DON’T LAUGH AT KENYA WE COULD BE NEXT

 Last week it was reported that the International Monetary Fund (IMF) had approved a $2.3b facility for neighbouring Kenya.

The loan was necessary because the Covid-19 related down turn in the economy has seen tax revenues fall and caused. As a result Kenya’s high debt servicing obligations are threatening to choke off the budget.

As it is now about two thirds of revenues go to debt servicing.

We are all in this Covid mess together, the difference though is that Kenya has a lot of non-concessional loans – loans taken at market rates, and in a financial crisis as they face now these become an onerous burden.

In the last few years Kenya has seen their budget explode due to increased infrastructure investment and a jump in public adminstration bill.

It was reported last week that Kenya's debt stands at Ksh7.2trillion (about sh240trillion) of which about 80 percent of it or Ksh5.8trillion was contracted over the last nine years.

"Critics of Uhuru Kenyatta's government complain that not only has the government contracted odious debt but a lot of it has found itself into the pockets of regime cronies...

But the big story real is that Kenya have now fallen back into the dreaded Structural Adjustment Programme (SAP), the favourite punching bag of arm chair revolutionaries up and down the continent.

In the 1980s and 1990s the SAPs came with conditionalities like growing tax revenues, cutting back on government spending and allowing the currency to float freely among other things.

The idea behind these conditionalities was to bring greater efficiency to the economy so that the distressed nations do not only get their economies back on their feet but are able to repay their debts.

The conditionalities were often unpopular because they entailed cutting or remobving altogether subsidies, laying off public servants and selling off government companies among other austerity measures.

Imagine someone comes to you in distress, debts are chocking him to the point that he is struggling to feed, house and cloth his family. Beyond your sympathy you want to make your loan to him is repaid. So as condition of lending him the money you will insist he rents a cheaper place, gets his kids out of their posh schools  and put an end to weekend drinkouts with the boys. If he doesn’t commit to the conditions he wont get your money.

"The truth is that often the conditionalities were used to save countries from themselves or more precisely from their extravagant governments...

It reminds me of the saying that, you are broke because you are spending on things that don’t make you money.

Kenyans took to social media streets last week to urge the IMF not to disburse the loan, which was essentially being contracted to pay for other loans.

It is a measure of how far we have come that we no longer criticise the IMF for doing their job, but are now turning the guns on our governments. Which is as it should be.

When things are good or even when they are not unaccountable governments begin to spend as if it is going out of fashion, building white elephants, indulging in questionable, unsustainable but populaist projects. In  so doing they stretch revenues and live their  respective countries exposed when a disaster like the covid-19 pandemic happens.

If you look around the hardest hit countries  have themselves to blame for their suffering.

To illustrate last year deep into the pandemic Singapore announced it would set aside $60b from its own reserves to the economy back on its feet. Some people will argue they are rich and can afford it but this did not come by accident. The small island nation – not as big as the Kampala metropolitan area, with a population of less than five million people has been very prudent with its budget and as a results have the reserves to tide them over the pandemic. They may still need to borrow but they will be a safer bet for the lenders than Kenya or some of us.

That is why as Ugandans we need to question when, new districts are formed, government indulges in flights of fancy like manufacturing cars, when we don’t have an agro-processing industry to talk of or giving tax holidays to con artists and charlatans when the productive sectors of the economy are going begging.

Currently we are spending three in ten shillings we collect on debt servicing. This will change as half of our budget is now financed by debt and debt servicing obligations will go up.

"Debt is not bad in itself but what we use it for. If we don’t spending it on things which will help the economy grow, like infrastructure it will soon become a lodestone around our necks dragging us down into poverty...

Already the IMF has made some recommendations around raising tax revenues, controlling government spending and addressing weaknesses in state owned enterprises, which will most likely include layoffs and privatisations.

For starters they are wondering (requiring?) whether the government can not double the VAT on fuel.

WHAT IS GOING ON AT THE FINANCE MINISTRY?

