The real wood of business coffins in Uganda are loan interest rates

At the beginning of 2016, an unavoidable source sent my news desk a brown envelope marked with the words; “Your country needs you”.

I was then an editor at NTV. We had come out of a cheesy election in which the winning candidate announced by the Electoral Commission and the opposition candidate were sworn in – each headed their own government. The political waters were muddy and so polarized that it was difficult for this envelope to find a place in Parliament and be debated on its merits.

In the envelope the undoubted source had sent was; a list of companies, their debt to banks, the assets involved, the number of employees in each entity and the tax contribution of each of the 65 companies on the list.

I quickly read it and locked my then news director in his office and told him we had an important story on our hands. The simple story was that 65 companies were seeking a Shs 1.3 trillion bailout from the government. They jointly owned properties worth 1.4 trillion shillings which the banks were going to take and they jointly paid taxes worth 70 billion shillings a year.

The most difficult story was that many of Uganda’s most prosperous entities were falling into debt, partly because of the government’s non-payment for services they had rendered and partly because of high rates of high interest in the debt market.

The ripple effect of this leak, my source later told me, was that either these companies were seized or, as fate later did, the banks in which they held their debts collapsed. under the weight of non-performing loans. .

Whatever direction it took, my source insisted, it shouldn’t involve taxpayers’ money as bailouts or depositors’ money in banks.

My news director insisted that we get the facts right first and so the most important task at hand was to verify the authenticity of the claims on the list. My source was unquestionable but the nature of the information is such that fact-checking is more sacrosanct.

We first established the facts and announced the story at 9 p.m. and in the morning, this publication also published it.

It was such an important story. You could tell this, first, by the number of calls we received after it was published and the number of legal threats that followed. But it was also so important that it had a lasting impact. It was the kind of story that would live with us.

This story surfaced again last week as Capital Advantage and The Simba Group once again locked horns. The Simba Group was on this list in 2016, it owed money, then to Crane Bank which has since sunk. This newspaper reported that the money the Simba Group owes Vantage Capital was partly used to pay off the Crane Bank loan, the loan that was on the bailout list.

Some 22 companies on that list of 65 have since folded and sold their franchises. It is no longer enough to say that companies have borrowed beyond their means, nor to say that they must be bailed out. Many more SMEs have fallen back under the yoke of bank loans.

There is reason to justify the fact that the average return on capital in Uganda is declining so rapidly, from 22% in 2006 to just 3.7% in 2020. With this return, a bank loan at the interest rate of 18 to 22% don’t really support business; it is the real wood in which the coffins of the companies are made.

Another day in this column we will debate the demerits of pushing production while ignoring consumption, but today, let’s end here, what is debt if the economic environment is not designed to Success ?

My unquestionable source texted me last week to say; The Simba Group should not be ridiculed or mocked, it should be understood as a case study.

Bernadine J. Perkins