A FEW BILLION TO SPARE? BUILD A MALL!

I try not to go into the Kampala business district. The traffic I can handle, it’s the lack of parking that is the bigger disincentive.

Last week I had to go into Kampala and realised how long ago I had been. Construction is going on at every turn with multi-storey buildings sprouting everywhere you look like weeds.

"The general feeling is that the economy is suffering despite what the official figures say – business is slow, shops are shutting down and property prices have gone in reverse...

It was surprising enough that construction goes on unabated in our city what was even more shocking is what these landlords are building. Malls!

That did not make sense to me. I know other better situated malls, with acres of parking space, larger shop floors and which have not lost their novelty with our fickle Ugandan shopping public, but where business is decidedly slower than a few years ago.

So what is it that these new mall owners know that more seasoned operators don’t?

I can hazard a guess or two.

One, these mall owners like many Ugandans before them are just playing copycat. Because someone else has built a mall and seems to have succeeded, they decided they will build their own too.

Not the best example of market research, but there.

Secondly, I am tempted to think there is a lot of hot money still sloshing around. How does one commit billons of shillings to an industry in decline, if he is really concerned about making a return? 

Ordinarily to build such malls would require millions of dollars in debt. What that means is that if you build your mall and the tenants are not forthcoming you will have to find a way to pay the bank or they take over your monstrosity.

"But on the other hand if you have all those billions in cash, you will have the luxury of waiting out an economic downturn as you have no external obligations. What kind of people have billions of shillings in cash in this economy? Cash, which they are willing to leave locked up in brick and mortar with little hope of adequate return...

The interesting thing with markets is that when there is an economic boom everyone looks like an astute businessman, but as US billionaire investor Warren Buffett says, “Only when the tide goes out do you notice who has been swimming naked”.

And when the economic downturn comes the cash returns to its rightful owners.

One can understand the attraction for storing away money in real estate. On the surface of it, it seems a no brainer. Get your money, put up a building, collect rent and watch the sun go down as you sip coyly on cocktails by the beach.

As many a landlord has found out, it does not quite work that way.

To begin with the returns on real estate are lower than those found in general trade. Secondly, it takes time and money to find the tenants and manage the building in such a way that one can extract maximum value.

The signs are all around. Our mall owners have converted basement parking into shops. They are cutting back on maintenance, leaving the washrooms dirty and stinky or shutting them down all together. Their tenants are leaving them in droves as they rush to reopen in the newest mall.

It was no surprise a few months ago that the epicentre of a typhoid outbreak was one of our malls.

But the mall fad is just part of a larger craze in the economy, which makes you shake your head while wondering “What were they thinking?”

"It seems to be, that the sum total of our market research before we go into business, is to look around at what other people are doing and join the bandwagon...

It could be the intuitive thing to do, but if one was to gather the statistics they may very well mirror the conventional wisdom that only five in a hundred businesses live to see their fifth birthday.

If you have hit a windfall and need to open a business yesterday, I suggest you park your money in a fixed deposit account. Deliver yourself from temptation. Seat down and try and plan how you intend to execute your business and find out whether there is a market for whatever you are bringing to the public.

And it need not be a colourful power point presentation with all the bells and whistles. The idea is that there are things that need to be clarified, that will determine whether your business will survive or not but also determine its long term viability.

"The story’s of entrepreneurs rushing headlong into a business on a hunch and a prayer are nice to listen to. However for every entrepreneur that goes headlong into the business, throwing caution to the wind and survive, there are easily a few hundred who have fallen by the wayside...

It may not sound sexy when you are telling it to your grandkids, but a bit of thought and preparation could go a long way in ensuring you go into the right business and that it survives long enough for you to brag about it to your grandchildren.

As for all those malls littering our streets? Let us talk about them in five year’s time.

OMAR AL BASHIR AND THE QUEST FOR JUSTICE

Last week Sudan President Omar Al-Bashir dodged a bullet.

While in South Africa for an AU summit last week, the high court there barred him from flying out until an application to force Pretoria to arrest him was heard.

