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Network marketing sucking billions out of Ugandans

By Vision Reporter

Added 17th February 2013 04:00 PM

Ugandans are losing billions of shillings in the food supplements network marketing business, according to investigations, and the public has been warned against substituting the products for drugs.

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Ugandans are losing billions of shillings in the food supplements network marketing business, according to investigations, and the public has been warned against substituting the products for drugs.

By Francis Kagolo

Ugandans are losing billions of shillings in the food supplements network marketing business, according to investigations.

Though the dietary supplements supplied by the various network firms were recently approved by the National Drug Authority (NDA), the public has been warned against substituting the products for drugs.

“NDA has received numerous complaints that patients and caretakers are being misled by marketers of food and dietary supplements that their products can treat diseases,” read a notice issued by NDA on October 25, last year.

“NDA hereby informs the public that food and dietary supplements are not drugs. Patients are advised to always take their medication as prescribed by health professionals in hospitals/clinics.”

But the possibility of self-employment and making quick money has attracted thousands to network marketing firms like Forever Living Products, GNLD, Questnet, Dynapharm, Tianshi and Oriflame that have spread across major towns in the country.

Emmy (not real name), a businesswoman in Kampala, said: “I joined Forever Living early last year, having bought products worth sh1.3m. I routinely bought more products of about sh500,000 each time I went back. But I failed to get buyers. I still have the products I bought in February last year.”

Emmy thinks the marketing strategy is more suitable for church leaders because they can ably convince their flock to join their networks and buy products. “I lost money because the products were so expensive and I managed to convince just a handful of friends to join under my network. I did not get much commission from them,” she adds.

A graduate’s experience

When Philemon Balikusuubi graduated with a bachelors degree in social sciences from Makerere University in 2008, his first job could only give him sh450,000 a month. After two years of a futile chase for a pay rise, he was made to believe that the solution lay in network marketing.

“A friend said he was making sh400,000 from GNLD and that I had the capacity to double that,” Balikusuubi, then a water manager in Wobulenzi, Luweero district, recalls. He joined GNLD in 2010, with sh100,000 and continued buying products for four months before quitting with a sh600,000 loss.”

“The products are expensive. It was difficult to get buyers. “I only recruited one person, and he accepted to join because he had just been sacked from Plan International,” he says. His down-liner also quit within the first month after failing to sell products worth sh500,000.

But the high cost of living pushed Balikusuubi to the wall so much that in July, the following year he joined Oriflame.

“A former colleague in GNLD said Oriflame was better. I paid sh250,000 to join. I quit when I realised it was not any different.”

According to Balikusuubi, network marketing is a nightmare for those employed. “You have to attend routine meetings. You also need time to move around to spread the network and get buyers since the products are not supposed to be sold in shops,” he explains. “For some months, I did not have time for work and almost lost my job!”

Most firms deal in cosmetics and food supplements for weight management, as well as immune, mental, physical and sexual boosters.

It is said that network marketing started in the US in 1950, by a company called Nutrilite and by 2007, about 67 million people worldwide had joined. In Uganda, it started in 1994 and kept growing.

Firms speak out

Julius Wasiama, the Forever Living products administrative manager, says they have amassed over 20,000 members within four years. Dynapharm said it had over 30,000 distributors in Uganda by 2010.

Ironically, network marketing tends to favour those at the top (managers), who, incidentally, are few. Majority remain at the bottom and keep investing with peanut returns, if any.

Out of over 20,000 Forever Living members, for instance, Wasiama says only 83 are at various managerial levels. This means that over 95% of Forever Living members are yet to make it to the managerial level, to start earning above their monthly investment of about sh560,000.

Forever Living measures its sales volume in Case Credits (CCs). One CC is awarded for about sh560,000 of products purchased. Each member must make four CCs a month.

“One is not paid if they fail to make four CCs a month,” Wasiama explains. Other network firms use different units.

Earnings come from real hard work

Managers are promised to earn a sh4m monthly commission. But this does not come on a silver platter. To reach that level, one must make a minimum of 120 CCs, which is the equivalent of sh67.2m.

However, if one recruits at least 25 active down-liners, they would share the burden and push him up the network.

Even after reaching the managerial level, one has to keep making at least four CCs a month, in order to earn their pay. This can be achieved either through buying products of about sh2.2m or buying products worth sh560,000 and encouraging their down-liners to also buy sh1.5m products.

