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Governance And Profitability: Is There A Dilemma?

Governance and profitability: is there a dilemma?

The reason for good governance is to earn as much profits as you can in a sustainable way. In non-government organizations and public sectors, the reason for good governance is to deliver stakeholder value.

There is no dilemma whatsoever unless there is conflict of interest, corruption and fraud. These are tell-tale signs of bad governance. In my position as the Secretary of the Institute of Corporate Governance of Uganda, we are creating environment of best practices to make sure that people understand how to run their businesses profitably and sustainably. When this is achieved, economies prosper, and people succeed.

You don’t want a situation where businesses are failing and employees of such companies can’t afford to support themselves. Governance is essential because it helps businesses run in a sustainable and profitable way. Good governance should not conflict with profitability. That is the reason why good governance is essential. The problem happens when there is poor governance. In fact, lack of profits is a tell-tale sign of poor governance.

One of the challenges we are having is poor business models and strategies. There is no any country which can develop sustainably where a foreign investor will have national interests better than the citizens. This is why when a Ugandan seeking to do business in Ethiopia, they can’t register a business unless they have gone through an Ethiopian national. That is the government policy. To do business with any company in Ethiopia, one (a foreigner expert) must partner with a local company which must at minimum have an Ethopian as a shareholder. And mind you no foreigner may get the majority shareholding of the company. The same thing happens in Tanzania.

Recently, I won a contract in Tanzania. However, I couldn’t do that job unless I work through a local Tanzanian firm. This national policy is set to empower the local people. They gain skills that are essential for business success. If a foreignor is required by national policy to only do business in the country by working through a local company, it means those local partners will get the experience and expertise needed to provide such services in future. It builds practice confidence too.

The governance polices in Uganda are not in favour of promoting the nationals to be empowered. There is a lot of capital flight. Foreign investors are looking at Uganda as a spring well. They come fetch the water in the form of profits and take it back. The saying, East or West, home is best holds all the time. At a certain time, the well will not stop flowing. The foreign investor will pack and go. So who has national interests? Of course, the person who will be buried in the country.

As one of the urgent policies Uganda must enact and implement is to require any foreign player coming into Uganda to support the local industries through partnership. How much money is lost when a Chinese construction company wins a road tender and independently runs that project. Then, the government complains that we don’t have capacity to do such large construction projects.

It requires deliberate government effort through setting policies that aim at nurturing and growing local capacity. Any person/ company that comes to work in Uganda must join hands with the local skills so that there is knowledge transfer. A simple requirement that for any government project undertaken, it has to be done through consortium with a local company, in which locals have majority shares thereby empowering them to take leadership positions in the project management. If the locals are involved, they gain the skills and confidence required. In the short term, the global company will take a lion’s share of the income or profits in form of salaries to the experts recruited to fulfil the contract. However, over the years, locals will be exposed to the way things work. And the only gap will be capital which government can easily provide to those with collateral.  Ugandans will be empowered to know how things are done.

But if you allow foreign companies to work independently, they take back all the profits and skills. This is why we have invested in technology we can’t even use. When the foreigners pull out, the project fails thus creating white elephants. You recall what happened to AGOA in Bugolobi. And the same is happening to some sophisticated IT project. The alternative is huge payment from the tax coffers a lot of monthly or annual fees to foreigners to provide support and maintenance.

Government must have deliberated national development plan with policies aimed at supporting local entrepreneurs especially in the emerging sectors like fin tech, and technology. We have case studies where foreigners have set up cyber laboratory. Within one year, no Ugandan knows how to fix a broken cable.

To bring the expert back to fix the single broken cable, how much of the tax payers’ money is lost in terms of air ticket, accommodation, and per diem before even we consider the professional fees? If there is a requirement that for a winning bid, five Ugandans must be coopted on the team and trained in running the project e.g. a cyber lab, and that is a requirement for a successful project implementation, that is different. All the consultant has to do is to provide tests to select the right people with the skills and basics to be co-opted on the team.  No money will be paid unless the trainees are ready to run the lab. Then, that is the best government policy.

That’s where governance comes to preserve stakeholder value and increase profits for the citezens. When you hear countries like Singapore have lots of reserves and are paying bonuses to nationals, it does not come just like that. It is a result of well thought after policies that are effectively executed and deliver results.

Copyright 2017 Mustapha B Mugisa, Improving Your Condition.

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