THE RETURN OF THE IPO AND WHY IT IS GOOD FOR UGANDA

Last week pharmaceutical firm, CIplaQCI listed on the Uganda Securities Exchange (USE), the latest initial Public Offering (IPO) since Umeme in 2012.

Also during the week the government announced that they will require all telecommunications companies to list on the exchange shortly.

In neighbouring Tanzania and in Ghana and Nigeria as well the government’s there made it a requirement of their licenses, so Uganda is not reinventing the wheel.

The government here said this would be a way to increase ownership of successful companies by locals as well as retain some of the money that is repatriated to their head offices as dividends.

Listing a company is how the owners of the company get paid for all the hard work they have done in building the said enterprise. It can also be a way for them to raise money, patient money from the market.

"But also for political reasons it can be a way for companies to ingratiate themselves with a critical mass of the public. This is a big deal for investors, especially foreign investors, who can become the target of unwanted publicity just because it is always easy to mobilise against foreigners....

The badgering Umeme received a few years ago when they were wholly owned by British private equity firm Actis comes to mind. After they had turned around the distribution business, locally connected entities started lobbying for their contract to be terminated on the basis of some fuzzy logic about how they won the contract. Thankfully these agitators were beaten off. Actis eventually listed on the USE and sold out entirely.

Interestingly the entity that was lobbying for their ouster mismanaged the small concession they were running and as if that is not enough gave it up altogether. I shudder to think where we would be if they had won their battle to run Umeme.

But I digress (or do i?).

One of the four reasons to start a business is to eventually sell it. The other three being to sustain yourself, to pass it on to the next generation or for philosophical reasons.

If you start a business with the eventual plan to sell it, you will build it differently from a person with a business intended to finance his lifestyle. You will build a business whose value is not mainly derived from you. You will build systems in the business, which will ensure it will continue to survive even thrive without you.

The story of Cipla is interesting in this respect. The Ugandan founders of the original business Quality Chemicals, a drug marketing business out of Katwe, in order to expand into the drug making business paired up with Indian firm CIPLA.

This would not have been possible if Quality Chemicals was not worth buying with a credible market share and systems that could be scaled up to win more market share. An intending buyer of the size of CIPLA for any company be it your chicken farm or coffee farm or even wholesale shop are buying potential future earnings. 

"The prospect of growing future earnings, predicated on a scalable business, is what buyers are looking for...

So companies that come to the USE are those that the market think are viable businesses with healthy future prospects.

This is important for us because the more viable business a country has the better. A country is only as viable the strength of the it’s business community. Because businesses are what unlock the potential of our people, land and capital.

I thought about this two weeks ago when I visited the Goodwill Ceramics Ltd in Kapeka, easily the largest floor and wall tile manufacturer in the country.

For their raw material – 90 percent of it, they use clay from Kanungu, Rukungiri and Karamoja . Trucks had offloaded huge heaps of this clay in the factory’s back yard. I am sure it is a special clay but to the common eye it is just soil. But it has been here with us all along. So why has it taken until the 21^st century for us to employ it meaningfully?

The Goodwill Ceramics plant has the capacity to satisfy this country’s daily requirement of tiles and more, throughout the year.

The years of upheaval aside, the reason our businesses cannot exploit such opportunities right under our feet, is because from inception they are designed as lifestyle businesses. Which is not in itself a bad thing, most businesses around the world are started on this premise. The difference is that the ambitions of our founders do not grow and therefore the business remains stunted or they just don’t know that the fortunes of their companies depends on the visions they habour between their ears.

Of course it’s much easier to manage a small corner shop than a supermarket or a chain of supermarkets. The human resource and capital issues just grow with the company. And some point the founder may be forced to relinquish day to day control of his baby because he has reached the level of his competence and needs to bring in new talent.

"Growing a big company means we are going to have to see our businessmen grow beyond their egos, which given how small our businesses are anyway, are not very big...

Obviously bigger companies employ more people, should pay more taxes but are the ones which will unlock the vast potential of our land.

Shortcuts like government trying to do it itself will fail invariably because governments motives, anywhere in the world cannot support sustainable business development.

Our businessmen have to grow for their businesses to grow. There can be no quick fixes.

So the dearth of IPOs is a true reflection of the sophistication of our businesses and the environment they work in.