Kampala. Top Ugandan business people and managers have listed profitable areas where one can invest and earn big.
Whereas there is a lot of talk about the economy not doing well, these Ugandans are reaping big from such businesses. What is the trick? From which sectors are these Ugandans making money?
The business climate has been quite gloomy since the year began. If figures from Makerere University’s Economic Policy Research Centre (EPRC) are anything to go by, the Business Climate Index (BCI) declined by more than six basis points in the second quarter of the year.
EPRC says the BCI fell to 90.40 in the period between April and June, down from 96.53 basis points in the period between January and March.
BCI is arrived at based on surveys where respondents give their opinions on several business performance indicators, which include the level of business activity, profitability, number of new businesses that are opening up, costs of inputs, price of goods, capacity utilisation and number of employees and their remuneration.
The scenario was attributed to the decline and continued below potential performances in both the manufacturing/industrial and service sectors. The industrial sector contributes about 18.5 per cent of the Gross Domestic Product (GDP), while the services sector contributes about 47 per cent of GDP.
So what is it that is working?
Interviews with a cross section of business personalities and research by the EPRC shows that some sectors of the economy are working extremely well despite the prevailing economic meltdown.
Mr William Nyakuturamu, an investment banker with African Alliance Uganda, an investment banking group operating in Africa, says sectors such as education, health and banking will always do well regardless of what might be happening in the economy.
“These are what we call defensive sectors. The economy cannot run away with them. If you are providing quality education, the parents have no choice but to come to you because they want the quality education for their children. Similarly, if people are sick, they have to seek quality medical attention and buy medicines,” Mr Nyakuturamu says.
This perhaps explains why a number of private schools, private hospitals and pharmaceutical firms have sprout and are thriving.
Mr Paul Corti Lakuma, a Research Fellow at EPRC, says the financial services sector, which includes banking and finance, money lending, provident funds and auditing is another of those areas that thrive regardless of what is going on in the economy and that it is doing so at the moment. This, he says, is best exemplified by the number of microfinance institutions in the country. Uganda has more than 100 of them.
Rapid growth of the urban population and increases in the incomes of the middle class has fuelled a demand for decent houses and organised living areas, which has in turn led many into investing in properties for rent. Mr Sudhir Ruparelia is perhaps the biggest investor in real estate in Uganda.
He says: “At the moment, there is too much of real estate everywhere. You can make some reasonable amount of money in accommodation if you build something well organised with a large restaurant, a health club and a gym.”
As the empty high-end apartments and houses in areas such as the shores of Lake Victoria in Luzira and Kisaasi which were meant to go for between $2,000 and $3,000 a month have shown, it is the low and middle end income houses for rent and sale that work.
“Most of the high-end houses that go for rent within the region of Shs1.5 million and above are empty. The normal average is between Shs500,000 and Shs1m. Anything above Shs1.2m is tricky,” Mr Nyakuturamu says.
Pearl Marina Estates Limited, a subsidiary of the Kenya-based Centum Investment Group, is doing well with moderately priced houses. It is developing a 300 acre estate at Garuga with residential houses, apartments, hotels, complete with schools, hospitals and a shopping centre.
Mr Brian Arineitwe, who speaks for the group, says they are developing lower end apartments which they are selling off for between $54,400 (Shs200m) and $68,000 (Shs250m).
“I am reluctant to give you the numbers, but we are satisfied with the business. We planned to have 42 three bedroomed houses and we have sold about 40 per cent of them. The single bedroom apartments have been sold out and we have had so many bookings with the two and three bedroom apartments,” he says.
The telecommunication sector continues to do well. The Uganda Communications Commission (UCC) put the number of phone subscribers at 23,993,111 in November last year. However, the recent decision by Vodacom to exit the market raises questions.
“Right now the telecommunication sector is vibrant, but I don’t think there is room for a new entrant. The market share has already been divided,” Mr Corti says.
While it is generally true that small holder farmers are struggling due to lack of infrastructure such as irrigation facilities, extension services, poor quality seeds and inputs and lack of mechanisation, the agriculture sector has been growing.
The BCI figures for the second quarter of 2018 which were published by EPRC, indicated that the sector posted a 70 per cent increase, moving to 136.57 points for the period between April and June 2018, up from 80.23 points in the period between January and March.
“The large improvement in the agriculture sector is likely to be a result of sustained rainfall across the country, growth in private sector credit towards the sector…” the Uganda Business Climate Index reads in part.
Bank of Uganda put the amounts of private sector credit to the agriculture sector during the second quarter of the year at Shs1,628 billion, which seems to have had a bubble effect on the various activities under the sector.
Mr Muhwezi Mugisha, a former Resident District Commissioner in Jinja and Masindi, who has since retired into dairy farming and trade, says the biggest challenge is always in starting up, but that dairy farming is quite lucrative.
