Three years ago in this column I wrote under the headline “Uganda’s hazardous business environment” how a tirade by the then Energy minister Hillary Onek on the Bujagali dam project, was sending mixed signals about government’s commitment to the project and may very well jeopardize other major investments.
I argued that investors would rather settle for lower rates of return, which are assured than come to Uganda with its allure of double digit returns which are iffy at best. I wrote that uncoordinated troop movement by government agencies heighten the uncertainty of our investment climate, reducing the sums invested and lowering the quality of investors we attract.
So last week my jaw dropped to the floor in bewilderment on hearing what is happening to cement manufacturer Hima Cement.
Hima Cement, whose parent company is Lafarge one of the largest cement manufacturers, have two quarries – Dura and Hima, near the western Uganda plant.
Last year the company commissioned its new $120m factory that more than doubled their annual production to 850,000 tons of cement. An investment of this magnitude suggests the company was sure of its supply of limestone a key ingredient in the manufacture of cement from the two quarries they have running leases on at Hima and Dura.
You probably could have knocked Hima’s top bosses when they received notice from the new owners of the Hima quarry at the end of January, asking them to vacate the site so they can take possession.
It turns out that the Geology department in the Energy ministry transferred the lease in January working on the assumption that Hima’s lease on the quarry expired at the end of last year.
In this one transaction all civil service records of efficiency were shattered as the new company East African Gold Sniffing Company went from getting a prospecting license to full exploration license in 19 days – including three weekends, between 5th January to 24th January 2012. This process at the best of times takes months if not years to complete.
In a nutshell what this means is that if the cement producers lose the Hima quarry the 500,000 ton-a-year factory they commissioned last year will be rendered useless and they may as well dismantle it and take it elsewhere.
Is it conceivable that Lafarge would have plonked down $120m so close to the expiry of their lease and then forgotten to renew the lease?
And who are these officials in the geology department, which department has all Hima’s projections for their use of the quarry, who can jeopardize multi-million dollar investments so casually and get away with it?
Selling a country to investors is like any other sale. You have a product. You highlight its positives and while acknowledging its deficiencies, show the buyer how the pros far outweigh the cons. But more importantly the seller needs to understand the buyer’s context – his needs and wants, seen and unseen, so he can appeal to those parts of his psyche that will lead to a successful closing of the deal.
Any investor worth his salt assesses all potential deals with a view to preserving his precious capital, while looking to get the best possible return for the least possible risk – in that order.
Governments looking to attract investment to their shores need to understand this at a very visceral level.
Uncertainity is a major investment risk. The more certainity there is in the investment environment the better the businessman can project his returns, the cheaper the cost of capital and the more likely are the predicted returns to occur.
A correlation can probably be found that shows a decline in the character of foreign investment to your country the more uncertain the environment you have. With long term, sustainable investments on one hand and gamblers, speculators and money launderers on the other.
If our goal is sustainable development that will reduce poverty and increase affluence uniformly around the society then you want more of the former and less of the latter.
As it is we are seating on a time bomb. More and more youth are coming into the job market and we are doing less than a commendable job of finding them work. These idle youth will be the cause of future national instability.
Frustrating quality investors – Hima is the biggest single exporter and manufacturer in this country, is not the way to ingratiate ourselves with investors.