The ‘Pearl of Africa,’ Uganda is one of the youngest countries in the world. According to the 2014 census, about half of the national population is under the age of 14 years with the population growing more than 3% per year. Thus, it is important to have a robust education system if the youthful country is to achieve its potential.
The Ministry of Education reports about 90% of the eligible students are ‘officially enrolled’ in primary schools; but about half of these students drop out by the time they reach the last grade of primary school. Less than 30% of students qualify for secondary school.
Few schools are accessible to local communities. Students must walk more than 5 km to attend school. Safety is another major concern, particularly for the female students. The quality of some government school structures is questionable. Additionally, due to bureaucratic processes, it takes more than a year to build a government school.
What was the problem?
Our partner, Building Tomorrow, has been constructing schools for more than 10 years in rural Uganda. In the last decade, this non-profit has developed unique and valuable competitive advantages: its ability to construct high quality primary schools in a short amount of time and its transparent, cost-effective business model. However, as a non-profit, one major challenge for our partner is their unsustainable source of income. Since the number of schools constructed in a year is dependent of the generous donations received from external parties, the available capital limits the number of schools our partner can construct.
Our challenge was to use Building Tomorrow’s competitive advantages to create a sustainable source of income, potentially through launching a for-profit construction business.
What did we do?
We started off by questioning the assumptions that led to the problem statement. Was quality, cost, and reliability really a competitive advantage of our partner? How do the Building Tomorrow academies compare to other schools, both primary and secondary, government and private? What does the future of the construction industry look like in Uganda? During our research and in-country visit, we collected information and perspectives that would help us answer our initial questions.
We spoke to the employees of Building Tomorrow, Ugandan government officials, private organizations, businesspeople, and financing companies to get a well-rounded viewpoint. We also visited a number of schools, both primary and secondary, in different phases of the construction process. Moreover, each member of our team spent a day with a Building Tomorrow Fellow and met local community members to understand the challenges facing schools in Uganda.
What was the turning point?
Our initial hypothesis was to focus the launch of the for-profit venture primarily into construction of government schools. Building Tomorrow had spent many years working with local and national government officials to build schools and strengthen the overall educational system. Further, our research identified that government contracts offered the largest opportunity with high funding levels, mostly from donors like the World Bank.
However, our interaction with the government officials in Uganda unveiled the extensive bureaucratic process of constructing schools in Uganda. It was eye-opening to discover the lengthy timeframes required for school decisions as well as the financial risk presented by the common practice of delayed and unreliable payments. It was most disheartening to encounter firsthand the “facilitation payments” needed for government contracts.
Nevertheless, while driving across Kampala every day to visit schools, we were amazed by how much private construction is booming in Uganda. Moreover, our interaction with banks, business leaders, and private consultants indicated that the construction of private schools could be a viable opportunity. Not only was the opportunity large, growing and profitable, it also gave us a way to avoid the facilitation payments associated with public procurement and stay true to Building Tomorrow’s deeply held commitment to transparency.
What was the recommendation?
Convinced we had the right pulse on the Ugandan construction industry, we recommended the following to our partner:
First, Building Tomorrow’s for-profit arm should strongly consider contracting projects for private companies and non-governmental organizations. While there are pros and cons of working with any client, according to our research, working with the for-profit government construction industry could involve significant professional and reputational risks that would make such projects less desirable for a value-based organization. We estimated the growing market in the private/NGO space to be a significant opportunity for our partner’s potential for-profit arm.
Second, we recommended a dedicated business development team for the for-profit arm. Our research indicates that developing relationships and a reputation are important components of winning new construction contracts in a fragmented market like that of the private sector. Hence, part of the responsibility of the new team would be to build relationships with construction consultants and potential clients.
Third, as some of Business Tomorrow’s Board of Directors were still skeptical, we presented a launch strategy and long-term financial analysis. We estimated the upfront costs, the number of years required to break even and then developed the business case for investment.
What actually happened?
Building Tomorrow has already registered a for-profit arm in Uganda. Assuming its internal legal review poses no insurmountable barriers, Building Tomorrow is seriously contemplating the launch of a for-profit entity within the next year targeting the private sector, a market not previously considered by Building Tomorrow leadership.