TROUBLE IN PARADISE! SURPRISE!

This week it has been reported that inside the National Unity Platform (NUP) there are serious differences of opinion about how they should operate in view of their pledge to remove the government of President Yoweri Museveni.

The radical wing of the party think their MPs are being too diplomatic in pushing the main agenda of regime change, the MPs on their part have deflected the charges by asking for accountability for the funds they contribute from their salaries to headquarters.

NUP are understandably unamused that their dirty linen is being washed in public.

But it shouldn’t be a surprise. The party which is not even five years old was cobbled together quickly to contest last year’s elections. In the process it accepted defectors from other parties, many of whom had read the tea leaves and knew the new party led by Robert Kyagulanyi, would shake up the electoral map, especially in central Uganda....

Immediately you can see how people of different ambitions opportunistically took advantage of NUP to get into the house. Now the dust from the elections has settled down, elections have been won or lost and the glue – if any, that was supposed to hold NUP together is beginning to be questioned, coming unstuck.

 NUP uprooted the Forum for Democratic Change (FDC) as the leading opposition party in parliament. Immediately almost 60 of their members find themselves in the parliament. Improved incomes aside, they have quickly found out there is a country to run, they are discussing issues of national importance, regardless of their opposition to the NRM.

Several members of NUP are presently in detention and it can be argued that the MPs could have made it more of an issue in parliament. But that would be to ignore parliamentary procedure.

This honeymoon is clearly over and the party needs to do some soul searching and find their mission beyond overthrowing the Museveni government, in order to keep everyone on track.

In terms of its long term survival the worst thing that happened to NUP was the quick success they enjoyed in the last polls, where they flushed out the ruling NRM’s candidates from central Uganda.

Long term success in any enterprise – political or economic depends on how strong the vision is and how widely it is embraced by the membership. This is important because it is this intangible that will determine whether an organization will get up again after its first, second, third, nth failures. These failures and recovering from them are important in strengthening the appreciation of the vision. In effect you need these failures to strengthen the party’s resolve.

"So you can see how the quick success is a problem. The party’s mettle has not been tested. They have not had to come together and rally against seemingly insurmountable odds, not for one day or week or even year but for a long time...

It’s like the Jewish nation it is the travails they have suffered over millennia -- wandering in the desert for 40 years with Moses, being expelled from the homeland and more recently the holocaust, that have forged the will of that nation.

NUP’s youthfulness, while a breath of fresh air may very well be their undoing. They are going to suffer these internal feuding and differences of opinion in full public view, which is unfortunate for them, but there are no shortcuts.

Of course you can expect that their rivals – both inside and outside the opposition are glad to perpetuate this dissension in their ranks. Those are the hazards of the trade.

Whether they can hold themselves together will depend on the quality of the leadership. It is this kind of adversity that separates the boys from the men, that will either make or break NUP. And inconceivable as it sounds if they fail to handle the situation they may very not be a factor in 2026, even though their grievances will still be there.

THE MONEY CHALLENGES WE WOULD LIKE TO HAVE

I have some rich young friends who have come to the cross roads of their wealth creation journey.

These young men have been saving and investing for the last 13 and 12 years respectively. They have followed a simple formula, every month they saved fixed amount, the amount hasn’t changed over the period. When they had accumulated more than sh30m they moved their savings out of their simple savings account and into a fixed deposit account. Rates were good then they were getting nine percent on their money. But in the third year the fixed deposit rates were down to six percent and they wondered whether there wasn’t anything better in the market.

Two years ago they got all their savings, about sh100m by now and bought a fifteen-year treasury bond which pays them just under six million shillings every six months.

That may not sound like much, but the beauty of the deal is that their interest payments on this bond have now surpassed their annual contribution to the fund. They are earning more than they save...

They are determined to take advantage of the power of compounding and are ploughing back all the income into the fund.

In the last year they dipped a toe into the equity market, committing sh5m to the MTN IPO. The plan is to start allocating money every year to buying some shares on the Uganda and Nairobi stock markets.

While they have kind of made up their investment plan as they have gone along the broad outlines show that they have been climbing up the asset ladder from cash to near cash and now going into equity. The next logical step down the road may be real estate, where they will hope to secure the wealth.

