Tag Archives: Economy

Why Nakumatt struggles as Capital Shoppers and others thrive

While browsing the Twittersphere, I came across a thread in which the issue of Nakumatt Supermarket’s limping performance in Uganda was being discussed viz a viz local Ugandan Supermarkets.

Ms. Nancy Kacungira loudly wondered what the likes of Capital Shoppers are doing right to stay in business to which the renowned economic affairs analyst Dr. Ramathan Ggoobi duly responded by stating, “Alot. Location, good supply chain management (high fill rate), and damn, I’ll say it …. loyal ‘sectarian’ clientele.”gobbi_tweet

The last part of his submission is what I didn’t find worthwhile. So, as a supplier of supermarkets, I went ahead to respond as follows, “They pay us well and promptly. Including Quality (Supermarket). I find the assertion of “sectarian clientele” as lame reasoning by @rggoobi.”wire_response

Its eight years since I started supplying supermarkets with products and this has given me some time to appreciate the business. A supermarket is no different from a warehouse where suppliers bring their products for onward sale to customers. The only difference is that Supermarkets have to invest in a few things that make the shopping experience of a customer conducive. Their key issues of concern are usually branding, location, management systems, market identification and interior décor.

The success of a supermarket is hinged on three core factors as indicated in the illustration below.Supermarket_Success

When Uchumi joined the Ugandan supermarket space over ten years ago, they heralded a new era that saw them take supermarket branding to a new level all together. The supermarket enjoyed market leadership overnight, largely a result of the corporate buzz created whenever anything new is launched as well as the significant presence of Kenyan professionals in Kampala. Nakumatt followed suit years later and it too caught the attention of the Ugandan market by launching 24 hour shopping services. Within a short while, it had grown and surpassed Uchumi as well as other leading local supermarkets like Quality and Capital Shoppers.

During all this time, the local supermarkets must have been learning serious lessons from these foreign entrants. Nakumatt, Uchumi and Tuskys, all Kenyan supermarkets by origin had the money, systems, branding and rode on the wave of a significant presence of Kenyans in Uganda to kickstart their business. They also won over many Ugandan shoppers and a simple way to tell that is by studying various suppliers’ delivery schedules that largely rotated around these supermarkets.

So, the factors Dr. Ramathan Ggoobi attributed the success of Capital Shoppers to like Location were definitely considered by the likes of Nakumatt. Take a look at Nakumatt’s branches at Oasis Mall, Bukoto, Entebbe, Mbarara, Bugolobi (although they goofed up by placing another branch at Village Mall in the same vicinity). Consider Uchumi’s branches that existed at Garden City, Nateete, Freedom City, Kabalagala and Gulu. They were well thought out and always outcompeted neighbouring supermarkets. But somehow, they went bust. Uchumi is now spoken of in the past tense having fled with Billions of Shillings owed to local suppliers. Nakumatt is in intensive care unit, trying so hard to stay alive and relevant. How did they get to this?

I will rule out the economy because the same economy is where you find other thriving supermarkets like Capital Shoppers, Quality Supermarket, Mega Standard, Ssombe Supermarket, City Shoppers Supermarket, Senana, Cynibell among others. The customers are still existent considering that they are the very ones patronising the currently well performing supermarkets.

In my view and as a supplier, the one aspect of the business that these supermarkets did ignore and are now paying heavily for is the Supply Side (read as Stock in the diagram shared earlier). This is in tandem with Dr. Ggoobi’s point on good supply chain management.

A supermarket’s shelves are what they are because of the goods that suppliers diligently avail for sale. Without these goods being supplied, they remain empty and useless to any consumer. Most supermarket suppliers never get credit from their raw material suppliers prior to producing products for the supermarket. However, when it comes to supplying the supermarket, they are required to do so on credit. The credit terms range from a few weeks to two months. Consider that often times, the supermarket pushes the supplier to offer significant discounts which are hardly passed on to consumers. In essence, the supermarket receives an interest free loan since after sale, they can still re-use the supplier’s money on other activities of their choice.

