Last week Afrexim Bank opened its regional offices here in Kampala in an event that I think should have had much more play in the media.

The Afrexim Bank has as its stated mission the desire to stimulate trade, primarily within the continent but also improve Africa’s trade with the rest of the world. Worthy goals and we should sit up and take notice.

The bank’s coming to Uganda is not by chance. A lot of work was done and supported by President Yoweri Museveni to win it away from neighbouring Kenya. The Ugandan businessman is bound to benefit from the proximity to the bank if we get organized.

"Of course the bank will be dealing with big deals, but one can hope their expertise in trade financing and the other products they bring to the table, can trickle down through the financial sector and improve our dealings...."

But just to give a perspective of what our businessmen suffer because of the gaps in trade facilitation in our economy.

Say I want to import shoes from abroad, a container load for instance. I often have to pay for the shoes cash up front and wait for them to arrive here, which can take anything from weeks to months to arrive. Depending on the volumes I require.

As you can see the problem with this is that, I will have capital locked up for a long period of time, money I may very well have borrowed and are already repaying, before a single shoe has landed on my shelves.

You can imagine that I will mark up the cost of my shoe to reflect all these costs. No wonder other better supported businesses are coming here and running rings around us.

In a more orderly economy we should have access to Letters of Credit. Which we do. But as it is, many of our banks are not recognized abroad so they have to also go through a third party, which is an added cost our businessmen can least afford.

Afrexim with their international reach may very well help us with this challenge.

That is just one aspect of what they do but which is urgently needed in our market.

I am also quite excited about the payment system they intend to introduce here, which they are already piloting in West Africa.

"In many instances our businessmen trading with other businessmen on the continent have to trade in currencies other than our own. So for instance I am trading with an Egyptian businessman I may have to deal in US dollars or British pounds, rather than directly in Egyptian pounds because of the intermediary banks we are transacting through."

With Afrexim’s payment system that may very well be a thing of the past. It is active in all African countries except Algeria, Somalia and Western Sahara.

It has other services of course – asset backed financing, note purchases and project financing, which with their pan African outlook may very well be better than what we are used to.

Of course to deal directly with the bank our businessmen would have to have developed a certain scale – annual revenues of at least $10m, but at least they are here within easy reach of us to begin with.

While that may look like an immediate disadvantage it has its long term benefits.

For one our businessmen will be forced to step up their game, structure their operations in such a way as to make them attractive to Afrexim bank and by extension all other financiers of that kind.

"The informality of our operations is holding us back in terms of size and in terms of the markets we can effectively compete in, here and abroad...."

The bank promises to provide some hand holding for our businesses, something that is very badly needed and in very short supply.

One can read all the textbooks they want on business, but transitioning from one stage of business to the next requires help from people who have already been there and can help the process along.

At the Private Sector Foundation of Uganda we welcome the closer proximity of the bank to us. Our members look forward to a very fruitful relationship well into the future.

I urge all our businessmen to investigate the bank and see how they can best take advantage of this opportunity, if not now but in the future.

Otherwise welcome to Uganda Afrexim Bank.

WELCOME TO UGANDA AFREXIM BANK

I read with a mixture of horror and sympathy for the victims of the latest Ponzi scheme gone bad in town.

Last week a company, Global Cryptocurrencies Ltd, collapsed and along with it went billions of shillings, by police estimates, of their clients’ money.

The company working out of an obscure office on Namirembe road, managed to rope in all manner of clients with the promise of magical returns – 40% a week! I have been in business for most of my life, if I could be guaranteed 40% week I would sell everything I own and jump in with both feet.

They say if anything is too good to be true, it is. If you can get an annual return of 40% on your investment you will be doing extremely well. So if you put in a million shillings in your business and walk away at the end of the year with sh400,000 after taxes you have found a good thing, and I would like to be your friend.

I have seen my share of scam artists and con men. Below are my fast and ready rules of separating the wheat from the chaff.