This was all in aid of an arrest warrant for alleged crimes against humanity that was issued by the International Criminal Court in 2009.

South African authorities granted immunity to all delegates attending the summit, stalling human rights activists attempts to have him arrested, long enough for him to fly back home on Monday.

"For the rest of us who know how this continent works, we were taken aback that a court could deliver such a ruling, but were never in any doubt that South Africa would not hand Bashir over to the ICC.

It would just have been plain bad manners....

You invite a man into your house and then hand me over to his detractors? Never mind all the high sounding warnings about a drop in South Africa’s standing in the eyes of the international community (read western democracies), it just was never going to happen.

His escape from Pretoria may have been another thumbing of the nose at the ICC, but Bashir knows that he can’t sleep easy.

Earlier this year Kenyan President Uhuru Kenyatta had his case thrown out. Kenyatta and his deputy President William Ruto were charged with being accessories to the post-election violence in Kenya in 2007 where hundreds were killed and thousands displaced.

Which brings us back to the issue of the ICC’s relevance today.

The court’s record in mainly trying African suspects lends it to accusations of bias to the point of racism. Its critics argue that more heinous crimes against humanity have been committed in the Middle East, for instance, than any other house of horrors our blood thirstiest can conjure on the continent.

If that is true, ICC may find it difficult to pick the low hanging fruit on the African continent for a while. If it isn’t true, we can expect that the UN-backed ICC will cast its net further afield and maybe go after human rights abusers in Europe and North America for instance. Good luck!

Away from the geo politics, is the real suffering of people from the Kenyan rift valley to Dafur to  Congo that under the current context are unlikely to see justice for the wrong visited upon them.

It may be convenient to dismiss the ICC as a neo-colonial tool to bring Africa under the thumb of the western capitals, but there are many unresolved issues on this continent which if allowed to fester too long, may force some of our politicians to clamour for their day in court at the Hague, than be lynched locally.

Out political classes actually bring these “embarrassments” upon themselves.

"If we promoted strong judicial and law enforcement agencies no one would want to create extra-territorial institutions to run around policing the world.
But the truth is, the nature of power is that it concentrates rather than diffuses power away from itself. Faceless, impartial institutions are just not convenient...

For the time being it serves their urge to hang on to power to stifle institutional development but in the long run it is bound to boomerang on them, as those same institution, neutered and detoothed, will be impotent to serve them when they will have moved on into civilian life.

The world is changing. With information being transmitted quickly and widely, hanging on to power unjustifiably will become increasingly difficult. Hence the need for more robust institutions that will operate without fear and favour in the service of the country.

The question then has to be what coincidence of circumstances have to come together so that the political elite can see the value of these?

First off it will not happen out of the goodness of their hearts. Our political leaders have to be compelled to nurture these institutions be it at risk to their absolute power. This calls for leadership not only in government but in the opposition and civil society.

Secondly, enough indigenous capital has to be built up that is credible enough to hold our governments accountable. Multibillion dollar multinationals and their agents have little or no interest in rocking the boat if the status quo aids their business. Local businessmen with a long term stake in the economy beyond yearend bonuses are our best bet.

Of course both conditions among others, will take years, even generations to mature fully but without them it’s unlikely that our political leaders will survive the ignominy of being chased around the world because someone else thought they need to be brought to book for crimes they have committed against their own.

KEEPING OUR CHILDREN OUT OF THE TERRORISTS’ CLUTCHES

On Thursday the US officials arrested one Fareed Mumuni on suspicion that he was a terrorist. The 21 year old college student was linked to a plot to cause terror using pressure cooker bombs.

Mumuni, a US citizen, comes from Ghana and his sister is enlisted in the US Navy. Mumuni does not fit the stereo type of the angry black man, averse to authority and prowling his neighbourhood in gangs that prey on defenceless people.

Closer to home, this week the trial of 13 suspects all young men, for the 2010 bombings at Kyadondo Rugby Club and the Ethiopian Village Restaurant continued in the high court in Kampala.

