Last week the Bank of Uganda raised its key Central Bank
Rate (CBR) a percentage point to ten percent from nine percent.
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 percent 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 seat up and
pay attention.
On a personal level and in our businesses it’s 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 non-essential 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
business 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.
(OCTOBER 2018)
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