MPS FREEBIE AN OMEN OF DOOM

Last week some of our MPs headed stateside for the annual Uganda North America Association (UNAA) convention. While there they indulged in some sightseeing and the now mandatory selfies.

Of course us mere mortals back home struggling to not only make an honest shilling but to stretch it too, were understandably infuriated by this show of conspicuous consumption.

It was reported that all the costs coming to about sh2b for the six day trip, were being footed by parliament, despite loud protestations to the contrary.

"But just to put this in perspective the sh2b the MPs blew on their jaunt across the Atlantic would have been enough to treat 41,492 inpatients at Mulago hospital or 5 million out patients at the same facility. This comparison will replicate itself whether you are talking about building classrooms or health centers or constructing feeder roads...

Pause a moment and let that sink in for a moment.

In effect this means that a handful of MPs – relative to the total population of the country, for a weeklong trip consumed the funds required to cover Mulago’s outpatient budget for six years? And for what? For a convention of questionable value to national development, characterised more by merry making than any constructive deliberation?

Only in Uganda!

Imagine the scenario in a remote homestead somewhere in rural Uganda where the children’s school fees Is due, the granary is empty and there is a disturbing bug running through the family that requires urgent medical attention. Imagine further that the planting season is coming and seed has to be bought, labour contracted to ensure work is done in the fields. With these myriad of emergenices at hand imagine the head of the family then takes a trip to Kampala to cool off from the domestic pressures, patronises some of our choicest night spots and even tries his had at roulette wheel in one or two or even three of our local casinos. As if that is not enough he finds the time to send selfies back to his hunger racked, disease ridden, hopeless family rubbing their runny noses in the good time he is having in the big city.

You can’t simplify it any more in trying to analogise what parliament has done to us hapless tax payers.

It boggles the mind.

And the even bigger scandal is that they shall get away with it. No one, least of all themselves will hold them accountable. It is true what they say, we get the leaders we deserve.

Clearly these honourable men and women are not our servants sent to front our aspirations and champion our causes. We should disabuse ourselves of the notion.

"The reality is that our political elite are there to gorge themselves at the trough of tax payers money and the rest be damned. Did I hear that they now want their car allowance to be raised to sh200m from the earlier sh150m and don’t want the tax man sniffing around this taxable allowance?...

We have said it before in this column but it is something that bares repeating, we are poor not for lack of resources but because one, we don’t know how to mobilise the resources we already have and even if we manage to put together a few coins the allocation of those funds is dubious at best and downright criminal at worst.

The road to wealth for country or individual is quite simple, one only needs to shift expenditure towards investment and away from consumption. A simple plan but not easy to implement, because our base instincts – sloth, greed, envy, lust and hubris make it hard to stick to this formula.

A sign of personal discipline is to be able to override these tendencies, delay gratification and plan for the long term.  This is even more important for a country.

Also with the deluge of dollars that is expected with oil production within a decade, we can only expect this kind of nauseating extravagance to increase rather than the opposite. They say that money does not make one a better or worse person but only magnifies what they already are. So things will only get worse before they ever get better.

These are our leaders, the cream of our society, if this is how they decide matters of national importance it hurts the head to imagine how the rest of us, who follow them like lemmings, will behave.

"When you have a political elite who are hell bent on living for today without a care for tomorrow, does it take a prophet to fortell where we are heading?...

Clearly this parliament, not only because of the sheer amorphousness of it, is surplus to our requirements.

OUR YOUTH HAVE SMELT THE COFFEE, ITS NOT BREWED IN THE OFFICE

A survey of youth opinion on their future prospects and that was of the country was heartening and sad at the same time but there was more scope for optimism than gloom generally.

The survey carried out by the East African  Institute of the Aga Khan University had many findings but the ones which struck a chord were that 48 percent or just under half the respondents would opt for going into business over the more traditional corporate careers.

Hazarding a guess this probably points to the fact that when they look around the people with the lifestyles they aspire, but most especially on TV, are businessmen. It helps of course that they live in one of the most entrepreneurial countries in the world, where everyone around them, including the regular office worker has a side business of one sort or the other.

