#OutToLunch: Favourable interest rates are good for everyone, not just government

By Denis Jjuuko

Now that the hullabaloo about the government takeover of Umeme is over, there is a need to ask some questions. Questions that affect most people. As you might be aware, many businesses survive on loans whether to expand, acquire new technology, or service their customers.

Usually, the big businesses easily walk into a bank and get whatever money they need. Some even advertise calling lenders who would like to lend them money to bid. The lenders sometimes fall for themselves to do so. Government does the same. It even sets the interest rate it will borrow at and many times even refuse some of the money people are desperate to lend to it but to this, we shall return later.

For the small and medium enterprises (SMEs), it is a totally different story. You have to chase the lenders to give you money. Their instinct is to refuse. They claim SMEs, even when collectively are the biggest contributors to the economy, are risky. Chances of not getting their money back are high. They may not be entirely wrong.

The lenders especially the formal ones usually take their time, making the borrowers even more desperate sending them to underground sharks. Some times some staff of the formal lenders are not any different from the sharks. They deliberately slow the process and demand stuff that are as difficult to get as those usually required by witches.

Once they realize the borrower is super desperate, they pounce many times asking anxious SMEs for a commission. Imagine borrowing money at interest rates in their mid-twenties and somebody is asking for a commission on it. The commission is usually euphemism for a bribe. Desperate SME owners give the bribe in fear of losing out. Doing business in Uganda is like living in the wild, always looking over your shoulders for predators.

Yet the say that what is good for the goose should be good for the gander too. Let us look at how government paid off Umeme. We heard that they borrowed money from a commercial bank to pay Umeme. The lender didn’t quote them the usual rates. It lent them at 7% annually. I am not sure if they presented any collaterals. I believe they didn’t.

Currently, the average interest rate on dollar loans is 13% in many commercial banks. So, the government negotiated itself a bargain at 7%.

When they are borrowing from the masses through the treasury bonds, they are giving an average of 15% on long term bonds (10-20 years) and much less on those with short tenures (five years and below). Like mentioned earlier, they many times refuse to take all the money people are willing to lend it.

They perfectly understand that high interest rates are not good for them. But if they are not good for them, how can they be good for businesses and individuals?

Newspapers these days seem to be deriving most of their income from adverts putting borrowers’ assets on sale by auction for failure to pay back loans. The majority of those assets are for small businesses and individuals. It can’t be that they all misused the money and went for life or made extremely wrong decisions.

Some could have been because the government itself has not paid them for supplies and services rendered for years, prompting lenders to send the toughest auctioneers their way.

With the Americans closing agencies like USAID, many businesses in Uganda are going to collapse if they have not collapsed already sending thousands of workers and business owners home. At their homes, auctioneers will show up to do foreclosures on mortgages. Imagine somebody who acquired assets to service the thousands of NGOs that were getting grants from USAID? Such businesses had not yet recovered from the closure of the Democratic Governance Facility (DGF) by the Ugandan government. We had not yet recovered from COVID-19 for God’s sake.

And as we prepare for elections in 2026, many investors will be watching from the sidelines to see what happens. This means investing less money and therefore less jobs or income for small businesses that could have supplied them or gained contracts from the value chains.

Regardless of what happened with USAID, DGF or what will happen during elections, government needs to rethink seriously the interests on loans and work out a long-term solution. They can’t be borrowing at favourable rates while sending the rest to borrow at astronomical figures.

The writer is a communication and visibility consultant. djjuuko@gmail.com

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#OutToLunch: Invest in a residential house or start a business? It is your profile that matters

By Denis Jjuuko It is one of those debates that will never end similar to the one most people are used to —chicken and the egg, what came first? Though this time it is on a personal residential house and a business or even investing in financial assets like treasury bonds. It is an issue we have discussed before in previous editions of #OutToLunch. Since it won’t go away, why not revisit it? First, let us get to speed with the differing arguments. One side of the coin posits that people especially young ones investing in personal residential houses are stifling growth and funds that may have been used to invest elsewhere is stuck in bricks and mortar. That renting is many times cheaper than owning a personal residential house. The argument continues that people should invest in personal residential houses when they are financially secure. Millions can be stuck in a residential house which doesn’t provide much returns. The other side of the coin argues otherwise. That a personal residential house is a prerequisite for growth. That it is an investment too and unlike businesses or financial assets, it is not as affected by inflation. The argument is that a residential house’s value increases year on year as the country develops. It is a low-risk asset class that leads to increment in one’s net worth. Proponents of this view also argue about peace of mind. The landlord doesn’t have to get worried if he popped in and found you eating chicken! And it can be an asset one could use as collateral for financing to invest in other areas, the argument continues. What decision, then, should a young person make? Invest their money in business, bonds or start on a personal residential house journey? These questions need contextualization, which is never provided by those who advance one argument against the other. For example, what does one want? What does the person do for a living? Can one do both? Many people are not wired not to lose money especially if they can withdraw it at any time the way it is with financial assets. If they hear something is profitable, they rush to invest into it without thinking. That is why many scammers exist. They know people who have money are easily tempted. A cousin has no fees? They rush to give. Real estate is hard to liquidate, which forces many easily excitable people to keep their wealth for the long term. But does a personal residential house curtail somebody’s financial growth? It could, where money that would have been invested in business is channeled into an asset that may not bring back immediate returns. Many Ugandans love building houses in their ancestral villages where they visit a few times a year and can’t rent out or turn them into small bed and breakfast enterprises. Others want very big and fancy ones, which they probably don’t need. And such projects could lead to the collapse of a business or deny one funds that they could have invested elsewhere to ensure financial growth. This brings us back to the issue of contextualization that we talked about earlier. In this case, it is the profile of the person. If you decided to invest in a business or financial assets, do you have the temperament to see money accumulating on your investment account without spending it on ostentatious goods? Can you see your friends holidaying in Santorini and not feel the urge to do the same? If you are a man, are you be able to handle a spouse that sings in your ear everyday about not owning a house? Of if you visit your friends, do you feel left out because you are renting? Will you be able to handle the stress that comes with a business failing? Or you will regret why you didn’t build? As you can see, there are many questions in this article. Questions whose answers can only be provided not by financial advisors on X and TikTok but by the person who is in the middle of making the decision. Building a personal residential house may be the best decision one could make. For another, it might not be the best decision. The type of house and where it is built matters as well. Similar to financial assets, where one invests matters. However, I believe that people can build residential houses while also investing in businesses or financial assets at the same time. Most Ugandans build incrementally, which is done over several years. If one had a certain amount of money, depending on their interests, they could have a percentage in a personal residential house and another in business or financial assets. The writer is a communication and visibility consultant. djjuuko@gmail.com

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#OutToLunch: Uganda’s businesses can also celebrate 50 years like Afrigo

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#OutToLunch: Hoima City Stadium provides a blueprint for Uganda’s infrastructural development

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