Can Ugandans Finance the Automotive Industry?
There are several huge enterprises on the continent and those interested in a nascent automotive industry would do well to study their funding models. An interesting one is Ethiopian Airlines (ET), which is celebrating its double 77 having been founded at the very end of 1945 and started operation in April 1946.
ET is 100 percent government owned, having been conceived by the Emperor when his country was going to co-found the United Nations (Ethiopia was always independent). The emperor gave the delegation an additional assignment of getting an American partner to help an airline for his country. The delegation approached Transworld Airlines –TWA who accepted and the rest is history. ET is here, 77 years later, 100 percent government owned and outliving the unstable governments that own it. It has also outlived government owned airlines in developed countries.
Closer home, we have seen the rise and rise of Safaricom, the Kenyan telcom that could be the largest enterprise in the region. Founded at the same time as Uganda’s sick (wo)man of telecoms, UTL and with the same background, Safaricom chose an interesting model; one third government, one third a strategic foreign investor (Voda) and one third the public through the stock exchange. Many Ugandans bought Safaricom shares floated 15 years ago and have since been quietly enjoying their dividends.
The Safaricom model is particularly tempting as the company enjoys the government muscle without the typical state interference (not with ET though) that comes when government is the majority shareholder; doesn’t suffer the unfair exploitation that comes when the foreign investor has the majority; enjoys public support and loyalty as the people (feel that they) own the company. They actually do, because their one third added to the government’s one third gives them two thirds of the company.
At this moment in time, how likely are Ugandans to be enthusiastic about shares in a company in a ‘new’ industry, however lucrative? It would be interesting to see how Airtel goes about (or hesitates to go about) an IPO, coming after MTN’s not managing to sell about a half of the stock they offered Ugandan with so much fanfare. And then last week’s suspension of the New Vision shares by the Securities Exchange. (New Vision is 53% government.) A technical analysis is expected to help the public understand what made to the once promising New Vision stock to suffer such rapid depreciation that led to the drastic suspension.
Now to the automotive industry, which is undergoing the most exciting transition worldwide. There is one key activity driving thought and action in the vehicle industry in the world today: the switch from internal combustion to electric. And guess what? Most raw materials most needed for thus are in Africa, in countries like DR Congo and Uganda. So, will such countries play dead like Africans have mostly done in the past while the rest of the world take away the key raw materials to develop their industries and employ mostly their people?
The answer hopefully is NO. But where will the financial capital come from, in light of the models available/discussed? There is another model that worked so well in countries like Denmark, Netherlands, Belgium, Sweden, Italy and even the UK which Ugandans seem to understand better, but this model is now seen as old fashioned. It is called the cooperative movement, and tends to be mentioned dismissively in discussions of how to develop Africa. Mentioning cooperatives in the same forum with automobile manufacturing could even elicit laughter.
But after the laughter, what can cooperatives do to support the otherwise sophisticated automobile industry? The answer is in the value chain. Many of the inputs that need to be produced under the popular ‘Local Content’ song can and should be produced under the cooperative spirit. Cooperatives have a hundred and one advantages, including securing the interests of the locals, enhancing quality that individual producers cannot easily guarantee. While the bigger, core finance can involve (a mix of) many models, cooperatives have a role to play upstream in the supply of local inputs.
