Turning 30 Uganda style

Turning 30 is said to be a bit of a hurdle. I remember hearing this for the first time from a teacher in high school. He always seemed to me as the ultimate example of composure and self-control, yet once he admitted to the class that his 30th birthday had been the worst day in his life! I have always remembered this, but I am glad to say I didn’t feel at all that way when the big day arrived this week.

I celebrated the night with friends and colleagues at a "beer and pork" restaurant in the suburbs of Kampala – a very Ugandan place. The TV's were blasting Obama speeches and news from the inauguration and the air was filled with the smell of fresh pork - it couldn’t have been a better night!


I woke the following morning feeling euphoric and not at all brooding, yet at the back of my mind the words of a parting colleague kept playing over: "You know Peder, in the US you have four big birthdays, at 16 you can drive, at 18 you can vote, at 21 you can drink and at 30.. well, then you're really old!"

Why East Africa will be hit hard by this recession

Most observers seem to be of the impression that the recession in Western countries will be severe and prolonged. There seem to be far less agreement on how the financial crisis and the resulting recession will impact East Africa (Kenya, Tanzania, Uganda, Rwanda and Burundi). Many commentators point out that East Africa, and indeed most of Africa except South Africa, is not sufficiently interlinked with the rest of the world for there to be much of an impact.

I think, however, there are some very good reasons to believe the impact on East Africa will be severe. For one, foreign exchange and trade balances will be adversely affected as follows:

Aid
Likely to be reduced as donor countries struggle to finance bail out packages. Does anyone expect Iceland to give monetary aid this year? According to US officials "the financial crisis could imperil US aid available for Africa after 2010" [Business Monthly, Jan 2009].

Foreign investment
The entrance of private equity firms in the African market is an example of how the world investor community has turned to Africa in recent years. With sky-high commodity prices and unsaturated consumer markets, Africa is fertile ground for expansion. In times of crisis, however, the risky assets go first, and East African investments surely classify as risky.

Remittance
The African diaspora is huge and spread across the world, with many working in the US and UK. When firms downscale, foreign workers will often be the first to go. In Uganda there is already talk of severely reduced remittance levels. In 2008 the total was USD 1 billion (or nearly 10% of GDP!), but will be a lot lower in 2009 [Daily Monitor, 05.01.2009].

Tourism
Lets assume an average Western family is having to 'tighten the belt' with say 15% in the next couple of years to counter the effect of falling asset prices, etc. If you rank an annual family budget for a year in order of importance, that luxury safari trip to Tanzania will surely be on the wrong side of that incoming 15% spending cut. Uganda receives about 200,000 foreign tourists per year, Tanzania 800,000 and Kenya 1,600,000, there will be fewer in the next two years.

Exports
The main East Africa commodity exports are coffee, tea, cotton and flowers. Prices for all these commodities are already substantially down. Furthermore, the recession increases the likelihood of new protectionist measures from the regions trading partners, blocking out African products.


The flip side

There are reasons for optimism, however:

Commodities
The East African economies are commodity based, which is, in spite of falling prices, more recession proof than being based on consumerism (US), financial services (UK, Iceland) or real estate (UK).

Already down
If you climb a ladder and it fall apart you are better off standing at the lower rungs. Or put another way: If you are at the bottom you have no where to fall. Or another way: If you are a subsistence farmer you are per definition not part of any market and will not be impacted by any market corrections. The majority of East Africans are subsistence farmers.

Positive momentum
GDP growth in Uganda was 6.0% in 2008, Tanzania 6.9%, Kenya with 6.3%, Rwanda 6.0% and Burundi 5.5% [indexmundi.com] – making East Africa one of the growing regions in the world.

No financial crisis
There will be no local financial crisis as no East African banks held toxic assets and there was no property bubble, or indeed practice of giving out mortgages (A mortgage is typically paid back in 5 yrs or even less, with significant security).

Low export levels
Export levels are low anyway, so a slow down will have a limited effect. Total export was 15% of GDP in Uganda's GDP and 14% of GDP in Kenya vs. 40% for a high-export country like Germany [CIA World Factbook]. Regional trade (within East Africa) has been promoted, facilitated and growing in the last few years.

Asia
China is likely to continue its push into Africa with undiminished determination (ref. recent resource intensive investment plans announced by the Chinese government).


The net effect of all these 'known unknowns' is obviously impossible to predict. And then there are always the 'Rumsfeldian' unknown unknowns, which always seem to be even more unknown in Africa.. In sum I think the adverse effects will outweigh positives.


