Ramesh Babu Presents Kiboko Group, One of the Biggest FMCG Distribution Companies in Uganda

Interview with Ramesh Babu, Managing Director at Kiboko Group of Companies

How do you see yourself in three years’ time? What do you want to achieve?

In three years’ time I want to retire. My strategy is to double the turnover and profits for the company. We want to continue growing. 

What is Kiboko Enterprises and what are your competitive advantages?

My background qualification is as a cost and management accountant by profession. I worked in a government company in India called NTPC, or the National Thermal Power Corporation. When I left the company, I came to Kenya then to Uganda. We started as a small company. At that time, the Ugandan economy was dependent on imports. We had to import everything from Kenya, China, and India. Two of our partners are in Kenya. One of them has a manufacturing plant for roofing sheets. So, we started with that but roofing sheets does not take up volume so we would also bring in lightweight items like toilet paper, plastics, etc. We started very humbly. We had only two or three people working initially. Then, we went into pharmaceutical distribution in 1995. That is where the change in our setup occurred from Kiboko Enterprises to Kiboko Group. Kiboko Enterprises was doing the same trading activity. In 1995, everything was imported. We started importing pharmaceuticals from all parts of the world. Slowly, we spread into Rwanda, Burundi, Tanzania, Kenya. Our presence now is in all of East Africa.

Then, we went into FMCG distribution. After roofing sheets, we went into Philips lighting distribution. Philips has given us other divisions like electronics and appliances. In 2004, we got an opportunity to interact with Procter and Gamble and we started FMCG distribution with them. Today, we are the one of the biggest FMCG distribution companies in the country. We have many non-food items and consumer durables, like lighting and appliances, under our own brand. In 2009, we went into intravenous fluids manufacturing. That was the only unit in all of East Africa. There is a small unit in Kenya, but we have the biggest in terms of capacity and investment. From 2009 to five years later, we had utilized the full capacity and we went for expansion. We are going into expansion again now and IFC is supporting this expansion. Now, we have a private equity for our pharmaceutical business with the Carlyle Group, which is one of the biggest private equity firms with investments across the world.

We are based in Uganda and we are employing more than 2000 people in Uganda, both in pharmaceutical and FMCG. I also have small businesses where we are distributors of lighting systems, inverters, batteries, generators. Now, we are setting up cable manufacturing. I have another factory called Kampala Siti Industries where we manufacture toilet paper, napkins, and thermal papers. I am also into agriculture. I have 1200 acres of land and we are now growing cashews, coffee, fruit trees, and cassava. I am now setting up the manufacturing unit in my agriculture farm called Pura Organic Agrotech. We want to manufacture starch from cassava soon.

Are there challenges to getting financing?

Financing definitely is challenging for any new startup companies, but my partners are well established and we have a lot of support.

Who are the three other partners and their businesses?

My other partner is in Rwanda. He is full time in the business with us here. He also has a manufacturing plant in India with other partners manufacturing antibiotics. Another partner is now 76 years old and he is retired. He had a factory manufacturing roofing sheets. My other partner is a founder and was instrumental, Mr. Chuni Shah, who is our Chairman. He is very active philanthropically. None of us brought a single penny into the business. We came with no money. We started the business in 1992 and built up the business to what it is now.

What are the challenges to you growing more?

Today, we are the one of the biggest FMCG distribution companies in the country. We have many non-food items and consumer durables, like lighting and appliances, under our own brand.

On the pharmaceutical side, we need to expand in Kenya. We went earlier twice and we could not succeed so we had to close down and take the losses. Now we are reviving that site and going into distribution. We have an office but only for our main section and we are selling products. But now, we want to go on to the spread the business there. That are plenty of opportunities for FMCG.

We also want to manufacture many things required for the country such as sanitary pads, toothpaste, etc. We are already distributing some of these products and there is potential to go into manufacturing units. We also want to get into processing coffee which is locally available. People are also approaching us about distribution of sugar because we have a strong distribution network throughout the country.

Do you want to extend the distribution to Kenya or do you want to produce in Kenya?

