Counting the gains and the loses from Uganda’s Privatization of State owned Corporations

Leave a comment

A hastily planned privatization drive has over the years rendered a bulk of Uganda’s economy in the hands of foreign-owned companies. Ordinarily, in a well regulated economy, local or foreign ownership of companies in a country wouldn’t be a big deal because they would all pay the standard income tax, value added tax etc to government and comply with the same regulatory requirement. Both foreign and local companies create jobs and thus contribute to the development of the economy.

Foreign ownership only becomes a headache to the economy when there are poor regulation mechanisms. One key facet of the drawback is expatriation of profits directly and indirectly. Capital mobility is a feature of economic Liberalism and while a local company could have invested in other sectors in the local economy, a foreign company may opt to draw all its profits and reinvest it elsewhere. That is what Field Marshal Amin famously described as “Milking the economy without feeding it”.

Uganda’s privatization process was dictated as part of the structural adjustment program. The restructure came at a time most Ugandan companies were presumably unable to run big companies. Consequently, most profitable enterprises such as Uganda Commercial Bank, Hima Cement, Uganda Baati, Tororo Cement, National Insurance Corporation etc went out to foreigners (Here is a full list of divested State Companies). Uganda Electricity Board was equally split into different legal entities, out of which UMEME was given the concession to take over roles Uganda Electricity Distribution Company Ltd. While Uganda was divesting its interest in UEB, on grounds that state-owned companies are ineffective, it instead gave Electricity Generation contract to Eskom, a South African-state owned company. One would ask, if Eskom could work well, why couldn’t UEGCL do the work?

The opportunity cost of this mass privatization was gigantic. Many companies were purchased below their real net valuations. Some of the new owners were only interested in short term gains. While the initial goal was to create a level ground for the private sector actors to compete, the privatization bonanza was hijacked by some bureaucrats to sell state assets cheaply to themselves. Many staff quarters and public land were sold in the process. At Uganda Broadcasting Corporation for instance, many top officials sold UBC’s land to themselves.

Despite the flawed perception that state owned companies are ineffective, to the contrary, many are still going strong. Locally, the last surviving state-owned company, Uganda National Water and Sewerage Corporation is doing quite well. Kenya Commercial Bank, whose divesture was well managed, is operational in the entire of East African Community block. While Uganda sold its Uganda Airlines Cheaply at the “price of a stinking mackerel”, Ethiopian Airways is going strong internationally. Even Kenyan Airways is making immense contributions to the Kenyan economy. Despite posting loses some years, Kenya Airways has made Kenya a regional air transport hub and has bolstered tourism in a big way. If an international company wanted to set up a regional office, Kenya would be the perfect destination.

Uganda on the other hand can’t show what it did with the proceeds of its Airline’s sale. Prior to the Sale, most of the assets of the airline such as Staff residential Quarters and other assets were stripped from the airline. Hitherto state-owned Uganda Commercial Bank (UCB) equally had a questionable purchase value. For instance, shortly before its acquisition by Stanbic bank (Standard bank Group), the Uganda Government had borrowed money from World Bank to recapitalize UCB. However Stanbic Bank managed to acquire UCB at a lower fee than the real net worth of the company. UCB was a big bank with huge base of assets. It owned most of the buildings that housed its network of branches countrywide – and that was a significant asset base.

Exports and Import Bank of China that is giving Uganda most the loans for infrastructure development happens to be a state-owned company. Most of the Chinese Companies working on many infrastructural projects in Uganda today are all state-owned. Ethiopia’s state owned telecommunications company is doing well and posting good profits, and that is how Ethiopia can build new roads with its own money where its neighbors have to borrow or beg from donors.

It’s certainly understandable that some sectors such as Hospitality were not operating on a cost effective basis. Most state-owned Hotels were not bringing in profits and were instead draining from tax payers to fund their operational costs. Privatization of such entities was a good move. Hotels are better owned by private sector rather than government.

Uganda’s privatization doesn’t seem to have worked for the common citizens. It only worked for the tiny minority who took over management of formerly state owned enterprises. Those who took over hotels like Lira Hotel, Soroti Hotel etc are happy with the process. Most of the eventual owners to took over those government entities paid very negligible fees to acquire these assets in which tax payers had invested billions of shillings.

On the flip side, Privatization has no doubt led to the growth of manufacturing industries in Uganda. Most of the companies under their umbrella Body Uganda Manufacturers Association sprang up as a result of the privatization policy. While privatization of the financial sector brought on board predatory lenders, privatization led to infusion of finances from external sources into the Uganda financial market. Competition from amongst these payers has given consumers a wide array of choices.

It can thus be said that Privatization program was it itself a good thing. It was the sheer manner in which it was implemented that was haphazard and thus didn’t not translate into the benefits that would have typically been derived from it. If you have read “Confession of economic Hit man” then you can probably comprehend the intentions behind the international pressure that prompted government’s mass divesture of state-owned corporations.

Is Uganda’s Economy Foreign Owned?