"The first red flag is often the rate of return the promoters are promising. Normal businesses return half or less in a year what the Global Cryptocurrencies were promising in a week. So if someone offers you a deal of even one percent a week or about 52% a year, which could also add up to 67% year if the return is compounded. That should be you first red flag..."

But assuming the promoter has such a smooth tongue and you listen to him past this first hurdle, find out how they hope to make those returns.

First off you need to determine the source of that cheap sugar. Is it legal? It’s a rule of thumb that high returns come from high risk and what is riskier than engaging in criminal activity?

If by some miracle you are still around, you haven’t run a mile from these snake oil salesmen, try to find out about them – who they are, who knows them, who do you trust who can vouch for them. Look beyond their sharp suits – they are often well turned out, foreign accents and big spending ways.

"It is safe to say, there is a scam going on everyday somewhere around us. The promoters of these scams prey on our belief in fairy tales, about how tons of money can be made with little upfront payment, quickly and with no effort...."

We are seduced by tales of going underwater or sacrifices to the gods to explain how such, such and the other made it.

“Remember him?” they ask “He used to be with us and then suddenly he was rich... He banged a deal …. Black dollars ….”

Often times when you see a genuinely rich person, you are looking at the finished product. You should be asking about their story, how long it took to get to where they are, what they did, their struggles, sleepless nghts and the days without food they had to endure before they made it.

Money has its rules and these often entail hard work, financial discipline – don’t spend more than you earn and tipper fulls of patience and perseverance.

If you take nothing else from the above know this, there are no shortcuts. Anyone offering you a short cut to wealth and fame, is taking you for a ride and you best turn them a deaf ear. Better still run for the hills and as far from them as possible.

Beware Of The Conman

In recent weeks the issues of financing for business has been in the news, in one form or the other.

We have seen the challenge a past minister is facing with having to hang onto his home. The case is in court, so we can’t discuss its merits and demerits, just to say he may have fallen prey to some predatory practices, with the lender skirting dangerously on the edge of the law.

Across the border in Kenya a cap on bank lending rates has been repealed. Three years ago Kenya’s parliament passed a law restricting lending rates to two percentage points above the rate at which the central bank lent money. In reaction banks pulled back their lending to businesses, depressing the economy and prompting the reversal. So now banks can “properly” price their loans, often to the discomfort of small and medium sized businesses.

The two incidents are related and speak to the availability and cost of credit.

"In my business career I have benefitted immensely from credit. It is next to impossible to expand or take advantage of opportunities that come up without the availability of credit. Onlookers may counsel against borrowing, but growth, which the lending facilitates is a means of survival in the business world. If you are not growing to take advantage of economies of scale, it’s only a matter of time before a bigger shark enters the market and brushes you aside or swallows you whole."

In my mind there are two major and interrelated reasons for our current state of affairs.

To begin with our banking sector is dominated by commercial banks. Commercial banks are tailored to serve companies that have strong cashflows, in need of short term funding to tide them over temporary difficulties. Hence their high lending rates and short loan recovery periods.

Where does that leave start up entrepreneurs or promoters of long term projects like manufacturing or for farmers, whose finance needs are unique?

"In theory there is no place for them in this market. In practice they tend to risk taking on short term loans to finance long term projects, hoping to refinance or square the equation along the way. Many times it does not work out."

Government should find a way to encourage financiers along the whole length of a business development cycle.

Can we have small business finance providers? Can we have venture capital funds to come and take these small businesses to the next level? Can we encourage private equity funds to set up shop here to take established businesses to an even higher level? Investment bankers who can broker bigger deals here and abroad? Development finance institutions to underwrite the mega infrastructure and manufacturing deals? What about an agricultural bank?

There needs to be a way that government can proactively encourage these players to come here. They would not only provide tailored financing but would even improve our business practices.

The second challenge for our banking sector is that it is dominated by foreign institutions.

"As it stands now the top ten banks account for just over 70% of After tax profits in the 24-bank industry, while a third of the banks controlled 77% of the operating assets. This points to a highly concentrated market where a few players control a disproportionate share of the assets and take home most of the profit."

