Cryptocurrency investing – welcome to the jungle (goldilocks)

Outside Looking In

D E Wasake, FCCA

Feb 2021

About the writer

For over 15 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in the different sectors, including a $1 billion crypto currency client enables me to have a good understanding of this business. To see the full depth of my experience, please see my profile.

Article summary

The article presents the case for how an investor with $10,000 will generate an average return of 149% by investing in a portfolio of the most commonly traded cryptocurrency assets. It also discusses the most common risks.

Background

About 6 years ago in 2015, a “geeky” friend of mine, told me that the future of the world of financial technology (“FINTECH”), he told me it was much cheaper to send money using something called “Bitcoin”. He then introduced me to the “bitcoin wallet” and he even sent me $1 to test. About 4 years later in 2018 when bitcoin news was going crazy, I reminded him about it when I checked my wallet, my $1 had turned into about $40! I remained skeptical – based on all the articles I was reading.  

I couldn’t in the world understand about this mystery “Satoshi” the creator of Bitcoin let alone all the words thrown about like “hash power” and “block chain”.  It did look like a Ponzi scheme and given what had happened with forex trading in Uganda, it seemed one to stay away from, particularly given that the prices were wildly fluctuating and some government regulators look at this asset with suspicion (for example the UK, and likely the Bank of Uganda/Ministry of finance).  

Three things however changed and made me look at this asset class again:

  1. I have a UK based client who has invested in crypto assets and one year ago, they had about £400m in assets. This year they have, wait for it, £1 billion.  They use an algorithm (“trading bot”) to buy and sell automatically from one exchange to the other, making small gains and profits along the way (“arbitrage”).
  2. I undertook a cryptocurrency course offered by the “ivy league” University of Pennsylvania (“UPenn). If the experts were taking it seriously, maybe there was something more to it. This course helped me to understand the sector.
  3. I actually decided to test it for myself, putting aside little amounts in an online account. Some days it was pretty wild, but I have actually made gains – albeit when you want to convert your crypto to regular money (called “fiat”), the costs can be fairly high.

Before telling you about this sector, it is worth bearing in mind that the risk warning from the Government of Uganda/Ministry of finance is actually pretty reasonable and accurate, including from my experience:

  • If you invest in cryptocurrency and lose your money, for example from an unscrupulous trader, you have no recourse, unlike for example with a bank, where there are consumer deposit protection schemes.
  • Cryptocurrencies are very volatile.
  • It is quite literally a jungle out there – how do you know which coin is legitimate and which coin is worthless? Which coin is being used for money laundering and which one is just bad?

With this in mind, how do you go about investing in this sector?

First, you will likely need to find a reputable exchange when you set up your account. The most reputable ones include: Coinbase, Gemini and bit stamp. You will likely need to check if they accept Ugandan investors. If not, one I have previously researched and allows Ugandan citizens (as well as stock trading) is:  https://global.bdswiss.com/

So, with the above in mind, before you invest in this sector:

FIRST THE CONS (WHAT MIGHT HOLD YOU BACK)

1.  There are quite a number of coins and it is difficult to know which ones are legitimate.  

Owing to the number of coins, there is a level of technical knowledge you will likely need to have as well as do detailed research prior to investing.

Our advanced thinking tips to counter this?

Stick to the well-known coins. In the model/portfolio we present later on, we focus only on the largest (by trading volume) and best-known coins. These are Bitcoin (BCH), Ether (ETH), Litecoin (LCH) and Ripple (XRP).    Tied to this, stick to the well-known exchanges – Coinbase, Gemini and Bit stamp are well known and will themselves be regulated.

2. There is significant volatility

This is something that is just part of cryptocurrency, until they potentially stabilize.

Our advanced thinking tips to counter this?

Allocate a small percentage of your overall portfolio to cryptocurrency. If say you have $100,000 to invest, you might wish to allocate only 5% to all cryptocurrency. This protects you from the wild swings.

Another strategy is to diversify your portfolio within the coins you purchase. The 4 coins I mentioned above give you sufficient diversification, which reduces your risk to an extent and the model I provide later on uses such a strategy.

A final consideration is to follow what the crypto community follow: HODL: Hold on for dear life – meaning continue holding on for the long term as eventually the prices will rise continually, albeit with peaks and troughs.

3.  There is limited government regulation

While governments like the US have robust regulation of the sector, other jurisdictions may not be so well regulated and so there is room for investing scams.  I for example encountered a bitcoin mining investing opportunity being touted by a crypto expert but then this very opportunity from my research had a clear warning of a Ponzi scheme from the Philippines regulator.  It means that your investment is at stake and you might not have recourse, were you to lose your money.

Advanced thinking tips

Because crypto it is not regulated in many jurisdictions, your first step of due diligence is to carefully read the fine print on any website. Check whether the company or exchange is in a jurisdiction that is regulated and if so, by who. For example, if it’s in Cyprus, is the entity on the Cyprus Securities and Exchange Commission website?  Likewise, if it’s in Mauritius, is it on the Financial Services Commission – Mauritius list?  Regulated entities in regulated jurisdictions will typically have good controls in place, including over their cyber security to help protect you – including from cyber security breaches/hacking risks (if you lose your private key, you have lost your coins forever).

AND NOW THE PROS (A reason to smile)

1. Return on investment (ROI) is good and only increasing.

When my geeky friend sent me the $1 which increased to $40 by 2019, this was a 400% increase. This is how crazy this investment can get.

It was in the news recently that Bitcoin (BCH) had hit the $1 trillion market value mark and furthermore, it is increasingly common to read in the news that large financial institutions and companies are increasingly investing in Bitcoin, for example Tesla and Blackrock, the world’s largest asset manager.

In the model we have prepared, I reviewed at least 3 years of trends, reviewed experts’ forecasts and other information in order to develop our analysis to develop a Return on Investment (ROI) in this sector.

I have kept it in USD ($) rather than UGX (Shs) to protect the wild currency fluctuations of the Uganda shilling.

  •   This is calculated as follows:
    • Startup capital:  $10,000. (A)
    • Net profit: $14,944.52 (B)
    • Return on Investment (ROI) (years) (A/B) = 0.67
    • Return on Investment (%) (B/A*%) = 149%.

The model is here.

(clicking the link above will take you to a google drive excel document link).  In the model, I also include a clear risk warning about investing in crypto currencies, please be aware of it including the Ugandan guidelines.

And how does this sector compare with our other sectors profiled? See the full best sectors list here.

Final word

It is good for you to have an open mind about any sector – get educated, like I did in order to make an independent assessment. If you cannot handle the volatility, do not invest or keep your exposure low.

I cannot however emphasise the importance of doing your due diligence on the exchange you will use before you invest any amount of money into this sector, this is probably the most important step because it is really a jungle out there, but there are morsels you can get but if you do not navigate carefully – you will be mauled by the big bad wolf!

Otherwise, best of luck and of course if you need some help, do not hesitate to speak to us to get the ball rolling, Inachee after all represents Home Grown Energy in Motion.

