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Right thinking will take the day

By Vision Reporter

Added 28th March 2009 03:00 AM

THIS week the central bank intervened in the market to buy dollars. This caused the appreciation of the dollar versus the shilling, as the market was short of dollars. The dollar broke the sh2,000 mark earlier in the month as off-shore investors’ treasu

By Paul Busharizi

THIS week the central bank intervened in the market to buy dollars. This caused the appreciation of the dollar versus the shilling, as the market was short of dollars.

The dollar broke the sh2,000 mark earlier in the month as off-shore investors’ treasury bills matured.

Instead of rolling back the money into new issues, the investors chose to buy dollars and repatriate their earnings.

But the shilling has been losing value steadily against the dollar. Last year before the credit crisis came to the attention of the media, the shilling hit a four-year high of about sh1,600 to the dollar.

That means importers are paying about 30% more for the same volume of imports compared to six months earlier.

Company budgets drawn up in June last year have long been trashed.

Because the shilling fluctuations happen so often in Uganda, our businessmen have some how shown much resilience in previous episodes, but this time they also have to grapple with the ripple effect of the global financial crisis.

US banks – until recently, which had a lot of cash resorted to risky lending that eventually involved lending to people who had little chance of repaying their loans. As night would follow day, these bad borrowers defaulted compromising these banks’ balance sheets.

That would not have been bad if the effects were localised to the US.

However, the bankers then bundled these loans, which are assets on the banks’ books and used them as security to borrow from all over the world. When the bad debtors defaulted, the banks defaulted on their obligations to their creditors and voila, we have the global financial crisis.

Ugandan banks did not participate in these lucrative bond issues, so our banks are largely sound.

Unfortunately the markets for our exports, countries from which we get aid and where our brothers make a living and send back money to finance education, health and investments are struggling.

Uganda finds itself reeled into the mess through no fault of our own.

Figuratively, there is blood flowing in the streets of western and Asian capitals as companies are taking hatchets to their expense budgets, thousands of jobs have already been cut and more job cuts are expected to follow.

There seemed to be a glimmer of hope this week as western securities markets begun to rise after months of free fall, on news of the US government’s latest rescue package.

The proposal is to buy all the bad debt from the bank and jump start lending so that business and incomes can grow again.

Corporate Uganda is aware if this looming danger and chief executive officers are being forced to earn their salaries - the cocktail circuit is bound to suffer.

The knee-jerk reaction in these times is to start reexamining costs.

The world’s richest investor Warren Buffet commenting on costs said: “Keeping costs down is like breathing. You don’t wake up in the morning and decide to breath.”

The last few years have been quite good for Ugandan business. Carried along by the general economic growth, a lot of businesses have flourished beyond their owners’ wildest dreams and understandably managerial slackness has crept in. Never more so than in their marketing endeavours.

You can generally tell when the times are good and sales are coming in automatically, company’s are lax about their marketing and communications departments – small budgets, haphazard recruitments and general lack of strategic thinking in this area. In respect to this, Buffet said something to the effect that when the tide is out you know who has been swimming naked.

So now companies having reduced a few percentage points off their marketing budgets, while still needing to remain visible, are asking a lot from their previously ignored marketing and public relations departments.

And then they find they are not up to the task.

In this economic cycles, during the upswing, everybody looks like a genius, but during downturns the money returns to the rightful owners.

We all hope this crisis will play itself out this year and next year we can return to happy days, but we can expect a lot of pain, jobs will be cut, managers will be found out and sent on their way and companies will fold.

If there was ever a good time for managers to dust of their textbooks on strategy and execution this is the time.

pbusharizi@newvision.co.ug

Right thinking will take the day

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