This is their plan for the next 10 years, after which they plan to pay themselves a monthly allowance from their potential earning by that time.

"My young friends have managed two things that often mess up our money affairs.

One, they have automated the process. The monthly contributions are standing orders from their income, that like a tax they have learnt to live without and secondly, they resisted the seduction of the get rich schemes they have come across and maintained they steady, even boring progress...

I could not help but admire these unassuming young men. Barring any accidents these young men will have a better financial future than the vast majority of us, not because they will have a good nest egg to begin with but because their minds have been oriented towards investment and away from consumption, which is what makes the difference between the wealthy and the rest of us.

They young men unlike most of us have the benefit of time on their side. Their little savings compounded over decades add up to a credible sum. But the principle still stands start where you are, with what you have.

Meanwhile the young men have invested in themselves studying investment. Their foray into equity signals a further shift in their investment journey.

The assured returns from the bonds are comforting, but over the long term the stock exchange provides the best chance of improved returns. Even better returns can be had from going into private equity, buying into companies not listed publically.

They going down the path that many office workers should take who do not have the time or temperament to run their own businesses but still need to aim for financial freedom.

The inadequacy of time we all understand. You expected on your desk from 9 to 5 and while business is a fulltime job. But more importantly is the right temperament – attitude or psychological makeup, to run a business. While we are the most entrepreneurial country the statistics show that we cannot all be business people.

This path though is not as sexy as pointing to your shop or rentals or trucks and saying their mine. My young friends path is one focused on the end – financial freedom in the future. They are focused on being rich and not looking rich. Placed in one sentence it does not look much, but the difference between the two is worlds apart.

The young men are learning this lesson in real time and in the not so distant future they will not only be rich but be able to look the part.

SHIFTING TO THE PARLIAMENTARY SYSTEM A GOOD THING

We have been here before.

It starts with announcements by fringe members of the ruling National Resistance Movement (NRM) urging a constitutional change, the opposition jumps, promising hell and brimstones if the changes are entertained, then the NRM’s higher organs meet and a momentum is created that sweeps all before them – heckling opposition leaders included, with a dismissive wave of the hand.

There is no reason why the latest proposal shouldn’t follow the same pattern.

When a not widely known MP James Kakooza proposed in 2005 a removal of the presidential term limits he was dismissed out of hand, within and outside the NRM. Again when the honourable Raphael Magyezi proposed the lifting of the presidential age limits in 2018 he was laughed out of town.

"The opposition are right to be worried about the latest proposal, even more so than the previous two mentioned amendments to the opposition...

This column has argued incessantly that the opposition should not be seduced by running for the presidency, but work to build up their numbers in parliament. NRM and their independent sympathizers have an overwhelming majority in the house. At last count in the 529 house NRM account for336 MPs, while short by 18 of the 354 needed for the two-thirds majority, it would be a bad bet to think they couldn’t get that number when they needed.

A parliamentary vote is all it requires to effect this constitutional amendment.

But to step back a bit this would be a brilliant plan to entrench the NRM in power for a while to come. President Yoweri Museveni is in the evening of his career and the party would struggle to find a candidate with the national stature of the president to front in the future. The fear is that like other parties that have dominated their countries in the past, like KANU in Kenya, UNIP in Zambia, they can flounder badly after their founders move on. Shifting to parliamentary system would ensure the NRM MPs stay put – no one wants to be on a losing team and as a byproduct force the parties, all parties, to build structures.

And that last point would the biggest win for Uganda going into the future. It takes more organization to run a presidential campaign than to organize several MPs with a view to boosting your numbers in the house. While in the short term the NRM would continue to dominate the political landscape, as the other parties are forced to graduate beyond vehicles of one individual or the others political ambitions, to become real political machines, we can expect the competition will improve. Of course the parties that fail to adapt will be swept aside onto the dustbin of history.

"What we badly need in this country is some real party discipline as a way to further our democratic practice...

Party leaders will now have to earn their keep. They will have to be more strategic, build up their member bases and see that party discipline is instilled and enforced. All this has become difficult with every passing year, they only have themselves to blame.

