Business Case - Uganda Maize Export to South Sudan

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDAN1.0 BUSINESS DESCRIPTION

Business Description

The company XYZ COMPANY will engage in the import/export of cereals and grains between Uganda and South Sudan. The whole function includes the supplier/buyer identification, contracting and consultation for future market expansion. The secondary operation of the company will be the acquisition of in-demand cereals and grains for trading purpose in the Republic of South Sudan. This includes exportation of cereals and grains to the Republic of South Sudan that will be exclusively sourced from Uganda. The XYZ COMPANY expects to do a successful import/export trading business between South Sudan and Uganda as the directors have good communication skills in the local languages of both countries as well as excellent command in the English language.

Introduction

XYZ COMPANY was founded in the Republic of South Sudan in 2015. As a young and ambitious growth company, XYZ COMPANY projects to emerge as one of East Africa’s largest and most respected traders in agricultural products. XYZ COMPANY plans to establish supply chains extend across east African countries within the next 10 years.

The XYZ COMPANY envisaged supply chain will penetrate deeply into remote agricultural regions where we shall be procuring commodities from smallholder farmers through strategically located centres. The commodities will then be accumulated at XYZ COMPANY nodal warehouses and/or transported to processing facilities, prior to reaching our customers.

It is therefore the ambition and intention of XYZ COMPANY to move and trade in not less than 20,000 metric tonnes of maize grain and other cereal products between Uganda and the Republic of South Sudan while providing direct employment to more than 600 people annually.

It is the mission of XYZ COMPANY to provide complete import/export trading services including purchase contracts, shipping, warehousing, and delivery scheduling. The company will concentrate on the purchase of maize grain from Uganda for sale to the food deficit areas in the Republic of South Sudan.

1

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDAN

The Company

XYZ COMPANY will be a limited liability partnership registered in the Republic of South Sudan and the Republic of Uganda. Its founder is Mr. ABC. Mr. ABC has brought together a highly respected group of individuals who are well versed in agricultural import/export trade processes.

The company has a limited number of private investors and does not plan to go public. The company has its main offices in Juba, South Sudan. The facilities include conference rooms and office spaces. The company expects to begin offering its services in June.

The Services

The primary operations of XYZ COMPANY will be import/export trading, in addition to market exploration services. Other sources of income for the company would be the trade in different imported products which the company would sell locally to wholesalers in Juba and the other big towns of South Sudan.

Supplier/Buyer identification Purchasing, contracting and consulting Market exploration services Road transportation Warehousing Delivery

It must be noted that XYZ COMPANY does not possess any warehousing facilities and intends to outsource this particular service during the first year of the project. We expect to earn revenues by charging a commission based on the value of goods moved per order.

Products

In demand products such as cereals and grains (especially maize grain and maize flour).

The Market

2


The market for white maize in the Republic of South Sudan is continuing to expand as a result of shortages in food supply occasioned by the ongoing internal conflict situation that has disrupted agricultural production in large parts of the country. Much of the food that is consumed in South Sudan is now being currently met largely by supplies from Uganda through humanitarian agencies such as the World Food Programme (WFP) and a multiplex of both large-scale and small- to medium-scale Uganda-based grain traders such as the Uganda Grain Traders Association (UGTA), Masindi Seed and Grain Growers Association (MSGGA), and the Uganda National Farmers Federation (UNFFE).

In spite of the fact that Uganda’s white maize exports in 2015 topped more than 290,000 Metric Tonnes, this is still not sufficient to cover the big demand-supply gap for agricultural products in the Republic of South Sudan in 2016 and the next few years up to a point when the country will be able to achieve absolute peace and stability that will be conducive for agricultural production and internal food security. For the next few years therefore, there is still some considerable to be done in sourcing basic agricultural commodities from food surplus countries in the region like Uganda to meet the basic food requirements of the growing population in South Sudan as the country pacifies and gets back on the route to normalcy.

The market for white maize in South Sudan is therefore quite good in terms of demand volumes at the moment and is likely to remain so for the next 5 – 10 years. This present an excellent business opportunity that XYZ COMPANY can fully grasp and exploit going forward. The best way to make use of such an excellent business opportunity is for XYZ COMPANY to secure large white maize exclusive long-term supply contracts with government food supply agencies or large humanitarian relief organizations in South Sudan that will present with a unique position to serve these end-market buyers and their needs.

Profitability in these South Sudan end-markets is expected to be excellent, especially given the fact that XYZ COMPANY will start off with supplying a reasonably large volume of 120,000 metric tonnes of white maize per annum in 2016/17 – with profitability increasing steadily over the next few years. We expect profitability in the co-op end to be much slower in the first five years of operation, but it too will increase steadily.

3

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANFinancial Considerations

Start-up assets required include expenses and cash needed to support operations until revenues reach an acceptable level. Most of the company's liabilities will come from outside private investors and management investment, however, we shall borrow funds to facilitate the business from the existing trade finance banks in South Sudan and Uganda – which will all be paid off in five years.

The company expects to reach profitability right from Year 1 and does not anticipate any serious cash flow problems.

Figure 1: Project Financial Performance Indicators

Year 1 Year 2 Year 3 Year 4 Year 50

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

70,000,000

80,000,000

Financial HighlightsSales Gross Profit Net Profit

1.1 Vision

To be the strongest link between farmers and consumers within the East African region.

1.2 Mission

To facilitate production of high quality crops To propagate value addition and To provide a market for all tradable surplus commodities

4

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDAN To provide consumers with a range of quality yet affordable branded

products.

1.3 Objectives

The three year goals for Visigoth Imports are the following:

Achieve break-even by Year 2. Retain our long-term contracts with local import shops in Leavenworth,

WA, through excellent customer service. Become the premier importer of grains and cereals in South Sudan,

and become the prime exporter of grains and cereals for the farmers, processors and traders of Uganda.

.

5


2.0 UGANDA MAIZE SUPPLY AND DEMAND ANALYSIS

Maize was introduced in Uganda in 1861 and has since become a major part of the farming system, ranking third in importance among the main cereal crops (finger millet, sorghum and maize) grown in the country (USAID, 2010). Much of the production of maize aims to supply export markets in the region, mostly especially Kenya and recently Southern Sudan, which are in chronic maize deficits. The maize sub-sector is estimated to provide a livelihood for about 3 million Ugandan farm households, close to 1,000 traders and over 20 exporters (UBoS, 2011). Therefore, maize is a growing source of household income and foreign exchange through exports. Providing more support to the maize industry is therefore a key part of Uganda’s strategy to strengthen its positioning in regional and world markets.

2.1 Maize Production

2.1.1Maize Trends and Projections

Maize is grown predominantly by peasant farmers on a subsistence level, except for a few emerging commercial farmers. Peasant farmers have land holdings of between 0.2-0.5 ha under maize production, while the few medium- to large-scale farmers have 0.8-4.0 ha. Nevertheless, peasant farmers account for up to 75% of maize production and contribute over 70% of marketable surplus. Large-scale farmers account for 25%, their share is growing because of the increased regional demand and structural reforms in the maize international trade.

Majority of the peasant maize farmers grow a mixed variety of Longe 4 and Longe 5. Longe 4 is an open pollinated variety of maize developed to be fast-maturing and drought-resistant. Longe 5 is also an open-pollinated variety of what is described as quality protein maize (QPM). It was developed to be more nutritious and was initially expected to fetch a higher price on the market for human and animal feed. However, as it turned out, there was no evidence of such a premium price being offered to farmers.

6

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANMaize production in Uganda is characterized by generally low yields, which result in high unit costs and low returns. Irrespective of farm sizes, the yield levels in Uganda are low, standing at 1.0-1.8 MT/ha (4-7 bags [100 kg] per acre). This is explained by the limited use of agricultural inputs where farms are managed in a typical traditional system. For example, the only inputs are family labour and home saved seeds. Such low yields result into high unit costs of production, which have been estimated at UShs 120-180/kg [US$ 6-9 cents] per kg, with gross margins being less than UShs 50,000 [US$ 25.6] per ha. Moreover, of the estimated 500,000 – 750,000 MT of maize produced per annum, 15% is lost through harvest losses and 20% is retained at household level for consumption and seed (USAID, 2008).