Share the article! Did you like this article and know someone else who might benefit from it? Please share it, simply click the link of the article, copy and paste it to an email and send!

Join Advanced thinking. Would you like more regular support or information? The easiest means of keeping up to date with new articles on this page and the website is via email. In addition we regularly provide tips on marketing, corporate governance, accounting, entrepreneurship and best practice to help you successfully start, run and grow your investment/business. Please click here to join the email subscription list.

And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.

Cassava growing: The long walk to financial freedom?

cassava

Outside Looking In

D E Wasake, FCCA

About the writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in the different sectors enables me to have a good understanding of this business. To see the full depth of my experience, please see my profile.

Article summary

In this article, we estimate that cassava growing on 1 acre of land in Uganda requires an investment of Shs. 16.2m (excluding working capital) and also without borrowing (though we expect most businesses to do so). In terms of returns, it can give Shs. 5.8m per year (net revenue after direct costs) and an average net profit of 468,000 Shs. 20m which gives a return on investment of 35 years.

This profitability however hinges on in addition to not borrowing, having yields of about 4,000 kg per acre. To achieve these yields, we assume the “advanced thinking” farmer will not use local varieties but will instead use the hybrid high yielding and disease resistant varieties like NASE 14 for purposes of commercialization.

Background

For many a growing child in Uganda during my school days, a school snack was fried cassava. These were often deep fried on the road side, almost always by women (with a baby or two nearby), sitting on 3 legged stools. These women probably had names like Aketch and Anek. These are names from Northern Uganda, which are primary cassava growing areas in Uganda as Cassava can handle high temperatures. How I loved deep fried cassava! Of course, you could enjoy the cassava tuber (even raw, it works as well as the deep fried cassava) but please stay away from mum when she was angry, the cassava stem makes a good cane for naughty children! 

On a more serious note, this sector in Uganda has been changing for a few years now. The projected/expected driving factor for continued increased cassava demand will be the consumption by breweries in Uganda. For instance, Uganda Breweries Limited needs it to produce Senator and Ngule beer brands.

Cassava is a drought resistant crop doing well in areas with 500 – 600mm of rainfall annually and optimally in areas with 1,000 – 1500mm of rainfall annually. In Uganda, its cultivation is mainly in the West Nile (Apac, Pakwach), Northern Uganda (Gulu, Lira, Kitgum) and Eastern Uganda (Mbale, Tororo, Kumi, Soroti). The Central parts of Uganda (Rakai, Masaka, Nakasongola, Sembabule and Kiboga) have some of the untapped vacant lands in the dry corridor to which cassava growing can be expanded to.

A total of 16.8 million hectares was planted with cassava throughout the world in 2000; about 64% of which was in sub-Saharan Africa. World utilization is projected to increase by 2.3% annually to 209 million tons. 60% of the total demand is for food, the remainder for other uses.

To understand the importance of this crop, total world cassava utilization is projected to reach 275 million tons by 2020 (IFPRI in Westby, 2008). Cassava for feed is projected to continue to account for over three quarters of the world cassava trade and flours and starches for food and industrial uses for the remainder. About 60% of the total demand will be for food, the remainder for other uses.

So with the above introduction how can you get investing in this sector in Uganda?

FIRST THE CONS….

1. Fluctuating prices

The prices of cassava fluctuate significantly with low prices just after the traditional harvest season and high prices during “off seasons”. These fluctuating prices are also a result of market inefficiencies where there is lack of information on more suitable prices (for example export markets).

There are however solutions for the “advanced thinking farmer” i.e. Market information Services (MIS) that have cropped up.

These disseminate information via SMS, radio and on the internet on their website etc. Examples include farmgain , agrinet and ratin which provide retail/wholesale prices for Kampala, other markets and Kenya.

2. Production Constraints

Constraints like pests (birds, rodents, moles and termites) and diseases like Cassava Mosaic Disease (CMD) affect both the quantity and quality of cassava that is produced.

An “advanced thinking” farmer should for example be able to acquire a laser gun that will help with dispersing the birds whenever they are feeding on the sorghum to avoid loss in crop yields.

3. Poor marketing and transport infrastructure

Cassava is a perishable food that requires immediate transportation to the final consumer. However, farmers in the remote areas of in Uganda fail to deliver the fresh tubers to urban markets because of distance and bad roads.

There are for example inadequate on-farm stores, and there are no rural warehouses except for the local granaries. The road net work especially off the main central government maintained highways are in a bad state and render produce that is more costly.

The “advanced thinking” farmer could however invest in on-farm value addition that includes drying it and milling it into flour.

AND NOW THE PROS….

1. Free or cheap Technical support

High Quality Cassava Flour is used for beer brewing. Consumer companies like Uganda Breweries contract farmers for the growth of the crop on certain specifications. These consumer companies accord incentives and technical support to their contracted farmers.

We recommend that the farmer affiliate themselves with a relevant co-operative society as in addition to the technical support, they could get access to cheap credit (or a grant).

2. Guaranteed market

Contracted farmers (for beer companies) are assured of market for their produce given that they produce the crop to the specifications outlined in their contracts. For un-contracted farmers, there’s market for fresh cassava for food.

Having a guaranteed market eliminates the costs of marketing and potentially transport to the market.

3. Modest Return on Investment (ROI)

In our financial model we assume an initial land allocation of 1 acres; each acre yielding 4 MT (4,000kg); 1Kg of cassava sells for about Ugx1,400 as the farm gate price (as opposed to market price) that there is an initial pre planting and post-harvest loss of 10% of the yield; assume an Inflation rate per Year (food inflation) of 12.30%; assume an Inflation rate per Year (EFU) of 5.5% as a cost of production.

We assume the farmer will plant the high yielding disease resistant NASE 14. This variety of seed costs about Shs. 1,400 per kg.

Our 5 year model is summarized below – excluding borrowng:

5 year financial model for Cassava

  • Startup capital  (excluding working capital (A): Shs.16,220, 500
  • Average Profitability (B): 467,835
  • Return on Capital in Years (A/B): 35

In our financial model, once you factor in borrowing, which can be a quite high cost of business in Uganda, you are likely to get into negative returns so carefully evaluate borrowing for this sector.

The detailed financial model is here:

P.S The link will take you to a google drive excel file which contains various tabs of the financial model to support the return on investment projected for this sector. More detailed content on sectors like this is available on our data bank: https://inachee.com/databank/index.php

The basics you must get right

1. Planting

Ensure the land has been prepared – thoroughly ploughed at least twice. The first land ploughing turns the soil, the second one has to make it smooth to ease root growth for the 8 months plus. Select the correct variety of planting materials for the desired output objectives.

2. Post-harvest handling and storage

Moisture content in the crop can be high leading to cyanogenic substances/aflatoxins and spoilage during storage. Thorough sun drying using appropriate drying facilities and clean surfaces is advised.

