitals and the districts, which supplied the health center two to four.

By centralizing drug procurement government hoped to take advantage of the discounts possible with the ensuing economies of scale, create uniformity of supply and curb drug thefts.

Under the current system the referral hospitals and the districts provide NMS with a procurement plan, which guides NMS as to the drugs and their quantities to buy for the year as well as how regularly they should be disbursed. NMS only procures according to these plans.

NMS has a delivery schedule which is monthly for Mulago and Butabika and once every two months for everybody else.

Since the capacity to quantify needs was lacking at the lower health centers the health ministry came up with a basic kit, which has most of the essential drugs and supplies like gloves, which are supplied to the health centers two and three.

So NMS clients are supposed to requisition their drugs according to their pre-determined procurement plans and only then will they be supplied with the drugs.

“That is where the problem starts. We quickly found out that either they do not requisition, so we don’t dispatch or they requisition less than they already planned for leaving us with unused stock,” Kamabare said.

That is where the discrepancy between shortages at the health centers against the contradiction of NMS’ full warehouses begins.

By not requisitioning or under requisitioning you have health centers without drugs for months or running out of supplies ahead if schedule respectively.

Why this happens is a mixed bag of motives that range from incomprehensible incompetence to sabotage of an innovation that would expose the old practitioners to individual abuse of the system to meet personal needs.

“For example some prescribers can prescribe medicines that are not on our national essential medicines list. The idea being the patient would have to go out of the hospital to order the drugs living the impression that the hospital is short drugs while the truth is that a perfectly adequate drug is readily available in the health facilities dispensary,” Kamabare said.

Clearly a holistic solution to the problem including increasing health workers pay and welfare and training many more health workers.

But as a start beyond the streamlining procurement Kamabare counsels the use of medicines only listed in the national Essential Medicines List and prescribe as stipulated in the Uganda Clinical Guidelines – which has detailed descriptions of common ailments in the country and how they should be prescribed for.

“Artificial scarcities are being created  and sustained contrary to the truth, “ the NMS boss says. “Among the drugs we are over laden with are those for cancer, TB, ARVs, family planning supplies, rabies vaccines, insulin and mama kits. My concern is not that my warehouse are full but what is happening to the rightful patients of these drugs …. Aren’t they dying because of a failure of our systems?”