THE MINIMUM WAGE AND THE JUMP IN UGANDA MPS PAY

Last weekend the Saturday Vision reported allowances to parliamentarians would rise to sh330b next with the reintroduction of the constituency development allowance.

Going by budget estimates this is more than the money ear marked for all the 14 referral hospitals in the country.

This comparison is important in discussing why the economy is stuttering along.

"There only two ways to utilise money, either for consumption or for investment. If you consume all your money you are doomed to poverty but if you invest some of it chances are you will be wealthy in future or at least attain financial independence...

Investment is committing money with the hope of a return in the future. Financial freedom occurs when the returns from your investments are enough to cover your expenses, as opposed to financial independence when you work for a living and your earnings cover your expenses.

This can be extrapolated from the personal to the national level.

You can tell which countries have a bright future by looking at their budgets, judging each expense on whether it is an investment or consumption.

Expenditure on health is an investment. By keeping populations healthy you ensure reduced down time in the workforce due to illness – personal or family. One way of ensuring productivity, output per worker is optimised.

The same cannot be said for parliaments wherever they are. In our case our parliament is too big for our own needs, exacerbating the inefficiency of funnelling money to it. MPs argue that their value is in keeping government in check but we don’t need 446 MPs to do that, a quarter the number would do just fine. The payments to MPs can be counted as consumption and even if they actually invested much of their income the effect on the general economy cannot be compared to the benefit of keeping the hundreds of thousands of Ugandans who use our referral hospitals alive and well.

The difference between the wealthy man and the rest is that he invests an increasing proportion of his income. It is really that simple. It is not easy because investment presupposes delaying one’s gratification to a later date.

"In effect what our MPs are doing is refusing to delay their gratification. Because if we had a more productive population the economy would grow and the MPs pay would rise as well. Of course most of them will not be in the house in ten years to come, when investments made today may begin to bear fruit, so one sees why they are clamouring at the trough. What happened to “For God and my country”?...

But again to expect them to think long term, even despite the more likely short tenure in the house, is to ask too much. As a nation we have a saving rate of just about 13 percent compared to a sub-Saharan average of 20 percent and a world average of about 25 percent.

So it’s a bit much to expect that our MPs as soon as they take the vow will suddenly be transfigured from consumers they are to investment machines. Which goes to show that it is not money that makes you rich – they are among the highest paid “workers” in the country, but how one thinks.

By extension the development trajectory of a country is reflected in the mentality of the nation as represented by our political elite and how they budget for us.

But also this week the labour unions announced that a minimum wage is soon to be announced by government. There was no official communication to that effect. The remnants of our trade unions have been crying out for a minimum wage, interchangeably referred to as a living wage, for the last three decades. These calls have been thwarted by a combined effort of the employers – for obvious reasons and government, which has argued that setting a floor on wages would discourage investors.

"This is scary because it means that the unproductive sectors of our economy, read the MPs, have a stronger bargaining power with the government than the workers....

We need to think about that.

AFRICA'S INDUSTRIALISATION & PROSPERITY

BOOK: AFRICA’S INDUSTRIALISATION & PROSPERITY

AUTHOR: DAVID SSEPPUUYA

PP: 386 PAGES

AVAILABLE AT ALL MAJOR BOOKSHOPS

A few years ago people begun to seat up and take notice of Africa. Previously seen as a basket case bedevilled by poverty, disease and war, the coincidence of improving economic management, high commodity prices and the and a promised demographic dividend as the continent’s young population come of age, led to the birth of the tag line “Africa rising”.

The initial optimism has died down as deeper issues surrounding the continent’s politics and structural deficiencies in the economy, have shown that while there is still cause for optimism, the initial positivity may have been overdone.

It is against this background that journalist David Sseppuuya wrote this book, a credible attempt to see the continent for what it is, how it got here and what its future prospects are.

"The constant theme throughout the book is the huge deficiencies the continent suffers, be it from capital mobilisation or human resource capacity or even in land issues, be it convoluted tenure systems or the declining fertility or the general inefficiency of its use....