3. Record keeping and annual accounts.

You need to be able to maintain proper records like yield per ha, fertilizer usage etc.

Likewise in order to have a high chance of accessing alternative sources of finance such as from venture capitalists, it is important that you can demonstrate proper records for various aspects of managing the farm.

We would recommend that you have a dedicated record keeper on the farm and if possible work with an accounting firm to prepare quarterly, annual financial statements (audited if possible).

This will help you, should you need to access additional funding as lenders often require seeing audited financial records.

4. Market information.

Market information can be obtained from various private providers of Market Information (such as farmgain ,agrinet and ratin) but in addition market information can be obtained from sources like the Uganda Bureau of Statistics (UBOS) which as part of its Consumer Price Index (CPI) report prepares a monthly survey of retail and wholesale prices in various regional markets of Uganda.

This information can help the farmer assess what the best market rate is for their produce and help them in planning purposes.

Final word

Growing cassava should definitely be included in the portfolio of a serious Ugandan investor or entrepreneur – particularly if you mechanise (we have estimates of mechanization in our model).

Its diverse use not only for human food consumption but for animal feeds makes it a very important crop. In addition it has export prospects to our neighbors like Kenya and Southern Sudan.

Our financial model indicates a return of 35 years which appears extremely long but it is overly prudent in order to manage the issue of shocks and risks in the Uganda agriculture sector.

It is worth pointing out that incentives to contracted farmers by the beer companies means that farmers can easily reduce their costs and improve their farming methods. This also increases their production credits which will help them easily access loans from banks to further develop their farms. With the rebirth of the East African Community farmers can also tap into the huge market from Tanzania, Kenya, Rwanda, and South Sudan and the COMESA market which would bolster the agricultural sector in Uganda.

Value addition in this sector is also something to consider, particularly with a rise of the middle class, then alternative dietary needs are a life style (such as vegans) – cassava bread anyone?

END

Otherwise, best of luck and of course if you need some help, do not hesitate to speak to us to get the ball rolling, Inachee after all represents Home Grown Energy in Motion.

Share the article! Did you like this article and know someone else who might benefit from it? Please share it, simply click the link of the article, copy and paste it to an email and send!

Join Advanced thinking. Would you like more regular support or information? The easiest means of keeping up to date with new articles on this page and the website is via email. In addition we regularly provide tips on marketing, corporate governance, accounting, entrepreneurship and best practice to help you successfully start, run and grow your investment/business. Please click here to join the email subscription list.

And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.

Sorghum growing in Uganda: beer and heaven?

sorghum

Outside Looking In

D E Wasake, FCCA

About the writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in the different sectors enables me to have a good understanding of this business. To see the full depth of my experience, please see my profile.

Article summary

Please note: Our information on this sector does not just come from research, one of our recent clients has a 100 acre commercial sorghum farm and our role is to provide “managed services”. The Inachee team therefore has 1st hand experience.

The sorghum industry in Uganda changed a few years ago when the breweries started demanding more of this crop. Reason? Ugandan beer brands like Senator, Eagle lager, Chibuku are brewed using sorghum as a main ingredient. If you need to find out what these beers taste like, ask my Uncle Wamoka.

You will find him green wearing crocodile (or is it snake) skin shoes and dancing in a synchronized style to the Lingala sounds of Madilu system and Diblo Dibala after imbibing just one bottle of the brew – bought by me of course!

Jokes aside – in this article, we estimate that sorghum growing can give average revenue of about Shs. 73m per year and an average net profit of about Shs. 20m which gives a return on investment of 6.1years.

This profitability however hinges on having yields of about 4,000 kg per acre. To achieve these yields, we assume the “advanced thinking” farmer will use epuripur kind of sorghum for purposes of commercialization since it has high yields compared to sekedo.

Background

According to a few research reports, Sorghum is the 3rd highest consumed cereal grain in Uganda, behind millet and Maize; it occupies c. 373,000 ha of arable land and is commonly grown in the East, Northern and South Western part of Uganda. Besides food for human consumption, the crop is an important ingredient in alcohol, and Ugandan beer brands like Senator, Eagle lager and Chibuku are brewed using sorghum as a main ingredient.

To underline the importance of this crop in the brewing industry, Nile Breweries (a subsidiary of SabMiller) has encouraged production of Epuripur the beer variety of Sorghum to improve beer production. If you asked yourself why Uganda is ranked among the top consumers of alcohol in the world then ask no more Sorghum growing will give you all the answers!

So with the above introduction (and do please forget my Uncle Wamoka’s dance antics), how can you get investing in this sector in Uganda?

FIRST THE CONS….

1. Fluctuating prices

Sorghum has traditionally been grown seasonally during the rainy seasons of March to April and harvested for the 1st season between June and August, and then grown again during the second rains from August to September and harvested for the 2nd season between November and December. Sorghum is drought resistant and so it can also be grown in the dry season with irrigation or proper watering.

The prices of sorghum fluctuate significantly with low prices just after the traditional harvest season and high prices during “off seasons”. These fluctuating prices are also a result of market inefficiencies where there is lack of information on more suitable prices (for example export markets).

They’re however solutions for the “advanced thinking farmer” i.e. Market information Services (MIS) that have cropped up.

These disseminate information via SMS, radio and on the internet on their website etc. Examples include farmgain , agrinet and ratin which provide retail/wholesale prices for Kampala, other markets and Kenya.

2. Production Constraints

Constraints like pest and diseases affect the production of sorghum i.e. the Striga weed that attacks the sorghum is responsible for approximately 10% of the crop loss which affects the projected yield and sorghum is usually attacked by birds that normally feed on the sorghum head.

An “advanced thinking” farmer should be able to acquire a laser gun that will help with dispersing the birds whenever they are feeding on the sorghum to avoid loss in crop yields.

3.Poor marketing and transport infrastructure

When commodity marketing was liberalized in the 1990s, an inexperienced and poorly resourced private sector stepped in to try and cope. These new entrants into the sector (except Nile Breweries Ltd and its contract farmers) have yet to establish the kind of infrastructure that would encourage efficient marketing.

There are for example inadequate on-farm stores, and there are no rural warehouses except for the local granaries. The road net work especially off the main central government maintained highways are in a bad state and render produce that is more costly.

AND NOW THE PROS….

1. Free or cheap Technical support

Considering that sorghum is one of the key cash and food crops in Uganda, there is a significant amount of technical support available right from seed companies, NAADS (a government programmes) as well as Non-Governmental Organisations (NGO support. We would however recommend if possible identifying a suitable technical officer who is readily available to advice the farm on aspects like pests and diseases, soil fertility et al.

Nile breweries (who focus on the Epuripur variety) also offers support to out grower schemes and they have played a pivotal role in the sector where they have purchased 10,410,050 kgs of Epuripur over the years from the local farmers to use in Jinja and Mbarara.  It has to date spent c. Shs11.5 billion on purchasing from dealers, suppliers but with farmers getting the lion’s share of Shs 7.2 billion.

