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Investment Opportunities at home for Ugandans in the Diaspora

Posted on April 13, 2018 | 3 comments

The army of Ugandans in the diaspora is growing each passing year. By the close of 2016, Uganda’s diaspora remittances had hit the US$ 1.1 Billion mark. According to a study by the Bank of Uganda, most of the remittances are utilised for consumption. This however needs to change especially for those that have designs of retiring back home after the many years spent toiling abroad.

In a previous article, we saw the challenges Ugandans in the diaspora face when trying to invest back home. This time round we are actively assessing the possible investments that can be pursued. I hope that by the time you are done, you’ll have had one or two light bulb moments.

Uganda is not short of investment opportunities for diasporans. Its biggest hindrance is the lack of information on the lucrative opportunities. Matters are worsened by the laissez faire approach of the powers that be who don’t bother to aggressively expose the secrets of this country to those living outside.

It is essential to emphasize that the identification of investment options should follow a comprehensive review of your personal financial circumstances and goals by a qualified financial advisor if you have access to one.

As a diasporan, some of the opportunities you could consider exploiting are;

Unit Trust Funds

This is a fund composed of investors’ money which is invested in a variety of financial assets.

Investopedia defines it as, an unincorporated mutual fund structure that allows funds to hold assets and provide profits that go straight to individual unit owners (investors) instead of re-investing them back into the fund.

Uganda has a few Unit Trusts in place that are regulated by the Capital Markets Authority (CMA). If you are characterised by any of the following;

  • Interest in having a guaranteed modest income
  • Interest in higher returns from your money than say bank interest rates
  • Interest in capital stability
  • Have been a victim of crooked investment opportunities

Then, this is the kind of product for you. You are not only guaranteed of some returns, but you also have an assurance of the safety of your transactions. Being regulated, these funds are closely monitored to ensure that they do not rip off investors.

As a diasporan, it is possible to indulge in this especially if you have an account with any of the local banks. Some of the renowned local Unit Trust managers are Stanlib Uganda and UAP Financial Services.

Investment Companies

These are companies whose role is to invest the pooled money on behalf of their investors that in return share in the profits and losses.

Whatever assets the company accumulates, ownership is based on the proportion of shares held in the business by the individual investors. The investors proportionately share the profits or losses as and when they arise.

Imagine ten individuals, each with the capacity to raise UGX 300,000 (Three hundred Thousand) monthly for investment. These individuals are probably employed or living in diverse locations but have a desire to engage in business together. Besides, based on their big dreams, that money can’t do much at an individual level. However, if they come together, they are able to raise UGX 3,000,000 (Three million) monthly and within a year, jointly have UGX 36,000,000 (Thirty Six Million). At this point, they can then choose to buy shares in listed companies, or invest it in projects they deem desirable.

I know of one such Investment company that brings together Ugandans based in multiple countries globally. They are always on the look-out for investment opportunities especially on the regional stock exchanges. If it has worked for them, it can work for you too.

Investment Clubs

The Uganda Investment Authority defines an investment club as a group of less than 100 people who pool their money to invest in ventures they deem profitable. These have become common lately in Uganda especially among the urban working elites.

Have you heard of the Investment Clubs Association of Uganda? Yes, it exists and that is a sign of how serious these initiatives are lately. Diasporans could learn from this and borrow a cue.

Take the example of the Ugandans in North America Association (UNAA) that has been around for donkey years and gained a sizeable membership. It could organise itself into an Investment Club, collect annual contributions from members and invest in large scale projects back home. This could go a long way in adding value to the association, its membership or even entirely re-inventing it to suit the changing times.

Private Equity

This is money invested in firms which have not gone public (listed on stock exchange). As a private equity investor, you identify a business that is already operational, has potential and is probably not yet profitable. The investor buys the business, restructures it and supports it towards a path of good performance. Thereafter, one could choose to sell it off or even list it on the stock exchange.

There are numerous local businesses in Uganda that could get a new lease of life if only they had an infusion of this nature. Diasporans have the skills, exposure and even money to undertake such opportunities.

Government Securities

Defined as, a set of instruments that are used by the government to borrow money from the general public. This is one of the ways, other than through taxation that the government can raise money to fund its activities. They take the form of Treasury Bills and Bonds.