2.1.2Main Maize Growing Areas

Uganda has ideal conditions for maize production (such as fertile soils, ample rainfall [annual rainfall of 1,000 mm of which a minimum of 400 mm are required for the growing season. Because of these good conditions, maize is widely grown in most parts of the country. The main production areas include:

Western (Kabale, Masindi, Kasese, and Kabarole districts); Central (Mubende, Kiboga, Masaka, Mukono, and Rakai districts); Eastern (Iganga, Kamuli, Bugiri, Mayuge, Sironko, Tororo, Mbale, and

Kapchorwa districts); and Northern (Arua, Nebbi, Apac, Lira, Kitgum, and Gulu districts).

The concentration of maize in these districts is explained by several factors including the ethnic nature of the population, the influence of immigrants, especially from Kenya, and the ready market for dried grains in the vicinity. The Eastern region accounts for over 50% of annual total output (NRI/IITA, 2002). Countrywide, the area under cultivation varies widely from district to district, although in recent years, there has been a steady increase, ranging between 800,000 and 1,000,000 ha (Table 1). Similarly, yields also vary from district to district depending on the soil and climatic conditions. However, the overall national yield of maize is estimated to range between 1.40 – 1.50 tonnes per hectare (MAAIF 2008).

Table 1: Maize Production in Uganda, 2008 – 2015Year 2008 2009 2010 2011 2012 2013 2014 2015Area Harvested (Ha) 840,000 942,000 1,032,00 1,063,00 1,094,00 1,101,00 1,103,00 N/A

7

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDAN0 0 0 0 0

Volume (MT) 2,314,909

2,354,664

2,373,501

2,551,000

2,734,000

2,748,000

2,750,000

2,600,000

N/A = data not available.Source: UBOS, 2009

Maize grows well in areas with annual minimal rainfall of 700 mm. The crop takes about 4 months from planting to harvest in the low land areas and up to 8-9 month in the Kapchorwa highlands of Mt. Elgon. The crop has two seasons. The first season runs from January to March and, the second season is from July to August. In other districts like Kapchorwa and Mbale, maize harvests occur between October and December. Some areas can support two seasons a year, while others can only support one season because of the insufficient rains or extended length of the growing season.

Maize yields in the above districts differ by agro-ecological zones. Farmers in potentially high maize-growing areas harvest between 4-6 MT/ha, especially in Kasese and Kapchorwa districts. In the districts of Iganga/Bugiri, Masindi and Kasese, open pollinated maize varieties are grown and harvested twice a year, while in Mbale and Kapchorwa hybrid maize is grown and harvested once a year. In Kasese the second season is larger than the first season unlike for the rest of the districts where maize is grown twice a year.

Figure 2: Map of Uganda Illustrating Flow of Maize

8


2.2 Domestic Consumption

While maize has been grown for a long time in Uganda, nonetheless, unlike in neighbouring countries (Kenya, Tanzania, etc.), it does not form a major part of the population’s traditional diet, but is grown primarily for income generation, rather than for food security. However, the growing cost of traditional staple foods (such as bananas [Matooke] has had the impact of increasing maize consumption, especially in urban areas. Kampala alone accounts for about 50% of formal trade in maize. The domestic market for maize in Uganda is estimated at 350,000 - 400,000 metric tonnes per annum (NRI/IITA, 2002). In 2007, domestic consumption remained at 400,000 MT out of a national availability average of approximately 638,000 MT (USAID, 2008).

The main domestic market for maize is Kampala, which accounts for about 50% of the formal trade. The main buying centre is the Kisenyi market which has a concentration of processors (about 88 millers). The main domestic demand for maize is from institutions (schools, prisons, hospitals, etc.). Major institutional buyers of maize include the World Food Programme (WFP), which stocks supplies destined for distressed areas both within Uganda and the region (DRC, Burundi and Rwanda) and the Uganda Grain Traders Limited (UGT), which is an association of 16 Ugandan major trading companies.

Maize is consumed in various forms – grilled or whole, as a cake [Posho, or Ugali], or as porridge – especially in urban centres. Over 70% of the maize is consumed as food, and about 10% is used as animal feeds (maize bran). There is also increasing demand of value-added products (maize flour, poultry feeds, etc) especially in urban centres where maize is gaining importance both as a major food item and for income generation.

2.3 Marketing and Trade

9

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANUganda’s maize export market is mainly regional, comprising of markets within Eastern and Southern Africa, the Democratic Republic of Congo and Southern Sudan. Exports of maize to Kenya alone more than doubled from 2004 to 2008 (MAAIF, 2010). Uganda’s export potential for maize is estimated between 200,000 and 250,000 MT per year (USAID, 2010). Nonetheless, the country has only managed to formally export half of this amount, reflecting a low level of penetration into the regional markets due to the poor rural road network, and limited business exposure (USAID, 2010). Maize is sold across borders through Mutukula for Tanzania, Busia for Kenya, and Gatuna for Rwanda (Figure 1). The challenge for the cross-border trade, however, has been the increasing informal (unofficial) cross-border trade with neighboring countries for difficulty of controlling both quantity and quality of commodity flow. Of all the five neighboring countries, Kenya dominates the informal export destinations followed by DRC, Southern Sudan, Rwanda and Tanzania.

There has been a vibrant cross-border trade in maize with these regional markets. According to USAID (2010), internal procurement and trade in maize along Uganda’s eastern and southern borders with Kenya and Rwanda, respectively, remains brisk, as high demand for maize in the neighboring countries increased the follow of maize from production centers in Uganda. Trade in maize to these markets is entirely informal. Consequently there are no accurate data on volume and values of exports to these countries.

Official figures indicate that in 2008 alone, maize is estimated to have generated over USD 18.5 million in export earnings from an estimated 66,671 tons (MAAIF, 2011). Table 2 presents maize production, import and export of Uganda (2004-2010). The data on exports of maize reported mainly reflects the formal export. According to this data, Uganda exported 8-12percent of its maize production between 2004 and 2010. However, informal (unofficial) maize exports appear to far exceeding the formal (official) exports through. According to Bank of Uganda (2011), the value of informal maize grain and flour exports to neighboring countries in 2009 and 2010 were estimated at USD 36.67 and 45.83 million, respectively. In contrast, the value of formal maize grain exports in the same years were USD 29.07 and 38.21 million, respectively (MAAIF, 2010).

South Sudan is an important end market for Ugandan maize and to that extent northern Uganda has a geographical advantage to exploit this market.

10

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANHowever, the region has not yet been able to reap significant benefits from this market because of low levels of production and a lack of organized marketing. The post-conflict environment in South Sudan is another risk factor, especially for Ugandan traders who have often been attacked by lawless gangs. This is exacerbated by the unclear taxation regime, and most importantly, by the unclear political future, which depends on a number of factors.

Table 2: Maize production, import and export of Uganda (2008-2015)Year 2008 2009 2010 2011 2012 2013 2014 2015Production (MT) 2,314,90

92,354,66

42,373,50

12,551,00

02,734,00

02,748,00

02,868,00

0N/A

Imports (MT) 22,715 6,559 1,457 N/A N/A N/A N/A N/AFormal Exports (MT) 71,699 98,471

151,389 93,610

210,155 143,532 141,789

290,662

Formal Exports as a % of Production 3.10% 4.18% 6.38% 3.67% 7.69% 5.22% 4.94% _

N/A = data not available.Source: BOU and UBoS Statistics, 2015

Data obtained from FAOSTAT (2012) indicates that formal imports of maize have been declining since 2004. The same conclusion is also reported by USAID (2010). Imports of maize have been high in seasons of low harvest (e.g., 2004) especially on account of variations in rainfall patterns. By and large, however, Uganda has always been self-sufficient in maize production and has not been dependent on imports.