We recommend that the farmer affiliate themselves with a relevant co-operative society as in addition to the technical support, they could get access to cheap credit (or a grant).

2. Guaranteed market

For non-food sorghum there is a guaranteed market at a reasonable price by Nile Breweries Ltd. for its contracted farmers. This should provide some prospects for continued production albeit for a market that is limited and dependent on the breweries plans over which the farmers have little say, other breweries emulating Nile Breweries ltd in the near future would also increase the prospective market for sorghum.

Having a guaranteed market eliminates the costs of marketing and potentially transport to the market.

3. Good Return on Investment (ROI)

In our financial model we assume that the farmer will have 10 acres and thus be able to plant sorghum over a period of 2 seasons each year. We assume the farmer will plant Sekedo red sorghum or Epuripur. This variety of seed costs about Shs. 1,500 per kg.

Our model is summarized below:

Financial model for Sorghum

  • Startup capital (A): Shs.121,357,096
  • Profitability (B): 19,896,565
  • Return on Capital (A/B): 6.1 years

The detailed financial model is available for purchase here via our research databank.

The basics you must get right

1. Weed Management

The first 6 to 8 weeks after planting is crucial, weeds tend to compete aggressively with the crop. This is when the root parasite Striga Asiatia attacks the sorghum. This weed occurs mainly in low-input farming conditions; the parasite plant has a single stem, with bright red flowers. The seeds of the parasite are spread by wind, and remain dormant in the soil for 15 to 20 years. Rotation with groundnuts, cowpeas, and pigeon peas helps reduce Striga. Farmers should look out for this particular weed because it greatly affects crop yields.

2. Post-harvest handling

Sorghum to be used for silage needs to be harvested when seeds are in milk dough stage. For hay, tow five harvests may be needed per season. Hay products need several days of sunshine, a forage crusher assist in reducing the time.

In terms of seed harvesting, the crop is to be cut by hand, or mower, and if the land is large one can use a combine harvester.  After being cut by hand the crop must be left in the field to dry for 10 to 14 days, and then it is to be threshed, stocked. The seed is to be stored with 12-13% moisture content or less.  In terms of animal feed, the crop can be harvested at 80 to 120 cm tall and provided to as dry matter as animal feed.

3. Storage

Sorghum is stored as whole grain, and seed is stored with 12 to 13% moisture. Several factors can cause loss in viability i.e. mound damage, poor germination. The grain is stored for future processors in silos and simple containers can also be used to store the grain. A common preservation method that can be used by local farmers is sun drying.

4. Record keeping and annual accounts.

You need to be able to maintain proper records like yield per ha, fertilizer usage etc.

Likewise in order to have a high chance of accessing alternative sources of finance such as from venture capitalists, it is important that you can demonstrate proper records for various aspects of managing the farm.

We would recommend that you have a dedicated record keeper on the farm and if possible work with an accounting firm to prepare quarterly, annual financial statements (audited if possible).

This will help you, should you need to access additional funding as lenders often require seeing audited financial records.

5. Market information.

Market information can be obtained from various private providers of Market Information (such as farmgain ,agrinet and ratin) but in addition market information can be obtained from sources like the Uganda Bureau of Statistics (UBOS) which as part of its Consumer Price Index (CPI) report prepares a monthly survey of retail and wholesale prices in various regional markets of Uganda.

This information can help the farmer assess what the best market rate is for their produce and help them in planning purposes.

Final word

Growing sorghum should definitely be included in the portfolio of a serious Ugandan investor or entrepreneur.

Its diverse use not only for human food consumption but for animal feeds makes it a very important crop. In addition it has export prospects to our neighbors like Kenya and especially Southern Sudan.

While the period of 6 years might seem long, this is due to the high costs of mechanization but with the growing industry and demand, there is a possibility you can get a return on investment earlier. Our financial model is overly prudent in order to manage the issue of shocks and risks in the Uganda agriculture sector.

It is worth pointing out that tax incentives by the government means that farmers can easily improve their farming methods with introduction of mechanization in agricultural. This also increases their production credits which will help them easily access loans from banks to further develop their farms. With the rebirth of the East African Community farmers can also tap into the huge market from Tanzania, Kenya, Rwanda, and South Sudan and the COMESA market which would bolster the agricultural sector in Uganda.

Value addition in this sector is also something to consider, particularly with a rise of the middle class, then alternative dietary needs are a life style (such as vegans) – Sorghum bread anyone?

So are you ready to join me and Uncle Wamoka on the dance floor to celebrate this sector? We are in heaven! And I don’t mean because of the beer he is holding. I mean because of the client’s impending good harvest.

END

Otherwise, best of luck and of course if you need some help, do not hesitate to speak to us to get the ball rolling, Inachee after all represents Home Grown Energy in Motion.

Share the article! Did you like this article and know someone else who might benefit from it? Please share it, simply click the link of the article, copy and paste it to an email and send!

Join Advanced thinking. Would you like more regular support or information? The easiest means of keeping up to date with new articles on this page and the website is via email. In addition we regularly provide tips on marketing, corporate governance, accounting, entrepreneurship and best practice to help you successfully start, run and grow your investment/business. Please click here to join the email subscription list.

And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.

Transport sector and brokerage – are you experienced?

 truck image

 

Outside Looking In

D E Wasake, FCCA

About my guest contributors:

In the agriculture transport/brokerage sector

Ssebunya simon is a business man in Kyengera owning a whole sale shop at the same time a middle man transporting agricultural goods from the villages to the markets in town. He has been doing this business for over 6 years purchasing maize from Mubende and selling it to the maize milling companies.

In the construction transport/brokerage sector

Semwogerere Fred is a businessman in Kampala owning a whole sale shop selling building materials at the same time transports building materials from the selling point to the building site of his customers. He started in business as a lorry driver of a 22 tonne Tata for his boss.

About the writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in the different sectors enables me to have a good understanding of this business. To see the full depth of my experience, please see my profile.

Article summary

In Uganda, the transportation of goods commonly construction material and agriculture produce is not often clear cut. Transporters are often brokers because the value chain is not yet advanced. With the absence of many large scale manufacturers/processors, Agriculture producers for example heavily rely on these independent transporters to get their produce to the market.

Likewise in the building construction sector, the concept of using a building contractor has not taken firm hold and so construction is often undertaken by the end user themselves. This means they heavily rely on the transporter to also do the purchase – hence the brokerage opportunity.

This sector is therefore not as “easy” as taking goods from A to B. In this article, we therefore have shown a blended model of transport as well as brokerage, the predominant model in Uganda.

We estimate that:

  • In the construction transport/brokerage sector, a starting investment of Shs 102m will give you a return on investment (number of years to get your capital back) of 4.49 years. Annual profits are estimated at Shs. 23m per year.
  • In the agriculture transport/brokerage sector, a starting investment of Shs. 78m will also give you a return on investment (number of years to get your capital back) of 1.72 years. Annual profits are estimated at Shs. 45m per year.