Leave a comment

Over the years, key sector of the Ugandan economy are increasingly being owned by foreign companies. In short, the foreign companies control more money than the Ugandan counterparts. In the Banking sector out of the over 25 commercial banks, less than six are Ugandan. KCB, Equity Bank, Diamond Trust Bank, Fina Bank, Bank of Africa, are all Kenyan owned. United Bank of Africa and Bank of Africa (U) Ltd are Nigerian owned. Eco Bank (U) Ltd is Togolese owned. Standard Chartered and Barclays Bank are multinational. Stanbic Bank (U) Ltd is South African Owned. The few banks that can be said to be Ugandan are Centenary Bank, Bank of Baroda, Crane Bank, DFCU and the defunct National Bank of Commerce.

The Insurance sector is another industry dominated by foreign companies. All these are foreign firms; AIG Uganda Ltd, East Africa Underwriters Ltd, Insurance Co. of E Africa (U) Ltd, Lion Assurance Co. Ltd, National Insurance Corporation Ltd, NICO Insurance (UG) Ltd, Microcare Insurance Ltd, Phoenix of Uganda Assurance Co. Ltd, The East Africa General Insurance Co. Ltd, The Jubilee Insurance Company of (U) Ltd, TransAfrica Assurance, UAP Insurance Uganda Ltd, Sanlam.

The largest retail chains are also dominated by foreign companies. Outside of Quality Super market, Mega Supermarket and Capital Supermarkets, the rest of the big super markets are foreign. Game and Shoprite are South African owned. Two of the biggest super markets in Uganda are Kenyan owned; Nakumatt and Tuskeys.

In the telecommunication sector MTN is South African owned, Airtel, Vodafone is UK owned, Africel is Lebanese owned. Only UTL and K2 are local. Even then UTL is partly owned by Libyans, and K2 which is 100% Ugandan doesn’t control any significant market share.

In the words of a Ugandan comedian, Foreign Companies seem to see Opportunities in Uganda better than Ugandans themselves. While enterprising Indians come empty handed and become billionaires in Uganda, Ugandans instead flock to countries whose stringent VISA procedures signals that Ugandan immigrants are unwelcome. Clueless and self-centered crop of politicians and bureaucrats have made this possible, according to the comedian. While world powers traverse oceans to go and fight for their foreign interests in other people’s countries, Ugandan Politicians can’t protect the economic interests of citizens in their own country that is why some foreign investors come all the way from their countries to sell chapattis.

Surprisingly, some of the comedian’s sentiments mirror the prevailing reality. Neoliberal economic policies has promoted free economies making capital freely mobile. Growing economies such as Uganda have attracted significant Foreign Direct Investment over the years following with the ensuing economic stability. This has been quite impressive for economic growth, as some may say.

Fresh concerns are however arising over the fact that the few foreign companies that dominate the economy are becoming economically powerful to the detriment of the average citizens. Ordinarily, in a well regulated economy, local or foreign ownership of companies in a country wouldn’t be a big deal because they would all pay the standard income tax, value added tax and comply with the same company laws. Both foreign and local companies create jobs and thus contribute to the development of the economy.

Repatriation of profits to home countries is a key fear. Rather than reinvesting profits in the local economy, most foreign companies may consider investing profits elsewhere. Repatriating profits means the jobs that could have been created and the taxes that could have been earned had the company reinvested locally will go elsewhere. And that is just one of the fears. In 2015, after Ugandan Africell acquired Orange telecom, former Orange employees complained that the new Lebanese owners were racists and referred to blacks as monkeys. They complained that lowly qualified Lebanese had been offered higher positions in the company hierarchy.

Some years before, Daily Monitor broke a similar story regarding Hima Cement, about what Ugandan employees referred to as favoritism. Many highly qualified and experienced managers who have worked for the company for years complained that junior Kenyans were being favoured for top management positions ahead of their comparatively better qualified and more experienced Ugandan managers. Such incidents are a wakeup call for Ugandan authorities to pull up their socks in terms of labour regulations.

There is a perception that foreign companies tend to have more business to business linkages with companies in home countries. A South African advertising firm has more chances of scooping a lucrative advertising deal a South African company in Uganda than a local company. A Kenyan Company is more likely insure with a Kenyan Insurance agency. Chinese companies are likely to dine and wine at a Chinese Restaurant. In the end all the money goes home. A South African super market may have preference for South African Apples and oranges ahead of similar products from Rukungiri and Kabale. At some point it was even rumoured that UMEME was importing electricity poles from South Africa even when electric poles could be sourced and treated locally.

Far from the belief that these foreign firms create jobs for Ugandans, the reality is that in most of these retail chains, Ugandans dominate unenviable positions such as pushing carts, collecting trolleys or jobs like clearing the stores. Uganda very much need the Foreign Direct Investments to keep coming, but there has to be appropriate regulatory measures. In the whole of East Africa, it is only Uganda where a foreigner can enter the country illegally and begin to do business without a permit.

