The Stanbic Business Incubator – A Roadmap to Success: An Interview with Tony Otoa

The Stanbic Business Incubator – A Roadmap to Success:  An Interview with Tony Otoa

Tony Otoa has worked and studied across two continents.  Now he is focused on empowering Ugandan businesses to harness their full potential.

Tony Otoa is the Executive Director of the Stanbic Business Incubator. He has over 15 years’ experience with both local and multinational corporations and international organizations including; Oxfam, Monitor Publications, and Total E&P where he was the National Content Manager. At the Stanbic Business Incubator he is empowering Ugandan business to harness their full potential.

He spoke to Joel Basoga and Edgar Mugarura about the Stanbic Business Incubator, growing the local content capacity in the oil and gas sector and how SMEs can survive the Covid-19 era.

This interview, which was condensed and edited for clarity, was conducted in Kampala Uganda.

Please give us an over view of The Stanbic Business Incubator Program and what inspired its formation.

This is our contribution towards the local content story. What we are trying to do is to help businesses do things the right way. It is free of charge. Uganda has been ranked as one of the most entrepreneurial countries in the world with both young and old people scampering to start businesses.

The statistics from the Uganda Registration and Services Bureau (URSB) show that there are many businesses that are registered every single day. However, after three years, 70 % of them fail for different reasons, and only 30% remain. This is a high mortality rate for businesses since most of them do not live beyond their second anniversary. It is on that basis that, then as Stanbic Bank, we asked ourselves, “How we can we help these businesses?” We decided to set up the Business Incubator.

Initially, this program was set up for the oil and gas sector, specifically to enhance local participation, which historically (and even in other countries) was dominated by foreign service providers even for the menial jobs. In that regard, we purposed to focus on those areas that were ‘ring-fenced’ for local companies (Ugandan Businesses) under the Petroleum (Exploration, Production and Development) Act, 2013. Such areas include construction, logistics and transportation, catering and hospitality among others. We set out to support such businesses to enable them to become better by acquiring certification in order to facilitate them to tap into opportunities, not as sub-contractors, but as major contractors.

Over the past two years we have so far trained 700 businesses and 1700 entrepreneurs. For every business we work with, we ensure that we train four people. We see the impact created not only within the company but also the individuals themselves. This broadens their perspectives, to helps them to think beyond their parent company. Some have set up their own businesses.

What does a company have to do in order to join The Stanbic Business Incubator?

We are not only based in Kololo but are now located in other regions in Uganda. For Kampala, we typically consider Small Medium Enterprises (SMEs) that employ at least 5 people with a turnover of $10000 (35million) in a one-year trading cycle. For other regions, we may be more flexible, since they may not be at the same footing as businesses in Kampala.  Our focus is mainly on formalizing these businesses to ensure that they do business better in accordance with the legal requirements. We invite businesses to apply through our notices in the press and on social media platforms.  We shall have an intake this August.  We are already overwhelmed with the number of applications. We received 1000 applications for the August intake and yet we can only take on 150 businesses each quarter.  

Tony Otoa at the Stanbic Business Incubator Offices in Kololo, Kampala

Tony Otoa at the Stanbic Business Incubator Offices in Kololo, Kampala

One of the biggest hindrances for business growth in Uganda is the lack of proper corporate governance frameworks.  For most local businesses, there is no separation between the business and its “founder” or ownership. How are you addressing this challenge and what kind of training do you give to businesses?

Nonseparation of the businesses entity from its owners is a huge challenge in Uganda.  At the Business Incubator, we don’t just train one individual but the company as whole with some of its members. The modules are designed to train the business owner, the accountant, the operations person and so forth. This is an all-round approach.

I must admit that COVID has forced us to rethink the ways in which this training has been conducted. Previously, we would train these businesses for three months and then have nine months of coaching and mentorship but now, we are reconsidering to simultaneously hold the coaching and mentorship with the training. We intend to have the facilitators doing the training within the business itself. For instance, a human resource facilitator shall engage with the human resource personnel, a finance facilitator will deal with the finance and management systems. This should help us kill two birds with one stone.

