Despite collapse of agricultural prices, we should not stop thinking about improving agricultural production

“Ataffe bwavu asubula magi nansuwa” This is a proverb shared by the Basoga and Baganda which means, you will never get out of poverty if your business is selling eggs and clay pots. In the recent article on July 27, 2014 titled “meeting unemployment challenge in developing countries” I have proposed support of agricultural production in developing countries as a way to create jobs and address poverty. But it is prices of agricultural products that fluctuates and actually fall now and again. In the article by FAO appearing in the East African Business Week of July 28-Augus 2, 2014 demonstrates this. It talks about the falling process of agricultural products. 

Those who rely on agricultural products are like those who trade in eggs and clay pots. They are losers. On the hand the prices of manufacturing products continue to raise especially those with recent technologies. Despite this no country should relent on agricultural production especially those endowed to do so.. As the population increases worldwide especially in developing countries, the need to grow more food is more important. Good agricultural plans will see more production of agricultural products, value addition and this will create jobs. Uganda must put emphasis on what we produce in terms of quantity and increase productivity. With the increasing population, it will be a shame if Uganda has to seek food aid from the developed countries.

University of Rwanda gets $40m

The National University of Rwanda will get over the USD40 million for support the country’s ambitious programme to develop into a knowledge society. The money is for research, structural programme agricultural, and medicine among other scientific area. Uganda has benefitted from many such grants. CIDASAREC, CIDA, NORAD, USAID, DAAD, JICA, DFID, DANIDA are among granting agencies that have given Uganda money to develop the education sectors.

With now 30 years in the university system, I can say this, yes, the money has come and has been used but no, I do not see the concrete and other lasting impressionable results of this support. Possibly there is need to study the impact of this aid money. Of course, I am begging a question, this has been done and the answer has been an overwhelming aid does not support concrete useful change.  Donors have over the years changed their aiding policies and strategies. Years back, donors would construct buildings. Today, money is largely spent on vehicles, computers and salaries. If the aid money is a loan, the country commits the future taxes, call it earnings of the citizens of the country to repay the money.

MUBS has benefitted from various grants though not as much as other public universities. We now have USD 5million as grant from government to support infrastructure, PhD among others. This is a loan from ADB. This is a good gesture by government. Business strategy requires organizations to go ahead and support good products and shoot poor performing products. MUBS has been an outstanding success but it has been shot down. This is not surprising, it is normal in society. MUBS is one organization that is least funded among the organizations in the industry. But MUBS growth is one of those outstanding phenomena in higher education not only in the country but in the region. It could even take a global dimension as a success but MUBS has been frustrated, denied funding that matches its successes shooting a successful product. Government has taken a political decision to start new universities that are very expensive. One of MUBS upcountry campuses compares to size with some universities in terms of students but with about 10 percent of the overheads

Bravo MUBS, pity for the country.

University of Rwanda gets $40m

KIGALI, Rwanda – Sweden is supporting Rwanda’s ambitions to pin its economy on a knowledge-based society by handing over about $40 million to the National University of Rwanda.

“The program supports Rwanda’s ambitions to develop into an innovative knowledge society and aims to increase the production and use of scientifically based knowledge contributing to Rwanda’s development,” Amb. Claver Gatete, the Rwanda Minister of Finance and Economic Planning said last week.

Joakim Molander signed for the International Development Cooperation Development (SIDA) during the function that took place at the Swedish Embassy in Rwanda.

This program is tagged under Cooperation in Research, Higher Education and Institutional Advancement.

The money will go towards support use of scientific knowledge of international quality that contributes to Rwanda’s development. It is also meant to enable disadvantaged people improve the quality of life through research carried out at the university.

Gatete thanked the Swedish government for choosing education which he said is very critical if Rwanda is to achieve a knowledge-based economy.

“This is indeed going to support our services sector with the developed skills the country will have. Rwanda has been focusing on formal education up to the First Degree level, moving onto Master’s levels. But combining the different universities under one university with the aim of helping them achieve international standards cannot be achieved if we don’t invest heavily at the Master Degree Level and PhD Level, ” he said.

