WHERE ARE WE ALL GOING

The relief was palpable when the lockdown was partially lifted last month, until we found ourselves in traffic jams, consistent and enduring like never before.

This came as a surprise, since the pesky boda bodas and their more nefarious cousins the taxis were off the road. We blame everything on those two, even our inability to keep time.

Explanations came fast and thick – people are being forced out of the city all at once (the dusk-to-dawn curfew was not lifted), people are using their cars since there are no taxis, people are so glad to be out and about they are just driving around and it went on an and on.

In September 1996 the city traders went on strike to protest the introduction of Value Added Tax (VAT). The tax which was introduced following the budget that year was too complicated to implement, they complained. Uganda Revenue Authority (URA) on their part believed people were complaining because was because VAT was much harder to evade than the ineffectual Sales Tax that it replaced.

But the immediate impact of the strike was that the roads were clear of traffic for the week that it happened. Suddenly we knew who drive the cars in Kampala....

This time around the arcades, which replaced the lockups that lined downtown Kampala are shut, but there is still traffic.

Schools and learning institutions another source of our snarl-ups too, are closed.

Many businesses and offices are not firing at full capacity – I can tell by how much easier it is to get parking in town.

So what then is causing all this traffic, I wonder.

It is obvious that

the rush to beat the curfew, coupled with our propensity to always do things last minute is fueling the evening traffic.

Observers say that we will be lucky this year if Uganda can manage half the 6 percent growth it showed last year.

And the evidence before our eyes – closed shops, silent factories and rotting matooke are proof enough.

The text books say that economic activity is the production, distribution and consumption of goods and services. In a vibrant economy people are on the move to do their part in that equation.

So you can see why our best economists are scratching their balding pates.

In these depressed economic times where is everybody going?

Maybe the key is in the arcades. Many of the traders locked out of their shops have found a way to start delivery services. Now without passing through the more established delivery services, with a call or whatsapp you can everything from charcoal to refrigerators and everything in between delivered to your house.

 This would make sense. These cars were previously parked outside the arcades or at home – for use only on the weekend maybe, but now are criss crossing the city delivering stuff...

I was told a story oncec of how a low level security informant went AWOL because his office planned to transfer him to Moroto.

“I make sh100,000 a day in Kampala by kuyiyaring, how much would I make in Moroto,” was the thought process that sealed his decision to abscond from duty.

Pressed against the wall with no job or lower pay,

people are investing in a few liters of fuel to come into town, hoping proximity to the economic machine that is Kampala – last I checked it accounted for seven in every ten shillings generated in this economy, could lead to a few crumbs falling over the steering wheel into their laps.... 

If the above is true, the unrelenting traffic through out the day suggests that we have a lot of cars that don’t make it to town during ordinary days. We are parking our cars at home in the hope of dodging Kampala’s growing traffic, but now with few public transport options we are pulling them out to join in the melee.

But I think the traffic is indicative of a  bigger issue.

In all the experts’ projections they have put a premium on closed shops, mothballed factories and the quiet at our airport as a measure of how badly the economy will be hit.

Clearly we did not factor in that in the face of hardship Ugandans are not going to just rollover and die. They are going to hustle. They are going to push. They are going to scrap and scratch....

There is hope for us. Clearly most Ugandans are not moaners and groaners.

HIGH LENDING RATES A SYMPTOM OF BIGGER PROBLEMS

Last week central bank governor Emmanuel Tumusiime Mutebile in sharpest remarks yet directed bankers to lower their lending rates further.

He complained that despite bring the Central Bank Rate(CBR) down to seven percent he has not seen a commiserate drop in lending rates by the bank.

CBR is the rate at which banks borrow money from the central bank.

Banks prime lending rates now range from 16.5% to 20-plus percent.

A study by the central bank pointed out that beyond the cost of money the high lending rates were high overhead costs that come with banking.

"If this is true then Mutebile’s admonishment will have little real effect on lending rates soon....

It has been reported severally that in conjunction with the Bank of Uganda the industry has been making some serious inroads into cutting those costs. 

Two years ago Central bank finally gave the greenlight for agency banking, which has saved banks the cost of opening more branches, while delivering their service for a fraction of their normal costs.

