CHINESE SHARES, GREXIT AND THE SHILLING

The sky has been about to fall on our heads for weeks, if the western media is to believed.

After missing deadline after deadline, a Sunday summit Brussels will finally determine whether Greece is booted out of Europe or not.

The small Mediterranean nation has racked up massive debts – upto $330b or about three times the size of its economy, that it cannot repay. In a referendum on Sunday the Greeks rejected an expired proposal offered by the lenders. It’s a catch 22 situation for the Greeks who, do not want to leave the Eurozone but do not want to pay the price to stay in – lowering government spending and raising taxes.

Europe faces a similar dilemma. They would love to be rid of the Greeks, but Greek exit (Grexit) may create a dangerous precedent that may tempt other Euro members struggling on the periphery to leave and unravel the whole European Union project.

"But half way around the world, with not as much ink spent on it as it deserves, China’s stock markets are collapsing around investors’ ears. Since the middle of June they have seen $3.25 trillion wiped off their companies’ value. This the equivalent of three times size of the African economy or the size of the UK’s economy...

For a while now Chinese retail share traders have been buying shares on credit, leading to an over valuation of the country’s markets. Recent news that China’s economy has slowed down was enough to burst the bubble.

Plummeting capital markets often signal problems in the economy.  China’s growing economy drove the rise in commodity prices to record highs. Its dwindling fortunes has slowed down its demand for world commodities, reflected in the collapse in the prices of oil, iron ore and copper among others. 

This is not good for African economies, which have their biggest exports as raw materials.

But right here at home the shilling dropped to sh3,500 to the dollar for the first time. A combination of lower export receipts, reduced investment to the oil sector and peak of the dividend remittance by foreign companies has been at the heart of this latest plunge by the shilling.

The three events are related by one truth: when the laws of supply and demand are against you it is a matter of time before the market heads south.

Greece joined the Eurozone and contracted a lot of cheap debt that was hidden off the books and did not go to the building of economic generating projects, the EU motivated by politics rather than good economic sense, bailed out the Greeks several times but this only served to prevent the Greeks living up to the consequences of their extravagance.

When the markets started to buckle in China, a country with as much as $4 trillion in reserves, the most of any single country, tried to support them. But the harder they tried, the harder the market fell.

"And of course back home calls to support the shilling, the well-worn knee jerk reaction to depreciation were swatted away by governor Emmanuel Tumusiime Mutebile this week and rightly so. If we want a strong shilling we need to produce more and export more. For far too long we have pigged out on donor money and while the going was good we put little emphasis on developing our exports and diversifying our markets...

By the way a stronger shilling would be detrimental to our exports.

Given the example of China, the world’s second largest economy, of developed-country-soon-to-be third world country, Greece and poor little us, Uganda, the lesson is clear for everyone to see – don’t mess with the market.

BUSINESS LESSONS FROM BUILDING A SACCO

Last month the New Vision Staff Savings & Credit Cooperative hit the billion shilling mark in net worth – the difference between assets and liabilities.

This is also the year that the Coop turned ten. During the last decade a lot of lessons have been learnt about business during the building of the coop, which it is hoped has another millennia or so ahead of itself.

1.       Start where you are

There had been attempts to start a savings scheme for staff for years but it finally took off in 2005, with 26 (not 27 members). There was nothing to start with apart from an idea, the integrity of the founding members and the indulgence of the New Vision company. Clearly it was an idea whose time had come because the record shows that by the end of that year more than 100 people had signed up.

2.       Be clear about your objectives

From day one the objectives of the Coop have been clear. In decreasing order of importance, to help members save, to provide below market rate credit and to provide an investment vehicle for them. Everything the Coop did was with this in mind. This clarity of purpose has kept the Coop focussed and growing by prodigious amounts annually.

3.       Keep your costs low. Make your money make money

US billionaire investor Warren Buffett says it is red flag for him if he hears management announcing they are cost cutting. What have they been doing before he asks, cost cutting is like breathing you shouldn’t think about doing it you do it all the time.  The coop's major costs go towards interest payments to members and not to pampering an entitled administration or bad loans or losses from Hail Mary investments.

