SIR ALEX’S LESSONS FOR UGANDAN BUSINESS

 

Its old news. Sir Alex Ferguson stepped down from the leadership of Manchester United last week after 26 years at the helm. His career at the club is unparalleled in sports history, not only for its longevity but for the consistency of success – on average he won a premiership title every other year.

With such staying power the memorable moments are many. That night in May 1999, in Barcelona has to be up there with the best. The Champion’s League final.  Manchester United had been on the backfoot all night smothered by a Bayern Munich side captained by Lothar Mathieus. Teddy Sheringham and Ole Gunnar Solskjaer put the Germans to the sword in extra time to give United their first Champion’s League trophy under Ferguson.

The match gave new meaning to the phrase snatching victory from the jaws of defeat.

The moments of brilliance have been many and not far apart, blending into the most consistent performance of the any English team ever.

Forbes last week estimated that $386m (sh962b) of the club’s current value can be directly attributed to the Scotsman.

The club is currently valued at $3.5b.

“Ferguson accomplished this feat by consistently winning on the pitch and leading with class, which enabled Manchester United to build one of the most valuable brands in sports. The strong brand, in turn, has fueled revenue growth superior to Manchester United’s English rivals,” Forbes’ Mike Ozanian wrote.

The clubs revenues have risen 13-fold to $502m last season from $39m in 1992 the first season of the Premier League. To further underline the stature of the man, the club accounts for 13.4% of the 19-team league’s total $3.76b revenues.

Businesses are the vehicle through which value and therefore wealth are created. Ferguson was the face of management but obviously there was an administrative structure behind the man that took care of the business end while Ferguson worked at creating a winning brand.

We would not expect any of our business to build a multi-billion dollar enterprise soon but there are lessons to be learnt from the Sir Alex reign.

Three lessons come to mind.

Underpinning his success was his stated mission to build Manchester United in to a club not just a team. He understood that for long term success it was not only about the 11-odd players on the pitch but the whole business needed to be viable to sustain his long term goal, which stated less charitably, was to knock then giants Liverpool of their vaunted perch.

A mission also meant Sir Alex never succumbed to the trappings of success, blunted his desire for more and more success or made him get too big for his boots.

For a long time Manchester United was the moneybags of the premiership and accused of being able to buy any player they chose. In latter years however Chelsea and then Manchester City have muscled United, but this has not stopped Ferguson making key buys and keeping the winning ways going.

People might have attributed supernatural powers to his ability to buy players who clicked almost immediately, but the answer may lie in more mundane places. That he had a strategy and vision of the kind of soccer he wanted and picked players who would fit into his vision. It should be the same for our businesses. Blessed with a windfall our businessmen are more likely to upgrade to a bigger four wheel drive car than buy assets that can advance the company’s fortunes. In fact when I see a new businessman buying a bigger car I start counting down to the eventual demise of his business.

Beyond picking them Sir Alex was known as a great motivator. With experience he seemed to have perfected the delicate art of  knowing when to praise or criticize his wards; when to  dismiss their excesses or when to wield a stick and never ever to criticize his men in public. The ultimate man manager.

Businessmen pay lip service to the importance of their workforce but maybe because of the nature of his profession Sir Alex couldn’t afford that luxury. He couldn’t afford to imagine that the stadium or pitch were the club’s biggest asset. Our businessmen need to pay as much attention to their workers than they do their machinery or buildings, because it’s the workers who extract value from the plant and machinery. You can have a business without plant and machinery but you can’t have a business without workers.

The fans and the market – United’s share price shed 5% on the news, may have reacted to the departure of the gaffer but there is no suggestion that the team will come crumbling down in the wake of his exit.

While Sir Alex was the one constant at the club for the last 26 years clearly a structure was built around him to ensure success. The consistency of the success regardless of which players left or came in, is testament to more than structure.

Maybe that will be the final test of his time at Manchester United, whether he built a credible enough structure to carry on from where he left off.

UGANDA BANKS NEED TO SPREAD THE LOVE

 

Last week the deadline for reporting of the banks’ financial results came with the traditional flurry of last minute activity.