The previous caricatures of terrorists as crazed, bearded men from disadvantaged families with no options in life is fast flying out the window.

In the western world stories are popping up all over the media of the most unlikely youth heading for the Middle East to join the ranks of the Islamic State of Iraq and Syria (ISIS), which is destabilising Syria and Iraq.

Improvements in communication mean recruiters are reaching potential initiates much further away from home.

Which has to be every parent’s nightmare. Your child may be an ordinary person in his everyday life but you have no clue what messages are getting through to him from all the media he is engaging with daily.

These groups recruit teenagers and young adults whose life philosophies are unformed making them gullible and malleable to any message.

"Beyond the promises of a life in paradise pampered by a dozen virgins they are forcefed on a cocktail of hate ideology whose logical conclusion is that it is ok to die for the cause...

When I was a kid our parents’ worst fear is that we would become thieves, in addition parents have these days worry about drugs, sexual deviance and now terrorism.

When I was a kid our parents warned us against talking to strangers, but the main fear was of strangers we came face-to-face with. Parents today continue to warn against talking to strangers but now strangers with perverse motives need not be in your physical presence.

And when I was a kid our parents were the main reference point of what constituted acceptable behaviour. But now parents have to worry about the effect of role models like Ben 10, The Amazing Spiderman, Kim Kardashian and even Jack Bauer as the standard of behaviour their children choose to adopt.

It is a brave new world.

"It doesn’t take much effort to conceive a kid but it takes a village to raise it. Unfortunately we have retreated behind high walls, into gated compounds and held hostage by smartphones.  We are no longer our brothers’ nor his, children’s keeper. But the children still have to grow up and they are doing it the best way the can with the available influences around them, not all wholesome and predictive of a bright future...

So these young men before the high court reflect a failure by our society.

A failure to spare time to impart values that would insulate them from crack pot philosophies. A failure in our exposing them to images that glorify, romanticise and sanitise violence. And failure in our refusal to recognise that the world is a different place from one we grew up in and that we need to be more involved in our children’s upbringing.

A parent’s work is never done.

WE HAVE COME A LONG WAY

This year’s budget speech was particularly hard to cover.

Under the recently passed Public Finance Management Act the budget should be passed by the end of May, that means since March the details have been thrashed out in public with all the details open to the public.

However this was a logical conclusion to a process that started a few years ago when documents like budget framework were released into the public months before the budget reading in June. The budget framework paper has the broad outline of how government intends to spend the money it has raised through taxes and borrowing.

With government no longer in control of general prices the only surprises used to be the new tax measures.

But this year all these had already been discussed so there really no surprises in Matia Kasaija’s budget.

Up to last year finance ministry officials held on to the budget speech up to the last moment like their lives depended on it (their livelihoods probably did).

So in trying to generate stories we had to go back into the past for comparison purposes. Sadly we have not been good at archiving our records digitally so it was a struggle but there still remain hard copies of the background to the budget of 1986.

"In 1986 it is clear that there was no money. The economy was in the toilet a combination of the Idi Amin legacy and an ongoing civil war that was bleeding the state dry...

In the 1986/87 budget total government expenditure was sh11b or about $785m at the prevailing official US dollar exchange rate of sh14. At current prices the budget would have been about sh2.4trillion or a tenth of our present day budget.

Probably less because the official dollar rate was not an accurate representation of the true picture. Unfortunately I could not find any figures of the unofficial (kibanda) market rate.

Interestingly in that budget donor support for the budget came in at a mere eight percent. This figure would jump to as high as 64 percent in 1991/92 before tapering off to the current 24 percent.

The story is not new. So to raise revenue the government had to kick start the private sector into action so they could collect more taxes but in the meantime they needed to cozy up to the donor community to finance the transition to a private sector led economy.

At the tail end of the cold war you could fall in with the IMF and World Bank, whose recommendation it was to liberalise markets, privatise state companies and work towards macroeconomic stability or pump more money into the public sector (which money?), maintain central control of the economy and hope for the best.

We toyed with the latter but quickly realised that our best bet was to unlock the energies of the private sector to ensure long term sustainable growth.