Suppliers are usually resilient and able to patiently wait until the due dates promised for payment. Sometimes, the due date is not honored by some supermarkets and suppliers have to make multiple attempts and trips to get paid. This is where the likes of Uchumi, Nakumatt and Tuskys went wrong. They knew that being “large” and “credible” players in the market, the suppliers were at their mercy. Wrong!!! This perception might have been true for a while but as word spread through the networks of suppliers about their financial dishonesty, one by one, we begun pulling out of making supplies. Eventually, the shelves begun starving of our products and customers started noticing. This proved one thing, suppliers are as important as the consumers.

Another aspect is the shoppers’ psychology. The reason a good number of urban dwelling Ugandans abandoned the small shops in preference for Supermarkets was the ability to find everything they needed in one place and at a competitive price. This expectation can only be met when the supply chain is very fluid. So, by letting down their suppliers, these supermarkets once again exposed themselves and could hardly meet this expectation. End result? Customers begun gravitating towards alternative supermarkets that fulfilled this need. Take the case of a battered Uchumi, in its last days at Garden City mall, Capital Shoppers opened up a branch right below Uchumi’s premises and within no time, it was attracting a much bigger crowd. A relative of mine once intimated to me that he was fed up of going to that Uchumi branch due to the lack of a wide range of goods for sale. He felt so relieved when Capital Shoppers opened up. This too further cements the supply chain factor.

Now, back to the insinuation by Dr. Ggoobi that Capital Shoppers is thriving because of a “loyal ‘secterian’ clientele.If indeed this is worth noting as a reason, does it also imply that Nakumatt’s failures are attributed to the sudden absence or exit of a loyal sectarian (Kenyan) clientele? It is an open secret that Kenyans loved patronising Uchumi, Nakumatt and Tuskys. These very Kenyans are still around and their numbers have probably grown. Why is it that these three supermarkets have either closed or are limping in this market?

I do shop a lot at Capital Shoppers and Quality Supermarket but have not seen any sectarian tendencies in their clientele. I would be hard pressed to point out that the majority of shoppers “appear” to come from one region of the country.

Lets face it, the Kenyan supermarkets came in with a lot of SWAG and knew they would steamroll the local market in a bullish manner. While they appeared to be scoring early successes in this regard, their local counterparts used that time to re-invent themselves and learn a few things from the competition. The founders of Capital Shoppers and Quality Supermarket are very hardworking modest living Ugandans who started off in very humble ways. Their continued success even during this trying time of the economy can be largely attributed to the respect they accord their suppliers as well as being able to continuously learn and unlearn.

James Wire is a Small Business and Technology Consultant based in Kampala, Uganda

Follow @wirejames on Twitter.

Email lunghabo [at] gmail [dot] com

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Good African Coffee Closure. Is Uganda’s economy on Auto Pilot?

Andrew Rugasira is no saint, however one thing I can authoritatively say about him is that he is a resilient entrepreneur who always turns ashes into beauty. Many years back, I recall him running a prominent promotions company called VR Promotions which bit the dust. He was humble enough to go into hibernation only to re-emerge a couple of years later with Good African Coffee.

When I bought the newspapers of the 25th of April 2017, I was taken back upon reading a story about how the tax man had closed down his business for tax arrears of UGX 1.2 Billion.

On the 23rd of April 2017, Ian Ortega posted a mind opening article on Facebook in which among others he stated, “… We pride in building mansions in our villages in a sea of mud and wattle houses. And in the end we pay for it with insecurity, with deaths. It makes no sense to have majority poor and few rich. It always backfires… Start doing something to make sure the economy works for everyone regardless of their field. Let it work for a musician, for an artist, for an engineer, for the teacher etc. That is how you build sustainable societies.

