ORGANISE YOUR SMALL BUSINESS YESTERDAY

A fortnight ago an organisation called the Inclusive Business Accelerator (IBA), which in a nutshell helps small businesses formalise their operations and make them more understandable and attractive to investors and potential partners.

IBA inaddition to make small businesses investor friendly link the up with potential investors.

The organisation, backed some traditional charitable organisations, highlighted a growing trend by aid agencies who in trying to have their monies have a broader impact on society are looking directly at the bottom of the pyramid.

Its a natural progression from offering a hungry man a fish to showing him how to fish, which is more sustainable and can be profitable for all involved.

"Uganda's status as the most entrepreneurial country in the world was recently reaffirmed by UK study. Unfortunately while we are good at starting up companies we are poor at growing them and ensure they endure over years.
The reason that this happens range from the strategic -- we have no long term plan for our businesses beyond providing subsistence for ourselves, to the tactical -- that our businesses are not organised enough to take advantage of opportunities available. The second is derived from the first...

Arguably since we have businesses sprouting up at every corner we have solved a critical part of the equation of how to build sustainable businesses. Our businesses then need handholders to help them transition from their small, informal beginnings to more viable entities.

And this does not apply only to the rolex guy around the corner or the small market stall owner. 

During a recent press event with Uganda Revenue Authority boss Doris Akol she said that the informal sector include law, accounting and consultancy services. This was a revelation because one would think these knowledgeable specialists would better appreciate the benefits of getting organised.

Of course one of the reasons of this reluctance is the high price of transitioning to formality -- the hustle of registration, new dues and regulations that come into play.

The difference between a company with organised accounts and one that doesn't is like night and day. The same can be said for one that is tax compliant compared to one that is not.

One of the challenges of making the transition is the unrealistic expectations people place on their business. Talk to any new business owner and they expect to have broken even within months and buying a VX within the year. Registering, paying taxes and meeting other regulations do not play into these expectations.

This an important discussion if only because it will give our small business not only a chance of survival but to grow into big companies. All big companies started as small companies.

It is also important because even in more developed economies it is small businesses that create the most jobs.
While organisations like IBA and similar outfits, may have it as one of their aims to make small businesses investor ready the long term benefit to businesses to getting organised is immeasurable. The ability to qualify for credit, the quality of tenders one can bid for  and the calibre of partners that will give one a second look are but a few of the benefits and make all the "pain" of formalising.

"But even for those who want to become immensely rich, they soon find out that informal practices only take you so far before they begin to sabotage the business. If you are racking in millions even billions on an informal structure know you can be making multiples more with a formal structure. And the longer you remain informal the costlier it will be when you are finally compelled to...

As Uganda has formalised over the last few years we have seen any number of businesses from supermarkets to manufacturers and even banks because their continued informal practices caught up with them.

The new movement of business incubators and  accelerators, which should eventually evolve into our own venture capital industry is one to watch and encourage.

Thankfully the early adopters are already coming through. Last week the start up online logistics company, Intership Uganda beat off eleven other local companies for a chance to pitch to foreign investors in Switzerland next year.

They won, i think, on the strength of their business model, providing logistics services via the web, but also because their model was better organised and they had realistic projections given their current operations.
So do you have a side hustle you are running-- you bake cookies or you have a chicken  project or even doing mushrooms in your garage, at the bare minimum have organised books of accounts. At the bare minimum you will be able to objectively determine what you are doing right and you do more of it or what you are doing wrong and not do it again.

LEARNINGS FROM EU IMMIGRATION WOES

In recent weeks thousands of immigrants have been streaming into the European Union. The recent upsurge has accentuated ongoing waves of Africans and east Europeans.

A civil war in Syria that has razed the middle eastern country to the ground is the trigger for the current explosion in immigrant numbers. That and the fact that many of it's richer neighbours are unwilling to take in even a single fleeing Arab.

Its impossible to detach the politics of it from the economics and speaks volumes to the issues of the blow back from colonialism and neocolonialism, governments' role in translating economic growth into development and the future reality of a centralised global government.

"No one wants to leave home. We are compelled to do so because we are insecure where we live for political or economic reasons.
Immigrants are a failure in the management of our society, more specifically the management of our economics....

The relentless flow of immigrants to Europe since the independence of many African states has as an underlying factor the global economic inequalities that have continued, even widened in the last half century.

The west by plundering Africa during colonialism and maintaining those exploitative systems after colonialism have grown rich on the continent's back.

