ARE YOU A FAKE TYCOON? THIS IS HOW TO TELL

Uganda possibly has the highest per capita of fake tycoons in the region. They turn up out of the blue, with no visible source of income, drive flashy cars, are resident in posh area codes and spend money as if it is going out of fashion.

"In recent weeks we have got an inkling of how this money is made, get rich schemes such as sorcery, extortion and fiddling the books have played on the headlines of our newspapers. There are also the perennial suspects – long serving public servants and bank workers...

But those are only the ones who have been caught. How many get away with it? Who knows.

Then there is the rest of us who have convinced ourselves that we are tycoons too. A bank loan or unexpected windfall (not entirely legal) falls in our laps and we run out to fulfil our fantasies. Living large is not a sign of wealth, its just living large.

So here is my fast and ready guide on how to tell whether you, or the playboy, next door is not a tycoon, in no particular order of importance.

1.       Most of your income comes from a job

I don’t care who you are or how much you earn. If more than half your income comes from your job, you are not rich, just highly paid or have no investment income to your name. A job is not transferable to your spouse or kids. And if you fall sick, after your employer has done the decent thing and paid you for a while, will dispense with his obligation to you.

No enduring wealth is built on earned income. To be truly wealthy you have to develop passive income, which comes from money working for you. And this takes time years, decades even generations.  Real tycoons do not pop out of the woodwork one day with a cooked up story about inheriting money from a dead geriatric they used to take care of in the UK.

2.       You think money is for eating

There are only two ways to spend money, either you consume it or you invest it. The more of the latter that you do than the former, the more likely you are to accumulate a handsome pile of wealth in your life time.

Judge your expenditures against that black and white criteria. If you consume more than you invest you are a fake tycoon.

One real tycoon said “Money is not for eating but for making more money”.

3.       You own an expensive car

What is an expensive car? This is how to tell you are driving an expensive car. Take the value of all that you owe, your liabilities and subtract that from the value of all that you own, your assets to get your net worth as a person. If the value of your car is more than a tenth of your net worth you are a fake tycoon.

In the seminal book the “Millionaire Next Door” author Thomas J. Stanley reported that the average millionaire in the US drives a car that is worth seven percent of his net worth.

So when you see a real tycoon buying his car from the showroom know it is but a small fraction of his total wealth or income.

4.       You need to show it

You cannot understand why if you have money people should not know? So you have vanity plates on your car, splash (literally) your money at night clubs and are keen to let your social media followers know when you are sipping on a nojito in town or wearing Jimmy Choos.

You are loud in word, deed and dress.

Your ostentatious consumption betrays deep seated insecurities from your poverty stricken background. When you were a kid and did not know better, you promised yourself that when you made your first million you would sponsor an open bar at Guvnor. Somehow you didn’t outgrow the juvenile fantasy.

A real tycoon knows that to maintain his wealth, he has to keep what he has close and always be on the lookout for more opportunities to grow what wealth he has. He is driven by insecurities too, but his are his fear of ever going back to his humble beginnings.

5.       Your wealth needs you to stay one step ahead of the law

Often times this kind of wealth cannot be replicated without taking unimaginable risk. And the thing with risk is that the more often you risk, the more likely your number is going to come up.

"They say, A thief has 40 days. Replace thief with kidnapper, corrupt official, taxi drive … take your pick...

The real tycoon has a system of creating wealth in which he puts in labour, capital and land through one end and money comes out the other. It is often a time tested system that can even be passed on to his offspring. If you don’t have such a system you are a fake tycoon.

Fake tycoons are bad for the economy. They do not champion hard work, thrift and integrity. They provide a wrong example for future fake tycoons. They distort markets, paying above value for cars, land, houses and businesses dooming genuine business to failure.

If you are not a fake tycoon you need not read on.

If you are fake a tycoon, have seen the error of your ways and want to turn a leaf, read everything above and then do the exact opposite.

