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Parliament

MPs oppose Munyagwa’s moves to start a fresh COSASE probe on BoU

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Members of Parliament have opposed a move by the new Parliamentary Committee on Commissions, Statutory Authorities and State Enterprises (COSASE) chairman, Hon Mubarak Munyagwa to open fresh inquiries into the closure of 7 defunct banks by Bank of Uganda (BoU).

According to reports by Daily Monitor, a local independent daily, on Tuesday, 28th May 2019, Munyagwa, also the Kawempe South MP, named a select sub-committee to carry out the inquiry. The five-member committee is headed by his vice chairperson, Mr Ibrahim Kasozi of Makindye East Constituency.

COSASE is also reported to have met with BOU officials led by the deputy Governor, Dr Louis Kasekende, and tasked them to respond to outstanding Auditor General’s queries, a move that some of the MPs have interpreted to mean, re-opening the probe that was concluded by then COSASE chairman and Bugweri County MP Abdu Katuntu.

Katuntu in his February 21 report found BoU’s closure of 7 defunct banks to be severally in breach of the Financial Institutions Act 2004, under which the same banks were closed. The Katuntu committee among other recommendations asked that the named errant BoU officials be held criminally liable and also proposed several reforms in the governance of the central bank.

The committee also recommended that the shareholders of the closed banks be compensated for the losses because BoU officials did not follow the due process.

UGX270 billion unaccounted for

During the course of the probe, COSASE on 20th December 2018 ordered a special audit by the Auditor General probe to among others, confirm the receipt and expenditure of the liquidity support and other intervention costs amounting to UGX478.8bn injected into Crane Bank by BoU between 20th October 2016 and 25th January 2017.  

The AG, however reported that out of the UGX478.8 billion, he could not trace the final destination of USD53.1m sent by Telegraphic Transfer from BoU’s Citi Bank Account and UGX77.5bn in cash from CBL currency centres to CBL’s 46 branches, altogether an equivalent of UGX270 billion.

The AG was also not able to establish whether the Statutory Manager of Crane Bank prepared financial statements in line with Section 90(4) of the FIA 2004, ascertain the liquidity position of CBL during statutory management period since the audited CBL annual report and financial statements for the period starting 1st January 2016 to 25th January 2017 were not submitted to BoU by KPMG, the external auditors.

Bank of Uganda, however in March, nearly a month after the COSASE probe had closed, attempted to submit the said accountability to the Auditor General for verification, but the AG declined saying the probe had closed and the report issued to the Rt. Hon Speaker of Parliament on 8th February 2018.”

MPs believe the May 28th move by Munyagwa to task Dr Kasekende to bring documents showing accountability for the Shs478b injected in Crane Bank, is solely designed to let BoU off the hook.   

Nwoya County MP Simon Oyet, told Daily Monitor that the move was against the rules of Parliament for COSASE to restart an investigation into matters that were concluded by the House without seeking new terms of reference from the Speaker.

“COSASE should focus their efforts in making sure that the recommendations of the committee are taken up by the responsible authorities in government. So, to carry out fresh investigations, they must seek permission from the Speaker,” he is quoted by Daily Monitor as saying.

Budadiri West MP Nandala Mafabi said there is need for the current chairperson to write to the Speaker specifying what exactly they want to tackle afresh.

Bukomansimbi South MP Deogratius Kiyingi told Daily Monitor that Munyagwa’s move was equivalent to “moving in circles.”

As Parliament, we concluded that matter and we are waiting for a report on the implementation of the recommendations by the Executive.”   

Ajuri County MP Hamson Obua, also told Daily Monitor that such a process, if allowed by the Speaker, would be a “duplication and wastage” of parliament’s resources and time.

Expedited COSASE recommendations

In a recent exclusive interview with CEO East Africa Magazine, the Speaker of Parliament, Rt Hon. Rebecca Kadaga said that parliament was waiting on the executive to take action on the recommendations of the Katuntu report.

She also implored the executive arm of government to expedite bills to reform several aspects governing the banking industry and the running of Bank of Uganda, as recommended by COSASE.

Kadaga, also expressed dissatisfaction and frustration at the executive’s speed in responding to Parliament’s recommendations especially in dealing with accountability issues.