11


3.0 SOUTH SUDAN MARKET SITUATION

3.1 Overview of the Economy

The South Sudanese economy is highly oil-dependent: oil production represents 99% of exports and 95% of government revenue, and accounted for around 50% of gross domestic product (GDP) in 2013/2014 (IMF, 2014). Since the start of the current conflict, oil revenues have plummeted by over 50% compared to the end of 2013.1Together with the decline in crude oil prices and the fixed costs of using Sudanese oil pipelines, this has had significant financial and economic repercussions. Foreign reserves reached an all-time low in mid-2014, and government expenditure on basic services and development has been severely curtailed; any remaining expenditure is heavily skewed towards security and the war budget and paying government salaries (UNDP, 2015). Spending is largely financed through external borrowing on future oil revenues, putting the future economic health of the country in serious jeopardy (Frontier Economics, 2015).

The fiscal deficit has led to limited availability of foreign currency and a depreciating parallel exchange rate. In 2011 the Central Bank of South Sudan fixed the currency at an inflated level against the US dollar and limited foreign exchange in what the IMF has termed ‘a hidden transfer of resources from the government to those with privileged access to foreign 1Oil production fell to 160,000 barrels per day in 2014 from more than 235,000 barrels per day at the end of 2013 (IMF, 2014).

12

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANexchange at the official rate’ (IMF, 2014). Since the start of the current crisis, the gap between the official and unofficial exchange rates has widened significantly (see the figure below). As a large amount of informal cross-border trade is financed at the black market rate, it is increasingly difficult for all but a few traders with good connections to bring goods into the country. The conflict and the widening gap between the two exchange rates have meant that the group receiving privileged access has changed and the profits that can be made on currency differentials has grown, further discouraging commodity trade and favouring exchange rate trade (see Section 5; Radio Tamazuj, 2015a). However, declining oil revenue and the increasing shortage of currency reserves are threatening the continuity of these patronage networks.

Figure 3: Official and Black Market Exchange Rates

3.2 Agricultural Production

Other sectors of the economy aside from oil, such as agriculture and livestock production, are not yet sufficiently developed to compensate for the significant reduction in oil exports. Livestock, especially larger animals

13

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANsuch as cows, are generally kept as assets given the high social value they have among pastoralists, rather than reared specifically for export. Small ruminants such as goat and sheep are a key income source for pastoralists and determine their ability to buy staple food in the market.

The potential for agricultural production in South Sudan is huge. Half of the country’s 82m hectares of agricultural land is suitable for agricultural production, yet only 4.5% is routinely under cultivation (Annual Needs and Livelihoods Assessment, 2012/2013). Yields are low, with the average across all cereals generally below one ton per hectare (Oxfam, 2014). The country has only been self-sufficient in cereal production twice in the last decade; overall food production fell from 954,000 tonnes in 2012 to 900,000 tonnes in 2013 and 891,000 tonnes in 2014 (FAO/WFP 2014). This was against an estimated total demand of 1.3m tonnes in 2013/14, giving an overall deficit of 408,000 tonnes. Only one state – Western Equatoria – was in surplus. Lack of productivity is compounded by poverty, limiting investment in inputs and equipment, the effects of decades of conflict and insecurity and insufficient investment in rural infrastructure (roads, markets, post-harvest storage facilities). South Sudan is also suffering increasingly from natural disasters, including floods, droughts and epidemics of livestock disease (WFP et al., 2012).

Sorghum, the main staple crop, is cultivated by 68% of households. Maize is grown by around 44% of households; 33% grow groundnuts and 13% cassava (NBS, 2012). Just under three-quarters of households own livestock: 69% own goats, 63% cattle, 57% poultry and 38% sheep (including households that own more than one of these) (NBS, 2012). In Unity and Jonglei states, the majority of households also derive an income from the sale of charcoal, firewood and grass.

Per capita consumption of cereals is estimated at between 109kg and 150kg per year (FAO/WFP, 2014), and the average household size is approximately seven. Typically, over 40% of South Sudanese households spend more than 65% of their income on food. With the exceptions of Central and West Equatoria, markets are the main source of staple foods (apart from around harvest time in October), with up to 70% of households relying entirely on markets for their sorghum consumption during the lean season. Other key food items, such as meat, fish, sugar, fats and oils, are also mainly sourced in markets (WFP, 2014a).

14

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANHouseholds most vulnerable to food insecurity before the onset of the crisis were those that did not produce their own sorghum, spent a large share of their income on food, did own livestock and were in states most affected by the disruption of trade patterns: North Bahr el Ghazal, Warrap, Unity, Upper Nile and Jonglei. Households like these were already using a number of coping strategies prior to the crisis. For these households, the single biggest shock factor recorded pre-crisis was food price increases (FAO/ WFP, 2014).

The states most affected by the current conflict – Jonglei, Upper Nile and Unity – had the highest proportion of market-reliant households before the crisis in 2013, and households in these states spent the highest proportion of their income on food: 63% in Jonglei and 59% in Unity spent over 65% of their income on food between 2011 and 2013 (WFP, 2014a). These states also had the highest cereal deficits in the country – Jonglei alone accounted for morethan 30% of the national cereal deficit, with Unity and Upper Nile together adding another 32% (ibid.). Poor yields for cereals also affected the terms of trade for livestock, sheep and goats. Many traders rely on selling their herd to restock their stores. If there is no off-take market, or the quality of the herd deteriorates due to disease, lack of animal health workers or vets or lack of access to adequate grazing land due to insecurity, traders get less favourable terms of trade and are less willing to restock.

According to WFP’s data on cumulative food aid distributions from January to October 2014, Jonglei, Upper Nile and Unity also received the most food aid. Warrap and Lakes states also recorded high food aid distributions (WFP, 2015).

Table 3: Cereal food distributions (thousands of tons) by stateState 2012 2013 2014Central Equatoria 4 4 9Eastern Equatoria 6 4 4Western Equatoria 2 3 3Jonglei 24 10 24Upper Nile 21 32 25Unity 12 19 25Lakes 5 5 14Warrap 19 25 21W. Bahr-el-Ghazal 6 6 4N. Bahr-el-Ghazal 13 11 7South Sudan Total 112 119 136

15

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANSource: WFP (2015)

3.3 Key Features of the Juba Market

Juba is the key trading and import hub for much of the country, in particular for goods using the Kampala– Nimule– Juba corridor. There are four key markets: KonyoKonyo, Customs, Jebel and Souq Lybia, as well as various smaller or medium-sized neighbourhood markets. Konyo Konyo (North and South) is the largest market in the region, the main hub for imports from neighbouring countries and the primary point of origin for market supplies throughout South Sudan. Imports from Uganda come directly to Konyo Konyo, Jebel and Customs markets, and traders in Customs and Jebel also buy from Konyo Konyo. Souq Lybia does not receive imports directly, so its traders buy goods from one of the other three markets (see the figure below). According to interviews, people prefer to buy from Konyo Konyo market because of the wider range of goods available compared to other markets. Konyo Konyo is not necessarily cheaper, except for maize and sorghum. Most traders buying goods to transport to other South Sudanese states further north also come to Konyo Konyo to buy. Local produce is sold in all markets, though Customs in particular has a number of streets dedicated solely to local produce.

Juba’s markets are marked by impermanence and low levels of investment, as traders are keen to retain the ability to leave quickly should security deteriorate. Many come to make a quick profit, and hence do not invest in permanent structures such as storage capacity or shops. There is also a lack of regulation and control, and many foreign – and to a lesser extent local – first-time business people arrive in Juba with little money and are simply trying their luck. Goods may not be as advertised on the packaging – a 50kg bag of maize may in fact only contain 45kg, or the quality may be lower than claimed – and informal tax collection and bribery is common, in addition to official set fees for services such as policing and garbage disposal.