AFRICA’S FREE TRADE AREA SIGNALS INTENT, NOW FOR THE HEAVY LIFTING

On Thursday 44 African countries put pen to paper to create a continental free trade area aimed at increasing trade within the continent.

As it is now trade within the continent stands at about 13 percent of total exports. It means that our countries trade more with the Europe, Asia and the Americas than we trade with ourselves.

It is a ridiculous logic that is a throwback to the colonial era when we were meant to provide raw materials to and serve as token markets to western industry. In addition the political permutations of Western Europe in the first half of the last century explain why in Uganda’s case for instance, we trade more with and through Kenya than the Democratic Republic of Congo...

More trade within the region is important, even critical. Trade within Africa is the least of regional groups in the world and explains a lot why we keep lagging behind everyone else.

It has been estimated that intra-Africa share of trade will more than double in relation to exports to wider world within a decade if we can take maximum advantage of the free trade area.

In East Africa we have been first hand witnesses to such progress. Trade within the Community has jumped to $5.5b last year compared to $1.5b in 2005.

This has far reaching benefits.

"With a consolidated market the dream of industrialisation will grow new legs. For starters it will sharpen comparative advantages around the continent, if the best producers of bananas are in Uganda why should everyone else bother? They will be better served going to another industry safe in the knowledge their source of matooke is unimpeded.

It is not an alien concept. The best matooke comes from southern Uganda, but bananas can be grown anywhere in Uganda. Because of lack of barriers between regions in Uganda, other areas of Uganda need not grow matooke as they can buy it from southern Uganda, they then can concentrate on the things they can do best.

So imagine an Africa with no punitive borders and the efficiencies that can be promoted?

Trade encourages specialisation and therefore increased productivity. It can be particularly helpful towards rural transformation as regional value chains in agro-business are established connecting farmers, traders and processors across the continent.

Evidence of this has already come to light in our back yard.

Last week it was announced that Ugandan farmers were selling 6 million bags of maize to their eastern neighbours. Ugandan farmers can produce maize much cheaper that their Kenyan counterparts for comparable quantities and quality so they are likely to dominate the market in coming years. The Kenyan farmers may have to start planting other crops if they are to survive. But one can expect they will lobby their leaders to maintain the status quo, which will only benefit them and not their own consumers.

But the signing in Kigali while a good step is only a statement of intent, there is a lot of hard work ahead, a lot of it effecting mind change away from the protection of parochial interests by the continent’s leaders and interest groups.

This mind shift is critical if we are to muster the collective resolve to do what it takes to first bring the free trade area in to being and secondly to maximise its potential and benefits to African citizens.

For starters the continent needs about $100b a year over the medium term to bring its infrastructure up to speed. To make this possible there has to be a lot of cross border investments in road, rail and water transport infrastructure.

Work also has to be done to remove non-tariff barriers, to synchronise regulations and create unified standards across a host of goods and services.

In addition respective governments need to commit to trade facilitation by improving connectivity, eliminating red tape and accelerating turnaround times in all processes.

"And last but not least there will be an urgent need to beef our institutional capacities to not only collect revenues but also ensure these are distributed equitably among respective societies...

As is already happening in the EAC there will be some major winners – mainly countries with extensive manufacturing bases and losers who will suffer some fiscal losses and death of some industries.

The signing in Kigali was a great event but we should be slow to bring out the champagne too soon, but rather roll up our sleeves and gird our loins  for the work ahead.

SAFARICOM: THE HOUSE THAT JOSEPH BUILT AND WHAT IT TEACHES US

They say there are four reasons to build a company -- to support a lifestyle, to live something for your children, to sell it and for philosophical reasons.

Each reason creates a different kind of company and may very well determine its longevity.

Last week former Kenya telecom company boss Michael Joseph was in town to talk about building a legacy.

While Safaricom, for which his name will be forever linked, is barely 18 years old, the impact it has had on the Kenyan economy and society, is such that it is not too soon to talk about legacy.