To achieve these estimates, the “advanced thinking” transporter has got to become experienced as a “musubuzi” (trader) – i.e get involved in brokerage or acting as a “middle man”. The margin made from combining brokerage and transport are higher this way. This however also requires higher working capital (to purchase produce/materials). This is the model we use in this analysis.

If you alternatively wish to stick to the traditional or conventional model of transport/logistics only, then in order to have sufficient income, you will need to enter into partnership with one of the following:

  • Large manufacturers/wholesalers – such as for beverages, alcoholics and Consumer Industrial Products (CIPs)
  • Large logistics companies – such as courier companies or even the e- commerce platforms (which require transporters to deliver to their customers).

We have not explored this aspect as the manufacturing, logistics sector in Uganda is overall still developing.

Background

If you are a regular reader of these articles, you will know that I often start with a personal story because I will have often dabbled in the sector or know someone close to me.

Unfortunately the closest I ever came to this sector is when as a child I was tasked by my mother with finding a truck driver to move house. In Ugandan speak this means to “shift” or “Kusenguka”. The rules were this:

  • The shifting was always in the night (at least after 7.00 pm) – thieves shouldn’t see your property as you move in!; and
  • You must haggle with the transporter because their initial prices are always inflated at least 25%.  That is the dance, and you must comply and do it for at least 5 minutes, otherwise, you are a rich fool (or a clueless foreigner). 

I however have a story from one of my team on this sector. Matthew initially thought the sector was easy until he got into it. He said this about his experience:

“Personally I have been a middle man purchasing chicken from the farmers and selling it to the high end customers in the hotels and restaurants and one thing I can say about this business is that it’s a venture to die for until both parties at both ends eliminate you from the middle and bridges that gap. At least that was my fate.

For the number of businessmen in the transportation business, take for example those purchasing agricultural produce from villages and transporting it to the capital city to be sold in the market areas that gap is nowhere to being closed. Customers whether farmers or manufacturers are always looking for that person to help them transport their purchased goods to their destination points since they can’t often afford to purchase vehicles for that one time need.

I have always thought of the transportation business to be one of the easiest. Simply buy the Lorries, get on the road and start making profits. I didn’t know that it’s such a complex business until I did a study on it. It’s a competitive space that involves using a lot of tactics to get customers.”  

The sector in Uganda

In Uganda, many entrepreneurs have realized that transporting goods from one place to another can be a very profitable venture. Because of the improvement in the road network, the transport industry has boomed. It takes shorter time and fuel to cover the same distance one was covering a few years ago when the roads were not tarmac and at the same time lower costs for vehicle owners to maintain their vehicles after a long drive. If you are planning to get into the trucking business, it is important that you know basic things required to operate a trucking business so that you don’t turn out to be another statistic of a small business failure.

Many businessmen (and women) are involved in commercial goods transportation transporting different items ranging from agricultural produce, building materials, fuel among others. For Semwogerere Fred (one of my guest contributors) a Kampala businessman owning a whole sale shop, the business of selling building materials has transitioned into transporting the same materials to the building sites for his customers while other businessmen like Ssebunya simon (my other guest contributor) enjoy the occasional transportation of agricultural goods from the villages to be sold in town and the neighboring markets to enjoy the benefit of making a good profit out of it.

Why engage in commercial goods transportation of agricultural goods and building materials in Uganda?

A good road network is a pillar of every economy. Any person who travelled on Uganda’s roads upcountry 10 years ago will find a marked difference if he moved on the same roads today. The Uganda National Roads Authority (UNRA) is delivering on its mandate since it was formed in 2008.  It is committed to delivering on its strategic objective of increasing accessibility across the country by improving the transport network, which is a cornerstone to national development.

Roads are critical to the transformation of all sectors of the economy because they facilitate easy and quick movement of goods and services from the source or point of production to the market. This is particularly critical in Uganda, where more than 80% of the population is engaged in agriculture (and often rural based), a good road network becomes even more critical (to transport the produce from the rural/production areas to the consumption areas in the cities).

In Uganda someone needs to bridge the gap between the farmers and the consumers as the farmers are not often able to absorb the other activities such as bulking, aggregation and transport after they have finished to harvest their produce. This shifts the task to the middlemen who specialize in this field to get the produce to the market.

On the other hand, businessmen involved in the transportation of commercial goods like building materials have resorted to brokerage as they not only get involved in transporting the building materials but they also purchase the materials on behalf of the builder. They have incorporated the price of transportation with the price of the material being transported to get a better profit margin compared to a situation where they only transported the goods alone.

Since they have been in the business for a number of years, they have managed to master the business dynamics and have bridged the gap between the seller and the builder hence becoming profitable middlemen.

So with the above introduction, are you really experienced (as a musubuzi)? Can you easily get into this sector?

FIRST THE CONS (WHAT MIGHT HOLD YOU BACK)

1. Access to financing (lease or working capital)

While there are many vehicle leasing and financing options available (as the vehicle is the security) a key requirement for many lenders is experience in the sector. DFCU leasing for example require 2 years’ audited accounts, a bank statement for 12 months, Tax documents. This means you need experience in the sector to get access to lease financing. It can seem self-defeating. How can you get experience without the loan/financing?

Another key source of financing you will need to consider when getting into this sector is a working capital facility. As an example, in the agriculture sector in our financial model, you need to purchase maize worth Shs. 148m from the farmers/traders.  Unless you are able to gain their trust (as our guest contributor did), you will need to consider some form of financing. Thus more reason to have proper corporate governance and books of accounts so as to be eligible for such facilities.

Our advanced thinking tips to counter this?

#1. Understand lender requirements. Our key “advanced thinking” tip is that at the start you need to have this awareness of what lenders often require. It is critical for you at the start so you can formalize your operations at the onset (such as incorporation, bank account, tax registration) – or if you are considering partnering with someone already experienced, you need to bear this in mind, they will need to be running a proper business to access financing.

#2. Advance payment. Another key tip in the absence of access to financing is for the “advanced thinking businessman” to get an advance payment from his or her customers (especially in the construction sector) to supplement on their revenues and then make a significant purchase that maximizes profits and in turn help to cover the operational costs.  Of course on the other hand the businessman can secure interest free or cheap financing from “the bank of friends and family”.

#3. Move up the value chain. As indicated in the introduction an “advanced thinking” alternative for the businessman would be to move away from brokerage and specialize in logistics only. You can do this by your vehicle(s) to Consumer Industrial Product (CIPs) companies (such as Hima Cement, Nile Breweries) to be used for transportation of their products (Assuming they don’t have sufficient own fleets).

A related key area of future growth and consideration is the rise of e- commerce and internet retailing. In Uganda online retailers (such as Jumia, home DUUKA, Kaymu or couriers like DHL by necessity rely on a logistics network and as e – commerce and internet buying increases, then this sector will become even more critical.