According to a cursory survey of the top banks, profits were up 23% cumulatively.

A closer look at the results shows that while most banks cut back on lending or grew slower than in previous years they made more in interest compared to last year, presumably because of the high lending rates.

The banks justify the high lending rates as a function of the higher risk they take in this market, but the bad loans have remained stubbornly under or about five percent across the industry, suggesting their risk managements systems are quite robust therefore scuttling their logic.

There is a small financial institution, which using rudimentary financial analysis worked out that inflation would be reined in and therefore raising lending rates was not necessary. They tightened on their expenses and were more stringent in their lending policy. Not only did they lend more money out year-on-year they also made more profit than the year before and with no dramatic leap in bad loans.

So why is it that our high street banks, with more analytical processing  power can’t do the same?

The difference is in the incentive structure that the banks’ managers operate under.

Their bonuses are pegged to bringing in more businesses at the least possible cost.

With this in mind, in times of trouble the banks are wont to raise lending rates, cut back on lending and shovel almost-free customer deposits into the safe treasury bills and bonds. Even after a windfall year you never hear of deposit rates rising.

At the small financial institution I alluded to earlier the management are driven by a desire to provide a safe haven for clients’ savings and provide cheaper-than-market-rate loans. In times of hardship they cut back on administrative costs rather than raise lending rates to ensure a continuation of the cheaper than market rate loans.

So not only did the institution’s clients benefit from cheaper loans they also enjoy a five percent interest. Higher than any high street bank is offering on its savings accounts.

As if that is not enough the clients who also double as shareholders have seen their initial investment in the institution jump eighty fold in the last five years and this year for the first time enjoyed a dividend payout that was thrice their initial investment in the institution.

With our banks the benefits accrue the other way around.

The owners who are not depositors or borrowers or Ugandans for that matter, have benefitted the most from setting up in Uganda, while the depositors and borrowers almost all of whom are Ugandan have suffered anemic interest on their deposits and extortionist lending rates on their loans.

The shareholder equity, or the owners interest in the bank has grown threefold even quadrupled since 2005 in some banks. This represents up to 20% annual growth the last seven years.

We don’t have to look very far for how well shareholders are doing.

In 2004 dfcu listed its shares on the exchange at sh230 a piece. Shortly after they offered each shareholder a share for every four they owned, effectively making each initial share worth sh184. Today a share in dfcu is trading sh1,000 more than a fivefold increase in value since its listing.

No one wants a headache from thinking about the growth in wealth accruing to Stanbic shareholders. Not on a Sunday morning.

Few businessmen in this town – except maybe the casinos, insurance companies and banks, can boast such growth in shareholder wealth during the same period.

Something has got to give.

Appeals to have them lower lending rates or raise interest rates on deposits, have been met with sloth like slowness when compared with their willingness to raise lending rates – read ring in the profits.

Even the baleful gaze of Bank of Uganda governor has failed to faze them.

I suggest let them continue racking in their profits if they want – but let them share with us. Sell shares to the public. One bank has a gentleman’s agreement to sell shares on the Uganda Securities Exchange (USE) but have always found a way to dodge – for coming to 20 years now.

Clearly equity is where the money is.

Obviously it is useless trying to appeal to the banks good nature.

They argue that one sells shares when he needs money, going by the above they are having it good so they don’t need the money, we provide billions in dirt cheap money anyway.

They will tell you they are employing us, providing a much needed service and planting a few boreholes around the country for good measure.

True selling equity will still be concentrated in the hands of a few urban elite – like me, but more importantly it will boost our stock exchange as a place to raise funds.

The donors have cut off aid, we need to fire up our own mechanisms of raising finance and the capital markets serve that purpose – in fact a lot of aid is raised on the capital markets of Europe and dished out to us poor Africans who cant raise our won money.

Let government call in this favour using whatever means necessary – it is within their right. The banks really need to spread the love around more.

WHO WILL BELL THE CAT, REIN IN UGANDA'S SPENDING

The budget is being prepared.

In recent weeks we have seen various ministries and agencies trooping to parliament to defend their proposals.

