Sembule Group of Companies, lost Sembule Steel Mills, a Shs27b factory in Nalukolongo due to unpaid debts. This was the first indigenous firm to produce steel products in the country. PHOTO/FILE
|People & Power
Prime
Has govt gone AWOL as local business empires crumble?
What you need to know:
- Government has previously said it does not segregate when it comes to incentives.
- But by the look of things, millions of dollars in incentives are offered to foreign companies as locally owned firms are left to choke on debt, and sometimes fold, Isaac Mufumba writes.
Last month, Justice Stephen Mubiru of the Commercial Division of the High Court issued a ruling that brought down the empire of businessman Habib Kagimu.
Early in June he allowed the attachment of Mr Kagimu’s properties in Kololo and Bwebajja, for failure to pay a loan of Shs3.36 billion he had taken out through his Habib Oil Limited and Electro-Maax Limited.
ALSO READ: Genesis of Kagimu, Stanchart property row
Whereas the same judge threw out an application in which Patrick Bitature’s Simba Properties Investment and Simba Telecom had sought to stop the auctioning of its properties namely Elizabeth Apartments, Protea Hotel (Skyz’s Hotel), Moyo Close Apartments and Kololo Gardens by the South African entity, Vantage Mezzanine Fund, which he owes $32,064,075 (about Shs117b), the Court of appeal overturned that decision.
Mr Bitature’s empire remains in the balance.
Not the first
It is not clear whether Mr Kagimu is working behind the scenes to save his property, but if his empire and that of Mr Bitature go under, they will have become the latest additions to a long list of indigenous business empires that have bitten the dust in the era of the National Resistance Movement (NRM).
Businessman Alhaji Habib Kagimu (R), pictured with junior foreign minister Okello Oryem has lost several businesses due to loans. PHOTO/File
Most prominent on the list of those that have buckled under the weight of debts is Sembule Group of companies, the first indigenous firm to produce steel products at their Sembule Steel Mills in Nalukolongo; own a bank (Sembule Investment Bank); own an insurance company (Pan World Insurance); open a televisions and radios assembling plant and; manufacture street lights and energy saving bulbs. Sembule Steel Mills was taken over in September 2014.
Other individuals and firms that have either closed or been threatened with foreclosure include Fort Portal businessman, George Begumisa, Mr Hashad Damani, Capt Joseph Charles Roy, Muhammad Muyanja Mbabali, Senana Investment and Visare Uganda Limited.
Pussy footing
While in the bush, the NRM came up with a minimum recovery programme, the much touted “The NRM Ten-Point Programme”.
Point number five was the “building of an independent, integrated and self-sustaining national economy”.
President Yoweri Museveni has always argued that, “there is no way that Africans can emancipate themselves from poverty and backwardness without carrying out an industrial revolution”.
On September 9, 2020 while addressing members of the NRM’s Central Executive Committee (CEC), Mr Museveni quoting the parable of the hired shepherd as told in the Book of John 10 verses 11-13, emphasided the need for the owner to be in charge of the flock as he would “defend the sheep even at the expense of his own life”.
He said that this is what informed his government’s decision to support locals such as James Mulwana to enter into the manufacturing sector.
“Apart from encouraging the African business people such as Mulwana, we returned the property of the Asians and attracted new investors from, especially, China,” Mr Museveni argued.
The President did not name others who benefitted from that effort, but Mr Daudi Migereko, a former Cabinet minister who is the Chairman of the Uganda Tourism Board (UTB) said a whole range of actors in the manufacturing sector benefitted from an effort that was aimed at building up local capacity to produce essential commodities that were in short supply when the NRM shot into power.
“The support that was given out was focused on making sure that essential commodities like sugar, vegetable oil, tea leaves and soap could be availed by local producers,” Mr Migereko says.
Mr Migereko’s list of those that benefitted from concessionary loans that helped them build capacity to produce essential commodities has Kakira Sugar, Kinyara Sugar, Sugar Corporation of Uganda Lugazi (SCOUL) and Mukwano Industries, but no single entity owned and run by indigenous Ugandans.
Migereko says Ugandans were assisted in a different way.
“Tea farmers in Kabarole, Bushenyi and Kigezi were helped to acquire tea factories. The small holders in the vegetable oil manufacturing sector got support through the United States’ Agency for International Development (USAID). They got support to do seed multiplication and ensure adequate supply of raw materials,” Migereko says.
The problem is that most of those small holders have since gone bust as have other indigenous personalities such as Kagimu, Capt Roy and Mr Mbabali to name but a few, who have tried their hand at competing with foreign investors for business in Uganda.
There have been calls for formulation of policies aimed at building local capacity at both management and entrepreneurship levels. That includes helping local entrepreneurs to stay afloat, but Fred Muhumuza, a development oriented policy researcher who also teaches economics at Makerere University, thinks that that is not the duty of government.
“The duty of government is to open up spaces. Empowering locals is usually done as a secondary affirmative action, but the main duty of government is to create spaces for businesses to thrive, whether local or foreign,” he argues.
Muhumuza says that locals businesses are already catered for under local content, but that questions should now be asked why they are not taking advantage of the same.