The UN estimates that up to $1.4 trillion has flowed out of Africa illegally between 1980 and 2009. A lot of this money can be attributed by organised crime -- smuggling, drug and human trafficking but more than half of it, some estimate about 60 percent of it is due to multinationals through tax evasion and avoidance among other dodges. A system the west has cordoned but only now moving to minimise as it threatens their economies and politics.

The net effect of this is that the rich have grown richer and the poor have grown poorer. To the point that it is doubtful whether the word has the resources to sustain us all at the standard of living the west has grown accustomed to.

So its a simple equation there will always be motion from high pressure to low pressure areas, in this case from high economic stress areas to lower economic stress areas. The movement will be stopped when balance is attained. There are no shortcuts.

For this obviously two things have to happen.

One, the prodigious economic growth figures that many in the third world have been posting should be translated into meaningful improvements in general welfare. Secondly, that the developed nations severely cut back on their consumption to allow the third world catch up.

The first cannot happen without the second, which explains why poverty maybe here with us to stay.

That being said what needs to be done to ensure meaningful development for the third world?

To begin with there has to be a near universal appreciation among ourselves that we have all the resources -- human, natural resources and even capital to dig ourselves out of our predicament.

Across the border from us in the DRC the extent of their mineral wealth is estimated at $12trillion, at par with the US economy. And we haven't even started factoring the economic potential of its 70 million people.

The same can be said for Uganda where recent surveys have showed if we were to fully exploit our mineral wealth we would have to relocate everyone out of the country.

The trick to unlocking these embarrassing riches at our feet is to improve the quality of our human resource, through quality education and health care and to create a conducive environment for the private sector to thrive. 

And that doesn't mean living capitalism to run around unfettered, because the market is the most effective wealth creator we know its the worst distributor of wealth.

It is important that we tap into our well documented entrepreneurial abilities to harness the market for our benefit. All the aid in the world cannot do that for us.

"In fact aid has stalled rather than helped our progress. Getting aid is easier than building durable, transformative companies. In the last half century, billions of dollars have been pumped into Uganda but during the same period we have only a handful of companies with a national presence, nor do we have billion dollar companies....

A country is only as viable as its private sector. That is the more durable measure of development, with a string private sector your poverty issues will be sorted out, as will be your governance issues and therefore your service delivery issues.

The "crisis" the EU is facing has the same qualities as the rural-urban migration.

Its not an insurmountable challenge but a restructuring of the world economy -one way or another, will have to come first before things change.

There is a more apocalyptical vision but we will keep that for another day.

THE SCENT OF ROSES AND WEALTH CREATION

Last week we arose to news that a company belonging to Kampala businessman Sudhir Ruparelia has been allowed to lease land at Namulonge, part of the National Crops Resource Institute.

Premier Roses intends to utilise the land for growing roses, vegetables, fruits, herbs and spices mainly for the export market.

"The knee jerk reaction to the deal was a throwback to the rabid opposition to the sale of government properties in 1990s. Then like now, the chattering masses prophesised that, nothing good would come from selling the badly tarnished government silver, buyers would strip the companies of their assets and live us holding a worse carcass than we had sold them and finally that we were enriching foreigners at the expense of locals by selling the revenue sapping enterprises...

Almost 20 years down the road the doomsayers are conspicuously silent reminding us they still live among us when they pop up to throw feeble punches for their lost cause.

At the heart of this debate is the question of how best do we drive development given the resources we have and the context in which we find ourselves.

We are a country wealthy beyond measure, and we are not even talking about oil. Our arable soils, benign climate, abundance of animal and plant specii, resourceful people and central location on the content among other attributes means it is a scandal that more than half our population live in abject poverty (forget the low standards our officials use to measure poverty).

We are asset rich but cash poor. We are poor as a country because we have failed to unlock this embarrassment of potential riches.

The formula to unlock this wealth is simple, but not easy, is time tested and replicable.

Through entrepreneurship you manipulate the factors of production – land, capital and labour to generate value recognised by the market and which the market is willing to pay for at a high price than the cost of production. The resulting profit is used, some of it, to pay the entrepreneur and the rest ploughed back into the business.

The reinvested money if employed properly will grow the company and increase its capacity to create more value and the cycle continues.

However the entrepreneur does not operate in a vacuum and he needs a good political environment to do his magic.

"It is interesting how the wealth of nations is determined largely by the imaginary lines that separate one country from the next. Our political boundaries will determine that people in western Uganda live a better life than their neighbours in eastern Congo or northern Ugandans compared to south Sudanese....

 Governments thanks to the incentives that drive them – entrenching themselves in power through spreading patronage, are terrible at business, but they can help the private sector unlock wealth through maintaining law and order and enacting progressive policies.