The costs of course came in the form of the restructuring, shut down or sell off of the old parastatals the pain being felt most by the retrenched workers and their families.

"At the time Nile Breweries was repossessed by the Madhvani family, beer trickled out of their Njeru plant at the rate of 2,000 crates a month. Now the brewery churns out about two million crates a month. It’s not the ideal example but illustrates the efficiencies that have been unleashed with private ownership...

With our efforts to unlock the economy came donor funding that jump started the reconstruction and rehabilitation of key infrastructure needed by businessmen.

What would have happened if we had chosen to thumb our noses at the western donors and pandered to the old communist east. For starters in three years we would have been well and truly up the river without a paddle, because in 1989 the Berlin wall came down symbolising the end of the communist world of the cold war era.

We would have to have found ourselves back into the liberal economies’ fold eventually. But we would have wasted valuable time.

"But whereas we have done  a better than average job at rehabilitating our physical infrastructure there is an urgent need now to get our soft infrastructure – laws and  institutions, to work for the benefit of the private individual and private sector...

This is necessary because the gains of the last 30 years have been concentrated among a small elite. 

An improved institutional framework will ensure the love is spread out more evenly through the reduction of corruption and greater efficiency in service delivery by our public servants.

We have come a long way but there is still a long way to go.

WE ARE POOR NOT FOR LACK OF MONEY

Social media has been awash with images of the house that Hamis Kiggundu has built on the shores of Lake Victoria.

It’s a huge, stately house with high ceilings, a sweeping staircase, chandeliers and complete with swimming pool and marina. Reports say the palatial mansion has 25 bed rooms, while experts estimate that with a living space of more than 1,000 square meters, the build must have cost at least $1m (sh3b).

Reactions have been mixed.

Some people envy the 31 year old owner’s good fortune at being able to build himself such a fantastic residence. Others wonder what the point is of such opulence, question the source of his funds while others are left gobsmacked, shaking their heads in befuddlement at the spectacle.

For those who dismiss it as conspicuous display of wealth, one cannot help but detect a certain amount of sour grapping. They probably have never been exposed to such luxury, they cannot conceive being enveloped by it, they probably break into a cold sweat at the thought of it.

For those who are enthralled by the marvel they probably wish it was they who owned it, lived in it and enjoyed it. They probably returned to their prayers, their intensity heightened by visions of the house that Ham built.

To each one his own.

"Not to begrudge the young man his money, but his home is symbolic of a lot that is wrong with this country...

As a country, and people, we are not poor for lack of resources but because we misallocate our vast resources.

We are continually seduced by short term gains over the long term sustainability. We are quick to copy others even if we do not understand the rationale of their actions. And we are always on the look out for the one big deal that will set us on easy street, application and diligent work are to be avoided at all costs.

There are only two ways of spending money one, by eating or consuming it or by investing it.

If expenditure is slanted towards the former rather than the latter, poverty is eventually guaranteed, regardless of how well one lives currently.

If on the other hand one invests, allocates money to activities with a good chance of receiving a return one can expect a life of ease over the long term as the investments begin to pay off and spawn other investments, which in turn throw off even more cash.

Why it is so difficult to invest rather than consume, is that investment requires faith, belief in a future benefit that is not guaranteed, while consuming now guarantees immediate gratification.

People who have built wealth sustainably over years, decades, even generations are men and women of great faith, never mind that they might not subscribe to your favourite pastor.

As human beings we are not designed to think long term. Our attention spans, unless trained otherwise, are unable to concentrate for long periods of time live alone project into the distant future.

The downside of this is that we tend to overestimate what can be achieved in one year and underestimate what can be achieved over ten years.

Whereas this a human condition and not unique to Ugandans, it is the attitude that glorifies those among us of questionable wealth over those who put in an honest day’s work at their jobs or businesses day in, day out over years.

It is this kind of thinking that makes us envy Kigundu, that he has made his money – never mind how, while he is young enough to “enjoy” it, by that we mean that he can now “eat” his money presumably finish it before he is dead.

