Uganda: Govt May Use NSSF Savings to Bail Out Indebted ‘Tycoons’

Government is running out of options as banks close in on indebted business personalities.

Whereas the Finance ministry says there is no money to bail out heavily-indebted tycoons with Shs 1.3tn, President Museveni has previously bailed out Hassan Basajjabalaba using other means, writes ALON MWESIGWA.

The lid is blown. Uganda's top businessmen and women are deep in debt and want government to save their businesses from the jaws of creditors. As a result, taxpayers are likely to folk out more than Shs 1.3tn to bail out some of these businesses if cabinet ultimately votes to help them.

But the ministry of finance has said it is not ready to folk out Shs 1.3 trillion. Finance minister Matia Kasaija told The Observer in an interview on Saturday that he too had been approached by several businesses seeking help.

He said some of them lost their property in South Sudan; government owes others money while some said they were suffering because of high interest rates. Other businesses, he said, claim the economy is bad and there is no demand.

"There is no money," Kasaija said. "We cannot bail out every business that is having financial problems."

HOW IT STARTED

"What we will do is that we will only help those [businessmen] that supplied [goods to] South Sudan in the know of government and we told them that we are negotiating with the government in Juba."

He said for such businesses, they have written letters to banks to hold on before they take their properties. According to sources familiar with the process, it started way back in 2014 when banks turned the heat on indebted businessmen by threatening to attach their properties.

So, they [businessmen] hatched a plan to ask government to help them. Some, the source said, blamed the government for failing to provide a conducive environment for businesses.

Several government officials, including the Prime Minister Ruhakana Rugunda and President Museveni's brother Salim Saleh were approached to help organize the meeting with the president.

On the side of the business community, the team included Elly Karuhanga, the chairperson of Uganda Chamber of Mines and Petroleum, who was negotiating on behalf of those involved in the oil and gas sector. Others were Patrick Bitature, whose own company Simba group is also on the bailout list. Gideon Badagawa, the executive director of the Private Sector Foundation Uganda (PSFU) is said to have been involved in the negotiations.

These, The Observer has has learnt, told the president at State House that banks were after their property. They said they borrowed money at high interest rates and found it impossible to pay back. At least 60 businesses are on the list. It not clear who compiled it.

In the 2015 State of the Nation address, the president responded to their call. He said he would recapitalize the Uganda Development Bank (UDB) and it would give them affordable money.

"We privatized our government bank, Uganda Commercial Bank (UCB), in order to bring down these interest rates. Yet, the interest rates are still high, at 20.1 per cent per annum... ," the president said in June 2015.

"Now that the route of privatizing UCB did not solve this problem, we are going to take another route, the route of capitalizing UDB. We have already invested Shs 128bn in it.

"After the coming elections, in the following financial year [2016/2017], we plan to invest an additional Shs 500bn so that banks can lend to manufacturing, business and agriculture at prime rates of not more than 15 per cent..."

The move was promising, but slow, our source said. This was not so reassuring to the business owners who were soaking up the heat from the banks. They pushed the president for a quick solution. Some of the tycoons went to court to stop banks from selling their property.

COMMERCIAL COURT

George William Kajoba, the owner of Sojovalo hotel which is on the bailout list, filed a case at the Commercial court in February saying KCB bank, which had lent him money, had not given him chance to consult his wife before taking the loan and that they compelled him to sign off for the loan past working hours.

This month, Standard Chartered bank placed Steel Rollings Mills under receivership over a Shs 50bn debt. Karuhanga told The Observer they were negotiating the bailout and that he was happy with the progress.

He said: "I am happy with the progress and very much happy with the government response. If they are [to] give us the guarantees, [let them do so and] then parliament passes them. Our job is to find ways and means acceptable within the law. If they can't, then we should understand it."

He said he could only speak for those in the oil and gas sector. Karuhanga said they borrowed money to purchase equipment to meet standards in the sector. Unfortunately, the sector stalled as oil prices slumped and oil companies scaled back their activities and several businesses lost. According to the list submitted, firms in the oil and gas sector want Shs 70bn for the bailout.

Asked whether there is money for the bailout, Keith Muhakanizi, the secretary to the Treasury, said "this is a policy issue and only the minister of finance is responsible."

He added that this bailout was not in the budget and, therefore, no money is budgeted for it.

"We shall not give money except those whom government owes. I have already directed to have their money paid," he said.

TRADERS ALSO WANT

While some businesses are on the bailout list, the Kampala city traders association (Kacita) says they sought the same in 2011 but they were not given that opportunity.

Everest Kayondo, the Kacita chairman, told The Observer on Saturday: "We went to see the president in 2011 to have some of our members get help. One of the tycoons in town stood up and told the president that interest rates were not a problem. Now I can see him on the list of those who want to be bailed out."

Kayondo said this time they have not been involved in this new process. He added that many of their members are still losing property to banks and loan sharks. "If they give any of them, we want everyone to be given a bailout because we also need it."

UGANDANS RILED

As the news of the Shs 1.3tn bailout trickled in, Ugandans took to social media, using the handle #Scambailouts, to express their disgust over why they should pay for the 'luxurious lives' of the so-called tycoons that some described as living "life only seen in movies".

David Mpanga, a city lawyer with Mpanga and company advocates, tweeted: "The privatisation of profit and socialisation of loss. Must we all pay for business failure when we didn't all share in the profits made?"

Another Ugandan, Samwise Gamgee, said: "If bailing them out is a matter of national importance, sharing their profits should be a matter of national importance too."

HOW THEY CAN GET THE MONEY

While the ministry of finance says there is no money, at times it is helpless and cannot do much if the president gives a directive as was the controversial bailout of businessman Hassan Basajjabalaba using money from the national coffers. Incidentally, most of the firms asking for the bailout are owned by friends of the ruling party.

Just a year ago, a number of these tycoons contributed millions of shillings towards the construction of the NRM house. For instance, Hamis Kiggundu of Ham enterprises contributed Shs 200m, Patrick Bitature of Simba group contributed Shs 100m while Kajoba offered Shs 50m.

Others have actively contributed to President Museveni's campaign for re-election. In asking for the money, one analyst said, they are telling the president to show the same loyalty they showered him with.

NSSF LAST RESORT

Cash-strapped, analysts say government could turn to savers' money at the National Social Security Fund (NSSF) for the bailout. NSSF has more than Shs 6.5tn in assets, most of which is money held in fixed accounts in banks.

The fund also collects at least Shs 60bn every month. So, government could turn to this to extend a helping hand.

Source: The Observer.