The Coop has invested mostly in government paper which revenue stream is growing every year as the stock of these investments grow.

4.       Collect what is due to you

The Coop’s major revenue stream is interest on member loans, which accounts for eight in every ten shillings the Coop earns. Thankfully we deduct at source so we collect most money due to us. However not everyone is willing to pay, for some strange reason they think monies owed the Coop will be forgotten. So with much discomfort debt collectors were contracted in the last few years to chase down these members who have chosen to abuse our hospitality. The results have been to the Coop’s satisfaction. They say profit is an opinion but cash is fact. One can be posting impressive profits year in, year out, but without cash even the most profitable company will sink.

5.       Don’t get excited

In the first year the Coop closed with sh33m in cash on its account. At the start of the enterprise to imagine that such amounts will be seating around earning anaemic returns from the banks was inconceivable. The temptation to go into speculative endeavours may have arisen but a clarity of mission helped to keep the Coop off the crooked path.  I remember a talk once where the speaker said that if even a million shillings fell from the sky it would discombobulate most people to the point of sweating.

6.       Take care of the customers and the money will follow

It sounds like a cliché but by working to keep the processes uncluttered with too much red tape and complexity the Coop has grown from strength to strength. It is true what they say,  if you want to get rich serve more and more people. Thankfully the coop is member owned so returns accrue to the members in terms of interest and capital appreciation so there are multiple benefits for the Coop’s members. And you can achieve win-win when measured against all the conventional business metrics of success. Last year the Coop showed a net profit margin of 57 percent and return on equity of 40 percent.

Understandably the Coop has social objectives, which mean it does not run with the sole intention of maximising profit otherwise they would charging extortionist lending rates while paying out a pittance in interest on savings.

But probably the final lesson will be that everything takes time. To get to a net of a billion shillings it has taken a decade of systematic and consistent practice, repeated with uncompromising diligence.

There are no short cuts you have to put in the time before you can drive the monster truck or holiday in the Bahamas. If you have not put in the time and are partying already rest assured doom is stalking your every footstep.

JOSTLING FOR POSITION AHEAD OF 2016

The race for the presidency arguably begun with the NRM Parliamentary caucus resolution last year that President’s Yoweri Museveni should be the party’s flag bearer going into next year’s polls.

In the last few days the tempratures have decidedly heated up as former Prime minister Amama Mbabazi made his long awaited announcement that he would be seeking to be his party’s presidential flag bearer.

The Mbabazi announcement and the NRM’s reaction to it, have arguably taken out the steam from a proposed coalition of the opposition.

But in this last week perennial presidential hopeful Kiiza Besigye had a change of heart and picked his nomination forms to represent his party the Forum for Democratic Change (FDC) and James Akena wrestled the leadership of the Uganda People’s Congress from Olara Otunnu, effectively confirming he will be running for the topmost office in the land in 2016.

The Democratic Party (DP) president Norbert Mao indicated he would like to be his party’s champion again.

"Understandably all eyes or on the NRM, not only because of Mbabzi audacious grab for the top seat, but also because they remain the dominant political force in the country and able to determine the texture of the run up to 2016...

In the run up to the elections some or all of these questions have to be answered to give the electorate more clarity.

1.       WHO WILL LEAD THE NRM INTO BATTLE?

Mbabazi is causing some discomfort in NRM circles but insiders, despite their loud protestations in public, are unsurprised. His choice to rival Museveni as the party’s candidate means, whichever way it turns out after the National Conference sometime in September, they will be on opposite sides of this contest. The odds are stacked heavily in Museveni’s favour to lead his party yet again. The perception has been that Mbabazi, despite him not being wont to press the flesh and mix it with the masses,  wields a lot of influence thanks to his long stay at the top of the political pecking order. Whether he can leverage this to mount a credible campaign is not a forgone conclusion.

