Summit Business Review

East African common market becomes reality in a month’s time. Companies will be competing for markets, skills and technologies to raise their competitive advantage across borders. In this month’s executive interview, Patrick Bitature, a Ugandan entrepreneur and executive, shares his perspective on the EAC business environment.

Summit Business Review
Let’s start with the question that is probably on every executive’s mind: why is the cost of doing business in Uganda high compared to other member states like Kenya or Tanzania?

Patrick Bitature
Firstly, we need to acknowledge that availability of reliable information and business statistics is a big challenge. Before pricing a product or service, the costs involved in providing it need to be known. Unfortunately, the majority of our businesses rarely keep accurate records. The challenge is the same for government institutions as well. I run businesses in all the East African countries and what I can say, home is best. It is easier and cheaper, from experience, to do business in Uganda than elsewhere for me as a Ugandan.

I appreciate the World Bank’s doing business report, but you have to appreciate that it focuses on regulatory reforms by respective Governments on the ease of doing business. If Uganda does not reform as much as other countries, it is ranked lower. That does not necessarily mean that Uganda is expensive to do business, it means that it does not make reforms that ease doing business at the same rate as others.

Secondly, Uganda has gone through turbulent times, but that is not an excuse after 24 years of peace and political stability, although our history has given it a bad image and perception on various issues, including doing business i.e. some investors think Uganda is still bad as it was in the Amin era. Things have changed significantly, but building of infrastructure takes time. Not only has it been expensive, but the learning curve is steep. The government has been adapting; being a big body, it is difficult for it to move quickly or unilaterally. Besides, when dealing with public funds the level of accountability is much higher. Transparency is more important which means many stakeholders involvement and slow decision making.

In terms of infrastructure, we now have Uganda National Roads Authority and the challenge of building roads countrywide is being handled. Energy is a priority area and is being handled accordingly. Some government institutions are being merged and getting automated, notably the Judiciary, Ministry of Local Government, Ministry of Health, National ID project is on track and the use of data tracking in the Ministry of Finance Planning and Economic Development. These initiatives are expected to improve efficiency and reduce the cost of doing business.
Lastly, if one is considering tapping to the East African market, Uganda is the place to be. The country’s strategic location within the region makes sense in any business term.

You have said 24 years of stability, but what are your comments on a country like Rwanda which has stabilized for just 10 years and is doing well in terms of infrastructure?
Uganda’s instability took a long time and the damage on its image was greater compared to Rwanda which had a severe misfortune in a short period that destroyed its infrastructure and other resources, but we must acknowledge they have had an aggressive recovery programme.
Currently, Uganda government has made big strides in the right direction. We are in a new era where development is fast: there are markets, which mean lots of opportunities. With prioritization, the limited resources are spent on key issues with visible impact. Now at least our leaders have agreed on a common agenda for development.

It is important to note that Uganda is a very big country compared to Rwanda. The stakeholders are many which means a lot of consultation along the way, the resources involved are huge and you don’t expect to improve on everything at one go. We have to prioritize, which I am happy to note is being done.

What is the state of investment in Uganda? Why should somebody come to invest here?
As I have already said above, Uganda is strategically located within the region. It is easier and cheaper to sell or import from Kenya, Tanzania, Rwanda, Burundi, DRC and Sudan; than in any other country in the region.
Uganda has been doing extremely well over the last 18 to 10 years. We had a big problem of image in the first few years but people are beginning to see the opportunities. The political, social and economic environment is stable; particularly the macro-economic policies which are now predictable. Government has not made a U-turn on its major policies. It took a long time for us to reach a level where the investing community can trust the systems and policies. We had to improve the work ethics and build infrastructure, albeit at a slower pace.

We have attracted more direct foreign investment than Kenya, Tanzania, Rwanda and Burundi in the last two years which is a sign that investors have confidence in Uganda.

Why do you think transport, particularly road and railway, is still very expensive in Uganda?
People usually take a very simplistic view but sound authoritative on this matter.