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Parliament

OPINION: Banning dollar rents is erroneous; reviewing the Landlord and Tenant Bill is not an option but a necessity

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Knight Frank’s Judy Rugasira says that banning dollar rent without giving due consideration to other factors in the property development cycle and value chain.

At 8.00pm on Wednesday 26th June, News broke that Parliament had passed the Landlord and Tenant Bill 2019 in its original form despite several pleas from landlords, tenants, the financial sector, and more recently some enlightened members of parliament and Cabinet ministers to review the bill and make it fit for purpose. So, what does this mean moving on?

My newspaper article last year (https://www.ceo.co.ug/taxing-landlords-real-estate-should-not-be-treated-like-fast-moving-consumer-goods/), labored to explain the dire consequences of passing the bill as had been originally drafted. For the record, and avoidance of doubt, I will reiterate some of the points I raised in that article. I am a proponent of legislation. Good legislation that will enable a strong and stable property market by encouraging and attracting local and foreign investment, creating employment in this sector, and growing our tax revenue and economy ultimately.

Contrary to what the parliamentarians are claiming, the bill as it is in no way protects the small trader or tenant, actually, it has just made their situation worse, by making them more prone and susceptible to the consequences of a weakening shilling and arbitrary rent increments. On a more macro level, the bill has diminished the comparative advantage of Uganda over other countries as a real estate investment destination for foreign and local investors who invest in hard currencies like the US dollars, for hard currency rental income streams and better yields on investment.  

Inside of Kampala’s Acacia Mall. Judy Rugasira argues that regulating commercial and residential tenancies under the same act is erroneous as the two have different arguments.

It would have been more practical to separate the act regulating commercial and residential tenancies, instead of having them regulated under the same Act. For obvious reasons, these tenancies are different and cannot be regulated the same way. The law regulating an apartment, will not be applicable to that regulating a shopping mall. For example, the capital costs incurred by a residential tenant to fit out their apartment with movable fittings, cannot be compared to those incurred by a retailer in a shopping mall. Some retail anchor tenants incur fit out costs of up to $5m! As such, the latter will require guaranteed tenure for the lifespan of their tenancy whereas residential tenants require the flexibility of notice periods. The bill as passed, has protected small traders from the fixed term of a lease but will impact significantly on commercial tenants as they are not in a position to set up business where they cannot guarantee the full tenure.

The cause of arbitrary rental increments, specific to Kampala City Traders Association (KACITA) tenants, is simply because the relationship between the landlords and tenants is informal. The tenants have no tenancy agreements, and landlords take advantage of this. Treating the symptom of increasing rents is pointless if the root cause has not been addressed. You cannot enforce the terms of a verbal agreement and this should not be an option if they hope to achieve their desired objective.  

Question, why are these challenges of arbitrary and unfair rental increments not seen in the more prime malls where tenants are paying dollar rents? Answer: because the landlord / tenant relationship is formal, contractually bound by a lease agreement which is signed by a willing tenant and willing landlord prior to tenant taking occupation. The terms and conditions of the lease are very clear, both parties know what to expect and there are no surprises. A landlord cannot decide to wake up one morning and shut down an entire mall (which has become a habit downtown) to settle scores with their business partners, leaving tenants totally helpless. Is this also because of dollar rentals? This impunity from landlords is because there is no legal recourse.

All attention and focus have been given to the issue of currency in which rent will be paid, and this seems to be the fulcrum on which the need for a Landlord and Tenant Bill is turning. However, addressing this issue alone is pointless, if other aspects of property management, and financing are ignored. As I have argued before, this issue is bigger than KACITA, and KACITA is not Uganda. Neither do they control the property market of Uganda. In fact, even their contribution to the tax revenue of the country is incomparable to property developers / owners of commercial properties in the country at large. 

How then do you ban dollar rentals, without giving due consideration to other factors in the property development cycle and value chain? It is inconceivable to outlaw dollar rents without bearing in mind the impact of such a regulation on the finance sector, and the economy as a whole. I am hoping that our Honourables are aware that dollar denominated loans are cheaper (8%) than shilling loans (20%), which is why most commercial properties are financed by dollar loans. This being the case, were the banks consulted on the feasibility of converting these dollars denominated loans to shilling loans?       In order for the borrowers to afford their repayments they will have to increase the rent extortionately and the tenant will pay the price. However, there is also a possibility that the banks will not accept to reschedule these loans. Have the repercussions of this been thought through? Or the fact that non-performing loans will increase, repossessed properties will become the order of the day; crashing the property market to smithereens?

