DATA IS THE NEW SLICED BREAD

In his first press interview in 2010 after taking over the helm of Kenyan telecommunications firm Safaricom, CEO Bob Collymore said that in the future voice services will be an add-on – will be given away free. That data services is where the money would be.

He has been proven right several times over. While revenues from mobile data have not yet outstripped revenues from voice services it is just a matter of time.

Last year data revenues grew by 46 percent compared to voice revenues which grew by just over one percent. And you are not even talking about revenues from mobile money, considered data services, which on their own grew 34 percent last year. Data and mobile money revenues came in at Kshs39b (sh1.2 trillion) and one can expect they will soon outrun voice service receipts, which stood at Ksh46b last year. The company’s total revenues came in at just under Kshs100b last year.

Compare this with the Kshs3 billion data, M-Pesa and SMS revenues brought in 2010, against a company revenue of Kshs84b then.

It is no wonder then that in our own market discussion over data services has been kicking up dust in recent weeks.

Earlier this month telecom company MTN announced a new data offer that while raising the cost expanded what subscribers could do with the service.

The regulator, The Uganda Communications Commission (UCC) took issue with the rate changes arguing that all such changes must be past by them first before being offered to the public.

MTN argued however unlike a tariff – a cost of service that all mobile users are affected by, an offer is optional with subscribers taking it up if it suits their needs and therefore they had no legal obligation to inform UCC in any change it may choose to make.

As with most of such spats it is often that each has a point and a seat down around a table would bring the discussion to a happy middle ground.

"It does not take a rocket scientist to see with more and more people hooking up to the net via their mobile phones, tablets and laptops that Collymore’s prophecy will come through in our market.The fact that some telecom companies have decided to curve out a niche for themselves in data provision and not voice is another pointer....

The point too can be made, that you don’t hear the regulator complaining about similar offers on voice services which are being launched at every turn.

The context for the regulator’s concern is not misplaced, if data services are to get wider adoption.

Clarity in the sector is needed sooner than later seeing as data services are going to be a major driver of growth in coming years.

At the beginning of the month a law allowing for agency banking came into force. Under the law banks will be able to contract retailers, petrol stations and other businessmen to help the collect deposits and pay out monies from their clients’ accounts. Advancements in communication technology, more specifically data services, means this service is more easily available now than even five years ago.

The various uses to which data services can be employed are already being seen --- transport and logistics management, financial services, health and educational services.

For a society that likes to talk a lot, it may be hard to wrap our minds around the revolution that data services herald, but they will come with or without our understanding of the subject.

Think of it like the paradigm shift that came with the invention of the printing press, which took the written word out of the exclusive enclaves of royalty and the monastery to the everyday man. What this meant is that information’s storage and distribution was no longer the preserve of a select few. It actually diffused their power, led to the downfall of kings and queens and the rise of democracy and also other kinds of despots.

Data services will ensure the storage of information within easy reach of every one with access to the net, as well as the rapid transmission of that same information.

Think of it.

Small businessmen, like consultants had to saddle themselves with getting physical offices to not least of all house their telephone, fax machines, the petulant receptionist and generally look serious. 

"Data means that when you really boil it down to the bare essentials, a physical office is fast becoming redundant for certain sections of the economy...

This is important because down history wealth has accrued to people and societies that had knowledge --- distribute it and employ it for their benefit. Now with the democratization of communication things are set to change, hopefully for the better. More and more people will have a shot at social climbing than ever before.

Already The Economist magazine has already announced that data is the new oil, coupled with Collymore’s prophecy and one can see why the battle lines are already been drawn around data.

Whereas it was the UCC seeking clarification on the matter, one can expect market leader MTN, which for its own very survival needs to dominate the data space will be the target of a lot of competitive action from its market rivals above and below the table.

We can expect more of these kind of spats in coming times as competitors, both existing and yet to come jostle for position in this new market of the future.

Watch this space.

ANOTHER DEATH, ANOTHER BUSINESS IN JEOPARDY?

Last week veteran politician and businessman John Sebana Kizito died and immediately attention went to concerns about what would happen to his business holdings, a hodge-podge of real estate, insurance and everything else in between.

