The laggards: what ails USE stocks?

“You can’t judge a book by its cover,” a local saying goes. We have read in various tabloids and newsletters of how Uganda Securities Exchange (USE) has gained big time over the previous period with the All Share Index (ALSI) bosting of highs averaging 2087.47 base points, and lows of just about 1,383.62 base points in SB’s 52-week analysis as of 22nd February 2018. These are indicators of an improvement in performance of Uganda’s capital markets. However, based on analysis by the Summit Business Analytics (SBA), the flourishing statistics are not a true reflection of what is on the ground.

The 12-month market analysis shows that USE bourse has gained over 32.84 percentage points, more than the famous Dow Jones, FTSE 100, S&P 500, Nikkei 225, among the biggest stock markets worldwide. This nevertheless is an inaccurate measure of the markets. The activity on USE cannot match the busy trading counters of the Dow Jones or FTSE 100. Activity at the USE is dominated mainly by Umeme, Stanbic Bank and little activity on Uganda Clays and Bank of Baroda. While other developed bourses have hourly market activity, giving investors a host of investment decisions to make over a day, this isn’t the case at the USE. Thus USE is an inactive stock market.

Inactive post?

Before conclusions are drawn, (SBA) takes a look at the trend of activity and some counters had no activity at all throughout the last quarter of 2017. When is a bourse deemed inactive? For a bourse to be inactive, the highest proportion of securities have limited activity. That is, infrequently traded, fairly illiquid, highly volatile (uncertain) and are cabinet securities.

It’s no surprise that there is little exchange of hands of the equity at the bourse. Most of the cross-listed stock on USE spend a couple months without activity on the counter. In December 2016, British American Tobacco share price reached the Ugx30,000 (US$8.1) mark. However, the counter has stagnated without activity at the bourse. On the face book value, the counter is deemed well performing, yet actually no activity is taking place. This is evidence of severe inactivity in this specific counter. And it’s not the only one with infrequent activity. The disease has spread across all the cross listed stocks. Inactive counters for the last two years include Kenyan Airways (KA), and National Media Group (NMG). One would assume perfect demand for the supply on the counters. However, this is irrational marketing analytics.

We analyzed two share counters, BATU and Umeme which did not vary in the 30-day market analysis despite the fact that Umeme counter has one of the highest volume of shares transacted. In fact, Umeme counter alone contributes to over 40% of the daily turnover at the bourse. However, share prices have remained the same, meaning there was perfect aggregate demand and aggregate supply, an irrational assumption that will almost accurately never exist. If there was any activity, then USE uses decree to determine price and keep it at that rate. The two had zero variation from the start of December 2017 to the New Year 2018. Yet, globally, almost every bourse experienced the highest level of activity with stock markets surpassing record highs, and increased activity in their bourses. Moreover, theirs is at most hourly activity.

Many analysts ignore the efficiency of share price checking insisting turnover, market capitalization and trading volume give a bigger picture. But Summit Business Analytics recognize that in the market we are in, price is also as significant a KPI as every other indicator. But an infrequently traded share will almost always remain at the same price especially in markets like USE where market forces are the adjusters.

BATU’s share price alone is illiquid. It is very expensive (imagine just one share costs US$ 8.1(Ugx. 30,000)), but lacks interested buyers. There is not even one middle income Ugandan who would consider buying just one share at a whooping Ugx. 30,000 yet they are struggling to make ends meet. But in spite of this illiquidity, the share price still baffles stock traders. Why has it still remained at the Ugx. 30,000 mark? Doesn’t USE have measures or regulations that could control this share price or do the top managers have stake in this specific counter and are not ready to see it lose value? Three years ago, we thought share price would plunge with the Uganda Tobacco Control Act passed on 28th July 2015 which brought Uganda the strongest tobacco control policies around the world. But it seems it has more pillars than the forces of demand behind it. Buying BATU shares to invest is almost like buying dormant non-appreciating real estate (impossible today), very expensive yet zero share price volatility. We are left to wonder why it is still at Ugx. 30,000 for more than two years. A large block of stock and/or small amount of an infrequently traded stock is likely to be difficult to sell without a reduced price being offered to potential buyers.

Why doesn’t Uganda’s Capital Markets Authority impose laws that penalize these dormant counters that spend more than a year without activity on the counters? Even if your dividend yield is be high, share price will still be affected mainly by market forces of demand and supply. Dividend yield is driven mainly by profitability. Until the Capital Markets Authority steps in, the BATU share price remains the most illiquid counter in the region. The dormancy on such counters accounts for Uganda’s Stock Market has stagnated.

Dormant stocks on the New York Stock Exchange are escheated after five years of inactivity and receive significant penalties whenever they fall short of monthly and annual trading targets. Maybe, CMA should give directives to Uganda’s bourses that will enable them impose penalties on companies whose shares are inactive for more than a month – those that don’t attract demand.

Other counters also have characteristics of inactive securities like only trading in small batches, around 2-5 shares at a time. Their trading volume is significantly low. They may not trade for days, weeks or even months. The high-lows of most of Uganda’s securities change usually after 5-10 days, yet more prominent markets have per second, per minute and at most, hourly price changes. “International markets like the Nasdaq have per minute changes,” says Francis, a business analyst at Summit Business Publications. “Stocks like Google, IBM and GE change almost every second. This keeps investors at their fingertips and can generally open up new careers for market analysts as most financiers do not have time to monitor these stock portfolios but still want to earn from them.”

“The Capital Markets Authority could use the same enterprise by encouraging bourse activities through penalizing inactivity and rewarding activity. This will induce multiplier effects in form of job creation for business analysts and brokers, and consequent macroeconomic benefits to Uganda.”

Ever heard of USE’s trading floor?

A trading floor is a physical place where stock trading occurs on an exchange with an open outcry system. Meanwhile, an open outcry system involves shouting and use of hand signals to transfer information primarily about buy and sell orders. Stock Exchange bourses always have trading floors. USE too has one but how many people know about it?

SB analytics carried out a survey on 100 office management people across Ntinda, a prominent suburb. Only about 30% of these were aware of USE and just about two of them know about USE’s trading floor.

Where is the awareness?

The only time Ugandans get to hear about USE is during NTV tonight. Even then, it’s not articulate enough to get the attention of a common man, who could spot USE as a savings and investment platform especially those planning for retirement in a decade years. A

glimpse of the trading floor everyday would boost the activity on the bourse. But even though most exchanges are conducting trades electronically, skipping this stage will most definitely continue to affect our stock markets. We move step by step not striding. Shortcuts are wrong cuts.

Also, in the Daily Monitor for instance, the stocks take a small portion of the sheet. Many have skipped this page without noticing the counters. Can’t we learn from Kenya? Kenya’s Capital Markets report trading on a full page in the Business Daily. This attracts more readers than just a column. This is why they are at least moving ahead of Uganda.

Hourly not daily

NTV tonight updates are not enough. We should be looking at hourly updates of the stock market to show Ugandans that there are hourly gains. Some think purchase of shares is monumental yet you could buy shares in a split second. USE should learn a lesson or two from the betting companies in the country.