We want to extend the distribution in Kenya. We want to build up the manpower there. We have our manufacturing plant and we are already supplying to all of East Africa: Congo, South Sudan, Ethiopia, Malawi, Zambia, and we are looking at Francophone West Africa. We want to export our manufacturing products like intravenous fluids, eye drops, ear drops. There is a lot to be done on the pharmaceutical side.

What are some of success stories that you are proud of?

We have had a lot of challenges. The government has started putting on excise duty to protect the local manufacturers and we need to borrow at very high interest rates. We used to be able to get 1% per week interest rate on borrowing in 1994. The change happened once we started with pharmaceuticals. We were not making profit and slowly, Kiboko was sidelined. But, we built ourselves up. Even with that turnover, we do not have debt. Also, we are people centric. Whatever we are getting into, we have to take care of our employees.

For example, we took on a challenge in 2007 that we wanted to double or triple our profit in three years’ time. We were motivated and we took the employees on retreat to Mombasa for a week. In three years, we doubled the turnover from $30 million in 2007 to $60 million. The devaluation of currency was a big thing. It is a stress that we are only in importing and we need to always convert the imports into local shillings and we sell in local currency. Sometimes, the devaluation is even up to 30% or 40%. We had to adjust the inventory of what we were holding on to and the pricing. Now, we are seeing the fruits of all of that and it is a lesson for us.

The government is helping support the companies that are producing locally in that whatever is produced locally is to be sold with a lower tax. Is this a long term solution for you? What do you think of producing more yourself and increasing the share of your own manufacturing side?

I was the leader in taking out that special privilege for the pharmaceuticals. I was Chairman of our Manufacturers Association. We met all the lead people at the Prime Minister’s office and the President’s office and explained that for the pharmaceuticals there is no duty, VAT, etc. There is no level playing ground because for the imports coming from India into Uganda there are a lot of subsidies and promotion by the government and anybody can import without duties.

We are not able to sustain because of the cost of operations, cost of finance, costs of manpower – everything is expensive here. We gave them a list of 60 products and out of that they selected 37 products to put a 12% authority verification fee. Out of 37 products we are active in 7 products and the remaining 30 are all formulations for other manufacturers who are making tablet capsules now, so they also get a benefit. But, the government has to support the local industries; otherwise, it cannot sustain itself.

That is why the government has brought a policy called BUBU – “Buy Uganda, Build Uganda”. This policy is really encouraging. I want to go into sanitary pads and toothpaste now because the duties have jumped up. Milk and sugar are the same. They want to promote the industry, but they are making monopolies. But until the industry stabilizes and is built up for the country’s requirements, that support is definitely helpful.

What projects are you working on currently?

We are expanding our market stance on drugs, expanding our capacity to almost double what it is now. We are receiving funding by the IFC and they have given us the go ahead. We have a big project contract with them. I want to look at coffee roasting and making chips and snacks and other things.

What motivated you to begin this journey?

First of all, I was not very keen in the business. I come from a business family – my whole family, even my six brothers, are all in business. Once I finished school, my brothers tried to set up a shop for me, but I said no. I was not interested in business. My ambition was to study and work. So, I joined the company in Kenya as a financial controller. After two years, my boss wanted to make me a partner, but I knew I was not interested. Ultimately, I said yes, though. Things were very difficult at that time when I became a partner. It was very challenging. I was paying interest through the nose. The company was in trouble. But change happened when we started with the pharmaceutical business with Abacus. It was a turning point for me to become a shareholder director in the company.

If you have to define yourself, what are the core values that you believe in? What is your philosophy?

My philosophy is that you have to be honest to yourself and hardworking. There is no substitute for hard work. We are a 100% transparent company. We want to do things straight. Even if it becomes expensive to do business, we want to have peace of mind and sleep at night with no issues. That is what I want to continue and I want to grow philanthropically. I want to retire and spend my time on social service and supporting the people. I want to provide private hospitals at a very affordable rate. I want to promote education because opening schools is a big challenge for the local people here. I want to support at least 3000 students and we are already doing some sponsorship. I also work with an organization called the Hindu Swayamsevak Sangh. We are providing the midday meal for two schools, so 1400 students total. We also built a school for them. We want to spend our money on things that are useful for the people.