Safaricom, with a market capitalisation of about $12b as of the close of the NSE on Thursday, is currently the most valuable company on the Nairobi Stock Exchange (NSE), in Kenya and in the region.

It has a network of almost 30 million subscribers and its M-Pesa, mobile money platform also boasts a 25 million subscriber base. In addition Safaricom is a near monopoly in the region’s biggest economy commanding a 80 percent of the voice market.

So if Joseph, the founding boss of Safaricom has something to say about legacy he is hard to ignore.

They say you can only make sense of your life events, join the dots, looking backward. Joseph's life and career are testament to this....

A trained engineer, Joseph was born in South Africa, worked in the US and Europe, and at what would have been the evening of his career at 55 Joseph was shooed off to set up Safaricom in faraway Kenya.

With only $20m – the price of two mobile switching stations, he set about building Safaricom in 2000.

He thought London, home office of Vodafone which had gone into partnership with the Kenya government to start Safaricom, gave him less than a 50-50 chance of success. A situation which may have been discouraging but which played nicely to his advantage, allowing him to push through innovations without much interference.

He found existing players were pandering to the elite but he quickly made the decision that he wanted to build a business that catered to the matatu commuter. In that line Safaricom introduced per second billing, lower scratch card denominations and 24/7 customer care service centers.

The numbers jumped rapidly, breaking the million subscriber mark within three years. Caught by surprise by speed of growth and the bureaucracy of getting money for expansion from the shareholders, Safaricom quickly developed a reputation for less than ideal service.

They soon got over that debacle and went from strength to strength.

But what has set the apart and made the world leaders is the introduction of mobile money, under their M-Pesa brand. As Joseph tells it the software that kicked it off was a quick and ready solution that had been developed in Cambridge with funding from the UK government under a program to increase financial inclusion.

No one else wanted to try it out. But having lived in Kenya for almost decade, Joseph had an inkling how such a product would work in a mostly informal economy like Kenya.

In explaining why while the product has been widely successful in Kenya and has fallen flat in South Africa, Joseph said that for innovation to take hold it helps if it is championed by the top leadership in the company.

They spent $10m on promoting M-Pesa in the first year and if it had fallen flat he wouldn’t have been in Kampala to share his story last week.

And the rest is history. Last year total transactions off the Mpesa platform came in at Kshs 6.87 trillion or about the size of Kenya’s $70b economy...

The company has gone on to launch a host of services – data, micro loans and insurance, its growth seemingly not about to run out of steam.

Joseph who by his own admission is hard task master, eventually stepped down from the helm of Safaricom in 2010. His thinking was that as the company had grown and become more bureaucratic it needed a more consensual management style.

While there is no fear of losing his shirt, his legacy is now being severely tested as the chairman of the ailing Kenya Airways. But it is a challenge he says he could not resist when it came up.

Joseph says he did not start Safaricom to create a legacy. But he thinks we were not put in this world to be consumers, but to make a lasting difference and that forms the basis on which legacies are built.

The story of Joseph and the Safaricom he built points to another truth. That the business success as measured by the financials are a by-product of a genuine desire and drive to provide a good or service to the customer’s satisfaction.

That if you focus on the end-game, customer satisfaction through improving service the bottom line will take care of itself.

TWENTY YEARS AFTER MOBILE PHONES CAME TO UGANDA

In the wake of all the brouhaha about SIM cards, my mind raced back 20 years when the mobile phone really took off in Uganda.

It’s true that mobile phones first emerged in Uganda in 1994 with Celtel, but it really became a necessity rather than a luxury in 1998 when South African based MTN set foot in this town.

There are a lot of things that happened then that most would find hard to wrap their minds around.

Can you imagine that airtime used to be billed in dollars? And that there was something called a service charge -- $10, which was charged weekly? If you didn’t renew it, your phone would go dead – you couldn’t receive or make calls.

