Uganda’s largest bank aims to boost SMEs and finance oil

Uganda

Patrick Mweheire, Standard Bank Group’s regional chief executive for East Africa, talks to The Energy Year about the bank’s aims for financing Uganda’s critical hydrocarbons and pipeline projects, its plans for boosting SME performance and its strategic goals for the coming year. Standard Bank Group operates in Uganda via its subsidiary Stanbic Bank Uganda.

This interview is featured in The Energy Year Uganda 2022

What role does Stanbic Bank play in the Ugandan economy, and particularly in the oil and gas sector?
Stanbic Bank Uganda has around a 25-30% market share, making it the largest bank by far. We’re a very sizeable, systemically important player in the financial market. Our traditional strength started more on the corporate side and we’ve recently added retail and SME services.
I’m trying to make the SME area a real driver of our growth going forward. We recognise that SMEs represent 75% of employment in Uganda and 70% of the growth, so we can’t be aligned with the country’s aspirations without supporting that space. Our SME incubator is working hard to solve a big, perennial problem in Uganda, which is that 70% of the SMEs don’t make it past their third anniversary.
When we did the analysis and tried to figure out why, most people said it was because of high interest rates and lack of capital, but that isn’t true. It turns out to be the softer aspects that companies don’t have in place, such as tax compliance, having a separation between the shareholders and the management team, and understanding the basics of health and safety. We’ve trained up to 10,000 SMEs already and we’re planning to do many more.

How significant are financing difficulties for Ugandan SMEs?
Capital is expensive for a reason. We should put the question the other way around: how do we de-risk companies to reduce their interest rates? Bigger companies that we can de-risk like Umeme borrow from us at only 6% rates. The reason we can de-risk them is that they have a secure revenue stream.
Our big corporate clients like Uganda Breweries borrow from us at a very low rate, under 10%. Their distributors and their suppliers are SMEs that were borrowing from us at a much higher rate – let’s say 14% or 15%. Obviously, they were passing on some of those high-interest financing costs back to Uganda Breweries.
Uganda Breweries came to us and asked if we could find a solution. We sat down and said, let’s find a way to de-risk, so give us your top 20 names of suppliers and distributors. We managed to cut the interest rates by 40%.
That’s the type of thinking I’d like to talk about: bringing down interest rates. People pay a lot of attention to the high interest rates but don’t talk about how to lower them, and that’s by lowering the risk. That’s why we’re spending a lot of time on our SME incubator.

What are the latest updates on the East African Crude Oil Pipeline (EACOP) financing? As financial adviser, how is the bank balancing potential ESG risks?
We have all the assurances from TotalEnergies, CNOOC and everyone who is part of the EACOP that they’re going to adhere to world-class standards on the environmental and equity principles, which are also standards that we adhere to. We’re not going to finance a pipeline that deviates from some of those key principles because this is our country too.
The combined investment for the oil and gas projects in Uganda and the pipeline is the single largest FID in East Africa since we became independent countries. It’s a massive opportunity to bring people out of poverty, create jobs and bring cheaper power alternatives to the market. The same goes for Tanzania: it also has a huge impact on the Tanzanian economy.
I know that Sweden, Norway and some of these European countries have signed on to net-zero commitments, but they were in our position 70 years ago, so it’s unfair to use the same standard that they’re using with us now. Also, net zero doesn’t mean zero. That’s another misunderstood concept. We’re doing many things with initiatives like planting trees.
EACOP is going to be a reverse pipeline that can bring gas from Tanzania. Imagine if we were to substitute 30% of our charcoal consumption today with clean natural gas. If you kill EACOP, you’re going to kill that opportunity and then we’ll continue cutting down trees. So support the pipeline and give us an opportunity to also get to net zero.

What are Stanbic Bank Uganda’s key strategic goals for the next 12 months?
We aim to secure a financing role in the Lake Albert oil and gas developments. We have to make sure that we continue to play a leading role, not just in lending but in thought leadership in being a partner to the government to make sure that these developments happen. We remain the formal adviser to the government in many areas, including EACOP. It’s a key role because we believe as a bank that we have to align with the aspirations of our country, and how we continue to do that is very important.
Another important goal is how we can start to gain traction in the SME commercial segment and come up with tailored solutions that work to lower the cost of doing business for that segment. Again, that’s where the majority of jobs are created and that’s what’s going to drive Uganda, so it’s a key strategic goal for us to solve. I think we’ve solved the corporate aspect. Everyone knows if you want something structured and complex, you go to Stanbic, but perhaps not if you want a quick USD 50,000 loan in agriculture, for example. So we have a balance to achieve.

How has the business atmosphere evolved in Uganda since its independence 60 years ago?
The issue of stability came into play between 1986 and 1990. We literally had no economy by the time the war ended. It was very important to bring stability back to the system and not just political stability, but macro stability.
Privatisation was key, liberalising and allowing the currency to float. Then, having a monetary policy that was transparent and inflation-targeting. That brought three decades of momentous growth. If you look at our growth since 1990 compounded annually, it’s about 6%, and very few countries can point to that.
Confidence was restored thanks to that stability, real certainty in policies and the exchange rate. Even today, Uganda still receives more foreign direct investment than Kenya, an economy that’s three times bigger. Enabling policies are key. You can bring in a million dollars in the morning and take it out in the evening, no questions asked. There are very few countries that allow this.

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