There are also moves to consolidate the transfer of money, with banks sharing bullion vans and collection centers, there are also plans to share ATMs  and other initiatives that will help lower industry overheads.

I am also aware that there are discussions to increase the minimum capital of banks and annual license fees. These two initiatives it is expected, will increase innovation in the industry – banks will look for more things to finance and lower lending rates. If the shareholders put up more money in order to show a return, managers would have to be more nimble and aggressive in the market to stay in a job.

"Key to note here is that lowering the cost of doing business is a collaborative effort between the government in making laws, the central bank in regulating and the industry in executing....

Basically banks take money from people who don’t need the money immediately and lend it to others who have a current need for it.

We charge them for keeping our money and they charge us to borrow the money, their cut is the difference between how much we pay to borrow minus how much they pay us to deposit with them.

Among other things the supply of money in their vaults determines how much they quote for their lending rates. If they have little money they will charge high interest and if they are awash with cash they will ask for lower interest.

"In the given circumstances where people are withdrawing more than depositing you can see how the cost of money goes up....

I think that while the industry is working to lower overhead costs, government should be planning and legislating on how to increase savings in the economy as a means to lowering lending rates.

In more advanced economies as much as 80% of the money in circulation is in the formal financial sector, in Uganda the reverse is true.

  

The net effect of this is that there are lower lending rates in those industries.

Increased financial literacy from its current dismal levels will go some way to increasing savings, but I favour a more direct approach, in addition.

National Social Security Fund (NSSF) was created by an act of parliament in 1985, in which government compelled workers to save five percent of t heir incomes and for their employers to save an additional 10% on behalf of their employees.

Were it not for that fact, most of Uganda’s workers would barely have two shillings to rub together.

The evidence is there for all to see. Easily nine in ten NSSF members have nothing but their NSSF savings to look forward to at retirement, despite the years they have worked.

Assuming pure rationality, one would expect that workers would have saved more of the 95% left over from their income to have at hand multiples of what they have  at NSSF.

"We could wait for savings to grow organically as the economy grows or government through the law can compel us to save more....

Say we increase mandatory savings by just two percentage points, the effect will be felt across the industry.

If the banks have more money to lend, by the laws of supply and demand, the lending rates will fall.

"I think appealing to the banks sense of fair play is a losing strategy, in as far as the rates will not come down as fast as we wish. But if by understanding their business and pushing the appropriate levers we can create a situation where they have no choice but to bring rates down, that would be a more sustainable formula....

There are other issues to consider, like governments huge appetite for borrowing to finance its budget, the relatively low revenue collections too, play a part.

The least of our worries is that the banking industry is dominated by foreign interests. If this was a major problem then the  government owned Housing Finance Bank, Post Office and Pride Microfinance, would be leading players with lower than industry average, lending rates.

 Japan and South Korea government owned banks are not the dominant players in those respective industries, if at all. But their government’s know how to leverage the banks there to support their development agendas, without disrupting the industry or markets.

"Mutebile walks a fine line between letting the banks do what is necessary to remain viable and pandering to populist short term interests....

Bringing lending rates down is not a job for  Mutebile alone but for the Uganda government as a whole. 

The sooner we appreciate that, the sooner that the central bank would not be forced into embarassing, even ineffectual.

THIS ISN’T A NEW FIGHT, WE JUST DIDN’T KNOW IT

Last month New Zealand announced it was corona virus free after it had not recorded any new cases in the previous two weeks to June 8th.

Reporters went ahead to report that the island nation had beaten off the virus.

I wondered at the time, how anyone could claim victory over the virus when it was still raging around the world.

Note too, that since then they have reported no community infections but about 24 new cases from New Zealanders returning from abroad have been recorded. The borders still remain closed to non-citizens.

This is not to discount New Zealand’s achievement, who with full disclosure not only flattened the curved but collapsed it completely.

There are interesting parallels between New Zealand and Uganda. While other countries eased into the lockdown, New Zealand like Uganda wasted no time in going into total lockdown.

As a result about 1500 infections have been recorded and 22 people have died due to the disease.

"No one can declare victory against the disease until there is no victim in the world. Realistically that can only happen with discovery of a vaccine and mass vaccination around the world...