The same worries followed in the wake of the deaths of school proprietors Ivan Semwanga and Lawrence Mukiibi and any number of our lesser, neighborhood tycoons when they move on.

Is it possible to bullet proof our businesses against mortality? And if so why do our businessmen fail to do this?

Given the frequency of this occurrence, clearly the more natural thing is to live everything tethering on the brink of chaos, given how our businesses are more likely than not to self-destruct on the passing of the founder.

When we fail to do something that is good for us, in effect dooming us to a less than desirable future fate, it’s more often than not because it is too much work to do the right thing.

For business it’s easier to set up your stall, make sales and dip into the till whenever the need arises.

 It’s too hard to keep books! It’s too hard to think ahead! It’s too hard to delay gratification in order to build an enduring company! It’s just too hard to do the right thing.

"There are four reasons to start a business –  to maintain a lifestyle, to pass on to future generations, to sell in the future or for philosophical reasons...

These are not written in stone but the record shows that your business has a higher chance of longevity if its driven by the motives that tend towards the more philosophical than subsistence.

It’s not difficult to see why.

 If you build a business to only create subsistence for you and your family it cannot grow very big, because once you have sated your needs, which are not very much – how many meals can you eat or beds can you sleep in or cars can you own or children can you father before you reach the outer limit of your appetites. The logical conclusion to this is why should I bother being systematic in business, after all I will eat it all before I die.

If you build a business for legacy purposes, you want to leave it to your children, then you have to be a bit more systematic. You have to think more about keeping books, for instance,  because getting finance or attracting quality partnerships or beating off the competition will depend on an objective measure of your business that outsiders can understand and also one to which you can refer you to grow the business.

Think about it if you are going to leave the business to the children may have to be around for a few decades before you can pass it on. And in business if you are not growing you are dying and the way to grow consistently is to be able to measure the process in your business so you can replicate the good and do away with the bad.

The next level of being systematic will come with if your end game is to sell the business somewhere down the line. 

"The level of complexity of the business has to rise so that one, it can operate without the founder, keeping alive, growing and beating off the competition, also that that outsiders looking in can make a fair assessment of its value....

Last week it was reported that Kenyan based coffee shop chain, Java House was being sold to Dubai based private equity firm Abraaj Group for about $100m. Kevin Ashley who founded the  company in 1999, had earlier on sold a controlling interest – 90 percent of the firm to private equity player Emerging Capital Partners in 2012.

Not only has selling the company – twice, made Ashley a very rich man but it also ensures the companies longevity and possible expansion into the rest of Africa and beyond. Talk about a legacy.

A philosophical reason to build a business may be one like Bill Gates goal to put a computer on every desk in the US. While this would have made Gates a very rich man, which it did, it oriented his company to reach for a higher goal that made being systematic and thinking beyond the founder’s ego necessary of not critical.

But think about it, even if you wanted your business to just guarantee you and your family and generations after you a good life wouldn’t it make sense to build a company with the intention of sell it eventually or to chase after an outlandish goal that would not only drive its growth but yours as well – as a person and business person?

Interestingly when you set your vision and commit to it, that high it is not a pain to keep books, to think strategically or delay your purchase of your dream car, home or wife in service of a greater goal.

What it takes to reconfigure your business is a change of mindset - easier said than done, but once the mental shift is done it is not hard to execute the necessary steps to build an enduring company.

"At last checking Uganda was second only to Chile as the most entrepreneurial country in the world. We have no fear of starting companies, that is one hurdle out of the way. Now we just need to grow durable companies – less than five in a hundred companies started in Uganda make it past their fifth birthday....

Part of the reason our economy is in such a shambles is because we do not have the size, quantity or quality of businessmen to create the jobs that we so desperately need.

OF THE CBR AND THE UGANDA ECONOMY

Last week the Bank of Uganda announced it had lowered its regulatory Central Bank Rate (CBR) to ten percent from the previous 11 percent.

Bank lending rates have followed the CBR since it was launched in 2011, as the figure has real implications on at rate banks can borrow from the central bank. Banking lending rates then are a few percentage points above the CBR.

Since the beginning of the year lending rates have followed the CBR down with base lending rates threatening to be break below 20 percent for the first time in six years.

This should be welcome news all around as lower rates would mean more borrowing and therefore more cash sloshing around.