Gatete said Rwanda cannot reach the target of becoming a middle-income country by the year 2020 without investing in the population.

Sweden through SIDA has supported research capacity building in Rwanda since 2002 through the University of Rwanda until the formation of the National University of Rwanda in 2013.

“We aim at helping Rwanda start PhD programs without any partnership from other universities,” Molander said.

Molander said SIDA supports research that is viable in helping countries be able to eradicate poverty.

“Our goal is to help Rwanda establish a strong foundation for both social and economic development and this can only be achieved through enhanced research and skills,” he said.

Rwanda has so far got 23 PhD students from Swedish universities since the partnership started with 29 PhD students undergoing PhD studies and 49 PhD more students to be enrolled during the 3rd phase of the program.

Such support will go to Agriculture, Medicine and Health, Mathematics and Statistics, Peace and Conflicts, Business and Economics, Geographic Information Systems, E- Governance, ICT, Environment, Library and Information Science and Research Management which are critical areas in Rwanda.

Government of Rwanda was praised for continuing to facilitate the relationship there is between the two countries.

Swedish government has supported Rwanda not only in university but also other areas from 2002-2006 with Rwf8.8billion, 2007-2013 with Rwf18.5billion and plans on supporting the country for the 5years with Rwf33.4billion.

Shakeouts in Businesses

Sometime back in a strategy class, I told my students that several sectors in the economy were growing and expanding for the benefit of the country. However some sectors including banking and insurance had too many players and in the near future, there will be a shakeout. The shakeout would involve failure, closure or a merger of weak institutions. Banking sector in Uganda has over 20 banks and over 25 insurance companies. As the industry matures there will be a shakeout and we shall have less than 10 banks and a similar number of insurance companies.

It was the Austrian economist Schumpeterian who saw that when there are innovations in an industry, a variety of new firms enter the industry. The early entrants make profit and it is this profit that attracts new entrants. The entry depends on entry and exist barriers. For instance, telecommunications require heavy investment therefore you cannot have many new entrants. The cost of entry is a barrier. Neither is it easy to leave because the entrant has put in lots of money. For sectors where  entry costs are low for instance insurance, FM Radio stations, entry does not require heavy investment and consequently  increase entry. Entry into this banking sector in Uganda has not been extremely restrictive. At the moment, you require only about USD 10million to establish a bank. For international investors and most of Uganda’s businesses, this is no big deal. As new firms rush into an industry, competition intensifies. The behavior of firms during intense competition is either to exit, buyin or merges costs of existing firms. Firms will exit if they cannot make profit over several years. They will either close voluntarily or involuntarily. If they feel they can continue to exist but with lower margins, they seek to buy weak existing firms, others simply seek out of existing firms to merge to get advantage of scale.

This is the shakeout that Schumpeter predicted. It is usually entrepreneurial firms that survive. Fools rush in, is a description of these firms that enter the industry just because it looks attractive. Such firms are shaken out of the industry. The Bank of Uganda according to newspaper reports has just closed Global Trust Bank. It is reported that it has accumulated a loss of USD22.5million. Remember the start is USD 10million, if they do not make profit; they eat not in their investment but depositors funds. I hope customer deposits are safe and this loss was covered by the Bank reserves. Luckily where a business closes, customers suffer inconveniences but somebody else, another firm, picks up the product or service and provides. Shakeouts are good for both industry and customers. It eliminates poor players who are loss making, it enables only firms with good products and management to survive.

As the economy grows and attracts businesses, we will see shakeout in different universities, insurance companies, schools, FM radio stations, and of course in small sectors like furniture, metal works where we cannot see the impact.

Business failure is good for the economy since it eliminates inefficient high cost producers and for the customers, worry not for the failure of the business but that of the entrepreneur.