Betway set up shop in Uganda in 2016, but still attracts more traffic at its outlets than the USE does on its trading floor. What could be the strategy Betway is using? One word, aggressive advertisement!

You can’t finish more than an hour without listening to or watching a betting company advert on radio and/ or television respectively. They will almost always inform you of the new products, the chances available and will update their websites every minute. Why doesn’t USE deploy the same strategy? Hourly updates on the stock markets on both radios and TVs will leave locals pondering about what exactly happens at the stock market. This will pool numbers to the bourse consequently boosting trading on the already inactive post. The USE website alone gives daily updates to investors after two to three days. We even trust international websites more than USE in updating our stock market daily.

More so, how often do you hear news of a new product or service offered by a company on the bourse by any of the news outlets?

If you watch Quest Means Business, they advertise new products, issues and related bulletins every day and how they will affect stocks on the US stock market. However, for USE, it takes about a minute or two for their report to be released in media houses once a day. There is no attention to detail. It might even skip your attention. On NTV Uganda for instance, it takes them less than five minutes talking about the bourse.

Such news would boost stock trading as Ugandans would have more confidence in investing in companies with the different products exhibited. For instance, suppose Airtel Uganda was listed and news of how it had introduced a new cost friendly bundle were released, this would encourage consumers to buy its stock speculating higher sales consequently becoming gains, thereby raising its share price. Constant news releases on stock bourse companies could boost competition for stocks and increase their demand thereby fluctuating share prices, showing market activity.

A handful of top companies listed

Uganda has more than a million companies registered at the Uganda Registration Services Bureau (URSB) but only 76 of these, are recognized as top companies worldwide. Now that is still a fair number compared to the regional bourses. However, only 16 of those are listed on USE. Where are the rest?

The oldest bourse, the Nairobi Securities Exchange bourse, founded in 1954, boasts of over 64 listings in different sectors. Meaning they have registered at least one company every year. This is a massive number compared to the next bourse, Dares Salaam Stock Exchange that only has 26 listings. However, DSE has grown as fast as NSE with a company every year since it was opened in 1996. USE on the other hand only has 16 companies on its listing with less than a company listing every year yet it was listed a year after the DSE. Same goes for Rwanda’s which was just recently incepted in 2005 with only seven companies. The growth rate and number of listings is still worrying.

Yet Uganda has over 76 top companies with capability of being listed, only 16 of

these are giving the public a chance to venture in their stake.

This raises eyebrows among Ugandans as they wonder where the Capital Markets Authority is to intervene and maybe use policy to favor Ugandans. Can’t CMA impose a policy that forces top companies to list on the bourse giving a chance to the general public to own part of the stake of the companies in their economy? At least about 40 percent should be included in the IPOs of all these companies to encourage inclusivity and drive away selfish businesses.

This directive should not only target USE but also the Capital Markets Authority. For our stock market to rival that of Kenya’s and maybe any of the top exchanges in the continent, this could be the foundation. Policy is power.

Wrong benchmarks

If a Ugandan scientist was to learn from another Ugandan scientist in developing technology, there would be less improvement relative to the world’s technological advancement. This is the same thing that would happen if he tried to copy a Kenyan, Nigerian or South African scientist. Of course, there would be some change but it would be insignificant. Information that goes through many sources before it reaches you is 99.9 percent times compromised. Same goes for bourses.

When we interview Uganda’s business analysts, they almost always benchmark with the regional bourses; DSE, NSE and RES. These are fair benchmarks but you can only achieve as much as they have gone. These are inactive posts. Given that USE is already part of this faction, looking elsewhere could do the bourse more good than harm.

Rather USE’s market analysis should be diverted to markets overseas. The likes of the Dow Jones, Nasdaq, S&P 500, Nikkei 225, to mention but a few, should be our fundamental benchmarks. These are highly active markets that change almost every second. Investors in these markets have to employ highly specialized professionals to monitor and predict trends while USE’s can be predicted by any Tom Dick and Harry. As long as USE sticks to the same benchmarks, the trajectory will continue growing without necesarrily reflecting the “real” activity in the bourse. This opens up new careers for labour like business analysts and data scientists especially in a country where the unemployment rates are alarming (more than 20 percent of the labour force is unemployed, and about three quarters of the employed 80 percent is unsatisfied).

SB Analytics observed per minute movement of each the bourses. While the Dow kept fluctuating per minute, it would take the NSE more than an hour to make significant change. Market activity is clearly low on the side of NSE and extremely high on the side of the Dow. If we are benchmarking on poorly performing exchanges, USE will always lag behind. This should immediately be checked; otherwise Uganda’s stock market will forever lag behind grand exchanges.

Career blind spot

How many youths know about the stock markets of Uganda? Most of them only hear about these things from watching movies and less commonly, international news stations like CNN and Al Jazeera, that they might have landed on while their parents were watching.

Even as far as higher school, very few

youths know about USE. A survey in the SB Analytics report shows 10 students in every 100,000 know about USE. These are shambolic figures. But what has USE done to improve the numbers? Even the business analysts at Summit Business are in the dark.

A journey to a few of the biggest institutions of Uganda unmasked these worrying conditions. There are no recognized courses on business analytics in big institutions like Makerere University. Most of the courses that might be slightly directed to this field are also not clearly addressed.

A well-recognized course outline on business analytics will boost the stock market through clear sensitization, and information that guides Ugandans towards investing in equity.Also USE should carry out a number of trainings and endorse similar facilities that drive information sharing of the stock markets.

To make matters worse, USE lacks highly skilled analysts. Most of these receive on field training without a background in the stock market. It’s like forcing a horse to drink by pushing its head into the water. Their efficiency does not convince most investors that they are the right people to trust when developing an investment portfolio. This situation continues to mushroom with lack of clear career endorsement from institutes of higher learning. A bottom up approach is the best way to increase awareness of Uganda’s stock markets. Take Centenary bank, they have continuously deployed their services in institutions, sensitized youths is schools about benefits of saving in a bank, to mention but a few.

USE or any of Uganda’s upcoming bourses should also deploy the same tactics. Seminars and workshops at different levels in different schools will promote sensitization among the youths. It will also push institutions to offer course in business analytics as the demand for them will show promise.

It’s time to act!

Saving the Uganda shillings

US$10 for a bag on Amazon,” this was read with a simultaneous grin as a Ugandan importer shopped online on eBay 10 years ago. In Ugandan shillings, that was just about Ugx. 17,400, high but reasonable. However today, many importers are worried by the escalating dollar price. That same US$10.00 costs about Ugx. 34,000 in 2018 minus shipping costs. That’s twice as much as it was in 2007. The shilling has lost ground by double the price since 2007.

Many analysts have blamed Uganda’s dire state on the unstable political atmosphere surrounding the country especially towards elections. These speculators have a solid point in that inflation rises by more than 100 percent towards and during every election. This greatly pushes the dollar price to levels any middle and low income Ugandan finds difficult to maintain. But the real problem is under looked.

These and many other factors have continuously been raised by economists, policy analysts and many other consultants in various media; television, magazines, newspapers, radio, to mention but a few. You cannot fail to have listened to this at least once or twice in your life as a Ugandan or tourist. The biggest issue unearthed by Summit Business is a narrow minded central bank approach.