"The banks are unlikely to run out and send the credit taps gushing seeing as there are just coming out of a period when bad loans are at their highest levels in almost a decade. Fear is still ruling the credit market. Once beaten twice shy...

Relatedly the Treasury bill and bond yields remain determinedly in double digit territory.

In the budget the government pledged to half its borrowing from the public, which would put downward pressure on the government paper yields, but we heard that last year, so we really can’t take that promise to the bank.

Borrowers are coming back steadily into the market.

According to the Bank of Uganda growth in personal loans  came in at 20 percent in October last year – the latest available figures, agricultural loans also grew by 13.7 percent but lending to real estate and the manufacturing contracted by 4.9 percent and about 15 percent respectively.

The figures suggest that consumption is rising but production is not keeping pace. It’s a chicken and egg situation kind of. Which comes first an improvement in general purchasing power or increased production? But there can’t be increased demand without a jump in production to create the jobs that will drive the demand.

Of course the lending rates are such that it would take serious discipline to contract a loan and show a return in the current economic environment. For medium to long term optimism we need to see growth in credit to the productive sectors in order to hope for a sustained turn around in our current economic situation.

The growth or lack of growth in credit serves as a useful proxy for a sector’s health.

Since there is no visible growth in lending to manufacturing we can assume they are struggling to expand capacity, if at all. Anecdotal evidence suggests there has been no real growth in this sector over the last few years, judging by how many are shutting down or workers laid off.

"But is lack of credit the problem or a symptom of a larger problem?..

As a business one has the option to finance their business via an injection of resources by the shareholders, retained earnings held over from previous profitable years or borrowing from individuals or institutions.

When starting a business it maybe enough to rely on ones on resources as well as that of family and friends. You often don’t need much sophistication to get money at this phase. But as the business gets more sophisticated sourcing money becomes correspondingly complex be it borrowing from the banks, the public or raising funds on the stock exchange.

The more orderly you are as a business not only do you have more options for raising money but you can get it cheaper than a less organised company.

Unfortunately for our many of our businessmen our businesses have remained subsistence businesses, intended to support the founders lifestyle and not much else. How much can one man eat or drink? How many beds can he sleep in at the same time?

With such limited objectives there is no need for the business to become more sophisticated, to be better able to weather the economic storms that inevitably come around every so often.

As an example during the bailout outcry last year, it was reported that one business man had taken out an overdraft to build a factory. The mismatch of assets and liabilities seem obvious at a glance, but when you have come from a time feast, when cashflows were good you think you would be able to beat the system. Arguably if you were more organised not only wouldn’t you gamble like that but you would also have many options to raise financing that you wouldn’t box yourself into a corner.

The proof of this is that there are companies that while they have been distressed during this down turn continue to operate and collapse is not eminent. And we are not only talking about international companies.

"The reduction in the CBR is welcome news for all of us but if we have structural issues in the economy or in our businesses or personal finances it will not necessary lead to an improvement in our lot...

UGANDA MUST ASPIRE TOWARDS A RULE BASED SOCIETY

Overshadowed by juicer news events the land inquiry commission continues to plod through hundreds of cases that are being brought before it.

Justice Catherine Bamugemereire who heads the commission recently reported that since they started their inquiries in the middle of may about 1,600 land cases have been brought to their attention.

The cases have ranged from land encroachment to “straightforward” land grabbing to grave snatching to grabbing whole forests, swamps, lakes and everything in between. The consistent thread running through these cases is of individuals trying to keep for themselves land which seems unattended to or occupied by helpless people who can easily be disposed of – literally or figuratively.

These cases examined in broad daylight seem incredible but point to a creeping – no, entrenched culture of impunity in our society.

"We have seen it before be it in the Office of the prime minister or the public service pensions scam or the jaw dropping smash and grabbing that characterised the Uganda National Road Authority (UNRA) or the shenanigans going on in many government offices....

That public officials willing to help themselves to public goods do so and do not even try to cover their tracks, flaunting their ill gained wealth under our very noses, safe in the knowledge that they will not be caught.

As a result even “good” men and women have joined the hogs at the trough arguing that if everybody is doing why not them, while continuing to assume pride of place at their local churches every Sunday.

