UGANDA’S FORBES LIST SIGNALS PROGRESS BUT …

Two weeks ago Forbes Magazine highlighted five Ugandan businessmen -- Patrick Bitature, Amiral Karmali, Charles Mbire, Amos Nzeyi and Sudhir Ruparelia,

who they were able to make out were the richest men in the land.

None of the five however made it on Forbes’ list of 40 richest Africans, which should be cause for pause. More on that later.

The Forbes list is an annual list of the America’s wealthiest individuals that has been running for 30 years now.  The list was initiated by publisher Malcolm Forbes who believed that it represented the spirit of enterprise, whose inductees create the jobs, energy and ideas needed to propel economies for the benefit of all.

They say what is celebrated is repeated. In inaugural list in 1982 there were 13 billionaires on the list, for the last two years all the 400 members have been dollar billionaires.

From a purely mathematical standpoint for every $100 billion of GDP in the US there are about three billionaires. It’s a stretch I know, but given that our economy only amounts to $16b it comes as no surprise that we don’t have dollar billionaires here.

That being as it is, a mention by Forbes as a creator of wealth is not something to be laughed at.

The most marketable skill in the world, is the ability to make money. The more money one can make, the more money one can earn.

But to make more and more money entrepreneurs need larger doses of labour, capital, oftentimes land and entrepreneurial skills.

Our top five businessmen make more money than they consume. So why we mere mortals ask, do they need to make more and more money?

For mere mortals money is made to be eaten – to service lifestyle needs, for the rich money is for making more money.

There are only two ways to use money either you cosume it or you invest it. The wealthy invest more than they consume and that is why they are where they are.

So it therefore follows that while need a lot more consumers we need a lot more wealthy people in our midst to keep the economy ticking.

A friend of mine never ceases to say that the challenge for Uganda and many of our poor African countries is that we don’t have enough wealthy individuals.

And he is not talking about the corrupt officials who pilfer tax payers money for their own self-aggrandizement but the captains of industry and leaders of commerce who create genuine economic activity.

When wealth has been created it has to be protected. And by paying taxes they pay for the institutions that stabilize the nation and in so doing protect their property and their workers.

That is why the viability of a nation depends on the strength of its private sector.

So the challenge as a nation is to create an enabling environment so more like the Forbes-5 can emerge.

Fortunately for Uganda we are the one of the most entrepreneurial countries in the world. The desire to start businesses is not alien to us, a hangover from a time when one job was not enough to survive let alone thrive.

That is where the challenge is. In starting businesses we are often looking for more money to eat. Very few of us make the mental leap needed to see money as a tool for making more money and not just for eating, limiting the potential of our businesses.

A related reason for our businesses being stymied is our insistence on remaining informal – not registering, paying taxes and even not using bank accounts. You can make enough money to sustain yourself this way. But to think like this is to ignore the fact that in business you have to keep growing just to stay in the same place. IF you are not growing you are falling behind.

Growth comes with greater formalization of processes so you can not only benefit from bigger deals but can have access to more financing options.

There is no getting around it. It starts with a mental shift in how you view money. Once that shift is done formalization comes out of necessity.

To return to the issue of why they should be cause for pause that none of  our businessmen is in the top 40 wealthiest Africans.

The wealthiest Africans while opereatin out of larger economies are almost all more formalized than our own king pins allowing them the ability to take advantage of more opportunities and be more attractive to foreign partners.

The writing is on the wall – or is it Forbes magazine we need to step up our game to play at a higher level.

THE MEANING OF UGANDA'S CORRUPTION BILLIONS

In the last few weeks we have been inundated with reports of public officials caught with their hands in the till.

The two notable ones are the missing monies in the prime minister’s office and the public service ministry, which between them have seen about sh200b unaccounted for – a euphemism for stolen.

A billion shillings is a thousand million shillings. But in a country where the per capita GDP is slightly above a million shillings, the majority of us can’t wrap our minds around a sh10m leave alone a billion.

