Monday, April 20, 2015

UNLOCKING OUR WEALTH, UMEME SHOWS US THE WAY

Why is it that despite our reported abundance of resources – the most arable land, most surface water area, favourable climates, mineral wealth, the wide variety of our flora and fauna, we are among the poorest people in the world?

It is because we cannot unlock or activate the wealth that surrounds us.

The question is how do you do this?

Power distributor Umeme may give some useful pointers.

When Umeme Holdings Ltd took over the concession to run the distribution arm of Uganda Electricity Board (UEB) in 2005, they found a company operating way below its potential – servicing only 292,000 clients, collecting eight in ten shillings that they billed and losing another 40 percent of power they distributed through commercial and technical losses. As a result the old managers were collecting less than sh200b in revenue annually.

"Today Umeme services more than 600, 000 customers, collect up to 100 percent of all billings and have cut losses by half to about 20 percent, as a result revenue has risen more than five times topping out at about sh1,000b in 2013...

Of course Umeme has benefited from the coming on line of power from the 250 megawatt Bujagali power dam, but  it doesn’t take away from the fact that they are able to collect almost all the money that is due to them.

So they set about turning around the organisation by, revamping the derelict network, reducing technical losses and making sure consumers paid for the power they used, reorganising their manpower – cleaning out the dead weight and bringing in fresh blood in many instances and focusing their efforts on customer service.

Essentially they had an asset, albeit a badly tarnished one and they went about polishing it by making investments where they would most get an impact. They invested in, revamping the network rather than sink money in a building plush new office buildings, improving staff response times rather than buy management flashy cars and improved their credit rating rather than rest on their laurels with all the money they were collecting.

Clearly the leadership or management has to be capable and focussed on the right things.

Actis, the original owners of the concession, a private equity firm is focussed on Return On Investment (ROI). They had a 20 year contract during which they would invest in the system, run it and hope to get back all the money they had ploughed in and more in a finite period.

"To get an optimal return or result one has to focus on three broad areas the quality of human resource, making operations increasingly efficient and having an effective strategic processes....

In our personal lives, in our societies and country failure on one of these three fronts and it guaranteed that you may have all the assets in the world but you will be unable of unlocking their full potential.

Think of Manchester United after the departure of long time manager Sir Alex Ferguson they may have had an abundance of talent but because their operations came unstuck and their strategy was clearly wanting they floundered badly in the last two seasons.

Last week we heard that telecommunications company UTL maybe technically insolvent. They may have good people and even a credible strategic process but for lack of funds their operations are hobbled and therefore cannot live up to its full potential.

And of course if you have bad people your operations will stink and your strategy will be non-existent, I am sure there are many companies or organisations like that but one did not jump immediately to mind.

There is such a thing as being asset rich and cash poor, in such a situation is all very good bragging at the bar that you have acres of land somewhere in the village when you are tapping every other person for a beer.

There is one thing Umeme has done over the last six years that it would be worth emulating for the rest of us – they have made a conscious effort to improve their credit rating with the financiers. By cleaning up their accounts and strengthening their balance sheet they have become a more bankable proposition. Meaning among other things they are increasingly able to borrow cheaper for longer durations of time.

It has a nice ring to it when a businessman says he has built his enterprise up without taking out a coin of debt. But what it also says is that with judicious use of outside financing the same business would have been much bigger or more successful.

In a world of increasing competition businessmen cannot be complacent, they need to grow their businesses as fast as possible, first, as a survival mechanism – there is no standing still in business you either expand or contract and secondly, so they can raise the barrier to entry for other firms entering the market and by employing economies of scale be better able to compete against existing players.

And that is at the heart of Umeme’s success up to this point – the ability to improve their credibility with their clients, their suppliers, their financiers and their investors.

Building trust is a key component in unlocking the value of your assets.

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