At the beginning of the year The Economist had an interesting feature titled “Africa’s has too many businesses, too little business”, lamenting the lack of enough big businesses to speed up transformation of the continent’s economies.
They argued big businesses are “productivity powerhouses.
They bring people, ideas, technology and equipment together in ways that make
workers more efficient, which makes people richer.”
The Economist reported that there are only about 345
companies on the continent which pull in revenues of a billion dollars
annually. None of which are in Uganda.
The counter argument is that small businesses are the ones that create the most jobs in all economies, so we should watch about throwing out the baby with the bath water.
This column has argued until blue in the face, that a
nation’s economy is only as viable as its private sector. So if we are to not
only grow the economy but also ensures it works for all, then its health is a
subject that needs serious consideration.
Another report showed that while Kenya attracted the most
venture capital of any country on the continent at $638m (sh2.4trillion),
Uganda was left far behind only attracting $19m(sh70b).
Venture Capital (VC) bridges that gap between the friends,
fools and family who are often the earliest backers of business ventures and
the commercial banks and higher finance that deal only with viable going
concerns.
The venture capitalists often provide funding in way of
equity or they buy shares in your company, but also provide technical
expertise where there are deficiencies.
There many reasons venture capitalists choose one country
over another, not least of all the size of the market, hence the potential to
scale a business and the general business environment.
Uganda’s landlocked nature maybe an impediment, but the
growth of the East African Community (EAC), which technically stretches from
the Indian to the Atlantic Ocean and allows the free movement of goods,
services and people is making that less and less of an issue. The EAC currently
constitutes the largest export destination for Ugandan products compared to
the rest of the world.
In 2023 more than a third of Uganda’s trade was with the
EAC, compared to two decades ago before the EAC kicked off and the similar figure
was barely over single digits.
However, non-tariff barriers continue to hamper our traders, making us less attractive to investment flows.
Uganda continues to struggle in the World Bank’s ease of
doing business survey, regularly featuring in the lower half of the 190 country
survey.
While this is all well and good the report on attraction on
venture capital tells us another story too, about the capacity or inability of
our business community to tick off various criteria. Among which ability to demonstrate the market
opportunity, the capacity of their teams to exploit that opportunity, that they
have unique value propositions, which can be determined initially through their
well kept records and finally that there is a feasible exit mechanism, in the
event that they want to sell.
"The government can say all it wants about continued GDP growth, lucrative returns on investment and liberal market economy but businessmen listen to businessmen and to the extent that outside investors cannot identify partners they can work with locally, is the reason why the attraction for our country as a VC destination is much lower than Kenya...
Interestingly, for the last five or so years, Uganda has
been leading the charts in attraction of Foreign Direct Investment (FDI) in our
region. How come the contradiction? Billions of dollars are going into the oil
industry – it estimated that by first oil at least $20b will have been invested
n the oil & gas sector.
Most of the money will go to the foreign companies doing the
heavy lifting. But thanks to some local content provisions, we are hoping to
back at least a fifth of that money.
The VC numbers speak better to the earlier Economist report.
Our low numbers compared to the Kenyans
suggest that on one hand that VCs cannot see opportunity here to make good money
when they scan the landscape or that and somehow related, when they look around
they think they can just start new companies from scratch as there is no
competition around.
The economic chaos of the 70s and 80s means our business
community’s development was stunted or snuffed out altogether, so it would be
no wonder that we fail to attract partners.
So beyond the government providing a stable macro-economic
environment, it has a responsibility to improve the ease of doing business in
Uganda – improve infrastructure, access to credit and the rule of law, enable
capacity building in the business community so our indigenous businessmen are
not left behind.
Ugandan on their part need to grow beyond subsistence to
opportunity businessmen. We need to have a higher vision for our business than
just sustaining an ever increasing capacity to consume, to building bigger
companies that will create more jobs, bring in more tax revenue and spread
beyond our borders.
No economy was ever sustained on rent seekers and commission
agents.
