Madhvani Group: A Leading Consortium of Companies in Uganda and East Africa

Interview with Hrishikesa Madhvani, Managing Director of Madhvani Group

What is your assessment of the sugar industry in Uganda? What are the main challenges you are facing?

Our link to the sugar industry goes back a long time. We started to grow sugar in the 1930s as a family. Before that, we were in agriculture in the coffee sector. As a family, we have seen the sugar industry grow from its grassroots all the way up to the 1970s. Unfortunately, the disruption caused by Idi Amin had a rather disastrous effect on the sugar industry then, completely destroying it together with the country’s economy as a whole. In the space of ten short years, the entire country was ground to a standstill. Remarkably, after the departure of Idi Amin, Uganda flourished once again and economic growth and stability was brought back. Particularly at the beginning of the 90s, we were very lucky to have leadership that understood the power of free markets and the private sector. So, there was a very positive emphasis on private sector investment which restored confidence in the country and brought about the economic growth that was so desperately needed. That also had a positive effect for us. We saw a growth in the sugar industry and sugar consumption into what it is today. The sugar industry is still trying to keep up with local demand. There is not enough sugar produced in Uganda. It is very expensive to import sugar by road and to a small extent by rail 1000 km from the sea through Kenya passing the border. In that respect, we are fairly insulated from global sugar fluctuations, but not entirely. The sugar price does go up and down and the sugar industry today has about three dominant players. We are proud to say that we are the largest player. There are also a lot of newer, smaller entrants into the market.

What are the major issues you are facing with the smaller players?

We do not see two or three years as our horizon. We see 20 or 30 years down the road. As a result, we are very invested in this country for our own future. We depend very much on the local community and it is a two-way street.

The major issue where we could see improvements is in regulation. The lack of appropriate regulation in the sugar industry is something that could lead to a slight implosion in the market. Smaller players who have come in mostly in the informal sector are chipping away at our own traditional raw materials. We have fostered very warm relationships with local farmers who we depend on for about 60% of the sugar cane we need to produce our own sugar. When you have relationships and contracts with them, when you give them inputs such as fertilizers and seedlings and harvesting of cane in advance and deduct that from the price of cane that you purchase at the end of the day, when you invest heavily in a farmer for their own success and then a newer, informal entrant in the market disrupts that by offering immediately favorable terms that are not necessarily very long term thinking, that does have a disruptive effect on the sugar industry in general. We have less sugar to produce and everyone else has less sugar to produce because they are cutting younger cane and the market itself suffers drastically. Sugar prices go up and those that suffer the most are those that depend on sugar – the average consumer.

Do you see the same issues in the other sectors where you are present?

In the coffee industry, it has been very difficult to commercialize the actual cultivation of coffee on a large scale. It is a situation where the lack of proper regulation or framework in developing commercial coffee agriculture is a barrier to growth in that industry. You see a lot of small holder farmers who the larger players in the industry would buy coffee from. But they are unable to cultivate their own large-scale coffee in the way that we have been able to with sugar.

What makes Madhvani Group different from other very large groups in East Africa? What is your competitive advantage?

We are a family company. We operate very much as a family with family values. We do not see two or three years as our horizon. We see 20 or 30 years down the road. As a result, we are very invested in this country for our own future. We depend very much on the local community and it is a two-way street. We cannot just take and expect to have profits and be content with ourselves at the end of the day. We are not on a stock exchange, so we do not have external shareholders to be held accountable to. As a result, we are able to focus much more on community development. For us, that is a major part of our philosophy. Education of Ugandans, medical care, and social welfare are all huge cornerstones of the way we operate. You cannot conceivably be present in this country without including the local community as part of your strategy and part of the way you operate.

What are some examples of where you are specifically providing something that makes a difference to the community?

We have a fund that we engage with the local farmers that we purchase sugar cane from. It is a voluntary scheme known as the Kakira Out Growers Rural Development Fund (KORD). Farmers voluntarily choose to set aside a portion of the income that we would pay them for sugar cane and we match it. That then goes towards projects that the farmers choose themselves to invest in such as better roads, better schools, clinics, whatever infrastructure that they desperately need or that they feel is a priority. It is not for us to question it, but it is very much something that we have designed and intended for the farming community that we depend so largely on to take ownership of and feel invested in. NEPAD, which is the African Union’s New Economic Plan for African Development, actually named that scheme the best CSR project in Africa which we were very honored by, pleasantly surprised by, and humbled by. We also have a scholarship fund that was founded by my grandfather and named in honor of his own father. My grandfather set up this scholarship fund to pay for higher education for the brightest Ugandans no matter where they are from or what background they have. It is done purely on the basis of academic merit. I am proud to say that it is the largest scholarship fund in the country. It is renewed annually and awarded annually. I am particularly proud that the fund is a success because the family is not involved at all. We have an independent panel of trustees who take on the role of awarding the scholarships purely objectively with the criteria of academic merit. Another point I am proud of is the strength that we have placed on the alumni that have come out of the other end of that scholarship. They are very engaged in mentoring and supporting current students and each other. It is really heartwarming to see. Each year, they have an alumni conference. They set priorities for what they see as important for the fund. One year, the idea was floated that they would perhaps contribute a portion of their income towards it. We were really touched by that and it was a real marker of the success that my grandfather intended that Foundation to be to give Ugandans the opportunity of university education. We provide education for nearly all our employees’ children in Kakira. We also supply medical care for our employees and their families to ensure that they are looked after as well as possible.

What is your international reach?

