30th March, 2020
By Julius Masaba
This article is quite long (my apologies). But again, if you read it half way, you will miss the key points.
Investing is risky. Investing in hard times is riskier especially if you are not sure if the investment will yield the returns you want or expect or if you will even manage to see your investment through the first year. But again, not investing at all is the riskiest.
But it all goes down to information availability and accessibility. Data backed investment decisions, at least always have some chances of success even in hard times. I know many of you will say ‘There is no way you can invest in such times’. Perhaps true, perhaps not. There are always exceptions to situations.
There are always two sides of the coin to everything, and in this case, I mean the recession and or depression (or is it) due to the novel coronavirus (nCoV-19). But before we go further, I would like us to differentiate between a recession and depression.
A recession is a period in an economy where there is a gradual or drastic fall in the GDP, usually for a period of two consecutive quarters; beyond that, it’s something else.
A depression on the other hand is a period of severe or prolonged general fall or reduction in economic activity; generally production falls, consumption is cut, revenues fall, salaries fall, people lose jobs, inflation shoots through the roof, etc.
In a recession, production may fall but salaries remain constant, yet revenues are falling, few people might lose jobs, inflation may remain stable but consumption may be fairly constant or even go up.
So, as we’ve been in the first quarter of 2020, many are projecting that the Covid pandemic might push the situation to be the way it is for another three or more months and currently we are in a mild recession, by the look of things due to the mini lock down.
But you will realize that production is still going on although at a slow pace, factories are producing, farmers in the village are planting not letting the rains go wasted. Deliveries are being done and consumption is going on. But we can also argue that there is a fall in general business activity. Some businesses have closed down and customers are not buying as much, but once they do, it’s for bulking.
Last week, the president ordered for the closure of non-essential businesses like electronics, clothes/garments, spare parts, etc. and allowed only food markets, delivery of foods, garbage collection, banks, utility service providers and offices of organisations.
But it also rings a bell, it gives us a warning. It has taught us personal financial discipline, how to ensure personal hygiene, how to not take our loved ones for granted no matter the distance, and how to stay alive and the need to draw closer to God. They say humans remember God only when trouble arrives.
That aside, for the entrepreneurial mind and investment focused people, it’s a time to scan the environment and identify opportunities. Those who are humanity-centred will call any one of that thinking ‘Capitalist’. But it’s better to look at the glass critically, to established if it’s half empty or half full.
So, this article is to help me pose the question: As an individual, how ready are/were you for opportunities in the Covid era? Shall you/we lament or make use of this time to do something to uplift ourselves? Will you make use of the opportunity you find lucrative? Will you just consume and not produce? Will you just get an income/salary and not save and invest?
I know many of you will say ‘I can’t waste my money investing right now, it’s very risky’. But I said before, not trying is the riskiest.
Okay, let me take you back into history.
During the Great Depression of 1929 and 1930’s, there were people who invested. They either used part of their savings or risked and borrowed from the 3F’s (family, friends and fools); fools are those with money but don’t know where to invest it, they jump at opportunities anyone tells them about as being lucrative – the kagwirawo group.
Secondly, there are businesses that really flourished during that time. One of them was Proctor & Gamble (P&G). It had a rough time at the start of 1929 but managed to take advantage of the situation. As other front grocery stores were cutting stock volumes and levels, P&G realised that people would need soap so much (like the case in Uganda right now) and they knew people would surely buy from them.
Rather than cut down on ad spending budgets, they ventured into new marketing channels including commercial radio broadcasts, by sponsoring daily radio shows, making adverts, etc. and started sponsoring its other products.
By 1939, P&G was producing its first ‘soap opera’ and in 1940, 1950, it started its own production division for TV soap operas and its first series was titled “The First Hundred Years”. It ended up shifting to new markets just like that, can you imagine!
That is not all. Another case is that of a gentleman by the names Floyd Odlum – a US corporate lawyer who invested more than $30,000 in utility listed stocks and didn’t like the way the market would end – it was about to crash and he was seeing it.
He cut back share buying and amassed some monies – cash on hand. If you’re an investor or not and you happen to have lots of accessible hard cash, it makes you an enviable spectacle in a cash-starved market.
So, when the stock market finally crashed, Floyd jumped in and started buying off failing companies at enviably very low prices and then merging or consolidating their assets for more cash. It was damn crazy, but it was like hitting the bull’s eye with closed eyes, and it made him one of the ‘wealthiest fellas of his time in the US’, they say.