"It is also the right way to be thinking in a world where job security is becoming more tenuous. The industrial age modes of production which allowed one to have a job for life and enjoy a steady pension in retirement are long dead and buried. Whether that is a good thing or not is neither here nor there, that is just the way things are...

The speed of change now, powered by increasingly quicker communications means companies cannot remain static, but have been forced to react to the market at a moment’s notice or become road kill.

In responding to the market, companies are having to rejig everything from strategy, to processes to human resource. The pressure to keep a job will be higher going into the future, as workers and work forces will have to be in constant state of re-education to keep up with all the changes around us.

And even when you have re-educated, as a unit of production, company owners will have to weigh the benefit of your experience against hiring younger and cheaper workers who know how to manipulate computers, whose processing power has rendered your experience redundant.

As if that is not enough companies are needing fewer and fewer workers to do the same or more work than before. Can you imagine there used to be a pool of secretaries in companies?

"Relatedly it makes sense that the youth would opt for business. In the world they are exposed to, through the media they consume, there is a lot to see, a lot to experience and being tied down to a desk nine-to-five would cramp their style...

All these are within the realm of reality for them given how much value can now be created in the market using the ever advancing ICT opportunities. They not only have a need for speed they are already operating at a higher frequency.

And the nature of business they are looking at are very different from what has been held to be business. Vertical integration, where companies won the whole value chain from production, to manufacturing, to marketing and distribution. They will aim to own one part of the value chain and outsource the rest.

Sporting goods company, Nike, was ahead of its term with this model, outsourcing all the manufacturing and retaining only the design and marketing of their shoes and gear.

They are not looking to won huge cumbersome structures with many moving parts, but will choose lithe and lean operations that can shift quickly in response to the market or can be wound up all together with the minimum of fuss.

The darker side of the survey suggests that the youth have integrity issues. Fifty six percent of them say it doesn’t matter how they make money as long as they are not caught stealing.

That of course is a function of the society in which they live in.

"They see their elders building inexplicable wealth and flaunting it unashamedly with society celebrating rather than shirking them. The message is clearly that the end justifies the means...

But they would be best advised to disabuse themselves of that concept especially if they are going into business.

Due to the rapid changes in technology more and more it is becoming important to be an ethical operator. A disaffected customer, worker or partner can with a few key strokes cause and untold damage to your business that may lead to its eventual windup if you haven’t build enough goodwill in the community the business operates in.

But they will learn that fast enough.

What government and the general society need to do to keep this fire alive is remain open to improving technologies, fast track entrepreneurship programs for everybody not only the youth and keep improving the ease of doing business in the country.

THE BAILOUT LIST IS A HOAX -- BITATURE

(This is an interview that was run in the New Vision last month following the publication of a list of businesses seeking a bailout from government. The businessmen allegedly were arguing that the poor state of the economy was driving them under and to save their investments, jobs created etc government needed to come in to save the situation)

There has been much public outcry about a planned bailout by government of stressed business. Private Sector Foundation Uganda chairman in a recent interview with Paul Busharizi gave the Business Vision his thoughts on the matter.

QN. Is it true that you are leading an initiative to seek a government bailout of distressed companies? If so why?

Ans. As the chairman of PSFU (Private Sector Foundation of Uganda) I have the responsibility to engage with government in different matters pertaining to the Private Sector and economy in general.

I used to be chairman of UIA for over 6years and gained valuable experience and insights on matters which affect our investors both local & foreign and a better understanding of how government works in general.

For the record, I was not appointed Chairman of PSFU by government; I was elected by the shareholders of PSFU at an AGM. This responsibility means I have to engage on behalf of the private sector on cross cutting issues. I declare that I am a member of private sector with interests in a diversified portfolio.

QN Justify the bailout, why don’t you let those businesses that have been careless fail or close. Why do you want tax payer’s money to bailout especially the big ailing ones.  Would you do the same for small ones?

ANS. My agenda was not necessary to bailout a certain number of businesses. No I wanted a solutions for all businesses operating in Uganda because there was a change in the macroeconomic environment.