Until then announcements of victory against the virus are mere  political grandstanding and can’t stand the test of time.

But this is a fight we have been in before. The difference is that its effects are felt within a fortnight and its infection rate means victims pile up very quickly.

The other fight, not unlike the corona crisis, is that against climate change.

"The effects of climate change however take years or even generations to be felt, so allows for a lot of casualness and worse, outright denial of the phenomenon...

In Uganda for instance our forest cover, the last I saw, had been depleted to eight percent of the land mass last year compared to 24% in 1990.

The wild fluctuations of weather patterns is a testament to this loss.

And like the corona crisis, climate change is being denied by the wealthier people as it gets in the way of their making money. The biggest losers are the poorer people, more reliant on the natural environment for their living.

In the case of the Corona virus the lock down, while it has shut down the economy and people have lost livelihoods, has saved hundreds, maybe thousands from contracting Covid-19, the disease caused by the corona virus.

This unfortunately has led to a growth in the denial industry. The narrative goes something like, “This Corona virus is a hoax and the extended lock down is a means by which the NRM is looking to make political gains at the expense of its rivals”.

If you look closely

the argument is being made more forcefully by those who think, that even if they contracted the disease they have access to the health care required to beat it....

The lemmings in their wake are more like, ”If we die, we die.” Desperation too has set in and that is understandable.

But before you die there is the disease. While it is indiscriminate in who it attacks the medical care for various sections of the society is not the same.

 CNN presenter Richard Quest this week testified how he had contracted the disease two months ago, but is still feeling the after effects of the disease – a persistent cough, mental haziness and uncharacteristic clumsiness, all of which are hampering his productivity and standard of living. This from a man who has access to the best medical facilities and is in relatively good shape.

And the other day a medical report came out saying how contracting covid-19 has far reaching effects on the brain too.

The silver lining with the disease – if you may call it that, unlike climate change, is that it soon catches up with the denialists as we have seen in the UK and Brazil and dare we say, Burundi.

The Uganda government’s pointed looking away as our lands are denuded of their forests and wetlands are drained, will be felt when few will remember how it happened. The same goes to all other countries.

 So its not as we have not been in a fight like this before, its just the covid-19 has been quicker in how it has swept around the world. 

"But it still goes to show that there will always be people willing to put their interests ahead of the general good, to deny its existence when the proof is as clear as exhuming graves to fill them with new bodies....

BUILDING A VISION GREATER THAN YOURSELF

Last week I saw a notice about Dr Ian Clark stepping down as chairman of the business, International Medical Group (IMG), he helped found.

Dr Clark who has been in Uganda since 1988 begun the clinic, International Medical Center (IMC) on KPC building on Bombo road in 1996 that would eventual grow into the health services conglomerate. IMG has a hospital, clinics and a medical insurance provider.

According to the advert Dr Clarke remains a director and still holds ten percent share in the multi-million dollar enterprise, with the rest of the business owned by a private equity firm out of Mauritius, Ciel Healthcare Ltd.

For people who know

, its an amazing feat building  an enterprise to the size of IMG but even more amazing is to get high caliber foreign partners to invest in your business...

There are four broad reasons we start a business. The first is to feed ourselves, the second is to pass it on to future generations, the third is to eventually sell it and the fourth is for philosophical reasons.

This is important because why you decide to start a  business, the vision you have for it will determine its chances of success in the future..

 

. 

Of course you can start at the bottom of the ladder and out of necessity, experience or luck find your vision growing.

If you build a business to feed yourself, when you are well fed, housed and clothed then what? Chances are your business collapses soon after or beguns the inexorable slide into oblivion, because your ambition is very short term. Examples abound around us.

You build to pass down the generations, the Asians seem particularly adept at this, then your business has a better chance of success or at least longevity. 

And if you build to sell, whether in part or its entirety, you further enhance your chances of success. You structure the business better, you make it more systematic and your value proposition is crystal clear to people beyond yourself.

And if you build out for philosophical reasons, like Microsoft which aimed to put a computer in every home because it believed in the progress this would generate for all users, the size and success of your company is infinite.

Knowing part of Dr Clarke’s story through his book, “The man with the key has gone” one can assume the good missionary’s ambition was prompted by more than subsistence. If it were limited by his basic needs, his business would not have grown beyond the little clinic at KPC building, like many other clinics around town whose owners are making a good living.