We’ve heard many people praising the Central Bank over the years as it has always tried to battle the dire economic state. Nevertheless, the shilling continues to weaken in spite of its initiatives. They continue to use monetary policy instruments to try and combat Uganda’s catastrophic economic situation. None of these however have been efficient dating back to the financial crisis of 2008. Most recently, the reduction of the central bank rate to 9.5 percent that

momentarily reduced the lending rates but couldn’t keep them below the planned ceiling. As we speak, the rates are back to levels above 20 percent showing weakness in BoU’s policy implementation.

Not only has BoU struggled with balancing the economy with politics, other regional central banks too are facing the same. So let’s not dwell on learning from these failed institutions if shilling is to regain its glory.

Take the Swiss National Bank (SNB). It has swept many a policy analyst away with their policies, from demutualization of the institution to owning equity that could shake the economy of the globe. While the Uganda shilling has weakened by a phenomenal 86 percent since the financial crisis in 2008, the Swiss Franc has gained by more than 14 percent in the same period.

Of course Uganda shouldn’t be looking at influencing the global economy in the short run, but BoU could follow the example of National Social Security Fund. It has invested significantly in equity at the Uganda Securities Exchange.

On December 7th 2017 during the 27th edition of the Annual CEM Investment Benchmarking survey, commissioned by the International Social Security Association (ISSA), NSSF outperformed other pension funds of similar magnitude across the globe on key investment performance indicators. This was to determine the competitiveness of pension and social security funds on a global scale based on international standards on a peer-to-peer basis. Return on Investment, Net Value added and Investment cost were the key areas assessed. Net Total Return was 11.8 percent, above the median return of 7.6 percent meaning their return on investment was over and above by 4.2 percentage points. Moreover, investment cost was 7.0bps (0.07percent), way below the global

median 49.4bps(0.49percent), meaning that NSSF created more value for its members at a much lower cost. Yet, the fund paid a lumpsum 11.23percent interest rate on members’ savings for the financial year 2016/2017, following exceptional financial performance that saw earnings grow by a massive 35 percent to Ugx. 912 billion in 2017 from the Ugx. 674 billion in 2016. This is concurrent with the growth of LCI’s share index that has gained by 5 percent year on year.

While other banks have concentrated on printing money and purchasing assets to stimulate economic growth, SNB has also added investment in private equity to that list. With just about US$836 billion of assets on its balance sheet compared to its rival central bank powers like the Federal Reserve (US$ 4.5 trillion), this is still striking in comparison with the economy in which it conducts its policy. While the Federal Reserve works out only about 23 percent of the GDP, SNB pools over 127 percent of the Swiss GDP, implying that it has invested a quarter more than the entire Swiss economy produces in a single year. But how has SNB achieved this milestone? Can BoU implement the same strategy or its farfetched?

How SNB confronted the financial crisis

The Power of Equity

The Swiss National Bank greatly impacted its currency by investing about 94 percent of its balance sheet outside of the Switzerland in a bid to devalue the Swiss Franc in 2015. More than 20 percent of this venture is in equities with three quarters in the US stock market. The bank has invested a massive US$ 88 billion (Ugx.316.8 trillion) in US equities, 0.3 percent of the US stock market. BoU too has overseas investments but in just normal central-bank instruments specifically the state-backed securities almost every central bank has ventured in. Our sources in USE reported that they could hardly find Bank of Uganda listed among the top shareholders in any of the 16 listed companies. All that was close to Bank of Uganda was a few individuals who decided to invest for their personal needs. The only public agency spearheading investment in the stock market is the National Social Security Fund. No wonder the agency is contributing the biggest chunk in Uganda’s retirement benefits’ reports (refer to What Ails URBRA? on summitbusiness.net).

Clearly, NSSF is a big actor in Uganda’s stock market and has reaped great benefits from it. Summit Business Research Unit is baffled by the fact that a Social Security Scheme is influencing the capital markets more than the central bank itself. For instance, NSSF being the top shareholder in both Umeme and UCL could easily influence the stock price and demand for these shares. BoU could use the same advantage to bolster its asset base. SNB is the largest individual fund on the US stock market, bigger than any hedge fund. It holds more than US$1 billion (Ugx. 3.6 trillion) worth of companies including famous brands like Apple, Microsoft, Facebook, Amazon and Alphabet (owns Google). Apples stake alone is worth about US$3 billion and puts the bank in position to finance every person in Switzerland with over US$350 (Ugx. 1.26 million) per person, the average salary of a Ugandan working in a top office.

This is what we call leveraging your leverage. With just a simple tweak in SNB’s strategy, this can greatly move the U.S stock markets and affect the dollar in its favour as it has done before.

Bank of Uganda should therefore opt for investment in public limited companies on the bourse. Meaning that it won’t only acquire capital from selling state-owned securities but also equity. Equity is very profitable especially in these inactive bourses of Uganda. Although this might not be represented in the cash flow accounts of BoU, the share prices are highly volatile and can reap great profit in the long run, given that Uganda’s shares take long to be traded. A small tweak can reap huge benefit. Individual shareholders ship in more than a billion shillings annually in their portfolio. What could BoU earn with its financial power had it invested in stock?

It would literally have bigger influence in the Capital markets to work in its favour. The Local company index has been gaining year on year. Having recorded 371.15 base points on February 6th 2017, it has gained by more than five percent year on year to 391.39 as reported in February 2018.This is evident that investing in each of the local companies would have boosted BoU’s inflows.

Demutualization a cure to bad inflation?

There is a handful of central banks that sell shares to the public. The Japanese, Belgian and South African central banks are part of this. Also, the Swiss National Bank is demutualized- meaning it can sell its stock to the public.

The SNB has private stakeholders to whom it reports its earnings like a regular company. These shareholders maintain their focus on the prosperity of the bank and the economy as a whole. Of course most of the stock is owned by Swiss Cantons (states), Cantonal banks and other public institutions. But we cannot ignore the power of private owners involved in its decision making unlike BoU that is absolutely and completely owned and governed by the government.

Comprehensive ownership by government evidenced by previous market drivers has shown power bias involved in some of the central bank’s decisions…. Like printing more money before and during elections, defying BoU’s principle purpose of stabilizing the economy. Most of its functions have been affected by political influence especially from the ruling party, most recently being the ‘Age Limit’ disbursement. There were also allegations of ruling party printing money in 2011 elections after inflation rose massively to 30.4 percent by October 2011 raised by opponents, but were quickly rebuffed by BoU.

State owned companies have for many years failed because of political influence in their decision making processes. Some companies like Uganda Telecom had exorbitant debts of over Ugx.300 billion mainly constituting MDA’s that had for long not paid their billsBut this has been countered in different ways. Take for instance before power distribution was privatized, Kampala and the rest of Uganda was characterized by massive power blackouts, falling poles and poor service. But the public responded to this leading to a concession with a private company. Umeme has outperformed Uganda Electricity Distribution Board in ensuring Ugandans gain quick access to electricity with an 868 percent increment in connections. This is one of the many privatization success stories of Uganda. New Vision limited, Uganda Clays, Nile Breweries, to mention but a few. This is just a tip of the iceberg. More than 80 institutions have undergone successful privatization. And this success could be amplified with our eyes set on a much more influential player.