Well, the way to go would for affirmative action.
In South Africa for example the implementation of the black economic empowerment policy opened the doors for black South Africans to enter sectors such as mining and telecommunications, which had previously been the preserve of whites. That led to the rise of the likes of Cyril Ramaphosa and Patrice Motsepe as business giants there.
That assumes even more importance now that Mr Museveni is advocating placing the responsibility over the flock in the hands of the owners and not in the hands of a hired shepherd.
Government gone AWOL?
It would, however, look like government has gone absent without official leave when it comes to matter indigenous business.
Mr Museveni’s critics argue that the actions of his government has been increasingly giving preference to foreign firms instead of creating an environment that would allow local firms to thrive.
His government for example gave tax breaks and other concessions to the Uganda Vinci Coffee Company (UVCC) of Italian business personality, Ms Enrica Pinetti, on grounds that it qualified to be incentivised under the provisions of the Investment Code Act of 2019 “considering that the company intends to invest in agro processing”.
It was strange that Good African Coffee of Mr Andrew Rugasira was not accorded any support even when he pioneered the struggle to have processed Ugandan coffee in supermarkets in the United Kingdom and the United States of America.
Prior to the arrival of Vinci Coffee, millions of dollars and other incentives including government guarantees had been lavished out on Mr Villupilai Kananathan of the Apparels Tri-Star and Finaci SPV Limited of the Lubowa Specialised Hospital.
Finance minister Matia Kasaija (2nd left) exchanges documents with Ms Enrica Pinetti (right) after signing an agreement with the Finance ministry to establish a coffee processing plant in Uganda, on February 10. PHOTO / FILE
State Minister for General Duties at the Ministry of Finance, Mr Henry Musasizi defends government saying that the incentives regime is not segregate.
“Available investment incentives are open to everyone. Laws such as the Investment Act, the Income Tax Act, the Value Added Tax Act clearly spell out who is eligible for that incentives. Those incentives are not limited to foreigners” he argues.
Besides, the minister says, government has been injecting money in the Uganda Development Bank (UDB) and the Agricultural Credit Facility - Bank of Uganda, but those are not working for most Ugandans.
“So you want to go back and ask, what is failing the locals from taking advantage of the opportunities that government is creating,” Muhumuza says.
Locked out?
Mr Museveni’s critics further argue that there seems to be an official, but unwritten policy that deliberately locks Ugandans out of sectors like banking and the construction sectors where the real money is.
Ezra Suruma who once served as Deputy Governor of Bank of Uganda and minister of Finance. has always argued that the financial reforms of 2010, which barred Ugandans from owning more than 30 percent of a microfinance institution and raised to Shs25bn the minimum capital required to set up a commercial bank was a “stupid law” that drove Ugandans out of the banking sector.
Non payments
Where contracts have been awarded to local firms, payments have been so hard to come by that many of the firms, especially those that operate using loans from commercial banks have been left on the brink of bankruptcy.
The President of the Uganda National Association of Building and Civil Engineering Contractors (UNABCEC), Jameson Olonya, told Members of Parliament in May that local construction firms are no longer interested in taking up work tendered out by the Uganda National Roads Authority (UNRA) because government payments take long to come.
“Local contractors have been hindered from performing ongoing works and other obligations. By not paying them, government is frustrating growth of its own national providers, which is contrary to objectives of Vision 2040 and NDPIII,” said Olonya.
The situation has led to a rise in domestic arrears from within the region of 2.8 trillion to about 4 trillion, a situation which Muhumuza blames on a breakdown of the commitment control system.
“You need to go back into government and ask what happened to the commitment control systems. Why is anyone committing government without resources?” Muhumuza asks.
That is, however only of the many questions that arise whenever discussions around the challenges faced by the local business community come up.
No contracts
Contracts for major roads and bridges have tended to go to foreign firms. A look at a list of 13 roads and bridges that were completed in 2017 will for example show that only two, Rukooge Enterprises and Ms Terrain Services were Ugandans.
The other 11 went to Ms Energo Projekt, Niskogradnja A.D, CICO, China Railway Seventh Group, Sbi, CECC, Stirling Civil Engineering, CCECC, CICO and Zhongmei Engineering.
China Railway Seventh Group is one of the foreign firms that has won contracts to construct roads across the country. PHOTO/COURTESY
That is taking a toll on the economy, a fact which Finance Minister, Mr Matia Kasaija acknowledged in January 2017 during the launch of a new board for the Private Sector Foundation of Uganda (PSFU).
“I am spending Shs3.6 trillion to develop roads and I need another $564 million for oil roads. It pains me that not a single Ugandan company is doing the roads; no wonder there is shortage of money in circulation,” Mr Kasaija said.
Dr Fred Muhumuza blames the situation on a project implementation design that does not favour local contractors.
“It is strictly in the design of the project implementation that the locals are excluded. When you look at government payments, they say do 30 per cent then we pay you. They ask for a bid guarantee. If a road is Shs400bn which local firm can get a bid bond of Shs150bn?” Dr Muhumuza wonders.