We have thought about this problem – how do we build our country, what infrastructure do we need and who is going to use it? To improve the road network, for example, we decided to put a tax on fuel, such that the more one uses the roads the more they pay. That is why the price of fuel is a little bit higher but the roads are better, which brings down the cost of doing business although it still looks front loaded because the cost is borne by the person consuming the fuel. On the bigger picture, this is working in our interest because the more one travel the more s/he pays. The roads are being fixed countrywide, connecting the various parts of the country together. The actual cost of transporting goods to the market is coming down.

The model which we have applied to develop the roads network cannot be replicated to the railway. We are currently evaluating the best option for the railway network as a critical mode of transport in light of the customs union and regional market.

Most Ugandan importers complain of double taxation i.e. they are charged taxes both at Mombasa Port and Uganda’s borders. Is this true and if so, why should it be so, given the EAC protocols in that regard? Is the EAC common market a foreseeable reality?
That is completely a myth. In Mombasa, goods destined for Uganda are not supposed to be taxed. They only pay Port handling charges. Right now we do not have a system of collecting taxes for Uganda’s goods in Mombasa.

People who are doing this are either trying to smuggle goods, appear to be paying for goods or pretend goods are in transit. Uganda Revenue Authority (URA) works closely with Kenya Revenue Authority (KRA) and the Tanzanian Revenue Authority (TRA) and there is some harmony. What we are trying to do now is make the harmony stronger so that we have one customs union, which will mean people will pay taxes once. A mechanism is being developed and we hope to eventually have a customs union with free movement of goods and services.

We have noted that some foreign investors come here and get benefits and good incentives from government. However, upon expiry of the incentives they disappear. Another pressing problem in Uganda currently is unemployment and many expatriates are recruited by investors for most top positions. How are you addressing these challenges from the UIA perspective?

You are raising two issues: the first is the investors who come and enjoy incentives and go away, and the second use of expatriate staff. Investors are like daughters who are given away for marriage and once they enter into a family, they have to be looked after and not mistreated because they will run away. They are the ones who have money and can create jobs for people, so they are not just going to come for incentives, if the environment is good, incentives will attract more. Once investors are here, we have to keep a good relationship with them and this is a continuous process.

In Uganda we do not have draconian kind of policies on expatriates. We encourage everybody to come and invest. If you are from China, Finland or USA and you are investing here, you need to have people who you completely trust with your money - top positions like finance, strategy and information technology cannot just be given to anybody you don’t know well.

We usually give investors an opportunity to develop capacity especially in middle management. At the beginning most companies would have more expatriates but reduce on their number over time. For example, MTN had around 40 expatriates when it had just started in Uganda but they currently have about four. This means they have built capacity and empowered Ugandans.

If training is an on-going process, why do we still have few Ugandans as chief executive officers in many international companies?
I know most companies prefer expatriates for top positions and I think it is justifiable. When you go to other African countries especially Zambia, Zimbabwe and Kenya, etc. Ugandans are in the key positions there. So they take Ugandans and deploy them in those areas and they bring other people to deploy in Uganda because this makes executives more effective. For example, MTN has deployed about 16 Ugandans in different countries and they have brought a few other people to this country.

It is a good strategy for management not to be affected by influence peddling and also to have a social or cultural disconnect. In Simba Telecom, most of my managers are expatriates and I am taking Ugandans to Kenya and Tanzania to run my businesses because they are more focused there. They don’t attend wedding meetings, etc as often as they would if working in Uganda. It is basically a business strategy – strategic deployment for optimum results.

There are many Industrial Parks that have been gazetted by UIA. Why is it that they are still idle? What are the criteria used to allocate land to potential investors and how do you confirm that the process is transparent?
Developing Industrial Parks is not easy. As of now, 22 parks have been gazetted and other sites identified. Government plans to roll out regional growth so that we can create employment in various parts of the county.

