THE CONTRIBUTION OF PORTFOLIO ENTREPRENEURS TO ECONOMIC DEVELOPMENT AND GROWTH: THE UGANDAN LABORATORY CASE

THE CONTRIBUTION OF PORTFOLIO ENTREPRENEURS TO ECONOMIC DEVELOPMENT AND GROWTH: THE UGANDAN LABORATORY CASE Waswa Balunywa: Makerere University Business School, Kampala, Uganda Peter Rosa: University Of Edinburgh Business School, Edinburgh, United Kingdom Contact: Peter Rosa, University of Edinburgh Business School, William Robertson Building, 50 George Square,., EH8 9JY Edinburgh, UK, (T) 0044 131 650 3798, Email: Peter.Rosa@ed.ac.uk INTRODUCTION It is now twenty two years since MacMillan (1986) recommended that to understand entrepreneurship we should study serial entrepreneurs. Since then there have been many studies on habitual and portfolio entrepreneurs, covering a range of themes. Early studies concentrated on definitional issues, distinguishing serial entrepreneurs (those that start a series of businesses, but close each one before starting another) and portfolio entrepreneurs, (entrepreneurs who start more than one business but do not necessarily close those started previously, hence leading to the ownership of a portfolio of businesses)(birley and Westhead, 1993). They also focused on whether there were detectable differences in the nature of businesses started by novice and habitual entrepreneurs, and whether the creation of a group of companies by an entrepreneur is an entrepreneurial process linked with growth. Their contribution to growth, it was argued, could only be fully appreciated by switching the unit of analysis from the firm to the entrepreneur (Rosa, 1998, Scott and Rosa, 1999). Since 2000 there have been three themes of research. First considerable attention has been paid by Westhead, Ucbasaran and Wright in a series of articles to what characterises habitual entrepreneurs, in particular whether their human capital (education, but crucially experience) is a critical factor in the success of habitual entrepreneurs (Ucbasaran et al. 2008).. Second Rosa and Iacobucci have specialised in understanding the process of forming business groups by habitual entrepreneurs (e.g. see Iacobucci and Rosa, 2004). Recent articles have shown that entrepreneurial motives are important for instigating entrepreneurial diversification, but the decision whether to accommodate this diversification within the existing firm or by starting a new one is complex, and often related to the need to manage new key incomers into the business. Third there is a growing interest in habitual entrepreneurship in a family context, the fact that family businesses are not just a single business, but a group of businesses started and grown by various family members. There is one theme, however, which has been little studied, that is the role of habitual entrepreneurs in economic development and growth (Ucbasaran, et al. 2008). Why this is the case is unclear, but there are several possible reasons that suggest themselves. First the study of habitual entrepreneurs has not been on the main research agenda in the USA, where the emphasis has been much more on nascent and start-up novice entrepreneurs, or small business. Even the studies of habitual entrepreneurs to date have been located in the small firm sector where businesses by definition have been relatively small, and individually not a dominant force in their sectors. Where the focus has been larger firms, research has been mostly concerned with corporate entrepreneurship, not with highly successful entrepreneurs heading large businesses. These are inevitably portfolio entrepreneurs. Second there has been little attention paid to how existing entrepreneurs contribute to wealth creation and jobs. This is most apparent in the GEM model, (Reynolds et al., 2001) where existing businesses appear as an important element of the model in predicting how entrepreneurship leads to economic growth, but have yet to be seriously researched. Third the geographical focus of studies on habitual entrepreneurs has been mainly Europe, where national economies are large, complex and where the general view is that it is 587

corporate blue chip companies, not entrepreneurs, that drive the economy. It is very difficult to be able to research what effect individual entrepreneurs have on these complex economies. Third there are issues of access. Europe's top entrepreneurs are not easy to even locate, never mind contact and interview. The present paper addresses the theme of the contribution of habitual entrepreneurs to economic development and growth by locating the study in Uganda. Unlike in Europe the prominent entrepreneurs are relatively few and easier to access, the complications posed by corporate blue chip companies are less (they hardly exist except as multinational subsidiaries), and the economy is much smaller. Uganda thus offers a kind of laboratory context to research the influence of habitual entrepreneurs on economic development and growth. The paper illustrates this through doctoral research carried out by one of us, Balunywa. What is the role of habitual entrepreneurs in economic development and growth? Neoclassical economic theory traditionally has had no room for the entrepreneur in explaining economic growth, but recent developments now allow it a limited role. Audretsch and Keibach (2004) have argued that though most economic growth is a function of labour, capital and, to some degree, knowledge (as advocated by theorists such as Solow and Romer), there is a place for entrepreneurship where knowledge is uncertain. Thus the role of entrepreneurship in economic growth is small but significant. Entrepreneurs