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 21st 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.