You will need to consider vehicle/fleet tracking solutions as a start in order to give them that assurance of delivery to their customers.   Moving up the value chain means you will have assurance of supply and hence no need to do brokerage.

2. Fluctuating fuel prices

No one can say with certainty that the fuel prices will be stable for a given period of time. The cost of fuel is a critical factor in the performance of the economy because alternative fuel/energy sources are not well developed in Uganda. In other instances, drivers have a tendency of stealing fuel from the trucks and this ends up leading to increased fuel costs to the businessman.

Our advanced thinking tips to counter this?

#1. Fuel reserve. With the unstable prices of fuel, the advanced thinking businessman would set aside some money to cover the unexpected costs derived from increased prices of fuel when they are making their budgets so that they are not taken up by surprise when the prices increase while they are in the middle of transportation of goods. This would involve monitoring fuel trends and making estimates of the cost say for the next 6 months. If need be, perhaps fuel reservoirs can be hired, particularly as your operations expand.

#2. Combat fuel theft. Install fuel sensors in the fuel tanks of the trucks. These help to monitor the amount of fuel consumption per truck in any given period of time. You can for example get the fuel sensors from FMS – Fleet Monitoring Systems Ltd.

3. Mechanical issues

It’s common for the vehicles to break down for one reason or another and this may cost the businessman a lot of money if the vehicles are not working.

Our advanced thinking tips to counter this?

#1. Fixed rate contract. It is recommended that you contract with a garage to service your vehicles at a fixed rate every month. This will save you from unscrupulous mechanics who want to rip you off by telling you they are fixing and replacing parts which are already working.

#2. Employee mechanic. Another alternative for the businessman would be to hire a permanent mechanic and place him on a pay role then contract with a shop selling genuine spare parts so that in case a vehicle breaks down and needs a replacement of a given part the businessman purchases the part and then tells the mechanic to go and collect it and fix it on the vehicle. This will enable you to get genuine parts for your vehicles if they need replacement and available mechanic services whenever you need then.

4. Seasonal business in the agricultural sector

Commercial goods transportation especially of agricultural produce is not a continuous business as it highly depends on the harvest seasons of the crop that you are dealing in. Let’s take an example of maize; it has traditional been grown seasonally during the rainy seasons of Mid-February or March to June, and second rains from Mid-August to December. As a result, the businessman only gets to purchase the product when the prices are low just after the traditional harvest season so as to maximize profits and hardly makes any purchase or makes no purchases at all when the prices are high during “off seasons”.

Our advanced thinking tips to counter this?

#1. Diversify. To counter this, the advanced thinking businessman will have to widen his customer base and revenue and deal in a number of produce such as beans, tomatoes, onions among others depending on the harvest seasons as opposed to most middlemen that precise in a given produce and only make purchases when those products are in surplus

AND NOW THE PROS (A reason to smile)

1. Improving transport network

Any person who travelled on Uganda’s roads upcountry 10 years ago will find a marked difference if he moved on the same roads today. The Uganda National Roads Authority (UNRA) has made it a point to tarmac many of the roads going up country to ease transportation in those areas. This makes it easy to transport commercial goods such as lake sand from the areas of Entebbe, Kamengo, Kasange among others to the building sites.

2. Ready market

There is a ready market for the agricultural produce that’s being transported from the villages to the markets in the different towns. Middlemen as traders offer to their customers an assortment of products acquired from various sources. The middlemen first secure the demand from their different customers in the markets and wholesale shops and then they get to know how much of the produce they are going to purchase. This gives them a guarantee of purchase when the purchased product finally reaches the market.

On the other hand, for the case of building materials there is a great need for the service of transporting building materials from the selling point to the building site as most of the contractors building residential and commercial buildings don’t have transportation vehicles of their own to transport the materials to the site after buying them. This is the opportunity to the businessmen involved in that sector.

3. Availability of agricultural produce

Farmers in Uganda's 2.5 million smallholdings and scattered large commercial farms produce the majority of their own and the rest of the country's staple food requirements. This means that the country can greatly rely on a constant supply of agricultural produce from the farmers. As a trader involved in transporting agricultural commercial goods you are guaranteed a continuous business all year round.

4. Return on investment

In our financial model, we estimate that:

  • In the construction transport/brokerage sector, a starting investment of Shs 102m will give you a return on investment (number of years to get your capital back) of 4.49 years. Annual profits are estimated at Shs. 23m per year.
  •   This is calculated as follows:

    • Startup capital: Shs. 101,684,000 (A)
    • Net profit: 22,645,000 (B)
    • Return on Investment (ROI) (A/B) = 4.49 years
  • In the agriculture transport/brokerage sector, a starting investment of Shs. 78m will also give you a return on investment (number of years to get your capital back) of 1.72 years. Annual profits are estimated at Shs. 45m per year.
  • This is calculated as follows:

    • Startup capital: Shs. 78,341,250 (A)
    • Net profit: 45,399,735 (B)
    • Return on Investment (ROI) (A/B) = 1.7255

In both models, the largest portion of the startup cost is in respect of the vehicle/truck purchase.  We have not factored in a working capital loan as this can be managed on a month by month basis but best practice suggests you will need to also have say 3- 6 months working capital.

It should be noted that the agriculture model appears to yield significantly better predominantly because of the “prospecting” around produce. You can buy it from farmers at low farm gate prices, store it till the scarce season and sell it higher or alternatively just transporting to the right market gives higher margins.

The construction industry will not have similar prospecting as clients often buy their own products especially the costlier ones and there is less bargaining power held by the transporter over suppliers.

The models are below:

Start up, revenue and profitability in the transport sector

P.S Clicking the above link will take you to a google docs links.

N.B: For prudence, the return on investment of 4.49 for the “poorer” performing sector of Construction has been used to rank with other sectors (rather than the agriculture one).  

The basics you must bet right before investing:

In the agricultural sector

1.Specialization

There are many types of agricultural goods from which to choose from, including but not limited to maize, beans, tomatoes, mangoes bananas among others. Each type brings with it its own challenges, so choose a crop that does not have a lot of competition in the market of transportation. Similarly, make sure you do your due diligence to ensure that there is actually a need for this type of agricultural crop in the market.

2. Customer acquisition

You need to acquire a customer base for the products that you going to deal in. since agricultural products are perishable in nature, there is need to sell them off as quickly as possible to the consumers to avoid the products getting spoilt in storage.

3. Sourcing the product

As a businessman involved in agricultural goods transportation, you will need to source the products you are going to purchase from the farmers. You will need to know which area grows which crop best and the preferred area for each crop for example people prefer bananas from Masaka compared to bananas from Mbarara. This gives you an upper hand compared to your competitors.

In the construction sector

1. Location

You must make sure your lorries are situated in areas that are selling building materials. This gives you an easy reach of customers who are looking for lorries to transport there materials to the building sites after purchase an example of such an area is shops located at Good shed opposite the fire brigade next to the Kampala city clock tower locally known as the “sawa ya queen.”