But the products are also pricey, compared to their substitutes on the market. While Forever toothpaste costs about sh18,000, Colgate toothpaste of the same size costs less than sh6,000. As a result, most distributors rarely get buyers for their stock.

Recruiting new members to earn commission also consumes time and money, since not many are willing to ‘gamble’ with the not-so-clear business.

After failing to recruit, many people have either remained dormant members who earn nothing or dropped out, thus losing millions.

For instance, Sarah Kizito, one of Forever Living’s top managers who joined in 2009, says she had accumulated over 20,000 down-liners across East Africa and beyond, but only about 9,000 are still active. This implies that the majority (over 11,000) quit the business. If each had bought products of sh1.2m, it means they lost sh13.2b.

Experts speak out

Business experts contend that network marketing was only profitable when it had just come. Enterprise Uganda executive director Charles Ocici observes that the products target an elite market, which is hard to penetrate in the current situation.

“Since our average salaries range between sh300,000 and sh500,000, most Ugandans cannot spend on premium solution products whose substitutes are cheaper on the market,” says Ocici.

The rich ones who would afford to buy are already covered. “By the time you knock on Ocici’s door with products, chances are that I am already buying from someone who came three years ago,” he says.

“Network firms have standardised products and pricing. There’s very little a late comer will give me. This makes the business unprofitable for new comers.”

Dr. Umar Kakumba, the Dean, Makerere University School of Business, attributes the problem to the fact that network marketing is a relatively new concept that is not helped by the low internet usage and connectivity in the country.

“The problem might not be that it does not work, but because those involved have not made use of e-commerce like in developed countries,” Kakumba observes.

No regulation in Uganda

Meanwhile, it has emerged that network marketing in Uganda is not regulated. “There is no policy and therefore, we do not regulate it,” says Julius Onen, the permanent secretary, ministry of trade.

“Sometimes we form policies after something has gone wrong. Maybe this investigation will open our eyes.”

Police spokesperson Judith Nabakooba and criminal investigations chief Grace Akullo say they are not aware of a case brought against network firms. But critics argue that absence of regulation is bad for members and the economy.

Is it possible that network marketing firms are flocking to Uganda because they are just not wanted in most countries? Online reports show that China banned network marketing in 1998, India in 1978, while Sri Lanka, Nepal, and Australia have reportedly tightened the noose.

“In network marketing, one learns entrepreneurial skills like coping with rejection and abuses for the sake of selling,” says Ocici.

“It is better to view it from this perspective than the pronounced high returns only made by early entrants.”

What managers say?

Asked about the heavy losses distributors make, Apollo Owino, the GNLD manager, referred us to the distributors. “Talk to the distributors. They are the ones who do business. They know how profitable it is,” he said.

Wasiama refuted claims that people make losses.

“When one drops out, it is not a loss. Network marketing gives individuals chance to manage their own business and to determine their pay,” he explains. He said the problem was that at the time of joining, many people expect free money, without necessarily working for it.

One woman's cry about Forever Living

Our investigations have revealed that the distribution system does not guarantee profits and majority of members drop out along the way, after losing millions.

Sarah Mukisa, a smallholder poultry farmer in Bulenga, Wakiso district, bought a combo of assorted Forever Living products in March, last year.

Mukisa’s up-liner (the person who recruited her) had promised her high profits of over 43% return on investment.

But for two months, Mukisa failed to recruit anyone, despite spending about seven hours daily, teaching other people the benefits of joining the network.

She also barely sold 10% of the products she bought. “Whoever I told about the products complained of high prices. I used some of the products and gave away the rest,” she recalls.

In network marketing, the sales force is given bonus not only for sales they personally generate, but also for the sales of others they recruit.

Her first recruit came in the third month, and Mukisa was paid sh60,000 as commission. Encouraged, she sought alternative ways to woo more people into her network.

“I began paying for those willing to join, hoping to earn commission from their sales,” Mukisa, also an assistant pastor of Busega Miracle Centre, reminisces.

She paid sh400,000 for one of her recruits and sh200,000 for another. She never profited from any of the two, since both quit after a two-week futile hunt for buyers.

Mukisa also recalls spending over sh700,000 on fuel during travels to teach and recruit others into the business.

“One Sunday, we drove over 40 miles to a church in Mukono district. We spent about sh300,000. I was disappointed when no one joined at the end of the day. I quit the business there and then.”

It was clear she had lost her investment, which by that time was close to sh3m. “It is after you have joined that you realise you are bound to make losses,” she states.

Network marketing sucking billions out of Ugandans

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