THE FATE OF PEARL DAIRY AND WHAT IT SAYS ABOUT THE EAST AFRICAN COMMUNITY

It can be frustrating even down right infuriating when you are in the midst of a historic movement. Progress or regression doesn’t happen in a straight line. You take two steps forward and one step back. Sometimes it’s worse, you take two steps forward and four steps back.

I have heard it said that we will take the class until we learn the lesson. And may I add, even if you think you have skipped the class and gone on, invariably one day you will come all the way back to take the class, so you can learn the lesson.

At the time of writing this the Presidents of Uganda and Rwanda are getting set for a border meeting at Katuna, which we all hope will lead to the reopening of the border and the free movement of goods and people.

Rwanda shut down the border a year ago ostensibly over the maltreatment of its people in Uganda.

"When our grandchildren will be reading history this border closure may occupy only a line in the greater scheme of things. Hopefully it will not have scuttled the greater goal of creating a single regional market....

There are more disturbing movements that affect Ugandan progress but also don’t bode well for the future of the EAC.

Ugandan sugar is having to jump through hoops to find its way into the Kenyan and Tanzanian markets. We are the only country in the community that is producing a surplus. Three decades of rehabilitation and expansion of our sugar firms has brought us to this happy situation.

In our eastern neighbour the sugar industry is all but dead, with the major sugar producing regions in western Kenya, brought to its knees by a combination of bad policy and the growing strength of sugar importing cartels. Uganda’s sugar industry, I fear is under attack from similar forces.

Our neighbours cannot believe that we can produce so much sugar as we are exporting to them. They have sent delegations (per diems all around) here to verify our capacity to produce. They have not found any foul play but have gone back and kept quiet allowing the charade to continue.

Our grain is being shipped across the border raw. Attempts to export maize flour have suffered uncalled for speed bumps and roadblocks. The message is clear, send us your raw materials but not your finished products. And we all know who benefits from such an arrangement.

More recently our milk producers, Pearl Dairies, the maker s of Lato milk, came up against some strange “official” resistance to their exports to Kenya. Their warehouses were raided and their stock impounded at the end of last year. Kenyan authorities unofficially charged that they were counterfeit supplies, strange because Pearl Diaries were not the ones complaining. But maybe that was because it was their milk.

But one can see what has happened. Last year Uganda exported in excess of 110 million liters of milk to Kenya, which helped for the first time since anyone remembers, to turn the balance of trade in our favour. This was particularly surprising because the previous year we had only exported about 20 million liters to our eastern cousins.

In the space of two and half years, by the end of last year, Pearl Dairy controlled about a quarter of the Kenyan milk market. That must have rustled a few feathers, especially that Pearl Dairies with their 800,000-liter day processing capacity in Ntungamo was not about to let up.

Then the stories begun again. Uganda is getting milk from Australia landing it in Kinshasa, trucking it through South Sudan before it comes to Kampala for reconstitution (adding water) and shipped to Kenya. If milk can go through that convoluted journey and still price competitively in the Kenyan market, then the Kenyan dairy industry has only themselves to blame.

Strangely, or not, other exporters of milk to Kenya from Uganda are not suffering such inconveniences or whisper campaigns.

We should be concerned.

One of the biggest selling points of the EAC on paper, is that investors can come and locate their plants wherever they choose in the region and have unfettered access to a 200 million people market.

The way it seems that’s for everybody else except Uganda.

If you have $50m to invest, like Pearl Dairies has done and want to invest in Uganda to exploit the EAC market, don’t bother.

Which is sad.

It does not take a stretch of imagination to workout that in order to fulfill its 84 million litre exports to Kenya, like they did last year, there must be hundreds of farmers in the Ntungamo area and hence thousands of their dependents in whose best interests it is to have the plant there working at full capacity. At the height of production last they inject at least sh12b into the local economy every moth.

Beyond that there are transporters, retailers, people up and down the value chain that want, no, need Pearl Dairy to remain in production.

But maybe we shouldn’t be surprised. It is no myth that Uganda’s agricultural potential is unmatched in the region. Our benign weather and arable soils mean that we are potentially the lowest cost producer of anything agricultural.

