By Moses Kaketo
Private Equity Funding (PEF) has taken Uganda by storm. In the past few years, a number of local entrepreneurs have sold their interests to Private Equity Fund managers. The model has also seen the entry of international brands like KFC , Java House among others. The model is subject of debate and the debate is ongoing. The model has been received with mixed feelings. With some analysts, saying the model only worsens the country’s dependency.
Private Equity is idle Pension money in Europe that is looking for higher returns than the market. In Europe, the markets have been returning nearly zero. The London Inter-bank borrowing rate has been very low at 1 or 1.2 per cent. As such, Funds that collect huge amounts of money are being diverted to emerging markets to invest in Small and Medium enterprises (SME’s).
However, this money comes with terms and conditions. The Fund Managers always seek to acquire majority shares, which enable them take major decisions. The idea is to turn around the company in ten years before selling it off for a profit. The Funds look out for business that are promising but lack something to propel it.
Two years ago, Dr. Ian Clarke sold majority shares of International Medical Group to a Mauritius based Private Equity Fund . The Fund has since taken over management of the hospital. Inside sources say, since then, major changes have taken place at International Hospital Kampala.
Biyinzinka Poultry International (BPI), formerly Biyinzika Poultry is the other Ugandan firm that has received PE funds. Indeed the company has undergone fundamental change, growing day and night.
The other Ugandan firms enjoying PE funds include Simba Properties owned by Patrick Bitature, Fresh Cuts among others. So, is PEF a good model of financing? We take you through the good, bad and the ugly side.
Analysts say, the model accelerates the country’s private sector. For example, back then Biyinzika Poultry International was indeed struggling. Fast forward, after receiving PE Funds, the company is growing at very fast speed. The company is set to become a mainstream player. And if, everything goes well, who knows, BPI could be easily be sold to the International players Like Rainbow, Pizza Hut and the like.
Experts urge that the entry of globally respectable companies like Rainbow could turn Uganda into a more corporate nation. Above all, nationals who work in these companies get exposure.
For example Ugandans who work in international banks like Stanbic Bank Uganda can work anywhere in the world. They are trained in South Africa, Mauritius and Nairobi and mentored by best in the sector.
The PEF model is said to be a good exit strategy. Otherwise, there are not so many people interested in buying your business. Thus, rather than see your business close, it is better you sell it off and then move on. For example, when Dr. Ian Clarke ‘sold’ off IHK, he has since joined politics and opened up other business lines.
And the bad…..
There is this argument which is subject to further discussion and engagement-The believe that Private Equity Investment kicks out and locks out local entrepreneurs. The beauty is that no one is forced to sell his business. It is willing sell, willing buyer.
Analysts urge that there is no clear method on how nationals benefit from this model. There is this argument that there is no any big difference at Nile Breweries ever since Madhvani sold the company to SABMILLER- a huge multinational firm.
To a typical Ugandan beer consumer, there seems to be no big change in the beer he takes since the take-He still takes Club and Nile Special. The URA may claim to be getting more taxes. Either way, the tax would have increased if Madhvani stayed.
A member of the Uganda Manufacturers Association (UMA) who prefers to remain anonymous says SABMILLER is too detached from the Association activities and rarely attends the UMA meetings. The question remains-Are such big multinationals beneficial to Ugandans and the business community at large? One of the objectives of the UMA is teamwork, cohesion and knowledge sharing. If the members can hardly access another, then objective(s) is lost.
Globally, every country has its own entrepreneurial class. No country develops at the back of foreigners. In Asia, they have Taata family, Yamaha, etc. Can Uganda afford to lose her local entrepreneurial class–call them role models for young generations?
The Arab countries seem to be hands on. They insist that foreigners must do joint ventures with the Nationals. The only problem with this model is that in countries where locals lack money and skills, it creates preferential treatment -it forces investors to deal with those who are close to centre of the power. At the end of the day, they own shares in nearly every foreign company operating in the country. That is also not good for the economy.
What tends to be a good idea, industries which are promising should be supported by government through say low-cost funding-call it affirmative action. Again, if this model not properly implemented, it leads to ‘preferential treatment’ -otherwise who decides who gets these benefits.
Given this dilemma, the alternative is; let the market decide. Nevertheless, the market is not a good judge. Can we afford to have mixed approach? Otherwise, local entrepreneurs can be as effective as foreign companies can. For example, Mukwano Group competes well with Unilever. In Kenya Bidco is a very strong player.
Given the economic situation in Europe, money will continue to come to Africa and Uganda in particular. We have nothing to do about it. We can only be get ready for it. However, the problem centres on regulation. We seem not to have a clear policy on PEF.
Uganda needs to draw a clear a clear policy for the model. Before an investor comes here, there are should be certain conditions he must fulfil. For instance, the fund investor must clearly state source of his funds, amount he intends to invest in the economy and the amount he can repatriate. Otherwise, now everyone is coming to do business in Uganda; what if they do not work out? Can we afford to just sit down and see them close business and go just like that?
It is clear; there is a loophole in Uganda about PEF as model of financing. It is food for thought. The opportunity Uganda has lost is that Bank of Uganda and other responsible bodies are engraved in basics, that they cannot look in spheres like Private Equity.