This picture is aggravated further by 80% of these dominant banks being foreign. In Kenya the situation is not as lopsided with Kenya Commercial Bank, Equity Bank and Cooperative Bank among the top banks.

This is not ideal nor desirable. The logic is a simple one. Local banks or companies tend to retain more of their monies in country. This particularly important in the case of banks. With stronger balance sheets local banks are likely to innovate more – they can’t have that money lying around doing nothing and even invest more locally. Foreign banks report to offices abroad for which Uganda is often a small part of a much larger picture.

"There are historical reasons for this, government had run down the Uganda Commercial Bank (UCB) and had to flog it to save it and the industry as a whole, as well as the challenges faced by indigenous bank owners to stay afloat in a highly competitive sector."

That should not stop government from encouraging locally financial institutions. Efforts over the last decade to boost Uganda Development Bank’s share capital – the target is to build it up to sh500b, are welcome although painstakingly slow.

One other thing is that government needs to encourage them mobilisation of savings. NSSF is doing a commendable job and its strategic role in the economy notwithstanding, a leveling of the playing field for other players may attract more savings and lower the cost of money generally.

It’s hard to over emphasise the need for greater availability and affordability of credit in any economy and we shouldn’t wait for disaster to strike before we do anything.

FINANCING OUR ENTREPRENEURS, A CHALLENGE WE CANNOT IGNORE

In the last few decades in Uganda we have seen the currency become so worthless a large part of the population resorted to barter trade – exchanging goods for goods.

Then the currency stabilized and we enjoyed having money in our pockets. Our money habits continue to evolve. Increasingly we don’t need physical cash to do our business.

Debit cards, mobile money and e-banking services are pushing us fast towards a cashless society.

And now we are moving into a more intangible space – cryptocurrency.

"As I understand them these are digital currencies, generated using encryption techniques, that also verify fund transfers. Also that no central bank is involved in creating or regulating these currencies..."

The more widely known cryptocurrency, Bitcoin was launched in July 2010 and its fate has been at best back ground noise to many of us, if at all. it has registered some limited attention but mainly for speculative gains.

In recent years it has seen jumps and collapses in its value, as the speculators have jumped in and the professionals have jumped out. This incredible volatility – its value peaked at $20,000 in 2017 before falling back to about $4000 today, has caused more conservative investors to be more cautious around it or to reaffirm their determination to stay away from the whole cryptocurrency business.

But recently I came across an interesting article about social media Giant, Facebook’s plan to launch their own cryptocurrency. The article convinced me that while the cryptocurrency pioneers have not gained much confidence from us who are used to physical cash, Facebook may have the means and will to redress our concerns.

In basic economics a credible currency is a store of value, a reliable medium of exchange and can be used as a unit of account. Traditionally ensuring these three values has been the mainstay of central banks on behalf of governments.

It is still early days but current cryptocurrencies have failed on all accounts; they are simply too volatile to be a store of value, not reliable as a medium of exchange as far as they are not widely held and for the two above reasons hard to use a unit of account.

Facebook plans to do away with the volatility by pegging their currency to the US dollar or a basket of currencies. This will ensure greater stability as supply of the coin will be restricted to the size of Facebook’s reserves which don’t fluctuate widely.

It can quickly become a near universal medium of exchange when you consider that Facebook, WhatsApp and Instagram, through which the currency will work, hold about 2.3 billion accounts.

Making it a unit of account maybe the trickier part as this may depend on regulatory approvals across the various countries the currency will operate in.

"The benefits for my business jumped right off the page. Immediately there would be a lot of savings made from removing currency conversion costs, that alone is enough to make me sit up and take notice..."

Whether Facebook succeeds or fails in its endeavors it is only a matter of time before someone takes this concept and makes it work in a way that is acceptable to all parties.

The question for me then is, is a county like Uganda ready for the inevitability of this change? But even before that should Uganda be interested in this development at all? It’s a long way before cryptocurrencies become pervasive, but rest assured it will take a much shorter time than it took for the current paper money and coins we use today to be universally accepted.