Can you imagine that for the longest time you could only buy airtime from the Celtel office on Wampewo Avenue? And this was only from Monday to Friday, excluding public holidays. So if you run out of airtime on Friday evening you were doomed till Monday morning. There was no Me2You. Can you believe the lowest denomination of airtime available was sh10,000?

Even I would find it hard to believe if I had not witnessed it for myself.

That mobile phones are now ubiquitous is thanks to MTN, whose story is an interesting one and one which maps quite well, the changes and changed perceptions around mobile phones in this country.

It all started with local businessman Charles Mbire trooping down to MTN offices in South Africa to make a pitch for the company to come to Uganda. At that time MTN was only in South Africa, content to be a small fish in a big pond. Vodacom was and still is the gorilla in that market.

"The MTN strategists referring to donor statistics – The World Bank reports that our per capita GDP in 1997 was $287, didn’t think Uganda was a good mobile phone market...

But Mbire put his money where his mouth was --- all of $2m, and offered to partner in the venture. Which made them think if a local businessman was willing to take the risk they needed to take a second look.

They eventually came and bid for the Second Network Operator (SNO) License, which they won. As part of the conditions of the license they were required to have rolled out (we were still thinking in terms of physical lines) 89,000 lines in five years.

Today, MTN Uganda reports that it has just under 11 million subscribers but at that time the total number of lines in Uganda stood at 50,000 lines! Or that in 35 years of independence Uganda Posts & Telecommunications (UPTL) as it was called then, had managed to roll out about 1,500 lines a year.

So we thought they were setting MTN up for failure. How would they roll out in five years what the mighty UPTL couldn’t do in three decades?

Well, on day one in November 1998 MTN opened shop. And their main switch promptly collapsed.

The story goes that the 14,000 line switch installed at Mbuya, which was thought would be more than adequate for at least the first three months, crashed under the weight of the new demand. And this was before noon.

And what was the price of SIM card? Sh70,000!!

Long and short of it, Ugandans snapped up those lines like nsenene on a November evening and the 89,000 target was surpassed before the year was done....

A lot has gone on since then that to sum it up with the cliché “and the rest is history” is to seriously short change the story.

Since that first day we started paying our phone bills in Uganda shillings, the weekly service charge was dropped, the lowest denomination for airtime is now sh500 and we discovered texting.

About the sh500 airtime denomination, I remember then marketing manager Eric Van Veen declaring that they may never go below the sh5000 denomination airtime card – they were made of plastic, about the size of a playing card, because it didn’t make economic sense. 

Since then we moved away from voice where, only but ten years ago in 2007 MTN Uganda was reporting an Average Revenue Per Unit (ARPU) of $10,  which has now fallen to $2.11 in 2016.

The action has moved to data service where MTN now has 1.5 million active data subscribers and 5.2 million mobile money users.

As a journalist reporting for a foreign media agency, I used to type or handwrite a story, walk over to the post office to have it faxed. Depending on demand I would have to wait for my story to be faxed after which I would call Nairobi to find out if they had received it. More often than not they transmission would be incomplete and would have to be repeated or just page two and four of a five page fax. And then I would have to stay by the phone at the office in case Nairobi had any questions.

Numbers were hard to come by, but that mobile telephony has forever altered the economy of Uganda cannot be disputed. The anecdotal evidence alone is overwhelming.

Today I could send my story over the phone, having already downloaded background off Google and can even transmit audio and video file, and all in a fraction of the time it took then. Leaving me time to chase other stories. I shudder to think at what my output today would be compared to then. 

This improvement in efficiency and output is mirrored in whatever sector you can think of – manufacturing, transport and general trade. And they say we haven’t even begun to tap the full potential of the mobile phone...

Since that exciting day in November 1998, MTN has paid sh3.7trillion in taxes to the treasury –sh450b alone last year, contributed sh120b to the Rural Communications Development Fund, which is now 2 percent of their gross revenues and It employs thousands directly.