Figure 4: Juba Markets

16

Konyo Konyo Market

Imports from UgandaLocal produce from Juba and surrounding islands


3.4 Trade Flows

3.4.1 Imports

The scale of imports (both formal and informal) into South Sudan is difficult to estimate as accurate data is unavailable. Staple food commodities in particular are largely traded informally across borders. Over the past four years annual import requirements have fluctuated between 350,000 and 500,000 tonnes (WFP, 2015). South Sudan is the main informal staple food importer in East Africa, accounting for 57% of total informal imports (FSNWG, 2014a). In 2013, before the current conflict, South Sudan imported around 1.85m tonnes of staple food informally, with maize (360,890 tonnes of maize grain and 221,643 tonnes of maize flour) and sorghum (317,114 tonnes) accounting for the highest proportion (WFP, 2015).

Most imports into South Sudan come from Uganda and, to a lesser degree, Sudan. Smaller amounts come from Ethiopia and Kenya (via Kapoeta) to the eastern areas of Jonglei, Eastern Equatoria and Upper Nile states (ACAPS, 2014). South Sudan’s main trade routes go through Nimule or Kaya, Central Equatoria and then up along the Jonglei/Lakes border via Rumbek, supplying Greater Bahr el Ghazal or Unity State by road or barge (depending on the season), or via Bor, reaching Upper Nile State.

17

Souq Libya

JebelCustoms

Local produce from Magwi, Yei and Maridi

Terekeka

Sells to

Buys from

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANAround 54% of Uganda’s total maize exports went to South Sudan in 2013 (FSNWG, 2014a). Uganda also exports most of its sorghum to South Sudan. Previously, South Sudan, particularly northern areas, also relied on imports from Sudan. In 2010, an estimated 80,000 tonnes of staple foods such as sorghum, wheat flour, millet and wheat were imported from Sudan (Annual Needs and Livelihoods Assessment, 2011/2012). However, the closure of the border in May 2011 has greatly reduced this trade. Informal trade continues, in particular near Aweil and Renk, but figures are difficult to come by as trade is dispersed along the border to circumvent the ban, and so difficult to monitor (FSNWG, 2014). Interviews for this study suggest that informal taxes paid at border crossing points are high, making trade very expensive. EMMAs by MercyCorp (2015a; 2015b) highlight the exodus of many Darfurian traders from rural markets in the area, disrupting informal trade networks along the northern border. FSNWG (2014a) reports anecdotal evidence that white sorghum from Sudan is increasingly being replaced by the cheaper local and imported red sorghum, maize and maize flour from Uganda. Northern towns such as Aweil, Bentiu and Malakal used to be oriented towards Sudan for their imports, while also receiving goods from Juba and Wau (in the case of Aweil and Agok), Bor, Wau, Rumbek and Juba. Towns in the southern half of South Sudan are more oriented towards imports from Uganda. Although Juba continues to receive imports from Sudan (in particular wheat and sorghum, as well as spices and sauces), traders interviewed for this study estimated that they got about 15% of their wheat and sorghum from Khartoum, and 85% from Uganda.

3.4.2Local Procurement

Domestic production makes up 10%–15% of the total supply in Juba’s markets. In Konyo Konyo, much of this consists of local fruits and vegetables, such as okra, bamia, kudra and tomatoes, grown on the islands and in the outskirts of Juba and sold by local women in small quantities. Some traders specialize in the sale of local produce in Customs market, where a whole street is dedicated to the sale of South Sudanese maize, sorghum, simsim and groundnuts. Many of these traders either only procure locally, or buy locally seasonally, importing produce the rest of the year when local supplies are unavailable. Much of this local produce comes from Greater Equatoria – Eastern, Central and Western Equatoria. Traders reported that they would rent cars from Juba and drive to Yei, Morobo, Maridi or Magwi to buy from producers locally. Producers themselves generally do not have the means, knowledge or connections to travel up to Juba to sell their produce, instead

18

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANtransporting their products to the nearest market by bicycle or donkey cart. Traders mentioned that many residents prefer to buy local food, which is generally grown without the use of fertilisers.

Before the start of the conflict, the main local source of sorghum was Renk, the only large-scale mechanised farm in South Sudan. However, production in 2012 was already half what it had been previously because of the departure of the Sudanese who made up three-quarters of the workforce. Most of Renk’s sorghum production was destined for Sudan, but some of it also fed the Greater Upper Nile area and Juba markets. Several large traders interviewed mentioned that they used to regularly go to Renk to buy sorghum, as often as once or twice a month, bringing back around 500– 1,000 bags each trip.

Figure 5: Typical Maize Flows in South Sudan

19


3.5 Market Composition

Most traders on Juba’s markets import the majority of their goods from Uganda. Exact figures are difficult to come by, but estimates suggest that imports account for 85%–90% of total supply in Konyo Konyo market (WFP, 2015). It is not only wholesalers who import goods: retailers, even smaller ones, also do at times. The decision on whether to import or buy locally is heavily influenced by the exchange rate and the availability of, and traders’ access to, foreign currency.

The figure above summarizes the various entry points into the grain market. Traders who buy from Uganda either make the trip there themselves or send a close relative or business partner. Some have a South Sudanese or Ugandan associate based permanently in Uganda who will source the goods locally and load them on a truck bound for South Sudan. Many of the larger traders buy directly from the two or three large grain traders/processers based in Kampala. These large traders source grains from all over Uganda, as well as having grinding and processing capacity in their factories in Kampala. Smaller traders buying in Uganda often source cereals themselves,

20

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANand may travel to different regions, such as Hoima, Jinja, Kiryandongo and Gulu, to collect cereals directly from farmers. Even smaller retailers interviewed, who sold from jerricans or cups, said that they would get together with others and import cereals from Uganda. They preferred to buy in Uganda mainly for quality reasons, and often travelled shorter distances than larger traders – mainly to Gulu or other places in Northern Uganda close to the South Sudanese border.

Those not importing themselves buy from two types of trader/transporter in Juba: those with trucks, who sell their imported produce directly off the back of the vehicle, and those who own stores. Off-the-truck selling generally takes place in North Konyo Konyo; depending on demand and season, between one and five trucks may be trading at any one time. South Konyo Konyo hosts traders with more permanent stores (usually 8 metres by 5 metres in size). Previous studies have shown that these traders/transporters are mostly independent and based in South Sudan, not Ugandan grain processors, who prefer not to travel to South Sudan themselves due to high import duties and taxes and harassment on the road (WFP, 2012). Middlemen may also become involved in some of these transactions, bringing traders to particular stores for a 2 SSP/bag commission.

Wholesalers sell their produce to other wholesalers (especially if they are importers), but also to retailers and individual customers from Juba and surroundings. Retailers tend to sell to smaller shops and individual customers in Juba. Large amounts of goods (sorghum, maize, maize flour) are also sold to traders from states upcountry (Greater Bahr-el-Ghazal, Greater Upper Nile). Volumes are difficult to estimate and vary seasonally, but one recent market assessment suggested that upcountry trade may have accounted for as much as 60%–70% of traders’ business prior to the conflict (Oxfam, 2014). During the dry season traders arrive with their trucks from Bor, Rumbek, Wau and Malakal; during the rainy season only a few roads (Bor, Rumbek, Wau/Aweil) remain passable, and large barges take most of the goods north towards Bor, Malakal and Bentiu. Traders said that upcountry traders can buy between 50 and 500 bags from individual shops, combining different commodities from different stores to fill one truck. They may visit a particular shop as often as once or twice a month.