Having interacted one on one with Mr Rugasira a year back, I got to know quite abit about his ethos. While he is a hard nosed businessman, his passion for equitable growth and development is worth admiring.

Businesses close for various reasons and their closure has varying impacts on the economy. There are businesses whose closure will largely cause ripples among a few selected elites (who tend to be the noise makers) while others have the Fall Army Worm effect of distorting the bottom of the pyramid poor.

According to the New Vision, Good African Coffee has a network of more than 14,000 coffee farmers and has facilitated the set up of 17 (Seventeen savings and credit organisations) for these farming communities. The average household in Uganda has 5 members. This implies that if each coffee farmer is equivalent to one household, then the direct impact of his investment at this micro level has a reach of at least 70,000 people. Considering that in Uganda, it’s part of our culture for a household head to help various extended family members especially economically, we can safely assume that each farmer has an impact on 10 (ten) people in the extended family bracket. This implies that upto 140,000 people indirectly benefit from Good African as a result. On average we can safely state that at least 200,000 people from the coffee growing region are beneficiaries.

The New Vision further stated that the Good African products are available in over 700 UK Supermarkets as well as 500 stores in Africa. As a supermarket patron, I have come to learn that products on those shelves serve not only the purpose of consumer consumption but also national branding. How many people today in the UK swear by Good African Coffee? Judging by the inquisitive nature of today’s shopper, chances are high many have got to learn more about Uganda in the process. What better marketing for our nation?

While I am inclined to believe that management issues have definitely contributed to the status-quo, it’s quite sad that the tax man would be left to execute such a closure without proper appreciation of its wider implications. The Uganda Revenue Authority is not to blame since it is merely an execution agency tasked with collecting revenue for the Government. However, with all the tax breaks we keep hearing being directed to questionable foreign investors, why would a legitimately Ugandan owned and home grown business fail to be extended help? We just heard about the planned UGX 77 Billion tax relief that a number of companies whose list is led by the Sudanese owned AYA Group of Companies are likely to get. In my view, the footprint Good African Coffee has is much wider than AYA and any of those companies on the bail out list yet above all it impacts the lowly farmer whose sole hope for survival is farming.

We always hear of decisions being made in National Interest and this is what Hon. David Bahati, the State Minister of Finance for Planning emphasised while meeting Parliamentarians over the AYA bail out. Why was Good African overlooked?

  • Is it because the latter promotes the well being of peasants and there is this general fear among the political elite of genuinely empowering them?

  • Could it be that Rugasira doesn’t have the right brokers to argue out his case before the high and mighty in the Ministry of Finance?

We have been led to believe that overnight business moguls who set up with Shopping malls out of the blue are the ones that deserve respect and propping in order to keep our economy afloat but if we do not babysit the Rugasiras of Uganda and ensure that their businesses succeed at all costs, we shall continue in the cyclic rat race characterised by chronic poverty. Government should sit down Andrew Rugasira, make it clear to him that the success of his business is a national priority and could even have security implications considering that a large section of the farmers are from the already troubled Rwenzori region who might perceive matters differently. The riot act should be read out to him before working out bail out terms and conditions.

PS: In case you are comfortably employed with a regular salary and high flying MBA, you might have a problem appreciating the challenges genuine entrepreneurs go through in this Ugandan economy of ours. One day though, I hope you will be around long enough to appreciate what goes on the other side of the bridge.

I say, Bail Out the Brother !!!!!!

[UPDATE: Two days after publishing this aricle, Good African Coffee was reopened. I thank the authorities for having exercised a sense of sobriety. Now the ball is in Rugasira’s court to ensure he complies as required. ]

James Wire is a Small Business and Technology Consultant based in Kampala, Uganda

Follow @wirejames on Twitter.

