Private Sector Foundation Uganda (PSFU) chairman Patrick Bitature shared his thoughts on the matter with Paul Busharizi.
There has been a public outcry about a planned bail out by the Government of stressed businesses. Private Sector Foundation Uganda (PSFU) chairman Patrick Bitature shared his thoughts on the matter with Paul Busharizi.
Is it true that you are leading an initiative to seek a government bailout of distressed companies? If so, why?
As the chairman of PSFU, I have the responsibility to engage with the Government in different matters pertaining to the private sector and economy in general.
I was chairman of Uganda Investment Authority for over six years and gained valuable experience and insights on matters which affect our investors, both local and foreign and a better understanding of how the Government works in general.
For the record, I was not appointed chairman of PSFU by the Government; I was elected by the shareholders of PSFU at an annual general meeting. This responsibility means I have to engage on behalf of the private sector on cross- cutting issues. I declare that I am a member of the private sector with interests in a diversified portfolio.
Justify the bailout, why don't you let those businesses that have been careless fail or close? Why do you want taxpayer's money to bail out especially the big ailing ones. Would you do the same for small ones?
My agenda was not necessarily to bail out a certain number of businesses. I wanted a solution for all businesses operating in Uganda because there was a change in the macro economic environment.I wanted to be certain it had not been missed by the Government regular ‘antenna' or government and agencies. When the economy is overheating or slowing down, you need to be sure before you prescribe the correct medicine; and this must be scientific. A vigilante group had gone to great lengths to establish, with facts, what had happened lately. To take the pulse of the economy.
This group had a formidable leader that brought this matter to my attention. As I listened carefully to several business owners and challenges that they were facing, I realised that the pressures we were facing in one sector nearly affected all sectors across the economy. The issues cut across agriculture, construction, hospitality, trade and distribution, manufacturing, logistics and oil/gas sector.
This got my attention and I was keen to share it with the Central Bank and other government officials to see if they have similar concerns. Consequently, I wrote a concept note for the attention of the Prime Minister and he graciously gave me an appointment at short notice, despite his busy schedule. The matter was not entirely new to his office and several meeting had been held at various levels. As a consequence of these several meetings, three requests were made.
That domestic arrears owed to the private sector by the Government be paid. (The Prime Minister had already consulted the President and a Cabinet decision had been made). There was a directive to the finance ministry to priotise this with immediate effect, but not later than August 2016.
On the side of traders that had supplied goods to South Sudan but had not been paid, the Government empathised that it engage directly on their behalf in due. This was a little more complicated and we had to realistic about the priorities there. In recent weeks we have clearly seen that there were some more pressing matters and lives were at stake there. Nevertheless, the Government will commit human and financial resources to this matter within a legal frame work to find a lasting solution for the benefit of Ugandan traders.
The financially distressed companies that owed money to the banks.
The Government is on record about the unusually high interests rates and was looking for ways to signal the commercial banks to bring down the rates.
The Central Bank rate has been reduced twice in a space of three months, but there is a lag between rate signal and actual commercial banks rates.
The Government sets policies and the Bank of Uganda (BOU) will implement them with autonomy and independence of their understanding of these laws and regulations. BOU cannot dictate to the commercial banks on interest rates in this liberalised free market model that was developed over the last three decades. It has helped Uganda maintain stable growth. Any direct interference might have far reaching consequences.
Notwithstanding the variance in CBR (monetary policy adjustments)and the fiscal policy discipline instilled in the Government lately. The Government has further resolved and budgeted to capitalise Uganda Development Bank as a medium term measure to compete with commercial banks for development projects that require long-term less commercially priced funds.
Please do not see this as a bank to bail out ailing businesses. This is a process that the Government and several government agencies are working on.
So where did this list that has been circulating on social media platforms come from.