The South Sudanese market is dominated by foreign traders, with only around 15% of South Sudanese origin. Most are Darfuri, Somali, Eritrean, Ethiopian or Ugandan. While some are individual businesspeople, many of

21

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANthe Eritrean, Somali and Ethiopian businesses in South Sudan are branches or subsidiaries of larger companies based elsewhere. While many of the small and medium-sized traders import only foodstuffs, several of the larger traders and companies combine food imports with other, more lucrative businesses, such as hotels and petroleum importing (especially Somalis). Most Ugandan businesses are small or medium-sized, unregistered food traders. South Sudanese retailers, in particular female traders, had started to increase before the crisis, mainly selling local fruits and vegetables. There are also a few (10–15) large-scale South Sudanese traders involved in foodstuffs and other goods.

While it is difficult to say how many large operators there are in the sorghum and maize trade, given that many traders import other goods as well (and a large trader overall may not be big in sorghum or maize), estimates can be made. Although a few very large companies have capital of over $10m, most companies registered with the Chamber of Commerce have capital of 50,000–15m SSP (around $8,000– $250,000). The Chamber has 6,000 members, around half of which deal in food items. Of these, there are around 20 large traders, 2,000 medium ones and 1,000 smaller ones. According to the Chamber of Commerce, three-quarters of the companies registered with it are partnerships between foreigners and a local shareholder. The local shareholder is rarely a businessman or provides any capital, but simply offers an entry point into the local market and establishes useful connections.

Chamber of Commerce figures only concern registered companies, and many traders are not willing to register for financial and bureaucratic reasons. Most informal traders are small- or medium-scale. Medium-sized traders typically bring to the market between 1,000 and 2,000 bags of maize a month. Large traders bring in 2,500 bags or more, with the bigger ones often bringing in as many as 4,000 bags around 3–4 times per month; others also bring in fuel (up to four trucks a week before the crisis). They often own several stores of around 3,000 bags each. Small-scale traders usually sell by jerrican or cup and, if they do import, bring in around 50–100 bags a month.

According to Fewsnet (2009, cited in WFP, 2012), the sorghum market is relatively concentrated, with 12% of the largest traders handling 70% of the trade. Even before the conflict there was not much of a sorghum market in Juba for local consumption. People in Juba and the Equatorias have generally shifted consumption patterns, preferring maize to sorghum, or consuming

22

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANsorghum, wheat and maize together. In Juba, sorghum was mainly used for alcohol brewing before the government demolished the informal market in 2012. Traders reported that they were selling around 500 bags a day to local brewers, but since the demolition demand has declined significantly. Much of the sorghum traded in Juba and imported from Uganda is destined for trade upcountry.

Figure 6: Supply Chain for Grain Imports from Uganda to Juba

23

Farmers in Northern Uganda (Gulu and close to South Sudan border)

Ugandan Farmers: Hoima,

Kiryandongo and Jinja

Processors: Uganda

Pooled or individual truck Pooled trucks

Individual truck Buys when doesn’t have currency

Wholesalers (Juba) Small Wholesalers (Juba)

Trader/transporter (mobile)

Retailer (Juba)

Wholesalers (Juba: don’t import)

ConsumersRetailers (Juba: don’t import)


3.6 Transport

Trucks normally carry either 15 tons or 25 tons, and traders may load a combination of different cereals and other items on a single truck. Rental prices reported by traders were around 7m Ugandan Shillings ($2,000) for a 25-ton truck and around 4m Shillings for a 15-ton truck. Trucks are generally hired in Kampala and operate independently of traders, though some may also have their own trucks. Transporters in Juba who take produce upcountry also operate independently. Checkpoints along the roads (both formal and informal) are a major factor driving up the price of goods. A study by the National Bureau of Statistics (NBS, 2011) found six checkpoints between Juba and Nimule, 32 between Juba and Aweil, 24 between Juba and Wau and nine between Wau and Aweil, with varying amounts of payment demanded at each. This study found reports of numerous checkpoints between Kampala and Juba, with traders having to pay between 100 and 200 SSP at each unofficial checkpoint and and 200–300 SSP at Nesitu.

3.7 Terms of Trade

Staple food markets operate on both credit and cash. Almost all traders access credit on an informal basis, rather than through formal channels such as banks or other financial institutions. Credit arrangements are often in-kind, where a trader receives the goods but only has to pay for them after selling them and collecting the profits, normally a couple of weeks later. Credit also depends heavily on the connections individual traders have with other traders or processors/producers. For example, several traders reported that they knew large maize processors in Uganda well and did not have to pay in advance for their goods, but paid once they had sold their stock. Others mentioned that they always had to pay upfront because they did not have the same personal contacts.

3.8 Prices

Food prices in South Sudan have been highly volatile since independence in 2011. There are enormous price differences between different markets due

24

Traders from the states (Unity, Upper Nile and Jonglei)

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANto weak market integration across the country, mainly down to poor roads, expensive fuel, illegal checkpoints and taxes and unfavourable exchange rates (Special Focus Report, 2014). Generally, the further from an import point (Uganda, Sudan, Ethiopia) the less integrated markets become, and the more likely it is that prices will be higher (WFP, 2015). WFP price monitoring for maize grain in Juba between 2010 and 2014 suggests that they closely follow prices in Ugandan markets. There seems to be little seasonal variation in prices for either maize or sorghum in Juba and Bor, reflecting both towns’ strong reliance on, and good connections with, import markets in Uganda (WFP, 2015).

While overall prices for sorghum and maize seem to be less volatile in Juba than in other South Sudanese markets, prices do vary significantly from trader to trader because they depend entirely on the import channel traders used, the prices traders bought at, the amount of formal and informal taxes they paid and, most importantly, the exchange rate at which the trader converted his South Sudanese Pounds into US dollars in order to import the goods. Traders explained that, while goods were cheaper in Uganda, after transport, taxes and storage they cost in effect almost the same as they would have done had they been bought in South Sudan. Interviews suggest the main profit traders made before the conflict was from the exchange rate differential, rather than the price differential from buying goods cheaply in Uganda. Traders with larger storage capacity are at an advantage because they can wait out exchange rate fluctuations and time their restocking to coincide with favourable rates, maximizing their profit.

Figure 7: Maize Grain Price Evolution in Juba and Gulu

25


4.0 BUSINESS MODEL

It is important for companies to select an appropriate business model sequentially to find a clear road map for their future plans. There are different types of models which companies can adopt according to their own needs.

Following is the model Canvas model which XYZ COMPANY will adopt to run business operations.

Figure 8: XYZ COMPANY Business ModelThe Business Model CanvasKey Partners Key Activities Value

PropositionsCustomer Relationships

Customer Segments

Import-export companies

Consultation Unique products Importers-Exporters

SMEs and business owners

Import-Export of products

Cost efficiency 24-7 Online Services

SMEs

High quality

Key Resources Channels

26


Finances Internet Marketing

Industry specific expertise

Word-of-mouth

Personal contacts

Cost Structure Revenue StreamsTravelling Advanced Partial payments

Initial packaging of products Online paymentsLicences

4.1 Customer Segments

The customers of XYZ COMPANY would be the importers and exporters and small and medium size companies in South Sudan which are engage in the process of growth and expansion. The entrepreneur will engage them by offering different products and services so to create his own market niche.

4.2 Value Propositions

The products (maize grains) are unique in a way that in the current market situation there are no other businesses which are doing large volume trading of maize grain in South Sudan on a regular and consistent supply basis. Thus it will give an edge to the entrepreneur to compete in the market by offering those products with high quality and lower rate.

4.3 Channels

Newspapers, TVs, FM radio stations, and social media marketing and other internet marketing tools will be the core source for XYZ COMPANY to convey her message to its target audience. Other sources such as word of mouth, referrals and personal contacts would be secondary source.

4.4 Customer Relationships

In order to maintain and retain customer relationship the entrepreneur will provide 24-7 online services in order to communicate with his customers.

