Uganda: Exit of Multinational Firms a Blessing in Disguise – Finance PS

Uganda: Exit of Multinational Firms a Blessing in Disguise - Finance PS

A leading technocrat at the Ministry of Finance, Planning and Economic Development has described as inconsequential the recent bulging exits of multinational companies.

Mr Ramathan Ggoobi, the ministry’s Permanent Secretary and Secretary to the Treasury, has described the recent trend as a blessing in disguise that will strengthen the government’s import substitution strategy.

Since 2012, nearly 21 companies in sectors like retail trade (Nakumatt, Uchumi, Tuskys, Pep, Shoprite, Game), aviation (British, Etihad, Gulf), and telecom (Orange, Vodafone, Smart, Africell) have ceased operations in Uganda.

The other hit sectors include insurance (AIG, Niko, Lion), restaurant (Nandos and Steers), banking (Barclays), manufacturing (BAT), and the oil and gas sector (Royal Shell Dutch). Mr Ggoobi has challenged local entities to step up to plate as observers bemoan immediate revenue and job losses.

The government’s statistics show that the share of paid employment increased by a meagre two percent from 38 percent in 2017 to 40 percent in 2020. The share of self-employment meantime declined by 13 percent from 54 percent in 2016/2017 to 41 percent in 2019/2020. To compound matters, only four of every 100 households earned an annual income — cash or in-kind — of Shs20m in 2019/2020. In fact, the majority of the households (76 percent) earned an annual income of between Shs5 million and Shs10 million.

These grim statistics are believed to have compelled multinational companies to reconsider their stay in Uganda. Inequalities in income distribution only worsened matters. For example, in Kampala, 75 percent of total income (about Shs10 trillion) was shared by only 13 percent of the households. The disparity in Teso Sub-region is more glaring with about 90 percent of households splitting 71 percent of total annual household income (Shs2 trillion).

"[Such inequalities] indicate that the economy has been struggling with negative impact on aggregate demand, causing ripple effects on sales revenue and profitability," Mr Ggoobi said in his analysis titled ‘Exiting Multinational Companies: Why, Impact, Remedy.’

Mr Ggoobi also said stiff competition from local retailers, including informal dukas, which are near consumers, continue to pay unfair competition to the big stores. Whereas they sell in smaller units, on credit, and at lower prices, the unfairness — Mr Ggoobi noted — lies in the fact that most dukas don’t pay taxes.

Another deal-breaker for multinational companies is the growth and intensity of traffic jams in the capital’s Central Business District (CBD). Paradoxically, the improved road network in the metropolitan suburbs of Greater Kampala may […]

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