Treasury Bills are issued when borrowing money for a period less than one year. Specifically, these are issued for either 91 days, 182 days and 364 days.

Bonds are issued for money borrowed for a longer period over one year. They can be issued for 2 years, 5 years, 10 years and 15 years.

They are regarded as having the least risk among investment options simply because they are backed by the strength and credibility of the government. By offering a time bound repayment plan and predictable interest, their risk is near to zero.

You may be wondering how you can easily participate in trading. Life seems to have been made easier. I came across Money In Africa a website that facilitates you to monitor and trade in these securities online. Upon creating an account, one is able to view the offers from selected Government offers. In my case, I could see Kenya and Uganda only. The entire process is simple and user friendly. You might want to give them a try.

Alternatively, most local banks trade in these securities on behalf of their clients. By contacting your local bank, you should be able to achieve this with ease. More on this was covered in an earlier article.

Trading in Shares

Uganda has a vibrant stock exchange that traces its roots to the 90s. With eighteen companies listed currently, you have a choice and can trade in shares.

Once again, as a diasporan, Money In Africa is in position to make this experience much better. It offers not only profiles on these listed companies but an indepth analysis on each of them, complete with a list of recommended brokers.

Real Estate

This takes the form of land and buildings. It has been deemed by many as a lucrative investment and nearly all diasporans that want to do something at home consider purchasing land or building a structure as a priority.

The biggest challenge here has been the informal approach largely used to achieve this form of investment. Most diasporans have in the past relied upon relatives and friends to purchase land, construct structures among other things including even the processing of title deeds. As a result, there are a lot of stories of the untold suffering many of them have faced in regard to the levels of betrayal.

The good news however is that as a result of these challenges, some entrepreneurs have taken advantage and come up with businesses focused on serving the interests of diasporans in this regard. I have so far heard of two companies that specialise in construction projects for diasporans and offer their clients frequent updates utilising social media applications.

Another approach to this angle would be for property developers to team up with banks to offer mortgages for buyers of their properties. This would then allow them to sell to both locals as well as diasporans. Such an approach guarantees a diasporan of a quality property, funding as well as minimum exposure to the fraud earlier talked about. The only downside here would be the high interest rates of our local banks. This interest rate exposure though could possibly be reduced by borrowing from a foreign bank (where the diasporan is based) given that USD and Euro interest rates have been at historic lows. The foreign borrowings would be used for a substantial deposit on a local mortgage.

Agribusiness

Uganda is endowed in Agriculture. With very good soils, large masses of water as well as a dual growing season cycle annually, nothing beats that. The country can support the growth of numerous crops including some that have hitherto been considered alien like vanilla.

The major hindrance to this sector has been the lack of value addition through processing of the produce. Maize is sold as the basic grains, same to millet, ground nuts, beans etc. However, the increasing urbanisation in the country as well as international demand for food has led to the emergence of opportunities in this sector. Agro-processing is gaining traction. A diasporan I know based in the USA is currently processing Shea Butter and exporting it to well paying markets.

Opportunities here include processing of cereals, fruits, nuts among others. One could choose to participate in the actual farming of this produce through leasing of land or better still utilise a network of outgrowers.

If there is any sector pregnant with opportunity for diasporans, it’s this Agriculture sector. Focus though should be on export oriented opportunities.

Oil and Gas

As a new entrant in this industry, Uganda is rife with opportunities in this regard. The industry is being set up from scratch hence offering lots of opportunity for those with the know-how. A number of local content initiatives aimed at ensuring that Ugandans do benefit from this industry have been kickstarted and in my view, those with some knowledge of this sector stand a high chance of being early bird reapers.

More information can be got from these listed resources;

How best can this be realised?

Amidst all these opportunities, it is crucial that some of the following be done;

As a diasporan you need to arm yourself with some knowledge on business, financial literacy, agriculture, tourism among others. This will help you make more informed decisions as an investor even when you may have an investment advisor.

The Government of Uganda needs to get out of its slumber and proactively reach out to the diasporans. The current efforts aimed at the diaspora seem to have a feeble impact and we would be better off having a dedicated agency focusing on Ugandans in the Diaspora. The Diaspora Services Department in the Ministry of Finance still has a long way to go.

Taking the example of South Africa, under Brand South Africa which is the nation’s marketing agency is a programme called Global South Africans that reaches out to South Africans in the diaspora and gives them statistics and facts about the nation so they can then be equally empowered to not only promote their country but also attract investments back home.