I wanted to be certain it had not been missed by the government regular “Antenna” or govt and agencies. When the economy is overheating or slowing down, you need to be sure before you prescribe the right medicine; and this must be scientific. A vigilante group had gone great length to establish with facts what had happened lately. To take the pulse of the economy.

This group had a formidable leader that brought this matter to my attention. As I listened carefully to several business owners and challenges that they were facing. I realized that the pressures we were facing in one sector were apparently affecting nearly all sectors across the economy, agriculture, construction hospitality, trade & distribution, manufacturing, FMCG, logistics, oil & gas sector.

This got my attention and I was keen to share this with the central bank and other government officials to see if they have similar concerns consequently I wrote a concept note for the attention of the PM and he very graciously gave me an appointment at short notice  despite his  very busy schedule.

The matter was not entirely new to his office and several meeting had been held at various levels.

"As a consequence of these several meetings 3 requests were made
1.      That domestic arrears owed to the private sector by government be paid. (the PM had already consulted H.E the president  and cabinet decision  had been made. There was a directive to the ministry of finance to priotise this with immediate effect but not later than August 2016.
2.     On the side of traders that had supplied  goods to south Sudan but had not been paid , the government empathized  and would  engage directly  on their behalf in due course with the government of South Sudan but his was little more complicated and we had to realistic about the priorities there. In recent weeks we have seen clearly that there were some more pressing matters and lives were at stake there. Nevertheless the government will commit human and financial resources to this matter within a legal frame work to find a lasting solution for the benefit of Ugandan traders.
 3.     The financially distressed companies that owed money to the banks....

The government is on record about the unusually high interests rates and was looking for ways to signal the commercial banks to bring down the interest rates.

The CBR (Central Bank Rate) has been reduced twice in space of 3months but there is a lag between CBR signal and actual commercial banks rates.

The government sets policies and the Bank of Uganda (BOU) will implement them with autonomy and independence of their understanding of these laws and regulations.  BOU cannot dictate to the commercial banks on interest rates in this liberalized free market model that was developed over the last 3 decades. It has helped Uganda maintain stable growth.

Any direct interference might have far reaching unintended consequences.

Notwithstanding the variance in CBR(monetary policy adjustments)and the Fiscal policy discipline instilled in the government lately, Government has further resolved and budgeted to capitalize Uganda Development Bank as a medium term measure to compete with commercial banks for development projects that require long term less commercially priced funds. Please do not see this as a bail out a bank to bail out ailing businesses. This is a process that the government and several government agencies are working on.

QN. So where did this list that has been floating on social media platforms come from.

Ans. There is no official list from the private sector that has been presented to government or the central bank.

How can we as PSFU or any other body for that matter be given the task of choosing who to bail out and who to leave out if there is no agreed transparent mechanism in the first place?

Let alone identifying a pool of funds that can be used after the budget 2016/2017 has already been passed.

QN. How would you make a list in a fair and transparent manner to bailout ailing companies?

Ans. Therein lies the biggest challenge. 

 Some have sighted US president (Barack) Obama's bail out of big companies in the USA and how he justified it this with taxpayers’ money.

Several other countries followed suite. Uganda’s economy today has indeed slowed down and the government agencies are monitoring closely what measures to use at their disposal to check this and get growth back on track.

Qn Is it true that your Simba Group wants sh210billion from government as bail out money

Ans. First of all that list that is going around on social media is a hoax or fake!Because there is no official list. The Board of PSFU, Executive Director and the management have not been involved in any way in making a list. I don’t think UMA or UNCCI has a list either. It has no author or signatory. I don’t know who is creating it and several people are now calling me to be included on the secret list. There is no list Period....

Debt is a relative thing better described as leverage in the corporate business world.

The bigger your business assets and cash flow the bigger the debt you can access. 

Banks employ very smart people to analyze your debt capacity and more often than not they get it right. You must remember that the banks have a much stronger responsibility to the depositors than to the lenders.

Simba's business with the banks is an internal matter for the banks and Simba group. If the borrower defaults then there is a clear process that makes the matter of public concern if necessary. By advertising in the newspapers or by going to court. So until such a time please let the legal private entity manage its affairs as it knows best. I don’t think Crane bank or any other bank as suggested will give one single customer shs200billion. Twenty billion maybe, but not 200B.

