Tuesday, March 26, 2024

ZIMBABWE CONTINUES TO ACT AS A CAUTIONARY TALE

Last week it was announced that Zimbabwe’s finance ministry was mulling the possibility of a gold standard to shore up its hopeless currency.

Zimbabwe dollar battered by hyperinflation and falling export receipts has become so worthless that Zimbabweans have forsaken it for the South African Rand, US dollar among other hard currencies to transact in their daily lives.

A gold standard would hold the government to a discipline of only issuing as much currency as they have gold reserves (As was suggested in this column in 2008).

"This would have the immediate effect of putting the brakes on inflation and strengthening the currency, but would in the short term be very painful for the man of the street as cash would be in short supply and hard to come by...

How did it come to this? Zimbabwe used to be the breadbasket of Southern Africa, an emerging economy with industries and a growing middle class, better than adequate infrastructure – physical and social and generally an African country on the move.

What happened? In a nutshell, bad politics.

Former president Robert Mugabe and his ZANU-PF under pressure politically, resorted to populism, redistributing land arbitrarily to their cronies and gutting the southern Africa nation’s productive sector with one fell sweep.

It bought them an election but in the process setting the promising economy back decades. According to some reports the country’s per capita GDP has regressed to its 1980 levels, meaning they have fallen out of the middle income status as a nation.

That’s just a number, but for the everyday Zimbabwean it means shortages of essential commodities – Zimbabweans returning home stock up on sugar, bread and cooking oil; it means fuel lines at the stations or walking long distances to work, out of necessity because they cannot afford fuel or transport; it means a real fear of hunger and starvation.

"Zimbabwe is an important case study for us, in the developing world where politicians think they can tamper with the economy to sustain themselves in power, without regard to the long term repercussions to the general population...

Because the truth is, even in Zimbabwe the ruling class are not suffering the hardship and shortages of the everyday man. They still ride to work in fuel guzzling four-wheel drives, take their children to study abroad and have their families treated overseas—Mugabe died thousands of kilometers away in a Singapore hospital.

In Uganda we are no strangers to this downward economic spiral. While it did not start with the expulsion of the Asians in 1972, this clearly speeded it along by decimating our commercial class, a blow we have barely recovered from now 50 years later.

To get the economy back on an even keel, we have had to do some unpopular things like liberalise the economy, which while growing the country’s wealth has concentrated it in a few hands. This last part thanks largely to government inefficiencies and corruption.

While the Uganda macroeconomic stability and growth must continue in Uganda, probably more importantly the economy has to be rejigged to give every Ugandan a fair shake.

This does not mean government standing at every corner dishing out shillings. As popular as that may be in the short term it only serves to create dependency on government instead of self-reliance of the population.

The distribution would take the form of improving social service as a way to improve our human capacity, widespread infrastructure to allow access to market for our producers and improved safety of person of property, through improved security and application of the law.

That it is why it is important to pay attention to corruption whether in government or the opposition, because the perpetrators will seek to protect the status quo even if and especially if, it does not advance the living standards of the everyday man.

This is why given all that we have seen in recent weeks, with opposition politicians just as, if not more, rapacious than the usual suspects, calls for government to own businesses should be avoided like the plague. In fact we should look closely at the champions of these calls because more likely than not they would be the main beneficiaries of the increased surface area for corruption.

The point is this, just as in Zimbabwe, we need to recognize the productive sectors of our economies and rather than disrupt them, because we have no real control over them or because we want some quick political fix, enable them to be more productive through macroeconomic stability and an improved business environment.

Given our economic history, one would think I am preaching to the converted, but the political drama since the beginning of the year suggest that we are leaving the door open for some dangerous political maneuvering that may very well send us back into an economic abyss most of us have no knowledge of. Eight in ten Ugandans were born after 1990.

If Zimbabwe which had already attained middle income status in the 1980s, can be spiraling out of control, let us not think we are immune to the same, whatever the fat cats in government want us to believe.

Tuesday, March 19, 2024

PERPETUATING POVERTY AMONG OUR ELITE

At the end of last month a video went out showing a convoy of high end 4WDs cars ferrying the final year students of a secondary school to their prom.

The young men, who probably harangued their parents to hire the cars may be excused, we all know how it was to try and impress the ladies at that age, but you have to wonder about their parents and school administration for allowing this to happen.

I will never forget a few years ago seeing one of our friends shelling out sh300,000 for a pair of Timberland boots for her small brother to wear at his final year social, and thinking she was absolutely mad to be paying the equivalent of his school fees for a few hours of flossing.

Inflation has clearly set in, because I can imagine in addition to multimillion shilling outfit, parents now have to hire 4WDs and limousines for the boys to wow their female counter parts.

It makes me laugh to think that we used to be ferried in the school truck for socials. Alighting with all the dignity one could muster from the back of the truck, must have been a very funny sight. Bless the ladies of those days, they could see beyond that to the potential of their boyfriends.

"These same kids will grow up to be tone deaf MPs and thieving officials wherever they work. They have been set up for a life that they cannot afford to maintain through hard and diligent work...

It is no wonder then that one big shot on social media last week declared that to be rich in Uganda you need to have a net worth of $1.1m (sh4.98b), live in a house valued at at least sh500m, own two sh120m cars and have your kids in schools that charge at least sh5m. What he described was high living and not necessarily wealth.

And that is the thing, we think wealth is most manifest by our spending habits. So these young men are unwittingly being sold the idea that you need to look rich to be rich, which is far from the truth.

It has been shown that wealth depends more on your discipline with money than how much you earn.

There is the urban legend of the manager who cannot make his salary stretch to the end of the month, while his driver, who earns a fraction of his salary, not only gets to the end of the month but has enough left over to invest in his growing empire of mizigo rentals.

The difference between the two men is that the boss is focused on a consumption lifestyle while the driver is focused on investing.

And that is the crux of the matter. There are only two ways to spend your money, you either “eat” it or invest it. In the former case you look rich even while living hand to mouth, while in the latter case you may not look rich today, but you will be building wealth, which may very well lead to a higher standard of living in the future.

A friend of mine has been investing diligently for the last 15 years. He has maintained his expenses as a proportion of his income, to about 30 percent. So while ten years ago his expenses may not have been much to write home about, his expenses now have grown to almost sh5million a month. The remaining 70 percent he reinvests, increasing his income annually in the process.

His mantra is he would rather be rich than look rich.

"I believe our lack of understanding of how to create wealth is why our political leaders jump at any opportunity to dip their grubby fingers in the public till and our company officials do the same....

They think that building wealth comes from grabbing. Being men and women of above average intelligence they soon realise that in order to sustain their high consumption living they need to grab more and more. Which explains their bottomless greed. Hence their need to stay in government. There are enough former public officials walking around shell shocked, wondering where all their money went, because they do not have access to the treasury.

The trick with money is that if it is left seating around it will diminish with time. A function of inflation. And if our brains are wired towards consumption rather than investment, there is no money that cannot be finished.

The lessons our children should be learning are, how to earn money through hard, honest work, to live below their means, saving the surplus and then how to make that money work for them through investment. The biggest lesson of this process would then be that it takes time to create wealth.

Coming full circle to the young men and ladies at the aforementioned prom. By enabling this ostentatious display of wealth, our parents and schools are sending the wrong signals to their young wards, that pretending to be rich makes you rich...

In trying to keep up with these artificial standards these young men and women will not be averse to reaping where they did not sow when the opportunity presents itself.