HOW TO SUPPORT LOCAL ENTREPRENEURS

Everywhere you turn it seems like government is trying to give a leg up to this businessman or the other. The general theme seems to be for promotion of indigenous capital.

A cursory look down the list of the biggest companies and even tax payers, will show that easily nine in every ten are enterprises owned or controlled by foreigners.

It will not be splitting hairs to point out though, that companies that operate in Uganda are registered Ugandan entities and therefore local corporate citizens. A distinction that is often ignored or forgotten by the “champions” of indigenous capital.

If you are a fairly successful business in Uganda, for every sh1000 you make, you pay out half of it to local labour, utilities and other costs of doing business, of the sh500 remaining as gross profit you  pay the tax man another sh150 leaving about sh350 in after tax profit. Depending on the maturity of the company the owners can keep up to 70 percent of this for themselves, with the rest retained to keep the company going.

From this example alone the suggestion is that almost sh70 percent of the company’s topline revenues stay here.

Often “foreign” companies have been accused of keeping more money from themselves by any number of dodges but we leave that for another day.

So the champions of indigenous capital’s main argument is to keep more money (100%?) in the country we, the government and the people (not always the same thing), need to take more control of the commanding heights of the economy.

That has a nice ring to it and can be sold to gullible citizens, who do not have the benefit of the knowledge of the aforementioned breakdown of where a company’s monies go.

How the government then has tried to go about it over the last 40 years, but with seemingly more urgency in recent years, is to take back companies that were once private e.g. Umeme or dish out money to some businessmen who have the ear of the higher ups in government.

In the first case, the deprivatisation of companies, these companies are often lucrative going concerns and some geniuses in government think that they will continue like that under government management. It does not take a business guru to predict that this will not be the case.

To explain, you have to go back to the reason many of these companies were privatized. Due to political interference – cronyism, nepotism and general corruption, these companies were mismanaged and became a drain on the public purse. Their lack of money came from mismanagement and not the other way around.    

We can expect that a few connected individuals, who have failed to compete in the market, will be the major beneficiaries of these deprivatisations – getting jobs, winning contracts and supplying air, and these companies will suffer for it and the general public as well.

I wish I would be wrong but it is hard to see how this will turn out any other way.

The second way by which government is trying to giving local businessmen a leg up is by giving them cash, in many instances billions of shillings. Billions whose outcome if measured by the conventional metrics of measuring business success, have nothing to show for the billions they have swallowed.

A caveat would be in order here. In some instances where established businessmen have been coopted at least we can find expanded services and even increased revenue collections, but one wonders what government gets for its equity stake in the venture.

Given government’s dismal record in supporting businessmen, where failure is recorded as lack of improved service or return on investment, one would wonder how best to do it.

We need not reinvent the wheel. Businessmen are being supported by governments the world over with better degrees of success.

First of all government needs to create an enabling environment for all business to thrive --  guaranteed security, improved infrastructure, objectively applied rule of law and social services.

To be supportive of the indigenous capital government needs to ensure practical education, good health services and a robust safety net for all citizens.

Then government needs to support businessmen through capacity building for them to be better businessmen.  This maybe effectively done by incentivizing the private sector to invest in these kind of education.

In order to make credit accessible to businessmen and at affordable rates too, they should encourage savings mobilization. The challenge of lack of accessibility and high lending rates is one, mainly of inadequate savings in the economy.

With more savings more players like venture capitalists and private equity players  -- major gaps in our financial sector, can be attracted into the economy.

All the above can be assisted by government having a well thought out national strategy, not one drawn up only by bureaucrats, with no business acumen, but with inputs from businessmen at home and abroad.

It would not be a stretch to say government’s inability to nurture a formidable indigenous capital base, is for lack of a robust national strategy that would have saved us from running around like headless chicken for the last four decades.

It is not rocket science.