VENEZUELA SHOULD SERVE AS A CAUTIONARY TALE

Events across the border have captured our collective imaginations in recent weeks. US President Donald Trump never disappoints from day to day with his faux pas. Now everybody in show business is running scared for fear of the next set of revelations on sexual harassment. And meanwhile British prime minister Theresa May is scrambling to negotiate a soft Brexit that has left her isolated at home and abroad.

These and many other stories are a big deal.

But in South America Venezuelans are fighting an existential battle with disease, hunger and poverty and we are not just talking about the bottom of the pyramid people. Increasingly now everyone in Venezuela is living below the poverty line.

"It wouldn’t be a big deal. We would have brushed it off just another Godforsaken third world country excelling only at doing things wrong at every turn. But Venezuela has the largest oil reserves in the world. And as if that is not enough, is a stone’s throw away from energy hungry USA...

Things are so bad in Venezuela that inflation has sky rocketed to the point that people are throwing money away– the International Monetary Fund (IMF) projects it go beyond 2,000 percent next year from this year’s 650 percent.

Things are so bad that murder and kidnapping are the only serious growth industry.

Things are so bad that malaria which was eradicated in 1961 – before the US, is back with a vengeance, so are measles and there are no HIV or hyptertension drugs.

Things are so bad that people are dying of starvation in the streets, because the government would rather meet its international debt obligations than import food. If they did not meet their debt obligations, debts which were incurred during the oil boom days when a barrel peaked at $114.

The official figures paint a rosy picture of an upper middle income country with a GDP of $440b – almost 20 times our economy’s size and per capita incomes of about $8,000.

How did it come to this?

As so often happens it was a case of expedient politics being applied to remedy economic shortfalls. 

Former president Hugo Chavez in an attempt to endear himself to the Venezuelans after being overthrown once before, used oil to massively expand social programs, nationalised companies and looked the other way when his cronies were gouging themselves at the trough of state resources.

As long as oil revenues stayed high some of the worst ills could be paperd over.

Oil, which was discovered in 1935, has so dominated the economy that it accounts for a third of the Latin America’s economy, 80 percent of export earnings and more than half the tax revenues.

So when prices started falling to current levels of about $50 a barrel the emperor’s nakedness was exposed. As if that was not enough during the good days Caracas borrowed voraciously against future oil earnings. As it is now it receives almost no money from oil exports but still ships off massive amounts to Russia and China as debt payments.

"While we scout the globe for best practice in how to deal with our oil sector, we should not lose sight of how not to run an oil economy – and Venezuela, better than Nigeria and Angola can serve as a powerful cautionary tale...

Thankfully we are at least making the right noises.

The government is committed to using revenues to boost our infrastructure, which is important to ensure that other parts of the economy can continue to grow alongside the oil industry.

We are also talking about a sovereign fund, financed by oil revenues  and housed abroad. This is important because if all oil revenues gush back into the economy it can cause a massive appreciation of the shillings and make our other exports uncompetitive.

The argument that we should bring the money all back and not keep it offshore developing other economies is a populist one but not based on the facts. If the sh7trillion NSSF is struggling to find bankable projects in Uganda what of the estimated trillions of shillings in revenue we are expecting annually when production kicks off?

Beyond infrastructure it would do us a world of good if we could shore up our education and health services. This would enable upward mobility of larger parts of the population. A healthier and better educated population is a more productive one.

The temptation to start a flurry of state enterprises will always be there but we should resist the urge. 

State enterprises are not only inefficient, because their main role is not to deliver service or show a return but to pay off constituencies, they also distort markets, frustrating private sector players through preferential treatment, while giving suppliers and clients a raw deal.

We lack the discipline to run or even oversee the good running of good state enterprises, unlike Dubai. We would be better served if, along with improving our infrastructure – soft and hard, we developed industry wide incentives for investors – foreign and local, to come and set up the companies that can ensure an alternative economy to oil exists. These industries’ output would eventually eclipse oil.

"As we all know in our personal lives, there is no money that is too much to finish. Oil is a finite resource and we should behave with this in mind, unlike Venezuela which was seduced into thinking the good times would always roll...