MEETING THE UNEMPLOYMENT CHALLENGE IN DEVELOPING COUNTRIES

The world population is approximately 7.1 billion people and according to the United Nations, 2.2 billion of them are poor or near poor. This is 2 out of 7 people in the world live in poverty amidst the wealth the world lives in. When seen from the global perspective the 2 out of 7 is comforting. However when seen from the Ugandan perspective, this is a major problem. The background of the budget says it is approximately 25 out of 100 people in Uganda are poor. This figure is comforting too but when you know that according to the recent report on the state of Uganda’s population, 78% are them is below 30 years old and 52% is below 15 years old! These people do not work and therefore they have no income and do not contribute to the country’s production. This is discomforting. Recently, a couple of two young men claiming to be members of the “Jobless Brotherhood” carried piglets to parliament. They were protesting about lack of jobs.

In recent months, Ugandans have been executed in China for smuggling drugs. It is said that they do this because they have nothing else to do that can give them an income. Newspaper reports indicate that the groups of people apprehended for participating in recent attacks in the Rwenzori region were young people lured into these activities because they had nothing to do. The youth are clamoring for money from government in the pretext of looking of finance to do business just because they have nothing to do. Youth unemployment is a major challenge worldwide. The recent global financial crisis led to youth unemployment rates of over 40% in Greece and over 50% in Spain. As developed countries, this was unthinkable but that is a fact.

In most of the developing countries, it is not easy to track unemployment. The reasons are it is not even easy to define it therefore you cannot put your fingers on it. The consequences of youth unemployment excerbate the challenges that economies have. Absence of income is usually attributed to absence of something to do in terms of employment. The consequences are idleness. The additional consequences are involvement in drug abuse, alcohol, possible illegal trade, gambling, theft. This too has consequences  including drug addiction, unwanted pregnancies among others. These have been documented, well known and they keep police forces around the world busy.

What causes unemployment? Following the industrial revolution in 1800 today’s developed countries moved away from subsistence farming to the factory system. Unemployment in these countries is a very serious matter. It causes untold misery but governments try to solve the problem by providing social security. Unemployment is now backed up by certain theories to explain it. For the developing world especially Africa who still live on subsistence farming, the unemployment theories which explain unemployment mainly in the West do not necessarily apply. The fact that 80% of the population in many African countries live off subsistence agriculture, live in rural areas, lack safe drinking water, have no sanitation facilities it waters down the challenge of unemployment. Indeed computing the unemployment rate in such developing countries is a problem.

Globally we have turned to macroeconomic policy, most recently governance and entrepreneurship to address economic challenges in the different countries. Indeed African countries including Uganda had to implement economic liberalization policies to follow suit the policies of the advanced west. These policies support the small group of capitalist globally. Countries worldwide including Russia have been faulted for not having enough democracy modeled in the experiences of the western countries. It has been believed that democracy leads to economic growth. Of course the growth is Singapore, South Korea, Russia has defied these beliefs. In recent years, entrepreneurship has been added to the drivers of economic growth. This has become a preoccupation to the countries worldwide.

Unfortunately poverty continues to linger around the globe though in different dimensions and facets. In the developed countries, absence of income makes you poor but does not deny you basic necessities of life. The majority of the people in these countries struggle to live on the weekly wages but are comfortable living in conditions where there minimum requirements are met. In the developing countries it is a different ballgame, the fact that these countries have not transformed yet, makes poverty look different. Absence of housing, safe water, sanitary facilities, basic clothing, turns poor people in developing countries into destitutes when compared to their counterparts in developed countries. The social security provided to the poor people in the developed west is provided through the extended family system in the third world poorer developing countries. It is even believed that amidst their poverty most of the poor people in the third world are happy. They are happy because they have not experienced nor seen wealth conditions like their counterparts in the west.

Much of the good life they see is on television and for this reason they crave to go see those developed countries with their magnificent buildings and equipment. It is different when you see these everyday but you d not have an income.

So what needs to be done? In the developed countries, the unemployment theories are a good guide though not sufficient to solve the problem. In the developing countries, you need new theories. The existing theories cannot explain unemployment in the developing countries and in my view, are not even applicable. It is time to develop a localized theory. This is not an academic thesis therefore I will not go into it what academicians ordinarily do. But from the lay persons perspective we can conceptualize the problem and provide some solutions.