We have also been online for the last three months since April, shortly after the lockdown was imposed. As such, we have had to make use of Zoom.

The pandemic happened (and arguably still is), this led to a lockdown of many non-essential businesses. Yet, many businesses thrive on human to human interactions. What advice would you give to SMEs to enable them stay afloat during this period?

I have no standard answer but what I’d say is, resilience and managing your cash flow.

Most businesses did not anticipate their closure for two or more weeks. This has affected purchasing power and has forced businesses to tighten their screws- by minimizing their costs.

Businesses must work to be as lean as possible in order to stay afloat – but most important of all, they should manage their cash flow.

Lifestyles for most business owners have to change.  For instance, if a business owner often buys the latest car models, this may have to change. In all this, the most important thing is to stay afloat and this largely depends on how you turn around your business and minimize costs. We also noticed that only a few businesses anticipated the challenges and difficulties presented by Covid-19. Most businesses were neither digital nor did they have an online presence. The few who had some online presence and were quick to embrace e-commerce have been able to make more money during the lockdown.

I believe COVID has been an opportunity for many businesses to change their practices. For instance, businesses that had never considered going online have realized that e-commerce and e-payments are inevitable and very much a part of the future. Still, some businesses have failed to understand this.  About a fortnight ago, I went to a public market in downtown Kampala. Surprisingly, people are still doing business the old way- money comes in from a customer and it is stashed away in a drawer.  I asked one of the vendors where her inventory was and she responded that she did not need any. She said, that in order to discover what needs restocking, she just looks around her shop. While that might work for her, it is difficult to keep track of which goods are fast-moving and which aren’t. Thus, one may not be able to plan and save unnecessary expenses on some merchandise. In order to work lean, one must comprehensively monitor and track their expenses. 

Further, one should diversify revenue streams so that, one spreads their risk and avoids relying solely on one core activity. The hospitality industry especially bars have been hit hard, as they have been suspended since the lockdown measures were announced. A bar owner, with a diversified investment portfolio, would at least have alternative revenue streams.

You have talked about having different revenue streams; however, entrepreneurs complain about unavailability of affordable credit and capital. What is your take on that?

I have always believed that you don’t need money for your idea to grow. An idea is something that stems out of belief. If you are creative enough, you can make it work. In Uganda, so many young entrepreneurs are lamenting about lack of capital yet, there are numerous venture capital funders that visit us monthly so that we can recommend businesses that need support. Most businesses do not have business plans. When asked about business plans, most entrepreneurs boldly state that their business plan is in the ‘head.’ Without a business plan, a business entity does not have a form of direction. How can you expect to attract finance without a plan?

Raising Capital is a challenge to most entrepreneurs.

For many young entrepreneurs, the biggest challenge they have is translating the business plan into reality. The lack of mentorship and problem-solving techniques.  We always encourage upcoming entrepreneurs to interact and learn to solve problems.  If one solves a problem, then someone will be willing enough to pay for that solution.

Do you think the regulatory business framework is supportive towards SMEs? Or, is it too much?

I don’t think it is too much. When you practice something overtime it becomes a habit, this applies with business. What does it take to file your annual business returns? Absolutely nothing!  It is much easier now that the processes are all online for both the Uganda Revenue Authority (URA) and Uganda Registration Service Bureau (URSB) websites. Filing returns is an easy process.  At the incubator we help (teach) businesses to file returns through business development services.  We are developing an app where all the companies that have gone through the incubator program can input their data so that they are alerted whenever it is time to file their returns.

We also engage the relevant stakeholders (URA and URSB) who are also facilitators. Did you know that if you filed a zero return, you are better than a person who hasn’t and has been charged a presumptive tax?  People don’t know that. If one starts reporting earlier, it becomes a habit.

