LET OIL SPUR UGANDA'S KNOWLEDGE INDUSTRY

Last week Ugandan Tutus Mawano emerged one of three winners in a continental computer applications innovation competition.

His innovation “Ffene” is a low cost business management application aimed at helping small business owners to file better books of accounts and monitor the business remotely.

As the demands of society increases productivity, the amount you extract for every unit of input, has to increase too.

So if you were previously man and wife subsisting off a piece of land, when the children come along, you have to find a way to extract more from the piece of land to sustain all of you.

"Innovation is critical to any developing and growing society. Innovation is what will allow you to extract more and more value from less and less of the natural resources available....

Innovation is built on knowledge. The more knowledge a society has the more innovative it can be.

An interesting article “Ideas trump resources when it comes to city growth” published in “The Atlantic Cities” Magazine last week extended this same point further in a way that is relevant for Uganda.

The article was a commentary on a previous article that had noted that, currently in the US the parts where the economy is on the rise are the states or cities based on extractive industries like mining and oil drilling.

“The real winners of the global economy have turned out to be not the creative types or the data junkies, but the material boys: countries, states and companies that have perfected the art of physical production in agriculture, energy and , remarkably, manufacturing, ” one David Brooks argued in the New York Times.

However the rebuttal in Atlantic Cities argued that,  its not resources but ideas that powered advanced economic growth,bnoting that “Large endowments of natural resources and of extractive industries can pose a powerful barrier to knowledge accumulation, educational excellence and advance economic development,” an apt description of the ‘resource curse’.

A study, which contrasted cities with and without extractive industries showed that the cities with extractive industries tended to have lower levels of entrepreneurship and lower growth in economic activity.

However, they always are the exceptions to the rule, countries or cities which have extractive industries but have shown progress in the three key indicators of regional economic development --  GDP per capita, average wages and per capita income.

Countries such as Canada, Norway and Australia have done well to exploit their resources for sustainable growth in sharp contrast to Russia, Venezuela and the Middle East the article says.

They have done this by

investing their windfalls on building “institutions and social structures which harness knowledge, accumulate the human capital, and generate the innovative capacity that powers economic growth.”

The articles points to Houston in the US and Calgary in Canada, as examples of the cities that have exploited their natural resources well. Houston has developed a cluster of high value added technology oil related industries, to the point that it is the home of a large number of technology workers and software engineers specializing in oil. Calgary has built itself up as a knowledge hub and as a result is the most affluent city in north America.

We have already earmarked our petrodollars for infrastructure development as a first priority ploughing into social services, research and innovation would guarantee not only sustainable development but that more people will enjoy the benefits of this finite resource.

For starters there is no reason why Uganda cannot become the hub of agricultural research in the region, especially since agriculture will still be an important sector long after the oil has dried up.

They say don’t count your chicken before they hatch, but in the case of money you need to know how you will spend before you get the income. Otherwise the 

when our oil dollars turn up we will be like pigs at the trough and when its all said and done we will look back and wonder where it all went – Nigeria style!

TO BE WEALTHY IS GLORIOUS

“To be rich is glorious,” the words of former Chinese leader Deng Xiaoping, credited with launching the world’s most populous nations economic growth of the last three decades.

The beginning – and lesser known part of that quote is that, “Socialism is not poverty.”

It’s that time of the year again when Forbes magazine releases its list of the world’s richest individuals.

The numbers continue to boggle.

The 1,426 billionaires who made the list this year have a combined wealth of $5.4trillion (I will not bother to convert into shs). If they were a country they would be the fourth largest economy, coming in after Japan and  ahead of Germany. The richest man in the world is Mexican oligarch Carlos Slim whose $73b net worth is about 90% the size of the East African Community economy or four times the size of Uganda’s GDP.

Interestingly if they spread the dollars evenly among these billionaires they would each have $3.8b and this would make three in four of the billionaires wealthier than they are now.

The US with 442 billionaires has the largest share then Asia-Pacific 386, Europe 366, Americas 129. Africa has 20 billionaires.