And now after decades of betting solely on oil the irony is everything else doesn’t work, the oil industry inclusive and yet they still have billions of oil barrels underfoot!

VENEZUELA AFTER MADURO: WHEN EXTRACTION EMPTIES LEGITIMACY

The US' weekend arrest and extradition (Abduction?) of Venezuelan leader Nicolás Maduro landed  with the force of history breaking through the door. 

Legal outcomes will be contested, delayed, and politicised, but the symbolism is already set: a regime that ruled as an extraction cartel rather than a national steward has finally run out of road. For many Venezuelans, this moment is not about court filings; it is about a long-denied reckoning.

Venezuela did not unravel because of one doctrine or one foreign adversary. It collapsed because power mutated into entitlement. Oil rents stopped financing institutions and started feeding patronage, secrecy, and personal accumulation. The state ceased to arbitrate fairly and began to loot efficiently. Once that happened, trust evaporated, incentives died, and the social contract dissolved.

The testimonies pouring out of Venezuela—some gathered and archived on Shillings & Cents 

are not ideological pamphlets. They are grief accounts. Endless food lines. Businesses nationalised into extinction. Imports choked. Production shattered by price controls. Savings erased by inflation. Families fragmented by migration. This was not a slow decline but a violent one. A functioning, if imperfect, economy imploded with shocking speed once extraction became the organising principle of governance.

When ruling cliques turn countries into resource pits, sovereignty hollows out from within. Consent drains away. Power becomes brittle. And brittle power invites outside pressure. Venezuela’s exposure to what critics deride as an American “cowboy adventure” is not an accident of geography or conspiracy; it is a domestic product of years spent alienating the very population that grants legitimacy.

This is not a Venezuelan anomaly. In North Africa, similar dynamics played out. 

In Egypt, Hosni Mubarak learned that decades of patronage and security-state dominance could not survive the withdrawal of street consent. In the Maghreb, extraction politics and gerontocratic entitlement hollowed regimes until public patience snapped, an arc associated regionally with figures like Tunisia's Abdelaziz Bouteflika, whose fall underscored how quickly legitimacy can evaporate once rulers appear to exist only for themselves.

Libya's Muammar Gaddafi mistook oil rents and bravado for immunity. Mobutu Sese Seko ran a country like a personal vault. Robert Mugabe hollowed out production while elevating loyalty over competence. Each believed wealth, coercion, and rhetoric would outlast consent. Each was wrong. When extraction severs the bond between ruler and ruled, the end is rarely dignified.

Venezuela also punctures the romance of “alternative” patrons. China, Russia, and shadowy intermediaries did not rebuild; they extracted. Anti-Western language proved no substitute for maintenance, investment, and competence. Extraction without reinvestment is looting with better branding, and Venezuelans felt the outcome in empty shelves and darkened hospitals.

This brings us to the uncomfortable present. 

Any renewed involvement by the United States will not be a silver bullet. Washington’s record elsewhere gives no credible reason to expect tidy outcomes or benevolent miracles. Interventions carry costs, contradictions, and unintended consequences. Yet there is a deeper, sadder indictment here: when a local population would rather gamble on foreign intrusion than endure domestic rule, the failure lies squarely with the ruling elite. It is an extraordinary moral collapse when citizens welcome outside pressure because it feels like the least bad option left.

For people who have lived through institutional collapse, pragmatism displaces purity. If refineries are rebuilt, infrastructure repaired, imports reopened, and people allowed to work and earn with dignity, hope returns—not because the arrangement is perfect, but because something finally functions. Functionality, after years of trauma, is not a slogan; it is survival.

The lesson reverberates far beyond Caracas. States are not mines. Nations are not ATMs. When leaders gorge themselves at the trough of public resources, they alienate the people and hollow out sovereignty. And when the brown stuff hits the fan, no offshore billions, foreign friends, or security cordons can compensate for lost consent. Power without legitimacy holds—until it doesn’t.