Judging by his mansion Kigundu seems to have fallen for this way of thinking.

"It is not only that the mansion is too big for the needs of any one man, it is that all those billions of shillings have been tied down in concrete, steel and glass, monies which would have been released into the economy to generate more economic activity. As if that is not enough you have to take into account the millions that will be spent in upkeep and maintaining of the property annually....

But Kiggundu is probably better than the rest of us who have dotted the countryside with country homes that they barely spend a week in all year, but which cost millions to put up.

At least Kigundu will live in his castle by the lake.

ZIMBABWE: HOW TO RUN AN ECONOMY INTO THE GROUND!

(This article was published in May 2014 only got around to uploading it now!!! prompted by this article which boosts my soothsaying credentials)

In case you missed it Zimbabwe is in danger of falling into a recession, a situation when economic output declines and the economy contracts for two consecutive quarters.

You have to feel for the people of Zimbabwe.

The economy was just beginning to grow again after eight years of contraction and bringing their hyperinflation under control. I don’t think Hyperinflation describes what Zimbabwe went through. It is estimated that inflation peaked at 500 billion percent in 2008. This means that average prices in the once food basket of southern African were rising at least 150 times a second!

"So between the time you punched the amount you require from your ATM and the money actually being spat out it would have become literally worthless...

It comes as no surprise that in the darkest days of the Zimbabwe economy the largest denomination note was for the Z$100,000,000,000,000 or a hundred trillion Zimbabwe dollars – that is 14 zeros for you!

The situation got so bad that the country was forced to abandon the Zimbabwe dollar and adopted a basket of currencies including the South African Rand, US dollar and Chinese Yuan as legal tender in the country, which was ironic because President Robert Mugabe always want to make out as the bastion of anti-colonial resistance.

Well using other people’s currencies to run ones economy is the ultimate capitulation to the “colonialists” and their evil schemes to take over your economy.

So how did a revolutionary leader sell his country down the river like this? How did a once vibrant agricultural and industrial economy come to this?

Mugabe came to power at the head of a struggle for majority rule in Zimbabwe. The grievances of the people were the usual clamour for the right to self-determination and a need to redress wealth inequalities, which meant mainly land redistribution.

With black self rule in the bag came the sticky issue of land redistribution. Sticky because the white owners had raised the productivity of the land to the highest probably on the continent and it would not do to destabilise that part of the economy.

As often happens early land distribution was hijacked by the “revolutionary” which meant the majority still had little or no access to land while a new class of black middle class or super rich emerged.

So the white farmers went on with their business while for the new black nouveau rich life had never been better and the black everyday man wondered whether what they had signed up to by supporting the “revolutionaries” as their collective lot had not improved, and in many cases even deteriorated since 1980.

Fast forward to 2000 and the government decided to give tacit approval to the landless to forcefully takeover the commercial farms of the white farmers.

In Uganda we need no explanation to what came next. The blacks unable to sustain the commercial concerns – I don’t think they even tried, regressed into subsistence farming and that was the end of Zimbabwe as a net exporter of food.

Lowered productivity affected tax collections and donor inflows forcing government to print money to sustain itself and meet its obligations – a clear recipe for inflation. Inflation happens when there is too much money – government money printing presses were working overtime, chasing too few goods – production had collapsed.

"So to redress the issue the revolutionaries had to swallow their vomit, ditch their currency and adopt foreign currencies, as this column had predicted they would in 2008 ( we take no credit for that, it was the inevitable conclusion to Harare’s total disregard for basic supply-demand economics)...

This had two immediate effects one, it meant inflation had to drop because Harare could not print the foreign currencies even if it wanted to but the other consequence was that it became harder and harder to find the money to make critical imports of medicine, fuel, plant and machinery needed to jumpstart the economy after all exports had collapsed.

Which brings us to the current threat of recession.

How does Zimbabwe punch its way out of this downward economic spiral?

