October 2008 – The UK banking sector gets a rescue package under which the British Government nationalizes several wavering banks by injecting US$850 billion; November 1998 – Brazil is bailed out by the International Monetary Fund (“IMF”) in the amount of US$56.7 billion as it received the adverse ripples of the Asian and Russian financial crises together with plummeting international investor confidence; and
- December 1997 – South Korea gets a bailout from the International Monetary Fund, the U.S. and Japan of US$78 billion to address the “Asian crisis” that beset South Korea with a collapsing currency and bankruptcies galore.
Apart from the most recent Greece bailout, that still requires the test of time, the rest of the bailouts, on a common reasonable scale of measure, have eventually turned out to be useful and successful economic and political interventions.
The U.S. economy is now extensively healthy (having recovered since 2008), Brazil now has successfully hosted both a World Cup and an Olympics event, South Korea leads Asia in technology and innovation while being able to effectively thwart off attack threats from its unfriendly neighbours to the north. These bailouts have used taxpayers’ money and / or borrowed funds / financial aid.
We all know that the easiest way to get lynched (and crucified upside down) in Uganda is to suggest the application of a significant amount of taxpayers’ money (in Uganda any amount above Shs1 million (circ. US$297) seems to be considered significant in the public arena) to any end that benefits a select few. So let’s forget taxpayers’ money all together. I hear you say `what?’ Yes; the bailout that corporate Uganda requires now can be funded exclusively by Foreign Direct Investment (FDI) and here’s how:
- The commercial banking sector should consolidate its Shs1.8 trillion (US$533 million) into a single portfolio for sale to an NPL investor or a consortium of NPL investors (who are in plenty in the U.S. and the UK and are very interested in African and Asian NPL portfolios) at an agreed discount. This transaction would be supervised by the Central Bank (that executed the US$33 million closed bank NPL disposal transaction in 2007). This will free the commercial banking sector of its NPL burden, free up its focus and resources, reduce its costs, and allow it to get back to lending as opposed to recovery.
- The acquirer of the NPL portfolio would now identify the borrowers, irrespective of their industry / sector, who could successfully service and repay their loans from their business cash flows with a few key changes e.g. loan restructuring (tenure, repayment frequency, currency), loan interest revision, management change, working capital, structured finance etc. and work with them to save their businesses as well as extinguishing their debt. In effect, the acquirer of the NPL portfolio will have established an Asset Recovery Company (“ARC”).
- For borrowers who do not fall in the above category but are players in economically critical sectors such as steelmaking, tourism /hospitality, agro-processing, and other manufacturing; the NPL investor could consider a quasi equity arrangement in promising businesses with a fixed exit period and plan. Such arrangement could also involve the government as a co-investor. Debt relief is another possibility under this option.
- Other borrowers who do not fall in either of the above two categories would be fairly liquidated by the acquirer / NPL investor with any liquidation excesses being refunded to the borrower.
Voila! No taxpayers’ money, and you have a win-win scenario. Further, international NPL investors are on stand by and simply need to be tactfully invited to the table.
All I would say that Government needs to do in this case, instead of threatening to put their hands into the kitty (again), is to fast track Local Content legislation as has happened in Nigeria and Kenya. Creating a policy framework would truly support Ugandan production and protect our economy from foreign defilement as is the case with the Chinese importation of steel for mega-infrastructure projects that China is financing and implementing here. How dare China not consume any local steel products?
Preposterous, to speak lightly! I would suggest a Local Content level of 40% just like in Nigera. This legislation is critical and will secure economic accomplishment and freedom for the Ugandan manufacturer.
As mentioned earlier, Government should also consider co-investing in critical economic sector players through its investment vehicles such as Uganda Development Corporation and/or Uganda Development Bank. Last, but by now means least, as has been done in Kenya, the government should consider capping bank interest rates (pray I don’t get knocked off by the bankers after they read this!).
Simple, isn’t it? Now you can understand why I don’t understand what all of the fuss and ado is about. If you’re still lost look for me.
David Chandi Jamwa (B. Com, CPA(K), Certified Stockbroker) runs D. Craven Consulting Limited that is a specialist Strategy, Finance and Investment advisory firm that advises Governments, businesses and high value individuals on how to create and reap real value. He can be reached on +256792 176007 and email@example.com.