Bank of Uganda is the single most influential macroeconomic driver in Uganda. In good hands, it can steer this country’s dire economy to satiety and reimburse the struggling shilling. Listing the central bank will not only give the bank opportunity to grow its reserves but also eliminate the political intrusion in its business. A true depiction of Laissez Faire. Private shareholders, having a big say in the bank’s future direction will make it hard for ruling powers to direct the bank by decree, something that has for long weakened the dwindling shilling. These shareholders are interested in the growth of their stake so will look to invest in different entities to boost the bank’s assets, profitability and reserves. This will give the power to the public to decide the market forces influencing the shilling.

SNB made more than US$ 20 billion in profits in 2016. This is a significant amount of inflow in the Swiss economy, a substantial stream of cash flow controlled by the central bank. This is the reason they have maintained stability. If BoU can make just five percent of that figure, our economy will more than exponentially achieve stability in a shorter period than is projected. Diversifying the bank’s investment portfolio in Uganda’s and regional capital markets could boost the central bank’s chances of achieving part of that extra turnover. This turnover could in-turn boost reserves in the central bank and enhance the balance of payments in the long run.

Currently, Uganda is undergoing financial crisis. People have little confidence in the shilling. More and more dollar accounts are being opened. The shilling has subsequently fallen year on year. This situation will continue to intensify as long as the central bank sticks to its rigid methods of financing its reserves and accounts.

Even though they say demand for Ugandan goods is increasing with devaluation of shilling in the global economy, the trade receipts are not enough to reimburse the balance of payments position of the country.

Of political power and the economy

He who pays the piper calls the tune.  Legislators in favour of the age amendment bill are grappling with a whole range of problems at the moment, while simultaneously facing a challenge to their authority from the local people who feel that the prevailing approach has been mistaken. More than that, masses argue that terms under the Age limit amendment bill have been set more with reference to the interest of the ruling party than to the concerns of the ordinary voters.

Certainly, it is possible to look at Uganda’s economic history as a variant on the old saying; he who pays the piper calls the tune. What determines economic policy? Politicians will tack with the prevailing winds to ensure they stay in office. Political or economic ideas will be adopted when they are useful to that process.

To the extent that groups gain economic power, political power will follow; think of how: In October 2017, the Ministry of Finance released Ugx.12.6b (US$3.4m) cash to facilitate Members of Parliament (MPs) during their consultations on the presidential age limit amendment bill. Each MP received estimated Ugx. 29m (US$8,055) to go to their constituencies and consult masses about a bill that Summit Business magazine deems not economically driven. This money jogs our memory to that disbursed before and during elections. A whooping Ugx. 2.4 trillion was spent by parties during the 2016 election period. An amount that saw the shilling plunge by over 20% and inflation rates to all-time highs. It was mainly attributed to the unaccounted for sums of money that were disbursed by these parties to convince voters to favour them.

‘History repeats itself,’ goes a popular saying. Already, Ugx. 12.6b has been given to MPs except for the few who returned back the money. Such money is set to enter into the financial market thus an increase in money circulation. Yet, this comes shortly after Central Bank’s efforts to control the year-on-year inflation rate that has increased by more than 24% to 5.2% in October 2016 from the 4.8 percent recorded in October 2016. The rise in inflation has been attributed to the increase in money circulation that is not backed up by a corresponding production of goods and services. This has further weakened the shilling against the dollar with a 6.7% decline in value of the former. And with the unaccounted age limit cash in circulation, Uganda’s economy could be en rooted to inflation rates close to those that sore towards, and during elections.

Bank of Uganda already endorsed expansionary monetary strategy; reducing the CBR rate to 9.5 percent to increase access to credit for the locals. However, this has been undermined by the age limit cash. More money than was planned for is circulating the economy aggregating inflation rates to levels the central bank has failed to control as demand for basic commodities upsurges and prices rise. The cash in circulation has indeed reached its limit. Just when Ugandans had full confidence in the central bank in boosting their financial inclusion by stimulating reduction of lending rates, BoU might have to drop back into the protective contractionary policies it has previously adopted in order to control this highly volatile inflation that might get out of hand

Uganda’s first Corporate Governance Awards to uplift embattled economy

“Does good governance translate into overall performance of a company?” Indeed, it does. Profit is to good governance while tides are to swimming trucks. When the former is high, absence of the latter tends to go unnoticed. For many years, Ugandan companies have struggled with maintaining clear and comprehensive business procedures and policies in their working environment. This issue has seen the fall of many promising institutions, loss of top jobs and an increase in fraudulent activities in these firms. Most of the companies in Uganda lack a clear strategic direction and some of the boards have been in service too long. A precise example is that of Uganda Telecom where the board and management had stayed too long. You saw what consequently happened to them.

Some companies are said to have policies and procedures in place only for compliance. There is no implementation on ground. At one of the Microfinance Deposit taking Institutions (MDIs), top management was rumoured to have been taking interest free loans from the bank, stagnating its growth. No wonder there has been a massive restructuring in that firm.

Another case in point is the national broadcaster; Uganda Broadcasting Corporation (UBC) where the board and management had been in power for too long. The industry players in the oligopoly market kept sweeping the national broadcaster away with its below average quality programs. First, it was WBS (that also got shattered), NTV Uganda and now NBS TV. To be sincere, UBC is exponentially on the verge. Almost every new television tends to pool more viewers in a month than the national broadcaster yet its coverage is countrywide, even in the remotest regions. This is another depiction of poor corporate governance in the country. However, this is a pool of public sector entities.

It was no different for the private sector. In 2016, news of the impending and subsequent closure of the famous Crane Bank, one of the biggest indigenous commercial bank in Uganda then, took the country by storm. The bank had for many years boasted of having the widest coverage, fastest growing customer base, year on year success in audit reports and to put icing on the cake, it won a swarm of top bank and business awards. What the bank was never assessed on was; “did Crane Bank have corporate governance policies in place?” This turned out to be detrimental. The bank was closed for misappropriation of funds and a number of fraudulent activities, yet it is the Board’s role to ensure oversight and ongoing concern of the business. Where was the Board at this particular point in time? The auditors of the bank were put under the spotlight. The most prominent of them was Ernst and Young, which is accused of hiding critical information from other external auditors. This is not the only company that has fallen due to poor implementation and an absent or lacking corporate governance strategy. However, why corporate governance?

Corporate governance is the way a corporation, firm or company policies itself. Best practices of corporate governance entail instating the organisation’s customs, policies and laws to its employees from the highest to the lowest levels. Even the cleaner of your company should be aligned with the company’s strategy – assuming this is the lowest level in the chain of governance.

Corporate governance intends to increase accountability in a firm and to avoid massive disasters before they occur. Had Crane Bank been given the opportunity to be assessed and audited for best practices in corporate governance, they would still be a standing bank. Best practices in corporate governance should equip an organisation with a department similar to internal affairs unit of police; fishing out and eliminating problems with extreme prejudice.