IGNORE COMMUNICATIONS TO YOUR OWN DETRIMENT

This week three events cemented in my already convinced mind that communications should not be taken for granted by people, companies or countries.

Last week state water minister Ronald Kibuule kicked up a storm for his alleged mistreatment of female security guard who deigned to search the minister on his way into a bank. If the social media crowd had their way the youthful minister would have been quartered and hung out to dry by now. Never mind that they did not have all the information about the incident.

While the minister was being “virtually” pummeled a court in Ireland ordered social media giant Facebook to reveal the identity of Tom Voltaire Okwalinga (TVO) to lawyer Fred Mwema, who is seeking to sue him for defamation.

And finally and even further afield online  retailer Amazon reported that it had sold stuff – books, clothes, CDs, DVDS, home appliances worth $59b in the quarter that ended in June. This figure is big enough in itself -- three times the size of the Uganda’s annual economic output, but was more telling was that this figure was six times the size of the next biggest retailers sales in the same period. Retailers like Walmart which employ 2.4 million around the world.

One might think it’s a stretch to have a minister’s woes in little Uganda placed alongside  Facebook’s woes and Amazon’s rising fortunes but the thread that runs through these events is power of communications or the storage, analysis and transmission of data and how it is taking, or has taken center stage in everything we do.

Down the ages the evolution of power has gone from being possessed by the strongest man in the cave to the man who could marshal the largest armies and now to the man who can leverage the flow of information.

But beyond possession of information is how a person, company or country leverages the networks that this information goes through.

Think about it if information is power the easier it is to tap into those networks where the information is the more powerful you become. So a person without a mobile phone today is worse of than a person with a 2G phone, who in turn is worse off than a person with a smart phone or other smart devices.

"The greater challenge with this new power is that it is not centralised like the traditional forms of power. It is complex and diffused which makes it difficult to control...

More recently see what happens when a message is taken over by social media and how it takes on a life of its own be it Zimbabwe’s  President Robert Mugabe stumbling or President Yoweri Museveni taking a call on the road side or even Usain Bolt smiling his way to another sprint win.

Two things are clear these networks while rallying people are around a cause are at the same time diffusing power over the message to thousands of clicking thumbs. As a result the old methods of repression or stifling revolution cannot work.

Kibuule’s woes, the need to muzzle the faceless TVO or the exponential rise of the online retailer 

Amazon are just a variation of the same theme and the question for all of us is how to operate in this brave new world which will celebrate you or chew you and spit you out on to the dung heap of history.

KENYAN CAPPING OF LENDING RATES, POPULAR BUT NOT NECESSARILY RIGHT

Last week Kenyan President Uhuru Kenyatta signed into law a bill that seeks to cap how much banks charge the public for credit.

The law, passed by parliament a few weeks ago will cap interest rates at four percentage points above the Kenya central bank’s key policy rate which currently stands at 10.5 percent.

The move has proved quite popular in the country and Ugandans are watching with bated breath for their turn. We can expect some noises in that direction in the near future given our own high lending rates.

"The move when effected will have some positive, negative and unintended consequences.
At the center of the equation of course are the banks and the question of how they set their lending rates....

At the bottom of it is the cost of funds, how much does the bank pay for the money it lends out, the interest it pays on deposits. Simple common sense dictates that if deposit rates are high lending rates will be high and vice versa. Also included is the cost of administration – salaries, property rents, fleet costs etc. This may also include the cost of provisioning for bad loans. The more defaulters the higher the lending rates will be to cover the losses caused by the defaulters. And finally the bank has to factor in its own margin.

The Central Bank Rate is a figure announced by the Bank of Uganda, in our case, which reflects their view on, among other things, the prospects for inflation. The CBR rises when inflation is expected and falls when there is little risk of inflation ahead.

The banks use it to benchmark their lending rates, pricing them a few points above this key policy rate.

It has been argued that banks don’t have to price their rates above the CBR if they can still make money. The disincentive against this being a reluctance to live money on the table, a practice shareholders – mostly foreign, would frown upon.