Beyond the headache that comes from trying to wrap one’s mind around the numbers, of greater concern to some is the concentration of wealth among a handful of individuals that this annual list represents.

I am not one of the concerned people.

A lot of the concern comes from a lack of understanding of how wealth is created and retained.

The reason why these billionaires or two in every 100,000 human beings control such prodigious amounts of wealth, is because they are doing something that the rest of us are not willing to do. Unlike us mere mortals they worked smarter, thought better or sacrificed longer. To everyone according to his output is fair reward.

Of course there are a few heirs who were fortunate enough to win the genetic lottery but they are in the minority.

People who begrudge these captains of capitalism their billions also labour under the mistaken impression that these ladies and gentlemen have stashed all their net worth in vaults under their mattresses.

It’s only poor people who hold cash.

The networth of these billionaires is held in their companies. They became rich by making products or providing services, their wealth is a measure of how helpful they have been to more and more people.

And finally the haters wonder why one person would need all those billions, after all we live in one house, sleep in one bed and eat with one mouth at a time.

For the poor man money is for spending, for the rich man – read billionaire, money is for making more money.

A survey done in America in the eighties showed that the average millionaire there owns a car that is not valued at more than seven percent of their net worth,  by extension a billionaire’s car would be an even smaller fraction of his net worth.

The billionaire understands that there is no money that is too much to be finished. And that it takes a lot of effort to just retain, leave alone grow his net worth. The way to do that is to serve more and more people through his companies and investments. In effect money is the byproduct of being a more helpful member of society. So if you are poor it is because you are not a helpful member of society.

One last gripe against the masters of the universe an extension of the criticism that they are hoarding their billions, is that they are mean and unwilling to share. Ironically Bill Gates has given away $28b since 2007 and in the process its estimated that his billions may have saved up to 5.8 million children through his charity’s work against malaria, polio and its vaccine programme. Not only does he remain the second wealthiest man on the planet his wealth has grown by almost a fifth during the period .

Clearly Jesus Christ had it right when he said “It is in giving that we  receive.”

It is unlikely that you will get any volunteers for a campaign to beatify members of the Forbes list, but one can make a compelling argument for the potential of a nation’s economy by the number of dollar billionaires it has. Needless to say Uganda is doing badly.

For a person to accumulate billions, capital has been effectively deployed for years,   generations even. The more people that can do this in an economy the better . Beyond providing much needed goods and services, they create jobs, finance social services and  infrastructure development through their taxes.

We need to keep our envy in check and instead of vilifying durable wealth understand how it is created, hopefully reproduce the process so we can become more useful members of society.

So Xiapong did have a point, to be rich is truly glorious.

RETIREMENT AND THE CHALLENGE OF BUILDING VALUE

In a previous time it was just enough to survive another day. This uncertainty meant there was little incentive to think long term as one never knew from day to day whether they would be around the next day. Living hand-to-mouth made sense.

The relative security of the last two decades means we have had to shift the way with think about money, wealth and financial legacy.

Stability tends to do that. It orders society. Allows the creation of wealth by a bigger pool not just by the eternal optimists or hardcore hustlers.

In addition the first generation that got employment after independence have gone into retirement, many with less than good results. Another generation, the one that has lived all its adult life in the NRM era hears the retirement knocking incessantly.

These pressures have triggered the construction boom of the last decade and provides fuel for any number businesses being set up by the day around the country. 

The challenge is one of building an asset base that can, on retirement, throw off enough income to sustain us through our evening years.

If you think about it if you are making one million a year, ideally you need an asset or assets throwing off a net income  equivalent to that every year to sustain your current lifestyle.

Using the benchmark 91-day treasury bill yield of about a ten percent you would need an income generating asset of at least sh10 million to keep you happy or at least as happy as you are now. Of course if your annual income is greater than one million the challenge is that much greater.

The say that time is money comes into sharp focus. The sooner you set upon the journey of building this asset the better the chance that you will retire with it in place. 

"It’s unlikely that one can save enough money in their working life to guarantee a comfortable retirement, so inevitably the question of investment comes into play. ..

Investment is about committing resources to an endeavor with a hope of future return. The key word is hope, because even with the best investments success is not guaranteed. So investment success needs to account for failures.

