The Independent Uganda: You get the Truth we Pay the Price
By Dr Geoffrey A Onegi-Obel
Obama, the 6th Global Entrepreneurship Summit in Kenya, and Uganda’s fate in America’s Africa Economic Transformation Initiatives
On July 24 over 280 world-class investors looking for opportunities descend on the Kenyan capital, Nairobi, for the 6th Global Entrepreneurship Summit [GES] from July 25-26 headlined by outgoing U.S. President Barack Obama.
From the beginning, the USA has played a key role in the GES mechanism. President Obama hosted the first summit in 2010 in Washington DC.
The 2009 GES framework is the third significant US promoted Economic Policy Signal reaching Africa’s entrepreneurs and policy makers.
The first signal is the 2000 Africa Growth & Opportunity Act (AGOA) with its ‘economy transforming gear’ of duty and quota free ‘finished world class manufactured goods’.
The second signal is the lesser known 2004 US African Mortgage Market Initiative [USAMMI] targeting the Homeownership Industry which has a proven powerful Jobs creating engine.
Jobs, homeownership, education and health are the key policy imperatives for economic transformation and the GES mechanism is, therefore, a third useful gear for well-prepared countries to realise these imperatives.
As Senior Presidential Advisor and Chairman of the NSSF, I had the privilege of pioneering and putting together a Uganda Country Response to two of these signals; AGOA and USAMMI.
Like most Ugandans, I am a sucker for start-ups – with my fair share of successful and failed ventures as a result of a structurally ‘difficult’ and even hostile domestic policy environment. Not that a policy environment should be ‘easy’ .What is required is that it should promote competitiveness so that a ‘serial entrepreneur’ has a ‘fair shot’ at success – success being a function of both hard and smart work, together with some luck.
The bad policy indicators which make a domestic policy environment hostile for entrepreneurs and innovators are known.
For the record some of them are the following: Low domestic savings ratio to GDP, an interest rate regime at the upper double digits, inability to attract quality FDI, and a shallow financial services sector dominated by commercial banks – all with small economy footprint relative to the national GDP.
Ugandans are acknowledged worldwide as serial entrepreneurs who by and large’ work hard’ in a policy vacuum and fund their own start- ups and businesses.
There are now credible signs that the our governments are not satisfied with the current economic growth model founded on the poor quality FDI known as AID – and they are looking for policy options which support innovation and jobs. Middle Income Economy Status is the stated ‘end game’ for government economic policy today.
Compared to Ugandans, the Kenyan entrepreneurs by and large ‘work smart’ in a relatively better policy environment which increasingly promotes and attracts funds for start-ups and going concerns. Indeed unlike Ugandans, many Kenyan start-up/business promoters have already engaged and pitched their proposals to the 280 visiting 6th GES world class investors.
Uganda’s position unclear
Uganda’s positioning at this important 6th GES event is not clear. In fact, Ugandan entrepreneurs and businessmen have not featured in any meaningful way in the run up to this Nairobi gathering, or even since the first GES summit in 2010. It is known that a team of Ugandans are going to the GES in Nairobi, but typically their level of advance preparation is questionable – as the actual event itself is a photo opp to celebrate the early behind the scenes work.
It is expected that financing deals worth several hundreds of millions of dollars channelled through the relatively deep Kenya Financial Services sector shall be initialled after the Summit.
However, both Kenya and Uganda have the menace of rent – seekers whose activities continue to weaken country response programs to US trade policy signals – and in consequence reduce country competitiveness year on year.
Of the dedicated US Africa economic policy signals, AGOA was first off the block. It was recently renewed again. Lobbied for by President Museveni among others, AGOA was signed into law on May 18, 2000 as Title 1 of The Trade and Development Act of 2000.
The Act offers tangible duty free and quota free incentives for African countries to continue their efforts to open their economies and manufacture world class products for the US and by definition – other markets.
Second off the block was the 2004 USAMMI. A little known US Treasury driven initiative, this signal is as transformative as AGOA – if responded to with planning dedication and the kind of discipline which discourages national rent seekers.
The 2009 GES mechanism completes the US Triple Trade Policy Signals [my words] – placing Uganda and other sub-Saharan Africa countries in the awkward position of being the architects of their own domestic policy failures should they fail to respond.
The only requirement for success is a robust domestic policy response framework which gives entrepreneurs a fair shot at domestic direct investment – DDI and quality foreign direct investment – FDI.
In 2002 I had the privilege to be requested by President Museveni to pioneer the Uganda AGOA Country Response. In 2004, and by him sending the then US Assistant Secretary for African Affairs, Walter Kansteiner to me, the task of leading the team on the Uganda response to the USAMMI1 also fell to me – as I understood the requirements well and had the implementation tools (NSSF) under my supervision.
Team building began – because the task was multi – disciplinary. Suffice to state that the team building process was interrupted in broad daylight by Uganda’s incorrigible rent seekers.
A well-structured Homeownership Industry embedded in a National Housing Policy Framework can become an engine of growth and account for up to 30 % of GDP during a planned period of jobs with growth and economic expansion.