Almost 20 years ago the question was put to Kizza Besigye, the then presidential contender, that what would happen if he won the election and the house was dominated by the NRM, he could only manage that they would cross that bridge when they got to it. Us the listeners with a wink of the eye understood him to mean he would buy them all off. That, like hope, is not a strategy.

And finally this is not an innovation nor unusual. The parliamentary system has been practiced by many of the western democracies we look up to. Arguments that the people must elect their president don’t stand up to scrutiny. If anything experience shows a directly elected president is more powerful than one that comes through the party, a thing the opposition have been complaining about for the last three decades or so.

Will the proposal go through or not, only time will tell. But on the balance of things given the NRM’s parliamentary superiority and need to perpetuate itself in power after Museveni has left the scene, it seems a likely outcome.

2022: NSSF MONEY IS HERE NOW WHAT?

In recent weeks the amended NSSF Act was sent to President Yoweri Museveni for assent. Once he does assent to it, as he expected to, it will be up to the relevant ministries to come up with a way for the amendments to the bill be actualized.

So while beneficiaries may have missed Christmas it is reasonable to expect you will get your benefits before Easter.

The attention grabbing clause is the mid-term savings access. In the amended bill if a member has turned 45 and has been saving for more than 10 years he will have access to up to 20 percent of his savings.

For most this will be a windfall like they haven’t seen in their lives and the trick will be that when the dust settles, from spending the money, there will be something to show for it,  more than a hangover and hazy memories.

NSSF research shows that eight in ten members after they receive their retirement benefits, have nothing to show for the money after only two years. With life expectancy up to 63 years now, higher than the 45 years when NSSF came into being, this statistic points to many years of financial challenges ahead.

What do we ordinarily do with our money after retirement?

We build the family home, not a bad idea, this may take away the rent expense, but it is also a sunk cost, that will return no income. And in old age the biggest need is a regular income. We also go into business, which was one of the biggest arguments for the midterm access. We tend to think that if we have money the business we start will succeed. There is nothing further from the truth. In fact, when you start a business with a lot of money, it does not give you a bigger advantage than someone who starts on a shoestring budget, maybe that you will start with a bang and probably maintain the illusion that you are in business for a bit longer...

And all this is before the brand new cars we are going to buy and the travelling we are going to do. We probably deserve it after slogging for all these years at dead end jobs.

So what to do that will give us half a chance of making the best of this windfall? Here are three suggestions.

1.       Eat less, invest more

It starts with the mindset. The difference between the rich and the rest of us is that the rich invest more than they spend. Its habit they developed even when they were earning peanuts. There are only two ways to spend money, by consuming it or investing it. The more you are doing of the former than the latter, the less likely you are to become rich.

Almost 20 years ago Sudhir Ruparelia did an interview with the Financial Times. He closed the interview with a flourish, saying something to the effect that getting rich is an old Indian trick, of the ten shillings you earn, you reinvest nine and eat one shilling and repeat until rich.

I shall not torture you with a reexamination of your spending patterns but keep this one thing in mind when thinking about the NSSF windfall. Invest more than you blast away.

2.       Set ego aside

The challenge for many of our investments is that they are more a reflection of our egos than desire to make money. Our investments tend to be things we can show people while pointing to our chest, “It belongs to me”, even if they are investment black holes with no chance of showing a return.

We need to get out of the way of our money, if it is to have a chance of looking after us into our old age. They say, we spend money that is not ours, to buy things we do not need, to impress people who don’t care.

To be true investors we need to be interested in sustainable returns over the long term. The 15-year treasury bond in November promised an annual interest of 15.50 percent. This means that a person who invested say sh100m in that bond would get 15.5m annually for 15 years. If you can get an investment that can guarantee those returns and better over the next 15 years go for it, if not go get yourself a treasury bond.

A treasury bond is not as sexy as a ranch or rentals or a kabusiness -- they no longer even give certificates, so you cannot show it off to friends, family and haters, but it will do its job, which is keep the money flowing while you retain your initial investment.

 

3.       Forget about it

But this investment thing may be too difficult and the reality of living in destitution in your last years is too painful to contemplate. Don’t try to keep up with the Jones, leave your money in NSSF where going by past results, you may get a double digit return until you qualify for retirement benefits.