27

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDAN4.5 Revenue Streams

Due to the nature and type of business, there are generally two different types of revenue streams such as Advance partial payments which will be paid at the time of order and other will be bank transfers method (using documentary letters of credit) partially before and after the sale or purchase of products and services.

4.6 Key Activities

XYZ COMPANY will be engaged in two major activities, consultation and the sale and purchase of in demand products (maize grains).

4.7 Key Resources

The key resource for the business are the finances it owes to run its operations. These resources will be utilized to meet daily expenses and to buy different products.

4.8 Key Partnerships

XYZ COMPANY will also make efforts to create partnerships or represent other businesses in each country (South Sudan and Uganda). The partners will be from the same industry i.e. importers-exporters or other SME’s involved in international trade.

4.9 Cost Structure

The main cost of the business that will be incurred is the purchase of products (maize grains). Also road transportation is another key cost as the entrepreneur will carry out business operations with different transportation companies located in Uganda, Kenya, and South Sudan to move the agricultural products.

Figure 9: Projected Sales Map

28


SalesMaize Grain Consultation Warehousing Other Services

Figure 9, above shows the projected sales of the company. The major source of income would be maize grain and consultation to other companies. The company also intends to provide other services such as market surveys, purchasing contracts, warehousing, transportation, and follow up service analysis.

4.10 Key Success Factors

XYZ COMPANY's keys to long-term and profitability are as follows:

Differentiate our services to our niche clients so that they realize that we are better able to serve their needs than a more generic competitor.

Keeping close contact with clients and establishing a well-functioning long-term relationship with them to generate repeat business and create a top notch reputation.

Establish a comprehensive service experience for our clients/customers that includes consultation, product/client search, purchasing contracts, warehousing, transportation, cereals delivery, and follow up service analysis.

29


4.11 The Business Process

XYZ COMPANY shall be a Small and Medium size enterprise. It aims at becoming one of East Africa’s leading maize originators and marketers. The company will trade in white maize (primarily for human consumption) and yellow maize (for stock feed). The company’s primary countries of origination and operation will be Uganda and South Sudan initially, but will later on be expanded to cover Kenya, Rwanda, and Tanzania. XYZ COMPANY will conduct its maize origination and marketing by establishing close ties with thousands of small farmers, maize traders and processors. While individual maize growers may not earn sufficient income to transfer their product to central markets, the combined output of 1,000 smallholder maize growers or more will create significant scale for XYZ COMPANY’s strategically positioned warehouses, which will reach into the remotest of rural regions.

4.12 Strategy

XYZ COMPANY shall create a customer based management system (CRM) for the existing customers in one computer by using a Microsoft access program. It shall also form alliances with large warehouse operators in Juba and other large cities in South Sudan that it can use as first maize grain reception storage and distribution centres for the first six (6) months of the projects at discounted warehousing rates. Furthermore, the founding entrepreneurs of XYZ COMPANY are convinced that this company will also go a long way to boast the South Sudanese economy in the agricultural trading section of the company as the company tax will be used to develop the community and its presence will serve as a catalyst for other business opportunities to be transformed into full fleshed businesses.

More so the founding entrepreneurs are very ready to start up this business and have already done some research on how much it is going cost to start up the business of importing maize grain into the South Sudan market. Hence all that is needed is the money to start up the business and purchase of the required maize grains from Uganda.

30


ORIGIN COUNTRIES | FARM GATE

31

Origination

Processing

Figure 10: Maize Origination and Marketing Process I


FARM GATE

32

Importing

Exporting

Shipping & Logistics

Distribution

Processing

Marketing

Procurement & Distribution Centre

Purchases commodities directly

from farm gate

Sells fertilizer, farming equipment

and seed

National Distribution Centre


5.0 OPERATIONS PLAN

5.1 Current Status

XYZ COMPANY is a newly established company, registered in ----------- (month) 2015 to meet the inherent huge maize demand in the Republic of South Sudan. In order to import and distribute quality maize grain during the2016 season, XYZ COMPANY will erect a maize cleaning and pre-export packaging machinery with warehousing infrastructure in Uganda as well as an import warehouse in South Sudan for use as a reception and distribution point for the imported maize grain during the 14months following funding. XYZ COMPANY has completed detailed financial, operational and business startup planning.

Post funding, XYZ COMPANY is ready to proceed with the following startup activities:

33

Regional/International Distribution Centre

THIRD PARTYOr two-directional supply chain

allows us to move products forwards and backwards through our procurement and distribution

networkFigure 11: Maize Origination and Marketing

Process II

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDAN Erection of export storage warehouse and machinery building, ordering

maize grain cleaning and bagging machinery and equipment Securing contracts for raw material (maize grain) procurement Installation of electricity and maize pre-export cleaning mill Maize export operations

5.2 Startup Costs

There are several start-up costs that are due to infrastructure development and initial operating costs. These costs are one-time expenditures totaling US$ 4,500,000 and include:

US$ 75,000 - The maize pre-export cleaning mill US$ 500,000 - Buildings to house the maize pre-export cleaning facility and

cleaned maize grain US$ 200,000 - Storage buildings for pre-processed maize US$ 20,000 - Pest control equipment US$ 30,000 – Miscellaneous equipment (including electricity generator) US$ 25,000 – Electricity lines and transformer US$ 50,000 – Field vehicles US$ 100,000 – Pre-operational Expenses US$ 3,500,000 - Startup Working Capital (covering 1 month’s maize

transaction costs + operating expenses)(All costs include labor, transportation, and fees where appropriate)

5.3 Workforce

Post start-up, during normal operation the maize pre-export cleaning facility will require 10 to 15 laborers respectively during the off and peak seasons to run at capacity. The XYZ COMPANY partners will manage and oversee the day-to-day operations including operations management and financial management. Operations management will consist of overseeing maize pre-export cleaning and packaging operations, labour, maintenance, quality control and product delivery. Financial management will consist of sales, marketing and administration. Workers will be trained on location and will be responsible for running the mill.

5.4 Business Capacity

The maize pre-export cleaning facility will have a throughput capacity of 50 - 100 tons of maize per hour. The down time on a mill is about 15% with 10% idle time. A six-hour milling period will result in roughly 400 - 450 tons of export-grade maize grains per day.

34


6.0 MARKETING PLAN

The marketing strategy is to create a market niche that focuses primarily on the customers involved in import/export business. To meet the required goals XYZ COMPANY will develop a creative online presence by building a dynamic website and placing the complete profile of products and services and necessary information to connect with its customers. Further the company will invest and utilize modern practices to advertise it using broadcast and print media as well as social media campaigns and will maintain its presence inside newspapers, TV stations, FM radio stations, online directories and other search engines sequentially by using modern marketing techniques to make a clear presence of the company on the internet.

XYZ COMPANY will establish business relationships with wholesalers, retailers, and distributors both domestically and internationally. The author has extensive experience and already business contacts within the industry, he will draw on these existing relationships to build a network of brokers that

35

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANsource products on behalf of the company. For successive sales and profit results, the company will apply marketing strategies including frequent social media campaigns and other advertisement platforms, such as through personal contacts, print and media and by maintaining public relations. Moreover XYZ COMPANY, is also intended to build partnerships with other companies in order create a network of importers and exporters.

7.0 FINANCIALS

Financing is a core business element and without a proper financial management a business cannot be created. It intends to provide information how much finances are needed to run business. The figures used can further be used in calculating several other statements such as sales and gross profit margin etc. The financial section is also necessary if the business is seeking loans or outside investment. These statements provide a clear picture of the business as where it is standing financially or is it wise to invest in to the business. Following is the projected financial plan for the case company.

From first sight, the proposed maize export/import trading business venture is very rewarding and the road transportation company to be used is very reliable. XYZ COMPANY apart from being a new business venture will also be serving as a source of employment for the owners and therefore they

36

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANshall have job security and self-satisfaction from its success. The financial forecast (projection) of XYZ COMPANY shows that it will make profit by the end of the first year and is able to pay back its loan within four (5) years and there after yield dividends to its owners.