We want this to be well planned with good roads, utilities, connectivity and we are working with our development partners, particularly the World Bank. At every stage, there are high test marks especially on the effect these would have on the environment and this cannot happen overnight. The allocation of land in the parks has been transparent; everybody who was given was advertised in the newspapers, those who wanted to challenge the process were given a forum and time to do so.

The private sector led growth strategy of Government is clearly failing particularly if you consider critical areas like infrastructure development, energy, etc. As a member of the Presidential Investor Round Table, among others, what advice do you have for the Government going forward?
This government listens much to the private sector and this trust has developed over time. With trust, public-private partnerships can be built. In the infrastructure area, the government stepped out and prefers indigenous private companies to build capacity to be able to do multi-billion dollar jobs.

A legal framework for the public private partnerships is being put in place for transparency because the ones we entered into before like the CHOGM, Munyonyo developments, etc are said to have lacked transparency and we have learnt a lot from the mistakes made.

Let’s talk energy: how do you see the oil in the Albertine Graben benefiting the average person? What role has UIA played in the oil resources exploration thus far? Are the deals Government is making fair?
Many people have talked about this as if there is something sinister going on. At the right time when there is something to talk about, it will be fully disclosed to the public. Agreements signed between two people should not become public documents so fast. Uganda is a member of Transparency International (TI). Everything has to be transparent and TI has written some reports which will be published. Some documents are already on internet but Ugandans want to see it in local newspapers. The companies that entered into these contracts are listed companies which have to make full public disclosures.

If these resources are managed properly, they would have a very big impact on Uganda. We did not have Ugandans in the oil industry and we have taken our time to build institutional capacity so that we can negotiate with big oil companies which our people are currently doing and we should give credit to them.

The legislature is watching the whole process and the executives working on this are doing so closely with the private sector. We have been sending people abroad to learn so that when we make a decision it is an informed one, we cannot afford to make the mistakes our brothers made and if at all it happens then the current leadership will be held responsible.

What are your comments on Shell’s reported pullout of the Ugandan market? If Shell did close shop here, what do you see as the impact on the economy with regard to stability of fuel supplies and prices?
In the past 10 - 15 years, it would have been a problem when Shell dominated the landscape. But today we have many small dealers that have now taken a sizeable share of the market. For example Petro Uganda, Hashi Impex, Engen, Gaz, etc are now operating countrywide and are giving the traditional oil companies have a run for their money.

The big companies have high overheads and are finding it hard to sustain profitability in the retail business making them uncompetitive. Shell is a big company, but if they are losing money and have an option of cutting down their costs not only in Uganda but in over 21 countries, then they have to take it and refocus their business where they have competitive advantage - may be in oil refining, exploration and drilling or natural gas investments, but not downstream retail especially in Africa. I say so because Shell’s fuels, lubricants and refining activities in South Africa will not be affected by the sale. Neither will the company’s exploration and production businesses and liquefied natural gas interests and most international trading activities in Africa.

The other reason could be managing reputational risks. Shell is publicly listed with a strong name. Any infringement or potential risk thereof on their brand might make them lose more. So they would rather divest. In case they decide to move on, we will work with them and facilitate their exit so that it is smooth and leaves little negative impact.

We are seeing an exodus of industries relocating to neighbouring countries particularly Kenya. In your opinion what do you think is the cause for this? Any remedial action on UIA’s part as an investment promotion authority?
There are one or two companies that will move because that is where they have a comparative advantage. If it is cheaper to produce in say Kenya and then bring and sell in Uganda, then companies will do so. We are not going to hold investors prisoner here. Our job as UIA is to make Uganda a business friendly environment for investors. We have to promote favorable competition and cooperate with our neighbors.

Locally, we have an advantage in agro processing and we would be better off focusing on agro industries. If we are growing beans in Uganda we can have two or three harvests in a year which is not possible in other countries. We have a lot of fresh water and have access to many countries like Congo and Sudan. Globalization is a reality; Chinese are going to come from China and compete with us and it is probably cheaper for them to manufacture from China than from Kenya or even Tanzania. So we have to compete especially in home grown goods and this will help us to develop our country.