In my other writing on my blog, I have attempted to explain some of these issues from my perspective. Let me do so again. Given the current situation in Uganda, my initial steps in addressing the unemployment problem would be to mobilize the ordinary folks to increase the agricultural production either by having more people involved or the same people opening up more land for agricultural production. The issue here is “mobilizing” which makes the matter tend towards a political issue. Getting people to believe that this is what they need to do. Having motivated people to produce more.

Next would be to increase the productivity of what people produce, this now turns into a policy matter. Is it through education, extension services, fertilizers or improved seeds or some or all? What is it that can give us higher yields? The combination of these two increased production and high productivity will create a new problem, market. For the country like Uganda the first market is internal and the second is regional, the third is international market is tricky. The international market for many developing countries is blocked. There are issues of standards, issues of competitors, tax systems and tax regimes which the developed countries have ably used to block Third world countries.

President Museveni has been talking about Value addition, indeed we need to add value to what we produce to export it. This will bring real money. But the export market beyond the region is a place maybe you will not go into due to the above reasons. The increased production and productivity should result into some incomes that will lead to demand for different products both food and manufactured products.  At this moment, policy becomes crucial. Who is going to produce what and where? This kind of policy making involves the international community. It is now about who establishes a factory, who finances it and of course the owner of the capital. This is an issue where even governments of different countries get involved. These are real jobs in the country which create value.

At the moment, Uganda has a series of jobs that give some people some income but are not appropriate. The Boda Boda for instance employs thousands of people. It is a convenient means of transport but very dangerous and very expensive. An efficient economy needs buses or trains not Boda Bodas. This will reduce the number of people employed but will make the economy more competitive. The creation of these alternative jobs in manufacturing will compensates the loss in the jobs of the Boda Boda and other similar industries will be losing.

There are a series of questions here, how do we position ourselves as a country to exploit this? This is in the selection of the industries where we can build competitive advantage. Agriculture of course looks like it. Tourism is the other. While they are mentioned here, they are not easy for the developing countries. Tourism still depends on the magnanimity of the developed countries. They are the key visitors and one negative article in their press back home will stop a flow of tourists. There are more people dying in New York streets than Uganda combined due to crimes. But a gun shot in any of Uganda’s town will halt the flow of tourism. Local tourism will not support growth, international tourism is at the hands of the international community. In agriculture, the jobs there are still at the mercy of the international community. The international community subsidizes their own agriculture and any attempt by the developing world to do so will be resisted by the developed countries. Malawi is a case in point when they attempted to subsidize agriculture, the World Bank withdrew support. After bumper harvests, they are now starving because they had to abide by World Bank conditions. Along with subsidies, the other problem is the pests that invade our main agricultural products like coffee, bananas, maize and of course the poor performance of our research institutes. We cannot have high productivity in such circumstances.

Job creation will continue to be tricky, there is a need for willingness on the part of the developed countries to let go to reduce poverty. Handouts are a development illusion. Loans are a death trap. Many studies have said so and have demonstrated the effect. The developed countries must support the poor to emerge out of poverty. The few countries that are supported like this have done well. Japan after World war II, Israel since it founding, Hong Kong, Taiwan, there was genuine support for these economies and their performance is not surprising. Of course unlike the poor African countries, which have not got to the level of the industrial revolution, these countries were at different stages in the development process either before they were devastated by war or before they were created.

Another solution is  investment in science, this will an argument for another time.

Unemployment and Drug Trafficking

In recent weeks, several Ugandans were executed in China for drug trafficking. The unemployment problem in the country has forced people to do weird things. Drugs are undesirable products which interestingly are on very high demand and yield very high profits in many countries especially the United States. Risky activities have very high profits. This is the nature of drugs. It is a very risky business in many Asian countries as culprits are killed. The effort in drug trade is usually very little compared say to somebody who plants 5 acres of maize and the outcome is lots of money. These drugs however are said to cause addiction and affect the brains the human body. They can cause hallucinations, sleep problems and can make people run mad. At times people become aggressive, emotionally and mentally unstable due to usage of drugs. With this, many governments worldwide have banned them. In some countries people have chosen to go into this business looking for the money in it however in the poor countries, people go into drug trade because they are looking for an income. Other causes have been lack of moral education, lack of policies on labour export among others. in Uganda, we should look at drug trafficking as an employment challenge. We need to deal with it.