In comparison to other business models a maize export trading financial model is relatively straight forward. Maize is purchased, and maize is sold. XYZ COMPANY will be able to sell 100% of its product at wholesale.

7.1 Capital Requirements

Table 4 below provides an outline depiction of the start-up capital requirements for activating the XYZ COMPANY’s white maize grain export/import trading enterprise.

Table 4: Start-Up Capital Requirement BudgetSr. No.

Item Description Amount (US$)

1 Maize cleaning & bagging equipment

75,000

2 Export warehouses 500,0003 Sourcing warehouse 200,0004 Pest-control equipment 20,0005 Miscellaneous equipment 30,0006 Electricity lines and transformer 25,0007 Field vehicles 50,0008 Pre-operational Expenses 100,0009 Start-Up Working Capital 3,500,000

10. TOTAL 4,500,00037

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANNB: (All costs include labor, transportation, and fees where appropriate)

Startup costs total US$ 4,500,000. Capital going towards capital inventory is US$ 1,000,000 including pre-operating expenses of US$ 100,000. Initial working capital to finance one (1) month’s cost of goods and other related transaction costs is estimated at US$ 3,500,000. Monthly gross sales are estimated at US$ 4,200,000 for the first year with an annual growth rate of 5%. The assumption used in calculating monthly sales revenues is that XYZ COMPANY will be selling 10,000 metric tonnes of white maize grain at a rate of US$ 420 per metric tonne CIF Juba in South Sudan.

The pre-opening expense of US$ 100,000 is made up of fixtures & fittings, office vehicles, computer equipment and other office needs.

The founding entrepreneurs of XYZ COMPANY are able and willing to contribute US$ 500,000 in form of preference shares towards the maize trading project’s start-up capital budget. The balance of US$ 4,000,000 of the start-up capital budget shall be raised from a trade investment bank source or as equity finance angel investor as a 5-year loan carrying an interest rate of 20% per annum.

7.2 Income Expenditure and Cash Flow statement

The forecasts in Table 7 below shows that the business will be profitable by the end of the first year income expenditure and cash flow statement but considering the fact that US$ 4,000,000 of the money for the business will be from loan, which shall be paid at the end of each financial year, BEFCO shall have a negative cash flow at end first year of CFA 950,000 francs. The profitability trend continues throughout the business projection period and this is expected to leverage the maize export/import trading business venture to enable it complete payment of the bank loan by the end of the fifth year and make a positive cash flow of US$ 16,399,146.

As the entire industry is mostly a cash industry, XYZ COMPANY will pay all accounts in cash never carrying any debt. XYZ COMPANY also expects all sales except for a few large accounts to be cash. These accounts will be net 30 days.

The financial model has been formatted to align with the annual agricultural season with the start of the year in June and ending in February. XYZ

38

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANCOMPANY is further anticipating being able to sell virtually all inventory prior to new acquisitions in successive new years.

Table 5 shows monthly cost of goods sold and maize export transaction costs while Table 6 shows monthly and annual operating expenses that are used as the basis for working the income expenditure and cash flow statement depicted in Table 7.

Table 5: Maize Export Transaction CostsItem Description Unit Cost

(UShs/kg)Cost - 10k MT (UShs)

Cost - 10k MT (US$)

Tertiary Market Price (TMP)

600 6,000,000,000

1,764,706

Bagging materials 20 200,000,000 58,824Labour costs (loading, sorting, unloading/weighing costs)

20 200,000,000 58,824

Drying 10 100,000,000 29,412Fumigation 20 200,000,000 58,824Pre-export cleaning & bagging

50 500,000,000 147,059

Stacking 50 500,000,000 147,059Re-clean after Fumigation 20 200,000,000 58,824Re-weighing 10 100,000,000 29,412Transport to Final Destination

270 2,700,000,000

794,118

Storage (warehousing costs)

50 500,000,000 147,059

Losses 20 200,000,000 58,824Total 1,140 11,400,000,

0003,352,941

Table 6: Monthly and Annual Operating ExpensesOperating Expense Monthly

(USD)Annual (USD)

Transaction Costs (less COGS)

1,588,235 19,058,820

Rent 10,000 120,000Labour 15,000 180,000

39

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANUtilities 6,000 72,000Fuel & Oil 5,000 60,000General & Administrative 12,000 144,000Sales & Marketing 30,000 360,000Overhead Costs 10,000 120,000Insurance 42,000 504,000Consumables 4,000 48,000Miscellaneous & contingencies

10,000 120,000

Depreciation 5,000 60,000Total Opex 1,737,235 20,846,820

40

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANTable 7-1: White Maize Export/Import 1-Year Net Income Statement (In USD)

ITEM/MONTH 0 1 2 3 4 5 6 7 8 9 10 11 12Maize Tonnage 0 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000

INFLOWS:

Cash B/F 0 998,0601,696,12

02,394,18

03,092,24

03,790,30

04,488,36

05,186,42

05,884,48

06,582,54

07,280,60

07,978,66

08,676,72

0

Seed Loan4,000,00

0 0 0 0 0 0 0 0 0 0 0 0 0Promoter's Equity 500,000 0 0 0 0 0 0 0 0 0 0 0 0

Sales Revenue 04,200,00

04,200,00

04,200,00

04,200,00

04,200,00

04,200,00

04,200,00

04,200,00

04,200,00

04,200,00

04,200,00

04,200,00

0

Total Inflows4,500,0

005,198,0

605,896,1

206,594,1

807,292,2

407,990,3

008,688,3

609,386,4

2010,084,4

8010,782,5

4011,480,6

0012,178,6

6012,876,7

20

OUTFLOWS:

Cost of Goods Sold1,764,70

51,764,70

51,764,70

51,764,70

51,764,70

51,764,70

51,764,70

51,764,70

51,764,70

51,764,70

51,764,70

51,764,70

5 0

Gross Profit2,735,2

953,433,3

554,131,4

154,829,4

755,527,5

356,225,5

956,923,6

557,621,7

158,319,77

59,017,83

59,715,89

510,413,9

5512,876,7

20Operating Expenses

Transaction Costs1,588,23

51,588,23

51,588,23

51,588,23

51,588,23

51,588,23

51,588,23

51,588,23

51,588,23

51,588,23

51,588,23

51,588,23

5 0Rent 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 0Labour 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 15,000 0Utilities 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 6,000 0Fuel & Oil 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 0General & Admin. 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 12,000 0Sales & Marketing 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 30,000 0Overhead Costs 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 0Insurance 42,000 42,000 42,000 42,000 42,000 42,000 42,000 42,000 42,000 42,000 42,000 42,000 0Consumables 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 4,000 0Misc & contingencies 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 10,000 0Depreciation* 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 5,000 0

Total Opex1,737,2

351,737,2

351,737,2

351,737,2

351,737,2

351,737,2

351,737,2

351,737,2

351,737,23

51,737,23

51,737,23

51,737,23

5 0

EBITDA998,06

01,696,1

202,394,1

803,092,2

403,790,3

004,488,3

605,186,4

205,884,4

806,582,54

07,280,60

07,978,66

08,676,72

012,876,7

20Loan Interest 0 0 0 0 0 0 0 0 0 0 0 0 800,000

41

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANNet Profit Before Tax

998,060

1,696,120

2,394,180

3,092,240

3,790,300

4,488,360

5,186,420

5,884,480

6,582,540

7,280,600

7,978,660

8,676,720

12,076,720

Corporate Tax (30%) 0 0 0 0 0 0 0 0 0 0 0 03,623,01

6

Earnings After Tax998,06

01,696,1

202,394,1

803,092,2

403,790,3

004,488,3

605,186,4

205,884,4

806,582,54

07,280,60

07,978,66

08,676,72

08,453,70

4Loan Repayment 0 0 0 0 0 0 0 0 0 0 0 0 800,000

Net Profit998,06

01,696,1

202,394,1

803,092,2

403,790,3

004,488,3

605,186,4

205,884,4

806,582,54

07,280,60

07,978,66

08,676,72

07,653,70

4

Cash Balance C/F 998,0601,696,12

02,394,18

03,092,24

03,790,30

04,488,36

05,186,42

05,884,48

06,582,54

07,280,60

07,978,66

08,676,72

07,653,70

4

Table 7-2: White Maize Export/Import 5-Year Net Income Statement (In USD)YEAR Year 1 Year 2 Year 3 Year 4 Year 5 NotesMaize Tonnage 120,000 120,000 120,000 120,000 120,000