The Uganda Development Bank (UDB) recently spoke about the failure of many businesses to access their loans. There is a lot of ‘free money’ on the market but the businesses are not compliant with the regulations. Before a company can access this credit, the lender always asks for two years’ financials, in addition to the governance structure. Yet most companies have nothing to show. It is very important to keep records in a business. As an investor, I will ask for a business plan that can demonstrate the economic feasibility of the business.   I will also be keen on seeing how you have performed over the last two years. But a typical “business person” is a ‘hustler’ with no records and no systems.

Tullow Oil Uganda recently sold its stake in Uganda’s Oil industry to Total.  The Final Investment Decision (FID) is expected soon, what does this practically mean for SMEs in Uganda?

It means that businesses should be prepared, because when FID happens, only those prepared will benefit. The oil and gas sector is a time bound sector and unlike Ugandan companies, foreign entities have positioned themselves to take up these opportunities.

Ugandan companies need to pursue the relevant certifications to enable them provide the relevant support services.  For instance, regarding welding. Uganda has less than 300 of such and yet the oil and gas industry needs over 3000 welders for the refinery, pipeline and upstream projects.

When I worked with Total, we used to have welders from Asia. For every welder, there must be a fitter. This is a unique opportunity, and yet, most Ugandans are pursuing only professional certifications from global universities. While that is good, such jobs are only 1% and are probably already taken. The huge chunk of the jobs needed are the technicians such as welders, plumbers, bricklayers, fitting personnel among others accounting for 60%. Sadly, the education sector is not training such people and to be honest, the majority of the technicians might be foreigners.

We need to understand the timelines that are involved and the structure of the oil and gas sector. The oil and gas cycle comprises of four cycles: exploration and appraisal, planning, construction and production/plateau phases. For Uganda, the exploration and appraisal phase ran from 2005 – 2014, dominated by Tullow Oil. During that time, only a few Ugandans who were foresighted enough to have invested in the sector. Those involved in the businesses of catering and logistics managed to make lots of money during that period. The second phase involves planning. After the oil has been discovered during exploration, it is necessary to identify how much oil is available and whether it is commercially viable. Unlike vertical drilling during the exploration phase, during this phase, companies undertake horizontal drilling because the technology is cheaper and one can cover more ground in the oil fields.

The third is the construction phase, and has the most opportunities. At its peak there will be a direct demand of approximately 14000 jobs which can last for up to five years. There is huge opportunity here because a lot can be enhanced through local content thus benefiting all sectors.

For example, the workers will need good quality food available round the clock, thus creating an opportunity for the catering business. There will also be demand for transportation of the workers to and from their work stations. It is estimated that close to one million metric tons of goods and equipment will be needed, this will have the potential of multiplying the current road traffic by 50. This will create a huge demand for truck drivers and yet the logistics and transportation firms can barely meet such demand. The last the cycle is the plateau phase   where manpower reduces to 3000 jobs. I can compare it to building a house, one needs the most labour during the construction process and the demand falls as you progress.

Summarily, more than 150,000 jobs will be created.  

You are painting a grim picture about how unprepared Ugandan businesses are for oil and gas however, Parliament recently passed the Local Content Act. How does this help businesses?

The Local Content Act 2019 will undoubtedly give priority to locally based services and goods. However, if the skilled persons are not available to take on these opportunities, a contractor may seek exemptions for alternatives. That notwithstanding, it is plausible that Uganda has enacted such legislation before the oil is produced. Some oil producing countries such as Nigeria which began producing Oil in 1950s have only passed similar legislation recently, in 2010.

There is growing advocacy globally towards clean energy and environmental conservation, doesn’t the protracted delay in the production of oil reduce the prospect of the market for the oil and related products.

There will always be demand for oil and its products, countries need to make roads, plastics etc. Countries such as China and India will always require oil. With our current deposits, we are looking at about 25 years of production.

 Any last words?

All in all, this is a good story. Here at The Business Incubator, we have been tasked by the Uganda National Oil Company (UNOC) to promote their national content drive and we are committed to doing so.

Written by Joel Basoga & Mugarura Edgar
@JoelBasoga
@mugarura_edgar