There has been a time old practice in office for a group to form around the idea that they each contribute a monthly sum to a common pool and every month one person takes the collections to meet every day needs or push personal projects.

A friend is involved in one and after months of operation is wondering why there seems to be no positive progress in his life or the group’s generally.

There are two ways to spend money either you consume it or you invest it. The reason my friend is seeing no progress because its likely that when individual members get their windfall they tend to eat the money rather than invest it.

However this “merry go round” arrangement comes from an important realization that collaboration is required, the execution is where it falls short. 

The members will be best served if they convert themselves into an investment club, which while continuing to save monthly will be much better able to invest meaningful sums at a go.

The critical thing with these groups is the reach of their vision. If the group has  a long term vision it will be better able to weather the inevitable speed bumps that come along, avoid the temptation to descend into an orgy of consumption when meaningful sums have been accumulated and hold the faith of delayed gratification.

The size of the vision will determine the eventual size of the enterprise.

A group I know that started operations eight years ago have been able to grow their investment fifty one fold or showing an average annual return of 63% after tax. They did this while doing nothing spectacular other than lending to themselves and investing surpluses in treasury bills and bonds.

The group which now has savings of about sh2.5b today has properly harnessed the power of compound interest, what Albert Einstein called “the eighth wonder of the world”.

It’s about creating value. During our schooling years we accumulated value in the way of information, which information we have been paid to employ in creating value for the companies we work for.

"Learning how to invest and investing means capturing some of this value for ourselves and may be the most useful use to oneself of all the knowledge that has co me with our schooling and working experience.

UGANDA WAITS WITH BATED BREATHE FOR KENYAN POLLS

 

Uganda waits with bated breath as Kenya goes to the polls tomorrow (Monday). And with good reason.

The last time the Kenyans voted in 2007 they caught us all by surprise with an orgy of bloodletting that official figures show, saw more than 1000 killed and tens of thousands more displaced.

"Some gunboat diplomacy by the George Bush administration brought sanity to east Africa’s largest economy and forced a political settlement, which has managed to keep up appearances thus far...

But just as is the case with most political contests once the leaders shared the spoils there was nary a crumb leftover for the rest. The relatives of the dead have not found justice, thousands continue to be displaced and millions of Kenyans remain traumatised by an event whose explanation continues to elude the chattering classes.

What was clear after the event is that below the veneer of calm and advancement lies deep seated tribal and ethnic grudges that fester and can be taken advantage of by opportunistic politicians.

So no one should be surprised that we look east with apprehension as the Kenyans line up to cast their votes.

Unlike Uganda which fell on the wrong side of the cold war divide and paid for it, Kenya pandered to western capitals, did not disrupt the cozy arrangement colonial capital had set up – in fact the local elite jumped into the trough with both feet, and for most of the 70s and 80s was the one eyed man among the blind.

"The prototypical big men who held sway since independence in 1963 first Jomo Kenyatta and then Daniel arap Moi, who surprised everyone by first succeeding Kenyatta and then hanging on for two decades, made no pretensions at being democrats, dealing ruthlessly with dissent and encouraging crude capital accumulation at the expense of the small man, managed to maintain a semblance of peace, keeping ethnic tensions down to playful barroom banter....

The close of the cold war in the late eighties meant that priorities changed and the “big man” became a expendable ally with the new fad of democracy and economic liberalism. Kenya was forced to open up to multi-party democracy and it has taken some learning to operate under the new arrangement.

Once the political space was opened up the parties that led the fight have since moved on, merged or morphed. Just as at independence the independence movements found they had little ideological ground on which to stand once the colonialists had been shipped out, so too did the Kenyan parties with a regression back to tribal politics as the only way elites could see to create usable alliances for their political advancement.

Kenya’s saving grace is that there are more than a handful of tribes. While the Kikuyu and the Luo are the major tribe by numerical strength, there are enough tribes around to put the brakes on an out-and-out bloodfest like occurred in Rwanda.