HOW NOT TO BECOME A ZIMBABWE OR VENEZUELA

Last week I came across two disturbing stories from Zimbabwe, which has just done yea since the dismissal of Robert Mugabe and Venezuela, whose economy is in rapid decline despite having the largest oil reserves in the world.

In the Zimbabwe story it had the heart breaking revelation that shortages are so total and the people so desperate that if they see a queue they just fall in line in the hope that they will be something at the end of the line. That’s just unimaginable, to me at least.

That if I was on my way to work and I turned the corner and I saw a queue had formed I would park my car or jump out of the taxi to join it. Interestingly the next ten people in the line probably wouldn’t know what they were queuing for and I wouldn’t have answers for the man behind me. That is so heart-breaking.

In Venezuela the economy is so in the toilet that the HIV/AIDS victims who only a few years ago were getting free anti-retrovirals from the state cannot get any neither the free ones or even buy at the pharmacy. As a result they go on blind fate and drink the juice from a tree known as the guasimo, whose potency scientists doubt.

For us we need to ask how did these countries, once beacons of development, get there and how can we avoid sinking into their quagmire.

Below is my four ways to avoid a Zimbabwe/Venezuela situation, in no particular order.

1.       Don’t attack the productive sectors

In the early 2000s Mugabe needed to shore up his political support and decided to forcefully redistribute the Whites Zimbabweans’ land to his cronies and a few token peasants. He was largely successful in achieving this and subsequently won the election, but it was Pyrrhic victory.

The same white farmers were the main producers of food and agricultural produce, which produce supported arguably the continent’s most vibrant agroprocessing industry, which in turn employed thousands of Zimbabweans.

"Many of the farms that were expropriated have reverted to bush, Zimbabwe now relies on the imports and donors for food and the famed agro processing industry has gone to ground. The effect of this is that exports have fallen off, hard currency receipts have plummeted and the country despite the best intentions of the new leadership is once again rolling into the abyss....

2.       Don’t try and be cleverer than the economy

In Venezuela the government of then president Hugo Chavez buoyed by oil prices that reached $140 a barrel a decade ago thought they could subvert the laws of economics. They instituted price caps on essential commodities as a way to raise the living standards of all. They imported food and sold it at less than the cost price. While the oil prices were high and the government could afford to subsidise the adventure things were good for Venezuelans. But productivity fell, after all why work hard to save costs and improve efficiencies when the government will pay you. When the government couldn’t sustain the subsidies and the producers fat on government subsidies could produce efficiently they went out of business and living standards plummeted.

When governments are flush with cash their instinct is to do the popular thing like lower the economic burden of the people in ways that are unsustainable and subject to abuse.

Surpluses should be invested in education, health and infrastructure, to improve the ease of doing business in the country, to ensure the economy’s competitiveness is maintained.

3.        Nip corruption in the bud

When you look at the fall of Robert Mugabe his corrupt cronies including his wife Grace had a lot to do with the collapse of his regime. In the last two decades or so many of these were let loose to not only take for themselves prime farmland – which was supposed to be redistributed to the lower classes, but also expropriated the revenues from state owned enterprises and mines. 

They did so without replacing parts or trying to run them as going concerns. They literally ground them to a halt.

"The corrupt are rapacious, they don’t have self-regulating mechanism to determine that enough is enough. They will keep gorging on the public funds and extorting the productive sectors, even when to do so would be to kill the geese that lays the golden eggs. And even then they won’t stop. They will begin to feed on themselves triggering instability.

4.       DO NOT PRINT MONEY!!!

At one point inflation in Zimbabwe was so bad that it was measured in thousands of percent. The story is told of the man who caught a bus to go across town to buy bread. By the time he got to the bakery the bread had run out. As if that was not enough he then found he couldn’t afford the bus fair to where he had come from because it had quadrupled in the interim.

When governments begin to print money this signals their final capitulation and desperate attempt to subvert the laws of economics. After messing up the productive sectors, letting corruption run rampant and tried all sorts of shenanigans to trick the economy to bending to their will – you can’t cane or torture the economy into shape, they resort to printing money to alleviate the immediate need for salaries, payouts to cronies and the rest be damned...

