Monday, April 24, 2017

UGANDA CITY TRADERS: LOOK TO YOURSELVES RATHER THAN TO FOREIGNERS

In the 1990s city traders threatened to protest against Uganda Revenue Authority’s (URA) unfair treatment of them compared to foreign traders.

That time they were protesting the preferential treatment that supermarket chain Metro Cash & Carry was getting. According to them URA had licensed the South African firm’s warehouse as a bonded warehouse – meaning that goods were landed directly into their warehouses and taxes assessed and cleared there. This is opposed to what was happening to the average trader who had to first clear his goods from URA before taking physical possession of them.

The advantages of the former over the latter are quite obvious in terms of saving on time and other conveniences.

URA officials at the time argued that it was like comparing oranges and mandazis. That the volumes Metro imported were much higher than any single trader around and therefore it made sense to register their warehouses as bonded warehouses. Our local traders who could not as individuals even fill one container and therefore was not practical to do the same for them.

"I couldn’t help feeling a sense of déjà vu this week when I heard that our local traders were again up in arms against foreigners who were squeezing them out of the retail space...

Our traders argue that these foreigners were getting tax incentives and were therefore able to undercut them and were steadily driving them out of business. They have no proof of the tax incentives but assume that is how the foreigners are managing such low prices.

The spectre of the foreign businessman seems to loom large over our local businessman. And for good reason.

Many of these foreign businessmen may be front runners coming ahead of much bigger players. Prospecting so to speak for the big boys.

The advantages that come with this may include goods offered on credit, lower borrowing costs and the importation of large volumes of product, allowing them to benefit from economies of scale.

"Economies of scale, the principle that by spreading your costs – transport, labour and fixed costs over more units or volume, you can then sell a product for less than if costs had been spread over fewer units, is where our traders challenge is, rather than the assumed evil intentions of foreign competition....

We see it all around us. In a single mall on a single floor there can be a dozen shops selling clothes. 

Each trader not only has a small stock but also has rent, freight, labour, utility and tax charges to factor into their price. In more cases than are useful, they also have to factor in their air ticket – more than $2000 round trip to Guangzhou including accommodation, as an additional cost.

A “foreigner” on the other hand will cut out his air ticket. For the cost of a few megabites he can place an order to his supplier (probably the same one as our hapless traders) and have it shipped to Kampala. A 100 MBs go for about sh2,000.

We haven’t even begun to consider the reduction in rentals on price of a unit of floor space when considering a 30 meter square shop compared to 300 meter square shop floor.

Blaming foreigners is an easy thing to do. It is easy to mobilise against foreigners. The harder thing for our traders and their leadership to do is to look at themselves , re-examine their business practices, cut out their inefficiencies.

A major inefficiency of our business community is that too many businesses are sole proprietorships. 

The obvious implication of this is that they remain small for lack of adequate capital. This has implications on their ability to bargain with their suppliers and clients, borrowing terms or any number of issues that can lower the costs of doing business.

"There is an irreversible trend in world commerce that is beyond our power to turn back or resist. Barriers to trade are coming down and with it will come better competition...

Our business community has a choice either to continue as they are and hope to hide behind the government’s skirts whenever they are threatened by “foreign” competition or get smart, improve their business practices and become better competitors able to resist or at least collaborate with foreign businessmen.

In the first instance its only a matter of time before government hungry for more and more taxes hangs them out to dry. Or as in the second scenario they be able to hold their own in a rapidly changing world.


There is no plan C

Tuesday, April 18, 2017

BUY UGANDA, BUILD UGANDA, ABOUT TIME

The recent announcement by the trade minister Amelia Kyambade that government is going to push a bias towards Ugandan goods and services is a timely one.

Currently Uganda is in the midst of an economic slowdown triggered by among other things, recent drought, an emphasis on huge infrastructure projects, delays in the development of the oil sector and plugging of certain leakages to government funds, which facilitated corruption.

One of the challenges for the Ugandan business is one of little internal demand for locally produced goods, which is further exacerbated by the free movement of goods and services through the East African Community (EAC).

"And because we are not producing, we are not creating jobs at a fast enough pace, out terms of trade are worsening as we continue to export raw commodities whose value fluctuates widely from year to year while we import higher value goods, a situation which does not favour our shilling nor our individual standards of living...

The objectives of Buy Uganda, Build Uganda (BUBU) include that in the next five years 20 percent of all government procurement by value should be sourced locally and that the 50percent of all shelf space in the market should be dedicated o Ugandan goods.

If executed well this is a useful initiative.

Government is the biggest client of any single group. A commitment by government to direct it’s sh24trillion budget towards production it can have a ripple effect through the economy.

But first our producers must produce.

Barely 20 years ago Vietnam was just making up the numbers in the world of coffee exports.
But beginning at the end of last century Vietnam’s coffee production jumped. They are now second only to Brazil as coffee producer, sending more than 25 million bags to market last year.

Uganda coffee exports have grown to just under 4 million bags annually over the last 20 years.
Vietnam were able to ramp up production by doing away with collective farms and letting the private sector play a more central role and in strategic government interventions especially in the provision of inputs and extension services.

That aside a sizeable amount of Vietnam’s coffee is consumed in-country and through their own initiatives have seen its coffee take first priority over other coffees in restaurants, schools and government offices.

"We like to talk about industrialisation but 50 years into our independence there is little we produce on an industrial scale. The BUBU initiative may be the kick we need to get off our backsides. The initiative if executed half decently should see government beefing up demand for our local products, which would have to scale up production....

The point is that to talk about industrialisation while not organising production means it will continue to be a pipe dream. And we are not even talking about huge land holdings being put under coffee. There will be a few farmers who can manage huge plantations but by increasing the productivity of our small holder farmers, who currently harvest about half a ton per hectare, well below their farms’ potential then the benefits of increased production will be more widely spread.

In business the effectiveness of one’s execution will depend on the human resource you have at your disposal, efficiency of the operations and the effectiveness of your strategic process. It wold not be stretch to say we are deficient as a country in three areas but we are particularly bad on strategy. 

Human resource is the essential ingredient but once your strategy is lacking or non-existent there is really nothing you can do about marshalling the other two components.

It is heartening to see in the coming budget government has not only earmarked funds to hire more extension workers but has also scrapped VAT on extension services. A lot more has to be done to make possible affordable agriculture finance, robust agro-processing and export promotion incentives.

Sticking with coffee, Brazil the world’s biggest producer of coffee – it produces three times as much coffee as Vietnam is so invested in the crop because of the ripple effect through the economy. It not only exports bean, but also has developed its own coffee brands that compete favourably at home and abroad. But Brazil is also on the cutting edge of coffee research and development which not only means they will always be increasing the productivity of their farms but has spawned alternative uses for the aromatic bean – from cosmetics to pesticides to fertilisers and even military applications.


All these are jobs from maximising the potential of one crop. Now imagine the magic we can conjure from all the crops we can produce in this country?