How can startups be helped to evolve into sustainable businesses?

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By Dorothy Nakaweesi

In 2013 Premier Dairies entered into the dairy battle field to sell milk and yoghurt.
It was the dawn of a new era that introduced a fresh product – Mega Milk – in a market that is largely controlled by informal traders.
Premier Dairies, to say the least, had been nurtured from scratch to a level where it currently processes more than 10,000 litres of milk per day.

The company, which is owned by Moses Byaruhanga, the senior presidential advisor on political affairs, is a reflection of the larger good that Uganda can achieve through business incubation.
Premier Dairies, according to Byaruhanga has gained so much from Uganda Industrial Research Institute (UIRI) that has gestated it into quality productions and sustainable business models.
Next year, Byaruhanga says, they will grow out of UIRI’ wings and start on a new path to independence.

“We have applied for land in the Kampala Industrial Business Park in Namanve where we hope to establish a processing plant,” he says.
The company, Byaruhanga says, has had a good reception in the market and has over the years generated money in sales, part of which they hope to use to establish the $500,000 (about Shs1.8b) plant.
“Of course we shall use part of our savings [to establish the plant] as well as look at other facilities such as the agricultural credit facility from banks,” he says.

Ideally, the story of Premier Dairies is a typical startup that has been nurtured by a well though out plan guided under UIRI.
However, the bigger question today is, can Premier Dairies and such other startups live through to build sustainable businesses that can run as profitable entities?
Uganda ranks high in terms of entrepreneurship but has been bogged down by the high rate of business collapse, many of which are startups.
According to Charles Kwesiga, the executive director of UIRI, they give sufficient technology, skills and some bit of piloting, after which the company is left to operate on its own.
However, he says, after they have done all this, “somebody else [government agency] has to take up the responsibility to provide affordable financing if industrialisation is to happen”.

Doing nothing
At a recent meeting with East Africa’s Research and Technology organisations, Kwesiga said a host of incubated startups are doing well because they are using UIRI’s facilities but if they are left to operate on their own many will collapse.
“Why should we waste all the time and only end up with nothing –we are trying to help these startups to be self-reliant but we can’t do much,” he said.
Ideally, according to global standards, a startup cannot be incubated beyond five.
However, many are finding it hard in Uganda to survive even after they have gone through the five or so incubation period.
Through UIRI, government seeks to nurture startups into industrialised entities that have the capacity to create jobs, promote exports and boost revenue.

More needs to be done
However, according to Kwesiga, more done to be done if startups are to become sustainable businesses.
His argument is supported by expert opinion and informed research which highlight the low levels industrialisation in East Africa and Uganda in particular.
According to the EAC Industrial Competitiveness Report, East Africa’s industrial performance as measured by manufacturing value added and trade growth rates remains well above global average and has fallen behind other regional settings such Ecowas and southern Africa.
The report illustrates that manufacturing value added growth has slowed from 5.3 per cent between 2005 and 2010 to 4.6 per cent between 2010 and 2015.

This is far below the 10 per cent target highlighted in the EAC Industrialisation Policy and Strategy.
According to Gideon Badagawa, the executive director of Private Sector Foundation Uganda, incubated companies are like babies, who cannot be weaned off breast feeding and abandoned immediately.
“A firm that has gone through incubation requires significant amount of support to survive, grow and compete. It requires skills and transfer of appropriate technology, equipment, capacity to produce and store, as well as an assured markets,” he says.

Government and bigger organisations in the private sector, he says, must support startups through networking as well as building linkages and partnerships.
This is supported by Fred Muhumuza, a Makerere University lecturer and economist, who believes that supporting industrialisation needs to be taken beyond testing technology and technical processes.
“These industries have got to be viable in terms of business. Laboratory experiments quite often are like babies in the womb and are not designed to face the realities of life outside sheltered environments,” he says.

Uncontrolled imports
Uganda has a lot of uncontrolled imports, which Jennifer Gache, a senior industrial engineer at the EAC Secretariat believes incapacitates startups.
The loose and an uncontrolled import market, she says, lets in to much which makes it hard for startups to compete.
“You cannot believe the amount of textiles coming into Uganda. Then there is the issue of second hand clothes. All sorts of things come in uncontrolled. So how do you develop industrialisation when you have all these imports?” she wonders.
East Africa and particularly Uganda, she says, must take lessons from other economies such as Malaysia that have helped to prop up industrialisation.

Challenges
Startup, like any other business have challenges with the biggest, according to Daniel Birungi, the Uganda Manufacturers’ Association chief executive officer, being access to affordable and long term-credit.
“Commercial banks right now lend at about 24 per cent. This is so expensive and it will be hard for a startup to repay and run normal operations without cashflow issues,” he says.
However, beyond this, startups are also impeded by the high cost of doing business worsened by almost unstainable electricity costs.
“At the end of the day startups fail to survive because prevailing conditions force them to give in to fake imports that come in the country at relatively low prices,” Birungi says.
Therefore, he says, there must be targeted interventions which among them include setting up affordable loans facilities and electricity supplies.

Sustained financing
For instance, Uganda Development Corporation is setting up credit facilities that will stand between 8 per cent and 15 per cent for both shilling and dollar-dominated loans.
UDC is one of the vehicles through which government is investing in strategic sectors of the economy where the private sector, on its own, may not be in position to invest.
The UDC Act 2016 has set Shs500b, for the corporation to achieve its objectives for now.
The UDC executive director, Emmanuel Mutahunga, recently told this newspaper that they will mainly look at agriculture, manufacturing and the services sectors that are risk prone but have long-term benefits to the economy.

“We believe this can stimulate agricultural production and propel agro-based industrialisation,” Mutahunga said.
However, other measures such the Agricultural Credit Facility have been put in place to help spur industrialisation.
The facility, which is managed by the government and other partners, seeks to provide medium and long term loans to projects engaged in agriculture and agro-processing on more favorable terms than are usually available.

The scheme is administered by Bank of Uganda and gives a repayment grace period of three at an interest rate of 10 per cent per annum.
However, Birungi believes, other intervention such supporting local content producers will help to spur industrialisation.
“We need to see government coming out to exclusively support local manufacturers with incentives,” he says.
Currently, goods manufactured in Uganda contribute only 30 per cent. Therefore, the questions is how can Uganda lift this percentage to something substantial.

Monitor.co.ug

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