By The CEO Team
A period of 12 months culminating into end of the year is not short time. During the course of this period, a lot of events happen–both positive and negative, but as human beings, memorizing all the events is an arduous task, yet they are important in our lives. This is why The CEO Magazine saw it relevant to review major business events that characterized 2013 and their importance to Uganda’s economy. Just imagine, what could the year 2013 have been without the following events?
Mergers & Acquisitions (Banking)
The year 2013 will probably go in the history of Uganda’s banking sector after Actis sold 45percent stake in the Development Finance Company of Uganda (DFCU) Bank to Norfund (The Norwegian Fund for Developing Countries) and Rabobank at a total of US$42m. This was the 2nd largest corporate deal in 2013, after the Airtel acquisition of Warid.
Rabo Development BV – a subsidiary of Rabobank from the Netherlands, bought a 27.54percent stake in Dfcu Limited from Actis, a London based equity fund while Norfund increased its stake in Dfcu to 27.54percent after buying an additional 17.54% shares, still from Actis.
The addition of Rabobank Group to the DFCU board is a major was and is still a major boost to the Ugandan bank, given that the Dutch bank is among the top 30 largest financial institutions in the world and is an international financial services giant operating on the basis of cooperative principles with a predominant focus on providing all finance services in the domestic market.
Internationally, the Group’s focus is on food and agriculture – in line with DFCU’s rural orientation. In line with its cooperative roots, Rabobank Group is a cooperative bank, which operates in 44 countries and its international experience and exposure is expected to give DFCU a significant boost as it roots to be Uganda’s leading indigenous bank.
Through Rabo Development, Rabobank will provide technical and management assistance as well as expertise to the new partner bank and will be represented in the board of directors and in management, which is expected to be a major contributor to the bank’s expansion and growth in the next few years. This deal became the largest transaction facilitated by the USE, especially in determining the price.
In 2013 still, the newer banks, in particular the West African ones – Global Trust Bank, Ecobank and UBA continued to be on spotlight after they registered the fourth year of losses as per the 2012 financial statements. Will 2013 be a year of turnaround? We’re just about five months away from the answer.
Further, banks continued expanding through opening more branches. However, Crane bank stood out. They didn’t only open branches but also drove the best media campaign among banks, by keeping their customers and potential ones informed about new developments. By November, they had opened nine branches in 2013, bringing the total number to 36–with plans to open four more by December 2013.
Additionally, Crane bank partnered with MTN Uganda in October to offer Mobile Money ATM cash out services to their members, an initiative aimed at promoting financial inclusion for all. This partnership allows MTN customers to withdraw money from Crane Bank’s ATMs using their phone whether or not they hold a crane bank account which adds a higher level of convenience since it caters for both the banked and the unbanked. This innovation was powered by Technology Associates.
Still on the banking scene, a banking sector overview report released by African Alliance Uganda revealed that there is still the likelihood that smaller banks could still be swallowed-up by the larger banks. Previous projections by various analysts including African Alliance, had pointed to some potential Mergers and Acquisitions (M&A’s) in the sector after Bank of Uganda (BoU) increased minimum capital requirements to Ushs25bn – by March 2013.
However, current indicators from BoU indicate that the banking sector is stable. In fact, according to the 2012 Annual Supervision report, Emmanuel Tumusiime- Mutebile noted that the sector is “…very profitable and well capitalized, with a core capital adequacy ratio (regulatory tier 1 capital to risk-weighted assets) of 18.8 percent at the end of the year, which is well above the regulatory minimum of 8.0 percent.”
With new banks set to open up in Uganda, will these mergers and acquisitions take shape in 2014? It’s hard to forecast, but The CEO will certainly keep you posted.
It cannot be overemphasized that the Uganda Insurance Industry continues to grapple with low penetration levels unlike its counterparts in the region recording at 0.7 percent compared to Kenya’s 2.4 percent, Tanzania’s 1.4 and Rwanda’s 1.2 percent. Infact all you ever read or hear about is how poorly the Insurance industry is performing in the country. In 2012, the industry wrote insurance premiums worth Ushs 351.23 billion compared to 2011 when premiums worth Ushs 296.4 billion were written. This performance however was a decline from the 23.69 percent growth recorded in 2011 to 18.48 percent in 2012 which was attributed to the high inflation rates that characterized the first 8 months of 2012. Additionally, the industry lost Ushs 146.9 billion in reinsurance outside the country in the same year which translated to 41.9 percent of the gross written premium income. Non-Life Insurance registered 19.3 percent growth in gross premium income translating to Ushs 312.97 billion in 2012 compared to Ushs 262.2 billion in 2011 while Life Insurance registered 8.62 percent growth from Ushs 34.58 billion to 37.57 billion in the same period.