thus have some role to play through their ability to accept uncertainty, and to build up knowledge of managing businesses better from start-up. This contrasts with economists outside the neo-classical paradigm, where entrepreneurs are important generators of growth. Much of the theory of entrepreneurship and economic growth is inspired by Schumpeter (1934), in which economic growth occurs as a result of innovation cycles of creative destruction led by radical entrepreneurs. This, as Bhide (2000) has recently demonstrated, is not just linked to innovations in products or services, but also in the ability of entrepreneurs to envisage and apply revolutionary business concepts and models. Most entrepreneurs, however, are not radically innovative. They create wealth for themselves rather by exploiting information asymmetry, and being alert to new high margin opportunities (Kirzner, 1973 and 1984).. These opportunities do not necessarily stem from innovation in the Schumpeterian sense,, but also from changes in legislation or other economic conditions where information asymmetry can be created. New opportunities are spotted by alert entrepreneurs who have the knowledge and skills to turn them into profits. How far Kirznerian entrepreneurs enhance wealth creation in the wider economy is a matter for debate (it could be argued that they merely recirculate existing resources). In our view, however, entrepreneurs in an economy are the conversion mechanism in which opportunities translate into profit. Without them there would be no economic transactions at all. There are arguments as just shown to explain why entrepreneurs can create economic growth. Is there anything special, however, by habitual entrepreneurs? Does it make a difference whether they grow a single business or a variety of businesses? In a Schumpeterian scenario, an entrepreneur can grow a single business into a large entity so great that its impact on the economy is obvious. Examples of this is the oil empire of Rockefeller, the first entrepreneur to fully realize the new importance of oil in the 19 th century; or of Bill Gates, a radical exploitation of the rapid advent of the PC and its need for an operating system. However most entrepreneurs are more Kirznerian in character, spotting opportunities which require no fundamental innovations, just the possibility of good profit margins. Most firms no longer seek to grow a single business and dominate a mass market, but rather seek to grow new businesses in a series of different markets. The classic example of this in the UK is the Virgin Group, whose founding entrepreneur, Sir Richard Branson, has started over 150 businesses, and each in a high growth market segment of the economy. He has effectively started a system of constant new venture creation, based on a very strong brand. By setting up the group he also is able to operate a system of competitive churn in which a new companies displace those that are performing less well. In time the portfolio of companies changes quite dramatically but the group as a whole continues to exist and prosper. This, it could be argued, is a typical Kirznerian situation. This new type of business group formation, associated with the activities of a habitual entrepreneur, is thus, it could be argued, highly relevant to economic development and business growth. Such entrepreneurs have the flexibility and knowledge to quickly exploit new innovations and opportunities, and to respond sensitively to market forces. They tend to be in a better position to cope with new lines 588

of business and corporate businesses which have a more bureaucratic and inflexible culture. Indeed it an examination of the world's top companies reveals that a surprisingly high number are business groups owned, controlled and strategically managed by a portfolio entrepreneur or his or her family. When a habitual entrepreneur learns to combine entrepreneurship with corporate knowledge, performance tends to be enhanced. Portfolio Entrepreneurs and Economic Development in Uganda The realisation in the 1970s by US and British researchers that small firms played an important part in the creation of new jobs was soon transmitted to researchers and policymakers in developing countries. For the last 25 years there has been a deep belief by governments in particular that small firms play a major economic role, in creating jobs, soaking up unemployment and alleviating poverty. There has been a large number of measures created to support small businesses, including programmes to develop entrepreneurial skills, upgrade management skills to help firms grow, providing micro finance and preferential loans and so on. In particular small firms have been associated with indigenous African entrepreneurship, in contrast to large firms which are associated with predatory multinational companies. For the past twenty years the World Bank and other world organisations have tried to persuade African Governments to establish more favourable economic environments for small businesses to flourish. Notably there has been an emphasis on structural adjustment, the contraction of the public sector, privatisation and liberalisation. This has indeed resulted in economic growth, and as GEM Uganda established in 2003 and 2004, Uganda is one of the most entrepreneurial countries in the world, with a thriving small business sector. During this period entrepreneurship and small business have been regarded as synonymous. Yet theoretically there is no reason why a small business should be entrepreneurial. Many small businesses in Africa also trundle