The National Housing and Population Census is always the key component which keeps the policy framework grounded and the prime objective is the unlocking of the hundreds of millions of dollars currently frozen in tens of thousands of unfinished structures as bricks and mortar.
Accordingly, when President Bush announced the US Africa Mortgage Market Initiative (UASMMI) in Abuja after his visit to Uganda, I singled out the Housing Finance Company of Uganda (HFCU) and promptly acquired it for fresh capitalisation.
The International Finance Corporation (IFC) was also set to enter HFCU through a listing to further boost its capital base required for a wholesale mortgage bank – East Africa’s first. A secondary mortgage market in Uganda was on the way.
We also begun to work with Debra Erb, then-Africa Director of the Overseas Private Investment Corporation (OPIC ) and the US Treasury resident (William Cotter) and Mr Anderson of Ginnie Mae -to realise Uganda’s first satellite town project through an SPV (Nsimbe Holdings Ltd) under the USAMMI.
Then-Junior Housing Minister Francis Babu met with Ginnie Mae’s Anderson who offered help in crafting Uganda’s National Housing Policy – to date still stuck somewhere in Cabinet. Victoria Developments Ltd was to follow in Lubowa.
Lessons from AGOA
Both AGOA and USAMMI did not have the expected degree of success because rampant rent seeking introduced risks which drove away both quality Domestic Direct Investment- DDI and quality Foreign Direct Investment -FDI. But lessons hopefully having been learnt, we should now revamp and retool our response to AGOA, USAMMI and now GES. The first lesson is that all three US government policy signals (AGOA USAMMI, and GES) are by definition medium to long term initiatives requiring good planning, domestic price stability, and some structure to avoid the risk of rent seekers attempting to enter the relevant SPVs.
On the To Do List for attracting the best quality FDI, there is the all-important imperative of a stable domestic monetary and fiscal policy regime which allows investors; domestic and foreign to take a long, as opposed to short position in our economies
The key implementing/coordinating partner US Agencies are the US Treasury, Federal Housing Administration (FHA], Ginnie Mae, USAID and its Development Credit Authority (DCA) as well as the Overseas Private Investment Corporation (OPIC). Understanding how they operate is very important and saves time.
Also on the To Do List in Uganda is the Medium Term Competitive Strategy (MTCS) footprint – an otherwise appropriate policy framework and successor to the PRSP programs intended to complement and ground the AGOA and USAMMI Country Responses through monetary and fiscal policy.
However, the MTCS signal never really did take off – crippled by the dominant AID driven PRSP imperative. The MTCS footprint never went beyond the budget related expenditure framework of government better known as the MTEF.
Furthermore the expected larger MTCS interest rate regime footprint in the broad financial services sector – to underpin, among other things, a robust finished goods duty free and quota free export program – did not materialise. This can be easily dealt with by a strong policy which isolates rent seekers and promotes policy champions at all levels.
To illustrate, a law abiding tax paying enterprise with profit margins of 10 -15% in Uganda cannot be subjected to bank interest rate regimes of 15% and beyond. Only enterprises which evade/avoid taxes can survive and have higher profit margins.
Accordingly, the key variable to a successful and robust country AGOA or USAMMI Response Program is the Domestic Interest Rate Regime as the key price in the economy.
The interest rate variable ultimately serves Ugandan and other Africa entrepreneurs in the broad domestic market and economy by promoting across the board country competitiveness. Indeed monetary and fiscal policies are the dominant variables in the determination of the success or failure of nations as competitive economies seeking job creating growth.
The monetary and fiscal policy signal must also be fine-tuned to allow for the secondary market trading in securities – and serve the medium to long term needs of the domestic entrepreneurial class and the broader investment community as they seek sustainable returns and profit margins (net of tax) as they respond to the opportunities presented in US government preferential trade and related policy signals and opportunities such as AGOA and USAMMI.
In conclusion, some lazy numbers are being bandied about creating some five million jobs. While five million jobs is not an impossible target – success requires a strategy, benchmark year, hard work, and institutional discipline grounded by an appropriate monetary and fiscal policy to serve as the engine of the chosen strategy.
Indeed, GES participants in Nairobi shall be talking about the required monetary and fiscal policy environment where entrepreneurship thrives and creates opportunities for job creation. The necessary imperatives of political stability and democracy will also be talked about.
At the end of the day, however, at the top of the GES Agenda shall be the Jobs Imperative – a key economic indicator with a direct relationship to the entrepreneurship function.
No wonder Americans religiously monitor the Jobs Indicator every quarter for only one reason; the direction and pace of economic policy.
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Dr Obel is a well published investment banker. Trained at Princeton University and Wall Street, he founded the Uganda Securities Exchange Ltd where he is a Director and is working to introduce a new generation of products. He is also a Director of the Independent Publications Ltd and has previously been a Director of Standard Chartered Bank Ltd, Chairman of the NSSF and Senior Presidential Adviser to President Museveni.