Sseppuuya, while referring to an admirable bibliography as wide in scope as it is deep, draws parallels and divergencies with other development models, coming quickly to the conclusion that industrialisation – the adding of value to our natural endowments, is  the future.

For students of development this is an obvious conclusion and while the continent’s leaders have talked about it, there seems to have been a disconnect between the appreciation and the implementation of industrialisation.

Sseppuuya has some suggestions of why this is so, not least because politicians since independence have placed too much emphasis – in his view, on promoting agriculture.

The author suggests that this focus has seen the continent, stuck in recurring loop as supplier of raw materials to more advanced economies, led to deteriorating terms of trade and a perpetuation of rural poverty.

While in other parts he acknowledges the south East Asian nations’ evolution from agriculture to light industry to heavy industry and now to services, and how by raising agricultural productivity they became food self-sufficient but also saved critical hard currency, that would have gone to food importation, for Africa he argues that we need not follow the same cycle.

He argues that returns from agriculture are not enough to lift the millions of Africans out of poverty nor vault the continent into a 21^st century economy. Focussing on agriculture will only serve to maintain the continent’s rural texture, counterproductive because urbanisation has been a major driver of development wherever it has happened.

He points to the fact that while up to 70 percent of people derive a livelihood from the land but only account for only 30 percent of economic output, as an indication that it is an “economic dead end”.

Students of development will most likely disagree with Sseppuuya’s views on agriculture and may even see this as the major shortcoming of the book, but it is only a chapter in the book and there is much else to commend about the book.

His expose of what ails our neighbour the Democratic Republic of Congo (DRC), examination of the short coming of the Structural Adjustment Programs of the 1980s and the inadequacies of our education system alone are worth the books steep cover price of sh70,000.

He draws important linkages between the major era’s of Africa’s existence—the slave trade, colonialism and post-independence. This back and forth treatment of the subject, with easy to read anecdotal evidence to support his findings makes the book an enjoyable read by anyone with half an interest in understanding the continent.

Sseppuuya, who has consulted with the World Bank in Tanzania and Uganda and done work with Bank of Uganda, has been privy to how the people at the center of driving the continent’s agenda think and work, liberally peppering the text with some of these insights.

"As a citizen of the continent, having lived through Uganda’s most harrowing times and using the testimony of the everyday man, he then draws a bridge between the theory and its very real implications. The conclusion oftentimes is that the prescriptions have delivered results so wide off the mark as to wonder about the real motives of development set....

Many people have tackled this very subject and Sseppuuya’s extensive reference to studies from as far back as the 19^th century to the present lends the book a gravitas that is hard to ignore. It is a useful addition to the discussion on development and will serve as useful rallying call for us to at least learn from our history.

THE UGANDA CRIME WAVE.... IT'S THE ECONOMY

This week a group of suspects were paraded by the police as responsible for the wave of the wave of violent robberies that have plagued Kampala suburbs and parts of the Masaka area.

The suspects’ testimonials suggested that they did what they did to earn a living. Hired by organised groups, housed in the city and unleashed on an unsuspecting population to wreak havoc and sow terror.

Police boss General Kale Kayihura said while he was aware that parading them was stretching the law he needed to assure the victims and potential targets of these crimes that the police force is working to resolve the issue.

You may frown at Kayihura’s methods, even throw the book at him, but looking at it from his point of view, an erosion of confidence will make the police work that more difficult. It was a confidence building exercise.

But it served too, to send shivers down our spines. That there is even the existence of thugs-for-hire rings, with suggested connivance of the police and even city businessmen, is enough to ensure you sleep with one eye open...

Below the surface though is the reality that the economy has not be creating enough jobs to absorb the hundreds of thousands of youth coming into the job market annually. As if that is not enough the current hard economic times means that their benefactors are finding it hard to make ends meet leave alone feed and clothe these able bodied men and women.

Jobless, without income and with the low self-esteem that comes with that it should come as no surprise that for a few shillings they would be game for anything, even a little smash-and-grab on the odd night.