Last week the finance ministry announced a raft of new tax measures it intended to implement starting in the coming financial year.

The public has been up in arms lambasting the ministry for thinking of increasing taxes or adding new taxes in this time of financial stress.

I am always amused at the knee jerk reaction of your man on the street at the sound of new taxes in the offing. Its spontaneous and loud but peters out just as fast as it erupted. I guess the bureaucrats too have heard it all before and find it hard to take us seriously.

That being said I was shocked that the ministry was suggesting a return to the annual road licenses for cars.

In 2007 then Finance minister Dr Ezra Sururma announced the abolition of the road licenses in his 2007/08 budget speech. He explained that while it was projected to bring in sh80b, "It is undermined by the high rate of default, rampant forgery of license stickers and requires a lot of administrative resources to ensure compliance. This state of affairs is untenable,” he told parliament.

He said he would recover the “lost” revenues from other sources. The government decided to put the levy on fuel and ring fence the proceeds for road maintenance.

For a car owner at the time this was a godsend. It, renewing road licenses was time wasting process that involved waiting in long lines at the URA office to pay for the license and days later, to collect the road license. Default was rife and I would be surprised if the finance ministry would have collected even half of that projected sh80b. Most of the tax was going into traffic policemen’s pockets....

It was a win-win situation because now every car owner paid the tax. In addition, all boda bodas pay now and it was pointed out to me recently, that even lawn mowers pay the tax.

If there was ever tax that widened the tax base painlessly – for the payer and the collector, this was it.

The strangest thing was that URA and the government never divulged how much they were collecting in the new scheme, which we took as a signal that they were collecting way more than sh80b and did not want to say.

It is therefore baffling – it is inconceivable the planners were not driving in 2007, that the ministry would contemplate this U-turn.

And by the way the return to road licenses should mean that they remove the levy on fuel, isn’t it?

The pressure for more taxes is plain for all to see. The Covid pandemic has forced government to borrow more than planned. While a lot of this was concessionary borrowing, the budget was already under pressure, with debt servicing accounting for three in ten shillings of the budget.

That being said we will be forgiven of looking with a jaundiced eyes at such tax initiatives, which if they are what they seem on the surface, we wonder whether the planners are trying to pull a fast one on us. Hoping that we don’t remember how we got to where we are, hoping to take advantage of our good nature...

As an aside the Auditor General reported to parliament last month that even some of the money we borrow we don’t utilize. There was the issue of sh1.4trillion that went begging when the facility expired before the money was disbursed.

Thankfully parliament has thrown up a real stink about this particular tax measure and rightly so.

Listening to a finance ministry official on radio this week laboring to explain how the tax will be levied – according to seats in a vehicle, I couldn’t help thinking it would be helpful to know how much the original fuel levy was bringing in, if only to help us determine whether it has done its time or not.

It boggles the mind to wonder which government would forgo as perfect a tax as this one, where compliance is 100 percent and cost of collecting minimal for a mode of collection where he is not 100 percent certain to collect all the intended tax?

It has to be an unusual situation too, where the tax payer is arguing for a tax he cannot evade and against one which had been shown to be manipulated as Suruma said when he was abolishing it 14 years ago.

 

BMK AND THE LATEST NSSF SPURT

Two weeks ago Bulaimu Muwanga Kibirige, more widely know as  BMK launched his book “My story of building a fortune in Africa” and last week the New Vision had a four part serialisation on the same.

Its an entertaining read. Over five decades BMK has built an empire that stretched from Hong Kong to Lumbubashi in DRC and from Moroto to Lusaka, Zambia. It has been a labour of love, launched in the Idi Amin era – where he was labelled a smuggler, persevered through the Obote 2 era, where he literally dodged a bullet and has really taken off over the last three decades.

The business lessons are peppered all over its pages. It is all very well to have a long term vision of where you want to be in the future, and BMK had his share of that, but the bigger lesson, for me was

start where you are, with what you have, take the next step even if you can not see the whole staircase and believe that the path will become clearer as you go....