One can expect with the law in place in Kenya bankers are going to have to re-examine their pricing models.

"A trade-off is inevitable. There are many possibilities.  Either they are going to forgo some margin or slap on more transaction costs to bridge the gap or tighten their risk controls – read lend less to the public or slash their costs, especially lower labour numbers, shut branches and optimise the use of technology....

Of course it is near impossible to sympathise with the banks. They have been profitable year in, year out, repatriating most of their profits and generally doing the bare minimum in advancing the national development agenda or distributing the love locally.

On the flip side the government is treading on very slippery ground. They say what is popular is not always right and what is right is not always popular.

The problem of trying to short circuit the market is that distortions are introduced, which affect the smooth running of the economy. Those distortions come with a cost which will have to be paid for eventually and often times after the political actors who introduced the distortion have moved on.

"Imagine a situation where the economic realities dictate that an increase in lending rates is necessary but the central bank for reasons of its own – bureaucratic inertia for instance, does not move to raise the CBR what will happen?...

The banks will stop lending, diverting funds to other activities like currency trading and wait either for the central bank to move or for economic conditions to revert to where it makes sense to lend at the lawful rate. In the meantime there will be loss of economic activity.

It is true that the market while it is the best mechanism we have for growing wealth, it is a terrible distributor of the same wealth. The distributor of wealth is government, which provides physical and social infrastructure needed to raise the general welfare of the population after taxing the market players’ surplus.

In our countries, Kenya too, government borrowing has given the banks the excuse to keep lending rates high. Why if the government is borrowing at double digit rates should the banks not follow suit? 

After all government is the “safest” borrower.

"By passing the bill the Kenya government is abdicating its responsibility for the high lending rates and playing to the gallery with this political action....

The history of these political interventions has shown that while offering temporary relief, they eventually come back to bite you. 

TAX ALL LAND TO PREVENT ENCROACHERS

This week top clergymen form the Church of Uganda were nearly lynched by an irate mob while on a tour of land the church owns that has been allegedly encroached by hundreds of residents.

Soon after the harrowing incident, the church announced plans to lease out their land about 80 square kilometers dotted all over the country as way to prevent encroachment.

If ever there was a sign that things were getting out of hand it had to be this one. That residents can attack men of the cloth, pelt them with stones and threaten to send them to a fiery death, what more can be said?

"We take land for granted in Uganda because there is actually too much of it lying around. Believe it or not there is no land pressure in Uganda. Apart from the aforementioned unutilised land evidence can also be seen in how we build – mostly bungalows and how there is always idle land for encroachers to settle on....

It is a moot point but how a people handle land will determine their level of development. Because land is where all wealth is derived from. More directly it is where we grow our food, where we build our homes. Indirectly assets like shares are derived from companies, which seat on land to operate.

To the extent that your land property rights are not well defined is the extent to which you can or cannot extract value from the land.

Think of a person occupying land without a title. He will not build a permanent abode on it knowing that the rightful owner can come a long anytime and repossess. He will not cause developments like roads, water and power networks because his ownership is unsure. That means the value of the land is not rising, in fact it is depreciating since the illegal tenants are an encumbrance on the land.

In the event that the illegal tenant is foolhardy enough to invest heavily on the land, attempts to dispossess him will inevitably turn bloody as he has no recourse to the law to defend his “right” to the land.

We have somehow been blundering around with our unclear land situation for a while, but day by day issues are coming to a head as land pressures mount.

"The move by the Church of Uganda to lease out their land is confirmation of what I have always argued. That to put our land to productive use the landowners need to be compelled to do so. Church of Uganda has been compelled by the threat of encroachers to release the land to more productive entities, but I argue all land should be taxed – farm, residential, commercial and industrial...

As it is now landowners are content to live their land unproductive, even in the city center, as they raise funds to develop it. In the process denying people work and the society the benefit of the products or services that would be generated if the land was activated.

Tax all land so that the owners will scratch their heads to be more productive and pay off the tax or failing to do so lease the land to more productive agents – as the Church of Uganda is doing now.

Uganda is a big coffee and tea growing nation because the colonialists compelled the farmer, using the poll and hut taxes, to grow coffee. Our forefathers did not grow coffee out of some great consensual vision but by compulsion.