Email lunghabo [at] gmail [dot] com

Other Articles of Interest:

Small Scale Business, Uganda’s gateway to prosperity

White collar education continuously pounds us with concepts that are sometimes not suitable for our own environs. Industrialisation has always been viewed from the perspective of large companies owned by a few but employing thousands of people. In Uganda, it seems like the trend is small businesses owned by thousands employing a handful each. The recently concluded Uganda Small Scale Industries Association trade fair was testimony to the successes the alternative approach is having in Uganda. More on that in this article. 

Why Raise School Fees?

Ever since the Minister of Finance read out the Government of Uganda’s Budget proposals for the financial year 2014/15, we have been treated to numerous threats by the some proprietors of Private Schools under the umbrella body of National Private Educational Institutions Association (NPEIA) to increase the School Fees charges. This came up as a result of the Government proposing to remove the Income Tax Exemptions currently enjoyed by the Educational Institutions.

As a parent I feel insulted by these continuous attempts to blackmail not only the Government but we parents into joining the crusade of these capitalists involved in our education industry. Do they think that they are dealing with illiterate parents who have no understanding of how the taxation system works? Do they somehow wish or hope that as parents we shall rise up based on mere emotions and lack of proper comprehension of issues to back their pleas?

Having read the Minister’s budget speech in its entirety, she stated; “… I propose to terminate the exemption on income derived by a person from managing or running an educational institution for commercial gain. This is consistent with the principle of equity and transparency in tax regime, and broadening the tax base by bringing more tax payers into the tax net.”

With all due respect and knowing that the proprietors of these institutions are all out to contribute to the Educational advancement of our population, why would one not want to pay tax on income accrued as a result of pursuing this agenda? Working class Ugandan citizens are taxed left right and center and Income Tax is one of those that they do not survive. While the Government might have given the Education industry a tax break in this regard, it didn’t mean that it would last a life time. Besides, the challenges that brought up this decision years back by Government to waive income tax seem to be no more. The proprietors of these institutions should just be ready to file their income tax returns and pay up.

I don’t see an argument of being over burdened by taxes as holding water. This tax only applies to those schools that are making profit. If no profit is made, then it doesn’t apply. This therefore means that the so called struggling schools will still not fall victim to this tax.

To simplify this, add up all the School income from school fees and any other sources then subtract expenses like costs of feeding, salaries for Admin, teaching and support staff, utilities, Local taxes among others. Whatever remains is expected to be the profit and that is what the 30% Income Tax is applicable to. Profits after expenses belong to the business owners and that is probably the bone of contention to many who have been enjoying a free ride making massive untaxed income.

Another argument that is being forwarded is one of loans that are even causing some of the schools to close. The performance of a school in regard to loan repayment cant be directly attributable to the existence or lack of Income Tax. In Uganda, most financial institutions lend against assets. It is highly unlikely that a school with assets worth Ushs 100 Million will be given a loan of Ushs 1 Billion.

It is a good idea for all actors in the Ugandan economy to realise that as we move towards full funding of our national budget, we have to bear the brunt of raising the much needed financial resources. This definitely might mean us remaining with less in our pockets in the process but lets avoid looking for scapegoats. Increasing school fees by the proprietors is not the solution to the Income tax resumption on the industry. Let the business owners readjust their expectations and those that have been stashing away massive profits, its the time to share the loot with Government. As for that poor struggling school that hardly makes a profit, they have no reason to be bothered by this tax resumption.

Fellow parents, let us not be drawn into this well orchestrated scheme by a few who want to continue earning untaxed income. Any school fees increments should be justified with facts.


Uganda’s Budget, A Glimmer of Hope

Having had a chance to read through the Budget speech by the Minister of Finance, I have to say that as a patriotic Ugandan, it is a God send. For years I have been one of the silent complainants about our continuous never ending begging sprees that see us parading begging bowls before various Developed nations. What hurts most is when the very nations we are begging start making us dance to their tunes with total disregard of our needs as a nation and society of people with our own values.