The power of social networks

The funding of public universities is a matter that administration of universities lament about every graduation ceremony. This has now resulted into government officials cutting graduation ceremonies and functions or most of these universities. The invitation list for Makerere graduations it included who is who in Uganda. Chief Justice, Prime Minister, all ministers etc today most of these public universities do not bother to invite anybody well knowing that they won’t show up after all when they do show up. All that universities do is bring out this list of grievances they have mainly concerning money. Among the new private universities in the country, there are those that have been established due to politics. Such universities do not need buildings for staff to start. They will be given a license by all means. They will exert political pressure until when they get it. The other is those that are created by the wealthy people of the society. They have all the facilities, good buildings, computers, and usually have taken willing staff from the public universities. At the ceremonies of such institutions, the “who is who” in the country still go there. This is the power of money and networks.

Uganda, the Endowed Country

I am not a messenger of doom. I have been to the Murchison falls and I saw its stunning beauty. It is a shame that for me to go there, it took a friend of mine from the UK requesting me to take me there. I love the boat ride and watching the animals in the river. This process of touring various sites in Uganda is a source of jobs, incomes and addresses poverty. I have in my various postings been commenting on some of the issues that portray the dark side of our country. This has included low productivity issues, begging mentality among others. Hope is not lost for Africa especially for a richly endowed country like Uganda. Tourism is one aspect that we can compete favorably with others globally. We have the animals that people in the developed countries want to see. Part of the biggest fresh water lake is in Uganda. The mighty 40000 Nile river starts in Uganda, we have these beautiful falls, forests and a wonderful climate. We have the cultural institutions surprisingly including the imbalu in Bugisu, the kuhingira in western Uganda and all these are good attractions and sources of jobs and incomes to the people in the country. Of course I once went to New Orleans in the United States, the New Orleans is now famously known for Catrina the storm that devastated the coastal town in the US. There is nothing much to see there and visiting the tourist office, I wondered why there was nothing to see but yet New Orleans attracts millions of tourists both local and international. It is famous for the French quarters especially Bourbon Street. One tourism expert in their offices told me that tourism is a story you tell. The events may have taken place long ago, but you must be able to sustain the story which people listen to and enjoy. The Busoga region for instance has the story of bishop Hannington. At the site where he was killed, there is nothing spectacular but the story is and it can be told. Busoga has in the recent years attempted to promote tourism. It is all about telling a beautiful and convincing story. Uganda can do this. In recent years the tourist authorities have come up with “gifted by Nature” rhetoric which is appropriate but I do not think the marketing is focused. Uganda also referred to as the pearl of Africa. This too is a selling point. Government needs to develop basic minimum infrastructure and let the private sector do the rest. To offer the hotel accommodation, supply food, transport and actual telling of the story. A crucial component of this story is training. One of the reasons Kenya has developed its tourism potential is through organized training. UTALI College is famous in hotel and there are now several aviation training institutions besides the Vet institutions. It is a pity MUBS took over the National College of Business Studies. We have been developing capacity to train hotel and restaurant Human Resource but government has never given us support in this area. Crested Crane in Jinja now known as the tourism training institute is is run down, has no money and has no people capable of running it in comparison with UTALI in Kenya. We requested that we take over this institution to give Uganda, trained people in tourism nobody listens. Without knowledge and skills in leisure and tourism management, we cannot create jobs. Or where there are jobs, we cannot compete effectively. One day somebody who is responsible for making this happen, may read this. I hope he realizes that tourism holds potential to address a percentage of Uganda’s economic fortune. Lest I forget, a limiting factor on tourism is the foreign media. For as long as they glorify even small issues in the economy, you will not have international tourists. That is a political issue. Our political leaders must find a way of dealing with it.