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Monday,November 19,2018 11:55 AM

A stitch in time saves nine

By Admin

Added 23rd October 2018 03:11 PM

Business owners will have to sharpen the discipline of biasing expenditure towards investment and away from consumption.

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Business owners will have to sharpen the discipline of biasing expenditure towards investment and away from consumption.

OPINION

By Patrick Bitature

Last week the Bank of Uganda raised its key Central Bank Rate a percentage point to 10% from 9%. This was the first increase in more than a year, a move prompted by BOU’s projection that price increases coming around the corner.

Increasing oil prices, a weaker shilling and new taxes on mobile money services were cited as reason for this anticipated increase. We know that in the last year or so there has been a cash squeeze, money has been hard to come by.

While the economy has been growing this has not been spread around evenly. It was hoped that if the economy can keep growing we can all begin to feel the joy.

The Bank of Uganda has helped on this front by lowering its CBR from a high of 21% about seven years ago, when inflation hit record levels. This allowed more borrowing by the private sector, which has helped keep our economy ticking. But just when the economy was beginning to gain traction, BOU has slammed on the brakes.

We may not be happy about this but Inflation is a terrible beast, which, if not reined in quickly, can gallop out of control and ruin all the hard work of the last few decades. See what happened in Zimbabwe, what is happening now in Venezuela.

We have already seen several banks announce increases in their lending rates, this will inevitably lead to reluctance to borrow by businessmen, which will mean expansion plans will be put on ice and new job creation will be slowed. For you and me, this development should make us sit up and pay attention.

On a personal level and in our businesses, it is going to call for continued belt tightening. Everyone will need to take a hard look at their budgets.

Spend less and save more. Cut out nonessential expenditure. Make every shilling count. In our businesses, we need to be more disciplined with our costs. We have to cut them to the bone. But in so doing, we need to guard against cutting the muscle in our desire to get at the fat.

The muscle in your businesses are those activities that bring in revenues – sales, marketing and the fat are those that take away money, often time they were feel good expenses to celebrate the good times – entertainment accounts, fuel guzzling cars and fat travel allowances.

Business owners will have to sharpen the discipline of biasing expenditure towards investment and away from consumption.

Easier said than done. But it will make the difference between you collapsing economically or still being alive to take advantage of the opportunities that will be available, when the economy turns around. Because it will turn around.

These things tend to be cyclic.

What we don’t know is when this will be, next month? Next year? The year after? In the absence of certainty, we need to do the best we can to manage the resources we have now in the hope of a better tomorrow.

There are no guarantees, but we improve our chances of success tomorrow, if we manage our affairs well today. All that being said, I have no doubt in my mind that this economy is the place to be and that if we just work hard and spend prudently the good times will come.

We have not even begun to exploit the great potential in this country’s land, people and other resources. That means there is huge up side.

The people who come out the other side of this economic slowdown are the people who will have front row seats to the opportunities of our future.

(The writer is the chairman of the Private Sector Foundation of Uganda)

 

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