About three or four years ago, we felt that we were a bit overweight in Uganda and that it was important for us to divest a littler further afield. Rwanda was a very positive story for us in sugar. Right after the tragic events of the genocide, there was a sugar plantation operator that sadly went into some difficulties that we had the opportunity to revive. We are proud of that success story today. It has been so successful that we do not have enough space today to expand that and we are looking for a new home in Rwanda for our sugar. In tourism, we have divested into Kenya where we have a few lodges and hotels. We have also ventured into the tourism sector in India. The tourism strategy in India has really been something that we have been pleasantly surprised by. It was a bit of a risk because we had not operated in India in the tourism sector before. So, we had to do our homework quite thoroughly. We had our economic limitations so we decided to go into a sector that was a bit untapped which is religious tourism. The amount of visitors to religious sites in India is staggering. There are millions of visitors to these holy sites in the country. There was no hotel chain with clean beds, clean service, where you knew what you were getting. That is where we entered. We are pleased to say that it has been a real success. We have three properties in India with plans for more. We are lucky that they are full almost all of the time.

What is the next step in raising debt?

Ironically, having no debt is not a good sign as a company. Debt is a good thing. The very fact that we are able to get such favorable debt terms from various lenders was a reassurance of the confidence that people had in us. We are very comfortable with our level of debt at the moment. We will probably at some stage go for another round of debt financing when we feel we need it. Although, there is no point in taking on unnecessary debt. We do not necessarily need more than what we have right now. However, we do have some exciting projects down the line that we will need to raise financing for. When the time comes, we will debt finance or bond finance which was also a success in the past.

What are the areas where you feel that you might want technological partnerships?

JVs have worked very well for us. We are not experts at everything and it would be foolish of us to pretend that we were. We know how to produce sugar quite well but we know that there are players in the world who are much stronger. For example, in insurance, we have a very warm and successful partnership with Stanbic Bank under the Liberty Insurance brand. Where we could also see an opportunity and one that is a growing market globally in technology is cyber defense. Uganda’s private sector cyber defense is very weak and we could be doing a lot better. It is a wonderful opportunity for the right players to come in and try to take some market share in that sector. There is definitely a need. My weekend job is that I am the Honorary Consul of the Republic of Lithuania here in Uganda. Lithuania is a very young country. It has been independent from the Soviet Union for only about 25 years. They have become one of the top five world leaders in cyber security. I am very proud to say that they are now advising the Ugandan government on cyber defense policy. Recently, we held the seventh East Africa Cyber Defense Conference here in Kampala which was a tremendous success. It was focused on the financial sector which is the area that needs very strong cyber security. That is an example of a very successful partnership with a Lithuanian company, NRD Cyber Security, where they are very actively advising and encouraging the growth of the cyber defense market. There is a long way to go but the steps taken have been very positive so far.

What is your vision for Madhvani Group in the long term, ten years’ time? What do you want to achieve?

That question also has to be asked along with what does the Madhvani family want in ten to twenty years’ time? Like every family, we are growing and with each generation we are getting more diverse. There are more brilliant minds at the table who are far cleverer than myself, each with their own needs and opinions and views on where they want to be as individuals. There is no obligation for any family member to be part of this company if they do not want to be. But at the same time, it does belong to the family and it is unfair to think that in twenty years’ time we can still have a company that is burdening one or two generations in the future with what we are doing today. The future of our company is very dependent on the future of our family and we are constantly adapting to ensure that our family has the flexibility to work within the company or, if they choose to, to pursue their own careers in whatever field they want. I have a brilliant young cousin who has decided that she wants to focus her career on electronic music writing. She is very happy and her music is quite good. We are very proud of her. To be more specific, we want to make family members feel that they are able to come and work in the company but also be accountable. It is not a free ride and it is unfair to the rest of the family to have all the benefits of shareholding but at the same time, pretend to be employed when in fact all you want to do is drive a Ferrari in London. That is not what we are about. If you want to work, you are here to work. You have a contract, you are accountable, you have responsibilities, and you have targets that you must perform to. Or, do not work. Enjoy your life and the careers that you want to pursue. The future of our company is in encouraging family to participate if they want to, to get a strategy that is adapted to the current market. In twenty years’ time the world will be completely different to what it is today and we must be as flexible as we are today, if not more, to be able to adapt.

What are your current projects?

Sugar is a cornerstone of our company. Tourism has also taken an important place in the direction that we are going. In sugar, we see ourselves as a dominant player in the country and we want to replicate that elsewhere in the continent. We are actively pursuing opportunities outside of Uganda. We know that we are good at producing sugar. We know that we are very good at producing downstream products from sugar cane that add significant value to our revenue stream. In the past, putting all our eggs in one basket has not proved very wise. Therefore, we want to continue diversifying and expanding.

What are the challenges in that?

The challenges are finding the right areas, the right markets, the right partners. If those factors play positively, then we definitely consider them very strongly. Rwanda is a very positive example of the right circumstances having led to something which we felt fairly pleased with.

What are the challenges for the tourism industry?

In the tourism industry, we see ourselves not as a five-star luxury tourism operator, but we have been fairly good at opening up Uganda and Kenya to tourists who otherwise would not be able to have afforded the luxury of coming on a safari. Even then though, we are very vulnerable to outside influences. If there is any negative perception or a scare in the continent as a whole, it seems to have resonating effects with us directly. One example was Ebola.

What is your plan for tourism in the future? Do you want to diversify outside of Africa and find partners in other countries?

Our strategy here and our real strength in the tourism sector lies in local tourism which would really insulate us against outside influences. That is a model which we are replicating in Kenya. We had started replicating it in Rwanda to a smaller extent. Certainly, in India, we saw a specific niche in religious tourism which was the result of a fairly extensive market study. That niche has proved very successful for us. Overall, in the tourism strategy, we see ourselves divesting outside the country but it is definitely not ad hoc. There is the need for studies to have the knowledge of what niches we need to consider when we get into that territory.

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