From then on you are on slippery slope which can lead to in Zimbabwe’s case where they have had to rely on US dollars or South African rand. The problem though is because you have gutted the productive sectors you are not exporting much of anything to have enough dollars to keep the economy afloat.

In Venezuela’s case they launched a crypto currency backed by their oil reserves. The problem is the oil sector is producing less than half its capacity and all the oil they export is used to pay off existing debt.

CLEARLY WE ARE NOT READY FOR OIL

You can’t have missed our honourable members machinations to have taxes on their allowances waived. MPs are hopping to save more than sh5m a month in taxes with this provision they muscled into the Income Tax bill.

These manoeuvers were necessitated – in our honourable members’ minds, by a February high court ruling for them to pay taxes on their allowances like all other workers of Uganda. They somehow weren’t paying since 2004.

"Following a public uproar about their self-serving ways they, last week threatened to hold all of us ransom by refusing to pass the budget if they were not accommodated. Not unlike the toddler throwing its toys out of the play pen in a tantrum...

I am not hopeful that we can stop our honourable members in their quest for tax free living.

However this kind of attitude does not bode well for the country’s future.

All around the world, when politics comes up against economic, politics wins and often to disastrous effect.

Last week Uganda made the decision to pass the oil pipeline through Tanzania and not through Kenya as was earlier expected, which brings us one step closer to oil production now, now expected for before 2020.

At peak production Uganda expects to be piping out 200,000 barrels a day. To put this number in perspective using $40 a barrel, our exports of goods will double from around $3b annually currently. 

Of course all these monies will not find themselves into the national coffers but our share of the price of a barrel, the taxation of oil companies and the revenues from supporting industries will amount to a very tidy sum.

"As incredible as it sounds, if our political leadership is not focussed on the long term benefits of this windfall and only see the short term gains they can milk from the situation, we will soon be worse off than when we had no oil...

Hard to believe?

Well, Ghana established commercial viability of their oil find in 2006 around the same time as we did. Their fields were off the coast so easier to evacuate the oil. In the excitement and driven by bad politics – an election was around the corner, the government leveraged future revenues to raise public service salaries by 50 percent in one fell swoop, in addition to other jumps in consumption spending.

A populist move that has cost them dearly, because now with the collapse of oil prices from highs of $140 a barrel in 2007 to around $40 now, Ghana finds itself looking to International Monetary Fund (IMF) for help in paying for its imports.

Across the pond in Venezuela, during the oil boom, the Latin American nation initiated many populist social programmes and even had time to thumb its nose at the US. Since then prices have plummeted and the country finds itself unable to sustain the programs, with inflation jumping to 500 percent. It has become so bad in fact that last week it was reported that the government is running out of money to print more money to keep up with inflation.

It would have been funny if you don’t think about the man in the street there.

In all these crisis you can bet there were politicians – like our own honourables, throwing caution to the wind, disregarding basic economics to plunder the treasury regardless of the plight of the country in general.

You can bet the representatives in Ghana and Venezuela are also hatching plans to increase their pay as you read this.

But the winner has to be neighbouring Equatorial Guinea. This little country has proven that it is not population size but political management that is key. With a population of about 760,000 they have the highest GDP per capita on the continent of about $20,000, however its populations is among the poorest on the continent with more than three in four  living on less than a dollar a day.

President Teodoro Obiang, his family and cronies have squirrelled away hundreds of millions of dollars in western banks (maybe why he is the longest serving president on the continent) and squandered it on high living. But you can bet there are politicians in the country who have been co-opted into the racket in total disregard of the people.

"Politicians all over the world are the same, they will always be on the lookout for personal gain, their baser instincts tempered only to the extent that strong institutions, societal censure or basic good manners prevails...

The correct thing to do is to invest these windfalls so the returns from the investment can pay for improvements in the wellbeing of the people.

Investments in social services, which improve the quality of the human capital, or building infrastructure, which reduces the cost of doing business are better than raising MPs salaries, which is not an investment but a price we have to bear to keep up appearances of a democracy and maybe more expensive than the bother.

