The Pearl of Africa is gifted with undulating hills, vast resources and a diverse culture heritage. The vibrancy of Uganda fills most people with enthusiasm. Starting a new business in Uganda, however, requires the delicacy of a ballet dancer. While some businesses have flourished, some have closed prematurely. This includes startups and well-established corporations.
The million-dollar questions are; why is success in other markets not replicated here? What should be done differently? In this article I will discuss some of the common mistakes made by investors in the Uganda market. After which I will outline the precautionary steps an upcoming can undertake to avoid such a fate, and to enable them compete favorably in this lucrative yet quite competitive market.
High operation costs affect the balance sheet of a company and ultimately reduce their profit margins. In September 2014, Jonathan Ciano, the former Uchumi Chief Executive Officer told shareholders in Nairobi, Kenya it was no longer tenable for them to keep operating their branch at Freedom City Mall on Entebbe Road, Uganda.
This was the last stroke – following the earlier closures of their branches in Kabalagala and Nateete. Uchumi had failed to meet their operation costs and were no longer sustainable as a business. What followed was a massive loss of jobs. 400 employees lost their only sources of livelihood. This devastated many families dependent on the pay cheques from Uchumi. Perhaps if it had scaled down on the number of branches, it might have minimized the cost of doing business.
Another common mistake made by foreign companies that come to Uganda is the failure to empower the local team (employees) to efficiently manage operations . This could be attributed to policy and structure of these companies. Many foreign investors do not know that this works against the interests of the company as it slows down operations and the swiftness of decision making.
It also alienates the team on ground as they do not feel a part of the organization. This affects their motivation and eventually the brand of the company. Approaching a business without intensified market research means that you need an equipped local team to navigate the land scape.
Toppling decisions and strategy from outside management leaves a gap between the reality of the market. The local team on ground understands the dynamics of the local market and Uganda is a different ‘ball game’ from other economies. The best course of action is to recruit a local team and empower this team to represent your brand and make on-ground decisions based on the subtleties of understanding the environment. Avoid micro-managing too, it is a slow poison that will kill your brand.
It is important to for brands to exhibit transparency, at least in the cases where some boardroom decisions directly affect the people who are dealing directly with your clientele. The employee’s image of the company will affect how they treat your clients and this in the long run can ruin the brand.
Employees who are kept in the loop are better placed to deal with issues like unhappy suppliers because they are informed about what is going on, and can be better armed if need be for the sake of your brand. Because they have a sense of belonging, they feel a part of the process, it helps no one if employees are kept in the dark about their job security and their future at a company.
A former employee of the Nairobi-based cab hailing start up Mondo Ride who shared with Cue Africa talked about her time at the company says, “The company closed abruptly and all of us had no idea what was going on.” She continues to say that there was no formal notice given to employees.
Although the employees had noticed that there were alarming signs there was no transparent conversation about how to salvage the situation in the branches in Uganda and Tanzania. Eventually, all East African divisions closed due to lack of funding. The newly opened subsidiaries in Uganda and Tanzania did not adapt well locally, that caused a parasitic effect on Kenya operations. Each market should be approached in its own context.
Handling finance with discipline is key to staying in this market. Efficiency has been a recurring theme in this piece. Scaling a start up to growth and eventually profitability is not helped by renting a 3500$ office space at Rwenzori Towers when your projections indicate profitability will only be achieved in 3 years. Scale small on expenses to have enough for operations. Office space does not have to be in town. Be frugal in all the trivial areas. That is how you grow in this market.
Scaling down on operational costs, empowering local teams, transparency and proper financial stewardship should be implemented if any business is to stay afloat, especially in a turbulent market like Uganda. In my evaluation, this hinges on proper corporate governance and risk management.
This is the level of prudence required for a business to navigate the murky waters in the Ugandan market. The tale of replicating success, or the spin what is proved and tested works best. Not very well the case in the Pearl of Africa. Uchumi and Mondo Ride are examples of such unfortunate short comings and we should learn from them.