"The police want their budget doubled. The army have a trillion but they want a few billions more. And statehouse is still in the habit of sprinting through its allocation before the house passes the budget...

Its business as usual. But it shouldn’t be. The donors recently pulled the plug on budget support. While aid as a portion of the total budget has fallen steadily to about 30% it still constitutes a significant portion of the monies used for building infrastructure, schools and hospitals.

So one would think good sense would counsel belt tightening but clearly not.

It’s not rocket science.

Governments spend what they earn through revenues and fees. But if their spending outstrips their revenues they borrow, as we have been doing for the last two decades and before. You can borrow from the donors or from your own population. Governments which have lost credibility with other governments and their own populations go down the slippery slope of printing money.

Money not backed by production ends up chasing few goods leading to inflation. As our recent history has shown when inflation takes hold it is hard and painful to rein it in.

And why we should be concerned with government going as if it is business as usual, the main driver of inflation is often times government spending.

One only has to look at Greece to see what happens when governments wear blinkers despite the most dire warnings. The already recklessly extravagant Greek government first doctored its books to get admission into the European Union. Once in they continued their profligate way as if it was business as usual hiding expenditures off the books and not collecting taxes. To bridge the gap they borrowed from the banks, which in turn were borrowing from international markets at lucrative enough rates that their creditors chose to look the other way.

When the day of reckoning came the earlier assumed €7 billion deficit ballooned into €30 billion deficit after they had found all the  off book entries. Banks across Europe were in trouble and Greece has been on the brink of defaulting on its loans and teetering on the edge of ejection from the EU since 2009.

It was so bad that Greece’s woes threatened the union and the credibility of the single currency, the Euro.

Borrowing is not a bad thing its what government do with the loans that causes problem. Greece of course financed the 2004 Olympics, which they could barely afford and a lot of the facilities have found little or no use after the last medal was given out in Athens.

If on the other hand, you use the debt to facilitate business by build transport, energy and social infrastructure.

"In Uganda of course with our massive government one doesn’t have to have divine powers to know that increased spending will go towards  maintaining the fat cats first before any crumbs can  be thrown to do roads, railways, schools and hospitals...

Or maybe government official’s know something we don’t?

Maybe they are banking on oil money, which will not be expected before 2016, to cover our current extravagance. That would be treading on dangerous ground.

Assuming the donors maintain their hands firmly on the purse strings we can expect some hard times ahead and these will call for hard decisions, not least of which is that we have to cut down on spending.

But who is going to bell the cat?

THE INDESTRUCTIBILITY OF YOUTH

Ashish Thakar has his hands in so many pies. He is the promoter of the $300m Kingdom Mall, the Kensington apartments and Riley Packaging. Contributing Editor Paul Busharizi caught up with him at the Dubai headquarters of his company, Mara and spoke to him about his business and plans.

Q. What’s the progress on your Kingdom Kampala Mall?

A. We are now doing the first phase which should be done by this time next year. This some retail space, serviced apartments and parking for 1200 cars. We are deciding on what to build next of the hotel – which we are glad to say will be run by the Hotel Intercontinental chain who want to make this their flagship facility in the region, shopping malls and the conference center.

We reshaped the whole design. We needed to be more careful, we need to consider the externals, the traffic, the surroundings. The aim is to make it a destination not a place you go to on your way to someplace else. We drive our inspiration from Dubai, this is a destination not a transit point. We are determined to build a memorable structure.

We thinks as a conference center our central location will be a great advantage. Unfortunately people think they can get away with anything in Uganda, we hope that when we are done we will set the bar for quality facilities not only in Uganda but in the region.

We want to empower people by transfer of technology so we have brought in experts on site who have done this often and around the world and understand our vision, they are working with Ugandan engineers, architects and designers to bring local context to the structure and learn something as well.

Q. You think there is space for one more mall in Kampala?

A.I think many of Ugandans travel abroad and they understand and appreciate quality and if they have it locally they will come, so there is definitely a market. The reason people  shop outside because they are not getting what they want locally, this will change things. But in addition the conference guests are going to mean a few hundred more visitors and clients to our facility so yes the project is definitely viable.  You don’t put down $300m solely on a whim.