The above statistics notwithstanding, it is important to note that the industry has had a 20 percent growth rate in the past 5 years which shows there is potential for further growth. The advent of the oil and gas sector, agriculture insurance, micro insurance as well as innovations in operations will not only build industry capacity and growth but also help in public awareness. Stakeholders including the Uganda Insurance Association (UIA) and the Insurance Regulatory Authority (IRA) have all concurred that there is indeed very low understanding of the sector by Ugandans. Throughout 2013, UIA has held open day forums to sensitize stakeholders as well as open channels through which the sector can be improved.
Also notable is the government’s effort with the enactment of the Insurance Amendment Act of 2011 which is to be enforced in 2014. This law stipulates that no entity shall transact the business of both life and non-life insurance as a composite business and requires the separation of both. While industry observers note that this may add to the operation costs of insurance companies which may in turn be passed on to the clients, IRA believes this will go a long way in promoting the less popular business of life insurance.
In May of 2013, IRA licensed the first Reinsurance firm in the country and announced mandatory cessions of 15 percent to Uganda-Re. This means that as of January 2014, all Insurance companies in the country will be required to cede part of their risks in a bid to reduce capital flight. Although this was mostly a welcome move, some stakeholders raised concerns over the capacity of the industry to handle large risks citing that some risks will still be reinsured outside the country until such a time that the industry can build capacity to handle the same.
As individual entities, Insurance companies have throughout 2013 worked toward industry growth and increasing investment capacity in the country through product development. Notable in this case is the partnership between Liberty Life Assurance and MCash Uganda a Housing Finance Bank Product to offer mobile personal accident insurance through a product dubbed ‘MyLife’ in February of 2013. This partnership was one among many that followed as the year progressed between Insurance Companies and Mobile Money service providers all aimed at bringing insurance services closer to the masses by allowing them to pay for premiums via the mobile money platform.
Other insurance players who introduced similar mobile phone based payments include Insurance Company of East Africa (ICEA) which partnered with MTN in March 2013 and more recently, Insurance Broker AON Uganda who partnered with Jubilee Uganda and MTN to provide life insurance through mobile money with a product dubbed ‘MTN Life Care’.
Lion Assurance became the 1st company to launch the first legal expenses cover in the market, first to launch an agriculture insurance product dubbed ‘Kungula Agrinsurance’ in June as well as the 3rd company in the country to acquire International Standards Certification (ISO) 9001:2008 in October 2013 for demonstrating ability to consistently provide products that meet customer and applicable statutory and regulatory requirements.
The biggest boom for the industry however may be the liberalization of the pension sector which gives insurance companies the opportunity to tap deeper into life insurance. This is another great move that will help industry players expand their business and steer the industry in the right direction.
The Ugandan Tourism industry began the year with optimism having been named one of the top 20 global tourism destinations of 2013 by National Geographic. The bubble however burst after the reading of the budget with stakeholders in the industry crying foul over budget allocations and inadequate resources and effort to appropriately market the country. The biggest boost to the industry however came in November after Northern Uganda was identified as one of the best places to view the Hybrid Eclipse which according to NASA is a rare kind of solar eclipse that has happened only 7 times since the time of Jesus Christ.
It later emerged that the phenomena which lasted only 2 minutes cost the government Ushs 510 million in preparation, creating awareness and covering the logistics involved. According to the ministry of tourism, Uganda made over Ushs 15.4 billion in the event that attracted over 2000 foreign and 10,000 local tourists. The ministry’s spokesperson Mr. Vivian Lyazi is reported by the Daily Monitor as having said that of the Ushs 15.4 billion, Ushs 10.4 billion was spent by the foreign tourists while the remaining Ushs 5 billion was spent by the local tourists.
Industry observers believe the hybrid eclipse should be able to boost the tourism sector and bring in more revenue from both local and international tourists. This can only happen if the kind of effort shown during the Eclipse in terms of marketing strategy, publicity and disbursement of resources can be applied for the industry whether or not such phenomena is taking place or not.
The Airtel acquisition of Warid Telecom Uganda LLC worth US$500m was the largest corporate deal in 2013 while the Actis sale of 45percent stake in DFCU Bank to Norfund and Rabobank at a total of US$42m came 2nd. It was an industry shakedown. Airtel Managing Director, Mr. VG Somasekhar, in a recent interview described it as “…a watershed moment, a game changer”.
The acquisition saw Airtel’s customer base balloon – after adding Warid’s customers to its books, Airtel now has over 7 million subscribers. Given the fact that MTN Uganda has 8.2 million active customers, we are likely to see cut-throat competition especially in 2014.
As we wave 2013 goodbye, we are likely to see more acquisitions and mergers in 2014 as competition continues to bite. Recently, The CEO broke a story about the Agha Khan Development Network Foundation (AKDN)’s plans to invest in Uganda’s telecom sector. Lutaf Kassam, a director at the foundation confirmed this, “Yes we are getting into the telecom business in Uganda.” He was however quick to point out that “we have bought into an existing license or operator,” instead of a Greenfield operation that requires starting from scratch. Uganda’s telecom sector currently has six players offering voice, data or both, and is highly competitive on one hand, and on the other, is said to be saturated – fully. Will it acquire Uganda telecom or Orange? We’ll keep you posted.