What right did BMK have to drop out of school after P7 and dream of one day being a hotelier? What right did have as he prowled the streets of Hong Kong, Guangzhou and Bangkok to think he could father the second hand spare parts and boda boda revolutions in Uganda? What right did he have to think he could turn marginal land on Wampewo avenue into the flagship of the African Hotel Chain? There is one in Moroto, another in Lusaka, Zambia and another two planned for Arua and Apac. 

Given his journey through some of the worst economic times of this country the rest of us should shut up about the lack of opportunity in Uganda today. It is not in the nature on the man but such complaints maybe met with a snort as he set upon his newest venture.

"Just as important as a lesson, BMK is a compounding machine. Untempted by the seductions of youth he was able to plough back most of his profits into his business. Done across five or ten years the results may not be so impressive but done with discipline over five decades can make for eye popping results.  This assumes of course, that like BMK, you enjoy more success than suffer failure during the period.

Which brings us nicely around to the latest drama with NSSF at the center. Earlier this year parliament passed a law that allows  members to access 20 percent of their savings once they make 45 or save for ten years. The uproar was triggered by a report that finance minister Matia Kasaija had written to President Yoweri Museveni advising that he not assent to the bill. That it should be returned to parliament for further debate.

The minster argued that a massive outflow as is suggested by the law, would hobble NSSF’s activity and affect the Fund’s ability to pay members the attractive interesting they have become accustomed to.

Unlike BMK most of us have to compelled to sock away part of our income and allow the compounding effect to work for us.

Looking at my own NSSF account I notice that my contributions over the years account for about 45 percent of my savings with the rest being interest. That is down to the compounding effect. Because interest has been paid on interest I will receive much more than if I had just saved my money under the mattress dilligently during my career.

"BMK insists he is a lucky man. I guess looking back over what he has achieved he has surprised even himself. That is what the compounding effect does...

Given time and a good rate of return  the end result can look like a miracle.

To illustrate given the choice between receiving a billion shillings at the end of the year or starting with a shilling and compounding at the rate of one percent a day and being paid off what ever the total will be after six years, most people will take the billion shillings now. But then they would be forgoing another sh1.9b if only they had waited to year six.

The point for BMK as for the salivating savers of NSSF, we don’t need to be clever to take advantage of the compounding effect to do well. What we need is a good money making machine and uninterrupted time. 

Delayed gratification is not for everyone – we can not all be like BMK, that is why government against our will made us save. The warm feeling of getting a few millions now may deny us a greater glow of many more millions a few years down the road.

What? You are scared NSSF may not be around by the time you are 55? That is the same thing they feared 20 years ago.

THE NSSF STRUGGLE POINTS TO A FUNDAMENTAL PROBLEM

All hell broke loose earlier this week, when it was reported that finance minister Matia Kasaija had said he would advise President Yoweri Museveni not to assent to the NSSF Amendment Bill in its current form.

Kasaija said the mid- term access close would disrupt the Fund’s operations and do more harm than good.

The mid-term access clause provides that people who have attained 45 years or saved for 10 years will qualify to withdraw up to 20 percent of their savings.

The minister said the provision would cost the fund sh2.9 trillion but the critics argue that is a wrong calculation of a cost to the fund as only about 300,000 will be eligible.

"Officials familiar with the discussion say they are not averse to mid-term access but the way it is proposed in the current bill. The original intention as they understood it, was that the eligible people would be savers who had made 45 years and saved for more than 10 years, which would have kept the pool of beneficiaries small and manageable....

As it is now even savers under the age of 45 but who have saved for 10 years are eligible ballooning the numbers out of control.

Pushed to the wall NSSF can mobilise the funds required, but at what cost?

They could on one hand, sell off some assets to meet the bill. But given that almost three quarters of their assets are Treasury Bonds, selling them would come at discount – a loss, as it is with all bonds sold before they have matured.

Or they could borrow the money, so that they leave their asset base intact.