along, as Storey (1994) observed in the UK. It is primarily when a new business opportunity and an entrepreneur combine that a new small business emerges. There is no reason to suppose that this is confined to the small business sector in Africa. An important question is how far does entrepreneurship also exists in larger firms, as it seems to do in developed countries? In a country experiencing economic growth such as Uganda, the research on habitual entrepreneurs conducted in developing countries suggests that they ought to be prominent here too. Indeed, because Uganda is such a small economy, it should be possible not only to identify key habitual entrepreneurs, but to measure to some extent their contribution to economic growth. Uganda has no known Schumpeterian entrepreneurs. However it has some very successful entrepreneurs. Uganda has created conditions that favour the emergence of such entrepreneurs. First Uganda emerged in 1985 from tyranny and warfare which resulted in the near collapse of the economy in the early 1980s after the turbulent rule of Idi Amin. The main entrepreneurs in Uganda, the Asians, had been thrown out in the 1970s, and economic conditions deteriorated fast after their expulsion. Although this created a vacuum, which could have been filled by African entrepreneurs, conditions were too poor to allow many to grow fast during this period. The advent of peace in 1986 under the current president Yoweri Museveni, saw an economy with severe shortages of all goods and services. Entrepreneurs were encouraged to rebuild the economy, and many Ugandan Asians were invited back to reestablish their businesses. A series of government measures to liberalise the economy were also important in changing regulations and the economic climate. Finally aid started to flow into Uganda, making capital available. In short these conditions were ideal for entrepreneurs to thrive. Since 1986 Uganda has been growing at a rate of between 5 and 8% per year, and has become one of Africa s fastest growing economies. In 2001 Balunywa embarked on a study to assess whether relationships could be found between the growth of portfolio entrepreneurship and economic growth in Uganda. He was able to identify and interview Uganda s leading habitual entrepreneurs, and has been trying to assess their impact on their economy. His research in particular focused on their contribution to the following areas: 1) taxation 2) jobs created 3) new firms created 4) new industries 589

5) infrastructure development 6) multiplier effects. METHODS There is little known about the detailed contribution of habitual entrepreneurs to economic development, especially in developing countries such as Uganda. Given this it is premature to adopt a deductive theory driven approach, resulting in a series of hypotheses to be tested. The approach taken is inductive, with the intended outcome being a fuller understanding of the nature of the contribution of habitual entrepreneurs to the economy. This in turn should result in better understanding which could form the basis for better theory and hypotheses to be tested in the future. The study first used various sources (databases of larger companies such as those provided by the Uganda Manufacturing Association; Price Waterhouse, national newspapers) to identify Uganda s top entrepreneurs. Detailed in depth interviews were then conducted on 30 of these. In terms of their contributions to jobs and taxation, data from the Uganda Revenue Authority were used to carry out informed estimates. RESULTS Tax Contribution of Portfolio Entrepreneurs to the Economy Taking the 2002/03 fiscal year, the number of companies that contributed large amounts of tax are singled out for the study by tax authorities. (Special Revenue Collection Department 2003) There is even a Large Tax Payer Department with the Uganda Revenue Authority, the tax collection agency. The Department is intended to serve and keep track of these large taxpayers. Over 700 companies are listed in the study. The leading companies are primarily Petroleum companies and they take up most of the first 10 places. These oil companies contribute about 40% of the taxes annually. Table 1: Tax Contribution of Leading Portfolio Entrepreneurs Family/Entrepreneur Group Tax paid (billions shillings) Madhvani Madhvani Group 72,500 2 Bagalaaliwo Coca Cola 24,395 11 Karmali Mukwano 22,597 12 Nzeyi Pepsi Cola 7,191 24 Metha Metha Group 5,574 30 Wavamunno Spear Group 3,715 38 Ruparelia Ruparelia Group 2,995 46 Karim Imperial Group 2,937 47 Position in Country Since portfolio entrepreneurs have multiple businesses, their different companies appear separately in the list. Therefore we aggregated the contributions of their different companies to be able to ascertain the groups contribution. When aggregated, the then Madhvani group takes the lead among portfolio entrepreneurs and is number two in the country after Shell Uganda. At the peak of their business in the 1960 s, the Madhivani Group which had over 70 different companies contributed about 10% of the country s tax revenue. The contribution today is relatively less than what it was before they lost their empire in 1972 (i.e when expelled by Idi Amin) and it now comes from 23 companies. The Mukwano Group of companies ranks 12. The companies between 1 and 11 are largely oil companies besides MTN, the telecommunication company. Coca Cola, the franchise originally owned by Bagaalaliwo, a portfolio entrepreneur in which another portfolio entrepreneur from South Africa bought shares, is number 11. Wavamunno with interests in different sectors, number 38, the Metha Group of Companies, mainly in the production of sugar is number 40, Sudhir Ruparelia 46, Karim Hirji 47. 590