The appropriation of billions of shillings in tax payers money to enrich a handful of bureaucrats is made more nauseating when it means that thousands, no, millions of Ugandans will be deprived of life saving drugs, their potential stunted for lack of education or their business opportunities frustrated for lack of power and roads.

This year’s national budget stands at about sh9.1trillion.

The sh200b gone missing in these two ministries alone would more than cover the budgets of the lands, ICT, toursim, trade and social development ministries combined.

This money accounts for more than sh167b budgeted for parliament.

But that is on the macro-level. When you break it down further to what these sums can do for the everyday man it gets even more shocking.

The government has budgeted just under sh50b to treat the three million-odd patients – in and outpatients, who will visit its 15 referral hospitals around the nation. With the sums tucked way by the handful officials in the prime minister’s office and public service ministry we can treat the said patients for four years.

In addition the government had set aside sh600m for the recruitment of 1000 health workers. Also one billion shillings was budgeted for the DPT immunization of 1.3 million infants countrywide, so the said money stolen would have covered the immunisation needs for this country for the next two centuries.

A hundred billion shillings in ACTs & ARVs were budgeted for this year.

And the story goes on.

The government budgeted for 22 primary schools and the rehabilitation and construction of 67 classrooms for a total of sh20b.

And for all those with rural roads in need of repair the government  has earmarked sh181b  for routine and periodical maintenance of 32,000 km of road.

Put in their proper perspective the billions of shillings finding their way into the pockets of public officials have a much higher cost to them than the nominal figures that are reported in the press.

ECONOMICS FIRST THEN DEMOCRACY

Last week the two leading economies of the world – US and China, went to the polls.

Barack Obama won a second term in office, only the fourth Democrat to be re-elected in the last a hundred years, in a deceptively tight race.

Days later the Chinese Communist Party’s 18^th National Congress opened. The week long event will among other things see a passing of the baton from current president Hu Jintao to Vice President Xi Jinping, who would lead the most populous nation in the world for the next 10 years.

The last time the two events coincided was in 1992.

In that year Bill Clinton won an election with the slogan “It’s the economy stupid” and the country emboldened by its “defeat” of communism was about to embark on one of the longest stretches of economic growth in its history.

At the same time China’s increasing liberalization was making economists look up, but most were still focused on Japan, which while still in the throes of an economic slump, was still the nation to watch in the Far East.

Fast forward to today and the US economy is reeling from the global financial crisis, with the economy only just beginning to grow and create jobs again. While still the largest economy in the world its confidence has been truly shaken.

China meanwhile has grown its economy eighteen fold and though there are signs its beginning to slow down it is still a long way from experiencing negative growth.

It shouldn’t be, but it’s amazing what a difference twenty years makes. Since 1992 the Chinese economy has leap frogged more than nine places to its current position.

The next time the two great nations will go to the polls in the same year will be 2032.

If projections are to be believed China will by then have overtaken the US as the largest economy in the world.

The US probably had a similar albeit longer drawn out spurt of growth with the introduction of the railway and industrialization, that saw it over take England and other European nations.

They had to address the issues of economic inequalities through the abolition of slavery, legislation against monopolies, the right to vote regardless of gender or race and the laws to improve labour rights.

China too will have to work more consciously to spread the gains of economic growth more evenly among its population.

To learn from America’s experience, China’s democracy will come with the improvements in the economy.

The eventual nature of China’s democracy will not mirror America’s as it is evolving out of its own set of circumstances, but we can be sure as the country becomes more affluent and the middle class grows major changes will be necessary in the way the country is run.

America’s democracy too is still evolving.

The major strength of Obama’s two campaigns was its “massive, micro-targeted campaign and precision-crafted turnout operation”, which means they got more people to vote, making their process more democratic.

This reaching out to more and more voters has been made possible by better technology and greater funding -- both candidates tore through $6b during the campaigns.