In both cases it is very likely

it would cost all members the double digit interest we have enjoyed over the last seven or so years.

As it is now if you are an NSSF member and you never saved another cent with the Fund, your savings would double every seven years. That stops, if the NSSF now stops being able to pay above 10 percent interest as has been the practice.

But even for the members who qualify and take advantage of the mid-term access the reduction in their final package will be more than 20 percent, assuming they keep saving till retirement.

For many members they would never have saved these sums on their own, not only because their employer doubles their contribution but also because the vast majority of do not have the discipline to keep their hands off the money once they have saved it.

The situation is so bad that NSSF reports that they have found that eight in every ten retirees fall into poverty barely two years after receiving their lump sum. It is often not for lack of energy to follow up projects but because they don’t know what to do with the huge sums they receive.

If it was up to me I would change NSSF into a pension fund – with people getting monthly payments till death rather than the lump sum on retirement. This would be at the risk of being run out of this town. We all want our lump sums.

What is popular is not always right and what is right is not always popular.

The minister is right to ask that the president stay assenting of the bill until there issue of who is eligible for the medium term access is clarified.

Just a thought, what if we amended the act to allow a portion of our savings to be ring fenced for midterm access. In that way NSSF can invest those monies differently, from the larger pool of long term savings, which would allow for their release when a member reaches 45 and has saved for 10 years without disrupting the Fund’s operations?

BOOK: TO BE SHREWD WITHOUT BEING A SHREW

 AUTHOR: PAULINE MANIRAGUHA BANGIRANA

PP 162    COST: 60,000

Available at all major bookshops

 

Superintendent of Police Pauline Bangirana’s memoirs of have life are a useful addition to the historical record of Uganda.

She was among the first cohort of ten female police officers recruited to the Uganda Police at the tail end of colonial rule. She was at the forefront of improving conditions for women in the force. Women in the force should be grateful to her for sticking to her guns and refusing to resign when she got pregnant with her first son. The police standing orders to did not allow, for women officers getting pregnant, staying on the force when pregnant or maternity leave.

It is clear throughout the book that while being a woman made her stand out, it also worked against her in a force, which was regularly in a state of flux but also still hangover from an institionalised sexism, carried over from the initial Uganda Armed Constabulary, down to the initial design of the women’s uniform.

"It is a familiar script for the trailblazing women of her generation. She got into school through the foresight of an older relative, distinguished herself despite the barriers thrown up against her at every corner and pushed her luck as far as meagre resources and the goodwill of relatives and strangers could carry her....

She is unique though, because as an officer of the peace, especially as a detective in the Criminal Investigations Department (CID), she had a privileged vantage point to observe the goings on of all independent Uganda governments. While most readable, personal accounts in recent years have been of National Resistance Movement (NRM) types in the evening of their lives, Bangirana’s story is a breath of fresh air, told by a public servant – an insider, whose perspective has straddled the breadth and width of independent Uganda.

The start-stop-start again nature of her career – she was retired in the 1970s and again in the 1990s, is an analogy for Uganda’s up and downs over the almost 35 years she served in the force. Her life also maps the breakdown in societal values and the eventual pull back from the abyss of despair that came in 1986. Through it all she reveals how people acting selfishly or selflessly cause the many small ripples that change society for better.

"For students of history her recollection of events surrounding, the death of Kabaka Mutesa II, the attempted assassinations of Milton Obote, the coups of 1971 and 1985, the deaths of Archbishop Janan Luwum and more recently Dr Andrew Kayiira and many other anecdotes make for scintillating reading...

Useful too is her crash course in criminal law, necessary in her narration of how she helped update the training manuals of the police in 1969. It is telling that many of the laws on our books for which we are criicised by human rights activists are carryovers from the colonial time.

Her career during which she was a regular police officer, a detective, barracks commandant and OC Central police station compressed in 162 pages is written in a choppy, frantic style as if she has a story to tell and cannot wait to get it out. It is not a tell all account, given the sensitiveness of many of the subjects she tackles, but it is still a gripping account of a time fast fading from our collective memory. The book – part thriller, part testimonial, is worth its weight in gold for the surprising revelations of many key turns in history.

