Credit crunch: hundreds lose jobs

Mar 28, 2009

BIG companies in Uganda are laying off workers, rationing stationery and cutting off sponsorships, all in the name of cutting expenditure. The most hit are local firms with headquarters in Europe and USA as well as those that import raw materials and othe

By Chris Kiwawulo and Raymond Baguma

BIG companies in Uganda are laying off workers, rationing stationery and cutting off sponsorships, all in the name of cutting expenditure. The most hit are local firms with headquarters in Europe and USA as well as those that import raw materials and other merchandise.

Some of the affected sectors include hospitality and hotel, media, construction as well as the import and export sectors.

Last month, Barclays Bank Uganda laid off 200 workers in Uganda. The lay offs in Uganda created panic among the bank customers and some started closing their accounts, forcing Uganda's central bank, Bank of Uganda (BOU), to come out and clarify that the bank was not closing.

The closure of the pay television, GTV, due to the crisis also left over 100 Ugandans jobless both directly and indirectly. GTV’s closure also caused panic among Ugandans that more international companies were at the verge of collapse.

Earlier this month, Warid laid off 35 workers, but like Barclays Bank, the telecom giant denies that the lay offs were a result of the crunch. The company claims that the laid off workers' contracts had expired after the company's first phase of establishing itself.

Woolworths’ closure in UK and consequent loss of over 35,000 jobs sparked off reports that the clothes store in Uganda could as well close. But Woolworths Uganda is a subsidiary of Woolworths South Africa and has no links with Woolworths UK, according to Catherine Zalwango, the outlet’s Country operations manager in Uganda.

QC Saatchi and Saachi in early February laid off six of its 20-something employees, including a senior manager. The affected employees were told the firm was restructuring to accomodate the effects of the financial crisis. Saatchi and Saatchi is an advertising agency handling big clients like MTN Uganda.

The Federation of Uganda Employers (FUE) is worried about the increasing impact of the recession on the economy. FUE recently organised a meeting with chief executive officers of various companies to discuss the downturn, says FUE executive director Rosemary Senabulya. During the meeting, various business stakeholders asked government to stop shying away from telling the truth about the global crisis but join hands with them and find a solution instead.

Other sectors affected include the media, where Monitor Publications and Record Television laid off some staff members, and the flower exporting industry.

The executive director, Uganda Flower Exporters’ Association, Juliet Musoke, says their clients in Europe are resorting to cheaper varieties.

Hundreds of Ugandan workers through their trade unions have complained about their employers, who in an effort to contain the rising costs of operation, have cut their salaries and allowances.

Uganda Manufacturers Association (UMA) chairman James Kalibbala confesses that the manufacturing industry has been hit hard. The crisis, he revealed, started with the effect it had on the dollar against the shilling. “The dollar appreciated against the dollar by over 15%. It rose from around sh1700 last year to sh2000 early this year.”

The dollar crisis has heightened after BOU on Wednesday bought anestimated $10m from the foreign exchange market, raising the dollar to sh2,165.

Manufacturers who import raw materials, the UMA chairman says, would purchase items at higher prices from abroad yet sell them cheaply because the shilling is weaker than the dollar.

He also points out the effect of the high fuel prices despite the the sharp fall in world crude oil prices. World oil prices have recently fallen to as low as $33.55 per barrel from as high as $147 in July last year.

He also revealed that the global crisis has forced majority of the banks in the country to push up the lending rates by between 2 to 3 percentage points.

He urges the Government to bring the business community on board so as to tackle the crisis instead of shying away from it. He says periodic updates of the state of our economy by the government was needed to tackle some of these economic challenges.”

The National Organisation of Trade Unions Secretary General, Peter Werikhe, says employers have been able to easily reduce workers’ salaries because they there is no set minimum wage in the country.

Workers’ MP Dr. Sam Lyomoki is sceptical, arguing that employers may perhaps be taking advantage of the situation to unfairly reduce salaries and allowances. "We need to verify if the costs have increased or not and if yes, by what margin. Salaries are already too low. When they are further lowered, workers will be de-motivated,” the legislator argues.

Former finance minister Ezra Suruma recently noted that the world is going through difficult times and it is hard to predict how the crisis will affect the country. Sources say the finance ministry has advised government to cut its spending on several items including the purchase of new cars.

Hajji Bulaimu Kibirige, popularly known as BMK, who owns a string of businesses including a construction firm and hotel business, says he has been affected badly by the global crisis. He notes that the number of people and organisations booking in his hotel (Africana), has reduced yet he has to pay for utilities like water, electricity as well as the employees.

Although he has not yet laid off staff, Kibirige says he is considering downsizing his workforce should the condition persist for the next three months.

Spencon Construction Company regional director,

K.S.V Kumar says the company that employs about 2300 Ugandanshas not been affected and will not lay off any of its employees.

Dr. Ian Clarke, proprietor of the Namuwongo based International Hospital Kampala, says the economic recession has not affected them directly. “The domestic economy has not been that much affected.”

Nile Breweries Limited Corporate Affairs director Onapito Ekomoloit says they feel the pinch with the rise in the cost of production materials and machinery that they import. He points at the rising exchange rate as a hindrance to their smooth operations. “There has been a strain on our profits but we are far from laying off anyone, ” Ekomoloit said.

Shell Uganda chairman Ivan Kyayonka also says he was not aware of any bad effects that may force his company to lay off staff.

International NGOs have not been left out either. Helen Andersson Novela, Country Director of Save the Children in Uganda says they are aware of the global crisis but she is grateful that their funders are struggling hard to help the children. “Save the Children Uganda has no plans to end any contract of its workers or revise any of their programme structures.”

Financial experts in Uganda remain unsure about the magnitude the global financial down turn that the country's economy is likely to face. But it is certain the crisis has started taking its toll.

The International Monetary Fund says although Uganda’s economy has continued to thrive, the current global financial crisis and economic downturn threatens to reduce its growth prospects.

Recently, the American International Group (AIG) Investments forecasted that Uganda will fall short of the projected 7% economic growth this year. It predicted a range of 5 - 5.5% because of the financial crisis. The global financial body, which predicted a fall in the country's economic growth from 9% to 7% this year, urged authorities to be vigilant to reduce the impact.

Nicholas Malaki, AIG Investment Manager and Country Representative, recently said Uganda and other African countries do not need to panic because they will not go into recession. He said countries just need to reduce their expenditure on non-essential factors and also come up with strong policies.

The impact of the financial crisis has also partly reduced Uganda’s tax collection by sh108b (about $55m) in the first half of the financial year 2008/2009.

According to URA, the collections realised during the period under review were less than the targeted sh1,827.95b (about $904m), a reduction of about 5.9%.

Uganda Investment Authority head Dr. Maggie Kigozi fears that a decline in foreign direct investment, and export earnings.

Bank of Uganda Governor Emmanuel Tumusiime Mutebile recently said Ugandan commercial banks were cushioned from the kind of credit crunch that hit banks in developed countries.

He, however, said Uganda would suffer once developed countries register economic recession. This, he said, might reduce Uganda’s export earnings, remittances from abroad and possibly donor aid in the second half of the financial year.

However, the precise extent to which the credit crunch and economic recession will affect Uganda remains unknown.

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