Thursday, November 9, 2017

AGGREGATING RESOURCES: THE CHALLENGE FOR AFRICA, UGANDA

On Wednesday Uganda Christian University launched a think tank, the African Policy Center, which will conduct research meant to inform public policy biased towards a Christian world view.

Dr James Magara presented on the think tank’s role in the Africa of the 21st century. The problems of Africa Magara said, come down to the fact that we have been doing a lot of doing, unaccompanied by much thinking.

Adopted from Second World War America, think tanks are often independent organisations which set themselves the task to research and disseminate knowledge often with the aim of influencing the powers of the day.

"This attempt speaks to the wider challenge of Africa and more specifically Uganda. We are poor, backward and even hopeless, because we have not aggregated our resources, be it our labour, our markets, our political activism, our finances or in this case our thinking...

We see it all around us.

Look at the classical factors of production.

Barley a quarter of all land in Uganda is titled. This is a disturbing statistic because without a recognisable property rights for the majority of Ugandan households it is difficult to unlock the full value of the land we live on. One way to unlock this land is to aggregate these holdings into bigger holdings either through acquisition or cooperation. It is economies of scale such as these that see the US with only three million farmers, down from 30 million after the Second World War, can be the world’s largest exporter of food.

The labour movement is thin on the ground in Uganda. While serving as a useful counter to capital, labour movements have had the unintended consequence of leading to greater efficiencies in the work place through innovation and automation.

And finally capital. Our lending rates are too high, we have too little capital to finance our own projects and our financial markets are shallow, restricted to a handful of products, leaving out the majority of consumers, because we have not brought together our monies in meaningful ways. We save less than 15 percent of our GDP in the formal banking system, while the east Asian countries at least double that figure. Aggregating capital in this way not only makes it easily accessible and cheaper but attracts even greater pools as well.

In the more developed western economies they have taken this a step further, with the creation of capital markerts, which supply patient money to their businessmen. All the capital markets on the continent do not have market capitalisation – the value of all the shares listed on an exchange, equivalent to that of the Brussels Stock Exchange (about $3.7trillion).

But they have gone a step further, and despite some recent hiccups, have been pushing aggressively to consolidate their politics. See the United States and the European Union. This allows them to not only consolidate their markets but to project their unified will allowing them to have more influence on world affairs disproportionate to the populations of their countries.

The disaggregation of our resources is by design and by accident.

 "And why have we failed to aggregate our resources? A lack of leadership or more specifically a dearth of leadership, which sees uplifting the wellbeing of their respective people as their raison d’etre...

Since independence through design or accident of history our leaders have not been the sharpest knives in eth draw. As a result they have found little use for knowledge or gone out to promote research and its resulting knowledge used to inform decision making.

In fact they have been willing consumers of other people’s thinking, the Bretton Woods institutions or Brussles or even Moscow, knowledge we cannot have been generated for altruistic purposes least of all for our benefit.


The African Policy Center has a noble mission, it will run itno a lot of roadblocks –opposition from established players or inertia from the intended recepients stuck in their old ways. But no one imagines the road ahead will be smooth.

Wednesday, November 8, 2017

WHO WOULD WANT TO INVEST IN UGANDA?

Last week the finance ministry announced the cancellation of the Rift Valley Railways (RVR) concession and took back the management and operations of the railway services.

The governments of Kenya and Uganda had privatised the running of the railway line from Mombasa to Kampala more than a decade ago, as a way to increase its efficiency and move more cargo onto rail and off the roads.

In correspondence The New Vision has seen between government and the concessionaire last year,  government alleged nine breaches of the concession contract among which were default on concession fees, failure to meet volume targets, failure to rehabilitate and operate the Pakwach line and failure to rehabilitate rolling stock.

In addition investment minster Evelyn Anite said the country had lost $700m (sh2.5trillion) in the course of the deal without elaborating further.

RVR responded to the claims showing proof of how they had met the requirements, which letter was summarily rejected and met with a letter announcing the cancellation of the concession in April this year.

A letter from RVR’s lawyers MMAKS advocates pointing out that the attorney general had issues an interim order prohibiting the termination of the concession until today, 16th October 2017 was clearly ignored by the finance ministry. The interim order was to allow for an arbitration to proceed as stipulated in the contract.

Uganda’s action comes not very long after Kenya decided to cancel the concession on their side under similarly unclear circumstances.

"Understandably the whole affair has left a bad taste in the mouth of Qalaa Holdings. The Egyptian investment group was the main partner in the concession, which they salvaged from the previous operator South African Sheltham Rail Corporation....

Karim Sadek, Qalaa Holdings’ managing director of their Transportation Division says his company has invested $320m in the whole concession since 2010, he maintains that they have lived up to their side of the agreement and still thinks the Uganda side of the concession can still be salvaged.

“We have reputation and good working relations with the partners on this investment, which we would not like to see lost,” Sadek told the Business Vision.

Sadek says the concession was frustrated at every turn by the Kenyan bureaucracy, which made no effort to hold up their end of the Public Private Partnership (PPP) agreement, taxed them to support the road infrastructure and made financial demands on the operators that made the concession unviable.

“Uganda has been very helpful on many fronts we think going to arbitration can help us iron out any outstanding issues, paving way for the continuation of the partnership in Uganda,” he said.

He believes that an arrangement where they operate the Uganda leg, with right of passage to operate between Mombasa and Malaba would ensure that the efficiency gains that have been made so far would not be lost.

In hindsight Sadek now sees that the environment would have made it hard to operate under the best of circumstances.

“On the Kenyan side there has been great hostility from the management and total indifference from the policy makers, no attempt at all to make this deal work. We were aware that there were challenges in making the concession work but we had bought into the narrative that it was Sheltham’s lack of capacity that had failed the earlier attempt. We didn’t see the ecosystem failing us the way it did.”
He says despite the circumstances they managed to reduce transit times for good to Kampala from Nairobi to 15 days from the prior 21 days, while offloading wagons had been reduced to three hours from 21 days.

However government officials with intimate details of the process warn that government is taking too much for granted and could stand to lose not only money but international good will.

“The biggest issue was that we did not put in place an independent regulator who would independently monitor the concession and two, someone to who either party Qalaa or government, could refer any disagreements. The works ministry undertook to do this but they never got around to it.”

As a result Uganda Railways Corporation became the de facto regulator, which constituted a conflict of interest as they were also owners of the assets and there was always a sense that the old URC wanted to take back the service.

That being said he advised that, “Government needs to allow for prearranged mechanisms to dissolve the deal to take their course. The lenders for instance, we don’t hear anything from them and yet they have a first right to take over and even find another operator.”

"It is déjà vu all over again. We have seen this inability to work harmoniously with investment partners before...

We make the mistake of seeing investors as individual entities who we can mishandle as we please. But we forget – because we must know, that there is a whole ecosystem behind the size of investors we are looking for to bridge our infrastructure deficits or build factories or open service industries.

To begin with they come with partners, as a way to share risk, and then these often have financiers behind them and all these often have the backing of governments. So when an investment goes wrong for other reasons than that the project was not viable one is stepping on more toes than they see.

This is a very real challenge because as it is if we take back the railway we will still have to go back to the same lenders to get funding for our plans.

Something has to give.


"We cannot continue running rough shod over genuine businessmen and then wonder, why we keep attracting crooks or why we are not getting enough investments coming in or why we can not create the jobs we so badly need...