Pope Benedict called it moral relativism, when the divide between good and bad begins to blur and eventually disappear. When the question stops being whether an action is bad but how bad compared to other actions it is.

A few years ago when a former minister discovered that his proceeds from a influence peddling deal was about to come to light he complained that he was being witch hunted after all, as he pleaded at the time, others had “eaten” more. Notice he did not deny that he had taken a bribe but was protesting his “relative” innocence.

"In a country committed to electoral democracy it was only a matter of time before the rapaciousness of the public official got in the way of service delivery, to the point that it is hard to explain it away with the wave of an autocratic hand...

But also as societies grow and become more complex, relying on the good manners of people or familial or tribal standards to enforce good behaviour becomes less possible hence the need for generally agreed rules and institutions to ensure  law and order.

The 1970s and 1980s – our dark ages, broke down a growing appreciation for the rule of law and institutions. Government’s inability to get things done means it cannot be business as usual.

We will hear increasing grumbling of the Moral relativism type in coming months and years as attempts are made to get things in order.

Even if the effort is half hearted, if it gathers some steam it will begin to take on a life of its own, an irreversible momentum that will force us all to conform to the rules.

Wishful thinking?

In order to meet our development ambitions a rule based society is imperative. See for example the billions of dollars we can now borrow from the open market. We couldn’t do this a decade ago. The lenders can now look at your society and discern some order which gives them a better chance of getting paid back.

Contrast this with our neighbours the Democratic Republic of Congo (DRC) whose natural resources have been estimated at about $12trillion but it cannot exploit them for the population’s benefit because the chaos at every level that prevails there.

"Whether we progress towards a more rule based society will depend on our elite both political and economic, which gives little solace....

On the one hand whether the politicians can see that a more prosperous, rule based society will be correspondingly good for them and on the other whether the business community can shed off those in their ranks, who have benefitted and worked to maintain a status quo that benefitted them to the exclusion of the rest of us.

NOTHING IS FOR SURE BUT CHANGE

Nothing is for sure except death and taxes – in our parts the latter maybe optional but no one can get away from the first.

Last week Oil futures broke below $45 a barrel after a brief rally in May that saw it climb to $52 a barrel. Tis despite the best efforts of the Organisation of Petroleum Exporting Countries (OPEC) to talk the price up. They met a few weeks ago to extend cuts in production as a way to keep oil prices up.

About 45 years ago OPEC created an energy crisis that saw oil prices jump to the princely $12 from the previous $3 a barrel. This came about when they placed an embargo on the US and other western economies for supporting Israel in the Yom Kippur war.

As of 2016 OPEC controlled 44 percent of world exports and 73 percent of the world’s proven reserves. So supply decisions made by the 14 member organisation have a telling effect on world prices.

Recent event suggest that’s not true anymore.

"A few factors have changed in recent years. Some of the oil exporters who gauged themselves on the $100-plus a barrel prices of a decade ago have seen their economies come and unstuck. Venezuela and Angola come straight to mind but you can add Nigeria to the mix...

These countries have an urgency to keep pumping the black stuff just placate their local populations. Then there is the return of Iran from the cold. An embargo on their oil exports was lifted last year and again politico-economic realities dictate that they generate more and more revenues.

But an even more interesting development is the shift of the US from being a net importer of oil to a net exporter in the last five years or so.

Modern technologies mean the US can not only make more marginal oil fields viable but also means then can extract oil from existing and abandoned oil fields. As a result of this surge in production a ban on oil exports was lifted two years ago. And in the first quarter of this year the US exported up a million barrels day.

As the biggest consumer of oil this is significant because it takes away OPEC’s influence in the global markets.

Last week it was reported that the company behind WordPress, the blog enabling service, will be closing its San Francisco office because not enough workers are coming to work in person. Workers are choosing to work at home or offsite more and more these days making the expense on office space optional or redundant altogether.

Advances in communication technology now mean that the need for brick-and-motar working environments is becoming a dated concept.

And finally last week it was reported that the number of south Sudanese refugees in Uganda has risen to 900,000 with no sign of the influx abetting. In some areas the refugees now outnumber the locals putting unbeareable strain on already inadequate physical and social infrastructure. It is safe to say that like the Rwandan influx of the 1950s  we can expect that the South Sudanese are here for the long haul.

