UGANDA, Kampala | Real Muloodi News | Foreign commercial companies are exiting Uganda at a fast pace. Large retail brands such as Shoprite, Game Stores, and telecom firm Africell have exited Uganda, citing shrinking sales, low returns, and slow growth.
In the prevailing market conditions of the COVID-19 era, the devastating effects of the pandemic might primarily be the drivers for shrinking sales, low returns, and slow growth, as cited by these multinationals. However, the exit of these foreign commercial companies had begun before the pandemic era.
In the last ten years, several big brands, including British Airways, Vodacom, Barclays, and Etihad Airlines, among others, have left Uganda. Of these, some, such as Barclays and British Airways, had fought through decades, banking on growth projections and prospects.
However, the numbers at their exit were not making sense, thus choosing to count short their losses.
Fred Muhumuza, an economist, notes that the problem started way back but could have been accelerated by COVID-19.
“COVID-19 found us already in trouble. Businesses had been exiting before COVID-19. Certainly, it has sped up the exits and could continue to affect businesses, both local and international brands,” adds Muhumuza in a statement.
However, the exit of other long-serving multinationals like Pep Stores, Tuskys, Uchumi, Nandos, and Nakumatt in the pre-COVID-19 shows the problem(s) are beyond the impact caused by the pandemic.
Experts have previously argued that the economy has been growing below potential in the last five years, falling below moderate targets set by official data.
Experts have further argued that there has been a challenge of corruption that has given an impression of a fast-growing middle class in suburban and satellite cities. Yet, such investments are proceeds of unaccounted wealth that cannot accurately picture what the market can offer.
Muhumuza further notes that the burden of growing debt and public administration has starved the government of resources to lift the economy out of the doldrums.
One cannot overlook the adverse effects of COVID-19. In February, a World Bank report on Uganda’s economy noted that the country’s real gross domestic product had reduced to 2.9 per cent in 2020, down from 6.8 per cent in 2019. The growth had slowed down mainly because of COVID-19, resulting in a sharp contraction in public investment and deceleration in private consumption.
Therefore, COVID-19 has severely affected retail and wholesale trading, considering that, at some instances, they have had to operate at 10% capacity amidst lockdowns.
Because of the limiting factors resulting from COVID-19 and corresponding lockdowns, the same has facilitated the growth of online retailing.
COVID-19 and online retailing have led to coping with new technology, which in some areas has made business easy yet hard for the traditional brick and mortar businesses.
“Online platforms target middle-class buyers that retail stores depend on. It complicates the business model for the likes of Game and Shoprite,” says John Walugembe, the chairperson of the Federation of Micro, Small, and Medium Enterprises.
Some cite internal challenges as a significant factor that led to the departure of these foreign commercial companies.
Analysts believe that Shoprite could no longer put up with the losses, with subsidiaries in Uganda depending on the parent company in South Africa.
“South African businesses have had a chequered history outside their home market with some posting outstanding success while others have had high-profile retreats,” said Aly Khan Satchu, an equity markets analyst based in Nairobi. Therefore, Shoprite could have been a victim of the chequered history.
Away from the chain store, when Africell took over Orange operations in 2014, it had inherited a loss-making company whose losses had accumulated to USh771 billion.
Just four years into its operations in Uganda, the company had a debt of Ush258.3 billion (US$72.7 million), more than twice its total turnover in 2018, according to its audited finances for the year. The firm had accumulated losses amounting to Ush1.5 trillion (US$427 million), most of which were inherited from the French mobile operator Orange, the company whose operation it acquired in 2014.
Therefore, it was always difficult for Africell to compete with or shake the duopoly of MTN and Airtel.
Uganda’s shrinking middle class is another major factor that most businesses have cited as the main reason for their exit.
A case in point is British Airways: a statement by the airline in July 2015 said it would stop all flights to and from Uganda because the route was “no longer commercially viable”.
The airline went further to blame its decision on the economy’s poor performance that could no longer support its projections and prospects.
These multinationals have made mistakes that might have led to their exit.
According to Harvard Business Review, research shows that multinational companies are making three mistakes in Africa: Companies set unrealistic targets because of misunderstanding the drivers of consumer spending power, underestimating the extent to which local factors determine how, where, and why consumers make purchasing decisions, and their failure to consider how the consumer class (those living on US$3.90 and above per day, the point at which people can spend beyond mere survival) is changing.
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