SAVINGS WILL REDUCE UGANDA LENDING RATES

At the end of August the statistics bureau reported that annual inflation for that month had fallen to 11.9% the lowest level in 17 months.

In March last inflation stood at 11.2% before taking off on a tear that saw it peak at 30.5% last October, the highest it had been in 19 years.

Inflation a general rise in prices caused by too much money chasing too few goods, was triggered by high food prices coupled with campaign spending during last year’s general election.

Wrestling it down to more manageable levels has taken some determined action by the central bank , which while employing the recently introduced Central Bank Rate (CBR) prompted a spike in lending rates during the period.

As a result many people have had properties they had mortgaged to lenders auctioned off to recover debts. Last year’s bank results suggested that the level of bad debt was set to increase this year from below the commendable average of the four percent of industry assets at the end of 2010.

Despite a fall in the CBR rates since the beginning of the year, commercial lending rates which had risen in tandem with the policy rate have not fallen in the same manner.

The public is understandably annoyed at the banks who were so keen to raise lending rates but are not showing a similar eagerness to reduce them. Bankers explain that they in turn borrowed money at higher rates  and those monies will have to work their way through the system before we can see a dramatic fall in lending rates.

In addition they argue that they also need to wait-and-see how the environment turns out in coming months before they can take more decisive action. Yoyoing interest rates would not only be bad for business but could trigger uncertainty whose long term consequences would be hard to predict.

One could argue that they should probably take the loss, after all the informed view last year was that the jump in inflation was a temporary blip that did not warrant the drastic action they undertook.

With a handful of banks controlling 50% of all assets means there is little competition in the sector and therefore responsiveness to the market is sluggish at best.

But then again who can blame the banks’ managers, their job is to extract as much return for their shareholders given the environment they work in.

At the risk of being accused of blaming the victim, our lending rates remain high because our saving rates as a country remain woefully low.

We save one in ten shillings of our economic output this about half of the sub- Saharan average.

The way banks work is that they collect deposits, and then on lend that money at many multiples of what they pay us in interest. The laws of supply and demand then come into play since there is an almost insatiable demand but little savings, the cost of credit is high.

In the event that we pushed up savings up by a few percentage points banks, in an attempt to on lend this money would be forced to be more innovative in the way they lend money and eventually cut lending rates.

Barely twenty years ago, banks were not lending  to the public, happy to park their billions in government paper. But as the formal sector grew and savings grew, banks had to improvise. There is no reason why another jump in savings will not have a similar effect.

There are no legislative initiatives beyond the mandatory contributions to NSSF.  There is scope for tax relief on social security savings, mortgages and health insurance that can boost savings. As it is now even our contributions to NSSF are taxed.

There really is no getting around it. The central bank may huff and puff but there is really no pressing incentive for banks to cut lending rates below a certain point. But if government can encourage savings further, our industry will be more attractive to other banking groups , who will in turn push up the competition.

This is not communist Russia where interest rates are set by the government – and it shouldn’t be. But through clever legislation government can persuade the banks to do what’s best for the country.

ON SUCCESSION MUSEVENI DAMNED IF HE DOES, DAMNED IF HE DOESN’T

Last week President Yoweri Museveni as commander in chief of the armed forces announced a battery of promotions in the army.

Among the promotions was that of his son Muhoozi Kainerugaba, who he elevated to Brigadier from his former position of Colonel.

"Immediately we shared knowing glances, “Clearly he is grooming his son to takeover,” we told each other as we took a sip of our beers....

Some of us even intimated that the speed of his promotion to a general was unparalleled in the armed forces – of course we forget Mugisha Muntu meteoric rise to Major General and army commander or Salim Saleh before him or Noble Mayombo’s rise to Brigadier, all achieved in less than the 12 years it’s taken Muhoozi to attain his current rank.