Which brings us full circle to the case of the Namulonge land.

"The land in question is largely unused or severely underutilised. It’s creating no jobs or new knowledge as was intended. The government is hoarding it, depriving Ugandans of the economic output that would result from it if properly utilised...

Sudhir’s company comes along offering to put it to use and even willing to pay for it. The only concern would be were it not put to use, which is unlikely as every businessman needs to make a return on his investment, his very survival depends on it.

We are within our rights to ask that proper procedure in allocating the land was followed. We are within our rights to insist that the land is put to productive use. We are even within our rights to reject the application altogether.

That last option however would be counterproductive even destructive. It would send out the signal that reason does not prevail in Uganda either out of jealousy or malice. But worse still it would discourage entrepreneurship and by extension the betterment of our collective lot.

BRANDING UGANDA, WHERE DO WE START?

In recent weeks a few sporting events have occurred which if we were ready to take advantage of would have done wonders to elevate Brand Uganda.

Last week the She Cranes our representatives to the 2015 Netball World Cup returned having exceeded expectations and jumped six places in the global rankings to eighth place.

Over the weekend marathoner Solomon Mutai won bronze in the World Championships to emerge as our latest marathon sensation. Defending champion Stephen Kiprotich did not embarrass, coming in sixth in a strong field.

And finally former Dutch striker Patrick Kluivert was in town on a UNICEF mission and had time to mug for the cameras. He announced that a match between Barcelona legends and the Cranes was in the works for later this year.

"Each of these events in and of themselves raised awareness about Uganda a notch. In a highly connected world the picture of Kluivert and President Yoweri Museveni holding up yellow t-shirt emblazoned with Uganda on its front went out to Kluivert’s 794,000 followers on twitter and who knows how many more people around the world saw the image if just one percent or 7,940 of his fans then retweeted the tweet?...

Marketers of brand Uganda led by Stephen Asiimwe at Uganda Tourist Board and tourism evangelist Amos Wekesa are doing a better job than was happening barely three years ago, but more work needs to be done.

Greater awareness of a brand, in this case Uganda, is less than half the battle fought. Yes, one cannot be a brand without widespread awareness but in addition what cements a brand in the mind is what it is associated with, people’s experience with it when they interact and eventually the loyalty to the brand by its consumers.

Making the point s survey done by international marketing firm FutureBrands polled 75 countries around the world but only 22 countries – mostly in Europe and none from Africa, could be classified as country brands under their classification.

In their Country Brand Index 2015 they said country brands were strong across six dimensions related to status and experience. A country’s quality of life, value system, business potential and good “made in” perceptions singles it out as  status country while a country with rich culture, history and tourism attractions would make it a great tourist country.

Of the top of my head we probably have a better chance of being an experience country and some ways to go before we can be considered a country where people abroad would want to live or do business.

Japan, Switzerland and Germany topped the rankings. Uganda was not polled. In Africa, South Africa, Kenya and Zimbabwe led the continent.

The survey showed that a strong country brand gave the holders a competitive edge, with people wanting to visit, live and do business there, but it also suggested that country brand building cannot be the work of one agency or ministry maybe with one coordinating agency but it’s a collective effort.

"Ugandan officialdom should care about building a brand systematically over time, as it has serious advantages for the economy in attracting tourists and investment. Thankfully these days with the pervasive media it’s easy to get awareness – for the good and the bad things, but there are no short cuts to creating a pleasant experience or being associated with the positive perceptions, meaning we are only just beginning....

We are going to have to do more than shoot selfies with high profile guests to improve our image abroad.

LESSONS FROM THE UGANDA-KENYA SUGAR BURST UP

Last week Raila Odinga planned a series of public rallies in sugar growing western Kenya to protest easing the access to the Kenyan market for Ugandan sugar.

Kenyan authorities have been restricting sugar imports from Uganda. They argue that our factories are not producing sugar surplus to our requirements therefore we must be importing sugar for onward sale in Kenya.

Knowing our people, you would not discount the Kenyan authorities' fears, but they have sent three different teams form their finance ministry, bureau of standards and revenue authority to verify our claims that we are producing more than we can consume and have confirmed the veracity of these claims for themselves....

Last year Uganda produced 438,000 tons of sugar against local demand of 320,000 tons. This year it is projected that our sugar mills will throw off 500,000 tons, while demand will come in at 360,000 tons.

Kenya’s sugar industry is failing to keep up with its population’s demand producing about 500,000 tons, short by 300,000 tons of national demand. The sector dominated by government controlled millers.