2.       WHO WILL BE THE OPPOSITION’S CHAMPION?

Prior to Mbabazi’s announcement taking the wind out of their sails the opposition announced it was working on fielding a single candidate. We have heard this before. Previous attempts at a coalition have come up empty handed as the individual ambitions, mutual distrust and a lack of coherent structure and plan got in the way. There is no indication that these stumbling blocks have been overcome. The unlikelihood of an opposition coalition there is the matter of a possible joining of the opposition by Mbabazi.

3.     WILL THE NRM BE READY TO DO BATTLE AGAIN?

It is not clear that the fallout from the last elections have been smoothed over. Before the last election candidates who had lost their bid to be the NRM’s flag bearer at parliamentary level, run as independents many of them beating the official candidate. They swelled the numbers of the independents in the house and have over the last five year ingratiated themselves with the Movement. 

In order to prevent a repeat the NRM amended its constitution to ensure this does not happen again. So the tempratures in the primaries to be decidedly hotter than in any other previous contest. Whether the NRM can recover from the ensuing fissures among its people and run a characteristically strong campaign yet again will be interesting to see.

As the days go by more questions may arise as the dynamics inside outside the NRM shift. It is still early days alliances are being mooted, crafted and tested, regardless there are interesting times ahead, over the next few months.

THE YOUTH LIVELIHOOD PROGRAM, AN INTERESTING CONCEPT

He was going to set me straight. Make me see the error of my ways. Pius Bigirmana, the permanent secrteray in the gender ministry.

The point of contention was an article I wrote last week which in his words, “mixed the sheep with the goats.”

The offending article was on report by Makerere University’s Economic Policy Research Centre (EPRC) on the Youth Venture Capital Fund (UVCF). The sum total of EPRC’s report was that UVCF had fallen short of expected outcomes of loan disbursals and job creation. I referred to the Youth Livelihood Programme (YLP) in passing but continued to write as if the ills that had befallen the UVCF were shared by the YLP.

My apology was brushed aside as Bigirimana set upon setting the record straight.

The UVCF is managed by the finance ministry while the YLP is managed by the gender ministry. And that is not the only difference. UVCF was supposed to lend money to young entrepreneurs through the commercial banks. Unfortunately, while not included in the original design, collateral requirements appeared and one year grace period disappeared. Invariably the majority of youth failed to qualify or cope.

"The YLP on the other hand offers interest free loans – at least for the first year, requires no collateral and is guaranteed by groups of the entrepreneurs....

It did not take me long to see the error of my ways.

But I was not going down quietly.

Isn’t this just another program that will go the way of other programs like the Entandikwa with money dispensed and little to nothing achieved, I asked.

“There is a difference,” he did not thunder. “There is conceptual clarity about the program and this shared by the implementers and the youth groups we are working with. Secondly there is inclusiveness and ownership. The youth are involved in the design, approval, implementation and monitoring of the projects.”

Besides he said, the project is demand driven. It provides financial support, skill development and is institutionally backed.

And finally Bigirimana said, there is passion. But surely you can design passion into a project. “No you cannot. But when you sentisize the people and they see the benefits, they defend it passionately.”

More than sh250b has been budgeted for the project over five years, sh54b has already been disbursed since January last year and an additional sh35b is planned for this year. Is this enough to reach all the country’s youth?

“We require substantially more resources. In Wakiso 400 groups applied but we had only enough resources for 120 groups and the pattern is replicated around the country.”

It’s too early in the project but how do you measure success at this point. “So far sh516m has been repaid out of the sh38b disbursed.”

I clearly looked unimpressed because he continued, “This loans are for three years and are interest free in the first year after that an interest payment of 5 percent is imposed. It’s a revolving fund so repayment is good so it can be ploughed back into the fund.”

Bigirimana thought defaults would be low because groups guarantee the loan and it’s in the interest of the whole group that they have a good credit rating.

"They also have surpassed their expectations in disbursement of funds. They initially planned to reach 50,000 beneficiaries by the end of June but are now servicing 71,866...

I pulled out my ace in the hole. So how do you respond to criticism that the beneficiaries are slanted towards one political side over another?