If you have just touched 45 and leave your money in NSSF for the next ten years and they just manage 7.2 percent return on your money, your current balance will double by the time you pick it up in 2031 and that is not counting the subsequent savings you have made into the fund and interest on that.

Some are already doing it. About 40,000 beneficiaries of the retirement benefits have chosen to leave their money there after they clocked 55 enjoying the record interest rates NSSF has been posting in recent years.

I know this is not even as sexy as pulling out your money and trying to beat the market, but it gets the job done. And in the meantime for the next ten years you can go online and learn to be a true investor for that day when you clock 55.

Happy New Year!

PS 

Since this was published in the New Vision on 27th December 2021 President Yoweri Museveni assented to the bill in the first week of January. Disbursements are expected to start 60 days after the bill is gazetted, by the the finance minister would have come up with regulations taht will govern the way the bill is implemented.

THE QUEST FOR IDIGENOUS CAPITAL

A couple of events happened in the last few weeks that made me think about the urgency of building indigenous capital.

On Monday, December 6, telecom company MTN listed on the Uganda Securities Exchange (USE). Since the last week of October MTN had offered its shares to the public in an initial Public Offering (IPO). When the results of the IPO were announced two weeks ago I was one of those whose jaw hit the ground that the offer was not fully subscribed and was kicking myself for not having bet the house on the IPO because I would have got full allocation.

But it also made me wonder at how local individual investors had missed the chance to be invested in the fastest growing industry in our economy....

A week or so later the new board of the Uganda Development Corporation (UDC) was sworn in. UDC has fallen far from its glory days when it was driving the government’s investment agenda and its resuscitation is one we should all be cheering on.

And finally two industries SangaVetChem and East Africa Medical vitals, producing animal health products and latex products respectively, were launched. They were unique because they have local directors partnering with foreign capital to meet local pressing needs.

Building an indigenous capital class is one of our most urgent challenges today. We have Idi Amin to thank for stalling the development of indigenous capital. In 1972 Amin expelled the Asians for reasons best known to himself but which he sold as a move to liberate the local economy. At one of the most disastrous attempts at asset relocation in the history of the continent, he then shelled out shops and businesses to his cronies.

"If ever there was proof that the African’s problem was not lack of capital this initiative proved it as the new businessmen soon ran the businesses into the ground, helped in no small part by the growing insecurity of the time...

Many people think that if Amin had not done what he had done the Ugandan economy would have been controlled by the Asians. This does not hold up to scrutiny.

At the time of the expulsion there were an estimated 50,000 Asians in Uganda. Across the border in Kenya there were 180,000 Asians and no one would say the Kenyan economy is overrun by Asians.  While the Asians there have thrived, Kenya has a more vibrant and credible indigenous capital class than we do.

The reason is simple business like any other skill has its rules. And like any other skill it is best learnt by somebody who knows it. Amin’s expulsion of the Asians meant we were denied the opportunity unlike the Kenyans to apprentice at their feet.

Our businessmen have tried to reinvent the wheel, with little success, so much so that when the Asians returned in the early 1990s in less than two decades had reinstated the previous imbalance, as if they had never left.

So what to do? The issue is building our own capital without disenfranchising anyone else, we tried that and failed.

It is erroneous to say there is a lack of capital in Uganda. The challenge is more that we have been unable to aggregate in meaningful amounts. NSSF, which has grown to a sh15trillion Fund and the biggest in the region is proof of this.

 "The real challenge for the growth of our businessmen is that they have not adopted the habits and traditions, as opposed to knowledge to build and grow businesses...

Here are a few obvious facts. A country is only as viable as its private sector. Success in business is not guaranteed. Therefore, to develop a vibrant business community we need more people going into business, so that by the law of averages we will have more successful businesses.

For starters we could start teaching financial literacy in primary school. We need to make reading financial statements second nature – you will be shocked how many CEOs can read a balance sheet leave alone act on it. This will achieve several things but most importantly demystify the language of business—accounts and secondly, ingrain in all our school going children that there is another alternative to the 9-5 job.