2. Drivers

Hire trained and licensed drivers with clean records who have had experience of working with other transportation companies and organizations. These drivers are well versed with company policies and follow traffic guidelines. In order to avoid your drivers paying out police bribes as a result of not adhering to traffic regulations, use experienced drivers – you will be saving a lot of money

Insights from my guest contributors

In the agricultural sector

Ssebunya simon is a business man in Kyengera owning a whole sale shop at the same time a middle man transporting agricultural goods from the villages to the markets in town. He has been doing this business for over 6 years purchasing maize from Mubende and selling it to the maize milling companies and he can tell you with certainty that he has no regrets though sometimes there are challenges here and there. The reason he  managed to succeed in this business is that he  managed to create a bond of trust with the farmers that he purchases from the produce and sometimes when he is short of capital they give him the produce on credit and once he has finished to sell the produce he sends them their balance on mobile money. He says he has come a long way studying the market and bending along its curves as well as understanding his customers and that is what has kept him going.

In the building sector

Semwogerere Fred is a businessman in Kampala owning a whole sale shop selling building materials at the same time he is in the transport business transporting building materials from the selling point to the building site of his customers. He is also involved in transporting other building materials such as sand, hardcore stones, aggregate stones and bricks among others. He has been doing this business for more than five years and he says he has enough experience to outstand the competition.

In his own words:

“I started this business as a lorry driver of a Tata the one of 22 tones and I was working for my boss transporting sand, hardcore stones, aggregate stones, bricks and other building materials. While doing the transportation business I learnt a lot of things including where I could get from cheaper materials. I then promised myself that one day I would own a lorry of my own and thank God here I am with three of them. The transportation business of building materials has changed now days we charge our customers a combined price consisting of the price of materials and the transportation price because we know where to get from the materials at a cheaper price and they charge us per vehicle and not per ton. We offer good prices to the building constructors and they don’t complain because they know the task of looking for them and transporting them to the site. “

Final word

The Uganda transportation sector will for the foreseeable future depend on the brokerage aspect (or being a “musubuzi”) owing to the bottlenecks where the many small subsistence farmers can’t get the large scale to transport their produce to the market. They therefore depend on the transporters. The same goes for the construction sector. Until the emergence of large scale independent contractors, the transporter has a critical role to play.

As a final thought, this sector will even be more important with the emergence of e commerce and internet selling where online retailers will be looking for a reliable logistics partner. This is an area to tap into.  

So are you experienced?

Otherwise, best of luck and of course if you need some help, do not hesitate to speak to us to get the ball rolling, Inachee after all represents Home Grown Energy in Motion.

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And now the disclaimer: While I have taken steps to research this information as well as based on my experience, you should not solely rely on the information given here to base your investment decisions. You should seek business advice from a professional knowledgeable of your specific circumstances. I (or Inachee) shall therefore not be held responsible for any loss you may incur when acting on this information.

Plant nursery business, Where is the Calytunsi seed?

girl with flower

 

 

 

 

 

 

 

 

Outside Looking In

D E Wasake, FCCA

About My Guest Writer(s).
The two brothers, Kizza and Mukwaya have two things in common; the name John, and their passion for gardening. With the help of their wives and a few part time porters, these brothers run one of Kampala’s oldest and most successful plant nurseries – Sanyu Tree Nursery, which sits on a narrow piece of land adjacent to Naguru Police Station, along Ntinda road, has been in existence since the early 2000’s when Kizza left his job as a porter at the National Forestry Authority, to chase his dream.

As luck would have it, the said land had become a nuisance and the City Authority (then KCC) welcomed his idea of turning it into a green belt. So with a total savings of 500,000/-, he bought some polythene, soil manure, and seeds, to set the ball rolling. He started out with only eucalyptus seedlings but has since expanded his scope to include Terminalia, Grevillea, pine, and thorny apple which is commonly used for fencing.

About the writer

For over 10 years I have worked with several clients in Uganda, The Bahamas and the United Kingdom in providing audit, tax, accounting and advisory services. My experience with various clients in the different sectors enables me to have a good understanding of this business. To see the full depth of my experience, please see my profile.

Article Summary
One of the best ‘shoestring startups’ for anyone who enjoys gardening and landscaping, is starting a tree nursery.
So you want to be your own boss, working on your own schedule while retaining all your hard work’s fruit. Even better is that just about anybody can start this kind of business with only a minimal amount of capital. Growing plant seedlings is a great way to turn 50 UGX (the seed) six fold, into 300 UGX (the seedling), in the shortest time possible.

In this article, we explore the fortunes that lie in the Tree Nursery Business. With an initial investment of UGX 7,770,950 and average net sales of UGX 20,000,000 your estimated return on investment is 0.385 years.

Introduction

When people think of a plant nursery, the roadside potted plant center usually comes to mind. You’ll find small specialty plant nurseries ranging in size from tiny roadside sellers to giant wholesale nurseries, who supply such retailers (NFA, Kawanda, EA Seeds, etc.) That’s the beauty of the plant nursery business – there’s room for everyone – from part-timers hobbyists to the more serious large producers.

The nursery and landscape industry is in Uganda is made up of many individual and family-run businesses that grow, retail, install and care for plants and landscapes. it involves the production and marketing of various plants including, traditional food and cash crops, grasses, flowers, commercial and fruit trees.

Trees are not perishable like flowers or vegetables; if your flowers or harvested vegetables don’t sell, you are left counting your losses. Instead, trees just keep on growing, so you can sell them for more, at the right time.
When practiced more skillfully, nursery operations can also generate biomass in the form of pruning and culling waste, utilized for energy production, or converted to agricultural mulch.

In our advanced thinking tips, you will be advised to specialize in highly demanded plant varieties that can be container-grown to save space and water. You will also learn that investing a fraction of your earnings in free deliveries to your customers can give you an edge in this highly competitive, but underutilized market. You can also make good income by focusing on establishing a supply relationship for wholesale plant sales, and managed services to retail nurseries, home owners, landscapers and upcoming real estate projects around you.

Introduction to the sector

Plant Nurseries range in size from small hobby type operations that market a few trees to family and friends, -to profit oriented road side nurseries(such as Mr. Kizza’s found in Nakawa, opposite Spear Motors) , and even large-scale commercial operations with their own retail outlets(such as NFA, EA Seed, Victoria Seeds). Although many small producers specialize in only a single variety of stock like tree seedlings, there are those who choose to cast their nets wide; our research findings explain the risks in this.

The nursery business is driven by new home construction and healthy consumer spending, and the recent awakening to the desperate wails of our planet earth. Demand for sod (compound beatification grass) and flowers has in recent years been subdued by the revolutionary shift to commercial tree farming.