That coupled with a society which condones corruption at every level, means that the moral judgements that may have overrode their baser instincts are non-existent. Not very jobless, hungry youth takes up the bait to join a criminal gang. But for how long will be it until the hunger in their bellies revolts against moral sense and they join a growing bandwagon?

The truth is that in the last three decades or so while infant mortality has dropped, life expectancy has risen, we are increasingly younger population on average. Because job creation is not keeping pace with the new entrants into the work place we have a situation where more and more people are dependent on fewer people for a livelihood.

"There is a vicious cycle at play here. We cannot create jobs because companies are not growing. Companies are not growing because there is no market for increased production. There is no market because on average our incomes are not rising. They are not rising because more and more of us are finding ourselves out of work...

We need some quick gains in the short term and more sustainable long term solutions.

Current programs like the Social Assistance Grants for Empowerment (SAGE) program, where the elderly in some parts are getting some monthly stipend, could be a useful stop gap measure. Whereas government doling out monies to any group of people has its critics, if done properly as a stop gap measure to get those who can get back on their feet, it can be useful in creating some demand and even jumpstarting some small enterprises.

Whichever way you look at it this a much better use of government resources than the current plunder by a select few who squander it on foreign holidays and ostentatious living. Which is why corruption is at the center of our problems.

The youth livelihood initiatives too, if shepherded well can in the short to medium term, help create an army of job creators rather than job seekers.

"On a macro level government needs to focus all its energies on creating jobs. For starters they should start monitoring statistics on the net jobs being created in the economy on a monthly basis like more developed economies...

This is important because what one focuses on expands. And we are not talking about government creating jobs, but creating the enabling environment to allow businesses to start and thrive by removing the red tape in registration and licensing processes, enhancing infrastructure – both soft and physical and fighting corruption more determinedly.

The solution to youth unemployment is simple but it is not easy to execute. Some hard decisions will have to be made in coming weeks, months and years if we are to combat unemployment and maintain national stability.

UGANDA CITY TRADERS: LOOK TO YOURSELVES RATHER THAN TO FOREIGNERS

In the 1990s city traders threatened to protest against Uganda Revenue Authority’s (URA) unfair treatment of them compared to foreign traders.

That time they were protesting the preferential treatment that supermarket chain Metro Cash & Carry was getting. According to them URA had licensed the South African firm’s warehouse as a bonded warehouse – meaning that goods were landed directly into their warehouses and taxes assessed and cleared there. This is opposed to what was happening to the average trader who had to first clear his goods from URA before taking physical possession of them.

The advantages of the former over the latter are quite obvious in terms of saving on time and other conveniences.

URA officials at the time argued that it was like comparing oranges and mandazis. That the volumes Metro imported were much higher than any single trader around and therefore it made sense to register their warehouses as bonded warehouses. Our local traders who could not as individuals even fill one container and therefore was not practical to do the same for them.

"I couldn’t help feeling a sense of déjà vu this week when I heard that our local traders were again up in arms against foreigners who were squeezing them out of the retail space...

Our traders argue that these foreigners were getting tax incentives and were therefore able to undercut them and were steadily driving them out of business. They have no proof of the tax incentives but assume that is how the foreigners are managing such low prices.

The spectre of the foreign businessman seems to loom large over our local businessman. And for good reason.

Many of these foreign businessmen may be front runners coming ahead of much bigger players. Prospecting so to speak for the big boys.

The advantages that come with this may include goods offered on credit, lower borrowing costs and the importation of large volumes of product, allowing them to benefit from economies of scale.

"Economies of scale, the principle that by spreading your costs – transport, labour and fixed costs over more units or volume, you can then sell a product for less than if costs had been spread over fewer units, is where our traders challenge is, rather than the assumed evil intentions of foreign competition....

We see it all around us. In a single mall on a single floor there can be a dozen shops selling clothes. 