That there is probably at the heart of the Kenya sugar industry’s problems.

Mumias Sugar is currently shut down for regular maintenance works but industry sources believe they have had to shut down for lack of enough cane to crush. By the time they shut down in July the factory, the biggest in east Africa, was only crushing between 2,000 to 5,000 tons of cane day compared to its potential of 7,000 tons.

This was mainly because farmers had gone unpaid since last year to the tune of kshs500m (sh17b) and had opted to supply other mills in the area.

The mill has been steadily run down since the previous managers Booker Tate, were shown the door in 2002. Things came to a head when a forensic audit pointed to mismanagement and corruption. To illustrate the latter the reported a one billion shillings (sh35b) hole in the accounts.

Kenya has been getting extensions from the COMESA to stay an opening of the market to sugar from the trading block, pleading that they needed time to restructure the industry so they could be competitive against regional sugar producers.

It costs at least twice as much to produce sugar in Kenya (at $500 a tonne) as it does in neighbouring Tanzania and Uganda, as well as significant exporters Zambia, Swaziland and Egypt, according to industry experts.

"Among the reforms of the sector was the total privatisation of the state controlled mills to allow private capital in and greater efficiency, unfortunately politics has got in the way of this development and so the industry has been bleeding...

As our own experience shows, it is easy to mobilise against privatisation of state enterprises and the liberalisation of sectors that were previously dominated by state backed marketing monopolies.

When such companies are privatised the new owners normally take an axe to any excesses in spending, especially by reorganising the workforce. The reorganisation of the workforce often begins with laying off excess workers before replacing them with more efficient workers as production increases.

Oftentimes in older state enterprises workers have been hanging on thanks to some godfather in government and rarely pulling their weight in terms of contributing to the company’s profitability.

Such “draconian” measures can become unpopular politically and throw a spanner in the works.

Staying privatisation of companies and general liberalisation of economies is an attempt to avoid short term pain to the detriment of a company or economy’s long term prospects.

In Uganda we do not need much convincing or economics theory to prove the veracity of this claim. Opening the economy to the free market caused pain in the initial stages but the net effect has been positive – higher productivity, greater product variety, improved work environments and more revenues for the treasury...

I shudder to think if we had let the populists win the economic argument what Uganda would look like today. We would probably still be waiting for telephone and power connections for months, lining up for everyday commodities and generally suffer little choice in every economic decision we had to make.

The trouble with economics is that you cannot run controlled experiments.

But events as are now wracking the Kenyan sugar industry will serve as good case studies when viewed against the largely liberalised Ugandan sugar sector of why not opening up a sector to private initiative is a bad idea.

UGANDA SUGAR STIRS UP KENYAN POLITICS

Perennial nearly-man of Kenyan politics, Raila Odinga is kicking up a storm in the sugar growing regions of western Kenya, mobilising the population to resist the importation of Ugandan sugar to bridge the shortage in the market.

Kenya’s sugar manufacturing industry, which is mostly controlled by the government has failed to keep up with the population’s demand for sugar. As a result their local industry only produces 500,000 tons of the 830,000 tons the region’s largest economy demands.

Mumia’s Sugar Company ltd which posted record losses for last year owes farmers more than Ksh500m (sh16.5b) from last year’s harvest. The western Kenya company with a market share of 30 percent nevertheless has been limping along at less than 50 percent capacity. It is currently closed for maintenance.

However connected to Mumias woes was a forensic audit carried out in 2012 which found a one billion (sh33b) hole in the company’s accounts attributed partly to the illegal importation of sugar from Sudan.

"Obviously Mumias’ inefficiencies affect the sugar industry in Kenya. But it is not a stretch to see that those inefficiencies leave the door open for powerful individuals to import sugar into the country to make huge profits...

Enter the Uganda sugar deal.

During a recent trip to Uganda by Uhuru Kenyatta, Kenya agreed to lower the impediments to importation of Ugandan sugar.

 Uganda, which last year produced 438,300 tons against a domestic consumption of 320,000 tons expect that these production figures will rise again this year. It is projected that this year just over 500,000 tons will be produced which will more than match the increased consumption of 360,000 tons.

"The resistance to Uganda sugar by these powerful sugar importers is not too hard to see.
Kenyan sugar retails for about Ksh120 a kg or about sh4,000. Uganda sugar retails for about sh3,000 but sugar is landed in Kenya for an average of Kshs62 a kg or about sh2000 from the COMESA region or further afield...

Giving priority to Ugandan sugar would destroy the mouth-watering margins these importers have been enjoying or cut them out from the lucrative trade altogether.