Q. Given the investment don’t you think government should be doing more in terms of marketing the country abroad?

A. It’s a chicken and egg situation . If you don’t have the conference facilities to boast of then what do you market? As Mara we have developed a CD promoting Uganda. Its very well done and we want to pitch it to the CAA, that they have all airlines flying into Uganda showing that CD on Uganda, they do it here in Dubai why not at home? And it will cost nothing to them.

Beyond that there has to be a determined effort to come together by the public and private sector, it’s a two way street we need to do things with a long term view and then they can tick.

Q. We hear of political risk inour part of the world, dissuading would be investors, what  is your take?

A. I think this perception is hyped unnecessarily. I obviously have a different perception I understand the people,  I have been there and worked there and its not just me my father is even called Kakooza.

I have also found that African governments trust African businessmen. I am not going to come around and do a shoddy job, when I say I will do something I do it, I have too much invested beyond the money – family, reputation, my home.

It nmakes sense though to spread your wings get some foreign investors in as well but you never know really, how do  you know the man will not bust and just leave?

Q. Do you think governments are doing enough in attracting investment, creating jobs?

A.They simply are not doing enough. They still have this wrong idea that FDI will solve the employment issue, the answer is with the SMEs. The big companies have to be competitive so they are not going to have manual processes the are going to automate, so where are the jobs?

Q.You do some work with SMEs what are you learning?

A.We have been working with SMEs for a while now. The Mara Fund has been around for 12 years with it we help with incubation and mentorship and in a limited way we provide venture capital , small sums of $5,000 to $10,000. IN June we plan to launch Mara Women and we will have Graca Machel as our global ambassador.

There is amazing energy wherever we have been.  There is real fire in the belly, a desire to succeed. Seventy percent say there most immediate need is advise not money, they want mentors and more especially international mentors. They want to play in a bigger league which is really great.

We have created a mentorship platform mara.com that will go online in the next few weeks and later we intend take it on mobile – Blackberry and Nokia afterwards.

Q. What is the extent o f your interest on the continent? What are you looking to invest in?

A. We are present in 17 countries on the continent but we are very selective in the projects we get into. They have to have a pan African element, we are not interested in companies that want to operate in one country, it has to be a game changer – either it does something new or does existing things much better than existing models, it has to have a social impact and it is branded Mara.

Q. Last word for our local businessmen who want to stretch out into the world?

A. Our businessmen need to travel at several times a year and not just to do their businesses but to actually learn how things work in this countries. As it is now they are too conservative and they think if it has worked like it has all this time why change it and they continue to play in their small pond. There are no limits to where you can play or what you can achieve.

ASHISH THAKAR ON ….

SCHOOL

“I was at Hillside Bunamwaya I dropped out in second term , senior three…. I had a discussion with my parents I said this is what I am going to do anyway why wait. Thankfully they were supportive and the rest as they say is history…”

THINKING GLOBALLY

“There are no boundaries with what we can do. We want to build Mara into a global brand one of the first out of the continent and why not? What is stopping our businessmen from thinking the same way? Nothing.”

AFRICA’S POTENTIAL

“There is amazing energy, a real fire in the belly a desire to succeed among the youth that has surprised even me wherever I have gone in Africa…. 70% say they want advice  n ot money, which is great. They want mentors, international mentors … they want to play on a larger stage.”

LIVING IN HIS 90^TH FLOOR APPARTMENT IN THE WORLD’S TALLEST  BUILDING, THE BURJ KHALIFA

“If I had a fear of heights I would not be going into space”

RETURNING TO SCHOOL

“I have just done a ten-day executive programme at Harvard, we did it with people from 34 different countries… It helps you stretch your boundaries, the limits of your thinking … and now my friends are jealous I got the famous email address in 10 days what it took them to get in four years.”

HIS TRANSITION TO GLOBAL BUSINESSMAN

“I needed to expand my computer hardware business but the Dubai suppliers would not give me credit because my business was not based here. So I registered a company and started getting credit. I discovered other African businessmen were having the same challenge and unlike me could not  move to Dubai so I offered to give them credit and now I have a presence in 17 countries on the continent.”