My guess

• Trade deficits will increase substantially (that’s a given), which will increase cost of debt and undermine independence (Germany failed to get full subscription on a government bond issue on 07.Jan in a debt market poised to be flooded by sovereign debt issues in 2009 – I refuse to believe a country like Uganda can issue bonds in such market conditions)

• Unemployment will increase significantly (from a high base/floor)

• Dependence on foreign aid will increase (loans to plug trade deficit and increasing budget deficit – where the hole is already huge in the case of Tanzania and Uganda)

• China and India will play an even large role in Africa. On a world wide basis this will boost the anticipated power shift from east to west

Prepare for impact

If this above holds true, the result will likely lead to a step back from the Washington Consensus, with more state intervention and more reliance on aid and NGO's. The commodities will still be up for grabs by China, but so it seems will the East Africa's heart and minds, by those who give aid conditional on faith and ideology.

New Year's at Lake Bunyonyi and hiking in the Rwenzoris

Lake Bunyonyi
In the very south western corner of Uganda lies a beautiful lake nestled between green hills and mountains. Lake Bunyonyi was apparently formed when lave from a volcano eruption (the 4,127m Muhabura volcano is a mere 20km away) blocked a river and created this 25km long and 7km wide water system. Fascinatingly, estimates of the lakes depth varies from 44m to 900m! Should not be too hard to figure out I think, but I guess it illustrates how remote the lake is. It is about 7hrs driving from Kampala.


As a backdrop for New Year's Eve - and the much derided 01st Jan - it was a perfect place to hang out. I drove down with three expat friends from Kampala and stayed two nights at one of the picturesque resorts on the lake shore. Surprisingly we were the only guests in this little paradise! It was a small resort, 8 cottages or so, and there was a large open terrace overlooking the lake and the hills on the other side. With a large fireplace and great food it was a wonderful setting for our New Year's dinner – and between the four of us we somehow managed to make it into a party later on.



As midnight approached we discussed whether we could expect any fireworks from the farms and settlements on the surrounding hills. We agreed that this was unlikely - fireworks is quite a luxury after all. I don't think there was an electricity grid in the area and it was pitch dark by mid-evening. Then, as we were finishing dinner an hour or so before midnight the sound of drums filled the night around us, and just before midnight bone fires were lit on most of the farms on the hillsides behind us and across the lake. The drumming, singing, shouting and clapping of the locals echoed back and forth across the lake. The sight of distant silhouettes of people dancing around bone fires to the sound of drumming was not quite fireworks, but far more fascinating!



The next day was spent lounging on a small pier by the lake. Free of bilharzia, crocodiles and hippos, Lake Bunyoni is one of the few places in Uganda where one can swim safely - and that is what we did!

The Mountains of the Moon
A couple of days into the new year I finally got to see what I consider to be Africa's most fascinating mountain chain – the Rwenzoris, or Mountains of the Moon.


Stretching along the border with DRC, the Rwenzoris are crowned by six peaks in excess of 4,500 meters; this is truly a mighty mountain chain! The tallest peaks are covered by snow and glaciers, from which meltwater forms rivers and lakes down the mountain sides and around them.

The history of the European discovery of the Rwenzoris is fascinating reading. The ancient Greeks had heard through trade links that the source of the Nile was a range of snow-capped mountains on the equator. They called them the Mountains of the Moon. This theory was never verified, and when Speke discovered Lake Victoria in 1858 and declared it the source of the Nile, the Greeks seemed to have been proved wrong. It was not until 1889 that Stanley by chance stumbled across the Rwenzoris and declared them to be the fabled Mountains of the Moon that the original theory was revisited. Remarkably the mountains turned out to be both snow-capped and a source of the Nile (there are many)! So the ancient Greeks had been right all the time.



We did a one day hike across the northern end of the mountains, crossing from Fort Portal on the eastern side of the ridge and over the mountains to the village of Bundibugyo at to the west of the mountains. The highest point was 3,014m – my highest ascent ever (I am not a climber..). Unfortunately, low hanging clouds obstructed the view to the DRC and the Ituri Forest from the top. I still can’t decide what was more challenging, going up or down. The way up was pretty steep, but on the way down we descended in excess of 1,000m in less than 3 hours, which is tough going for knees and joints.

I'd love to go back and go for the real peaks at some point - Mount Stanley is 5,109m tall. It’s an eight day trip and quite expensive, so lets see if there is time and money!