Each trader not only has a small stock but also has rent, freight, labour, utility and tax charges to factor into their price. In more cases than are useful, they also have to factor in their air ticket – more than $2000 round trip to Guangzhou including accommodation, as an additional cost.

A “foreigner” on the other hand will cut out his air ticket. For the cost of a few megabites he can place an order to his supplier (probably the same one as our hapless traders) and have it shipped to Kampala. A 100 MBs go for about sh2,000.

We haven’t even begun to consider the reduction in rentals on price of a unit of floor space when considering a 30 meter square shop compared to 300 meter square shop floor.

Blaming foreigners is an easy thing to do. It is easy to mobilise against foreigners. The harder thing for our traders and their leadership to do is to look at themselves , re-examine their business practices, cut out their inefficiencies.

A major inefficiency of our business community is that too many businesses are sole proprietorships. 

The obvious implication of this is that they remain small for lack of adequate capital. This has implications on their ability to bargain with their suppliers and clients, borrowing terms or any number of issues that can lower the costs of doing business.

"There is an irreversible trend in world commerce that is beyond our power to turn back or resist. Barriers to trade are coming down and with it will come better competition...

Our business community has a choice either to continue as they are and hope to hide behind the government’s skirts whenever they are threatened by “foreign” competition or get smart, improve their business practices and become better competitors able to resist or at least collaborate with foreign businessmen.

In the first instance its only a matter of time before government hungry for more and more taxes hangs them out to dry. Or as in the second scenario they be able to hold their own in a rapidly changing world.

There is no plan C

BUY UGANDA, BUILD UGANDA, ABOUT TIME

The recent announcement by the trade minister Amelia Kyambade that government is going to push a bias towards Ugandan goods and services is a timely one.

Currently Uganda is in the midst of an economic slowdown triggered by among other things, recent drought, an emphasis on huge infrastructure projects, delays in the development of the oil sector and plugging of certain leakages to government funds, which facilitated corruption.

One of the challenges for the Ugandan business is one of little internal demand for locally produced goods, which is further exacerbated by the free movement of goods and services through the East African Community (EAC).

"And because we are not producing, we are not creating jobs at a fast enough pace, out terms of trade are worsening as we continue to export raw commodities whose value fluctuates widely from year to year while we import higher value goods, a situation which does not favour our shilling nor our individual standards of living...

The objectives of Buy Uganda, Build Uganda (BUBU) include that in the next five years 20 percent of all government procurement by value should be sourced locally and that the 50percent of all shelf space in the market should be dedicated o Ugandan goods.

If executed well this is a useful initiative.

Government is the biggest client of any single group. A commitment by government to direct it’s sh24trillion budget towards production it can have a ripple effect through the economy.

But first our producers must produce.

Barely 20 years ago Vietnam was just making up the numbers in the world of coffee exports.

But beginning at the end of last century Vietnam’s coffee production jumped. They are now second only to Brazil as coffee producer, sending more than 25 million bags to market last year.

Uganda coffee exports have grown to just under 4 million bags annually over the last 20 years.

Vietnam were able to ramp up production by doing away with collective farms and letting the private sector play a more central role and in strategic government interventions especially in the provision of inputs and extension services.

That aside a sizeable amount of Vietnam’s coffee is consumed in-country and through their own initiatives have seen its coffee take first priority over other coffees in restaurants, schools and government offices.

"We like to talk about industrialisation but 50 years into our independence there is little we produce on an industrial scale. The BUBU initiative may be the kick we need to get off our backsides. The initiative if executed half decently should see government beefing up demand for our local products, which would have to scale up production....

The point is that to talk about industrialisation while not organising production means it will continue to be a pipe dream. And we are not even talking about huge land holdings being put under coffee. There will be a few farmers who can manage huge plantations but by increasing the productivity of our small holder farmers, who currently harvest about half a ton per hectare, well below their farms’ potential then the benefits of increased production will be more widely spread.

In business the effectiveness of one’s execution will depend on the human resource you have at your disposal, efficiency of the operations and the effectiveness of your strategic process. It wold not be stretch to say we are deficient as a country in three areas but we are particularly bad on strategy. 