“Putting in place structures such as a spray race, a milking parlour and fencing off the farmland can be hurdles but once you are past that, it becomes a profit making enterprise. You cannot inject back more than a third of what you get per month. I know many people who pay school fees for their children from milk alone. They don’t do any other business,” he says.
According to the website www.worldstopexports.com, Uganda earned $79.9 million from the export of dairy, eggs and honey in 2017, which is a pointer to how the poultry farming business is working.
The paper, Scaling up of improved poultry breeds in Uganda, a review of successful scaling of agricultural technologies, which was published by the United States Agency for International Development (USAID) in February last year, indicates that Uganda has an estimated 44m chicken, and that demand for poultry products has been on the rise due to urbanisation and income growth.
Kukuchic and YoKuku Poultry Farm’s entry into the market to jostle with, among others, Ugachick Poultry Breeders and Biyinzika Poultry International Limited, serves to show that the sector is working.
Mr Aga Ssekalala Jr is cagey about how Ugachick is doing, but he says the government’s recent decision to scrap VAT on animal feeds was good for the sector.
The announcement in December 2016 by the International Livestock Research Institute that the per capita consumption of pork in Uganda stands at 3.5 kilogrammes, making it the biggest consumer of pork on the continent and second in the world, is an indicator of how big the piggery business is in Uganda.
It is estimated that 1.1 million households keep pigs and about 3.5 million small farmers are dependent on it and millions more employed in the piggery business.
Information from the Food and Agricultural Organisation (FAO) shows that Uganda produces up to 15,000 tonnes of fish from fish farms, including that from small scale and emerging commercial farmers. It is estimated that each commercial farmer produces 15,000 kilogrammes of fish per year.
With each kilogramme of fish going for $2.2 (approximately Shs8,147), it means that such a farmer gets at least Shs122m per year.
That looks good. But Mr Rashid Asiimwe, formally employed by the National Fisheries Research and Resource Institute (NaFIRRI), says one has to invest heavily before earning that kind of money.
“It is capital intensive and involves a lot of risks, but you have to have good seed, good feed, huge quantities of good water, good management and good technology if you are to succeed as a commercial fish farmer,” Mr Asiimwe says.
Contract based food exports
Figures from the website www.worldstopexports.com indicate that Uganda earned $651.5 million from the export of coffee, tea and spices in 2017; $183 million from the export of cereals; $110.4 million from the export of vegetables; and $91.7 million from the export of sugar and sugar confectionery, which points to how lucrative the contract based food exports business has become.
“KK Foods contracts to export soya beans and chilli to China and are proof that the sector is working very well. There are those who have also been supplying to the World Food Programme and exporting to other countries in the region. What we need now is improvement of storage facilities and standardisation,” Mr Nyakutura says.
On state of economy: At the moment, we are going through a very hard downturn. Liquidity is quite an issue. So, if you have capital, it is very important to try and be very careful where you invest the money.
Where to Invest: There are many sectors that people would like to go into, but one of the most interesting at the moment is agriculture. It is one of the most neglected and it is probably the last choice with most people, but that is where real creation of wealth occurs.
Which crops to grow: My thinking now is horticulture. Grow organic vegetables for export. I don’t think one should get into export until they are large enough. There are many people exporting. It would still be profitable to grow and sell to them and there are enough buyers in Europe.
Other crops: You have different vegetables and 11 different herbs out of which eight are grown outdoor. So those are something that you can target and understand how to grow them. So that is quite a big choice on its own.
Other sectors: If you are not interested in agriculture, all I can suggest is that you keep your money in the bank. You will earn some interest. It is better to earn interest other than lose the little capital you have.
On service industry: Most of the businesses in Uganda are service-oriented. They are very capital intensive and if the location of what you do is not right, you are cornered out.
On real estate: Real estate is fine as long as you have created your surplus cash. You see real estate can be good business, but it can also be very dangerous business. If you want
Tips from Sudhir Ruparelia
To grow with borrowed money then real estate is the worst business you can be in. You can make a reasonable amount of money in accommodation.
On import trade: It is very difficult for a new person. One needs to understand the market here, and then move to make sure that you buy the product from abroad at the right price, pay the right duty and still make money out of it. Trading is not very lucrative unless you are a very specialised person going for a very specialised market where you have your partial monopoly.
On tourism: Tourism is a growing business, it will be a growing business for a very long time to come, but that is a very highly competitive sector. If you are going into lodges you have to find the right place in which to build them, market them, find the right managers and supply chain. It is not a bad business, but it is much more complicated than what it looks as seen from afar.
On transport: No. I do not like to go into anything that moves because I cannot manage it. If you are in a truck hire business, once a truck leaves your premises, you are not in control. They are highly capital intensive businesses and yet you are not in control.