Starting off with the Theme “Maintaining the Momentum: Infrastructure Investment for Growth and Socio-Economic Transformation” it is very clear that the investment in Infrastructure that has been kicked off in the recent past is not about to become history. Uganda is in need of a thorough revamp, upgrade or added investment in infrastructure like Transport (Roads, Railways, Air), Electricity (Generation and Distribution), Communication (Broadband, National Backbone, hardware systems), Water (Processing and Distribution), Agriculture (Irrigation Schemes, Processing) among others.

Due to the negligence over the past 20 – 40 years in addressing infrastructure needs in tandem with the growing population and economy, the country is now at that point where everything needs urgent attention. Unfortunately, its even complicated by the fact that for any meaningful economic growth, most of this hitherto ignored infrastructure cannot achieve results in isolation.

You for example cannot talk of constructing new roads when they have nothing to transport once done. The areas these roads are opening up should be stimulated into increased production for effective benefit of the masses and nation as a whole. A good example is the roads being built in the oil rich Bunyoro region as a result of the Oil exploration going on there.

The budget’s strategy is built on four key inter-linked interventions that are summarised as;

  1. Improving the business climate by undertaking key economic infrastructure investments.
  2. Leveraging Government assistance in Agriculture, Agribusiness, Agro-processing, Tourism, Industry and Services like ICT.
  3. Improving Human Resource productivity by enhancing provision of quality education, health and water services
  4. Strengthening Institutional Governance, Accountability and Transparency.

In brief, the Government would like to stimulate the private sector to grow in the sectors that Uganda has a core competence in by investing in key infrastructure, ensuring good health of the working population and addressing corruption. What more would one ask for?

On the Science and Innovation front, the Government plans to enhance support to industrial research institutions in order to develop and commercialise technology innovations. Uganda needs this in the same measure that we need good roads. Asa country, we have fallen victim and shall continue to fall victim of imported technology that is not suitable for our environment. No attempts at modification are even made and after being flooded with all this dumped technology, nothing gets off the ground and we are back to square one. Lately there has been a drive at a number of local Universities to foster innovation among the students. This has led to initiatives like the Food Technology Business Incubation Center at Makerere University, Tooke under the Presidential Initiative on Banana Industrial Development (PIBID), IT Innovation hubs like Outbox e.t.c. I am optimistic that in the next ten years, we shall have decent home grown innovations that can compete favourably on the world stage and emulate what our Agriculture scientists have been doing at the National Agricultural Research Organisation (NARO) for years.

Finally there has been a turn around by Government after having led a lie all these years believing that the solution to our unemployment challenge is to attract foreign investors who will create thousands of jobs. Those investors are either rare or have taken the country for a ride for too long. Cases are rife of so called investors shipping in cheap labour from their homelands especially those of Asian origin thereby defeating the very purpose of the investment sweeteners they are benefiting from. In this budget, there is clear recognition of SMEs being critical towards creating jobs while at the same time mobilising the informal and rural economic activity. I sincerely hope this can be followed through.

On the ICT front, the push by Government to extend the reach of the fibre backbone i.e. National Transmission Backbone Infrastructure (NBI) as well as commercialise its operations is very commendable as it is definitely going to stimulate the growth of ICT services beyond the key urban areas. It will also enable the faster realisation of countrywide e-Government initiatives that are infrastructure dependent.

The Business Process Outsourcing (BPO) subsector has finally began getting the recognition it needs too. With over 4000 employees, it has been recognised as another growth area. My take here is that the Government shouldn’t leave the BPO operators to hang out dry and look for work from overseas only, charity begins at home and I believe that the Government should lead by example, outsource to these operators as soon as possible.

Agriculture and Agribusiness have also received prominence in this budget. For a sector that employs 70% of Uganda’s labour force while contributing about 21% to the GDP, I must say that the technocrats in the Ministry of Finance have finally come down to earth. Interventions will be supported through focusing on provision of inputs, targeting the needy and graduates, focusing on enterprises that provide high returns to small holder farmers and encouraging value addition for those in large scale production.