And the international press was sucked into the debate with the “The Africa Report” reporting that “Museveni’s son has suddenly been promoted raising speculation that he is being groomed to take over from his father…”

My thoughts on whether Museveni is grooming his son to take over or not are really irrelevant, what often has me tearing my hair out in exasperation is the way the whole succession debate rears its head.

The constitution of Uganda has a well laid out succession plan. If for whatever reason the presidency is vacant the Vice-President is next in line followed by the Speaker and the Chief Justice, but no, the conspiracy theorist in us rejects this formula. It is too straight forward and transparent? There must be another plan.

In fact at every turn we harangue the president to show us his successor.

“It still remains a mystery who President Yoweri Museveni wants to succeed him …. Analysts have expressed fears that Kainerugaba’s promotion was the beginning of a chain of events that could lead to an undemocratic succession,” The Africa Report says.

To begin with, in democratic societies outgoing presidents do not finger their successors, that is often left to their respective parties to do.

In South Africa for instance it has been suggested that Nelson Mandela’s favoured successor was Cyril Rwamaphosa, but the ANC party’s internal dynamics were such that Thabo Mbeki eventually succeeded him.

In fact for a seating president to front and support a successor would lead to an “Undemocratic succession.”

This is why democracies cannot be written into effect but have to evolve.

"The practice of democracy is not only for the ruling elite but for the whole society, which once it has internalized the values of democracy can bring pressure to bear on the ruling elite and ensure they behave democratically....

Our insistence that Museveni should show us his successor, outside the institutionalized process may be a temptation too hard to resist.

The real focus should be on the institutions that would usher in the succession when it comes; The legislature, the judiciary and security institutions. Are they robust enough to resist the competing interests to see the process through and sustain the result?

"As far as the constitution is concerned a successor is in place...

However the President, were he to step down of his own volition can work through the NRM to indicate his successor and the party in turn once it has a flag bearer, would throw its weight behind the chosen one in a presidential election. All this I imagine, would happen within the structures and practices of the NRM.

As it is now the president is damned if he does and damned if he doesn’t. The chattering classes seem hell bent on second guessing his every move.

Even if he announced tomorrow that he would step down at a certain date, we would weave all sorts of theories about how he must have an ace up his sleeve. And if he announced he was going to go on much longer, we would still doubt his motives and cobble some conspiracy theory to explain why things aren’t as they seem.

Our ability as citizens to leverage or have a say in the process will depend on our organization, without that we might as well keep quiet and let the process take its course.

 

THE VICIOUS CYCLE OF CORRUPTION

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The latest Transparency International survey puts Uganda as the most corrupt of the five East African Community countries.

That is not a headline that would sell newspapers in Kampala. Sad because it means the general society have accepted corruption as a normal thing. But even more disturbing is that it’s not something that is restricted to a politically connected elite, but runs right through our society across all age groups, tribes and classes.

None of us is willing to throw the first stone because we know we are all not without sin. So corruption continues because society does not have the will to beat it back.

As we stagger through the fiftieth year of our existence us a nation, one cannot help but think we let down a generation of patriots who fought for a break from our colonial tethers to provide a better life for the native population.

It has been said that service provision was much better in colonial times than it was now and some years ago one neophyte politician based his campaign on a return to colonial times in order to see service improvements.

The premise of the campaign was flawed on several fronts. One of which of course is that at the time of independence the Ugandan population was small to begin with. But even within that small population services were concentrated on an even smaller group. So for example at independence there were less than thousand A-level students around the country.

One of the independence struggles biggest drawing cards was that these services would be more widely spread around the general population. Hence the rush by the first Obote government to dot the rural areas with schools and hospitals.

They say the road to hell is paved with good intentions, so it is that the roots of corruption can actually be found in this rapid expansion of services in post-independence Uganda.

With clear capacity deficiencies merit was thrown out of the window for fulfilling the political promise of African empowerment.

Idi Amin did not help matters with the no real human capacity improvements – in numbers or quality, recorded in his eight years at the helm of this country’s affairs.