A fly on the wall reveals that reeling from the public backlash MPS are now trying to extend the tax exemption to teachers, doctors and other public servants, so that there plan is not seen for what it is – a shameless grab for resources which, on close scrutiny,  they have no right to over the rest of us.

MORE EVIDENCE THAT CENTRAL BANKS NEED TO BE INSULATED FROM POLITICS

Recently Zambian President Edgar Chungwa Lungu sacked the govenor of the Zambian central bank  Denny Kalyalya ostensibly because he refused to turning on the money printing presses.

With economic growth in reverse, inflation  threaten to gallop out of control and an election coming last year Lungu’s need for cash.

He has brought in a more pliable central bank boss Christopher Mvunga and is now probably more confident of retaining his seat in the next polls.

His actions are more surprising given the experience of neighbour Zimbabwe, a once proud economy that is now scrambling, with little success, to get off its knees.

Former President Robert Mugabe in a bid to hung on to power gutted the country’s productive sectors and resorted to printing money at a whim. The net effect has been, among other things, that Zimbabwe, the once food basket of the region, now needs food aid to feed its people and has gained notoriety,  a few years ago for experiencing hyper inflation the like of which had never been seen anywhere before.

Now Lungu is threatening to do the same.

Central banks’ major role is to aid price stability. When prices fluctuate wildly it is difficult for producers to plan or save which tends to discourage investment and hence development.

Politicians are all about getting into power and staying there once they have attained it. Unfortunately, left to their own devices they will do this by whatever means necessary.

Your politician, unrestrained by strong institutions or traditions would rather sink the economy if that will serve to keep them in power longer.

In the politicians’ mind their own survival now is more important than the long term sustainability of their countries.

We have seen it before.

"Politicians when it suits them put their heads in the sand and pretend as if the laws of economics, demand and supply can be suspended or expunged altogether in the service of their political ambitions....

Former President Hugo Chavez, whose country Venezuela has the largest known oil reserves of any country, thought he could be play the market.

When oil hit record levels -- $100+ a barrel a decade or so ago, he thought this was a permanent situation expanding government, poisoning the environment for business and set himself as a year around Father Christmas.

However, oil prices collapsed to below $30 a barrel constraining his ability to be everybody’s favourite uncle. The economy then went into a tailspin to a point that people are bathing in the streets, seeing as piped water is gone and diseases like Malaria, eradicated decades ago are back with a vengeance.

Norway went the complete opposite, socking away billions of dollars in oil revenues in their sovereign fund. They beat back the populists who called for a higher amount to be drawn from the fund – they restricted themselves to withdrawing not more than 4% of the national budget. As a result they have more than enough surplus to see them ride much easier than others during this Corona crisis.

Critics of disciplined economics say that the laws of economics are not the natural order and are conspiracy perpetuated by the Bretton Woods institutions, intended to shackle the lesser developed economies.

They often cloak these arguments in a nationalism, diverting blame from themselves onto foreigners.

"They say nationalism is the last resort of the scoundrel. But even nationalism is no match for the realities of supply and demand...

And that is why public enterprises fail all over the world and even when they function they do not do that optimally. Those handful that thrive are the exception that justify the rule.

One does not have to be a prophet to see that Lungu is leading his country down a dangerous path. The resulting low growth, hyper inflation and increased poverty will call for very unpopular policies – cuts in public spending, privatisation and liberalisation of the economy, which will then be blamed on the World Bank and International Monetary Fund (IMF).

Running a disciplined economy means one can not have all he wants, a country will be forced to cut its coat according to its cloth. If discipline is maintained economic growth can follow and a general improvement in living standards of the population.

Populist economic measure may cause the good times to roll, but only for a short while, before all hell breaks loose.

"Mugabe run the white farmers and industrialists out of town and distributed the land to his supporters. Their was rejoicing for a while as well as kudos from armchair revolutionaries on the continent. This has since turned to wailing and gnashing of teeth by the everyday Zimbabwean and a deafening silence from his cheering section on the continent....

Such advice will likely fall of deaf ears, Lungu’s political ambition will not be denied.