What exactly was the idea behind the Investor of the Year Award (INOY)? In our February 2009 issue of SummitBusiness Review we noted the need for a Local Investor of the Year Award (LINOY) as well, because foreign investors dominate the current awards. What is your take on this? How can you develop an economy without supporting local investors?
It is not easy to discriminate investors – that would be like creating two classes, which is not good for business. As investment promoters, we try to provide a level playing field.
The more jobs created the better. In countries like South Africa, they have black empowerment because they have a history that justifies what they are doing. In Uganda, it would be hard to have a level playing field when you are discriminating against foreign investors i.e. creating two different awards would be like having a second league which we cannot do. We want our local investors to compete favorably with the rest. When I began

Simba Telecoms, I was always playing second fiddle but now I want it to be as good as the foreign ones. Protea Hotel, for example, we brought in expatriates at the start but now we are training local people to handle it. I want Protea to compete with the likes of Serena, Sheraton and any other world class hotel. We cannot only compete with neighboring countries. We must emulate the best in the world and I know we can do it.

You are recognised as an astute executive and entrepreneur. Tell us more about your business ventures? What kind of experience have you had doing business in the region, especially that you had opened up in Kenya and Tanzania?
They say charity begins at home. Uganda is a fantastic place to invest with a conducive business environment. Our weather is very good not just for living in but for business. It is hard to find this elsewhere.

When I was starting out, I ventured into Kenya, Tanzania, Nigeria, UK, etc. I can say with hindsight, it was not easy to succeed although many people assume the pasture is greener on the other side.

If you start a business here, the opportunities are many, the population is growing fast, GDP is growing and macroeconomic policies are good. Some countries have not even done anything in that regard. It is in Uganda where one can do any business s/he wants. Our tax regime is friendly and simple. Many people complain about tax regimes in other countries. I encourage Ugandans to first look home before venturing out because the markets elsewhere are very aggressive. What is frustrating here is lack of focus, discipline, a culture of saving, and the soft skills needed to succeed.

Too many businesses fail because they are not focusing on building an operational system that can stand the test of time. You are successful in one area and then you go out to do another area by taking out money from the successful area, and too many people are failing because of this tendency of doing what so and so is doing without proper risk assessment and planning. Also, majority of our people want to become rich overnight.

The life span of a company is 50 -100 plus years. The companies we build should be passed on to our third generations for example the Madhvani Group. Many people look at two years to make it and if they don’t, they become desperate. Mine is a 10 year rule and I am very proud with what I have done. It takes at least 10 years to grow and stabilise a business. I try to use it as a model especially for the youth of today, they can do a little bit better than us because the opportunities are much better, the environment is predictable and they can focus early.

The challenge in this market is capital; it is scarce and expensive. Banks are concerned more about collateral, 5-7 years of past history, etc and good ideas are grounded just because they lack these. Don’t you think government or UIA should have an arrangement of providing soft loans to potential ventures/startups?
It is a fallacy out there that capital is readily available even people in America, Dubai, Saudi Arabia don’t have access to capital. When I began business, I did not have capital. I failed to get money from the bank but I did not give up. You work around the resources available. It is a constraint but not a severe constraint; you begin small and grow gradually over time.

Bill Gates started in a garage, Richard Branson did not have capital, and Mukwano started by driving a truck and then built a fleet of trucks. If there is a will, there is a way. I have seen farmers beginning with less than an acre of land and growing. You will grow if you are determined, but if you think that if you can go to the bank and they give you capital at a low interest rate, it is not there.

Even if you got it, you may end up squandering it because some people borrow just to say “I do”! Business is the art of balancing land, capital, labour, harnessing them together for the common good. Then you can become an entrepreneur; that is how you define one. Entrepreneurship involves taking risks and not everybody can do that. About 3-5% of Ugandans are successful entrepreneurs and will create jobs for the rest of us, others will work for them. You cannot think that you can just give up your job to go and do business. You have to be completely committed to succeed.