In China all foreign companies in certain sectors must have a local investment partner. In other countries investors are not required to own more than a certain threshold percentage of shares in a company. This ensures that locals too will benefit from the dividends of investment. In neighboring Kenya, foreign investors are required to sign an agreement with the government with a view of initiating training arrangements for phasing out expatriates. In neighboring Tanzania, president Magufuli recently urged all foreign nationals in Tanzania to “surrender their jobs to Tanzanians”. In 2014, South Sudan gave a similar directive urging all foreign nationals to leave Juba. South Africans were even burning and killing foreigners. Clearly it’s only Uganda that is too lenient to foreigners.

Certain sectors like energy and water are strategic assets with a bearing on natural security. It is thus important for government to empower local investors to take the lead in such sectors. Uganda should learn from its mistakes in the privatization process and empower local individuals to own companies through stock exchange. While many individual Ugandan companies may not have the financial muscle to build dams such a Bujjagali and Nyagak on their own, the government can create a public company as vehicle through which individual investors can own these companies. The government would only need to create the companies then float them on the stock exchange through an IPO. The government would then divest its stake in the companies in a phased approach.

owachgiu@gmail.com

 

 

How to bypass HR and convince a CEO to create a special vacancy for you

Leave a comment

By Owachgiu Dennis

In companies Human Resource (HR) people are the guys in charge of ensuring that staff positions are filled. They monitor the availability of qualified personnel, screens applicants for jobs, arrange orientation for new staff, training and development of each employee, as well as lots of other tasks like employee benefits and motivation.

 

The central role of HR notwithstanding, if you have understood a company very well and you feel you can help them create value, the top management won’t hesitate to create a new job role specifically for you. It all boils down to your ability to create opportunity for a company, or help them tap certain opportunities. Patrick G, Rilley has written an entire book “The one Page Job Proposal” about how to get a CEO to create for you a job.

 

Lets say you have identified a big company like Uganda Telecom which is struggling among other competitors in its business sector, and you have a great and realistic strategy that can propel the company forward, you should give it a shot. Invariably, the very first step will to be to exhaustively analyze the business processes of the company with a view of ascertaining things that can be done better. Then the next thing is to figure out how your skill sets is up to the task. There you go, you can then explain that in a one page Job Proposal, and end by requesting the Executive to hire you to execute the strategy you have just suggested. And that is how the one page job proposal works.

 

While only top executives can act on your proposal, you still have to be sensitive to the hierarchy in any company. The HR department doesn’t like to be “gone around”. They really don’t like relinquishing control of the “hiring process”. That is what they are paid to do. HR people don’t like people going with resumes directly to executives. If they allow people to do so, eventually they will be out of their jobs.

The very cool thing about a job proposal is that it stipulates what value you will create for your employer. Using a One Page Proposal, the HR people wont accuse you of violating company recruitment policies.

 

Your Job Proposal is not a resume and because of its emphasis on the proposal which happens to feature your credentials and ability to do the job—it can properly ONLY be considered by the business management team—not HR. The HR departments are not tasked with business development. So by presenting your Job Proposal directly to the CEO, you are not violating “proper channels”—to the contrary you are showing total respect for the company’s system.

 

As a potential job seeker, armed with your proposal, you should consider talking nicely to a few junior staffers because most CEOs are protective of their time and the juniors may as well deny you access to the boss you want to meet. Amazingly, you will have zero competition, because the job you are eying doesn’t exist and thus it won’t be advertised to the general public. While other people – perhaps in tens or hundreds – are struggling for (general happiness) advertised positions, for you will be alone in the ideal position you figured out you can create value for the company.

 

Unlike a resume that simply talks about you the job seeker, a Job proposal focuses on the needs of the company. To busy executives, a resume is almost an insult. A CEO doesn’t really need to know the primary schools you attended, where you reside and all that stuff. Its lower administrators who manage personnel records who needs such information.   All you need to do is write a proposal on how your skills sets is uniquely valuable to the company and how your addition on the team will create immense value. CEOs want to add value to their companies. There is no way they will ignore someone out there who has coherently elaborated how they will add value to the company.

 

Big companies often retain the services of executive search firms to recruit for the personnel for senior management positions. For these services, executive search charge a handsome retainer fees. What executive search firms do for the big companies, you can do for yourself by writing your own The One-Page Job Proposal—saving the companies a lot of money—and providing the company an incentive

to hire you.

 

After you have done your research, wedged your ideas into the recommended paragraph format, sharpened your writing into gem-like hardness and clarity, and have asked for something, you must step back and evaluate your proposition as if you yourself were on the receiving end. You have to summarize your proposal to fit in one page. Once the proposal extends past the first page, the battle is lost. Chances are, if it’s more than one page, even the first page will not be read.

 

The one page proposal is not designed to sell inflated skills to unwitting employers. It won’t make something worthless appear to be valuable. It won’t make last year’s idea into the Next Big Thing. The One-Page Job Proposal works when your idea and your experience and expectation of emerging trends make sense, and when the course of action you propose is the right course for everyone. It’s a tool, and like all good tools it works beautifully when applied to the proper situation. Technology has had its impact too; some companies are now using computers to sort resumes. The multiplier effect of the Internet had decimated the resume as a marketing tool. The one page proposal is your tool.

 

 

The Author is Chairman/Managing Director of Dextra Uganda Ltd

owachgiu@gmail.com

 

 

Older Entries