Grant Thornton in conjunction with the Institute of Corporate Governance of Uganda organized the first Corporate Governance awards to reward institutions that portray outstanding corporate governance, adhered to its best practices and implemented their policies neatly. With these, companies are able to benchmark their practices against the best practices of corporate governance. It encompasses companies’ performance and the board’s performance; appointment and assessment of the board of directors; board membership, committees and responsibilities; how the board works with the executive; code of conduct in the companies and, last but not least, risk management, corporate social responsibility and other obligatory internal controls.

The ICGU Corporate Governance (CG) Awards recognize organizations with outstanding achievements in the governance, risk and compliance fields in Uganda. The ICGU CG Awards play an important role in encouraging improvements in the quality of CG, while reflecting changing attitudes and expectations among shareholders, investors and other stakeholders. ICGU leadership understands the best way to help corporate entities, government and the economy at large is to recognize entities that practice and demonstrate corporate governance best practices.

At the start of 2018, posters and blogs circulated around as the rumours about the impending corporate governance awards spread profusely. Although not so commonly practised in the country, it drove a lot of attention. Almost every firm wanted to find out where it was in their state of governance. A portal, www.cgawards.icgu.org was later deployed calling for nominees to register on condition that they met certain criteria like being tax compliant and possessing a board of directors. In addition, companies were to present material that was bounded between January 2015 and December 2017.

Companies were categorised in different clusters, that is; large private sector enterprises, with turnover of more than Ugx. 100 billion; Small and Medium Sized Enterprises, with turnover of less than Ugx. 100 billion; public sector enterprises including Ministries, Departments and Agencies of the government; Non-Government Organisations, Insurance Companies; Banks and Micro Deposit Institutions (MDIs)

On 15th February 2018, companies begun submitting their documents. A review of nomination feedback forms against the minimum criteria was performed. All nominations that met the stated criteria were shortlisted for further validation by the Institute of Corporate Governance of Uganda. More than 200 companies failed to meet the eligibility criteria, citing issues of missing documents, a sign of lapse in their policies and procedures. Already, the award was exposing those companies without all the right policies and procedures, a clear picture of the state of corporate governance of Uganda. No wonder they have been closing rampantly. After a thorough registration process, the portal was closed on 16th April 2018.

A multitude of field visits were conducted by professional auditors and governance experts from Summit Consulting, to each of the nominated companies. This was to inspect whether these companies were implementing what they had previously submitted on paper and were adhering to King IV Corporate Governance Principles. Whistleblowing implementation, risk registers, board meeting minutes approving relevant procedures, CSR impact, business continuity, to mention but a few.

Although most of the companies had these policies and procedures in place, a handful of them had not implemented. There were firms whose employees had no idea of their company strategy. Other company policies were yet to be approved by the board. There were firms whose documents were not at their Ugandan office but at their headquarters overseas. The list of discrepancies in their policies and procedures is stretched. However, all this data was collected and prepared for qualitative analytics.

Formal requests for further information were then made as the Awards Judges Board scored all the short-listed entries against the judging criteria. From these, the judges selected the top five companies per category, based on the highest average score of the different judges. All the companies that made the list were shortly notified and videos of the Executive Directors were taken. These videos were added to the portfolio for the judges to score the top five.

The process was transparent, free and fair as principles of a successful corporate governance process were employed. The judges that were selected were from various trades and industries and gave a clear line of sight of Uganda’s Corporate Governance locus.

On 17th May 2018, the winner in each category will be announced. The company with the best well documented policies, procedures and implementation will be crowned the overall winner in the ICGU Corporate Governance (CG) Awards 2018 on the same night.

Dstv’s bad choices

No business can take their current market share for granted.Technology is changing so fast that existing business models are rendered inadequate overnight just like that. And DStv is not spared.

The traditional subscription based business model may not be adequate to deliver sustainable shareholder value in the medium and long term. Something must change and now.

StarTimes and Zuku TV are a big threat to Multi-choice’s market dominance. Although Multi-choice responded with GoTV, the market share has been threatened. Zuku Premium subscribers are very satisfied with the offering at just Ugx. 33,500 (US $9) monthly. At that fee, a Zuku subscriber enjoys a range of entertainment and news options including all popular international news, movie and series channels specifically BBC, Aljazeera, Bloomberg, Fox, CNBC, SkyNews and more with exception of CNN and sports options. Recently, Zuku made all popular Indian channels freely available for their subscribers at that fee. StarTimes offering are almost the same save for lots of Kungfu channels which they give in plenty.

Dstv’s main differentiator has been football, specifically the English Premier League. Not anymore. Kwese TV has broken the monopoly and offers the same league unlimited. In Kenya, where Facebook has established WiFi hotspots to offer Internet at very affordable rates, Dstv finds itself in front of a major threat: Netflix. The barrier to the growth of Netflix in Africa has been the high cost of Internet access. Not anymore. At just US $12 monthly for the Netflix premium subscription, you can access all popular and premium content, series and some exclusive movies too not available anywhere on any Dstv offering. In addition, with the 4G Internet access unlimited subscription also coming down, some Ugandans are preferring to subscribe to Netflix for their personal entertainment since it is handy on their phone.

Dstv’s brand positioning is synonymous with Celtel, whose business model was exclusive offering for the super-rich. Given a small market segment of such a class in Uganda due to massive inequality, the brand struggled on the arrival of MTN which disrupted the telecom industry. MTN launched after a thorough market research. They understood the typical pains by a Celtel customer. The first pain was awful customer care. High cost of service. Scarcity of mobile phones. Customers had to pay in advance before receiving their phone. MTN reduced the cost of handsets. Provided first turn around time (TAT) and transformed customer care in telecoms. The rest is history.

GTV, Gateway Broadcasting Services, saw a great market opportunity like MTN and launched PayTV services in 2008, a market that had been monopolized by DStv. Within a period of just one year, they got 50,000 subscribers. However, GTV’s financing strategy was not ideal to sustain their pricing model. The company is said to have financed rapid expansion with short and medium term debt, which was a mistake with their low cost penetration model that required volume numbers to break-even. GTV’s initial success with low prices made Dstv to wake up by reducing prices to the smiles of customers. However, GTV’s balloon burst a year later in January 2009, a foundation for entry into PayTV had been opened. Chinese went back to the drawing board. The Chinese saw this as an experiment and came up with a sustainable business model: low cost penetration to disrupt Multi-choice’s Dstv. They launched StarTimes at very affordable pricing for the mass market which has seen the company grow in subscriber numbers thanks to their launch coinciding with the national transition from analogue to digital. At present, Multi-choice’s Dstv and GoTv are said to control about 40% of the PayTV market share in terms of subscriber numbers. StarTimes, Zuku and Citi Cables control the rest. Kwese TV is seen as a possible challenge to the status quo and competes directly with Multichoice which had exclusive English Premiership League broadcast rights.

Broadcasting

In a market report, October – December 2015, by Uganda Communications Commission reveals the number of Free –to- Air TV stations stood at 28, digital terrestrial TV stations were 2 and digital satellite TV stations remained unchanged at 2.