The overall contribution of these 8 leading portfolio entrepreneurs is thus considerable, and we suspect that the total contribution of all larger portfolio entrepreneurs is one of the most significant sources of tax revenue. Evidence also suggests that their contribution is growing. Overall Industrial Growth There has been a phenomenal rise in food and industrial production since 1987. Much of this growth is associated with the activities of habitual entrepreneurs. For example the Madhivani s and Metha s are mainly in sugar production grouped under food processing. The Mukwano group is also largely in food production. Production has gone up by over 500% in a period of 10 years. Sugar production has specifically gone up by almost 4000 per cent. Soap by over 1000 percent.. Coca cola and Pepsi Cola which were originally owned and run by local portfolios, Bagalaaliwo and Nzeyi respectively, before buy-in by foreigners, are in the beverage sector. In 10 years, production in the sector has gone up by about 4000 per cent soft drinks specifically by over 1000 per cent. Chemicals, paint and soap, where about 4 portfolios operate (Mulwana, Mukwano, Kaddu and Madhvani) grew by over 500% in 5 years and 1000% in 15 years. Steel and steel products also gone up by over 500% (Mehta, Madhvani, Alam and Sembule). Table 2: Participation of portfolio entrepreneurs by industry Sugar Soap Plastics Radio /TV Edible oil Cut flower Bank ing Insurance Madhvani Mukwano Metha Wavamunno Karim Sudhir Kiwanuka Mulwana Alam Sembule Forex Steel Another portfolio entrepreneur started farming because he saw a problem of inadequate supply in poultry products. At the time, he entered the industry, the country s poultry farmers imported day old chicks from different countries, Zimbabwe, Kenya, and Netherlands, among others. Today he has the largest poultry farm in the country and supplies day old chicks to all poultry farmers in the country. Supermarkets in the country stock dressed chicken supplied by him. There were no forex bureaus in 1986 (it was illegal for private bureaux to trade). Today, since the forex bureaux were legalized and liberalized, over 200 have been licensed and at the time of the study over 75 were operating. Many portfolio entrepreneurs now own a forex bureau. Large hotels were owned by government and were dilapidated. Today many new big hotels have been built by portfolio entrepreneurs and those privatized now offer excellent services. It is clear that hundreds of goods and services that were not produced in the country or were in short supply are now available in plenty. Entrepreneurs have played a major role in business start-up and production of goods and services (see Table 2).. This growth in production has numerous implications in the economy which impacts on economic growth. Factories have been set up, raw materials are purchased, people employed and products are availed to consumers for consumption and satisfying a need. Other than textiles, where there has been a decline in some years, production in most items has gone up by between 400-500 percent over the 15 year period. The role of portfolio entrepreneurs in this is evident and substantial. Portfolio entrepreneurs contribution to Employment 591

One of the key aspects that has been associated with entrepreneurship has been employment. The creation and loss of jobs. Entrepreneurs themselves go into business because of various reasons. These include desire for independence or when they have no job opportunities elsewhere. They thus seek self employment in the process. As they start up businesses, they create jobs and these jobs expand with the expansion of business. This is how they contribute to growth. Most of the portfolio entrepreneurs studied came to prominence in the late 1980 and early 1990s. They have been instrumental in creating new jobs in the economy. The Madhvani group returned in 1985 and found only 5000 acres of sugar cane. At the time of the study, acreage had gone to about 80,000. Jobs in their different companies are now over 16,000. Mukwano employs over 4,000 employees, Ruperalia Group employs over 3,700, Imperial Group employs over 2,000. Since growth is normally measured in terms of new jobs created, it is evident that there has been growth in the economy Table 3: Portfolio Entrepreneurs and Employment Rank Number Name Number of employees 1 Madhvani 16000 2 Mukwano 4000 3 Spear Group 1400 4 Sembule Group 700 5 Nice House of Plastics 800 6 UNI Group 1000 7 Ugachick 400 8 Shumuk 1000 9 Peacock 300 10 BMK 1000 11 Mukula 300 12 Coca Cola 1200 13 Taibah Schools 450 14 Nsubuga 200 15 Kisozi Ranchers 100 16 Kiwanuka 150 17 Crown Bottlers 1200 18 Alarm Group 2100 19 Vita Foam 600 20 Mehta 6000 21 Monitor 1000 22 Ruparelia 3700 23 Imperial Group 2100 Portfolio entrepreneurs contribution to Infrastructure Development Ordinarily growth is seen in terms of jobs created and production of goods and services. However, creation or addition to capital stock items that come with entrepreneurial activity is also an indicator of growth. The contribution of portfolio entrepreneurs to the development of physical infrastructure is overlooked in the literature, as it is not a great issue in the leading world economies where development is advanced. As a general rule once a site is developed, it tends not to revert to bush, but is continued to be used even if the entrepreneur who built it fails. a) Buildings: Almost all the portfolio entrepreneurs have constructed buildings including factories, office complexes, hotel and residential houses for rent. The Madhivani group has rehabilitated their buildings at the estate. This includes factories, schools, hospitals and residences. Mukwano set up factories and has built shopping arcades in the city. Ruperalia has built new hotel at Munyonyo and at Bukoto (Kabira Club), Karim rehabilitated hotels in Kampala, expanded one in Entebbe and built a new one in Entebbe and a theme park in Kampala. Wavamunno built a hotel in Mbarara, (has since sold it) has a 592