The influence these sugar barons wield in Kenya is not to be underestimated. Kenya’s deputy president William Ruto recently claimed he was shuffled out of the agriculture ministry in the last cabinet after he dared to cancel some of their sugar importation licenses.

The influence of interest groups in politics is not new nor that they can influence policy to their own selfish aims and the rest be damned.

Through their political cronies they are selling the Uganda sugar deal as a threat to jobs and business in western Kenya but they have not needed any help killing these on their own.

Mumias for example owes farmers millions of Kenya shillings from last year’s harvest and their outgrowers have sold their cane to other players in the industry instead, partly causing the shortfall in cane crushing at the industry giant.

These same interest groups have resisted the privatisation of these largely obsolete and mismanaged sugar mills, which would allow private capital and efficiencies to take hold and several other initiatives critical to the revamping of the industry.

In fact Uganda with its privately controlled sugar industry has clearly not only caught up with the Kenyans but overtaken them in terms of meeting local demand and lowered production costs.

"The writing is on the wall for the Kenyan sugar industry. Either they restructure it completely, including uprooting the sugar barons in whose interest the status quo works or let the industry die, with no help from Uganda...

UGANDA MOST ENTREPRENEURIAL COUNTRY AGAIN BUT ….

Recently a UK business support outfit Approved Index released research which showed that Uganda was the most entrepreneurial country in the world, while Japan, Italy, Germany and Finland were among the least.

In a report published on the Virgin Entrepreneur web site they went on to wonder how Uganda could come top of the heap given our violent past (sounded like we had been reduced to some apocalyptic wasteland).

This report is not the first to find that Uganda is the most entrepreneurial country in the world.

In 2003 the Global Entrepreneurial Monitor – sponsored by the World Bank, published a study that ranked Uganda the most entrepreneurial country in the world. The next year it found that Uganda was second only to Chile as the most entrepreneurial country in the world.

"In trying to explain the apparent contradiction of why if Uganda was so loaded with entrepreneurs why wasn’t it growing faster and a more developed country, the researchers explained that there were two type of entrepreneurship – necessity and opportunity...

In the necessity entrepreneurship people start businesses to meet their daily needs, essentially they are not unlike subsistence farmers.

While opportunity entrepreneurs start businesses to fill a gap in the market and a ready to grow the business to its full potential, these kind of businessmen would be found among the founding fathers of the globe’s biggest companies.

From the outside the distinction may seem minor but it makes a world of difference.

Once the aim is to grow a business to satisfy personal needs once these are satisfied it’s difficult to grow it to become the job creating and tax paying giants that can have real transformative effects on economies.

It is not to say that necessity entrepreneurs can’t grow into opportunity entrepreneurs.

So the reason why Uganda has businessmen falling out of its years and yet not seeing a commiserate improvement in the people’s wellbeing is because most of our businesses are subsistence businesses.

This is a hangover of our turbulent history when jobs were in short supply but people had t live so they started a kabusiness.

As the economy has grown and become more formalised, the urge to start a business has been dampened as salaries have improved and one can expect that if the economy continues to grow we may see a further dimming of entrepreneurial ardour.

But that wold be a major loss. All big businesses start as small businesses. But due to the peculiarities of the market it is hard to determine at the beginning of the process which start ups will grow to become big businesses. The natural selection process that operates in the market is such we need thousands of small businesses to start up, thousands more to collapse for just one Google or ExxonMobil or Toyota to emerge.

So that companies are starting up around every corner is a good first start for Uganda. Now the trick is how do you keep these companies popping out of the woodwork, alive, thriving and growing?

The knee jerk reaction is for people to talk about financing, but money does not come first. It’s the idea and the execution of that idea that leads to a need for and access to more money.

Financial support is crucial even critical, but more importantly is that our businessmen need help thinking about their business. We need to provide the support to hold their hands through the difficult ups and downs of business. Mentorship programs where experienced businessmen can look over their businesses advise them on where they are going right and therefor do more of and where they are veering off the tracks and do less of.

In more developed economies where the pool of successful businessmen is large these mentorship programs are quite developed. But in addition they have government programs which help with advice, cheaper funding and access to investors, but up to a certain point.

But as my hero Warren Buffett says some things just take time you cannot impregnate nine women and hope to get a baby after a month.

"We are often impatient because we have seen better in our travels and on TV but the truth is we as a country are at the very rudimentary stages of creating many of these systems and institutions...

We are probably better off than most in that the default mode for most people seems to be to set up a business for some extra cash now we need to shift that thinking to setting up businesses to exploit any opportunity to the full.

It’s a lot easier said than done.