Ruparelia Group’s recently completed multimillion dollar KIngdom Kampala Mall. Judy Rugasira Kyanda says that for Uganda to keep such investments flowing into the property market, any legislation should balance the interests of both tenants and landlords alike.

The arguments in parliament were that countries like UK, USA, Europe, China, insist on local currency rents. This is correct, but why? For example, the USD is found in a pair with all of the other major currencies and often acts as the intermediary in triangular currency transactions. This is because the USD acts as the unofficial global reserve currency, held by nearly every central bank and institutional investment entity in the world. It is for this reason that Uganda fixes her exchange rates to the USD to stabilize it, rather than allowing the free (forex) markets to fluctuate its relative value. Why is this the case? Because of the volatility of the shilling to many external factors. Pray I ask, is the shilling a globally traded currency? When our honourables travel to America, are they able to take shillings and exchange them for dollars at JFK Airport? Or London Heathrow for that matter? But you can exchange dollars in London, Japanese Yen in Switzerland, and the Euro in South Africa. The common thread being that these are strong, stable currencies.

You cannot pass a bill on the whims of 1 interest group (tenants) to the economic and social disadvantage of the rest of the country

No prudent investor will go to America, and get property development financing in Pounds Sterling or Euros, simply because it would not make any economic sense. It would be more expensive to borrow in any other foreign currency than the local currency – the USD. Why? Because the USD is a strong, stable currency, and there are several federal reserve banks with adequate deposits to lend at affordable rates. In Uganda it is cheaper to borrow in USD because the reverse is true. It will also make sense to make loan repayments in the same currency as you have borrowed, because 1. it is the terms and conditions of our financing institution and 2. dollar rentals are cheaper than shilling rentals because they are more stable (minimal fluctuation to CPI). At the end of the day, $10.00 per square metre converts to 37,550/- and can fluctuate up or down but mainly upwards, by up to 30% in 1 year. Rentals will still remain pegged to the dollar, but paid in shillings, subject to the exchange rate, and annual escalations on the shilling of over 20% to keep up with interest rates, instead of 3% escalations on the dollar as is the market rate. So, who will be most affected by the dollar rental ban? The bill attempts to limit the extent of the above collateral damage to the tenant by stating that rent increments per annum will be capped at 10%. Are they also going to cap interest rates?

I am sure the honourable Parliamentarians also appreciate why our finance costs are high? Put simply, our savings as a banked demographic are low, therefore banks do not have enough deposits to lend at affordable rates. They in turn need to borrow the money they require to lend to borrowers, and this comes at a cost (both of borrowing and hedge against forex losses). Shouldn’t we be focusing more on how we can increase savings and deposits as a means to lowering interest rates, and stabilizing the shilling?

The need to review this bill is not an option, it is a necessity, or our property market is going to be destroyed. The Uganda property market does not operate in a vacuum, and is a market which is open to both local and foreign investors, not just tenants. We must legislate for all with a long-term view on things. You cannot pass a bill on the whims of 1 interest group to the economic and social disadvantage of the rest of the country! China and America have shown increased interest in investing in Uganda’s real estate sector. I am not certain however, that with such legislation which makes the ease of doing business in Uganda rankings plummet, alongside facing the fear of being imprisoned for “annoying” a tenant, and the inability of a landlord to distress for rent pits Uganda as, an attractive investment destination for property. 

I am appealing to His Excellency The President of Uganda, not to assent to this bill in its current state. Property experts and professionals have offered their free services to help draft a better bill which will stand the test of time and encourage a vibrant property market in Uganda, but to no avail.