To give better service, its clear the clinic had to grow in size and complexity and its now safe to say the enormity of the vision seems to have out grown the founder’s capacity, hence bringing in new partners who have eventually taken control of the business....

In our patriarchal, parochial society there are people shaking their heads and feeling pity for Dr Clarke for “losing” his business. We would rather own 100 percent of a small, ineffectual enterprise than own 10 percent of much bigger enterprise.

When you have a big vision you recognise you would be content to see others further the vision if you have carried it to the limit of your capacity; but when you are building just to feed yourself and threaten little brown girls, your ambition stops at driving  around saying I own that and that and that...

In a country where much needs to be done with few resources available to local investors it makes sense to attract partners – internal and external into our businesses to further the vision.

There is nothing new under the sun. Our businessmen are not doing anything original. Someone, somewhere is doing the very same thing to a larger scale and has access to more resources.

Foreign Direct Investment (FDI) is not the end all or be all, but one of the major challenges of attracting it, is the lack of businessmen who have achieved big enough scale here to attract bigger money... 

We are content to be big fish in our small pond. From purely selfish perspective this puts a ceiling on our wealth but to take a broader view, it denies our people better quality goods, services and jobs.

I hope Dr Clarke got paid a fair value for the “sweat” he has spilled over the last two decades or so, but ten years from now he maybe even more gratified when the house he helped build is providing quality service to thousands and thousands more people in his adopted country.

LETS GO FOR EXPORTS RATHER THAN IMPORT SUBSTITUTION

One of the major challenges resulting from the three-month lock down is the collapse in consumer spending.

It’s a bit of a chicken and egg situation. Because businesses shut down workers have seen a cut in or a total loss of their wages, as a result the companies have no one to sell to.

Coming out of the lock down will require companies to jump start production on one hand but also for there to be enough spenders for the companies to sell their goods and services to.

The government has suggested some remedies to the challenge –postponing tax payments, encouraging banks to postpone loan repayments among other things.

In addition it has been suggested that import substitution, where we produce some of the things we import, can create jobs and help jumpstart the economy.

The import substitution call, first heard after independence, is an attractive one. It presupposes more jobs created locally and a reduction in expatriation of profits to foreign investors. 

The traditional way of supporting import substitution is by discouraging importation by raisinig import duties, so that local industries can grow and fill the gap. Governments can either jump in the fray themselves, start companies to import substitute or support local companies to do the same.

What the promoters fail to point out is that import substitution initiatives don’t stand up to scrutiny, often are a higher cost on local consumers, who pay for their inefficiencies and promote an entitled elite, disproportionate beneficiaries of the policy who will fight its reversal or liberalisation of markets regradless of its cost to the economy....

Import substitution has been tried out in the NRM era and some companies still enjoy protection from imports. But 30 years later consumers are willing to pay more for the imports nevertheless, because these favoured companies produce substandard goods.

Borrowing a leaf from countries like Japan, South Korea and more recently China, the more enlightened thing to do is to support companies that are targeting foreign markets.

Producing for foreign markets is a more objective measure of a company’s success. Producing for local markets, one can be successful because he is favoured by the ruling elite, while foreign markets will not be swayed by such considerations.

Secondly, because of the size of foreign markets, companies who service them will be forced to employ more and more workers and buy more and more from local suppliers, as they win more market share, which is a major intention of the authorities.

However, helping companies to produce for export will take more intelligence than is suggested by closing off our internal markets to foreign producers...

For starters government has to come up with and execute a more credible industrial policy than it currently has. The same for an export promotion policy.

The interesting story is told of our attempts to supply goats to Iran in the early 2000s. We have goats running around all over the place surely we can supply them, we thought. When the Iranians came up with their demands for the quantities – 14,000 goats a week and the quality – weight, slaughtered under Halal standards and transportation conditions, we couldn’t cut it and the deal went begging. And that was just goats.

It is clear that before we can plan for exports we need to muster sufficient volumes of whatever it is that we want to trade in. The local market will be a useful launching pad for this ambition, but supplying it will just be a means and not an end in itself...