Seven (7) Pay Televisions were operational in the market, two (2) of which broadcast using terrestrial, four (4) use satellite and one (1) broadcasts over cable as of December 2015. Four Pay TVs broadcast country wide. StarTimes and Zuku tv broke DStv’s monopoly of country wide broadcast. By June 2016, Uganda had fully migrated from analogue to digital broadcast.

In response to this digital revolution and threats from new providers, Dstv launched the PVR Explora, the Personal Video Recorder – that promised to transform home entertainment. A product once positioned for the super-rich, it launched at Ugx. 1.2m, and later reduced to Ugx. 398,000. At this price, Explora is still out of range for most Ugandans considering that you need at least Ugx. 282, 250 monthly to enjoy the PVR experience. One Dstv subscriber on PVR Explora explained to SummitBusiness that he found the offering overrated saying the experience is like “being in a comedy show you had been promised endless laughter only to sit there ready to laugh but no joke is worth it and you just stay there grinning with your teeth helplessly waiting to laugh in vain.”

The same is the case with the PVR Explora. Though it boasts of a 2TB hard drive, up to 220hours HD recording duration, 20 Box office movies and Catch up with 60hours series and 30 movies, the experience is quite a disappointing one. You come home expecting a new blockbuster movie in vain. The movies on Explora’s Box Office do not get updated for over a week or more.

“As a subscriber, I expect to find at least two new movies daily so that I have a choice. And if a new movie goes to Cinema, one would expect that Dstv will show that new movie as upcoming and state the time it is expected on Box Office. That way, the subscriber is able to plan and optimize their viewing experience.”

One wonders whether DSTV was ready for the product before launch. The movies on Catch Up are nothing other than a collection of so many Nigerian movies – which obviously may not be of preference for the kind of target market Dstv boasts of as subscribers. To make matters worse, be updated.

The Netflix phenomenon

The rise of the Internet created many new markets and opportunities. Trailblazers like Apple transformed the music industry with their innovation of distributing music online. Amazon changed the way high quality books are published and accessed globally. Rental movies stores fell on their knees. Once upon a time there was Blockbuster movie rental. It had a good business model of renting quality movie rentals. Clients would visit the store or call to have their favorite movie shipped. Despite the high quality service and fast turnaround, the model could not survive the disruption brought about by the Internet.

Many people still wanted movies and their favorite series in a complete set. Blockbuster could not deliver such a thing. Netflix and Amazon prime put all exclusive movies and series in all formats and provided total access to the subscriber. You pay one fee and gain access to all entertainment. You can download and watch several times over. You can skip through the series. You have all the access on your mobile phone and if you are a premium customer, you can access the same on your TV.

For long, the high cost of fast Internet speeds affected the penetration and growth of Netflix. However, theirs was a model built for the information age. As the cost of accessing fast Internet came down thanks to fiber optic, Blockbuster started seeing fewer and fewer customers. It came to a final end on 23rd September 2011.

Accordingly to analysis, Blockbuster collapsed because it kept its head buried in the sand for too long. It could not respond to the emerging market forces specifically (i) increased competition in the media entertainment industry; (ii) technological advances that changed the landscape of the industry; (iii) changing consumer preferences; (iv) the rapid growth of disruptive new competitors; among others. These same forces now face Dstv.

Pricing vs offering

Dstv has kept the prices very high. DStv Access, the least priced package goes for Ugx. 38,000 monthly subscription with an offering of 91 channels. Mid-level packages Family and Compact packages go for Ugx. 66,000 & Ugx. 120,600 respectively. For a subscriber to enjoy premium content on Compact plus and Premium, they have to pay Ugx. 190,700 and Ugx. 287,250 respectively.

Zuku’s least priced package; Zuku Smart Pack goes for Ugx. 10,500 with a total of 42 channels. Zuku Premium on the other hand costs Ugx. 33, 500; Ugx. 4500 less than DStv Access package. Zuku Premium has an offering of 103 channels; 20 more than those on DStv access yet this is Zuku’s premium package! Does DStv’s pricing offer value for money?

The new economics of TV

For long, pay TV business model has been built on monthly subscription. However, as Internet prices come low in most African countries, Dstv finds self in a tough battle for market share and relevancy especially offering all round quality entertainment. Since Dstv does not produce content, it can remain relevant by buying broadcast rights for high popular shows. This involves a huge expenditure. In Nairobi, Facebook has launched low costs WiFi spots, introduced Facebook live and this promises to threaten the incumbent big television players.

Dstv wants to sell to middle and high end but their service quality and offering always falls below the expectation of such customer segment. For example, Dstv PVR Explora is so inadequate in the sense that Box office movies take long to be updated. As if that is not enough, one is required to re-rent the movie after 48 hours! Why can’t the movie that had been previously rented be available for viewing for as long as it is on the Box Office menu? Such pricing compares well with Amazon prime or Netflix premium.

Dstv must remove their head from the sand to avoid ending the way Blockbuster ended – filing for bankruptcy for failure to proactively respond to market dynamics.

Reduce credit risk

Financial institutions continue to be exposed to risks in form of bad debts, poor investments, poorly assessed clientele, and marketing the wrong product in their portfolio.

Improve your data analytics skills today. Enroll

These institutions have a rich endowment of their customer data but underutilise it. They only concentrate on the financial metrics and a few other financial indicators rather than the qualitative behaviour this data unearths that is crucial in predicting likelihood of default.

Request for a data analytics demo

The location, marital status and employment status are some of those essential metrics that can be utilised in stress testing chances of default. These qualitative metrics tell a lot about a person’s lifestyle and what potential barriers they have to clearing their arrears.

With the massive amounts of data banks collect when you’re registering for a bank account, this shouldn’t be a problem. Yet the percentage of Non-Performing Loans (NPLs) keeps accruing year on year.

Read more

Wanted: Cybercrime case studies

Ring. Ring. You are woken up by early morning call from your IT manager with the dreaded news that the bank was robbed during the night.

Worried, you ask: “How many people are dead.” None. Did they break through the basement door? No. Where did they pass? “I am here with the Manager, we are also not sure where they passed?” How much has the bank lost? We are not yet sure, but I am afraid, it could be more than a billion? Puzzled, you jump out of the bed and cut short your December holiday. In the traditional bank robber crimes, the missing link was the “who”? Who are these goons that broke into the bank wearing masts. Not anymore. Now criminals have a clear Command Control Centre, prowl the Internet on a 24/7 basis looking for targets wherever they are. Once a target is identified, the criminals who may be based in say Nigeria, find it easier to process papers and travel down here in Uganda to enlist accomplices, complete the mission and if successful go back.