"Kenyan industry, which took advantage of the chaos of the 1970s and 80s, kept us a captive market for everything from toilet paper to sauce pans are fast waking up to an uncomfortable reality....

The lesson of the EAC obviously is that government needs to investigate in its negotiating capacity.  It can’t be for individual companies to be negotiating for market access, this is the business and role of governments.

Especially in our case where we have been the foremost champions of the creation of the EAC.

BUSINESSES NEED TO FOCUS ON THE VISION THING

Last week American car company Tesla saw its share price hit $500, a record for the company. With that price the company’s market valuation rose to about $100b (more than three times the size of the Ugandan economy).

The 30 percent jump in share price since the beginning of the year, means Tesla is now bigger than establishment companies Ford or GM, which were the biggest car makers in the US. Tesla will be 17 years old this year.

These are impressive figures by any measure.

The company wins a lot of attention thanks in no small measure to founder South African born American businessman Elon Musk, who is not averse to getting his foot in his mouth every so often.

It was created with a desire to bring an electric high performance vehicle to market. Up to that point car manufacturers struggled with the low capacity of available batteries, which would not allow high mileages.

After many missed targets, Tesla it seems, has found its groove and is set to take advantage of the first mover advantage – sort of, to dominate this new sector.

But what is it that drives entrepreneurs like Musk, to take on establishment companies, disrupt the status quo and come out the other side triumphant?

Last week we serialized the book , “Double your money” the very engaging memoirs of our very own Aga Sekalala Snr. As a businessman, he is unique in that his enterprises have not only survived, but thrived over the last four decades and sometimes under very harrowing circumstances...

When he first went into business for himself with a fuel station off parliament avenue, there were hundreds or even thousands of other businessmen who started with him. Most have left no impression on our lives or memories.

To endure like he has, has not been easy. I think the book understates Sekalala’s struggle, but its possibly a function of the old man’s mentality to not dwell on the past, but to get on with the job at hand. My impression was that the simplicity and unpretentiousness of the man belie a spirit, which while ready to adapt to changing times is encased in an iron will determined to bend circumstance to his bidding. So how did he do it?

The problem when we come in contact with these giants of commerce and industry is to see only the finished product. But the physical is the manifestation of the intangible – the vision, the strategy, the discipline of execution, the company culture.

I think everything starts with the vision. The vision of the founder or managers of an enterprise will determine how big the endeavour can be.

In the first half of the last century a small boy determined to go to school, because he liked how smart the teachers looked. He thought he would be a teacher. Then his ambition grew when he saw the county chief who in addition to being smart, rode a bicycle. The only bicycle for miles around his village. Then he decided he had to go to university, because the one university student he had seen was not only smart, but had an air of confidence and worldliness he wanted for himself.

His contemporaries who didn’t upgrade their ambitions or the vision of where they saw themselves in the future, ended up reaching their limits quickly and falling by the way side.

From the analogy a vision not only has to be bigger than the individual or company but also has to speak to the emotion of the holder. It’s the emotion that welds the vision to the psyche, taking over the owner’s life and driving achievement as if by magic...

Under such circumstances the subconscious can hold the dream long after the individual thinks he has forgotten about it.

That is why you can visit a company and it is humming along like a fine tune race car, but there is no evidence of a vision or mission or values statements pinned up on the wall. But the vision can be discerned from the work ethic, what values the company lives by and the achievements over time.

A deep dive into the mind of the founder or the company’s boss may help.

And this is at the root of why we are one of the most entrepreneurial countries but not one of the biggest economies of the world.

We are predominantly necessity entrepreneurs, setting up business to sustain our families. This is not a crime but it limits how big the business can grow, how much it can produce, how many jobs it can create, how much tax it can pay. Because they stay small the first shock – economic, family or otherwise, they experience lives the little chance of survival.

To start a business to feed yourself is not a crime. Most companies start that way. The trick to the creation of long term value for the owners and the communities in which they operate is to make the transition to opportunity entrepreneurs.

As opposed to the necessity entrepreneurs these are driven by opportunities they can take advantage of, are keen to build systems in order to scale up and maximize the chosen opportunity.

"It is near impossible to grow without systems and structure. But to invest in building these requires a long term perspective that does not reside in a necessity entrepreneur...