Human resource is the essential ingredient but once your strategy is lacking or non-existent there is really nothing you can do about marshalling the other two components.

It is heartening to see in the coming budget government has not only earmarked funds to hire more extension workers but has also scrapped VAT on extension services. A lot more has to be done to make possible affordable agriculture finance, robust agro-processing and export promotion incentives.

Sticking with coffee, Brazil the world’s biggest producer of coffee – it produces three times as much coffee as Vietnam is so invested in the crop because of the ripple effect through the economy. It not only exports bean, but also has developed its own coffee brands that compete favourably at home and abroad. But Brazil is also on the cutting edge of coffee research and development which not only means they will always be increasing the productivity of their farms but has spawned alternative uses for the aromatic bean – from cosmetics to pesticides to fertilisers and even military applications.

All these are jobs from maximising the potential of one crop. Now imagine the magic we can conjure from all the crops we can produce in this country?

BITING THE BUJAGALI BULLET A CAUSE FOR SOUL SEARCHING IN UGANDA

It was reported from parliament last week that among the tax proposals government is laying on the table is a tax exemption on the income on the Bujagali Hydro Power Project for the next 16 years.

The genesis of this move has to have been the real desire to lower power tariffs as a spur to industrialisation.

As it is now Bujagali dam offers the priciest power of all our dams, mostly because the debt repayment element on our other dams is not a significant cost.

"Two years ago government threatened to buy off the dam as a way to lower the tarrif. At the time industry sources familiar with the subject that Kampala would have to come up with at least $1.4b to pay off the other shareholders on the project Sithe Global and the Aga Khan’s Industrial Promotion Services (IPS) and retire all the debt...

If they could do this with cash they wold have loped off $6.7 cents of the $11cents average tarriff Bujagali is selling power to the Uganda Electricity Transmission Ltd (UETCL). This $6.7 cents is what goes to debt repayments and shareholders.

With its various infrastructure commitments it’s understandable that government did not have that kind of money lying around. So that was a nonstarter.

As it is now of the $11cents sell-price to UETCL, the aforementioned $6.7cents is the largest components followed by $2.3cents for taxes and government repayments and $1.0cent goes towards operations, maintenance and administration.

The next best thing would be to extend the concession period to say another 50 years from the current 30. This would have the net effect of stretching out the debt over a longer period – we would pay more in debt over the longer period but projections show that the tariff will almost half to about $6.6cents.

One other thing would be to pay off all the debt, which comes to just over $500m and this would account for $3.8cents of the tariff. But again there is the sticky issue of where to find the cash. 

"Frenetic attempts last year to refinance the debt – essentially contract newer debt under more favourable terms fell flat as the treasury has very little wiggle room to contract new debt...

Government has resorted to a waiver of income tax on the project until 2033, a situation they probably did not want to find themselves in but really had no choice given the circumstances. If along with this waiver government forgoes its dividends from the project may just bring down to about $7cents a unit.

This might be the breathing space government needs until Karuma and Isimba come in at the desired $5cents a unit. Industry players are dubious that that will happen in the short to medium term.

Clearly the high Bujagali tariff is a function of the source of financing. When the 250MW project was being put together the demand for finance from Asia and the Middle East was at all-time highs, this also affected the mobilisation of plant and machinery. No sooner had they begun work on the dam than the global financial crisis exploded and the credit markets seized up.

As if that is not enough in risk profiling countries – determining their willingness to repay the loan Uganda’s relatively weak fundamentals means projects cannot access money at the low rates that Europe or Asia or even South Africa can.

Our infrastructure needs are urgent. We are still playing catch up for the lost 1970s and 1980s when no new infrastructure was built. This despite the population almost doubling during the period. That we need more infrastructure to generate more growth is hard to dispute.

The challenge as the Bujagali project has shown us is that we are hamstrung in our ability to raise affordable financing for these projects. High cost projects mean the economic benefits may not materialise as fast as we want them to.