Bangirana’s loyalty to the force is evident at every turn, despite the number of setbacks she suffered. Her discipline and faith in God carried her through some real soul searching moments. The book comes to a startling end that while unfortunate does, not diminish from the stature of the woman who has now retired to a less dramatic life in Ibanda, western Uganda.

A must read for every one and anyone trying to work out why Uganda is the way it is today. Or for anyone looking for a fun read.

 

MTN SHRUGS OFF COVID, POINTS TO THE FUTURE

Mobile telephone operator MTN seems to have shrugged off the worst of the covid-19 economic slowdown, even emerging stronger and maybe pointing to future trends in the economy.

Last week parent company MTN released consolidated results for the group, which boasts 280 million subscribers, mostly on the continent. From those we were able to glean a few things about their Ugandan unit.

"MTN Uganda’s revenues were up 24 percent to about sh2.05trillion in 2020 from sh1.6trillion the previous year. This growth was driven mainly by a 45 percent rise in data revenues, understandable given the increased data usage during last year’s lockdown. Data revenues were up to sh370b last from sh254 in 2019....

Earnings before interest, taxes, depreciation and amortisation (EBITDA) crossed the trillion-shilling mark for the first time in MTN Uganda’s history, jumping 31 percent from the previous year’s sh775b.

I converted all the figures from South African Rand – using sh246 to the rand, so there maybe some variances to actual figures on the ground.

All this against the background that the company’s subscriber base grew to 14.2 million from 12.6 million in 2019.

As the leading player in the telecoms sector MTN serves as a bellwether of what’s to come.

While voice revenues went up by about four percent, data and fintech revenues shot up to 45 percent and 27 percent respectively. The trend, of low voice revenue growth and high data and fintech revenue growth has become established over the last five or so years.

Thanks to the covid lock down last year this trend can be expected to accelerate. Data subscribers grew 34.8 percent to 4.6 million.

The trajectory of Kenyan telecom operator Safaricom, the market leader in that market, could serve as a useful indicator of things to come for MTN and the industry in general.

As reported in Safaricom’s last annual report voice revenues plummeted to 34.5 percent last year from 42.5 percent in 2017. Going the other way Mpesa (mobile money) and data revenues showed growth of 6.6 and 1.8 percentage points respectively.

One can expect the same trend in our telecom industry looking down the years, that voice revenues will continue to slide while data and fintech revenues rise. Interestingly too, Safaricom over the years has seen reduction in withdrawals from mobile money accounts as people to transact with businesses directly rather than withdraw the physical cash...

Looking to Safaricom’s example accelerating the trend will depend on the spread of smart phones and reduction in data prices, add to that the increased data usage that persists after the covid lock down.

 Developments in the sector are moving very fast that it would take a brave man to try and project in to the future what will happen in 10- or 20-years leave alone next year.

I remember just before the lock down marveling at a niece who had a phone with a capacity of 32GB, I wondered what she needed all the space for. “Movies,” was her nonchalant response, with a look as if to ask, “Where have you been?”. With the lockdown I promptly burst my 5GB a month data requirements many times over and I went, Oh Okay!

I remember almost 20 year ago one telecom official saying it was not financially feasible to have lower denominations of airtime cards than the five thousand shilling one they had just released. Today you can buy as little as 100 shillings of airtime.

I remember even further back in my life time, that my first desk top computer was an IBM with a CPU with a capacity of 250 MB! It boggles the mind.

But former Safaricom boss Bobby Collymore gave us an idea of things to come. In an interview shortly after he took over the reins at Safaricom in 2010 he predicted that voice will one day be an add-on service given free to subscribers. That the action would be in data and other value added services – Mpesa had not yet taken off.

I could have laughed him out of town at the time, when telcos were heavily invested in delivering voice, were trying to promote texting and mobile internet was still a novelty.