Elon Musk’s dreams were driven by science fiction and his determination to explore space. His vision is bigger than electric cars, but in the process he is drugging the automobile industry kicking and screaming to places it did not envisage.

Many years ago when Mzee Sekalala was exploring getting into fish farming, and narrating the challenges he was encountering, I wondered why he was even bothering there was still plenty of growth in the lines he was pursuing – poultry, vanilla and animal feeds.

His response, “If I hadn’t gone into chicken which chicken would you be eating today?”

Enough said!

DISCIPLINE IS ESSENTIAL, CRITICAL FOR UGANDA ECONOMY

The concept of third party endorsement is a powerful one.

If you go out singing your praises, people will dismiss you as a braggart and send you on your way, shoes aimed at the back of your head. But if someone more respectable snatches the trumpet and blows for you, people are more likely to believe them than you.

Last week Absa Bank released its Africa Financial Markets Index 2019 as well as Uganda Economic Forum.

"Their Africa Financial Markets index, which is in its third year of publication, ranks 20 countries on the continent according to their suitability as investment destinations, using their financial markets as an indicator of this...

The countries chosen all had their own stock exchanges except Ethiopia, which despite being one of the strongest growing economies in Africa, was last on the Index.

Uganda was tenth, unchanged from last year, though its score on the index rose to 52 from 50 in 2018. Uganda fell to fourth in EAC, from second last year behind Kenya. Rwanda and Tanzania went from being outside to inside the top ten.

This is an important index and long in coming.  It provides an outsider’s view of the markets to potential investors. Investors outside the continent often see the continent as one country, they can’t be bothered to dig deeper, the smallness of our individual markets don’t justify the effort.

It is therefore useful to have such an index, previously fronted by Barclay Bank, to at least afford the continent a second look, by some of the biggest global fund managers, for who testing the waters may be a few tens of millions of dollars’ worth of investment.

The index used market depth, access to foreign currency, market transparency, capacity of local investors, macroeconomic opportunity and the legal framework, as the criteria to judge the countries.

 It’s clear from the index that countries, which ranked high on the transparency of their markets – South Africa and Mauritius are also the ones with not only the biggest inflows, but also have the biggest local investor interest in their own markets...

They say capital is a coward. It doesn’t like risk. One of the keys to mitigate risk is information or knowledge. The more access to information the more comfortable capital is.

So this index, on one hand, helps to allay investors’ fear and at the same time serve as a useful tool for countries to improve their environment for investment.

Absa’s economic outlook told us a few things we knew. They confirmed that Uganda’s economy is expected to continue growing, but they thought at a slower speed – 5% in 2020, than official figures suggest.

They said due to lower agricultural output and weaker demand at the end of 2019 they have been forced to lower their own projections for last year. This stickiness will continue into this year they think. Nevertheless, Absa expects that agriculture, continued infrastructure investment and election related spending will drive the economy this year.

They worry though that the twin deficits in trade – due to projected import increases to support public investments and the budget – forcing increase contracting of debt, can cause major discomfort were investors to judge our situation too risky.

"Common sense dictates, that with these twin deficits hanging over our head, government needs to be more disciplined in how it spends and contracts debt. Any economic shock down the line, will mean the pain will be much greater, given our high import bill, low revenue mobilization and ambitious spending plans....

A surprising revelation, or maybe not, was that Uganda’s exports to the EAC, as a percentage of total exports fell back to under 30% in 2019 from 40% four years previously. The continued insecurity in South Sudan and the closure of the southern border for most of last year must have been the reason.

Taking the two reports together, the major take home has to be the inadequacy of our local resource mobilization.

It means we are not collecting enough taxes, which supports the urgency to widen the tax base. We have huge deficits in human capital and infrastructure which cannot be bridged if we do not collect more tax. Not only does it limit what we can pay for ourselves, but also how much we can borrow to close those same gaps.

Low revenue collections put a real cap on our development ambitions.

But just as important, if we cannot mobilise savings to participate meaningfully in our own markets why do we think we can attract credible investors? The best advertisement for foreign direct investment is a credible pool of local players who can either be partnered with or bought out all together or provide real market research independent of official statistics.

The Absa reports should serve to reinforce concerns about this economy. We are not a basket case but we are balancing delicately on the edge. We should recognize that and act accordingly.