And it has been good business for MTN too, last week they reported revenues of about sh1.6trillion in 2017.

If mobile telephony has become such an integral part of our lives and the general economy, one needs to look to MTN as the trailblazer.

As part of the liberalisation experiment, MTN has to have been the most successful in creating improved efficiencies, increased output and revitalising an industry.

If we can only match the changes that have happened in the last twenty years over the next two decades, I shudder to think how life will have changed by then … no more offices? Ownerless cars? And for the kids? No School?

KALE KAYIHURA WAS ALWAYS CHASING, NEVER AHEAD

Last weekend President Yoweri Museveni relieved long serving Inspector General of Police General Kale Kayihura of his position and replaced him with deputy Inspector General of Police Okot Ochola.

In the same announcement Museveni also replaced security minister Lieutenant General Henry Tumukunde with another bush veteran General Elly Tumwine.

Since the announcement few people have given Kayihura the benefit of doubt. They blame him for the worsening security situation, the side-lining of competent police officers to be replaced by his favourites and all that is wrong with the police today.

By the time some sympathy came through it was late in the week and brushed off as public relations for the fallen General.

Kayihura came to the helm of the police force replacing another military man General Katumba Wamala.  Kayihura had previously distinguished himself as the head of the anti-smuggling unit, with his pivotal role in pulling out the UPDF out of Congo at the beginning of the century among other achievements.

All reports point to the fact that he is an intelligent man, a diligent worker.

But clearly something went horribly wrong during his tenure as police chief.

"To begin with Kayihura was at a disadvantage being appointed police chief given his military background...

The mentality of the police and the military are different, if only because they are trained to handle different threats to security. The army is expected to be fighting external enemies while the police are charged with promoting and maintaining law and order among a civilian population. To make the psychological shift will always be difficult for even the best minds.

The argument can be made though, that our police force, a relic of a bygone era, was not designed to collaborate with the people, but as an instrument of repression on behalf of the colonial state. So even the policemen who have come through the ranks cannot be expected to make the mental shift to a more civil force. Which is a good point.

However a police officer who has undergone training specific to the force and risen through the ranks would be at a decided advantage over Kayihura, who was parachuted into the top slot.

Of course the Commission of Inquiry into the police force headed by Justice Julia Sebutinde in the late nineties unmasked the police force as having lost its way and only short of being a criminal organisation. The commission found that policemen were not only collaborating with thugs against the population but in many instances actually initiating and leading criminal activity.

It was a desperate time that called for desperate measures.

In tripling the size of the police force, winning it a bigger budget over the years and better equipping it, Kayihura may have broken the back of the original organisation but the widespread feeling is that a new one slid in to take its place.

"Kayihura did not inherit an ideal situation. It is conceivable that his elevation was not welcomed by those he found in the force. There may even have been cause for him to be suspicious of everyone around him, not to mention the tea served to him. And the urgency to show quick results may have forced him into initial errors which only snowballed out of control as time went by...

In hindsight Kayihura was really meant to be a change agent, who goes in for a short time, shakes up the old networks, sets the stage for a realignment of the police back to its original mandate and leaves. Something like what happened to his predecessor Wamala, whose famous order to put violent criminals “out of action” caused a stir in polite society.

His attempt to break up the old police force and recreate it, could have been done more delicately. He could have focused on building the institution and taken a back seat, rather than hogging the limelight. In the same vein he might have looked to salvage and leverage the positives form the old police rather than tear it all up.

Kayihura did a lot for the police. They now have a purpose built home in Naguru. They are a much larger, better equipped force, with specialised units ready to respond to any number of situations. Facilitated community policing.

Kayihura is just as fallible as the next man. On the one hand it might be that the challenges of the police were too great to address in the time he was given, that his was a work in progress. On the other hand it might just be that he was a man out of his depth and that he was bound to end his tenure reviled and scorned anyway

It’s easy to criticise when looking from the inside in.

Hopefully history will be kinder to him and give him more credit than the public is willing to currently.

