Tuesday, October 25, 2016


Last week the central bank took over Crane Bank. Bank of Uganda (BOU) said the bank was significantly undercapitalised and was putting its depositors’ money and the entire financial sector in danger.

Industry sources say all stops were pulled out to prevent Crane Bank’s eventual fate but they came to nought.

There is little else you can say about that story without making a bad situation worse, but if there was any doubt about the shakiness of this economy, the bank’s takeover should put these to rest.

It is true that the economy has become more sophisticated in the last 30 years. In 1986 coffee exports accounted for more than 50 percent of taxes and more than 80 percent of export receipts. Today coffee exports provide little revenue to the treasury and accounts for less than half our exports of goods and services.

It is also true that the economy has been growing consistently over the same period but this growth has been lopsided towards construction and services, with agriculture the biggest employer, growing at relative anaemic rates to the economy as a whole.

The net import of this is that the created wealth is being concentrated increasingly in to a few hands.
The national household survey carried out in 2013 showed that under two in every ten Ugandans or about 7.2 million Ugandans earn more than a million shillings a year or about sh80,000 a month. 

Think about that!

"Our ability to speak passable English, wheeze around in second hand cars and wear suits to work is but a thin veneer for an economy that is actually not very deep...

What this means is that all our thousands of businesses are scrambling for a small piece of a small pie. So when there is any stress in the economy – a slow down or disturbance the fall out is bound to felt by more people.

A few months ago when the debate about bailing out businesses struggling under the cloud of a underperforming economy were muted Ash Mukungu, formerly of the African Development Bank warned that the business failure will soon lead to bank failures. I thought he was hyperventilating.
And clearly our bureaucracy does not feel a sense of urgency around this subject. According to the finance ministry report for the first quarter of the financial year sh68b was budgeted for debt arrears but only sh28b was released.

The main cause of stress for our businessmen is the government not paying for supplies and services it has contracted. As at the last financial year this figure stood at sh1.3trillion. Other sources say however that even this figured cannot be nailed down.

So you have an economy that is barely trudging along and a government biting off more than you it can chew and you wonder whether Crane Bank’s woes are not just the tip of the iceberg.

One can expect that as a result of Crane Bank’s fate, it is the third largest bank by assets, there will be a slowdown in lending by mere virtue of the bank’s situation and as other managers make sure they are not haemorrhaging cash at a time when BOU is on the prowl. This does not help the economy’s growth prospects.

Clearly the need to return to the drawing board came yesterday, but today will do.

"We need to include more people into this miraculous economic growth we have been enjoying for the last three decades, if only so that businesses can stop depending on the small pool of Ugandans who earn more than a million shillings a year...

In the short term you focus on increasing agricultural productivity in a more systematic way than empty sloganeering. Invest in extension services so that our farmers can improve their practices. In the medium to longer term improve our health, education and other social services, its common sense that a better educated, healthier population will be more productive and earn more.

Secondly we need to take the burden of driving this economy off the backs of commercial banks. Commercial banks ideally should be financing going concerns not dominating the lending to startups, agriculture and development financing none of the latter do they do well. We need angel investors, venture capitalists, small business grants, trade financing and development financing.

Greater specialisation at these different levels will ensure better support for various sectors of the economy, more credit dished out and at lesser risk.

And finally there is no getting around it, we need to be more determined against corruption. Not only do the corrupt take money from the mouths of babes but they distort the business environment -- inflating asset prices and undercut genuine businessmen. But they also overturn the incentive system with people uninterested in innovation and focusing on being commission agents and rent seekers.

We need to be more interested in boosting the substance rather than shining the form of his economy. Crane Bank’s fate is our wake up call.

Monday, October 24, 2016


On Wednesday the minister in charge of Kampala Beti Kamya issued a directive that all vendors be taken off the streets in the capital city.

The directive came after city traders threatened to evict the vendors themselves if government did nothing about them. City traders argue that the vendors constitute unfair competition and are driving them out of business.

The vendors do not pay taxes, rent or any city dues which allow them undercut the shopkeepers but as if that is not enough vendors, by congesting the pavements, often block paying customers from getting to the traders’ shops.

"From a purely economic perspective this is a difficult case to argue against and one can see why Kampala Capital City Authority (KCCA) too would be concerned; a contagion of business collapses in the city would not only single out the capital as place not to do business, but would also hit them where it hurts most, in the pocket as revenues from businesses collapse...

In addition the vendors can be an eye sore, litter the city and can even pose security risks.

The irony of it is that the street vendors probably have ambitions of taking out space in a shop to sell their wares or owning their own shops altogether one day. Their future ambitions would be scuttled if the street vendors entrenched themselves in business culture of the country.

Other countries have managed this by organising flee markets, outdoor markets organised every so often where mostly second hand wares are sold, but their main selling point is that customers can find bargains there.

We shouldn’t forget that street vendors are often good citizens who rather than turn to theft and burglary, forced against the wall they have decided to cobble together some capital, buy some goods and hit the street.

But KCCA have the force of the law behind them.

The challenge of course is that the vendor issue is not an entirely economic one.

The politics is murky as these things often are, but the vendors may represent a failure of government policy. That government is not creating a good enough enabling environment for job creation to at least match the available job seekers. This of course poses an opportunity for political rivals who would side with vendors as a way of scoring political points.

So on one side you would have opposition politicians agitating to keep them on the street while government would rather sweep them away under some long forgotten carpet.

Sadly once the vendor issue is shifted away from the economics and into the realm of politics, the vendors invariably suffer.

We tend to treat the symptom – deal with the vendor rather than the cause of why they need to seek a livelihood on the streets.

"In other economies these vendors, who constitute surplus labour would be snapped up by industry. Unfortunately for us our attempts at industrialisation have not kept pace with the number of graduates we are churning out annually at all levels of education....

So the question has to be why isn’t big industry not setting up in Uganda? For one they owe us nothing. Show them that we can be a viable proposition and they will beat a path to our door.

We have a huge regional market, but we are a high cost production center compared to our neighbours; We have a huge labour force, but their skills are inadequate at best and non-existent at worst. We boast of high returns on investment for businessmen who set up shop here but there are numerous hurdles – access to capital, land acquisition, qualified personnel and corruption to dodge before we can collect on the promise of high returns.

In short we are too hard to business with and it does not help that we do not have enough local business to play as hand holders for bigger concerns coming into the region.

So yes the vendors may have been swept off the street but its only a matter of time and the fundamental issues which remain unaddressed will see them back on the street in a little while.