Importing or manufacturing: Where is the smart investment?

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Importing or manufacturing: Where is the smart investment?
Importing or manufacturing: Where is the smart investment?

Africa-Press – Eritrea. Manufacturing is a promising venture, especially in a developing market like Uganda where the sector remains largely untapped. With growth, it has the potential to evolve into an enterprise capable of sustaining generations.

However, it requires significant time and effort to become profitable.

On the other hand, the import trade is a popular business option in Uganda, given the country’s standard of living. It offers a quick way to earn money and support a family. Due to its fast returns, import trade can also serve as a stepping stone to entering the manufacturing sector.

Its biggest disadvantage: It is not sustainable for creating a lasting source of income.

The insights mentioned above were gathered by Prosper Magazine from experts in trying to evaluate the business advantages of shifting from import trade to manufacturing, in response to President Museveni’s ongoing call for such a transformation.

Regardless of the circumstances, successful business operations require specific acumen to make ends meet. It is also crucial to assess the favourable economic factors that benefit you to make wise business decisions.

Prosper Magazine outlines the pros and cons of each investment option, helping prospective business people make informed decisions.

Mr Alon Kabaale, the proprietor and managing director of Pure Vilo Holdings Limited, a food and beverages company situated in Kitende, boasts of more than six years of experience in the manufacturing sector.

The company is managed alongside a dedicated team of approximately six employees. The company’s primary product is tomato sauce, marketed under the Vilo Tomato Sauce brand, along with chili sauce.

Pure Vilo Holdings faces numerous challenges. But the most pressing issue is the need to automate in order to reduce costs, particularly labour expenses. Mr Kabaale hopes to acquire a bottle filling and packaging machine to accelerate the production cycle and gain other advantages.

The equipment he is vouching for as recommended is priced at $55,000 – an equivalent to Shs208.7 million, with additional costs for transportation and installation totaling $1,800 [Shs6.66 million] and $9,000 [Shs33.3 million], respectively.

However, the cost of a modest machine for his small business far exceeds the revenue generated from his tomato sauces. Unable to secure funding from the bank, he is now seeking financial support from outside Uganda to acquire the machine.

This is Mr Kabaale’s biggest challenge, one that many manufacturers are also facing.

In Uganda, Small and Medium-sized Enterprises (SMEs) dominate the manufacturing sector, often navigating tight financial constraints that limit their ability to adopt advanced technology. Acquiring the necessary technology can also be a costly endeavour.

Import trade

Just like the manufacturing sector, Prosper Magazine also sought a trader for a better understanding of the situation.

Mr Eddy Goloba, commonly known as Eddy Dollar, operates Eddy Dollar Garments in Kampala.

Providing an illustration from his own business, he imports goods worth Shs100 million in a container and is capable of selling them within less than a month, a feat that manufacturing ventures cannot achieve.

He further explains that he ventured into the import trade to accumulate funds for manufacturing, as the industry demands substantial capital investment.

Import trade, he notes, also supports his daily living expenses and provides for his family’s needs, flexibility not afforded by manufacturing alone.

These narratives illustrate the variations and experiences of venturing into both avenues.

In addition, each sector has specific requirements that must be met to get started. For instance, to start a manufacturing business, you need a suitable location, raw materials, and relevant skills. In addition, you must know how to package your product well, since poor packaging can lead to market rejection.

Secondly, there are registration requirements to establish a manufacturing firm. The process includes registering the company with the Uganda Registration Services Bureau (URSB), registering for taxes with the Uganda Revenue Authority (URA), obtaining a trading licence from local authorities such as KCCA or the municipal council. All of the above require some funds, either for registration fees or as capital to facilitate running errands necessary for registration.

Import trade, on the other hand, requires minimal registration aside from having the capital to order stock for business. Other small payments include trade licences and similar fees.

Experts

Industry experts claim this explains why many people prefer import trade over manufacturing.

Mr John Walugembe, the executive director of the Federation of Small and Medium Enterprises, emphasises that this is why many SMEs operate from home due to the numerous requirements that are also costly.

“Even when operating from home, you still incur costs such as domestic electricity tariffs, and water bills,” he says.

He notes: “You may need a showroom or have to deliver products to supermarkets, which entails logistics and delivery planning. There is invoicing, especially now that many businesses are required to issue Electronic Fiscal Receipting and Invoicing System receipts.”

Devices

Efris is a service that requires the use of a device called an Electronic Fiscal Device (EFD), which taxpayers use to issue e-invoices. This device is purchased by the businessperson, adding to the initial costs of starting a manufacturing firm in Uganda.

Averagely, EFD typically ranges from Shs1.5 million to Shs3 million.

Above all is standardisation, representing a critical requirement for smooth operation. SMEs benefit from a certification window that is relatively more affordable compared to larger manufacturers. This ranges between Shs500,000 to Shs1 million per product, renewable on an annual basis.

Mr Walugembe, however says: “Standardisation introduces further complexity, particularly with the intricate process of obtaining the Q-mark.”

He maintains that despite the introduction of a relatively affordable certification for SMEs, the obligation to renew the certified permit annually adds an unnecessary recurring cost, considering that startup manufacturing firms often take time to generate profits.

The incentives introduced to facilitate the establishment of small industries also come with challenges, as highlighted by industry players.

Mr Issa Sekitto, spokesperson for the Kampala Capital Traders Association (KACITA) further elaborates, stating, “While land in Namanve may appear free initially, the expenses associated with securing it from those who claim ownership often surpass the actual cost of the land.”

Mr Sekitto also elucidates the plight of the traders. “Traders don’t necessarily require expertise; capital is the key factor.

Therefore, if you acquire goods today and sell them tomorrow, you are already considered a trader,” he says, adding that you don’t need bureaucratic studies, extensive research, scientific installations, or expensive machinery that takes a lot of time to set up. You simply need to decide what to stock in your stores, and the next day, you can swiftly sell them.

Based on this experience, the choice of a business hinges on one’s capital, abilities, and aspirations.

Each individual can decide what suits them best, as some have thrived in manufacturing early on, while others have excelled in import trade. Meanwhile, some have struggled to make ends meet in both sectors. Given the aforementioned factors, the responsibility now falls on you to take action.

Source: Monitor

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