There should be know illusions, you can write into law the best constitution in the world – like I hear Uganda has, but it is only the pressure from a critical mass of economically empowerd people over time who will ensure that governments are more transparent, accountable and representative.

Affluent people are less like to resort to violence to resolve disputes because the ensuing destruction may consume their assets too. So they insist on the creation of institutions that resolve these disputes – the legislature and judiciary, and press for them to work fairly for all, so they can be legitimate and trustworthy.

It follows that anything that frustrates economic growth and subsequently development is an enemy of democracy.

These two great nations at various stages of development are showing the way and we will be best advised to pay attention.

A FOOL AND HIS MONEY ARE SOON PARTED

Maybe corruption is not all what is it is cracked up to be.

The peace of mind that comes when your ATM card is as good as cash. The ability to buy at leisure whatever your heart desires. The seduction of the boost in society’s eyes that you may enjoy because of your capacity to solve the problems of friend and family.

That is what we see on the surface. But what is really going on.

The corrupt official knows – at least at the beginning of his nefarious enterprise, that this cannot last forever. So while he slides through town in the newest four wheel drive, wines and dines in the Sheraton – the Sheraton was the place to be, he remembers with the girl(s) of countless high school wet dreams – not his wife, on his arm, his mind on overdrive.

Of course he has heard about investing, so he is going to invest. An investment decision with ill-gotten wealth is really quite simple. Or so we think.

To invest is to commit money with a reasonable degree of certainty that the money will earn a return. Of course, whether a return materializes or not will often be a function of the “investors” skill at appraising projects’ viability.

"Since the corruption money is “free”, any money earned from the enterprise will show an infinite rate of return. Or so we think...

King Solomon said it best “A fool and his money are soon parted”.

So what does the corrupt official do? He goes and buys land, after all they all say you cannot go wrong with land. Since that is his mentality and since he did not “work” hard for the money, he is not looking for bargains in the land market, whatever price is named he just reaches under the mattress and pays millions, hundreds of millions even billions of shillings in cash. Partly explaining why property in Kampala is more expensive than in Nairobi or Cape Town.

Once the land has been purchased the corrupt official soon tires of taking friends and family out to see bare land and is soon itching to start building.

So he dips his now increasingly pudgy fingers into the till again and starts building. Invariably he wants a huge, expansive home. So he puts it up in record time, spares no expense in fitting it – shopping trips to China may enter into the picture at this time.

But the corrupt official does not stop there. Since he has cemented his high standing in society with his new palace it’s time to move on again. Meanwhile he used to pay rent of sh400,000 but now his utility bills – water, power, DSTV, security exceed that figure easily.

So he goes off in search of more land. This time he wants to put up an income generating investment, a few rentals maybe.

Again it doesn’t matter the cost, he puts up his rentals and starts receiving tenants. The cost of regular maintenance work on the rentals does not come from the income but from the office imprest.

He might branch out and start a farm. Clearly the gentleman farmer did not die with “Pride and Prejudice”. And again the office imprest is exercised.

Somehow these types get promoted and the scale of their “eating” rises in step with their advancement.

He might now think of building a hotel. Somehow these corrupt types have no time for market research and business plans, after all their money is free...

It’s easy to tell the hotels built by corrupt money. They are often bigger than necessary, with little or no thought placed on parking space or landscaping, the finishings are gauche with the colour schemes all over the place and the service? You would get better at your local kafunda.

Their consolation is that at least they have a building. A fool and his money …

It’s usually this last vanity project that puts the corrupt official on his way out. With occupancy rates in single digits the corrupt official finds he needs to raid “imprest” to subsidise the hotel.

As often happens these corrupt official will get away with a slap on the wrist. He will leave the civil service grumbling how government is very ungrateful and that he is off to look after his “businesses”.

For the rest of us looking from the sidelines we will think life is not fair and that the corrupt official is finally off to enjoy his ill-gotten wealth quietly. And that is where the story stops for us.