On Mobile Money, statistics from Bank of Uganda (BoU) indicate that Mobile money services continue to grow in leaps and bounds recording 32.6 million transactions which translated to Ushs 1.65 trillion in the month of September 2013 alone. In that same month, there were 13.2 million mobile money customers and 51,000 agents registered. Additionally, excise collections from Mobile Money transfers for the first quarter of financial year 2013/2014 were recorded at Ushs 850 million.
Early this year, Uganda’s parliament passed the second of three oil laws aimed at tightening regulation of the nascent hydrocarbons industry and providing a legal framework for development of an oil refinery.
The law – The Oil (Refining, Gas Processing and Conversion, Transportation and Storage) Bill, 2012 – will regulate the installation and operation of oil and gas processing infrastructure and marketing of final products. The president is yet to assent to it.
Parliament in December passed the first of the three bills, which were initially introduced to the House early last year and drew criticism from the opposition and transparency activists, who said the executive was being given excessive powers.
Further, in April, President Yoweri Museveni finally signed the Petroleum (Exploration, Development and Production) Bill, 2012 into law.
The first oil law is now called the Petroleum (Exploration, Development and Production Act 2013. It was approved by parliament in December 2012.
The other Bill that completes the oil and gas regulation framework, the Public Finance Bill which has the petroleum revenue management element embedded in it is still before Parliament.
Importantly, Uganda issued the first oil production license to the Chinese National Offshore Oil Corporation (CNOOC), is the main operator of the Kingfisher Discovery Area, but jointly owned by Tullow and Total E&P Uganda B.V. The three are equal partners in three other discovery areas that are yet to acquire production licenses – still being appraised. When the first production license was issued, a statement from the ministry of energy revealed that US$2bn will be spent by CNOOC – on this development area alone – for the next four years to develop infrastructure like access roads, an airstrip, land leasing and acquisition and engineering activities among others. This cost excludes the production costs once it begins.
During the year, Rift Valley Railways (RVR), the operator of the Kenya-Uganda railway, completed the first phase of the rehabilitation of the 500 kilometres of track between Tororo in Eastern Uganda and Gulu in the North, ending two decades of disuse and inefficiency. The re-launched Tororo-Gulu-Pakwach line is providing businesses targeting the South Sudanese and Eastern DRC markets with a faster and more-cost effective way of moving cargo by rail as well as opening up north and northwest Uganda to rail services.
President Yoweri Kaguta Museveni officiated at the re-launch of the rail line at an event in Gulu which was attended by Citadel Capital Chairman and Founder Ahmed Heikal, TransCentury Director/Chairman RVR Ngugi Kiuna and BOMI Holdings Chairman Charles Mbire, as well as local government officials and key executives from Citadel Capital and RVR.
East Africans make it to Forbes billionaires’ club
In mid November 2013, American Business Magazine released its 3rd annual report on Africa’s top 50 billionaires. The report shows the number of African billionaires has gone up by two thirds from 16 in 2012 to the current 27 attributed to rising stocks, new business deals, moguls and discovery of assets. The list comprised of Ugandan business man Sudhir Ruparelia who is now said to be worth USD 1.1 billion having crossed over to the status from the previous USD 900 million. Ruparelia believes his wealth has recently received a big boost from Crane Bank’s expansion plan, expansion of his floriculture business Rosebud, expansion in his education business with the acquisition of Victoria University as well as growth of his Real Estate holdings. The business man also believes that every Ugandan has the opportunity to achieve greatness because with the discovery of Oil in the country, the sky is the limit for Uganda.
9 new African dollar billionaires, including Vimal Shah of Bidco Refineries joined the list.
Industrialist James Mulwana’s death
2013 is the year that the Ugandan business community lost a great entrepreneur. James Mulwana who was one of the few self-made billionaires in the country is remembered for his dedication in growing not only himself but adding value to the lives of those around him. In an earlier interview with this magazine Mulwana was quoted as saying, “All of us have got to realize that when you leave this world, everything we have worked for, we leave behind. What matters most to me is to make the world a better place for all of us to share. It should be a lifetime commitment for those of us with the means and the voice and indeed for all our other leaders to uplift as many Ugandans and as many livelihoods as we can, no matter where they come from.” He lived true to these words with the legacy he left behind in his businesses which include Jesa Dairy Farm, Nice House of Plastics, Uganda Batteries, to mention but a few. He also served on the boards of several companies including Standard Chartered, Eskom and Airtel. Almost one year since his demise, Mulwana’s spirit lives on in the heart of every Ugandan who consumes his products and the fruits of his labour will be enjoyed for years to come by generations of Ugandans.