building in downtown Kampala besides a big workshop in Nakawa industrial area. He has numerous residential property lent out for rent. Kibirige built the Hotel Africana, and has several big commercial buildings around the city besides the large number of residential properties for rent. Peacock Paints has a big building in Kampala s industrial area. Kiwanuka of Oscar Industries has factories in the industrial area and has refurbished b)equipment Most factories come with plant and equipment. The Madhvani have put new equipment in most of their factories. The Mukwano group is a recent development and has equipment to manufacture plastics, soaps, detergents, cooking oil. Kibirige has road construction equipment and other equipment for hire. All hotels have been re-furbished with new equipment. Kiwanuka of Oscar Industries has equipment to manufacture exercise books and other types of stationery, hessian, bags, egg trays. Wavamunno has equipment to fabricate bodies of lorries, buses, etc. Again this is addition to capital stock and an indicator of growth. These equipment create a new wave of activity of maintenance besides creating primary employment c)roads and Factory Access The largest dual carriage way in the country from Jinja town to Kakira Sugar Works Factory about 11 miles was financed by the Madhvani group in the 1960s. To date they open and maintain murram roads totaling to over 60 kilometers in areas surrounding their plantations where over 4000 out growers have small plantations. Roko Construction, owned by a prominent portfolio, re-surfaced a city road leading to their offices in Kawempe about 6 miles stretch. Wavamunno, put an access on the hotel in Mbarara about half a mile, Karim has repaired the road of about two kilometers accessing one of his big hotels, put an access on other Hotels in Entebbe. There are reports of different businesses coming together to buy materials for repair of common roads. Most new factories bring in their wake road repairs by developers. There are additions and improvements to capital stock and indicators of growth. d)schools, medical facilities and others Many portfolio entrepreneurs make contributions to growth of communities where they live. They have contributed to building of schools, medical facilities, churches and mosques besides other things. The Madhvani Group built libraries in many secondary schools across the country. They have Schools and a hospital on their estates. The Metha group in Lugazi also have schools on their estate. Wavamunno built a church and also contributed large sums for the construction of the Pope Paul Memorial Centre in Rubaga. Most portfolios admitted they contribute to fund raising activities of the area where they stay in support of development of schools, churches, mosques and hospitals. Portfolio entrepreneurs contribution through the Multiplier effect The direct contribution of portfolio entrepreneurs can be measured from their production, sales, jobs, profits and capital invested. However, they also make indirect contributions to growth arising from the multiplier effect. The primary activity of the entrepreneur, be it production or sale or rendering a service has other consequences in other sectors and businesses. These may be in supply of raw materials or sale of product. Starting up an economic activity creates a multiplier effect. The construction of buildings stimulates the construction sector creating jobs and other businesses. Cement, iron and steel, plumbing, electricals are all required and businesses are started from there. Running hotels, factories, stimulates a chain of suppliers of inputs. It is difficult to estimate the multiplier effect of the key portfolio entrepreneurs in Uganda especially that agriculture and the informal sector play an important role and yet have no proper records. However, we can map out activities that result into multiplier effect in many other areas where portfolio entrepreneurs have a presence. We take two cases to demonstrate the effect. The Madhvani Group and the Imperial Group of Companies of Karim Hirji. The Multiplier Effect: Case of the Madhvani Group Madhvani s primary business has always been producing sugar from sugarcane. He has over 80,000 acres of sugarcane and produces an average 80,000 tonnes of sugar per year. Outgrowers supply more sugarcane than that grown from his estate. a) Sugarcane Outgrowers 593