This changes in energy, labour and movements of people around the world are radically changing economies and impacting politics in ways previously unimaginable.

Whoever thought in the heady days of $100+ a barrel oil that the middle eastern economies would be struggling for survival like they are today. The shut out of Qatar last week is a symptom of these growing tensions.

Whoever thought barely a decade ago that the office as we know it, the center of every business would become obsolete.

And a decade ago with the optimism of a newly independent South Sudan still hanging the air thought the world’s newest state would implode so spectacularly.

"There are other developments happening before our very eyes that are fundamentally changing the traditional factors of production of land, capital and labour, which mean that the way we think, project and plan our economic futures will have to change...

Last year they say that at least sg44trillion passed through the various mobile money platforms in Uganda. This is about one and half times the new budget and it is growing by the day. These are monies that were not in the formal financial sector that have been liberated from under our mattresses, socks and bras.

Already the various telecom providers are tapping into his flow to lend money bringing formal credit to a whole new layer of economic actors. That it takes less than a minute for a loan approval – literally, means the traditional lending houses will have to speed up their own processes to remain relevant or lose their relevance altogether.

You think not?

Already our face to face interactions with our bankers are down to near zero. Banks are rethinking opening new branches and are pushing for more technology usage and collaboration with other economic actors to extend their reach. The way technology is going it’s not inconceivable that the bank as we know it, in a decade will be no more with all of our transactions being carried out online and not with punching keys on our keyboards or phones but by telepathy with the same devices!!!!

SPARE A THOUGHT FOR THE TAX MAN

Long before Christ’s time the tax man was the punching bag. It got so bad that Zacheus had to climb up a tree on Jesus route to hear the message. Had he stayed at ground level his height would have meant he missed seeing the son of man on account of his height – he was a short man, but also because he was an unpopular figure being a tax man and no one would have sympathised with him and allowed him to the front.

The tax man suffers the classic dilemma of the messenger. He does not decide who to collect from, that is determined at the parent ministry, and even if the tax man has a contrary view about the wisdom of collecting from this or that person or entity he really doesn’t have a choice.

In Uganda for the better part of the Uganda Revenue Authority’s (URA) life the chief tax man has been a lady – Anne Brit Aslund followed by Allen Kagina and now Doris Akol.

The month and the financial year is coming to a close.

"The commissioner general is confident that save for the two public holidays – they lose at least sh30b in collections on such days, they should just make their sh13.2trillion target. At the time of our speaking just before the budget reading they had collected about sh12.8trillion...

Akol said the collections had proved a mixed bag in the year with taxes from fuel imports falling in line with less than expected growth in volumes, the economy missing its expected growth target of 5.5 percent to come in at under four percent, taxes from personal incomes underperforming, all of which it is expected will be countered by strong returns from the banking industry.

To meet the ambitious targets under such circumstances points to something more.

To get an understanding of the enormity of the challenge one has to look back at least a decade. Ten years ago URA collected sh2.6trillion a figure that is set to increase at least five fold this year. In effect revenues have grown an average of about 17 percent a year in shilling terms.

For a long time, ever since the introduction of VAT in 1997, there have been no new tax heads introduced. So these gains have been due to the growing economic activity during the period and improvements in administration.

Our tax base still remains small at about 14  percent to GDP compared to the sub-Saharan Africa average of 20 percent but there are incremental giants year on year should lend us some comfort.

Akol is confident that with the introduction of the digital tax stamps, especially in customs they will be able to meet or even surpass the next financial year’s sh15.3trillion target.

Efficiencies in rolling out the e-tax and collaborations with KCCA and the Uganda registration Service Bureau (URSB) to spread out the tax net should begin kicking in the next few years.

URA’s performance is critical in the context of increased borrowings to finance our ambitious infrastructure projects.

"According to the budget we will be shelling out at least $900m in loan repayments this year compared to $159m a decade ago, the near six fold increase in repayments being padded by the growing revenue collections over the period...

As our brand new infrastructure comes online be it in power generation or roads or railway the assumption is that these will spur new economic activity, which URA can then tax.