For beginners the politicians need to put a lid on this uncalled for talk of indeginisation of foreign companies. There is a strong case for increasing the equity holding in these immensely profitable companies but there are structured ways that this can be achieved without affecting the long term economics of the company. Of course seeing how the government treated the white farmers capital is not going to wait around to see how Mugabe and his cronies will go about redistributing these company stakes. The proof of this is that factories are closing.

Zimbabwe needs to produce and export to earn the foreign currency that will jump start the economy.

Zimbabwe is a 21^st century test case of what happens when bad politicians come up against the economy. We should take heed!

WHAT WE NEED IS A STRONG VENTURE CAPITAL INDUSTRY

It gets a bit confusing.

The official statistics show the economy remains on a growth path, but on the ground business is slow, shops are shutting down and the real estate bubble is suffering a slow puncture.

"Clearly the overall economic picture is good, but not for everybody. It could mean either the economy is sputtering to a halt or is winding up for the great leap forward....

I choose to believe it’s the latter rather than the former.

One, because this is the only country I have and it would better if it worked and two, because the government is clearly committed to making the key investments in physical infrastructure that will power the economy to the next level.

On that second point however you can have all the infrastructure in place and nothing happens. It’s not automatic that because you have power that economic growth will ensue. The Bujagali dam is currently operating at an average of 65 percent of its capacity because demand for power is not uniformly higher.

As an economy one of our key challenges in ensuring sustainable economic growth, driven by the private sector and not on the steroids of government spending, is that while we have a lot of start-ups they don’t last for a combination of reasons, but most especially for lack of support from the environment.

Foreign Direct Investment is all very nice, but as along as indigenous capital is not given a chance to rise and thrive, the trickledown effect will always be a pipe dream.

People are coming to this realisation and a rethink of the liberal economic policies of the last two decades have been mooted. The suggestion is that we should bring back the parastatals, God forbid!

At the heart of their thinking is that government companies can be used to force lending rates down, channel cheap finance to businesses and invest in things like a national airline, which the private sector has failed to do.

The people pushing this agenda have either been seduced by the TGE (Tushabe gavumenti etuyambe) mantra or see these entities as easy ways to get jobs and contracts having failed to match up in the private sector or both.

If there has to be government intervention this intervention should come in bridging the gaps in the financial sector that will lend much needed support to Small and Medium sized Enterprises (SMEs).

As it is now we only have commercial banks, with their extortionist lending rates. In other economies in addition there are venture capitalists, private equity companies and any number agencies to help small businesses transition into bigger companies.

It’s important that small businesses are supported because you can’t have big businesses without first having small businesses. All big businesses started as small businesses.

Uganda Development Bank (UDB) is good. There is even a place for Uganda Development Corporation (UDC). But if government is really serious it needs to invest in the venture capital industry. And I am not talking about running out and starting a state venture capital fund but investing in creating the infrastructure – policy, regulatory and human resource, to support the industry.

Venture capitalists (VCs) not only provide the high risk capital to support start-up businesses but also hold the small companies’ hand in its transition to a bigger company.

Our commercial banks are not geared to provide this service. VCs mostly provide equity funds rather than loans, this means they only get paid when the business becomes profitable or is sold. VCs because they are intimately engaged and familiar with the business have an interest in seeing it succeed so not only will they pony up more funds during the company’s stages of development but will also provide technical assistance to ensure the company survives.

Commercial banks on the other hand need you to service your debt regardless of whether you are profitable or not.

Because even in the best of economies only about one in ten companies survive to see their fifth birthday, VC take on huge risk that commercial banks cannot justify to their investors. If VCs are competent the one company that comes good will pay for all the losses they took with the other companies.

Even in this industry governments are not the best promoters – I can just see billions of shillings going to relatives and connected people with nothing to show for it at the end of the day. But laying down the necessary infrastructure and even some small time attempt by a desk in UDB, maybe what is needed to set the private sector on to this potentially lucrative industry.

"As it is now Ugandans might be the most entrepreneurial people in the world, which they are, but the sink or swim environment in which the operate means that we are wasting this at a criminal rate considering the urgent developmental needs of this country...

So yes government needs to step in to grow indigenous capital but not by starting more parastatals.