There is no official list from the private sector that has been presented to Government or the central bank. How can PSFU or any other body, for that matter, be given the task of choosing who to bail out and who to leave out, if there is no agreed transparent mechanism in the first place, let alone identifying a pool of funds that can be used after the budget 2016/2017 has already been passed?
How would you make a list in a fair and transparent manner to bail out ailing companies?
Therein lies the biggest challenge. Some have cited president Barack Obama's bailout of big companies in the US and how he justified it this with taxpayers' money.
Several other countries followed suit. Uganda's economy today has, indeed, slowed down and the Government agencies are monitoring closely what measures to use to check this and get growth back on track.
Is it true that your Simba Group wants sh200b from the Government as bailout money
First of all, that list going around on social media is a hoax because there is no official list. The board of PSFU, executive director and the management have not been involved in any way in making a list.
I do not think UMA or UNCCI have the list either. It has no author or signatory. I do not know who is creating it and several people are calling me to be included them on the secret list. There is no list. Period.
Debt is a relative thing, better described as leverage in the corporate business world.
The bigger your business assets and cash flow the bigger the debt you can access.
Banks employ smart people to analyse your debt capacity and more often than not they get it right. You must remember that the banks have a much stronger responsibility to the depositors than to the lenders.
Simba Groups business with the banks is an internal matter for the banks and the company. If the borrower defaults, then there is clear process that makes the matter of public concern if necessary. By advertising in the newspapers or going to court. So until such a time, please let the legal private entity manage its affairs as it knows best. I do not think Crane Bank or any other bank, as suggested, will give one single customer sh200b. Sh20b maybe, but not sh200b.
NSSF dismisses bailout cash rumours, experts back plan
By Samuel Sanya
The National Social Security Fund (NSSF) has denied that they will provide the needed funds.
In a statement, Richard Byarugaba, the NSSF managing director, pointed out that the Fund is restricted by the Uganda Retirement Benefits Regulatory Authority (URBRA) Act and its investment policy to only consider companies that are listed on the Uganda Securities Exchange.
"Section 67 of the URBRA Act strictly prohibits lending to any person or institution, except through securities sold on the open market. It prohibits direct or indirect lending, and use of scheme funds as security for loans," Byarugaba said.
NSSF's asset base hit sh5.8 trillion in October 2015 with monthly contributions sh50b in the region.
Byarugaba noted that the fund is not interested in providing funds for loss-making businesses, but in strategic long-term investments.
Stephen Kaboyo, the Uganda Telecom chairperson, points out that the problems affecting the beneficiary firms have been caused by both internal and external factors such as inflation, shilling depreciation and tight fiscal conditions.
"Businesses borrow short term to fund long-term projects. This mismatch is unsustainable. Going forward, the bail out issue cannot be generalised," he says.
"On the other hand, these businesses have over leveraged, have weak governance structures and lack consolidation," he said. Kaboyo warns that there is need to manage expectations since the Government cannot fork out money for all the arrears.
He explains that there is need to explore credit guarantees and other non-cashbail out alternatives such as restructuring loan obligations.
Muhereza Kyamutetera, the chief exectuive officer Corporate Image, warns that if the companies defaulted on loans worth sh1.3 trillion, the entire financial sector could collapse. "If someone has been supplying the Government and they are not paid on time, then you cannot blame their individual lifestyle choices. Saving these companies is not just for their own sake, but for the the banking sector as well," he says.
Kyamutetera adds that he is for the Government bail out only if those in need are willing to sell some shares and agree to a management restructuring.
Charles Nsamba, the Capital Markets Authority communication & public relations manager, says if the Government considered bailing out distressed companies, then the important thing is to find a suitable structure and conduct the necessary due diligence, all cognisant of the risks to tax payers money.
"In other nations, bail outs have been done for systemically sensitive companies, where failure of a large company could cause a collapse of an industry," he explains.
He adds that of the feasible ways, one could acquire a stake and making sure they hire the right technocrats to transform these entities into profit-making entities.