‘Bad’ economy: Where are the opportunities?

Kampala – Ms Rehema Kimuli is a ginger – a hot, fragrant spice made from the rhizome of a plant – trader. Ginger is a hot cake for those who grow and trade in it.
In a good year, Kimuli says she smiles all the way to the bank.
“A bag of ginger can go up to Shs600, 000 ($166) and if the season is good, the earnings are really worthy,” Ms Kimuli shares.
However, last year’s prolonged drought affected Ms Kimuli’s business and she expects fewer supplies judging from the feedback she gets from the farmers.
One would think Ms Kimuli is going to sit and wait for a good season but this is not the case.
She said: “I have resorted to trading in seasonal crops such as beans. The reason is because the demand is big at the local market as well as the regional market.”

Commodities trading
Trading agricultural commodities appears to be one of the profitable ventures in the economy at the moment. The drought conditions in the country have ravaged the food production and created a supply problem. Crop failure has been reported right across the country. The presence of the army worm has also destroyed several crops, especially grain products such as maize. According to the director crop resources in the ministry of Agriculture, Okasai Opolot, by March, about 15 per cent of all maize production in the country had been affected by armyworm. The estimates point to a loss of $192m (Shs695 billion) if the armyworm is not dealt with.
Uganda produces about 4 million tonnes of maize per year and about 3.4 million households are estimated to depend on the crop for income. The result of this has been priced edging upwards. Maize is an essential ingredient in posho and poultry feeds in Uganda.
Speaking to The East African newspaper recently, Nalugwa Harriet, proprietor of Arizona Feeds in Kampala, said Uganda’s export of maize to Kenya and Tanzania has created a shortage, leading to a hike in prices by traders who buy from large scale farmers.
“Presently, a kilogramme of maize is Shs1,600, up from Shs600 and who knows, it could go up to Shs2,000 by the time they read the budget if the government does not offer incentives to import maize bran,” she said.
That is where the traders come in. Several companies and individuals have set up warehouses. They buy maize or other grain crops, store them and wait for higher price to cash in. There has been a shortage of maize but some of the traders are holding onto stock as the price continues to rise. According to the Uganda Grain Council (UGC), right across the country prices of grain are going up.
“During this period as the prices kept increasing, the volumes purchased kept dropping and some major buyers decided to put a halt on buying. During the last part of the month, prices escalated as volumes continued to go down and as foreign traders from Rwanda, Kenya, Tanzania continued to ferry maize and other grains from the country but in reduced quantities; their respective countries maintained the ban on exports of grains,” reads the February report from the UGC.
For traders to thrive, they need a farmer to produce crops.

Agriculture, value-addition
“Opportunities will remain in food production and trading, provision of basic health services, education and low-cost housing,” said Mr Fred Muhumuza, an economist and specialist working with Financial Sector Deepening Uganda.
Uganda’s economy is in slowdown mode, partly because of the drought. For years, the government has been discussing modernising agriculture. The talk has consistently talked about encouraging Ugandan farmers to practice irrigation. Most of Uganda’s crop production relies on seasonal weather changes. When there is no rain, food production drops, and in part, contributes to food shortages. With rains making a comeback, the opportunity is with growing food and hoping to cash in about three to four months.
“Whether it’s a main source of income; or supplements trade and paid work or reduces household spending, farming remains an important cog in our economy’s wheel,” says Mr Uthman Mayanja, a partner at PwC (Pricewater house Coopers).
However, he thinks that Ugandans need to figure out how to optimise yields and to manage the unpredictable weather. This will continue to remain an impediment to Uganda’s agriculture and a threat to further production.
Dr Victoria Ssekitoole, former Agriculture minister, resonates with Mayanja’s thoughts. She advises that for Ugandans who are into agriculture can go in for seasonal crops such as maize and beans.
“The best opportunity now lies in growing fast growing crops such as beans which mature in less than three months. Beans are an important food crop in Uganda, Rwanda, DR Congo, and Burundi where they are highly demanded,” she shared.
For Ugandans who don’t own land for agriculture and have no granaries Ssekitooleko’s thinks they should buy plastic tanks which will act as granaries to store beans and other seeds during the peak season and then sell during scarcity.
She said before Ugandans used to trek to South Sudan for trade but after the civil war erupted, which has seen many Sudanese seek refuge in Uganda, South Sudan is an opportunity for Ugandans to produce for refugees.
The demand for food will continue to rise as refugees from South Sudan continue to stay in the country. There will be demand from the World Food Programme and from Ugandans.

Government securities & stock market
These are perhaps the two investment opportunities that remain largely untapped. They are avenues for placing money and waiting for a return without working too hard. The stock market is going through a time of distress because of the weak economic stance. However, several companies on the stock market have a positive outlook on them in terms of investment. There are eight listed companies: Bank of Baroda, dfcu Bank, Umeme, Stanbic Bank, Uganda Clays, British American Tobacco, Vision Group and NIC Holdings.
Depending on the income levels, with exception of BATU, all companies have the potential of being invested in. Not all the companies make it easy for entry and exit. The most liquid counters on the exchange are Umeme and Stanbic Bank. Most of the prices are flat at the moment. There are currently only 40,000 investors on the stock market in Uganda.
Government securities are the other avenue for making money but the prohibitive nature of participating makes it a little more complex. The government securities include treasury bills that are no more than 365 days. The treasury bonds can be two years, three years, five years and 10 years depending on the government need.
The process is quite tasking as it includes registering with Bank of Uganda (BoU) to open an account. Then walk to a bank when they see an offer in the newspapers calling for bids. Government securities can be bought for as low as Shs100,000.
Launched last year, ALTX also provides an avenue for trading already existing government securities.
BoU only recently opened up the market for primary buying of bonds and bills to all commercial banks.
In Kenya, the government tapped the most popular money transfer system, Mobile Money, to allow people buy government securities.

Government contracts

Public investments, according to BoU will be the major driver for economic growth in the next financial year.
“To stimulate economic growth, Uganda needs a boost in investment both directly, through public investment, and indirectly, by encouraging private investment, including FDI, and by undertaking measures to improve overall growth prospects and the business climate,” the February 2017 state of the economy report reads.
The government is the largest spender in the economy and further expenditure is expected in the next financial year on roads, energy and the oil projects like oil pipeline.
Mr Mayanja shares that Ugandans can become service providers to infrastructure projects which remain the biggest priority for government spending.
“Many complex projects end up with opportunities for small businesses and contractors, particularly for the last mile. Examples are civil works components of large projects and local procurement components of such projects,” he adds.
However, for this to happen there will be a requirement for money and start-up capital. That has been the struggle of most businesses in the country as interest rates remain high. Civil works require capital investments like machinery, which is an otherwise expensive venture. Additionally, the government still has a stock of domestic arrears that include unpaid due to contractors and suppliers.

Tourism

Uganda’s tourism potential is still largely unexploited both from the local and foreign tourist perspective. Our hospitality is often singled out as the biggest attraction for visitors.
“Innovation and creativity are required to leverage our unique cultures, histories and natural wonders to bring in more foreign tourists,” Mr Mayanja adds.
He shares that as the country diversifies sources of foreign tourism, foreign language skills will be required in languages such as German, Chinese and French.
“We can also save hard currency by encouraging more local tourism,” he adds.

[email protected]