Author is Judy Rugasira Kyanda, MRICS

Managing Director, Knight Frank Uganda

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The Presidency

Presidential Committee recommends urgent and comprehensive sweeping Central Bank reforms

A committee appointed by President Yoweri Museveni to study several complaints made to the Inspectorate of Government and Parliament about Bank of Uganda, has recommended “urgent and comprehensive review” of what it believes is an archaic “legal regime governing the Bank of Uganda.” “The Bank of Uganda Act Cap 51 was last amended in 1993, […]

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A committee appointed by President Yoweri Museveni to study several complaints made to the Inspectorate of Government and Parliament about Bank of Uganda, has recommended “urgent and comprehensive review” of what it believes is an archaic “legal regime governing the Bank of Uganda.” “The Bank of Uganda Act Cap 51 was last amended in 1993, […]

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Parliament

MPs to move bill to trim Central Bank powers

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Forum for Democratic Change (FDC) MP, Paul Mwiru (Jinja Municipality East) one of the MPs threatening to move a private members bill to streamline governance at the Central Bank

Two members of Parliament are in the process of drafting a private member’s bill seeking to amend the Bank of Uganda Act so as to streamline governance at the central Bank.

Michael Mawanda (MP, Igara East) and Paul Mwiru (MP, Jinja Municipality East) say the failure by government to act on the report of the Public Accounts Committee on Commissions, State Authorities and State Enterprises (PAC – COSASE) on seven defunct commercial banks prompted their move.

Following the damning PAC-COSASE report, Dr. Ruhakana Rugunda, the Prime Minister and leader of government business in the House, said Government would respond in 3 months.

“Giving us three months would really be good time to do a thorough job” Rugunda said at the time.

Hon. Mawanda, at the time said, “If in 90 days they (the executive) don’t bring the amendments, you will allow me to seek leave of parliament to table my private members bill in respect to amendments to BoU Act.”

Nearly four months have since passed without any action from government, prompting Hon. Mawanda to make good on his threat. 

BoU Governor and Deputy Governor, Prof Tumusiime Mutebile and Dr. Louis Kasekende attending the PAC-COSASE probe. The probe recommended that the offices of the Governor and Deputy Governor be unbundled from that of BoU board chair and deputy chair respectively.

According to a report by NTV, Uganda’s leading television station, the private members bill, to be known as Bank of Uganda Amendment Bill, seeks to amend the constitution and the Financial Institutions Act (2004) to among others, separate the office of Governor and his Deputy from that of the chairperson and vice chairperson of the BoU board respectively.

MPs on the PAC-COSASE probe, recommended amendment of Article 161 (4) of the Constitution that provides that the Governor and deputy Governor shall be Chairperson and Vice Chairperson of the Board respectively, arguing that the “objectivity of the Board and its independence from management may be strengthened by the separation of the role of the Chief Executive and Chair.”

COSASE also recommended that all the implicated officials in the now infamous bank closures be held liable and punished accordingly.

“The executive implements what the board tells it. If you are the chief executive (Governor), you cannot again be the chairman of the board to implement what you have already decided on in the board. We would like to see the board of the bank independent and management independent,” said Mawanda in an interview with NTV.

Hon Mwiru added that the central bank had abused its constitutional independence as shown by the PAC-COSASE probe, and therefore the said bill would seek to trip the central bank’s independence. 

“We had thought that by giving autonomy to the bank (BoU), we would achieve some degree of independence of the bank, but we have also not achieved that,” he said, adding that the planned bill, “also seeks to empower parliament to carry out an appropriation and oversight role on BoU as it is with other government institutions.”

“We have not been appropriating money to them (BoU) – they have been presenting their money to the board and as a result they would spend and consume their own reports,” Mwiru said, adding that this is the reason that BoU has previously snubbed Parliament attempts to hold them to account.

“It is through the power of the purse that you can force someone to account or improve on certain other issues,” Mwiru said.

Several experts and economists, have also previously called for sweeping reforms both in the governance and the mandate of the Central Bank.

The experts who include: Mr. Onegi Obel, an economist and capital markets expert, as well as economists and researchers Dr Fred Muhumuza and Dr Patrick Wakida, have called for a review of BoU’s independence, but also called for BoU mandate to be expanded from just monetary policy management to include jobs growth.

In an interview with NTV, acting Information minister, Dr. Chris Baryomunsi said that cabinet has considered the PAC-COSASE report and will be able to give a report on the progress so far in addressing the COSASE recommendations in the coming weeks. The calls to reform BoU come at a time when the Central Bank is embroiled in a currency transportation scandal, where some illegitimate cargo belonging to private business people found its way on a top-security cargo flight carrying currency notes.

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