Major market exits: Filling gaps left by others

Tuesday December 15 2015

L-R: A combined photo of Uchumi outlet in

L-R: A combined photo of Uchumi outlet in Kabalagala before it was closed early this year, passengers board an Air Uganda aircraft which closed operations in 2014 and a British Airways aircraft taxis away during its last flight out of Uganda. File photo. 

By Mark Keith Muhumuza

When Uchumi Supermarkets closed in October, it was the time Uganda’s economy was facing headwinds.
The analogy tended to suggest the supermarket’s closure was a result of a troubled economy and the rather small middle-class community.
True that the economy is projected to slowdown but it would be shooting blanks if such failures are heaped all in one place.

The economy is expected to slowdown to 5 from 5.8 per cent due to a weak Shilling - notwithstanding recent gains, rising inflation, high energy prices and surging interest rates.
Prior to Uchumi’s closure, British Airways had announced a halt on all flights to Entebbe International Airport because the route had become unviable.

This was around the same time Shoprite closed one of its outlets at Metroplex Mall in Naalya.
But even before then, in 2014, Air Uganda halted its services after Civil Aviation Authority (CAA) suspended its Air Operator licence.
The exit came in the same year when the Central Bank closed Global Trust Bank (GTB), a Nigerian-owned bank that had been making losses since its inception in 2008.

Unique situations
Uchumi’s problems have been well documented and were largely dependent on factors to do with management at its headquarters in Nairobi.
The most recent, among a litany, is the claim that Uchumi managers falsified accounts which created a of more than Shs33b.
“The former management cleverly played around with books. The true and fair position of Uchumi was never reflected,” said current chief executive officer Julius Kipng’etich.

Uchumi has since restated its accounts as of June 2015. The board in a statement noted the restated accounts “reflected the legacy of issues that were undermining the performance of the business.”
Lawsuits and court orders continue to plague the supermarket and in its restated accounts, the company said it was taking out impairment expenses of Shs52.8b from the closure of the units in Tanzania and Uganda.

Furthermore, in several audits, Hipora, a loss management firm, indicated Uchumi staff employees were stealing goods and money from the tills and shelves of the supermarket.
The audits indicate the damage was deep, warranting an immediate closure of some of the outlets and sale of some properties to salvage the entire company from collapse.

Advertisement

The reality of competition
But for British Airways, it was nothing about internal troubles as the company was caught between a highly competitive market, making the airline’s route unviable.
As the BA plane set off for its last flight from Entebbe International Airport, it was a subdued moment, but months later, both travel agents and travellers seem to have moved on.

British Airways said then its services in Uganda had become commercially unviable, which warranted that it halts its operations in the country.
But few doubt this because, just recently, while conducting a talk organised by the African Centre for Media Excellence, Doris Akol, the Uganda Revenue Authority commissioner general, highlighted that “because of changes in consumer tendencies, some companies simply cannot compete or keep up the pace with the competition.”

Akol’s argument could stand given that CAA data shows passenger numbers through Entebbe International Airport have significantly grown raising from 5,615 in 1991 to 26,886 in 2014, indicating a growth rate of nearly 400 percent in the last 24 years.
However, British Airways could have failed to be favoured by dwindling trade fortunes between Uganda and UK, which have largely remained flat, forcing a drop in passenger numbers from 77,702 to 43,000 in 2013.

Where some failed, others prospered
When Uchumi exited Freedom City Mall on Entebbe road, it said the location was not good for business but ironically the same space was quickly occupied by another supermarket – Outlet Supermarket, which seems to be doing well.
In the same manner, Uchumi’s troubles at Garden City have not stopped Capital Shoppers from thriving there.

Shoprite, which attempted to open a third branch in Naalya, closed citing loses, poor performance and bad location, but months later, Nakumatt opened an outlet at the same point with Sameer Shah, the chain’s regional operations manager telling Daily Monitor: “We are confident that we can operate cost effectively at this location.”

In the aviation sector, the exit of British Airways gave Ethiopian Airlines a new opportunity with the airline raising its flight frequency between Entebbe International Airport and Addis Ababa to three per day from two as it sought to tap into the gap left for passengers flying to Britain and the US.
Just like Ethiopian Airlines, Kenya Airways and Rwandair are profiting from the closure of Air Uganda.
Kenya Airways, for instance, has since increased its flight frequency from two to four flights per day and has since raised its ticket fair by an average of 30 per cent.

But the banking sector could have had muted activity in terms of new entries this year and the gap left by Global Trust Bank could have been slowly filled by existing ones.
Global Trust Bank was closed over accumulated losses that had eroded its capital below the required minimum of Shs25b.
But beyond Global Trust Bank other banks, including Imperial Bank Uganda, have fallen below the required minimum of Shs25b and have had to be rescued by shareholder injections.
However, the bank’s operations have been stretched by the troubles facing its largest shareholder - Imperial Bank of Kenya.
Imperial Bank Kenya was placed under receivership after the Central Bank of Kenya discovered unethical business practices, which put the bank’s customers at risk.
The shocks in Kenya spread to Uganda with Bank of Uganda taking over the bank’s subsidiary here. The bank has since been placed under sale with a 60 per cent shareholder stake available on the market.

Misplaced blame

Some sections have blamed dwindling economic failures for the collapse of some companies but to others this might be short of other factors, which among them include growing competition, mismanagement and failure to adopt to new challenges.
For instance, Uchumi’s failure has not prevented other retail chains from growing and even expanding. In the aviation sector, other airlines have since filled the void left by British Airways and Air Uganda.

Advertisement