For the corrupt official the realization that his “empire” has been built on smoke and mirrors does not hit home immediately. He continues to live the life he is accustomed to wining and dining, roaring up country in his monster 4WD and generally continuing where he left off.

Then suddenly the costs begin to rear their ugly heads. He needs to pay hundreds of thousands of shillings to maintain his household, a few other millions to keep his rentals in presentable orders and many more millions to keep his hotel, farm etc in working order.

His “businesses” cannot pay for themselves and he has no access to the imprest and then the slide into ignominy begins in ernest. by the time they start selling assets they are well on the way down the slippery slope. Before not long the corrupt official is back hustling with us mere mortals to stay alive.

PS.        Any resemblance is to actual individuals may not be accidental. They should take solace in the fact that their example may be useful in deterring others from straying down the crooked path.

THE CORRUPT ARE DOING UGANDA A FAVOUR

Last week it was reported that the British and Irish government had suspended aid to Uganda following the revelations of widespread graft in the prime minister’s office.

The Danes followed close behind.

Donor monies, while they often go towards alleviating humanitarian situations, are tax payers’ money and must be accounted for to the donor nations’ citizens.

"The tax payers of those countries have every right to insist that the monies be spent on the things they are meant for and especially not to line the pockets of grubby fingered public officials...

In the event we don’t comply the funds can be diverted to country’s who know how to put them to their intended use.

Over the last 26 years as local revenues have grown, the dependence on donors to fund our budget has reduced. Which is as it should be.

No country ever developed on aid and there is a reason for that. For a country to develop it has to develop its own capacity to mobilise local resources. This is important not only for the treasury and the economy but also for democracy. More about that later.

To mobilise its own resources it needs to focus energies on creating the structure to collect taxes, which we have done quite well with URA. But that is the easy part. 

The harder part comes in facilitating taxable businesses and individuals to emerge and grow.

Donor money can finance the setup of the administrative structure to collect revenues but can simultaneously frustrate the growth of a local taxable base.

The World Bank’s 2013 Doing Business report shows that Uganda slid back one place and is ranked 120 out of 185 countries polled. Basically we are not a very nice place to do business.

The major impediments to doing business in Uganda according to the report were in starting business, getting construction permits, connecting electricity, registering property, protecting investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. There was improvement in access to credit and one can expect after the introduction of Bujagali’s 250 MW, connecting to the grid will be improved.

"In large part the issues holding business back in Uganda are bureaucratic impediments.

This should not come as a surprise. Because we could always fall back on donor monies to finance projects and balance our budgets there really has not been any incentives to get rid of these barriers to doing business in Uganda. It is easier to negotiate loans and grants in western capitals of the world than it is to mobilise local bureaucrats to alleviate the plight of the local businessman. It helps also that a trip abroad comes with per diems all around...

It explains why our revenues as a percentage of GDP at about 13% continue to lag the region.

Officials will argue that our economy is largely informal and presents unique difficulties in taxing.

But the reason why the economy is predominantly informal is because of the high price of going formal, in the way of onerous licensing procedures and numerous bureaucratic requirements for doing business.

So the corrupt individuals who have awoken the righteous indignation of the donor community and prompted the recent aid cuts may in the long run have done us all a favour.

Now government will have to think harder. Because donors or no donors their obligation to provide services to the public does not go away.

Of course things can go badly wrong. Government can resort to printing money to meet its local obligations pushing up inflation and flushing the economy down the toilet...

As for democracy donor dependency stifles it rather than enhances it.

Forced to negotiate with its own people for revenues to meet increasing social needs, the government’s attitude will be different towards its own people for fear of them withholding their labour or taxes if they feel hard done.

As it is now if Ugandans don’t pay taxes there will always be a donor somewhere willing to pick the bill.

But personally I would not count on donors staying away too long.

"It’s not as if they woke up one morning and hands-over-their-mouths in stark horror found out Ugandan bureaucrats were plundering the bank. Suffice it to say we are not the only beneficiaries in the aid circus, so the party must go on...

But that is a story for another day.