Will you invest in Uganda?

James Wire is a Small Business and Technology Consultant

Blog: wirejames.com

Twitter: @wirejames

Email: lunghabo (at) gmail (dot) com

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[Guest Post] Government policy on Profit repatriation is draining our economy

Posted on April 6, 2018 | Leave a comment

By Hon. Edward Kafufu Baliddawa (Former MP Kigulu North and former Chairman ICT Committee)

As the country grapples with insufficient tax collection, another key aspect that needs to be looked into critically and decisively is the money drain from our economy that continues to go on unabated most particularly by the Telecom companies.

Down memory lane, when the privatization of the Uganda telecommunication sector was done in early 1998, the argument made was that since Uganda’s telecommunication sector was still in its infancy stage, with very low uptake, attraction of serious investors in the sector would be an uphill task. Therefore, when MTN came along, it enjoyed a red carpet entry to the market. While elsewhere, getting an Operator’s license attracted a very high down payment in license fees, here in Uganda, MTN only paid a paltry one time fee of US$ 200,000. This license was to earn MTN exclusivity for 5 years in the sector. In comparison, to get an Operator’s license in Rwanda (a much smaller market by far), MTN paid US$20million, while in Nigeria it paid a whopping $285million in 2001 for one of the four GSM licenses .

We should also be reminded that at the negotiations for the license, arguments had been advanced about the small and shallow nature of the Ugandan market, which became a basis for the Operator to be given many waivers and privileges. Most of us were however surprisingly shocked at the numbers of new connections that MTN registered on the very first day of opening business in Kampala with news reports placing the figure at over 100,000 subscribers. The number of daily new subscriptions just kept on skyrocketing, disproving the arguments that had been advanced at the negotiating table. But one thing that this proved was that actually as a country, we have either poor, incompetent or selfish and unpatriotic negotiators.

When the five year exclusivity period for MTN expired, other operators entered the market. These were Hit Telecom, Warid Telecom and Orange Telecom. The first two have since metamorphosed into the current Airtel Telecom.

Although the Telecommunication sector has had its own humps and bumps over the years, the growth of mobile and Internet subscription has continued to grow to a level where it is currently estimated at 30million and 15million respectively overall. With the increasing global appreciation of the use of technology in form of communication, usage of both mobile and fixed services has increased in Uganda exponentially. As usage increases so does the growth in revenue generated by the telecos out of the services they offer.

Therefore, as we continue to debate whether the tax man, URA is actually collecting all that is due from these telecos, we need also to start looking at the issue of repatriation of money from the country which in effect drains the economy given the colossal amounts involved that are taken out.

We were told that in order to make Uganda attractive to the investors we desperately needed, we as a country decided deliberately to offer the investors a wide range of incentives and one of them was to allow for free and unfettered repatriation of profits to their destination of choice.

It is this apparently lopsided incentive that has come to hurt Uganda’s economy. It is causing the economy to experience unabated hemorrhage of capital. Money earned in Uganda that would have been used to generate more jobs and stimulate economic growth locally is currently leaving the country destined for economies elsewhere. This is the sad state of affairs that has been going on for the 20 years since the telecommunication sector moved from the state owned UPTC era.

To try and drive this point home, let us use the calculations based on the estimations of overall subscriptions that I highlighted in my earlier online article titled “Are the Telecoms paying the rightful taxes?” In that discussion, I showed that in estimate, the major three telecos, MTN, Airtel and Orange are grossing an annual amount of Shillings 11 trillion. However, as I tried to point out, the tax man, URA is not actually collecting tax on this figure. URA is rather collecting tax on a much smaller figure which is only provided by the telecos after most probably some manipulations in order to be able to lower their tax burden.

As we observed, the UCC Annual report of 2016/17 gave a figure of Shs 503bn as being the total taxes paid by the telecos in that particular financial year. Now going by our estimates of gross revenue of Shs. 11 trillion, it would mean that the telecos would remain with a tantalizing figure of about Shs. 10.5 trillion. Applying common sense, in order to generate this money, there are operational costs that arise. Knowing that, the sector has matured and most of the critical large investments were made in the initial stage of investment, we can safely estimate the operating costs to be not more than 40% of the total revenue, which gives us 4.4 Trillion. From this calculation, we can therefore assume that these telecoms get Net income in excess of Shs 6.6 trillion annually.

