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Uganda Tops Business List

Published: 01-APR-04

After a long economic stagnation of the 1970s and the 80s due to political instability, Uganda has since 1986 embraked on a rapid economic recovery through vigorous attraction of private foreign investment, writes Hobbs Gama

A World Investment research places the East African nation one of the fastest growing economies in sub-Sahara Africa where allocation of business is more attractive. So far Uganda has signed agreements with various countries over a short period of time that include Iran and Thailand as she strives to revive her lost glory as the pearl of Africa.

In a recent business meeting Thailand, the Uganda Investment Authority discussed possible and unexploited investment opportunities. Chairman of the Private Sector Foundation and Honorary Counsul for Thailand in Uganda, James Mulwana depicted how Uganda was endowed with abundant natural resources like fertile soils and climate that could easily turn it into a food basket for East Africa and the continent as a whole.

Sam Kuteesa, Uganda's minister of state in charge of investment enthused that the biggest economic reforms have been in foreign exchange markets, private transfer and work remittances rising since 1991/2 from under U$107 to over 550 US dollars to date while inflation rate has stayed at single digits for quite a some time.

"The current government has implemented consistent governance and economic reforms aimed at rejuvenating performance of the economy," said Kuteesa.

In addition a study funded by the Kauffman Foundation found Uganda on top in business innovation as the proliferation of micro-enterprises propelled the country to number one position.

Research by the annual Global Entrepreneurial Report 2003 ranked Ugandans as the world's most enterprising people with 30 percent of its population self-employed.

Coming ahead of countries with better known reputation for enterprise like the United States of America, Japan, China, South Africa and a host of developed countries in the world -- the study describes Uganda's leadership a "surprise." Uganda was followed by Chile, Korea, New Zealand and Venezuela.

Coordinator of the research, Paul Reynolds said the study ranks countries based on two criteria: the number of new start-ups and young firms, and the number of entrepreneurial firms (meaning those creating innovative products and anticipating growth).

"If you don't do something in a country where there is no real social or economic programme, you're not going to eat," Reynolds cautioned.

The report also discovered that two out of every three entrepreneurs are aged between 25 and 44 years; that less than 37 out of every 100 entrepreneurs get venture capital and 80 percent hope to create jobs in 2004.

More interesting statistics goes like this:

  • 80 percent of people starting new firms are already employed.
  • People with tertiary qualification are more likely to be involved in an entrepreneurial firm than less educated counterparts; while more are more likely to start business than women.
  • 64 percent of start-ups in 2003 were by men compared to 36 percent women.

    Carl Schramm, president and CEO of the Kauffman Foundation challenges government to promote policies that nurture entrepreneurs. Such policies must include support for business training, reducing the cost of starting business, increasing net in migration, reducing the scope of economic activities run by the government; and creating incentives to encourage informal investment.

    Admonishes Schramm: "Government can either fuel entrepreneurs or stop them on their tracks." He said it had to be considered that these entrepreneurs create jobs and wealth for their communities, develop innovations and make peoples lives better and contribute to national growth.

Uganda eyes joint railway, air ventures

There is much taking place as far as bilateral agreements are concerned to achieve increased trading activities among the countries of East Africa. Some of them are members of the invigorated East African Community (EAC) trading zone.

Uncertainty surrounding the divestiture of Uganda Railways Corporation (URC) has been put to rest. URC is to be divested through a joint concession with Kenya Railways Corporation (KRC), a decision arrived at during the recent visit to Uganda of Kenyan president, Mwai Kibaki, to meet his counterpart, Yoweri Museveni.

The Privatisation Unit in Kampala said that the joint concession of the region's two leading railways initially had two options: one to divest the parastatal jointly with Kenya and Tanzania as members of the EAC, and the other was for Uganda to go it alone.

The first option was considered unsuitable after Tanzania concluded a deal with a South African firm and was reported to be in an advanced stage of sealing part of the concession. Later the wrangle was resolved, following a consultancy conducted by Canadian Rail (CANRAIL) which recommended privatisation of Kenya and Uganda railways.

Tanzania Railways Corporation (TRC) Resident Representative in Kampala, Silas Kibwana, confirmed that TRC was going about the privatisation process single-handedly. However he would not name the South African partner involved. "I can only say the tendering process has reached bid opening stage," Kibwana affirmed.

URC's chief marketing manager, Bugeni Buwolya, backs the joint agreement as the most viable project, as both countries need each other to establish a strong railway system and boost trading in the East African region.

"Definitely it is viable. It is a question of investment and management," asserted Kibwana. Statistics indicate that railway tonnage through Malaba, Kisumu and Mwanza totaled 903,076 tonnes in 2002. However in 2003 tonnage dropped to 851,953 tonnes. This was attributed to high tariffs on exports, and fuel and axle load restrictions.