The efforts to refurbish and construct new referral hospitals in Kampala and around the country is a welcome call towards addressing the dire situation faced by the Health sector. Until one travels to the country side and visits some of these health centers, you will never believe that God exists.

As a service provide to Government, I do appreciate the proposed accountability measures aimed at effectively and efficiently utilising public resources. These are;

  1. Strict enforcement of the Commitment Control System which bars any Accounting officer from over committing Government beyond the available resources. Accounting officers will be required to honour payments to contractors and service providers within 14 days from receipt of invoices (If you have spent 6 months and more without receiving a payment from Government for work already delivered, am sure you feel me on this).
  2. Decentralisation of the payroll management from the Ministry of Finance to the Accounting Officers is likely to deal with the ‘Ghost’ workers while interlinking the Integrated Personnel and Payroll System (IPPS) run by the Ministry of Public Service with the Integrated Financial Management System (IFMS) shall enhance efficiency of operation.
  3. Budget Transparency and Accountability. Did you know that there is a Budget information website that provides all budget related data? It provides performance of Government programmes by locality and serves as a platform for the public to provide feedback and report any information related to implementation of the national budget. This gives us an opportunity to debate with facts on issues of National Governance.

One will ask but how sincere is Government when they talk of promoting Agriculture and ICT while at the same time levying more taxes on the sectors? The budget proposal is to levy 18% VAT on;

  • Supply of New Computers, Desktop Printers, Computer parts and Accessories and Computer Software Licenses
  • Supply of feeds for Poultry and Livestock
  • Supply of Agriculture and Dairy Machinery
  • Supply of Salt
  • Supply of Cereals gown, milled or produced in Uganda
  • Supply of processed milk and milk products
  • Supply of machinery and tools for Agriculture
  • Supply of seeds, fertilizers, pesticides and hoes

If we put aside man’s inherent laxity towards paying tax, I must say that this move is counterproductive to what the Minister told the nation about promoting ICT, Agriculture and Agribusiness. The Agricultural producer is likely to experience an increase in costs of doing business and so we should expect a corresponding increase in product prices or less private sector led investment in the sector or both.

However, when you analyse this move from a holistic perspective, you realise that VAT is a tax that is transferable and thus doesn’t have to be swallowed up by the producer. Even when the consumer eventually pays higher prices for the product, Agriculture being what it is, no one can avoid food so the consumption is not likely to cease though it may slow down. What producers need to do is come up with new ways of availing their products in a manner that allows the consumer to continue with their current consumption patterns.

By raising tax money from this very sector, it will also help fortify the overarching theme of this budget. I mentioned earlier that the infrastructure development priorities can’t achieve their goals in isolation. So, because of the need to raise money locally having experienced a big drop in the donors supporting the national budget, its the time to sacrifice. Over 60% of Ugandans are in the category that can best be defined as ‘hard to tax’ with those in White Collar jobs bearing the brunt of taxation. In the short term, this leaves Government with Value Added Tax (VAT) as the soft spot for spreading the tax net further.

As we brace ourselves for a potential increase in service and product prices, I am a lot happier because more Ugandans are now going to be co-opted into the tax brackets hence reducing the burden on the few that have been bearing the brunt.

Secondly, with more Ugandans paying tax, this will increase civic responsibility in the lowest levels of society where people have been accustomed to making decisions without thinking them through. Case in point, many voters who tend to be in the informal economic sector do not care much about pursuing accountability issues from the Public Servants as they are under the impression that after all money comes from somewhere else. By paying taxes and feeling the pinch, they will abandon their laissez faire attitudes and exercise their civic duties.

Thirdly, corrupt Government officials will soon be faced with more than just mere jail terms. An angry tax paying population is unlikely to tolerate theft of its resources as opposed to the current status-quo where the adage “babba za bazungu” (They are stealing foreigners’ money) is common.

Bye Bye Dependence, Welcome Independence. Independence comes with Responsibility. Lets brace ourselves.