"But to tax the land we need to invest in identifying and registering all the land in the country. And we need to brace ourselves for the fight from landowners, whose honeymoon will come to a crashing end and those people – read squatters, who are benefitting from the current ambiguous state of affairs...

But the tax will benefit everyone concerned.

The land owner will make more income whether he puts it to use or leases it out. Tenant will have more secure tenure. The government will see an immediate spike in revenue collections. And the economy as a whole will benefit from greater productivity.

FREE PUBLIC INTERNET IS LONG OVER DUE

It seems like another lifetime ago.

In my initial days as a Reuters correspondent I had to file stories to our Nairobi office via fax machine (who remembers what that is?) On week days I would do this from the general post office, but on the weekend a company, Starcom, had bureaus in town from which I could send my stories.

So I would either type out the story or write it long hand, go to one or the other to fax my story. And when I was done I would wait by a phone there for a call in which Nairobi would confirm receipt of the story. The confirmation notification was not often enough. And if service was not good that day I would literally read the story down the line.

By the time I left Reuters seven years later I had a lap top and a modem, which I could jack into a telephone port and send stories down the line. Our phones were still the 2G variety so there was no internet. I might have texted a story to Nairobi during my time. This was before the dongle era – which has come and gone.

But even with the limited capability my productivity, judging by story output, was several fold higher than my early days. Other factors like experience played into this but the improvements in technology were key.

So last week when the government announced that there will soon be free public internet in Kampala, initially confined to certain hotspots but, which it can be expected with time will be rolled out to the whole city, I could immediately appreciate the benefits that will come with it for the general population. The free service will be from 6 pm to 6 am.

"A person, people or country is as rich as how accessible information is to the people. A qualification would then be that wealth comes to the extent that this information is put to use....

Put even more simply you are richer or poorer than the next person by virtue of what you know or don’t know.

Given the odds that only a small percentage of the population will utilise this information effectively, society should be better off having vast amounts of information available, so the small percentage can lift themselves up and hopefully carry everyone else along.

The World Economic Forum estimates that a 10 percent increase in broadband penetration leads to a 1.4 percent increase in GDP and that a doubling of mobile data can lead to 0.5 percent increase in per capita GDP. They say most of this comes from e-commerce and online advertising, it also comes from the savings that come with not making unnecessary movement or fewer phone calls or more efficient decision making.

It is preaching to the converted to enumerate the benefits that have come with greater connectivity, but we need to do much much more.

In western economies data bases are integrated so all my records – birth dates, parentage, career path etc are linked, this alone does away with a lot of bureaucratic red tape needed to open a bank account or travel or even shop.

With improvements in communications technologies payments too have been made much faster and credit more accessible.

"In his seminal book the “Origins of Wealth “, author Eric Beinhocker  deconstructed the concept of the wealth, going back to first principles before revealing that the source of all wealth is knowledge. The people who are more efficient in generating, storing, transmitting and analysing knowledge will be the wealthiest....

That is why to try and catch up to the west’s level of development is a pipe dream without tackling the basis of that wealth – communication systems, be they the traditional road, rail and air to the more current ICT networks.

While we are moving, there is evidence there is a narrowing of the digital divide in terms of devices used between the developed and underdeveloped world, the divide is widening, since the west is not standing still in not only consuming more bandwith but in finding ever newer applications for the information while we are behind the curve on the uptake of the latest technologies.

It is good though that government is beginning to put ICT nearer the front of its thinking on where this country is going and what will be the key drivers. Although I remember a presentation b y a UNDP consultant around the beginning of this century which identified ICT development as one of seven competitive advantages this country can develop. But then again government works in mysterious ways.

"An embracing of ICT can bring quantum leaps in efficiency and productivity in every avenue of life you apply it to. Given the need for urgency in raising the productivity of the economy, it is a moot point that ICT issues need to be taken more seriously than we have been doing so far....

Personally I would rather have government subsidise the private sector to perform the service, just so we benefit from private sector efficiency, but the government initiative is a good start and may very well open the door for private players to take it over and run with it.