Monday, July 24, 2017


Last week veteran politician and businessman John Sebana Kizito died and immediately attention went to concerns about what would happen to his business holdings, a hodge-podge of real estate, insurance and everything else in between.

The same worries followed in the wake of the deaths of school proprietors Ivan Semwanga and Lawrence Mukiibi and any number of our lesser, neighborhood tycoons when they move on.

Is it possible to bullet proof our businesses against mortality? And if so why do our businessmen fail to do this?

Given the frequency of this occurrence, clearly the more natural thing is to live everything tethering on the brink of chaos, given how our businesses are more likely than not to self-destruct on the passing of the founder.

When we fail to do something that is good for us, in effect dooming us to a less than desirable future fate, it’s more often than not because it is too much work to do the right thing.

For business it’s easier to set up your stall, make sales and dip into the till whenever the need arises.

 It’s too hard to keep books! It’s too hard to think ahead! It’s too hard to delay gratification in order to build an enduring company! It’s just too hard to do the right thing.

"There are four reasons to start a business –  to maintain a lifestyle, to pass on to future generations, to sell in the future or for philosophical reasons...

These are not written in stone but the record shows that your business has a higher chance of longevity if its driven by the motives that tend towards the more philosophical than subsistence.

It’s not difficult to see why.

 If you build a business to only create subsistence for you and your family it cannot grow very big, because once you have sated your needs, which are not very much – how many meals can you eat or beds can you sleep in or cars can you own or children can you father before you reach the outer limit of your appetites. The logical conclusion to this is why should I bother being systematic in business, after all I will eat it all before I die.

If you build a business for legacy purposes, you want to leave it to your children, then you have to be a bit more systematic. You have to think more about keeping books, for instance,  because getting finance or attracting quality partnerships or beating off the competition will depend on an objective measure of your business that outsiders can understand and also one to which you can refer you to grow the business.

Think about it if you are going to leave the business to the children may have to be around for a few decades before you can pass it on. And in business if you are not growing you are dying and the way to grow consistently is to be able to measure the process in your business so you can replicate the good and do away with the bad.

The next level of being systematic will come with if your end game is to sell the business somewhere down the line. 

"The level of complexity of the business has to rise so that one, it can operate without the founder, keeping alive, growing and beating off the competition, also that that outsiders looking in can make a fair assessment of its value....

Last week it was reported that Kenyan based coffee shop chain, Java House was being sold to Dubai based private equity firm Abraaj Group for about $100m. Kevin Ashley who founded the  company in 1999, had earlier on sold a controlling interest – 90 percent of the firm to private equity player Emerging Capital Partners in 2012.
Not only has selling the company – twice, made Ashley a very rich man but it also ensures the companies longevity and possible expansion into the rest of Africa and beyond. Talk about a legacy.

A philosophical reason to build a business may be one like Bill Gates goal to put a computer on every desk in the US. While this would have made Gates a very rich man, which it did, it oriented his company to reach for a higher goal that made being systematic and thinking beyond the founder’s ego necessary of not critical.

But think about it, even if you wanted your business to just guarantee you and your family and generations after you a good life wouldn’t it make sense to build a company with the intention of sell it eventually or to chase after an outlandish goal that would not only drive its growth but yours as well – as a person and business person?

Interestingly when you set your vision and commit to it, that high it is not a pain to keep books, to think strategically or delay your purchase of your dream car, home or wife in service of a greater goal.

What it takes to reconfigure your business is a change of mindset - easier said than done, but once the mental shift is done it is not hard to execute the necessary steps to build an enduring company.

"At last checking Uganda was second only to Chile as the most entrepreneurial country in the world. We have no fear of starting companies, that is one hurdle out of the way. Now we just need to grow durable companies – less than five in a hundred companies started in Uganda make it past their fifth birthday....

Part of the reason our economy is in such a shambles is because we do not have the size, quantity or quality of businessmen to create the jobs that we so desperately need.

Tuesday, June 27, 2017


Last week the Bank of Uganda announced it had lowered its regulatory Central Bank Rate (CBR) to ten percent from the previous 11 percent.

Bank lending rates have followed the CBR since it was launched in 2011, as the figure has real implications on at rate banks can borrow from the central bank. Banking lending rates then are a few percentage points above the CBR.

Since the beginning of the year lending rates have followed the CBR down with base lending rates threatening to be break below 20 percent for the first time in six years.

This should be welcome news all around as lower rates would mean more borrowing and therefore more cash sloshing around.

"The banks are unlikely to run out and send the credit taps gushing seeing as there are just coming out of a period when bad loans are at their highest levels in almost a decade. Fear is still ruling the credit market. Once beaten twice shy...

Relatedly the Treasury bill and bond yields remain determinedly in double digit territory.
In the budget the government pledged to half its borrowing from the public, which would put downward pressure on the government paper yields, but we heard that last year, so we really can’t take that promise to the bank.

Borrowers are coming back steadily into the market.

According to the Bank of Uganda growth in personal loans  came in at 20 percent in October last year – the latest available figures, agricultural loans also grew by 13.7 percent but lending to real estate and the manufacturing contracted by 4.9 percent and about 15 percent respectively.

The figures suggest that consumption is rising but production is not keeping pace. It’s a chicken and egg situation kind of. Which comes first an improvement in general purchasing power or increased production? But there can’t be increased demand without a jump in production to create the jobs that will drive the demand.

Of course the lending rates are such that it would take serious discipline to contract a loan and show a return in the current economic environment. For medium to long term optimism we need to see growth in credit to the productive sectors in order to hope for a sustained turn around in our current economic situation.

The growth or lack of growth in credit serves as a useful proxy for a sector’s health.

Since there is no visible growth in lending to manufacturing we can assume they are struggling to expand capacity, if at all. Anecdotal evidence suggests there has been no real growth in this sector over the last few years, judging by how many are shutting down or workers laid off.

"But is lack of credit the problem or a symptom of a larger problem?..

As a business one has the option to finance their business via an injection of resources by the shareholders, retained earnings held over from previous profitable years or borrowing from individuals or institutions.

When starting a business it maybe enough to rely on ones on resources as well as that of family and friends. You often don’t need much sophistication to get money at this phase. But as the business gets more sophisticated sourcing money becomes correspondingly complex be it borrowing from the banks, the public or raising funds on the stock exchange.

The more orderly you are as a business not only do you have more options for raising money but you can get it cheaper than a less organised company.

Unfortunately for our many of our businessmen our businesses have remained subsistence businesses, intended to support the founders lifestyle and not much else. How much can one man eat or drink? How many beds can he sleep in at the same time?

With such limited objectives there is no need for the business to become more sophisticated, to be better able to weather the economic storms that inevitably come around every so often.

As an example during the bailout outcry last year, it was reported that one business man had taken out an overdraft to build a factory. The mismatch of assets and liabilities seem obvious at a glance, but when you have come from a time feast, when cashflows were good you think you would be able to beat the system. Arguably if you were more organised not only wouldn’t you gamble like that but you would also have many options to raise financing that you wouldn’t box yourself into a corner.

The proof of this is that there are companies that while they have been distressed during this down turn continue to operate and collapse is not eminent. And we are not only talking about international companies.

"The reduction in the CBR is welcome news for all of us but if we have structural issues in the economy or in our businesses or personal finances it will not necessary lead to an improvement in our lot...