I know some of you will say ‘That was America’. But there is a good lesson from there. Let’s come back to Africa and particularly Uganda.
We/you cannot leave the current situation to batter you and go like that. So, I want to give you a clue on a few things you can invest in at this moment and grab the opportunity to make some legal and non-opportunistic Shillings than waiting for the situation to normalize; because, now is the best time.
1 – Buy Stocks
Invest in shares when you get the opportunity. I mean when you find that there are shares up for sale. Keep in touch with your brokers (if you have). If you don’t, look out for share trading columns in the daily newspapers.
This is one of the avenues for long-term investment – of course if the stock market does not crash. And of course, as you are aware, many East African stock markets are quite inactive and with falling or unchanged share prices.
For instance, a fortnight ago, share prices for all companies listed on the Rwanda Security Exchange remained static, for Kenya the prices gradually fell on the Nairobi Stock Exchange by about 3%.
In Tanzania, the one for Dar es Salaam also had its share prices of listed stocks fall or remained unchanged; and for the Uganda Securities Exchange, all share prices for listed companies fell, apart from that of Cipla-QC whose price went up by 2% from UShs100 to UShs102 per share.
Also, share prices for Jubilee Holdings and Uchumi rose up by 0.6% and 4.11% from UShs10,978 and UShs10.14, respectively. With the above data, wouldn’t it be wise to invest in Cipla, Jubilee or Uchumi shares right now?
It’s best to do so because, when the economy experiences some tremours, often times there are a handful of sectors that will go on to forge ahead and still deliver services and products and still provide investors with steady returns.
So, if you want to insulate yourself during a recession or depression partly with stocks, think of investing in the healthcare, utilities and consumer goods sectors. People are still going to spend money on medical care, household items, electricity, water and food, regardless of the state of the economy.
As a result, these stocks tend to do well during busts (and under perform during booms). Infact analysts from Kenya’s AIB Capital hinted that investors should take advantage of the lower prices to purchase value stocks that are currently trading below their fair values. It could be you.
2 – Bonds & Treasury Bills
These are financial instruments or papers issued by governments to control the economy or as a monetary policy tool. They are issued to the public and corporations through their respective Central Banks. As investors dump listed stocks or shares due to falling prices in Uganda (and East Africa), the next best alternative is to go for bonds and TBs. I also wrote about them here.
Many people have always underestimated the magic in bonds and TBs, yet as gains from riskier investments like stocks decline, they (bonds & TBs) gain value. If you are in doubt, let me give you an example.
A fortnight ago, Rwanda’s bond market hit a total RwF459 million ($476,757) in seven (7) deals. In Kenya, the bond deals increased from 91 to 98, hitting KShs6 billion ($55m) from KShs3.8 billion ($38m).
In Uganda, Bank of Uganda issued a press statement on TBs auction last week, promising interest rates of 9.02%, 10.20%, 12.29% for maturities of 91 days, 182 days and 364 days. See here. If you look at the yield to maturity (YTDs) of the papers, it will be way higher than what it is now.
3 – Real Estate
The Ministry of Housing, Lands & Urban Planning and industry experts in Uganda have always reminded you that Uganda has a big housing crisis and it’s an opportunity for those interested to invest in it to counter the spiraling demand. There is a housing deficit of more than 2.5 million units and by 2040, its forecast to be 8 million units.
There is no other time than now to invest in real estate – homes, rentals, shop fronts, land, etc. In 2008, Uganda like the rest of the region was hit by the global economic crisis and the question then was ‘Has Uganda been hit by the real estate bubble’.
Your guess is as good as mine. Rent was high, shooting through the roof, many malls downtown and office buildings in the central business district (CBD) had empty floors. It was tough. But it was the best time to buy buildings and land from owners who were finding it tough.
In the US, the 2008 housing market collapse was doomsday for homeowners but it later turned out to be a blessing, a boom for real estate investors. Just know that when a recession hits and house, buildings and land values drop, it may be a buying opportunity for investment in properties.
If you can rent out the property to a reliable tenant, you will have a steady stream of income while you ride out the recession. When real estate values start to rise again, you can sell at a profit.
4 – Produce Trading
Food is a basic need. Otherwise, you would see hungry and angry people on the streets of Kampala protesting if they were banned from accessing markets for food or grocery items.