The second Obote administration was not only saddled with an economy in terminal decline but also distracted by a draining civil war that forced improving human capacity down the list of the administration’s priorities.

The NRM then inherited this litany of woes. Growing from a low base the rapid economic growth papered over our capacity inadequacies, but not for long.

We are corrupt because we can be.

Despite the thousands of graduates from university and tertiary institutions we are nowhere near bridging our human resource deficiencies. For example we have one doctor for every 11,000 Ugandans, the World Health Organisation recommends at least one doctor for every 7,000. We graduate about 200 doctors a year, so assuming the population does not grow and we even churn twice as many doctors as we do now it would take ten years to bridge the gap.

This desperate situation is replicated in every other profession – engineering, teaching and accounting.

Sadly the resources needed to redress this state of affairs are being shoveled into the accounts of government bureaucrats and their henchmen in the private sector, perpetuating a vicious cycle that will prove hard to break.

That because we are a God fearing people – given the large numbers that patronize our churches and mosques, and therefore that we can appeal to our higher moral selves to clean up the system is a romantic notion at best. In fact some of our most “religious” have been shown to be the most rapacious thieves, believing because they are God’s anointed they are safe from reprove on earth.

The anti-corruption fight will have a real chance of success when we invest more in the institutions to fight crime – the police, Judiciary, Inspector General of Government, Auditor General’s office among others.

Given the current context you may very well recruit battalions of corrupt competent officials – or is it competent corrupt officials, but as long as you cannot man the relevant institutions adequately a corrupt free society will always be a pipe dream.

PROFESSOR DDUMBA HAS HIS WORK CUT OUT

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This week Professor Ddumba-Ssentamu was named the new Vice Chancellor of Makerere University.

Ddumba, the last man standing after a two month selection process that has been dogged with controversy, has his work cut out for him.

His predecessor Professor Venansius Baryamureeba had started a revolution, he was unable to see through but which the new VC will do well to study.

In comments following the announcement of his ascension to the top job Ddumba said he would look to boost the institution’s research capabilities and the dissemination of this research.

He also added that he will seek to maintain or cut student numbers to improve the quality of education provided at the once venerable campus.

His ambition to push the research agenda is laudable. A university that is not involved in research, which is furthering the boundaries of the knowledge and supporting innovation, is not worth its name.

Years of political instability stunted Makerere’s growth, while government’s rolling back of its interest in higher education has caused an explosion in numbers at the Makerere campus wit h the introduction of private students.

"In an attempt to sustain itself the university enrolled more and more students without parallel investment in staff and infrastructure compromising education and welfare standards on the hill....

Ddumba is right and wrong to want to limit the number of students going to Makerere university. Right in that by rationalizing student numbers it would reduce the pressure on staff and infrastructure and hopefully improve the output of the university. But this is at best a short term measure.

Makerere being a public university has an obligation to educate all students, along with other public universities, that qualify. He is wrong because restricting numbers is really not an option.

This is the dilemma of managing of public institutions, how do you expand public services without compromising quality in a situation of increasingly diminishing resources?

The university needs to turn away from believing government should be its main benefactor. Ddumba will also need to perish the thought of charging students the full cost of a university education. He will find himself between the devil and the deep blue sea.

Makerere does not need a bureaucrat, it needs an entrepreneur.

A bureaucrat operates optimally in a situation of adequate resources and a predictable environment, while for the entrepreneur resources can be none existent, the working environment in a constant state of flux and failure is not an option.

"Makerere’s challenge is not a lack of resources – the concentration of human capital on that hill if quantified would be astounding, Makerere’s challenge is to unlock its potential, which is a function of management....

Unlocking the institution’s assets will require, lobbying for changes in the law, refocusing of the university’s core strengths and reenergizing an institution weary from living up to high expectations in an often thankless job.