On the other side of the border, Uganda is to revise its bilateral air service agreement (BASA), to pave the way for the resumption of flights between the two neighbouring states.

Since January Uganda has only allowed humanitarian flights to the Democratic Republic of Congo (DRC) which adversely hit the operations of five air firms and resulted in a serious shortage of goods in the eastern DRC towns of Bunia, Mbuta and Beni. It was the poor security situation in the east of the DRC that prompted the Uganda Civil Aviation Authority (CAA) to ban all commercial flights to that country. Flights were limited to the delivery of relief items to people displaced by the wars affecting the Great Lakes region.

Vianney Luggya, spokeperson for CAA, said it was currently difficult to ensure the safety of goods and passengers flown to eastern Congo, and that a meeting scheduled for February would try to iron out such uncertainties. "The absence of an updated BASA also means that operators did not always comply with the minimum safety standards. Now we are opening doors for smoother and safer air travel," said Luggya.

ESKOM questions power deal

The government of Uganda has embarked on a number of reforms, among them privatisation of the power utility, and restructuring of the state electricity regulatory body. Investors are, however, posing questions as to whether they should proceed with their plans.

Disagreements over the state of Uganda's electricity distribution infrastructure and the amount of investment that government is asking investors for, are delaying the deal between Uganda, a consortium of the South African-based Eskom, and CDC Capital Ventures of UK.

Government split the Uganda Electricity Board (UEB) in order to make it more efficient and to expand the provision of electricity to poor people, in line with the rural electrification programme. Power tariffs were instantly hiked, and earned government heavy criticism from Members of Parliament.

The consortium, which wants a 20-year concession to manage Uganda Electricity Distribution Company Ltd (UEDCL), has questioned the data on the number of clients to be served against the fees the managing consortium will pay.

The investors who decry the low tariff levels of Uganda, a situation they regard as not conducive to profitable businesses, also say the infrastructure they were to inherit was not in as good a shape as the government had indicated, which necessitated further study, and are unhappy about some of the environmental obligations that the deal seeks to place on them.

Uganda insists that ESKOM and CDC should invest $65 million in the EUDCL over the first four-and-half years of getting the concession. In addition, it would like them to add a new 15,000 connections per year over the same period. From the fifth year, they would be expected to make 25,000 connections per annum.

Emmanuel Nyirikindi, director of Utility Reform at the Privatisation Unit, said that negotiations were still going on. "It is expected that by the end of the year negotiations will have been concluded, after which the consortium will be handed the concession to maintain the UEDCL network and to collect revenue," said Nyirikindi, adding that according to the terms, the concessionaires will be required to pay government a $1.4 million transaction fee. They will also pay monthly fees to settle UEDCL's debts.

ESKOM and CDC were the sole bidders for the distribution company's hand-over, which was advertised in April 2002. UEDCL was among the three companies formed after the electricity board was dissolved. The other two are in charge of power generation and transmission.

Members of the natural resources committee of parliament attribute the rising costs of electricity to this event. They charge that the unbundling was also responsible for the soaring expenditure needed to run the power body.

"The splitting translated into increasing overhead costs and multiplying the inefficiencies in the various new companies," claimed Isa Kikungwe, an MP for Kyanddondo south constituency.

In November 2002 ESKOM won the bid to run the Uganda Electricity Generation Company Limited (UEGCL) power dams at Kiira and Nalubaale for a 20-year period. The two state-owned dams, which jointly produce about 300 megawatts, account for 98 per cent of the hydro-power produced in the country.

The concession requires ESKOM to invest a minimum of $6.7 million in the company in the first four years, after paying an upfront amount of $500,000, and is currently paying a monthly concession fee to UEGCL.

Government is geared to speed up the transfer of UEDCL to the concessionaires in order to obtain capital to improve its performance. The company needs the cash to cut system losses, minimise billing anomalies, and improve revenue collection.

Irene Muloni, acting managing director for UEDCL, says that since the split of UEB, their customers have risen to 240,000 (from 200,000), they have reduced losses which fell from 34 per cent to 29 per cent, and have increased revenue collection from 62 per cent to 80 per cent.

"This year the firm intends to reduce energy loss by one percentage point and raise revenue collection by 10 per cent. This will require a lot of capital investment," explained Muloni.

Meanwhile, ESKOM is reportedly concerned about the comparatively low power tariffs and the resistance shown by sections of lawmakers and the public. The Electricity Reguratory Authority (ERA) recently permitted UEDCL to effect minimal changes to the tariff in order to attract potential investors.

Over the last two years Uganda registered a 6.5 per cent growth in the demand for power. Prior to the commissioning of the Kiira power dam in May 2000, the country experienced a 60 megawatts deficit, which resulted in massive and unfavourable load shedding that infuriated the business community.

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