A Vice President’s Dilemma

Uganda’s  Vice President Visits Canada

 

There has been some discussion about the trip that the Vice President of Uganda has made to Canada to try to lure former Ugandan Asians back to the country from where they were expelled.  They were the engine of commerce and investors in economic development of Uganda. It is said that the GDP of the country fell by 40% when the Asians finally vacated their key positions in the economy.

What was it about the Asian community that made them so special?  Can the Ugandan authorities not replace them with other very successful operators of trade and commerce such as the Lebanese, the Chinese or even the Nigerians who now buy their stock in Hong Kong and sell the items in Zambia?

There are five elements of interest in relation to the emergence and consolidation of the Asians’ grip of the East and Central African economies. The Asians became the more favoured and notable producers of wealth in the East and Central African countries because their main “rivals”, the multinational corporations (the MNCs) were detested by many African governments. Large MNCs like the British banks and producers of goods that became household names- soaps, washing powders, paracetamol (provided by companies such as Reckitt and Coleman) wanted to externalise their profits to please their British shareholders. They were also mostly the manufacturers who expected more added value than the lower value adding Asian traders but who made up for this through their numbers.

The Asians also wanted to root themselves in the countries of their adoption, and consequently their presence was probably more valued. They created the highly costly distribution chains, taking goods from the main cities to the ‘charo’. The Dalgetys and Motor Marts had no such interest; they were mega-traders who wanted to move large amounts of money out of Africa.

The Asians were also investing more, in the main, in baseline infrastructure – low cost local shops, schools, clinics, housing for the lower paid whereas the MNCs, driven by the quest for larger profits were investing in 5 Star hotels or similar ventures.

Some of the greatest examples of diversified investment also came  from the Asians, who were good at spotting niches – fishnets, plastics, furniture which met critical local needs.

Over a period of time, African entrepreneurs have taken over the low cost import substitution industries (toothpaste, matches, writing pens, notebooks) where as the Asians have started to move into high cost investment – medicines, telecoms, banks, computers.

So why does the Vice President of Uganda want the Asians to go back to Uganda?  Idi Amin had removed the low cost baseline commerce that the Asians provided.  There is another major factor at play here and I have just begun to see the impact of this on the UK economy- the provision of working capital by the commercial bank has dried up after the banking crash. Many small companies are starved of working capital.

In East Africa, the loans that ‘lubricated’ Asian commerce and trade were also guaranteed by the Asian mega-trader and not always by the commercial banks. The Asians had access to private sources of commercial lending or trade subsidies- many an Asian importer or manufacturer was willing to give credit to their own people; sometimes families and relations who had been set up to share the risks and rewards by the older patriarchs of Asian commerce.

I have seen the impact of this form of intra-Asian economic specialisation in the building construction industry, which was dominated by the Sikhs. The more successful owners of Sikh building firms were also informal money-lenders. They provided trade guarantees and offered working capital to the subsidiary companies in the supply chain, thereby tightening their grip over their dependency.  It suited the rich Sikh building contractor to fund the baseline services and suppliers – the Sikh plumbers, electricians, painters in return for guarantees relating to quality of services but also incrementally rising loyalty. In the same way the Gujarati traders at the top of the pyramid were prepared to fund the dukawalla who was willing to work in the charo. By providing trade credit, i.e. goods on 60 days credit, the top Gujarati trader was a) expanding his own trading influence, b) taking lower levels of risk by funding trusted borrowers and c) ensuring loyalty of the trader in the charo, who would not normally switch suppliers. The Ismaili community also had internally sponsored ‘pseudo’ banking practices. The Ismaili ethic of sustaining the whole community was partly funded by the internal but informal money sources.

The intricate financing and co-financing habits of the Mafia come to mind, except that the Asians were not at all ruthless. This is not to say that they did not make their fellow traders suffer; there was anecdotal evidence of traders and suppliers being pushed to the edge where the ‘patriarch’ of the business line was occasionally offended. There was a further factor at work here. Where business was funded through caste-based “clans”, there was also intermarriage. The sponsor of your working capital would not fund your business if your son was not prepared to marry his obese and ugly daughter. Let us leave it at that….

Returning to the Uganda Vice President’s visit to Uganda to woo the Asians, it seems that the Asian presence in Uganda had been secured by living in the country for over a century, by accepting a subservient role in commerce and business compared to the British multinationals that eventually bore the brunt of Ugandan President Milton Obote’s and Zambia’s Kenneth Kaunda’s “watershed speeches” when they nationalised British multinationals and in the case of the latter also drove them into the ground by failing to run them profitably. The only stable element in the commerce of these countries was the Asians; they were too small to be nationalised and too intricately connected to allow African governments to dismantle them…  Only Idi Amin had the brutal force to evict them lock-stock and barrel.

However, it is not just a case of replacing one group of departing Asians with another group of incoming Asian peoples. What will be missing is the cultural cement which held Asian trade and commerce together but more importantly the delicate interdependencies and the informal funding mechanisms which created access to low cost finance and also guarantees for access to local markets at low cost.