While the capitalist societies don’t have a similar formal process, they have had the benefit of decades of mentoring by businesspeople who had already hacked the process, they are not reinventing the wheel.

For those of us long past primary, government should invest more in business support services. Improving the quality of our businessmen will cure a lot of ills – lack of finance, high mortality rate of our businesses and the inability of our businesses to compete.

"The indigenous businessman is important because, more of his profit will remain in country – without forcing him, he will have a more national perspective than the manager answering to London, Johannesburg or Nairobi has and our politics will be much more predictable....

We will not build this class by bankrolling our cronies, as Amin so aptly demonstrated, but by helping them to acquire the business skills required to not only produce goods and services, but also raise capital locally and drive our goods and services into foreign markets.

UEGCL ON A PROFITABLE TRAJECTORY BUT …

Last week Uganda electricity Generation Company Ltd (UEGCL) had it’s annual general meeting during which it was reported the company was firmly in the black for the third year in a row, a healthier situation from five years ago when they relied on government handouts to stay afloat.

UEGCL, which owns all of governments power generation plants, saw their fortunes turn around when revenues from power sold at Isimba dam started gushing through. We can expect too that when Karuma finally come son line they will be on a irreversible trend to financial sustainability. Or not.

A cursory look over the company’s financials show that it made a profit of sh92b in the year to June this year compared to sh2.8b in the previous year. The quantum leap in profit – 3,100 percent, was due to foreign exchange gains—sh71b on their foreign denominated debt. While this was a happy situation, it was an unusual one as they often make exchange losses, with the last profit was registered in 2019. Nevertheless, the profit from operations was a healthy sh21b still almost a tenfold increase from the previous year.

UEGCL’s major revenue source was Isimba, which accounted for sh139b or 82 percent of the total revenues of sh170b.

Also while total assets slipped to sh7trillion from sh7.1trillion shareholder equity was up to sh833b from sh741b helped in no small part by continued reduction of accumulated losses on the company’s books. UEGCL has been profitable since 2019, three years in the 20 years of its existence.

But the management will be forgiven for not fully breaking out the champagne.

The company’s mandate does not stop at running government’s power generation assets but extends to building and acquiring new assets. It goes without saying this means the company needs money to do this.

"As it is now UEGCL cannot fulfill its full mandate because while it is provided for in their books government does not allow the depreciation and a Return on Equity (ROE). If they kept the depreciation on their plant and machinery, they would be better able to replace the existing infrastructure. As it is now to replace dams like Kiira and Nalubale UEGCL would have to run to government for funding which means UEGCL cannot stand on its own feet...

By allowing them some ROE the generator can then develop new assets either on their own or in partnership with other players.

The financial self-sufficiency of UEGCL is important because to begin with they are already behind schedule in meeting the country’s power generation needs. The National Development Plan II (NDPII) envisaged that we would have power generation capacity of 2500MW by 2020. There is a current installed capacity of 1,252 MW. While this is more than enough for now – peak demand is about 750 MW, going by current growth in demand and if we maintain the status quo we will be back to load shedding by 2027. While this may seem a while away, Uganda’s recent experience shows that it takes seven to ten years to develop a power generation project, so the time to start planning for new capacity was yesterday.

Government too can help improve UEGCL’s financial position by carrying the exchange risk on the foreign loans it contracts. While this year was good for UEGCL with some exchange gain registered more often than not in recent memory there have been more exchange losses than gains. This is important because UEGCL bills in shillings, if they were charging us in dollars for power this would not be an issue.

If they did just these things – allow UEGCL keep the depreciation, allow too for ROE and shield them from the exchange risk of repaying the loans, the company’s financials will improve markedly and allow them to go to market on their own to finance developments.

"It is not unusual. Across the border UEGCL’s Kenyan counterpart Kengen are not only wildly profitable -- $148m (sh533b) but have developed generation assets worth $2.2b (sh8trillion) over the last 10 years...

The government is currently borrowing on behalf of the sector, because they can get cheaper money as the industry companies have wanting balance sheets, companies will UEGCL which can then collect the the money from tariffs and send to government which then pays the creditors. The mere friction of passing through many hands rather from operator straight to creditor presupposes inefficiency, which we pay for in the tariff.