"The savings in currency conversions can be massive for Uganda. Assuming half a percent difference between buying and selling rates of any currency this could add up to about $35m in savings on our current $7b import bill...."

The speed of payment settlements will add more savings as time is money. The underlying block chain technologies can quicken and ease doing business as transactions can be carried out in real time with the highest of integrity.

Being on one currency platform as our suppliers or clients abroad will throw up so much business as the initial transactions will be carried out much faster than is currently happening.

But before anything can happen our technocrats who hold the key to policy need to understand these new trends and by using wide consultation and research prepare to create a policy environment that enables rather than restricts our adoption of these new technologies.

CRYPTOCURRENCIES ARE COMING, ARE WE READY?

Like everybody else I know, my spirit was lifted by the success of our athletes at the World Athletics Championships last week.

The diminutive Halima Nakaayi showed the heart of a lion, sprinting over the last 100m of the women’s 800m event to snatch victory from a more favoured American runner. It was so uplifting to watch. Subsequent stories about the challenges she has had to overcome to get where she is now were testament to the determination of the woman.

Joshua Cheptegei’s victory, while no less inspiring, had a different quality to it. Cheptegei was the man to watch going into the event. He won previously at the Commonwealth Games last year and the in the just concluded Golden League. He was a silver medalist in the 10,000m at the last World Championships in London, pipped to the tape by the now retired Mo Farah.

Cheptgei still had to battle the Kenyans and the Ethiopians all the way. But as a favourite he lived up to expectations, which sometimes is more difficult than not being expected to win and winning, like Nakaayi.

The Uganda team, which represented us in Qatar have useful lessons for business.

But using Nakaayi and Cheptegei as examples, this is what I learn from their process and eventual success.

"Like almost all businesses in Uganda the two champions have been working with so little and delivered so much. Nakaayi talked of athletes who could not even afford a bottle of water during training but still show up, lace up and get on with it."

In our context the Ugandan businessman has a lot going against him – little capital, and even when its available its expensive, a lack of networks to leverage, challenges of taxation and a general high cost environment. But every day they turn up for work and do the best they can under the circumstances.

Nakaayi and Cheptegei begun by working very hard under horrendous conditions. Their hard work, while people around them were whining and complaining, led to some limited success which got them noticed by powerful agents and companies abroad. The same in business we need to work hard in our current circumstances, the hard work will lead to growth and eventually we will be noticed by more powerful partners with whom we can grow to the next level.

I am sure Cheptegei and Nakaayi don’t just go out and run for hours, at any time of the day and over random routes. I am sure they have a schedule which regulates their work and rest, they have specific exercises intended to improve their overall performance and I am sure too, that they watch what they eat.

"The same in business hard work does not mean being everything – owner, salesman, accountant, watchman in your business and working around the clock. Of course in the beginning you may very well find that to be true, but for the business to succeed most of the work will be done building the systems and placing people to run them..."

If you think about it why would a partner, investor or financier be interested in your business if when you, the owner/salesman/watchman were hit by a boda and died the business would go with you?

Now that they have reached the pinnacle of their sport only time will tell whether they can sustain success. They are young and should be able to have more success in future. They will find that it is just as hard or even harder to stay at the top, as it is to climb to the top.

In business too, when our first big deal comes we need to keep our excitement under control. We need to keep doing what we have been doing to get to that point. So for example if It has taken 20 pitches to get the one sale, be prepared to do 20 more to get the next. Just because you have enjoyed some success shouldn’t make us relax.

There are things, which have to be done whether you are a success or not. Keeping your shop open, marketing, which sets up your sales, cost management, system building and meeting obligations. When success comes for athletes and businesses it’s almost as if you have to run faster just to stay in the same place.

Again congratulations to Nakaayi and Cheptegei for their success and for serving as an example to all of us.

WELCOME TO UGANDA AFREXIM BANK

Beware Of The Conman

FINANCING OUR ENTREPRENEURS, A CHALLENGE WE CANNOT IGNORE

CRYPTOCURRENCIES ARE COMING, ARE WE READY?

SPORTS AS AN ANALOGY FOR BUSINESS