Even when taken up as a hobby, a nursery, just like any other business, requires proper management in order to remain sustainable and as a new entrant to the industry you need to equip yourself with the following basics:

  • Knowledge of the growing requirements of the various crops
  • The ability to maintain various irrigation, heating, cooling and production equipment
  • The skill to research products and services
  • The know how to develop marketing and sales plans
  • The ability to manage people
  • The ability to sell products and provide quality customer service
  • The knowledge to manage finances

Here Is What You Need/The Process
 

1. Training
Nursery crop production requires highly technical and specialized production skills, particularly with respect to propagation and germination. In addition to a fundamental and practical understanding of plants and how they grow, as a nursery operator, you require an understanding of the specific growing requirements of each crop and how these growing conditions can be managed to achieve efficient production.

2. Location

It is important that the site selected for the nursery has enough land to raise the number of seedlings needed, and if possible, room for expansion. A small nursery raising 65,000 plants in small polythene bags, and keeping the plants in a nursery for a year could require about 60m2 of land; this includes potting beds, 20 per cent extra for losses and damage, paths between the beds, soil storage, thatched shelter, and the compost-making area. The size of the nursery depends on the number of plants to be produced, the time they will remain in the nursery, as well as the quality and slope of the site.

Other factors to be considered in location selection include;
• Number of plants to be produced each year
• Species
• Type and size of plants

3. Water Supply
Growing Plants require an adequate supply of water which can come from a nearby pond, swamp, or private well. The ideal situation is where there is a perennial stream at a higher level than the nursery, and fairly close to it, so that water can be diverted from the stream to the nursery in high density plastic pipes (which should be buried 15cm deep).

You need to determine the best irrigation system and irrigation practices for their particular situation. Metered water will not be an option for a road side establishment because the local water management authority (NWSC) requires you to you possess a valid land title before you can think of extending piped water

4. Equipment
This can include anything from irrigation equipment to shovels, hoes, rakes, to an agricultural tractor, depending on the level of production you are aiming for. Because you will be making regular pickups of plants, soil and making deliveries, owning a small pickup truck is something you should consider along the way.
Other equipment that you might need:

  • Sprayers for control of weeds, insects and diseases
  • Office equipment
  • Potting equipment.
  • Wheelbarrows
  • Pruners

6. Purchase Tree Seeds

To ensure a good planting program, good nursery stock is essential. Major causes of seedling mortality on-farm include the wrong size or poor health of the seedlings at the time of planting or poor health of the seedlings at the time of planting. Poor seedlings are likely to have slower growth, to be less able to compete with weeds or drought, and to be more liable to damage by insects and pests.

Buying from a reputable seller such as NFA is vital, and considering that that you will be buying in bulk, you can plant as many seedlings as your space can allow, and in a couple of months, you’ll have many seedlings for sale to earn you a good profit margin.

Pros And Cons

For a better understanding of the pros and cons of this sector, it’s important to do a complete SWOT (strengths, weaknesses, opportunities, threats) analysis. Knowing the strengths and weaknesses of your competition will also allow you to position your plant nursery where your strengths prevail.

Strengths

  • Low initial investment and cost. It is a low-tech business that anyone can learn and can start with little more than a wheelbarrow and a shovel!
  • Quality of products. You can count on high quality products to win you more business.
  • Availability of the required equipment locally, such as packaging material and gardening tools.
  • Availability of affordable plant seeds. Since they are predominantly bought according to weight (kilograms) and sold as individual seedlings, you stand to benefit from the favorable pricing of most seed varieties. It gets even better! Once you’ve planted ‘mother’ stock, you can easily propagate more by cuttings or root division, to reduce your plant costs to zero.

Probable Weakness

  • Lack of technical support
  • Lack of knowledge
  • Lack of suitable transport means. (you will be hiring a vehicle in order to provide free deliveries for bulk purchases)
  • Lack of previous client base because we assume that you will be joining the industry fresh.
  • Lack of water resources. Living creatures, plants inclusive, have basic necessities for survival; steady water supply is vital for the good health of your plant nursery stock.
  • Land and suitable roadside location. Given the demand for easily accessible roadside land, it is nearly impossible for you to find a suitable unoccupied plot.
  • Lack of finances
  • Uneven sale / market periods… sales are predominantly seasonal; there is bound to come a time when you will have little or no sales at all. You should prepare means to get by and also provide the necessary care for the farm during periods of slow or no sales.

Opportunities

  • Availability of cheap labor
  • Market for seedlings
  • Opening up new markets in by organizations promoting environmental awareness, landscapers, homeowners in Uganda’s upcoming suburbs, etc.
  • The sudden shift in societal concern towards environmental conservation, hence the call for reforestation.
  • Opportunity to venture into professional landscaping, providing managed services to home owners and construction projects alike. This will open the doors to an entirely new world of exterior design.

Threats

  • Land & location. Kizza admits that he was lucky to be have secured KCCA’S permission to operate in the Kinawataka water-catchment area precincts; “finding a busy spot that can accommodate a similar venture, without making any enemies is impossible under the current situation.” According to him, the weak legislation and disregard for the environment has seen many scamper for what would have been mutually beneficial green spots in the city. (Memories of the failed attempt to have a Futon showroom developed along Yusuf Lule road, opposite garden city start ringing in my mind.) Additionally, he lives every day like it’s his last because he knows the implications of the temporary nature of his tenancy.
  • Unpredictability of demand
  • Pests and diseases.
  • Policy changes e.g. by KCCA which can decide to redeveloped particular land leading to eviction.
  • Isolated site leading to the risk of vandalism and theft. You would think that its close proximity to a police station, Kizza’s plant nursery is assured of security but that isn’t the case. The authorities at city hall are firmly against the idea of erecting a parameter fence, and the thought of hiring a private security guard sent us both laughing.

Marketing And Promotion
These will be the single most important (& costly) aspects of your nursery plant business and should be considered well ahead of growing any plants. In order to consider yourself a success, you need to be selling over 65,000 seedlings every season. One cannot simply rely on people to ‘’just ‘know’’ that you are a good grower; you have to make it known. With the proper marketing strategies it is possible to succeed in this business.

What marketing channels will work best for your situation, and what type of marketing and promotional tools will you use? What will be your market area? Will it include local, domestic or export markets? These are some of the questions that need to be answered.

Here are a few ‘Advanced Thinking’ tips for you…..as you consider this sector

  • Develop contacts with prospective buyers and maintain contact with existing clients.
  • Assess new trends in order to respond to changing consumer tastes and preferences.
  • Sort, handle, label and transport stock as required by buyers as an after sales service.
  • Provide required quantities as requested by large scale buyers.

The full article with additional information on the process, further advanced tips and contacts for purchase of items including seed prices from NFA are contained within our financial model below.

Our financial model of the profitability of the sector and return on Investment

P.S Clicking the above link will take you to the Inachee Databank where the full version of this document can be downloaded after you register. and pay the requisite fee

Final Word
In this business, there’s essentially nothing substantial enough to different you from your competition, so in order to successfully develop an edge, you have to concentrate on product quality, selection, lowest price and fastest service. Now you have it, good luck in your endeavors, don’t hesitate to get in touch with us for any assistance in bringing your dream to life.
Please include any questions and queries in the comments section below.

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