By Dr. Ian Clarke
Recently a number of large foreign businesses have announced their intention to close shop and leave Uganda: Africell, Game and Shoprite.
This has precipitated some soul searching among Ugandans as to why it is difficult for such foreign companies to do business in Uganda. Looking back over my own experience I have been mulling over the reasons why some investors are successful while others fail.
Many Ugandans feel there is a ‘Ugandan’ way of doing business, and if foreigners do not learn how things work here it is their problem, and we don’t need them anyway. Last week, I was involved in a minor incident with a boda boda rider in which the passenger took the opportunity to tell me that I should go back to wherever I came from because there were too many foreigners here, so there are obviously some Ugandans who feel they are better without outsiders.
Unfortunately multinational companies cannot do things the local way and have to comply with national and international standards and regulations. This brings a Catch 22 situation, because following the regulations costs money, therefore reducing their margins and sometimes making their businesses unprofitable. The local businessman may know how to mitigate these rules and regulations, but an international company does not have such flexibility.
Many laws and regulations in Uganda are difficult to fulfill because they are vaguely written, leaving them open to interpretations that can be enforced with financial penalties. Many small businesses, and some not so small ones, are outside of the tax base altogether, while other businesses are thought to be politically connected, which leaves international businesses perceived as fair game if they make any slight infringement. Of course there are many large international companies that are very successful in Uganda. Such businesses are in sectors such as banking, oil and gas where the potential profitability is high. There is also a whole raft of businesses of Chinese origin, which find a ‘big man’ as their protector when they set up. Such companies are generally somewhat opaque, but they employ large numbers of Ugandans, often in sectors in which Ugandans themselves would not invest.
However, the businesses that represent the lion’s share of the Ugandan economy are owned by Ugandan Indians who hold British and Ugandan passports, and have been very successful in doing business in this country. Many of them are very large taxpayers and are sometimes not very happy with how they are treated by the Ugandan authorities and regulators, but the difference between them and the multinational organizations is that this is their home and they cannot just close shop and leave. These family-owned companies also know how to do business ‘the Ugandan way’, when necessary, because they need to survive. Recently there has been another group added to the business community – the Eritreans, who have come with capital and revamped many small and medium sized businesses in Kampala. The Eritreans are very hard workers and are not afraid to make substantial investments in this country because they cannot go back to Eritrea.
My own experience of doing business in Uganda has certainly not been plain sailing. It is not easy to do business here: there are all kinds of hurdles and obstacles, but I have also experienced business in Ireland and there is no country without issues with bureaucracy, unfair regulations and taxes. In Uganda as the policeman said to my Ugandan daughter when he stopped her for an infraction of the traffic laws: ‘Madam, are you not a Ugandan? Here we talk.’ Perhaps in the case of large multinationals they are being expected to ‘talk’ a lot, and Uganda is simply not profitable enough to make it worth their while.
Uganda is a small market and while other African countries, such as Kenya, may be no different in terms of corruption, large companies may find Kenya more profitable and therefore worth putting up with the difficulties. There is a tipping point for any company at which the hassle outweighs the benefits. I have witnessed good corporate practice, and there is a significant cost to companies being compliant, so they need to make decent profits. The playing field is never level, and there is certainly a point at which an organization will make the decision that it is not worth doing business anymore.
If Uganda does not take this into account, and the regulators, the URA, and those with the power, continue to ride the private sector, the good players will pull out, leaving those with inside connections, or those who know they will make a killing. The amount of private sector activity may be maintained, but the quality will not be the same.