Maybe one last thing would be to convert the debt we have incurred on projects like Isimba and Karuma into equity, essentially government takes them over as a way to further boost the company balance sheet.

For a long time we had challenges with developing our generation capacity, hence our prolonged load shedding a decade or so ago. Drastic action by government has brought us to the happy place we are now, with surplus generation capacity. While transmission and distribution companies need help as well, UEGCL anchors the sector, now power generated no power to transmit or distribute.

To prevent future pain let government take the needed action to make sure UEGCL is sustainable well into the future.

 

BOMBS ON ADF AND THE LARGER QUESTION OF REGIONAL INTEGRATION

Two weeks ago our own Uganda People’s Defence Forces (UPDF) attacked Allied Democratic Forces (ADF) bases in eastern Congo.

Reports had it that the artillery and airstrikes were concentrated on an area of about 150 square kilometers. The ADF cannot have enjoyed the experience and while news is scanty, given the area that was flattened fatalities must have run in dozens never mind casualties.

Unfortunately, the operation is open ended with no time frame set to pacify an area, mostly dense tropical forest, bigger than the whole of Uganda.

The repercussions on our budget will be negative but we have to trust that this is a sacrifice we have to make with the long term in mind.

"For starters the security threat that the ADF pose cannot be overemphasized, but even more important is the security threat of having huge lawless, ungovernable areas bordering us. If it is not the ADF it will be someone else who has evil intentions on us using the Congolese jungles as his launch pad...

It does not help that there are more than 1 hundred armed militia’s roaming the area praying on the population and one would imagine happy to sell their “expertise” to the highest bidder. The emergence of these militias is not all down to criminal intent. In an area where the state has been absent for coming to half a century people have to protect themselves and sometimes in so doing they may just decide to prey on weaker neighbours and soon there is a full scale arms race in the area. And what is to stop them one day cross our imaginary borders and attacking on Ugandans?

The sustainable thing to do is to bring the area under some kind of central control by force initially, which should have been the job of Kinshasa but more importantly by creating an environment in which economic activity can flourish.

Sustainable peace comes from interdependence. Trade is right up there as one of the best ways to create interdependence. When we have no mutual benefit to ourselves war and predation become a real possibility.

So the collaboration with the Kinshasa to improve the road network in eastern Congo is actually what we should be focused on. Any military victories will be temporary but making movement in the area easier is not only useful from a security perspective but will automatically encourage the movement of people, goods and services.

An interesting story from the Mobutu Ssese Seko era explains why DRC – larger than western Europe, has less tarmaced roads than Uganda. During a state visit to neighbouring Central African Republic, then president Jean Bedel Bokassa drove Mobutu through wide, tree lined streets to his palace. At some point Mobutu, who was supposed to be impressed by this show of development, couldn’t hold it any longer, “My friend these goods roads of yours are how you will be overthrown!” he said.

This egocentric thinking has doomed the DRC to confusion and poverty.

"As it is now DRC and mostly the eastern expanse is fast becoming Uganda’s largest trading partner accounting for up to $400 million in exports. We have seen in our own lifetimes how little tarmac can totally change the economy of neighbourhoods and regions....

The 200 km of paved road that we shall help build in the region are just a tip of what is necessary to unlock the vast potential of that region and may very well serve as a useful stimulus for our economy to rebound in coming years.

If in these times when roads are not usable year around we are doing almost half a billion dollars in trade it is conceivable that we can more than double that with the most basic of road infrastructure in place.

Improved economic activity in the area will make joining up in militias less attractive and once the communities have tasted peace and stability will be loath to support any militias.

"Of course for the DRC they have to step up. Uganda’s presence is at best temporary, we would rather have our sons and daughters back home than roaming the jungles of Congo with a target on their backs....

Which brings us to the wider question of regional integration. It starts with recognizing that our borders, really only lines on paper, do not insulate us from the poverty and underdevelopment on the other side. That shared prosperity of first border communities and then whole regions is how will keep our worst excesses from consuming us all.

If it takes a handful of disheveled types running around playing war, to quicken the cause for integration so be it.