WARNING: PRICE CONTROLS KILL

Venezuelan President Hugo Chavez is the best current example of the wisdom that everybody who desires the highest office in the land should first have a good working knowledge of basic economic theory.

Buoyed by high oil prices, which rose to as high as $140 a barrel in 2008, the populist president maintained price controls in his country and even boasted that the global recession would not affect Venezuela. That was before oil prices plummeted, making maintaining price controls unsustainable.

Inflation has set in with prices rising more than 25% in 2008 and 2009 and expected to jump by as much as 50% this year.

Inflation is a result of too much money chasing too few goods. Either government prints too much money or production falls off making goods scarce in both cases leading to price rises. It is as natural a law as the law of gravity and you contravene it to your own detriment.

"Price controls have the effect of discouraging investment, which in turn stifles production and then the inevitable happens...

So this week Senor Chavez devalued the Bolivar in order to give relief to exporters and fatten the state coffers ahead of the legislative polls in September. It is suggested he will go on a social sector spending spree to ensure victory for his allies in the house.

Because he nationalized the oil industry he is rubbing his hands with glee in anticipation of the increased bolivars from oil exports. However he is indulging in wishful thinking because inflation will wipe out that artificial windfall faster than he can say John Maynard Keynes.

The politically expensive but economically sound thing to do is for him to lift restrictions yesterday, maintaining them is only aggravating the problem because prices tended to explode once controls are lifted and the longer you wait the worse the explosion.

Well consumers have been buying imported goods in bulk this week in anticipation of price hikes when current stocks run out.

In the early 1990s despite pressure the NRM government refused to impose rent controls in the city.

Following the repossession of many Asian properties the “new” landlords started charging commercial rates and the local “businessmen” thought this was unfair.

Rent controls were not imposed and this is at the heart of the property development boom we are in right now. Of course the convoluted nature of land holding system means it will take some time before we fully address our current housing shortage but it would have been worse if government had bowed to misplaced, popular opinion.

But our current power situation has its root in the dreaded price controls.

To begin with UMEME is grappling with an old, dilapidated, under capacity network because power prices were held artificially low for a long time. Therefore there was little investment on the network beyond perfunctory maintenance, and we are paying far higher power rates than we should be as a result.

But more recently the departure of AES the original promoters of the Bujagali dam was prompted by price controls in Argentina.

In 2002 as a step to climb out of an economic crisis, Argentina abandoned the politically fixed 1-to-1 peso-dollar exchange rate. Almost immediately the peso lost 40 percent of its value.

This was bad because AES which had power investments in Argentina had been borrowing in dollars while getting paid in pesos, this worked as perfectly as long as the 1-to-1 exchange rate applied. But when the peso was floated AES was in a bind because it could not raise its prices as fast as the peso had fallen.

Bujagali was one of the casualties.

In 2008 Zimbabwe’s president Robert Mugabe his country being pummeled by inflation of more than 1000%, ordered that commodity prices should revert to a prior level and when they did not he arrested shopkeepers and ranted at western imperialism.

Price controls are the temptation of every desperate politician but they should come with a health warning. Unfortunately economic logic rarely stands up to political expediency.

Published January 2010, New Vision

CUBA COMES IN FROM THE COLD

On Wednesday US President Barack Obama announced the restoration of relations with Cuba in a move that unwinds the world’s most intractable diplomatic row and brings down the curtain on the last vestiges of the cold war era.

Relations were severed after the ascendance to power Fidel Castro in 1959. That he nationalised a lot of American interests and hobnobbed with the USSR did not endear the island nation to the US.

After attempts to force Castro out failed dismally, legislation to institutionalise economic sanctions was passed with the hope of making the country ungovernable and for the population to push out Castro.

Ten US administrations later, Washington has come around to the fact that the sanctions did not achieve their intended aim except worsen living conditions for the everyday man. Raul Castro took over from his brother in 2008, after Fidel’s health took a turn for the worse.

Understandably Cuba has not come away unscathed.