THE OIL INDUSTRY AND THE FIGHT FOR OUR FAIR SHARE

The plan is that first oil will start flowing in 2020. The industry estimates that between now and then at $20b (sh72trillion) will be spent in preparation for this event.

In the exploration phase at least $3b was spent over eight years. It is estimated that local companies managed to capture 28 percent of this figure or $840,000 was captured by local firms.

The challenge is to keep us much more of that money here.

The truth is the capacity to produce oil without the local help exists. To appease local constituencies back home and retain as much money as they can for themselves means that regardless of whether we are ready or not as people the oil will be extracted and we will not even get the crumbs.

The oil industry is very capital intensive and therefore there is little we can do in the higher end of the value chain where the outlays are bigger, but there are areas – providing basic services where Ugandans can participate.

To that end the government through the Petroleum Authority of Uganda (PAU) has called on Ugandans to register onto a local data base of goods and service providers, who will be given first priority in getting contracts, especially those ring-fenced for Ugandans.

Questions still remain about whether our local providers can live up to the exacting standards of the industry. A lot of work especially in the private sector is being done to ensure readiness.

"Assuming the $20b of inflows into the country attract two percent insurance premiums that would amount to about $400m (sh1.5trillion). In 2016 the industry underwrote sh634b worth of premiums...

In that line the insurance sector has been gearing up to participate in the oil industry.

At the end of 2016 they established a Syndicate to underwrite the risks in the oil & gas sector. The syndicate which was created with the approval of the Insurance Regulatory Authority (IRA) is supported by international reinsurers by way of $500m reinsurance facility.

This is important because average claims in the industry have been put at $25m according to Alliance Corporate Global & Speciality (ACGS) one of the world’s largest corporate insurers.

Essentially Uganda’s insurance companies have come together to collaborate in underwriting risk in the sector.

Being as it is a new industry they have contracted the UK based Total Risk Solution (TRS) with 150 years’ experience to train local staff in of oil & gas insurance.

And it is not as if they are reinventing the wheel. In Indonesia, Ghana, Cambodia and Nigeria similar arrangements have been put in place and have not only served the industry well but also ensured more monies remain in country.

All this is being done to conform to Ugandan Petroleum legislation which provides for the contracting of insurance services from locally registered entities.

There seems to be a loophole in that regard in the law under Petroleum Authority of Uganda (PAU) operates. While some basic services have been ring fenced – security, catering, logistics among others and fuel services, for local players, insurance services are not among them...

Some reservations persist at the regulatory level, about the capacity of local insurers to cover the magnitude of risk in the oil & gas industry, whether giving the syndicate a green light would constitute the creation of a monopoly, whether reinsuring our local insurers to do the job would not add another layer of costs and whether value will be created all around.

The truth is that foreign industry players given a choice would use their own insurers. The only way to ensure our own industry players get a fair shake is to compel the oil & gas industry to give first right of refusal to our own.

That has to be the guiding principle in ensuring we retain as much money as we can locally.

The benefits of the insurance company getting a leg up in the oil & gas industry would have a positive ripple effect throughout the entire economy.

At the bare minimum it would increase the capacity of the industry not only financially but technically as well. The industry players will get new capacity to insure for risk in the oil & gas industry, which capacity can be employed to win business in the region and further afield.

But just as important it could help boost the country’s stock of long term savings. The insurance industry took the brunt of the loss with the breakdown of stability and 1970s and 1980s, people stopped taking out insurance. The habit was lost.

"As a result the insurance industry is only just beginning to gather steam. The long term savings that insurance hold, in other countries has helped build infrastructure and support long term projects critical for national development...

The insurance industry’s attempts to get ready should not be lost and may even serve as a useful example of how other industries can position themselves to take advantage of the coming oil

FINANCING THE UGANDAN BUSINESS

Survey after survey of the business community points to the lack of access to finance or the high cost of finance.