As part of policy government would have to negotiate access to foreign markets and even give marketing support to companies intending to export to those markets. Especially as we intend to eventually export finished goods to those markets.

Also in order to export successfully we will be forced to determine what products do we have competitive advantage in, which products can we produce better than most other nations in the world. By determining this first, we will improve our chances of success in foreign markets and not support unnecessary ego trips.

As an aside too, producing for export will improve the standard of goods we consume in this country. Our lax standards regime or enforcement means we produce a lot of stuff that foreign markets would not touch with a ten foot pole, this is detrimental to our health and general standard of living.

The real Asian tigers – South Korea, Taiwan and China, have learnt this lesson and are executing it really well. They also tried import substitution too but realised it was a losing strategy and promptly ditched it.

We have products already that can be tweaked to enter foreign markets – our sugar, our alcohol (waragi), dairy products among others.

Producing for export is not easy and the respective companies cannot be left to go it alone, a coherent national strategy and  systematic government support are key.

Doing this through public enterprises would see the inititiave dead on arrival. The more sustainable way is to do it through the private sector, a whole science on its own.

If we want more jobs, more revenues to the treasury and more technological transfer, lets muster the strategic vision and implementation discipline  to produce for export over the less ambitious import substitution strategy....

IF YOU WANT TO MAKE GOD LAUGH

They say that if you want to make God laugh tell him your plans.

Never has this been more apparent than in 2020.

A little known virus, the corona virus,  at the end of last year found fertile ground in Wuhan, China to fester and incubate, then sped all around the global via the air routes of the world.

By February it had landed in Europe and in March exploded in Italy and Spain and threatened a dystopic landscape by year end.

Before Europe had it under control it crossed the Atlantic to the US, where if they don’t do it big they go home.

And only last week we heard that in Brazil they were exhuming graves to make way for new deaths.

Covid-19, the disease caused by the corona virus, is not a particularly lethal infection. On writing this the death toll  came to about 5.4% of total infections, this translated into 446,000 deaths.

Why the corona virus has broughtthe world to a stand still is its high infection rate. Scientists have determined that one covid-19 infects about2.5 others in five days, the similar stat for the common cold is 1.5. 

"Doesn’t look like much difference but by the tenth level of infection the one covid-19 patient will be responsible for infecting 78,000 as opposed to 3,800 for the common flu....

 Uganda has been spared the apocalptic scenarios in Europe by taking firm preventive measures – the lockdown, that ensured that the rate of infection was slowed to a minimum.

The lockdown, the restriction of movement and congregation, however, has brough the economy to standstill.

We never saw it coming, when we were drawing up our New Year resolutions. It has been so devastating that Chinese billionaire Jack Ma said, that if your business survives the year consider it a win. All profit, gowth and investment projections are out the window.

In times of crisis whether you, your business or country survive will depend on the foundations on which they are built.

But now spare a thought for political aspirants who have invested millions, even billions of shillings in readiness for next year’s elections.

The Electoral Commission (EC) has said there will be no mass rallies, an announcement that has unsurprisingly  thrown up a lot of criticism. 

The EC say the recommendation was made under the advisement of the health ministry, which insists and rightly so, that social distancing protocals should not be ignored.

I see two critics of this announcement. First, there are those who trying to break into politics fear that without mass rallies there is little chance of winning enough face recognition. 

"Their insistence that mass rallies should be allowed regardless of the health situation is based on them unwilling to wait another five years to shoot their shot...

The second group are those whose knee jerk reaction is to see conspiracy in every thing that is proposed by government or its agencies. That whatever government or its agencies decide is intended to perpetuate the NRM’s hold on to power. Many of these are opposition politicians, who wouldn’t be worth their salt if they didn’t view every thing government did with a jaundiced eye. That’s the hazard of their station.

The first group needs to take a chill pill. It would be irresponsible to the point of being criminal for government to put thousands of people’s health at risk for politics. The US is learning that lesson, as are the UK and Brazil.

"Covid-19 is real. Just because the government’s resolve in enforcing an unpopular lockdown, we have been spared the worst of it, does not mean it is a figment of the NRM’s imagination....

What would be fair criticism would be that if the health system was better, we would be able to afford a few thousand infections as our system would be able to cope better. Maybe that can be a campaign slogan for someone.