In August 2017, a user ID, found to have been created for the Vendor IT support personnel, was found to have left unauthorized code in the live banking application that was remotely activated via Remote Desk application and transferred small amounts of money from any bank account that met two criteria – (i) account had a withdrawal within the last five days and (ii) had more than Ugx. 100m (US $27,397) on it. Clearly the fraudster had some insights about the bank. The money was then sent to an account which the fraudster temporarily changed the signature and profile details to match the fraudster’s. During withdrawal, the fraudster presented details that matched exactly those on the account. However, after 12 hours, the account reverted to the original details. Since a lot of money had been withdrawn from the account, the branch manager was able to notice the anomalies on the account as it came as part of the high withdrawal account reports on the following day. And that is how the matter landed on by Desk. In the cyber investigations world, clients expect miracles but sometimes our hands are tied as forensic experts. Unlike a physical crime scene, which tend to leave evidence in plain view, in the cyber world things are different. To give you a complete account of who did what, how, where, when and why, you must have established and practiced minimum cybersecurity hygiene. One of the critical ones is proper configuration and offsite backup of the firewall packet logs (pcap) captured in real time so that not even IT personnel have access to the backups – before, during and after the incident. This simple practice helps get to the bottom to examine how the fraudsters accessed the bank. Is the enemy within or without? If well configured, a firewall works like a door between the internal network and the Internet. If your perimeter wall at home has only one gate, and you have a camera and biometric access, you are able to know who access your home and where. However, if you have multiple gates, you increase your points of failure. And this gives room for cyber criminals to steal and cover their tracks.

Because the attack targets are varied and many, the cyber criminals are persistent and patient. They are always looking. Who is using which system and how up to date is the system. They know that a system that is up-to-date today will become outdated tomorrow due to the ever changes in technologies.

The bad guys are more motivated, learning faster and working harder than the good guys. In today’s VUCA (volatile, uncertain, complex and ambiguous) world driven by Big Data, Internet of Things, Machine Learning, and Robot love (Robots are being made to replace (wo)men for pleasure), the number and frequency of cyber-attacks are increasing at a faster rate than the available skills. In Uganda, institutions that are advanced technology users with a lot of value at risk like banks, insurance companies, telecoms and government Authorities like Uganda Revenue, Uganda Registration Service Bureau, Kampala Capital City to mention but three are always on attention: how to proactively anticipate and prevent cyber threats before they materialize?

At individual level, if you access the Internet, you are exposed to cyber-crime risks. As businesses and individuals go digital, so have fraudsters. The frequency and scale of cyber frauds is mind boggling. Cybercrime is so pervasive and clandestine. Many cases do not necessary involve loss of hard cash. It is the cost to recovery and the psychological torture of the victims that is gives the victims in.

Mustapha B Mugisa is a strategy execution expert at Summit Consulting Ltd, www.mustaphamugisa.com

Insurance fraud

At one of insurance sector Chief Executive Officers’ breakfast at the Sheraton hotel, members were astounded to learn that a certain fraudster had somehow maneuvered his way around the industry and insured a tired-looking, old, Mercedes Benz with four insurance companies and had collected from all in contravention of insurance policy.” The lack of strong communication channels between insurance firms was responsible for the Benz case. Some fraudsters have become really bold nowadays,” Evelyn Nkalubo-Muwemba, the director legal and secretary to the Insurance Regulatory Authority (IRA), noted at the time. “Insurance companies have to work together to cut the number of fraudsters in the sector.”

The Insurance Regulatory Authority (IRA) released data for the complaints bureau in 2013 showing 44 complaints related to Motor Vehicle Commercial policies, which is the highest single total category contributing 37% of 118 complaints registered. Other com­plaints were registered in the insurance types of Goods in Transit, group personal accident, bonds, motor third party, workers compensa­tion, burglary, retirement benefits and loan protection.

Nkalubo-Muwemba noted that 45% or 53 cases were due to breaches in insurance policy conditions, while 32 complaints were due to delays in settling claims. By the end of the year 2013, a total 104 complaints had been settled, 11 are still pending and three were settled through arbitration. She noted that the complaints bureau is set to recruit two new lawyers to bolster the bureaus capac­ity. Insurance fraud is varied.

Complaints in monitoring useful source of information

Most insurance companies do not have strong investigative departments, creating a hole that can be exploited by fraudsters that can lie at policy formulation stage.

Unfair delays in claim payments

Insurance companies take too long to settle insurance clients, most times this discourages repeat business. Some insurance firms go to the extent of hiring lawyers and requesting unnecessary documentation to slow settle­ment of claims.” There is a general laxity in departments concerned with claims settle­ment,” Muwemba said at the meeting.

Fraud and exaggerated insurance claims

Clients sometimes file insurance claims that are way above what is fair, causing delays in compensation.

Malpractice in police reporting

Police officers are sometimes bribed to write reports that offer large unfair compensation to clients. In other instances, the reports are delayed. “There are cases when a vehicle has a simple dent and the police write a report recommending a brand new car for the client. The proper thing would be to request for simple repairs,” Muwemba noted.

Policies submitted for approval differ­ing from those issued to the customers; all insurance policies in the market must first be approved by the IRA. Unfortunately, some companies change policies and go on to sell these policies without seeking the IRA’s ap­proval.

Poor communication with clients even in instances where claims are not payable; insurance companies are meant to tell clients directly when certain claims will not be paid with specific reasons.” Insurance companies should set up desks with friendly officers to educate their clients,” Muwemba highlighted further.

Cases of biased reporting by loss as­sessors and/or investigators’ reports

Loss assessors find themselves between a rock and a hard place. They sometimes skew re­ports to favour insurance companies by rec­ommending tiny compensation. Other times they try to please clients by recommending massive compensation. Some insurance companies do not pay full claims.

Failure to inform the policyholder of the kind/type of cover and its rights under the policy

Insurance companies continue to collect premiums from clients even after they have breached policy conditions. When the risk occurs they do settle the client. “We shall compel such insurance companies that do not inform the client in time to settle the client in full,” Kaddunabi Lubega, the IRA boss, says.

Going forward

On the way forward, IRA has announced plans to upgrade human capacity of the Complainants Bureau by recruiting two lawyers. The process is already ongoing. Other measures she recommends are:

Fast-tracking finalization and enactment of the Insurance Appeals Tribunal Regulations.

Collaborating with police to investigate and combat fraud. Encouraging players to report and exchange information on fraudulent claims. The players should sort out their differences without hurting their clients. (Treatment of treat subrogation cases.) Players putting guidelines in place; e.g., would they call for letters of administration in cases of motor third party? Prompt response from players would greatly reduce on the number of communications required to dispose off a claim.

Players should not begin underwriting at claims time. Players should be cognizant of the fact that issue policy creates obligations to pay claims regardless of whether premiums are paid or not

Digital banking agenda

Digital tech can make banks better.  Resilient gusts blow the streets of Kampala early in the morning as pedestrians trod across the pavements of Jinja Road towards the prominent Kampala Road, a business hub in the capital.

Along the route hang bank posters from Tropical Bank, Orient Bank to United Bank of Africa. As the sun goes up towards 11:00 hours, there is limited activity around these bank branches – What could be going on? Locals are left bemused. This wasn’t the issue a couple of decades ago.

In these pressing times of booming e-business platforms, smartphones are the new normal. In Kampala, it’s now customary to find a teenager holding a fancy phone, which she most probably owns. This wasn’t the case decades ago when the country was lagging behind in digital migration. Gone are the days when owning a phone was only for the high net worth individuals, and to be specific, elders of the family. The phones were basic with texting and calling functionalities only. They constrained users from enjoying other services like internet access of which Internet is foundation for many other services; banking inclusive. Banking was traditional.