He did not miss a beat. “This program has no religion, no tribe, no political side because beneficiary selection is not based on this.” In fact he added, that if he as the accounting officer of the ministry heard of such shenanigans he would veto a decision to deny or approve an application.

He had to run – literally, they have “health run” on Friday evenings at the ministry and he is involved.

The program was officially launched in January 2014 has 5,507 beneficiary groups in all the 112 districts of Uganda. Just under half the sh38b disbursed has gone to agricultural projects, a quarter to trade and the rest distributed in service, vocational skills, ICT and agro-forestry among other projects.

Given the programs design it can go on into perpetuity.

"I am always suspicious of government interventions in the private sector. Governments by their nature are geared towards celebrating inputs but pay little attention to the out puts. The private sector thinks in diametrically opposite terms....

With YLP it’s hard to argue against the design of the project and the early successes. It is too soon to declare the YLP a roaring success but clearly progress has been made.

IS OUR SOCIETY IRREDEEMABLY CORRPT?

This was yet another week in which corruption dominated our headlines.

Uganda National Road Authority (UNRA)’s Allen Kagina took a slasher to the organisation’s hierarchy, sacking some, encouraging others not to seek contract renewal and causing soul searching in the authority, which had become the byword for the worst excesses of corruption in this country’s history.

UNRA’s woes came to a head last year, with the explosive revelations about the Mukono-Katosi road project, a plot gone wrong which nevertheless was crafted with such ingenuity, audacity and gluttony, it left the general public gasping for air.

So brilliant was the plan that getting to the bottom of the scam was not unlike chasing ghosts in panama hats and, while UNRA Officials may have been complicit, you get the feeling the real masterminds still walk among us....

Then there was the back-and-forth between Justice John Keitirima and Kampala lawyer Bob Kasango about the little matter of sh15.4b, that may or may not have been awarded irregularly or illegally, in a past court case and how the spoils of these monies should have been divvied up.

Apart from the details of this or that case the true cost of corruption is really not appreciated.

Governments which work in the service of their citizens work to generate economic activity, this activity is taxed and it’s with this money that government provides public goods – security and infrastructure and social services – education and health.

Ideally these government interventions are meant to create an enabling environment for more and more economic activity to be generated, but also to give a leg up to the least of our brothers so they can climb up the ladder of society to improve their general wellbeing.

However this neat progression can come unstuck if, the government of the day is woefully incompetent or is riddled with corruption.

It is obvious. Corruption concentrates resources in a few hands to the detriment of the majority.

The “gentleman” who helps himself to a few billions from the public coffers to buy his wife a four wheel drive vehicle, holiday in the Bahamas and live in the lap of luxury, denies thousands of patients lifesaving medicine, lowers farm gate prices as transporters traumatised by bad roads drive a hard bargain and means the quality of our basic education is compromised for lack of blackboards, benches or even a roof over the classroom.

"The outcome of this one gentleman’s avarice has a ripple effect through society and down history more than he could have appreciated when his grubby fingers signed off the money...

But beyond the physical consequences there is the moral degradation of the general society.

It shows itself first in the individuals who no longer even deny they have taken the money.

Their moral fibre is so tattered that we have heard them, in their defence argue, that there are bigger thieves and why are we going after them, that the money landed in the account by some divine providence or that they deserve it because of the sacrifice they have made to country.

And then their immediate families and society around them.

We celebrate when our relatives “eat big” -- appointed to a higher position. We gleefully jump into his brand new car, invite ourselves to his new mansion or are let out a large cheer in the bar when he covers our bills. Even if we have this niggling feeling in the back of our mind that the mathematics does not add up.

The long and short of it is that there is no social censure of corrupt behaviour in our country. Without social censure there really is no hope.

"Our feelings about corruption need to fall to the level of the disgust we feel when a 44 year old father defiles his five month daughter or the dismay we feel when a nine year old is crashed to death in boda boda accident or the shame we feel when grown women feel it necessary to strip in protest over the injustice that allows their land to be stolen from under their noses, that is when there will be hope...

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.