The naysayers argue that this new economic activity may not materialise and we will still be saddled with these onerous debt payments. But our history has shown there is still a lot of suppressed demand, which shouldn’t come as a surprise given the existing infrastructure deficit, which attempts to bridge are not keeping up with population growth at the bare minimum.

He tax man or woman is hard person to sympathise with, especially in our case where the history of bribery and extortion follow them around like a bad stench. But spare a thought for them as they go about their thankless jobs, which if they didn’t do well we really would be up the creek without a paddle.

UGANDA BUDGET 2017/18: KEEPING THINGS IN PERSPECTIVE

Finance minister Matia Kasaija read us his sh29trillion budget on Thursday. In it he reported that the domestic revenues from URA will cover about sh15trillion of the budget and the rest will come from domestic and external borrowing.

In the lead up to the budget reading the pundits were screaming blue murder about how much money we are borrowing and wondered whether we will be able to pay when the debt comes due.

The critics argue that our debt burden is growing as we play catch up in trying to lay down much needed infrastructure in the roads, rail and energy among others. I have listened intently to these arguments and I struggle to see either point.

To simplify let us use our own personal experience with debt. The banks will lend you about 15 times your net salary for up to six years. So if you earn a million shillings they can lend you sh15million shillings, which will be about 25 percent higher than your total annual salary.

So if we look at your debt to earnings ratio at the beginning of the loan it will be about 125 percent of your earning power for that year.

Hence the insistence of judging Uganda’s debt, in proportion to our GDP, a country’s economic output, of about, which the minister said was about 33 percent but when future payments discounted to today’s value about 27 percent of GDP.

Our GDP is about $26.4b and our public debt $8b.7b as at the end of last year.

That last part is based on assumption that future value of money is lower than the current value and so to get a more accurate read in present terms you need to take this into account.

"But I think what is more important is to measure our debt against our ability to pay our obligations as they come due....

Returning to our personal experience, that will we be able to meet the banks monthly repayment demands given our income?

Assuming a rate of 25 percent for your sh15m loan the bank will ask for a monthly repayment of about sh400,000. Assuming you keep the job you should be able to repay the back the full loan given your current income.

But imagine that every year your income increases by five percent, over the period of the loan your net income before loan repayments would have grown to about sh1.34m. Meaning your loan repayment will be much less worrisome to you by the time you finish paying the loan.

Extrapolating that same scenario to our national affairs.

Over the last ten years URA’s ability to collect revenue has risen to sh13trillion in 2016/17 from sh2.6 trillion in 2006/07. It would be interesting to use GDP but our revenue collections is where we should look, given our personal experience. Our revenues are what repay the loans.

This means that on average URA’s collections have grown by an average of about 17 percent a year over the last ten years.

While the minister reported they had not met their target but URA officials are confident that by the end of the month they will have at least meet their target.

URA commissioner general Doris Akol told Shillings & Cents last week that their confidence comes from the fact that the banks have had a good year and their corporate tax is not yet in.

In 2006 the GDP of Uganda stood at $9.9b according to the World Bank, which means it has been growing at compounded average rate of about 10 percent annually using the finance minister’s current estimate of about $26.4b.

Looks high but can be explained I think by the rebasing of our economy in 2014 to capture new sectors. It grew 13 percent that year.

"This is interesting because according to the ministry’s figures we paid sh159.5b in 2006/07 in debt repayments which accounted for 6.1 percent of that year’s revenue collections. In the coming financial year we will be paying sh916b of the sh15trillion collected or about 6.1 percent....

The point is that while we will be paying about six times as much in debt repayments in the coming year compared to a decade ago, in terms of our ability to pay there is no difference in how much we are paying because we have developed the capacity to meet our added obligations.

If we are to be concerned about Uganda’s increasing debt burden we need to focus on whether our debt is being used for productive endeavours, things that will stimulate more economic growth and hence more revenues to pay for the debt.

So for example the privatising of power distribution and the commissioning of the 250MW Bujagali dam has seen Umeme’s revenues leap to sh1.31trillion in 2016 from under sh200b in 2005. In that year they paid sh52b from zero a 2005.

We should be concerned about the mounting debt but this should be seen in its right perspective.

To return to our personal analogy when you were earning a million shillings a sh15million debt was a daunting prospect but not so for today when you earn sh10m!