Tuesday, October 8, 2013

WE NEED MORE LALANIS TO TRANSFORM THE UGANDA ECONOMY



Last week President Yoweri Museveni commissioned the third phase of Roofing’s Group $280m (sh782b) steel plant in Namanve.

According to reports the plant will churn out 400,000 tonnes of assorted steel products annually, employ 1500 people and generate an additional $100m in hard currency a year.
Seeing as the founder Sikander Lalani , has built this enterprise literally from scratch starting in 1994, we would not begrudge him some chest thumping and back slapping on his achievement.

What we can take away from the Lalani experience is the willingness to dream big and work towards it one step at a time. Success like his does not happen by accident. The size of our achievements will be determined by the size of our vision.

But even more interesting is the fact that Roofings now have an equity partner, Yodagawa Steel Works, the second most valuable steel company quoted on the Tokyo stock exchange where it is valued at about $800m.

In fact the ripple effect of this equity involvement may be felt for many years to come.

The officials who go out to promote Uganda’s investment potential even the president himself may talk themselves hoarse in the four corners of the world about the merits of setting up in Uganda but nothing speaks more to a potential investor than the interest that indigenous investors have shown in their own country.

The logic is simple. A local investor has better knowledge of his market, a greater appreciation of risk and an intimate understandings of the dynamics of his market and probably how to manoeuvre within that context. So if a local investor has shown long term success and committed serious resources to his venture he can pique the interest of the real big hitters.

This is important because given our disruptions in previous years we are really short on everything – capital, human resource and know-how, and it’s these shortfalls that are making us fail to exploit or bountiful resources for our own benefit.

We have a choice to attempt to go it alone and spend years even decades trying to get our capacities to a reasonable level or attract foreign businessmen, leverage their capacities where we fall short and in so doing short circuit the process of development.

So the challenge for any self-respecting government is how to build this stock of local investor so that we as a nation can tap into the greater pool of resources out there.

In no particular order a strategy to nurture an indigenous entrepreneurial class would involve improving transport, communication and energy infrastructure, improving the productivity of the human resource through quality education and health services and improved accessibility to affordable capital.

The bureaucrats are more likely to push for a government setting up of companies – see the revive Uganda Airlines movement, more to widen the surface area for patronage than anything, the more intelligent thing is to create the environment for businesses to thrive. And to do that there has to be a determined effort to understand the mentality of a businessman.

The recent emphasis on infrastructure is laudable and if it can be sustained for the next decade or so will go a long way to bridging existing gaps.

Another huge deficiency has got to be the lack of relevant financing for businessmen. As it stands now we only have commercial bank loans – which are short term funds impractical for start-up or long term projects.

In more developed financial markets there is financing for startups, equity financing, industry specific financing – agriculture, real estate and industrial and then the capital markets, which serve as an efficient vehicle to pool resources and direct them towards the most deserving players in the market. 

A robust financial market is a useful piece of infrastructure that governments can play a critical role.
Once it is all set up beyond regulation, governments are best advised to step aside and let the entrepreneurs do their thing.

There maybe political motivations for not wanting to build an indigenous business community, but they are informed by short term expediencies that do not fit into the longer term vision of this country.

It’s a chicken and egg situation.

More than 30 years of investor promotion has attracted a lot of service industries but very little of the kind of labour and capital intensive industries we require for economic transformation. Partly because of the deficiencies in our infrastructure but more because we do not have enough Lalanis.


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