Tracing Uganda’s banking sector origins

When banking was first established in Uganda in 1906, with National Bank of India (later became Grindyls Bank) set up shop. A handful of commercial banks emerged after and towards Uganda’s 1962 independence. Bank of Baroda, Barclays Bank Uganda, Standard Chartered and the Uganda Cooperative Bank opened shop.

Bank business and transactions were done manually at bank branches. At the time, banks had limited service/ product offering. There was a massive gap between the high class and low class groups in accessing banking services as banks were mainly established in high end towns of Kampala, Jinja and Entebbe. Financial inclusion was a stumbling block. The Central Bank of Uganda adopted measures to promote financial inclusion.

By 1970, there was a massive upsurge in numbers of commercial banks with over 290 bank branches established across Uganda. However, by 1987, a 71% drop in figure of branches to only 84 further damaged the progress the economy had realized. Many of the branches were loss making thus pushed out of business. Nevertheless, the numbers regained momentum and have risen by a massive 563.1% to more than 600 branches countrywide. In a 2014 Bank of Uganda’s report on status of financial inclusion, at least 54% of Ugandans had access to banks. The portion has projected towards levels close to 65% in the first quarter of 2017 following further extension of bank services to up country Uganda. Financial inclusion seems to be growing at moderate pace. The easier it is to access a bank branch, the more convenient it is to open an account.

But for banks, more is not merrier. Centenary Rural Development Bank with more than 64 branches countrywide spent a massive Ugx. 113 billion on operating expenses in 2016, most of which were attributed brick and mortar model. Stanbic Bank Uganda recorded a high record Ugx.352 billion in the same period, a bank that boasts of over 93 branches countrywide. Indeed, branch numbers are not as desirable as they seem to the people accessing bank services. No wonder banks are trying to devise innovative ways of cutting down costs.

Opportunely in 2009, MTN Uganda launched MTN Mobile Money. A platform that saw Ugandans who owned phones, specifically MTN at the time, access financial services with just a click. The mobile-telephone based banking product was a prototype following the success of M-pesa (2007), a mobile banking platform in Kenya. By 2010, M-pesa had grown to be the most successful mobile-phone based financial service in the developing world. Airtel and Africell followed with Airtel Money and Africell Money respectively. By 2016, MTN mobile registered a massive 3,456% to 19.6 billion in 2016 from 552,047 subscribers in the year of its inception (2009). This persistent appreciation in mobile money usage bred detrimental impact on bank’s retail business.

The queues in these banks have reduced. Where are all people that previously used to flock banks? Have they resorted to the medieval ways of keeping money in their houses? Should the banks reinforce its financial literacy initiatives? Maybe their message wasn’t clear. Bankers reckoned. The answer was simple and precise to the point, the mobile money craze!

It didn’t take banks a lot of time to realize the great threat of mobile money. The number of customers was tremendously falling as they opted for the much more convenient mobile money, regardless of it being none interest bearing. This accounts for a host of bank’s initiatives to change strategy. Some increased their time deposit rates to encourage savings and channel customers back to banks with hope of making money from their savings. By the end of December 2011, the Term Deposit Receipts (TDRs) had averaged as far high as 23 percent, nearing the highest ever TDR of 25 percent recorded way back in 1992. This however did not deter the ever increasing numbers of mobile money users. Some bankers resorted to very aggressive advertising which proved to be very costly.

Until recently, banks have turned to digital solutions. Like television before, banking is also going digital.

Digital adaption

How do you remain competitive in a highly regulated environment? Banks are now under intense pressure and strict requirements by Bank of Uganda as they look for quick wins to grow profits. In the wake of these stringent compliance measures, telecom companies leveraged on the already established footprint and taped into the financial sector through mobile money. This was a wakeup call for most banks. To stay relevant, banks adopted the digital agenda.

To win in a digital era, you must be innovative. And banks have responded seamlessly to the mobile money threat. Banks partnered with telecom companies to complement financial services offering. Account holders with various banks are in position to withdraw and deposit money from mobile money accounts to their bank accounts and vice-visa. The relationship between banks and technology companies is becoming increasingly collaborative.

As events continue to unfold in the digital landscape, smartphones and, less visibly, cloud computing have transformed people’s daily lives—and hence their use of money. Bank account holders expect to be able to use the powerful computers in their palms to pay for goods or move cash around as easily as they can tweet, stream videos or share photos with friends on Instagram. Corporate customers are equally demanding. Yet banks’ information-technology systems are a curious mixture of the old and rickety and the sleek and modern. Malevolent hackers continually probe for weaknesses as banks are striving to stay ahead. Are banks prepared for the digital era?

Who is an entrepreneur?

You are 25 years. You have just graduated from University with flying colors. During your time at University you become a student leader. This helped you make good contacts. Some of your contacts were so good that you have already received some offers from the big four audit firms and some telecom companies even before you set foot on the street to look for a job.

You are happy, and it shows in your steps. To celebrate your achievements especially having got a job offer directly from University without having spent any time on the streets, you invite three of your friends for coffee. During the coffee talk, one of your friends points out that instead of going for the job, you should consider starting a business. Two of the friends’ scorn at the idea. You also add that “I have already got a job offer. Why leave money on the table?”

You all laugh at it. And on you go for the office job.

The fact is, you have taken a less risky option. The fact is “the higher the risk, the higher the returns.” A day job may guarantee you monthly income, but it may not give you the exposure and challenges you need early in your career. If you take a day job with a struggling entrepreneur or start up, you are as good as a risk taker.

An entrepreneur is a risk taker. Is someone who leaves the company of day today job, where everything is certain and assured, to take on something uncertain and very dynamic. Any staff who work with entrepreneurs are themselves entrepreneurs. Effectively, they are taking high risk. The certainty that they will get money is not there. They must be paid only when they make money. That is risk taking.

Anybody taking a significant risk is an entrepreneur. That’s where the entrepreneur gets rewarded. If the business makes money, the entrepreneur earns. If it doesn’t make money, he doesn’t earn. This kind of risk taking whether one is putting trust in hope that it will work other than it won’t work is the critical criteria that makes an entrepreneur.

Entrepreneurs leave places of comfort, decide to do something new and align other team members to follow them, and remain focused regardless of the amount of mountains they have to climb so that as they travel through the ups and downs of the business, the journey becomes normal.  That’s what makes an entrepreneur.

If you decide to take a day job in a government, the then start a part -time business, you are not a true entrepreneur. You may call it risk management. We call it lazy. You cannot spend over 70% of your most productive time in an office and expect to become a great entrepreneur. Focus. Get out of the office. Go start doing something. Give it your whole – 100%-time, energy and focus. You can now diversify your businesses so that you don’t put all your eggs in one basket.

That is entrepreneurship. Taking risk and forgetting about the day office of the public service – where you actually work half time and still the tax payer. That makes you unethical and corrupt. Using office time to run your private errands is bad.

To become an entrepreneur, go start working with an entrepreneur or become one.