However, this money is not ploughed back here in Uganda. Instead it is repatriated and taken out in form of foreign currency. To do this, the telecos must buy the dollars, Euros and Pounds from Bank of Uganda, Commercial Banks and Forex Bureaus. Now in a country where our exports that would have otherwise earned us foreign exchange is limited, we must face constant pressure on the foreign exchange market due to this high demand by the telecos, thanks to the dedicated telecom services consumers.

When the net profit of Shs. 6.6 trillion is converted to dollars, an estimated amount of $1.8bn is what is repatriated each year from Uganda. That is real hemorrhage of scarce resource to an economically struggling country. The story gets worse if you take into account the fact that as a country each year, we borrow from outside sources almost half of that amount. Could it be farfetched if one assumed that may be this is the very money from our country that we turn around to borrow from elsewhere?

The long short of this discussion is that although our liberal policy on investors in the telecom sector has yielded this exciting growth in both mobile services penetration, uptake of communication services and improvement in efficiency in communication, and undeniably in creation of jobs for our people, we now need to start discussing whether we still need to continue offering these incentives in the form they are currently in! Unabated or free repatriation of income is becoming detrimental to our economy and must be reviewed.

But let me also add that is it not discomforting to all of us as to why these telecom giants in the country haven’t bothered to make any significant investment in our economy! In Kenya, Safaricom put up a very serious building that serves as their headquarters. In Tanzania, Vodafone did it while in Mauritius, Orange Telecom did the same. However, here in Uganda, we are yet to find out where MTN and others have invested their humongous profits. MTN, for example is still renting buildings that it already found built. Airtel on the other hand is still squeezed in a building (kafunda-like) built during the Celtel heydays in the mid 1990s.

It’s important to point out that these telecoms by putting up substantial investment projects in the form of solid headquarters in the countries that they operate in does play a major role in promoting those particular countries internationally in terms of offering investors confidence. So, what message are our giant telecoms here in Uganda trying to send out there about our country to potential investors?

In conclusion, I have a three dimensional proposal as follows:

Review of the profits repatriation policy: After 20 years of offering this liberal government policy on unfettered repatriation of capital from the country, a review is in order to make it mandatory for all companies operating in Uganda to plough back into the economy a good fraction of their annual profits. This means that government should put a ceiling on the total amount of money that can be taken out of the country within any a given period of time. By so doing, the companies shall be encouraged to plough back in the industry sectors they are presently engaged in or even start up new business ventures for purposes of diversification their business portfolios.

The Telecoms must list on the stock market: Since we seem to have liberalized and democratized everything in Uganda including access to education and health, there is no justifiable reasons as to why we do not liberalize and democratize the means of economic empowerment by way of enabling Ugandans acquire shares in the telecom sector. It is high time these telecoms listed on the Kampala Stock Exchange so that the ordinary Ugandan can also be a part of this lucrative business. The era of a few often undisclosed individuals or commission agents being secretive shareholders in these Telecoms has to come to an end. These companies should be opened up to every Ugandan.

The regulator, UCC should be more effective: It is sad that although on paper, we have the strict regulations that ought to govern the sector, more often than not; these regulations are never strictly enforced. This has many times led to poor services and numerous lapses in the sector. The government must reign in on UCC to be more assertive in the execution of their mandate in order to help Uganda derive more from its communication resources. A key case in point to show the laxity that exists with our regulator is the failure to enforce the requirement by all telecoms to disconnect unregistered sim cards. This requirement was passed a while back and everyone was under the impression that it had been enforced, but alas, the story is rather different until recently. In Nigeria, MTN was fined US$ 5.2 Billion for being found to have 5 million unregistered sim cards on its network. In May 2017, MTN Rwanda was fined US$ 8.5Million for breach of their contract when they were found to have hosted their servers in Uganda instead of Rwanda.

Sadly, to us in Uganda and particularly with the Uganda Communications Commission, there is no breach that is worth any enforcement or serious sanction. That is how our sector has been rendered to be, anything goes!

Hon. Edward Baliddawa Kafufu

FMR MP Kigulu North

Email: edward.baliddawa [at] gmail [dot] com

Twitter: @ebaliddawa

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