Ddumba will have to find the inner entrepreneur in him.

Clearly the VC’s office is not a holiday camp and Ddumba who has served the institution for three decades should know that better than most.

We wish him the best, especially because future generations of Ugandans will fail and thrive depending on how well he can meet this challenge.

MELES ZENAWI AND THE AMBIGUITY OF THE AFRICAN LEADER

At the relatively young age of 57 Ethiopian Prime minister Meles Zenawi passed away leaving behind a somewhat mixed legacy for his supporters and critics to chew over.

Along with President Yoweri Museveni, Eritrea’s Isaias Afewerki and Rwanda’s Paul Kagame, Zenawi was described as one of a new generation of African leader by former US President Bill Clinton in the mid-nineties.

The sheen has come off this “elite” group of African leaders in subsequent years as they have come under attack for human rights abuses, less than perfect election wins and for sliding back into the big man politics blamed for the continent’s current woes.

If the eighties were Africa’s lost decade then one can understands the appeal for the “New Generation” of leader, men of action who were quick to embrace the changing reality of the post-cold war era by allying with western donors to jumpstart their economies, while demanding to retain the right to determine their own development paths.

Zenawi oversaw an economy that averaged 7.7% growth in recent years, diversified the economy away from coffee and beef to now include floriculture, beverages and car manufacturing and is now in the process of building the largest power dam on the continent that will generate 6000 MW of power on completion in four years’ time.

He proved a useful ally in the fight against terror sending troops into Somalia to root out Al Shabab.

Zenawi would never be mistaken for a liberal democratic. He tolerated no dissent, his government jailed the political opposition and harassed the press.

Nothing is black and white. You find not only that are there grey areas but that even those come in many shades of grey.

So this is the challenge of leadership particularly in our part of the world.

In an environment where there is little or no institutional capacity the incentive for one man to fill the void and become the alpha and omega is probably irresistible.

Driven by the ambition to do well by your people the temptation to paper over institutional failure with presidential edict in order to get things done, becomes the normal order of business, centralizing the final say in one man’s hands.

The net effect of this is that institutions are stifled while a powerful personality cult emerges.

In the development of the societies institutions became necessary as faceless, impartial arbiters of disputes.

So whereas previously it was just a group of  families hunting and gathering and therefore disputes could be settled face to face, settled on the strength of the mutual respect for an elder or recognized authority figure, in larger societies where kinship is not widely shared an independent arbiter whose authority is respected by the general society was required.

Zenawi was not blind to the issues of governance and maybe to the inadequacies of his own style of leadership —even if only on an intellectual level,

“We believe that democracy, good governance and transparency and fighting corruption are good objectives for every country, particularly for developing countries. Where we had our differences with the so-called neoliberal paradigm is first on the perception that this can be imposed from outside. We do not believe that is possible. Internalization of accountability is central to democratisation. The state has to be accountable to the citizens, and not some embassy or foreign actor,” he once told Peter Gil, author of the book “Famine and Foreigners: Ethiopia since Live Aid”

The challenge then is how does one build institutions? The experience even here in Uganda is that effective institutions cannot be written into existence. To be effective institutions have to backed by the potential to censure offending parties.

In a situation like Ethiopia where Zenawi straddled the political scene like a colossus institutions were unlikely to flourish. Even the best intentioned of leaders faces this dilemma.

And this where the tension lies. Human nature is such that we cannot and should not allow power to be centralized in a single individual however much they act in our best interests, the challenge is how do you prevent this from happening?

Those waiting for a quick and ready solution will be sorely disappointed.
 

The history of the world shows that the process of evolution from the rule of the personality cult to more inclusive government is a long one taking generations even centuries of contestation between various often evenly matched power centers, to materialize into the form we are now familiar with in western democracies.

Zenawi’s legacy shows that the days of pigeonholing African leaders into ogres or saints are long gone and in judging their achievements be prepared for brain wracking ambiguity.