However, decades of uneven economic growth means that Kenya has got huge income inequalities, which override transient tribal differences.  Kenya more than its neighbours has real class divides with the poor majority held at bay by a wealthy elite who control the instruments of power and violence.

Recent commentaries have boiled it down to two possible outcomes of this election.

One, that Kenyans still shell shocked from the events of six years ago will exercise restraint, have a peaceful election and move on with their lives. A scenario they argue is realistic given that the key antagonists of last times bloodiest clashes in the rift valley the Kikuyu and the Kalenjin are allied on one side of the contest.

This last thought is where the second group of commentators derive their biggest concern.

That with main contender

"Uhuru Kenyatta and his running mate William Ruto – alleged kingpins in the last post-election violence, with possible indictments by the International Criminal Court hanging over their heads, their desperation to get to state house will know no bounds...

If they lose the election they will have no leverage over a Raila Odinga administration and hence the real fear of being hang out to dry. The international community has already voiced unease at a Uhuru victory.

But if Uhuru and company win the election they would have much more leeway to run rings around the ICC a la Omar Bashir in Sudan.

The stakes are high.

Beyond the national consensus to have a peaceful election, look to the huge commercial interests – international and especially local, to prevail on the situation and nip any hanky panky in the bud.

At least that’s what we all hope.

UGANDA'S VISION 2040 IS HERE

The plan is that by 2040 Uganda will be an upper middle income nation with a per capita income of $9500, a ninteenfold jump from the current $500.

This is contained in the final draft of the National Vision 2040, that the National Planning Authority (NPA) has been working on since 2010.

Assuming that population growth continues at its current rate of just over 3% economic growth will have to average about 15% a year for the next 27 years to meet this ambitious target.

NPA envisages that broken down, this would mean dramatic improvements in poverty levels, a reorientation of the economy towards industry and services and away from agriculture, greater proportion of manufactured exports and a near threefold jump in national savings as a proportion of GDP.

NPA chairman Professor Kisamba Mugerwa thinks it’s doable.

Mugerwa told New Vision editors in a recent visit that opportunities in oil &gas, tourism, mineral development, industrialization and agriculture can be leveraged to deliver the result.

What needs to be done is to strengthen the physical infrastructure, human resource, science and technology and consolidate the current peace and security.

In support of all this there also has to be movement in social development and governance issues.

Of course Uganda Vision 2040 is a road map, the devil is truly in the detail, in the execution of the plan.

“There has to be a society wide mindset change not only at the central government but at every level of leadership,” Mugerwa said.

He explained that the national budget, which is government’s primary tool of execution of development, will derive its strategic direction from the Uganda Vision 2040.

Mugerwa said that there have been only three five-year development plans, with the last being the 1971 plan that was jettisoned by the Amin coup of that year. Since then the government has been undergoing restructuring, rehabilitation and poverty alleviation driven by the donor agenda.

To get anything done your human resource, operational and strategic processes have to be in place.

They say if you don’t know where you are going most likely you will get there.

Vision 2040 provides much needed direction to the country for the next few years and also proposes a framework for bridging our operational and human resource gaps.

We whine about the conditions we live in, complain about the slow pace of progress and grumble that we deserve better, but as some South African investor who plans to commit a few tens of million dollars to this economy said, we are so in the thick of things we cannot see the forest from the trees.

He had been away from Uganda for a decade and was amazed at the pace of development.

And all has happened and continues to happen without an articulated vision that a critical mass of Ugandans have bought into.

Vision 2040 may be linchpin the economy has been waiting for to push the agenda forward.

Progress would mean a greater formalization of the economies and we who are used to the informality of our lives – despite our protests, maybe the very ones who work against the whole vision.

The enterprise called corruption for instance will have to be broken down to allow for forward movement. But one can bet that its proponents will not seat around to be picked off like ducks in a row, they will fight and subvert the process at every turn. The success or failure of this anti-corruption fight will depend on how captive our systems and government are to the champions of corruption.

There is something that happens when a plan is put in place. Attention is generated, resources are focused and yes, miracles happen.

Vision 2040 should be given a chance, because I don’t know about you but for some us this is the only country we have and we daren’t give up on it.