If you live in areas like Kamwokya, Kawaala, Kalerwe, Mpererwe, Kireka, etc. and armed with an initial investment of just UShs12 million right now, you can have a ROI of more than 30%, which is not bad by local industry investment standards.
With working capital of about UShs9 million to buy opening or starting stock: 3 bags of rice, 3 bags of groundnuts, 2 bags of beans (nambaale), 2 bags of soya, 2 bags of maize and 2 bags of sesame (sim sim), you can make sales of about UShs10.5 million.
Deducting your welfare, loading & offloading, and transport costs can leave you with about one million Shillings (which is not bad). Further deducting rent, your wages can leave you with about half a million. If you did that for six months or even a year and the situation happened to normalise, you will have made about UShs4 – 6 million in net profit.
This is because, demand is too high right now and might be so for the next 3, 6 months. If you personally commercially grow some of these staple dry foods and bulk upcountry, it’s high time you transported them to Kampala.
The start may be tough but once you have reliable contacts suppliers/farmers upcountry, you can hire a truck and have your produce transported to your store and pay via mobile money; that is if you have built trust with or you know the driver and seller.
5 – Backyard Vegetable Growing
There is always need for fresh food or grocery supplies. Where do you think all those salads, greens placed on your Café Javas, KFC, Java House or Chillis orders come from? There are individuals, farmers who grow and supply to them. Where do you think these ride-hailing delivery startups get their stock? From the same growers.
Growing first maturing vegetables like kale (Sukuma wiki), spinach, celery, beetroots, carrots, lettuce, okra, amaranthus (doodo), nakati, etc. is one sure source of income in bad (and good times) and now is the opportunity to do backyard farming. Many of you call it urban farming.
It’s not too late, the materials and market are available. And even if you started growing them this month, if the recession goes on or the situation normalizes (as your plants are still in the garden), you will still harvest and sell them in June, July, etc.
Look out for vegetables that mature in 3 months’ time or less. Make use of the current rains. The market is always available, especially now. You could sell direct to restaurants or households/homesteads – do word-of-mouth marketing, referrals and social media. You can also supply to vendors in the markets.
By 2050 or over the next four decades, the world population is projected to grow by almost one thirds to more than 9 billion, of which 70% will be living in urban areas. We must intensify food production and diversify it.
6 – Last Mile Delivery/Logistics
Growing urbanization has led too congestion – for housing, human and vehicle traffic. Transport may be difficult most times. This is true with cities like Kampala. With this comes the need for fast, flexible and pocket-friendly delivery services, hence the last mile delivery sector, which is ripe for investment.
In Kampala, the market has players like Aramex, Couriermate, GoDel, Daks Couriers, DHL, FedEx and others that are fast food centered like SimbaFoods, KFC, SafeBoda, etc. Currently and the most preferable mode is use of motorcycles.
However, at the upper end, you could employ mini trucks or vans for delivery of cargo and food stuffs. It’s a very attractive business concept that can be executed innovatively rather than reinventing the wheel.
7 – Invest in Yourself
During this Covid time or recession, if you are laid off, you can bounce back by investing in yourself. You could go back to school for a short online certificate course (if course it’s impossible right now) to gain additional knowledge and skills that could help you get a better job or switch a career or even be self-employed.
For instance, you could improve on your technology knowledge and skills like coding/programming or software development by enrolling for an online crash course or online personal trainer. You can also read a book or two if you have never, or catch up on one that you had ignored.
Personally, I am reading FACTFULNESS by Han, Ola and Anna Rosling. I am also going through Warren Buffet’s February 2020 letter to Berkshire Hathaway shareholders, where he chronologically compares Berkshire’s performance against the S&P 500, quite short but data filled. Both were sent to me by a buddy in the investment circles.
If you didn’t skip line, allow me to stop here because of time, but I could go on and on. But if you did and feel you need more information or explanations regarding the above or would like to act on any of them, we can get in touch on a personal level. Feel free to go to the ‘Contact me’ page and leave a comment. I will be waiting.
NB: This article also appeared on Medium, by the same author. Click here
About the Writer
Julius Masaba is a private investment researcher and business consultant. He’s also the Business Development Lead at Ablestate, https://app.ablestate.org/ and a WordPress writer/blogger on startups, entrepreneurship, business and finance. He loves tech.