OF COVID-19 AND UGANDA'S SMES

It has been quite a month for Uganda’s pharmacists. 

First we had Dr Patrick Ogwang with his Covidex support treatment from covid-19. Before we could catch our breath there was another potential covid-19 treatment out of Gulu University. Dr  Alice Lamwaka the lead researcher was also trying to get the relevant permissions from National Drug Authority (NDA) to allow for industrial production of her Covicyel.

But

like most things in life these latest innovations are the finished product. Unseen is the years of  sweat and toil that went into producing them...

These are the fruits of President Yoweri Museveni’s insistence two or so decades ago, that funding to science be increased. Both innovators have been the beneficiaries of this move, especially in creating a favourable environment for research to be done in the country.

Of course we have a long way to go before research & development can be treated with the seriousness it deserves in this country, but these trailblazers will hopefully bring about the much needed mindset required to support R&D and not only the finances.

In the light of these discoveries and the challenges that will emerge to make sure their full potential is unleashed for the public, both here and abroad, the need for building and improving a business ecosystem that can take such innovations from inception to commercialisation will become glaringly clear. 

A country is only as viable as the vibrancy of its business community, more so its indigenous  businessmen.

"To build a robust business community takes generations and the sooner we get on with it the better this country will be....

It helps in Uganda that we have a liberal economy where anyone who wants to start a business can do so to the extent of his capacity. It helps too that years economic decline has made it natural for Ugandans to go into business. We take this for granted but there are countries in the world where going into business is not a consideration for the vast majority of the population. It helps too that government has been at the head of efforts to create a common market for East Africa and beyond.

But that is not enough. There are major parts of the business ecosystem that need to be in place before we can unleash the full potential of our people...

The World Bank’s Doing Business 2020 report ranked Uganda 116 out of 190 countries polled as an indicator of how lacking our business environment is.

Everyone likes to say how lack of access to affordable finance is a major shortfall, I think it is lack of business skills that is the major hindrance . If our businesses were better organised, the funding that they require would find them. I am always amused when I hear businessmen complaining about the high lending rates in banks as a major impediment. 

A few years ago, a business I am intimately familiar with was in need of  working capital, it overextended itself and was in danger of collapse. It went to their bank, which they has patronised for ten years for the facility. It took them three months to get the facility – it was only by the grace of God that the business survived up to that point. And by that point the need for working capital was not urgent. 

They had to provide proof they were a legal entity, auditted accounts, a resolution by the board to get the facility and finally a security to back it up. Part of the delay was that the bank were not familiar with using treasury bonds as security! How many businesses that are ten years old have auditted books, a board of directors, not to mention a credible security.

Over the years the interest paid on the facility, which has  been as much as sh350 million has not exceeded 10 percent. Not only was it cheap to the business, but how many businesses have collapsed for the lack of cash, and much less than sh350m?

One day the same business is going to need long term capital, beyond the owners equity and I am sure they will have access to cheaper funds than many businessmen in this country have access to, because they are mo re organised than most.

If you read the stories of the major companies in the world today none if any started by borrowing from the bank, in fact they were well into their development that they even approached the bank. They often employed funds from friends and family first, then high net worth individuals, with banks only serving as conduits for payments to them or to their suppliers.

Also many times initial funding from outside this group – friends, family and net worth individuals, came from government funded business support agencies.

For your friends and family it maybe easy to  unburden of their funds – a few shillings to get you our of their hair, but assuming your father is not a high networth individual, what kind of businessperson would you need to be to have such a person invest in your business?

Let me give you an idea. A few years ago the aforementioned business tried to raise a billion shillings in equity. It had been in operation ten years and shown a profit from year one. Initial shareholders had seen their interest grow more than a hundred fold during the period. But they only managed to raise sh200m. 

I blame their inability to raise the full amount down to their poor sales skills, especially in communicating the  immense future value of the business to the potential investors. But also imagine how difficult it is to convince someone to part with their cash for a benefit far into the future, which despite the evidence is hard to envisage for the best of minds.

"As a minimum you have to convince them that past success is replicable into the future. That the past success was not a fluke but came from business skill...

Also imagine how much money we are holding on to that would be deployed in useful enterprise, but for lack of trust in our businessmen’s skills? As an indicator prior to covid-19 every weekend Ugands blew millions of shillings on weddings.

That is why government needs to invest in improving business skills.