And the scary thing is we haven’t even begun to tap the full potential of data services on our phones. Keep this for posterity.

 

WHAT CAN WE SAY ABOUT JOHN POMBE MAGUFULI

Former President John Pombe Magufuli breathed his last on Wednesday evening.

His death was an exclamation mark on the last few days, when he had been uncharacteristically out of the public eye. Speculation had been rife that he had contracted Covid-19 and, depending on who you listened to, he was already comatose, shuttling frenetically between Tanzania, Kenya and India to save his life or dead altogether.

The official version is that he died of cardiac arrest.

"In death as in life the man known as the bulldozer –  lovingly or with dread, sharply divided opinion....

Little known is that after his A-level he trained as a science teacher, before he upgraded to a degree and eventually earning in doctorate in chemistry in 2009.

He jumped into politics in 1995 and before he ascended to the presidency he served as transport and works minister, where he earned the moniker “The bulldozer”. His emphasis on infrastructure development as president was obviously influenced by his work in the ministry. Magufuli is credited with pushing projects such as the development of the Standard Gauge Railway, expansion of the Dar es Salaam port, the liquefied natural gas plant among others. His place in Uganda’s history is cemented if only because he was keen that the Hoima-Tanga oil pipeline get off the ground quickly. He openly expressed impatience with Ugandan bureaucracy, whose lackadaisical attitude he could not wrap his mind around, as he had almost absolute power to implement projects in his own country.

His urgency to develop Tanzania’s infrastructure however, contradicted his perceived skepticism about the East African Community, which while he signed up to all the protocols, his government actively discouraged exports from Kenya and Uganda and made working in Tanzania hostile for workers from the region, despite efforts to free the movement of labour around the EAC.

The last part was an understandable reaction from a country, which many years ago under Julius Nyerere took the step to have all their education carried out in Kiswahili. This has hobbled their workforce, making them uncompetitive against their English speaking counterparts in the region. This policy, while it ringfenced jobs for Tanzanian citizens, is unproductive in the long run as it will affect investment into the giant east African nation. The saving grace for Tanzania, maybe that it is so well endowed with natural resources they can write their own check—for now.

Magufuli was voted President of Tanzania in 2015 and quickly captured the public imagination with his campaign against runaway public spending and official corruption. He was not averse to making spot inspections of schools, hospitals and other public institutions, asking hard questions and firing officials on the spot when they waffled and whittled under his withering gaze. The public loved it. He was just the man to fire up Tanzania’s famously sleepy bureaucracy.

Through sheer force of character Magufuli got the public servants, some would say, to accomplish more in terms of public works, in his first term as president than was achieved under previous administrations.

Obviously he stepped on many toes along the way, especially entrenched interest groups that had enjoyed and profited from the status quo.

But the emperor had feet of clay.

Magufuli’s doggedness in trying to lift Tanzania up from the boot straps required an unwavering conviction in his own beliefs and that seemed to work for other things.

Last year the covid-19 pandemic broke out, sweeping from Asia into Europe and the Americas leaving a trail of illness and death in its wake.

As countries scrambled to contain the spread by instituting restrictions on travel and congregation, Magufuli emerged as one of the biggest denialists of the pandemic. He spurned the standard operating procedures promoted to slow the disease spread – washing hands, wearing masks, social distancing and rejected calls to lockdown his country. Tanzania stopped reporting the number of victims and deaths due to Covid-19 in April last year. He went further and declared that Tanzania was Covid-free when neighbouring countries were beginning to report an uptick of cases.  

It will remain a mystery how a scientist, albeit former seminarian, could ignore all the evidence about Covid-19 and choose a contrary path, but whose negative after effects will resound through Tanzania’s history.

Since the beginning of this year some high profile people have died of Covid, like Seif Sharif Hamad, Zanzibar’s first vice-president and it was becoming harder to sweep the situation under the carpet.

As one of his last public pronouncements at the end of February Magufuli conceded that there may be a problem and urged Tanzanians to wear masks, for him it may have been too little too late.