If we had more long term savings available in the economy we would have been better placed to structure a better deal.

Which brings us around to the issue of pension reform. Pension reform is necessary not only for NSSF to work better – there are some initiatives they have in mind but can not implement for lack of a legal framework, but also as a means to mobilise more savings for deployment on such projects.

Concerns that foreign pension schemes can fold shop and disappear with our hard earned savings are valid and should not be ignored.

"The worry too that by fully liberalising the market we might not have say over the deployment of the resources, with private managers choosing to invest in real estate and services rather than manufacturing and agriculture – the productive sectors, are valid too...

Managers reporting to headquarters in the US, Europe, South Africa or even Kenya only care about showing a good bottom line in the short run rather than think long term. The law can be written in such a way that these pension managers behave in line with our development agenda.

The writing ios on the wall the issue of mobilising savings can not be put off any longer.

MUSEVENI, BESIGYE TALKS A FLY IN THE OINTMENT

At the beginning of the is week it was reported that Kizza Besigye talking to  his party delegates in the eastern town of Soroti, revealed that progress towards talks with the government were in high gear.

That the issues to be discussed were, among others, the audit of the last election results and a post NRM Uganda. And that the Swedish government was set to play the mediator in the talks.

President Yoweri Museveni beat Besigye handily in last year’s elections and a petition against his election was dismissed unanimously by the Supreme Court. The NRM has an overwhelming majority in parliament.

"Attempts to mobilise the masses a la “walk to work” demonstrations of 2011 died on arrival. In the latest contest between the country’s two largest parties, the NRM engineered the failure of the FDC to send a representative to the East African parliament.
With this one stroke they let the watching public know who is boss while at the same time spreading dissension in the opposition ranks...

A cursory analysis suggests that Museveni and his NRM are holding all the cards in this battle of wills.

That the NRM would even entertain seating around the table with FDC to essentially give our away its advantage could only mean one of two things, but not both.

One that the NRM’s stranglehold over the political process was actually not as conclusive as we were led to believe. And they know it. So they are trying to buy themselves some time either by suing for a ceasefire with FDC or at worst forge some sort of alliance, also intended to buy them some more time at the helm.

The second possibility is that there were no talks to begin with and that this was just a play by Besigye to keep that agenda in the public eye.

A perfectly legitimate political manoeuvre.

A sluggish economy, the recent drought and now a host of plagues to our crops that threaten the livelihood of millions of Ugandans, could be a basis for the perception that the NRM does not hold the confidence of the people like it did before.

One could even drum up the recent high profile murders as a sign of the end of days for the NRM.

Who knows what sentiments are simmering under the surface in our bars, funerals, weddings and other social gatherings?

There is discontent but it would be stretch to believe that it is about to boil over and sweep Museveni and his NRM into the dustbin of history.

In 2002 when Kenya’s then President Daniel Moi was  letting go of the reins of power and anointing Uhuru Kenyatta as his successor there was a lot of relief and people cold not wait to see the back of the professor of politics. There seemed to be an overwhelming feeling, so think in the air you could cut it, that if there had been a choice to vote between a jerrycan and Moi, the latter would have come in a distant second.

We shouldn’t forget that Moi had not won the majority votes since 1992 when multi-party elections were reinstated. He had previously had the constitution amended to allow this to happen and prolong his stay another decade.

Even with his well-oiled, state funded campaign machine Moi knew he could not win a 50+one majority at the polls.

The point is that if the NRM were suffering severe weakness it would not be missed, hard to ignore.

"But as pointed out earlier, it is legitimate political tactics to seek to sow doubt in the population’s minds. But there is only so much you can achieve with this until the led demand tangible results...

The opposition and FDC in particular, need to get organised if they are to have any chance of forcing the NRM to the table. Organisation will bring the numbers, the sustained noise and the pressure that a dominant NRM can pay attention to.

No number of Hail Mary passes will get the opposition to the Promised Land unless they can back up their rhetoric.