Havana estimates that the economic sanctions have cost the country more than a trillion dollars in lost economic activity and with the demise of the Soviet Union the economy has limped on, but only just.

"Despite being frozen out by the largest economy in the world, Cuba has done very well for itself when seen against the record in other regional US allies like Haiti, Grenada and Jamaica, when judged against the quality of life of its citizens using the UN’s Human Development Index.

It’s doctor to patient ratio rivals that of many western European nations, has a health budget that amounts to about $251 per person and has a first world life expectancy rate of 78 years...

To lift the economic sanctions hanging over the island will have to come with legislative approvals, a move the Republican Party, which controls both Congress and Senate has vowed to oppose.

A loosening of economic restrictions will do wonders for the Cuban economy. For instance US citizens will now be able to send $6,000 more a year to Cuba and if visiting the Caribbean island can return with goods worth up to $400.

This may sound like mere tokenism but as it is now, about $5b in cash and goods, is sent to Cuba from America, which is more money than is made by their best performing economic sectors: sugar, tourism and pharmaceuticals.

A boost in hard currency inflows would help them pay for oil on the world market. They have been benefitting from cheap crude supplies from Venezuela, a luxury the South American ally can least afford with falling oil prices.

US interventions in Latin America during the cold war left terror and poverty in their wake, Cuba survived most of that.

Cubans can expect that with their country opening up to the US, things will not be the same again. With improved economic prospects and improvements in people’s welfare, one can expect greater agitation for freedoms. It is unlikely that the island will revert to the den of inequity it was, as a haven for organised crime, gambling and racketeering that it was before Castro came along but integrating into global economy may call for dramatic changes in the structure of the economy and politics that Havana may find hard to swallow.

For the rest of us Cuba stands as an example of what poor countries can achieve by relying on their own resources and despite insurmountable odds.

NO NEED TO REINVENT THE WHEEL

Last week I read two articles about the development process. 

On the one hand was "Devaluing the Bolvarian revolution" an article in The Economist that tried to describe the challenge of getting the Venezuelan economy up and running after years of populist policies that have sunk the economy, never mind that the South American nation is one of the world's largest oil producers.

The second article was about China, "The most disciplined organization in human history". According to the article the Chinese Communist Party is that organization, judged by its role in spearheading the rise of China characterized not only by its huge leap in its macro economic numbers but by the tens of millions of its citizens it has lifted out of poverty in the space of under half a century.

At the heart of China's reemergence as a world power is the principle of "the State as a work of science or Scientific development". That "state’s affairs should not be a matter of opinion, intuition, impulse, emotion, religion, personal preferences or lineage, but based on the scientific approach of “seek truth from facts” in political and economic affairs."

The determination to do this came following the death of Mao Tse Tsung who led the country on a series of disastrous social engineering experiments that they have however exploited to their advantage.

Venezuela under Hugo Chavez however has gone down a dark tunnel not unlike one that Robert Mugabe has taken Zimbabwe. The supporters of both men argue that they were forced to do the things they have -- Gut the productive classes, expand the government to unsustainable levels and indulge in populist but economically unsustainable policies because of external threats.

Anyone who has observed world events would not discount their fears and may be tempted to cut them some slack. But one could also argue that China has developed in the same environment and even under harsher circumstances.

As a communist nation, which not only had to fend off western holier-than-thou democrats but also interference from its once ally the USSR, who wanted to bring the world's most populous nation under its thumb and expand it sphere of influence beyond eastern Europe, the rise of China was never a forgone conclusion.

China comes under a lot of criticism for its human rights record but they have a response to that, arguing that the time will come for that, that it is in fact inevitable, but for the time being what they most need now is discipline.

The current appreciation of human rights in the western democracies came out of a long evolutionary process. We may study about them in the text books but the world's majority have no real appreciation for them. Even in those same western democracies there are still significant pockets of racism, bigotry and xenophobia.

It's all very nice to cut and paste these rights into our constitution and laws but is something else to practice them.

I would be loath to call for a roll back of the few rights we now enjoy, least of all my freedom to express myself, but China provides a compelling argument for a unified authority. As did Europe before democracy came a few hundred years ago in the wake of the industrial revolution.

