A Breakdown of the Costs of Doing Business in Africa

The goal of this article is to provide insight for those of you interested in starting businesses in Africa. I’ll break down all the costs associated with what I’ve done in my first month here so that you have an accurate, first-hand account. All the prices are in U.S. dollars with Ugandan Shillings listed where appropriate. The title of this post is a bit of a misnomer as I’m only citing examples of what I’ve experienced in Kampala, Uganda. Hopefully people working in other African countries can provide some insight into how things work in their neck of the woods.

Although, I’ve spent a lot of time on this blog wondering aloud why Western businesses don’t engage African entrepreneurs and corporations. To be fair to the companies and investors that don’t, doing business here is expensive!

Living Expenses

In my first month on the ground my girlfriend and I spent nearly $10,000USD just getting housing sorted. The incredible thing is, if either us had come alone, that number would have still been the same. How on earth do you ask? Well for one, when you rent a house or building here, it’s not uncommon for the landlord to ask for six to twelve months rent upfront. Because credit is virtually non-existent here (that includes credit cards, credit checks and collateral property) this is the best way landlords can operate with no risk. The house we chose to live and work out of is $800USD a month and is located in the suburbs of Kampala. It’s huge and more than enough for us but paying six months up front meant we had to come up with $4800USD as soon as we hit the ground.

Furnishing the place equaled another $3,000USD and that included buying used appliances, cheaply built local furniture, two beds and one mattress. Other items we needed were pots, pans, cutlery, plates, glasses, power converters and adapters. Most of it is imported from other parts of the world which makes it expensive because of shipping costs. Buying local for food and furniture is great but when it comes to manufactured products the quality is often unusably poor.

Unless you have a car you’re going to be taking boda bodas (motorcycles for hire), motatus (taxi vans) or special hires (normal taxi cabs). The average boda boda ride is cheap costing 1000UGS or less each way. That’s less than $0.75USD. The give is they are extremely dangerous drivers and account for a disproportionate amount of the traffic fatalities here. Special hires can cost up to 50,000UGS ($30USD) a day. It’s almost cheaper to hire one for the whole day even if you don’t need it because taking frequent short trips can add up to as much or more very quickly.

On average I’ll say we’re spending around $25USD each day just for transportation, including the weekends. That’s $175USD a week or $700USD a month.

Owning a car here isn’t necessarily a better option. Cars cost as much here as they to do in the states since financing a loan isn’t an option, you’ll need cash for the entire cost of the vehicle as well.

Gas right now is 2700UGS ($1.69USD) a litre here. One U.S. gallon equals 3.8 litres so gas in Kampala is about 10260UGX ($6.41USD) per gallon.

We’d save money buying a car but spending another $6,000USD (or more) on top of the first $10,000USD is rough.

Business Costs

As a foreigner or foreign operation, the cost to startup ranges from $600USD to $2000USD and the process can take months to finish unless you’ve hired (and/or bribed) the right people. Make sure you hire a lawyer to represent you, not because they’ll actually do anything extraordinary but they know the system and can help you get around a lot of those initial hurdles.

$600USD is the approximate cost to register yourself or another person to do business in Uganda as a ‘representative’ of your foreign group. It’s the fastest way to get up and running.

$2000USD is the cost to register as the director of your own business. That’s per annum. there’s a few other costs you have to pay around this but they are miniscule.

Buying or renting a building can only be done after your company is registered. the costs are facilities are often the same as renting a house. Prices start at $600USD and can go as high as $2000USD per month. To get space in the business district be prepared to pay as much as twice that.

Because Uganda is a cash based economy, be prepared to make frequent trips to the ATMs, Forex and Money Exchange. In fact, if you’ve got a number of large purchases to make you may just prefer to bring a duffel-bag full of cash and exchange it at the banks when you get here. I’m only mildly joking. Between the international charges and the ATM fees the risk far out weighs the monetary cost of doing it any other way!

As of today the exchange rate is 1USD to 1689UGX.

Banking

Like in most places around the world, opening up a personal bank account is free or comes with little expense. Opening a business account requires you to be registered. What both do require is a personal reference, from a Ugandan who essentially ‘vouches’ for you. You’ll need a your passport and visa (for them to copy) and two color passport size photos. If you’re doing a business account you’ll probably need the certificate of business from your home country as well as your EIN or Tax ID as well as the documents of registration in Uganda.

Utilities

Electricity, power and water costs are relatively low. The prices will be comparable to an average U.S. bill for average use.

Mobile phones are cheap and in great abundance. Most expats will just give away their mobile’s when they’re leaving with no plans to return. The carrier charges vary from network to network but 50,000UGS ($31USD) can last you an entire month if you don’t SMS and you don’t call out the country. We called the states quite a bit last month and so far I’ve only had to top-up once. A $60USD cellphone bill isn’t too bad.

I brought my iPhone with me but because version 2.0 had just come out when I left, I didn’t get the chance to ‘jailbreak’ it. If you do jailbreak it so that you can use carriers from other countries, MTN will give you coverage on it. I haven’t done that yet but they do offer unlimited data plans for their 3G network. I imagine the costs are relatively the same as they are in the states, about $100USD a month for data and talk minutes.

The expense that kills most people is Internet. As of 2008, for anything faster than dail-up speeds is going to cost you. For anything that’s fast enough to do business over it’s going to cost you…A LOT. To get speeds like you would in the west (1mb and higher) you’ll be paying thousands of dollars a month. There’s four major networks here: I-Way, Datanet, Infocom and MTN. Here’s the cost breakdown of packages that were comparable in price and speed (kbps).

Internet Price Comparison for Kampala, Uganda

_{* Infocom has two options shared or dedicated bandwidth. The price listed is for shared bandwidth, meaning during peak hours your connection is slower than non-peak hours. For the dedicated bandwidth the equipment/instllation fee is $1400.
** MTN also offers a split of 96/32 for $620USD monthly}

inc = denotes that the installation fee is included with the equipment fee
n/a = not applicable

Prices are accurate as of Thursday 28, August 2008

Travel

When coming to Africa, it’s possible to spend a great deal of money just trying to get here. You need a number of shots and vaccines to even be let in most countries here. In Uganda this included typhoid and yellow fever vaccines as well as many others. Having never been to Africa before, I needed eight shots which totaled $1000USD at the CDC Travel Clinic in Atlanta, Georgia. I also got the rabies series of preventative shots which was an additional $800USD at the Global Travel Health Center in Denver, Colorado. It’s a series of three shots over several weeks and the vaccine is pretty scarce in the states at the moment. In fact we were told between the two of us we used up the last of it in the country that wasn’t being reserved for emergencies!

Flying from the U.S. to anywhere in Africa is also quite expensive. The average ticket price is $1,600USD but can go as high as $3,000 (and even higher) for a round trip ticket! Flying from Europe can reduce prices but not by much since then you’re paying in Euros.

My ticket was $2,400USD round trip plus the $1800USD spent at the travel clinic. That’s another $4,000 just to get here!

There are four hotels that everyone knows. They’re the cream of the crop with room service, in-room internet and all the amenities you don’t expect to find in Africa. These are the Sheraton, Hotel Protea, Serena hotel and Fang Fang Hotel. The price range spans from $80USD to $300USD per night. There are others but these are the ones I’ve personally visited.

Summary

In conclusion it looks like start-to-finish $20,000USD will get you started as a social entrepreneur in Africa but you’ll need significantly more if you plan on being here for a while. If you don’t have a monthly salary, be prepared to save up to twice that number just so you’ve got some breathing room to finance the actual business.