The group does not grow enough sugarcane on their plantations so they outsource sugarcane from farmers in the neighbourhood of their estate. They encourage farmers in the neighbourhood to grow sugarcane. Madhvani s demand for sugarcane creates over 4,000 suppliers or businesses in form of out-growers. These suppliers employ labour in the planting, weeding and harvesting of their sugarcane. At the time of harvesting, the out growers hire transporters to deliver their sugarcane to the Madhvani sugar factory. The demand for sugarcane by Madhvani creates new businesses and jobs for suppliers whose activities also create jobs in turn. b) Transport sector Additional businesses and jobs are created in the transport sector as trucks are hired to deliver sugarcane. Trucks create demand for petroleum products, creating additional jobs in the oil industry. Increased demand for petroleum products also creates its own jobs in the oil sector, with transporters, and also the management of the oil sector itself as demand goes up. Sugar is produced almost throughout the year and sugarcane is transported from different outgrowers also throughout the year. Thus additional jobs are created throughout the year as a result of demand for sugar. c) Road network The Madhvani group maintains the road network in the outgrowers areas. Over 60 kilometres of roads outside their estate are maintained and another 40 kilometres within their estate. This creates jobs for the road maintenance operators, creates demand for fuel and its attendant jobs in the oil sector. It creates demand for road maintenance equipment and additional demand for the maintenance activities of the equipment. These are jobs and economic activity arising from sugar production. d) Sugar by-products The production of sugar is a result of crushing sugarcane which gives the main product sugar but also has by products, baggasse and soil waste. Baggasse is the waste product from sugarcane. There is also another by-product in much smaller quantity which is the soil particles that result form cleaning the sugarcane. The soil particles are turned into fertilizers which are then taken back to the sugar plantations. This creates another product which has additional job potential. e) Electricity generation and water supply Because the baggasse is so much, its disposal became a problem. It was initially used as a fertilizer but required treatment before it could be used. It is now used to generate electricity. The electricity from baggasse along that produced from the mini hydro plant by the lake side is more than what they can use in their industrial empire. The electricity is used to run the factories including the sugar, soap, cooking oil, and sweets factories. It is also used to light up the housing estates, Schools, a hospital and 2 health centres. The excess of what they produce is fed into the national grid and sold to the national power company. Plans are underway to produce up to 30 mega watts of electricity to supply to the national grid. The generation for electricity therefore creates jobs in that sector so is the demand for water. Because of proximity to water resources, the group has always provided its own water supply. Jobs have been created in these sub-sectors as a result of producing sugar. f) Sugar as input to other businesses Madhvani now produces over 85,000 tonnes of sugar every year. National production is about 190,000 tonnes (Statistical Abstract 2001) from a total of three sugar plants in the country. Sugar is a basic essential product used in homes for everyday use. It is also a raw material for other products. The transportation of sugar from the factory in Kakira to distributors naturally creates jobs. Distributors themselves are employed and they also employ other transporters who deliver to retailers. There are thousands of small and big businesses selling sugar everyday. 594

They make a living from this activity. Packaging for sugar is also another economic activity that emerges. There are also other products which use sugar as a raw material. The products of sugar lead to other businesses. There is a sweet and confectionary division in the Madhvani Group using sugar as a raw material. This employs people and the production has consequences in the transport sector, distribution and retailing. Other industries including soft drinks, confectionary among others use sugar as input into their activities. g) Security business With over 80,000 acres of plantations, security became a problem. The group started a security company to ensure that all its business premises and estate are scarce. This has turned into a business and now the company also avails service to other companies outside the group. Hundreds of jobs emerge from this activity. h) Development of other areas through labour import The company s peak performance was in the late 1960s just before Idi Amin took over the country and led the country into economic decline. At the time, the group was labour intensive compared to what it is now. It had over 20,000 workers at its industrial estate. There was not enough manual labour in the immediate neighbourhood so it used to import labour from Rwanda, the neighbouring country and from Arua within the country. These labourers would be employed for 2 to 3 years and then taken back. This continues today though to a limited extent and only from Arua. The group thus benefits areas not even close to it by giving people jobs and incomes. i) Housing estates Because of the large number of employees, the group built labour camps and other housing estates for lower, middle and top management levels. The labour camps are basic facilities of two roomed houses and for the higher echelons in management, houses are available. This created a construction section with continuous construction and maintenance activities. Families are supplied with electricity and water. This activity creates jobs in the construction industry. j) Schools and health facilities The group has 4 primary schools, 2 secondary schools and a technical institute. The thousands of families at the estate have school going children at different levels. Even families bordering the estate send their children to these schools. Schools employ teachers and other workers