But this situation probaly makes the case for the opposition to focus more o n beefing up representation in parliament, rather than fixating on the presidency. In that way they would have been able ti muster the numbers to cause an amendment to the constitution to postpone the elections to a later date.

Okay you can shoot me now.

BIG NEWS: MTN GOT THEIR LICENSE RENEWED BUT …

Last week it was announced that the government had finally renewed telecom company MTN’s operating license.

This comes after nearly two years of hard negotiation that included such tactics and brinkmanship as can only be found on the Hollywood screen.

MTN is to pay $100m (sh370b) for a 12 year term. MTN’s Second Network Operator (SNO) license  expired in November 2018.

The announcement last week not only brought to an end the protracted negotiation between Kampala and Johannesburg but also finally clarified on government’s position on telecom licensing going into the future.

The ICT minister Judith Nabakoba last month gazetted licensing requirements for operators in the industry. 

This is the tail end of the  process that led with the unveiling of the Broadband Policy in 2018.

The gazette promises to bring some order to an industry by formalising the licensing of infrastructure and service providers, greater clarity on bandwidth usage and the regulation of other accessory services.

Attracting more players up and down the value chain will be good for the customers as the competition will ensure not only choice but quality service at an affordable price.

But of course the highlight was the telecom licensing.

Under the new rules there are now provisions for nine categories of licenses that range from the National Telecom Operator (NTO) to the community operator license. Each has the fees and obligations of the operator outlined.

For the first time it clear that if you want to invest in the sector this is what it will cost to get a license and your obligations under the license.

So for instance if you apply for National Telecommunications Operator license the least you can pay for the license is $21.3m (about sh80b) that’s for a new entrant into the market. 

That would allow you to lay down your infrastructure and provide a full spectrum of services from voice to data around the country.

If you are an existing player and  want to renew your license you would pay 1.84% of the previous year’s revenues multiplied by ten, the first half of the 20 year license.

So under these circumstances Airtel, whose license comes up for renewal in July, given their annual revenues of about $380m last year, would pay about $70m.

However, and this probably explains the two year delay – from the passing of the broadband policy, in spelling these all out the minister curved out a special category for MTN.

In this the National Telecommunications Operator (special license category) MTN will pay $100m (no indication how this figured is arrived at) for a license that will run for 12 years.  

Immediately questions jump to mind. Why is MTN being treated differently, using subjective parameters that the public or other competitors are not privy to? Why will the NTO get 10 years, with an option to renew for another 10 years and MTN is not afforded that choice? And what will happen if another operator insist on getting their own terms like MTN? 

In a throw back to

"1998, MTN paid $6m for its 20 year Second Network Operator (SNO) license. One of the conditions of the license was that they were supposed to sign on 89,000 lines in five years. This looked an insurmountable  task given that Uganda Telecommunications Ltd (UTL) had only managed 50,000 subscribers since independence and Celtel had about 5,000 subscribers....

But when MTN signed on more than 100,000 subscribers in the first year the six million fee begun to look like a bargain.

Interestingly MTN won the license partly because they offered the highest price of any bidder at the time in an open and transparent process.

With that in mind it is not inconceivable that with the rapid developments in technology, that five or 10 years down the line the $100m license fee may very well be a bargain. And then other license operators may want to be in the special category, which for the moment is only for MTN.

In rule based environments these kind of disparities are a recipe for all sorts of misplaced perceptions and complaints.

And if you think about it the distinction was not necessary. The  ministry could have kept MTN in the NTO category and they can get renewal after 12 years.

Interestingly in both licenses the holders are expected to list on the Uganda Securities exchange (USE) within two years of signing on.

An investor looking to invest would not be looking at operators with the same license. On the one hand would be the “special” MTN for who it is not clear the license would be renewed after 12 years and the other operator who has the option to renew after ten years.

It is always difficult to price for these long term investments, see the brouhaha in the electricity sector in recent years. Keeping this in mind

the wise thing to do is to reduce discretion to the minimum to make the affected businesses viable, but also as a signal to intending investors that you, as a government know what you are doing.... 

 The devil they say is in the detail, let’s mark this anomaly for future reference.