The reduction in the Central Bank Rate (CBR) to its lowest ever at nine percent recently should promise some relief, as banks peg their lending rates to it.

So hopefully we should be seeing an uptick in business activity. I doubt.

At least nine in every ten businesses in our economy is a small or medium enterprise (SMEs). According to Uganda Investment Authority (UIA) companies in this category do not have an asset base exceeding sh360m.

One way the narrative about financing our businesses gets it wrong is that we think commercial banks would be the key financers. Commercial banks are more comfortable with and their products are structured to support going concerns – businesses which are consistently profitable or at least have consistent cash flows, which is not what can be said for most of our SMEs.

"The challenges of financing SMEs are many but the principle ones are that they have no or inadequate assets that can serve as collateral, relatedly they have low profit levels or liquidity to ensure repayment and have unsatisfactory business plans to give an indication of what the business is up to, where it is going...

A different kind of financing is needed for our SMEs, which gap is not being filled, presumably because it is too much work and too risky.

SMEs are often started using the funds of the founder. These are either savings or even loans borrowed against other income. The beauty of such funding is often the proprietor has written them off – consciously or unconsciously, as soon as they are out of his pocket.

The next best funding is from family and friends. Depending on the business acumen of these returns may not be required soon or ever.

Were it not for such startup financing most businesses would not take off. But they are rarely if ever huge sums.

The next level of financing may come from angel investors. These may or may not be family, but they are often wealthy benefactors willing to chance their money for a reasonable return. This is where Uganda entrepreneurs may get stuck.

This kind of investor may be a bit sophisticated, would want to see the business books, a business plan and have an in depth interview with the business promoters. If you are not clear about how you make money, how you use the new money and what returns the investor can expect.

This funding can be useful if the funder is not asking for immediate returns and is in it form some share of the business. If the business collapses he may walk away to lick his wounds and not follow up on his shillings.

"But the informal way we conduct our business means we would not be attractive to such investors, who can marshall significant resources on the strength of their own reputation and may even throw in the benefit of their business experience...

By this point hopefully your cashflows are growing and consistent. It may be the time to consider borrowing from the bank. Unlike the financing the business has been relying on up to this point, the bank will not be as patient. At the basic level the repayment schedule will kick off straight away, which can put enormous pressure on the business’ working capital.

The challenge for many of our businesses is that we forgo the patient capital for commercial bank loans. Before we even begin to think about the cost of that funding, the demand and discipline of regular payments against a backdrop of an uncertain business environment, often does in our business.

The point is that one should be thinking of different financing for different stages of the business and it is only until the business model has been shown to work – there is enough demand for the good or service you are hawking, that scaling up can be considered.

Our businesses often collapse spectacularly because we start to scale up before the business model is working. We use the wrong financing at wrong stage of the business development. But most importantly we are not meticulous in our record keeping, meaning we don’t know what we are doing wrong and therefore continue to replicate our errors. And probably worse, we don’t know what we are doing right and therefore cannot replicate it.

"Our financing challenges are more a function of lack of organisation, thereby reducing our bargaining power in the market...

One local example jumps to mind. One local business with a need for urgent working capital discovered it could leverage its near money assets for a bank overdraft. While the cost of the overdraft was more than 20 percent at the time, since they have been exercising the facility – two years now, they paid 3.7 percent in interest for the facility last year and 5.7 percent the previous year.

Another business recognised a need to beef up its balance sheet went to its shareholders and managed to raise sh200m to boost the business. It helped that the business’ records showed that their initial investment was valued at many times over the value of their initial outlay and that the projections, assuming the business was even half as successful over the next ten years, meant the pattern of capital accumulation was bound to be repeated. The new equity infusion, apart from the arranging costs – mostly mineral water, has cost the business almost nothing to date.

The point is that the story of expensive financing our market is a convenient excuse for many of our businesses poor management practices. That and our unwillingness to relinquish some share of our businesses to other partners. But that is a story for another day.