and create demand and jobs in the scholastic materials industry, food supplies and other related jobs. The group also has a hospital and 2 health centres for employees. Doctors, nurses and other healthy workers are employed. The pharmaceutical industry supplies drugs to these medical establishments thus creating jobs in that sector. Case of Imperial Group of Companies The Imperial Group of Companies is mainly in the hospitality industry. The owner has 4 hotelsc located in both the capital city Kampala and in Entebbe. One of them, the best in the country. Another 5-star hotel is being constructed downtown as part of the country s preparation for the Commonwealth Conference in November 2007. He also has the biggest amusement park in the region on a 17 acre piece of land. a) Employment The group directly employs about 1700 people in different professions. The group interests include trade, property, insurance and financial services besides the visible hotels and an amusement park. The jobs created include, chefs, waiters, housekeepers, cleaners, accountants and others. The hotel services include restaurants, bars, accommodation, business services and leisure facilities. 595

b) Agricultural sector Restaurants serve meals and drinks. The inputs for restaurants include local foodstuffs supplied by different people. Foodstuffs include matooke, beans, cabbages and a variety of others. The hotel keeps a list of suppliers of these foodstuffs. These suppliers reported that they buy the food stuffs from the wholesale food markets which take place every morning in major markets around the city and in major towns. In these markets, farmers deliver their produce over night on trucks and pickups to wholesale dealers who either sale them in bulk or retail them. Demand for food stuffs in the hotels every day creates jobs in different sectors, food distribution, storage, transportation and farming sector. All these sectors employ others creating additional jobs and incomes. c) Beverages sector In the bars, there is demand for soft drinks, beer, wines and spirits. The beverage industry supplies these items and this creates jobs in the transport sector and beverage sector. In the beverage industry, there are also suppliers of different inputs, water, concentrates, barley and other inputs. Thus a drink served in one of the hotels in Kampala creates jobs in other sub sectors. d) Utility sector Accommodating a person has consequences on water, laundry services, soap/detergent industry, air conditioning and electrical and plumbing sectors. Water is supplied to a hotel, create jobs in the sector. Laundry services are used and this creates jobs. There is demand for soap, detergents and cleaning materials. Demand for these products creates jobs in those industries. e) Maintenance sector The maintenance sector, electrical and plumbing sectors are impacted upon by a person staying on a hotel. Repairs are made on a continuous basis creating for demand and jobs in the hardware and construction sectors. f) Business services Business services include phone, fax and internet facilities. Conferences, seminars, board meetings are held in these facilities creating demand for food, water and other related services discussed above. Leisure facilities like gyms, swimming pools, pool tables also exist giving rise to jobs from different professionals calling for inputs or equipment that is bought elsewhere. This creates jobs. g) Shopping arcades and office space The Imperial Group has four big hotels in the country and is the single largest provider of hotel facilities. As stated, the group is building the 5 th hotel. The hotel facilities have shops for rent by other businesses. One hotel has 40 shops, while another has 37. This creates space for other businesses to operate. Shops are located at the different hotel facilities of the Imperial Group. Recently the group acquired one of the biggest buildings in town with a prime location. The building formerly a bank which has since relocated, was turned partly into a shopping centre with hundreds of shops. The building also has hundreds of office space. The group has other buildings it lets out in down town. h) Tourism The availability of good hotel facilities has also encouraged other business in the country. Tourism is one. So are international meetings. Tourism development largely depends on availability of tourist facilities. A key factor is accommodation. With the number of beds increasing as a result of these hotel facilities, so has the growth of tourism. Uganda used not to host international meetings for absence of first class conference facilities. Today, numerous international meetings take place in the 596

country. Tourism has other multiplier effects. It creates demand for forex services, food, transport including air travel among others. In aviation, visitors arriving through the airports create jobs as there must be people to attend to them in aircraft handling, customs and immigration. The transport sector gets jobs. The petroleum and oil sector gets jobs as more people are transported to and from airports, game parks and other tourist attractions. The Imperial Group has interests in other businesses; insurance, financial services, radio stations, television stations among others. All these have jobs and attendant through the multiplier effect. CONCLUSION The research into habitual entrepreneurs provide an alternative to the firm focused research agenda which is based on the belief that it is new firms which contribute most significantly to economic growth in the modern economy. Their full contribution to