INFLOWS:Cash B/F 7,653,704 10,268,582 12,521,046 14,535,323Seed Loan 4,000,000 0 0 0 0Promoter's Equity 500,000 0 0 0 0Sales Revenue 50,400,000 52,920,000 55,566,000 58,344,300 61,261,515 5% increase

Total Inflows54,900,00

060,573,70

465,834,58

270,865,34

675,796,83

8

OUTFLOWS:Cost of Goods Sold 21,176,460 22,235,283 23,347,047 24,514,400 25,740,119 5% increase

Gross Profit33,723,54

038,338,42

142,487,53

546,350,94

750,056,71

8Operating ExpensesTransaction Costs 19,058,820 20,011,761 21,012,349 22,062,967 23,166,115 5% increaseRent 120,000 126,000 132,300 138,915 145,861 5% increaseLabour 180,000 189,000 198,450 208,373 218,791 5% increaseUtilities 72,000 75,600 79,380 83,349 87,516 5% increaseFuel & Oil 60,000 63,000 66,150 69,458 72,930 5% increaseGeneral & Administrative 144,000 151,200 158,760 166,698 175,033 5% increaseSales & Marketing 360,000 378,000 396,900 416,745 437,582 5% increaseOverhead Costs 120,000 126,000 132,300 138,915 145,861 5% increase

42

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDANInsurance 504,000 529,200 555,660 583,443 612,615 5% increaseConsumables 48,000 50,400 52,920 55,566 58,344 5% increaseMiscellaneous & contingencies 120,000 126,000 132,300 138,915 145,861 5% increaseDepreciation* 60,000 60,000 60,000 60,000 60,000

Total Opex20,846,82

021,886,16

122,977,46

924,123,34

325,326,51

0

EBITDA12,876,72

016,452,26

019,510,06

622,227,60

424,730,20

9Loan Interest (20% p.a.) 800,000 640,000 480,000 320,000 160,000 20% on loan principal

Net Profit Before Tax12,076,72

015,812,26

019,030,06

621,907,60

424,570,20

9Corporate Tax (30%) 3,623,016 4,743,678 5,709,020 6,572,281 7,371,063 30%

Earnings After Tax 8,453,70411,068,58

213,321,04

615,335,32

317,199,14

6Loan Repayment 800,000 800,000 800,000 800,000 800,000

Net Profit 7,653,70410,268,58

212,521,04

614,535,32

316,399,14

6

Cash Balance C/F 7,653,704 10,268,582 12,521,046 14,535,323 16,399,146

43

BUSINESS CASE: UGANDA MAIZE EXPORT TO SOUTH SUDAN8.0 RISK MANAGEMENT

8.1 Critical Risk Factors

8.1.1Market Risks

There are a few areas of risk within the maize trading sector. First and foremost is drought. Drought causes significant increases in demand for maize grain and the price shoots up quite markedly as there demand greatly exceeds available supplies.The high maize grain purchase costs may impact negatively on the profitability of a maize exporting enterprise as the end-market pricing may not necessarily adjust in the same proportions as the upward movement in source cost price – especially if fixed end-market prices are built into lengthy maize supply contracts. Conversely, in times of plentiful rain harvest yields are higher and maize costs at source go down in response to competition from plentiful supply of other food crops that are also available in the maize production areas. In both cases one can help mitigate the losses by gathering and bulking maize grain at times of plenty and selling it at times of scarcity. Hence the need and advantage of having large maize crop storage warehouses at the source points.

8.1.2Operations Risks

Fuel can become expensive, especially in times of political instability in Kenya because most oil is imported through the eastern border. Although the cost to clean and package the maize will increase as fuel prices increase, it is believed that most, if not all, of the cost can be passed on to the customers in a higher price because the transportation costs to take the maize elsewhere will rise with the fuel costs as well.

An additional risk is that the pre-export maize-cleaning and bagging machines will break down and create expenses and/or downtime. This will be addressed by ensuring the maintenance procedures are followed correctly and timely. In addition to proper maintenance, the company should have the most common failure spare parts on hand (many spares are included with the engine, but as parts are used they will be replaced before failure so downtime is cut down).

44


8.2 Risk Mitigation

XYZ COMPANY’s risk appetite is aligned with the company’s strategy of long-term and sustainable growth. Being exposed to trade in multiple commodities and countries, effective risk management will be critical to XYZ COMPANY’s ongoing success and operational integrity. The company’s risk governance structures have to afford robust oversight, delineation of roles, accountability and independent assurance. Primary direction will be provided by the Board Risk Committee consisting of members independent of the trading company, while day-to-day oversight will be provided by the Executive Risk Committee represented by suitably qualified senior management.

The company’s risk management framework gives recognition to all the intrinsic risks of its ongoing activities while maintaining a proactive stance in assessing trade practices and exposure. Whereas its policies and processes promote a strong culture of communication and risk awareness, a central risk platform is charged with aggregating, monitoring and reporting on market, credit and forex risk relating to physical and forward commodity and freight exposure.

Limit structures are clearly defined and the result of balancing risk tolerance against operational and financial capabilities. Unmandated residual exposure is therefore hedged, sold, or financed as appropriate with vetted counterparties. XYZ COMPANY also deploys a combination of ancillary risk metrics to measure and quantify downside risk, including: value at risk (VaR), scenario and stress testing.

SYSTEMS & REPORTING

XYZ COMPANY plans to immediately embark on the implementation of a fully integrated commodity trade and risk management system (CTRM) in its continued efforts to enhance its Risk Management capabilities.

The CTRM solution will integrate with the organization’s existing enterprise resource planning (ERP) solution and aims to deliver the following benefits to the end users in XYZ COMPANY:

45


An efficient platform for capturing and managing the trade lifecycle An integrated view of inventory, goods in transit and contract positions

for an effective logistics management process A seamless integration with existing infrastructure for retrieving,

viewing, validating, settling and invoicing of physical and derivatives positions

A robust framework for risk management on commodities, credit and foreign exchange

Position and limit management which will cater for marking of exposure, profit and loss attribution, and risk measurement (VaR)

typical maize flows in south sudan - world bank

Uganda maize area planted 2014https://millionaresfarm.wordpress.com/2013/07/02/how-to-yield-4-tons-from-an-acre-of-maizehttpfacomug-comindex-html/Millionaire’s Farm Uganda

Maize prices in South Sudanhttp://www.ratin.net/site/page/south+sudan?currency=UGX&measure=1

Exchange rate of south Sudanese pound to us dollar

Cargo freight rates for Kampala to Juba

operating expenses for a maize exporting company

income expenditure and cash flow statement - maize exporting company

http://geo.acaps.org/acaps south sudan

46

http://geo.acaps.org/

http://www.ratin.net/site/page/south+sudan?currency=UGX&measure=1

http://www.ratin.net/site/page/south+sudan?currency=UGX&measure=1

https://millionaresfarm.wordpress.com/2013/07/02/how-to-yield-4-tons-from-an-acre-of-maizehttpfacomug-comindex-html/

https://millionaresfarm.wordpress.com/2013/07/02/how-to-yield-4-tons-from-an-acre-of-maizehttpfacomug-comindex-html/

Documents

Business Case - Uganda Maize Export to South Sudan