The development process is a series of trade offs depending on the particular circumstances of a particular country or region. It also a long winding process that never proceeds in a straight line.

The basic principle has to be that whatever is planned or implemented is done for the eventual benefit of the population. The benefits may not be visible in the short term but it is hoped they will be seen in the long term.

But we know that even the best of intentions do not necessarily deliver the desired result. That's life.

China's is set to overtake the US as the globe's largest economy within a decade, but going by its per capita statistics it is still a middle income nation. A lot of work is still to be done. 

You can be sure when they started this journey in 1978 -- when they decided to introduce some elements of the market economy or even in 1949 -- when it was proclaimed the People's Republic, the naysayers outnumbered and outshouted the believers. That's what happens at the beginning of any human endeavor of any significance.

I guess we will find our own way but it will be useful to remember, 

.

Without discipline we would accomplish Nothing.

With Some discipline we can solve only Some problems.

With Total discipline we can solve All problems.

- Peck Scott, The Road Less Traveled.

LET OIL SPUR UGANDA'S KNOWLEDGE INDUSTRY

Last week Ugandan Tutus Mawano emerged one of three winners in a continental computer applications innovation competition.

His innovation “Ffene” is a low cost business management application aimed at helping small business owners to file better books of accounts and monitor the business remotely.

As the demands of society increases productivity, the amount you extract for every unit of input, has to increase too.

So if you were previously man and wife subsisting off a piece of land, when the children come along, you have to find a way to extract more from the piece of land to sustain all of you.

"Innovation is critical to any developing and growing society. Innovation is what will allow you to extract more and more value from less and less of the natural resources available....

Innovation is built on knowledge. The more knowledge a society has the more innovative it can be.

An interesting article “Ideas trump resources when it comes to city growth” published in “The Atlantic Cities” Magazine last week extended this same point further in a way that is relevant for Uganda.

The article was a commentary on a previous article that had noted that, currently in the US the parts where the economy is on the rise are the states or cities based on extractive industries like mining and oil drilling.

“The real winners of the global economy have turned out to be not the creative types or the data junkies, but the material boys: countries, states and companies that have perfected the art of physical production in agriculture, energy and , remarkably, manufacturing, ” one David Brooks argued in the New York Times.

However the rebuttal in Atlantic Cities argued that,  its not resources but ideas that powered advanced economic growth,bnoting that “Large endowments of natural resources and of extractive industries can pose a powerful barrier to knowledge accumulation, educational excellence and advance economic development,” an apt description of the ‘resource curse’.

A study, which contrasted cities with and without extractive industries showed that the cities with extractive industries tended to have lower levels of entrepreneurship and lower growth in economic activity.

However, they always are the exceptions to the rule, countries or cities which have extractive industries but have shown progress in the three key indicators of regional economic development --  GDP per capita, average wages and per capita income.

Countries such as Canada, Norway and Australia have done well to exploit their resources for sustainable growth in sharp contrast to Russia, Venezuela and the Middle East the article says.

They have done this by

investing their windfalls on building “institutions and social structures which harness knowledge, accumulate the human capital, and generate the innovative capacity that powers economic growth.”

The articles points to Houston in the US and Calgary in Canada, as examples of the cities that have exploited their natural resources well. Houston has developed a cluster of high value added technology oil related industries, to the point that it is the home of a large number of technology workers and software engineers specializing in oil. Calgary has built itself up as a knowledge hub and as a result is the most affluent city in north America.

We have already earmarked our petrodollars for infrastructure development as a first priority ploughing into social services, research and innovation would guarantee not only sustainable development but that more people will enjoy the benefits of this finite resource.

For starters there is no reason why Uganda cannot become the hub of agricultural research in the region, especially since agriculture will still be an important sector long after the oil has dried up.

They say don’t count your chicken before they hatch, but in the case of money you need to know how you will spend before you get the income. Otherwise the 

when our oil dollars turn up we will be like pigs at the trough and when its all said and done we will look back and wonder where it all went – Nigeria style!