economic growth and development has yet to be fully established, but the research so far shows that they are perhaps far more important than hitherto suspected. Habitual entrepreneurs are not only the most successful entrepreneurs in the economy, but are also the most experienced and most likely to develop significantly new opportunities. In some senses they are the very essence of capitalism at work. Their role is especially vital in developing countries, which lack a developed corporate base, and which would, without the choice provided by competing portfolio entrepreneurs, be more at the mercy of foreign multinationals. In Uganda they make a leading contribution to the economy. Leading portfolio entrepreneurs are responsible, as we have demonstrated, for a major tax contribution. They have had a role in the introduction of most new products and services to Uganda, and are responsible for much of the phenomenal rise in the index of production. They are also responsible for the creation of thousands of jobs, not just directly, but through the creation of multiplier effects. Finally they improve physical infrastructure in a number of areas, a contribution that remains even if the entrepreneur fails or moves on. This latter role is especially important in developing countries where infrastructure is serverly underdeveloped. The portfolio entrepreneurs are not only successful, but are a stable part of the Uganda economy. They achieve their success by starting a regular stream of new businesses which are tested out. If promising they are grown and exploited. If not, they are sold on, or rationalised. There is thus a mechanism of churn within the groups of businesses they create. In time portfolio entrepreneurs end up with businesses that are radically different from those they originally started with. This research has focused on Uganda s most prominent portfolio entrepreneurs. They may be viewed by some in a negative light they dominate sectors, keep other less privileged entrepreneurs from succeeding by making it difficult for them to enter or grow; the money they make would be even more profitably spent by redistributing it. However such views ignore two things. Firstly when such entrepreneurs were thrown out of Uganda in the 1970s,, economic growth ceased. Secondly they are the tip of the iceberg. There are not 30 portfolio entrepreneurs in Uganda, but thousands. It is just that our research has not yet systematically moved down the size scale yet. We have cases of such entrepreneurs even from the informal sector. Unfortunately they are largely invisible, because they like to lie low. All one sees at the surface is one of their businesses, not their total portfolio. Given they number in their thousands, their role in economic development needs to be acknowledged not just by researchers but also by practitioners. From a theoretical point of view the Ugandan portfolio entrepreneurs appear to show characteristics compatible with Kirznerian entrepreneurs rather than Schumpeterian ones. As most successful entrepreneurs in developing countries are not Schumpeterian, perhaps it is time that more attention should be paid to how Kirznerian theory can account for economic development. Finally a fundamental question is whether economic growth follows the activities of entrepreneurs, or whether entrepreneurs feed off economic growth, once it has occurred. This article illustrates that entrepreneurs ARE the mechanism of economic growth in action. They are the agents that bring it about. The 597

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APPENDIX- Profiles Profile of the Madhvani Group of Companies 1 Founder Muljbhai Madhvani deceased 2 Year of founding 1920 3 Motivation for startup Desire to improve oneself 4 No. of companies Upto 70 before 1972 Now 23 in 2004 5 No. of employees Direct - 12000 Indirect - 4000 6 Major products/ services Sugar Packing materials Aircraft maintenance Confectionaries Insurance services Construction services Cutflowers Security services Real estate Hotel services Tea Product distributors Computer Glass Electricity software Soap TV series Cooking oil 7 Tax contribution 2002/3 Steel products Air Charter Water Shs.7.2billion No.2 in the country in that year as a group 8 Infrastructure Sugar plantations Scholarship fund Roads Hospitals Schools Factories Buildings Equipment Table 7.16: Profile of Wavamunno s Spear Group of Companies 1 Founder Gordon Wavamunno 2 Year of Establishment 1965 3 Motivator for start-up Exploit opportunity, Make money 4 No. of companies 22 5 Major products/services Steel products Banking services Bus and truck bodies Publishing books Hospital equipment and furniture Radio and TV broadcasting Insurance services Hotel services Motor vehicles, sales and services Cleaning and forwarding services Beds and mattresses Flower growing and export Commercial and residential Manufacture of clothes property Diary farm Internet café 6 No. of employees 1400 7 Tax contribution 2002/3 Shs.3.7billion 2003/4 Shs.3.8billion 8 Infrastructure Commercial and residential buildings Workshops Hotel 600

Profile of Mukwano s Group of Companies 1 Founder Armarli Karmali 2 Year of founding 1989 for the group but started business in 1965 3 Motivator for start-up Make money 4 No. of companies 10 5 Major products/services Tea Plastic products Transport Detergents Mineral Water Petroleum jelly Soap Sweets Cooking Oil Forex bureau 6 No. of employees 4200 7 Tax contribution 2002/3 Shs.22.5billion Position in nation 12 8 Infrastructure Commercial and residential buildings Factory Shopping Malls Tea estate and roads 601