Assessment 1

Situational analysis of Umeme Limited

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 Mugabi Julius

UPLMBAM13-28808, Strategic Marketing

31 October 2021

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1. Introduction

Umeme Limited is Uganda’s main electricity distribution company in Uganda, listed on the

Uganda Securities Exchange (USE) and cross listed on the Nairobi Securities Exchange

(NSE).

This paper presents a situation analysis of Umeme limited in Uganda using SWOT analysis,

PESTEL analysis and stakeholder and customer analysis. Situation analysis is the process of

critically evaluating the internal and external conditions that affect an organization.

SWOT analysis is a research methodology that can help in understanding the environment of

emerging and potential markets (Kotler, 1997). PESTEL Analysis is a strategic framework

used to evaluate the external environment of a business by breaking down the opportunities

and risks into Political, Economic, Social, Technological, Environmental, and Legal factors.

The paper will base on the information contained in Umeme annual reports, energy situation

reports, economic reports, and social and political trends in Uganda.

2.0 SWOT analysis of Umeme Limited

2.1 Strengths

Strengths are the Umeme capabilities and resources that it can leverage on to build a

sustainable competitive advantage in the marketplace.

Umeme has first mover advantage in number of segments. It is the first and the only private

electricity distribution company in Uganda.

Strong balance sheet and financial statement of Umeme can help it to invest in new and

diverse projects that can further diversify the revenue stream and increase Return on Sales

and other metrics.

2.2 Weakness

Weaknesses are the areas, capabilities, or skills in which Umeme lacks. It limits the ability of

the firm to build a sustainable competitive advantage.

The inadequate transmission and distribution network available for Umeme which makes it

difficult to reach customers especially in upcountry districts.

2.3 Opportunities

Opportunities are macro environment factors and developments that Umeme can leverage

either to consolidate existing market position or use them for further expansion.

There is an increase in consumer disposable income among Ugandans. Umeme can leverage

on this to build a new business model where customers start paying progressively for using

its products. Umeme can use this trend to expand its distribution network.

Progressive technology developments such as machine learning, Artificial Intelligence and

data science is transforming the technology landscape that Umeme operates in. Umeme can

use these developments in improving efficiencies, lowering costs, and transforming

processes.

Opportunities in regional markets especially in East African Community Partner States.

Umeme can leverage on economic integration within EAC to expand into the regional

markets.

2.4 Threats
Threats are macro environment factors and developments that can derail business model of

Umeme.

Umeme operates in an industry where the prices are determined by the regulator. This can

lead to inability on part of the distributor to increase prices that its premium services deserve.

Government Regulations and Bureaucracy. The changing legal and regulatory framework

especially the proposal to merge the electricity sector agencies will negatively affect Umeme.

Umeme should keep a close eye on the fast-changing government regulations under the

growing pressure from manufacturing sector especially regarding price and reliability of

electricity.

Customer Dissatisfaction due to high cost of electricity and unreliability of supply. Even

though the demand for electricity has not gone down, there is a sense of dissatisfaction

among the customers of Umeme.

3. PESTEL Analysis

3.1 Political Factors

These factors are all about how and to what degree a government intervenes in the economy

or particularly Umeme Limited. Umeme operates under a concession arrangement with the

Government of Uganda (GoU). The current concession agreement was signed in 2005 and

will expire in 2025. Negotiations for renewal have already commenced. However, Over the

past three years, Umeme has been uncertain about the renewal of it’s concession, and

President Museveni had directed that it should not be renewed upon expiry in 2025.

3.2 Economic factors

Although the economy is growing at a low rate (Figure 4), due to increasing industrialization,

electricity demand is increasing especially in major industrial areas. As shown in Figure 3,

the inflation rate in Uganda has increased from 3.79% in 2020 to 5.16% in 2021. This is

attributable to COVID19 pandemic in response to which government closed the biggest part

of the economy.

3.3 Social factors

Uganda’s population has been steadily growing at 3% in the last decade and is expected to

reach 50M people by 2050. The population is predominantly young with the average

Ugandan being 16.7 years old. This presents Umeme with a huge market potential for

electricity considering that most young people are educated and love a modern lifestyle.

Vandalism and crime against company assets entails a substantial direct material financial

cost to the company as well as lost sales revenue and customer inconvenience resulting from

outages caused by vandalized equipment.

3.4 Technological factors

These factors pertain to innovations in technology that may affect the operations of the

Umeme limited and the electricity market favorably or unfavorably. Umeme employs a pre-

payment system (smart meter) that allows customers to conveniently manage and control

their electricity. The customer is able to buy electricity units in affordable quantities before

use. This has reduced Umeme’s operational costs that would be spent in physically collecting

payments and prevents loss of revenue as the system guarantees 100% revenue collection.

The company also developed a power anti-theft system that monitors and alerts whenever any

customer tries to by-pass the meter.

As shown in Figure 5, Umeme invests heavily in technology development to keep at pace

with technology transformation like digital transformation that helps it respond to customers

as fast as possible.

3.5 Environment factors

The drought and hydro risk can potentially cause a significant change in the end-user tariffs

charged on monthly basis given that standby alternative to hydro power is the much more

expensive diesel power.

Easy access by customers to cheaper off-grid sources of energy can significantly impact on

the level of electricity sales. For example, the increased use of solar energy for water heating

in hotels, lighting in residential buildings and the continued use of biomass fuel for cooking

continue to negatively affect electricity sales.

Other environmental factors with a bearing on Umeme operations include territorial,

topography, geographic and climatic considerations such as distance to the grid, population

density, temperature, and other weather attributes. These factors affect project design and

implementation costs, operations and maintenance costs, and commercial viability of

investments in distribution systems.

3.6 Legal factors

The key legal instrument that will greatly affect Umeme’s operations is the outcome of the

negotiations with government of Uganda regarding the extension of the concession

agreement since the current one expires in 2025. The planned capital investments cannot be

done in the current uncertainty.

4. Stakeholder and customer analysis

 Umeme’s main stakeholders include government regulatory bodies; Ministry of energy and

mineral development (MEMD) and Electricity Regulatory Authority, power generators;

Uganda Electricity Generation Company Limited (UEGCL) and independent power

producers (IPPs); transmission system operator; Uganda Electricity Transmission Company

Limited (UETCL); shareholders and customers. Customers are divided into two groups, large

power consumers and small power consumers. Large power consumers consist mainly of

industrial customers. Below is a stakeholder matrix

 Ministry of Environment  UETCL

 National Environment Management  IPPs
Authority  ERA
 Local government authority  MEMD
Influence/power of stakeholder

 USE  Shareholders
 NSE  Large Customers
 UEGCL
 NGOs  Residential consumers
  Project affected persons
 Suppliers
 Parliament

Interest of stakeholders
5. Discussion

First mover advantage and monopoly status helped Umeme in coming up with unique

solution to tap the un-catered markets. This has helped Umeme to establish itself as a reliable

electricity regulator and negotiate premium prices with government due to the monopoly it

enjoys.
Umeme limited is listed on USE and cross listed on NSE with National Social Security Fund

(NSSF) as the major shareholder (Umeme report, 2020). This guarantees availability of funds

to invest in new distribution infrastructure.

Inadequate distribution network affects Umeme’s ability to achieve its targets of new

connections. Despite the fact Uganda is investing highly in power generation, generation

capacity remains higher than demand (du Can et al, 2018). This affects Umeme’s revenue

potential.

Price regulation, while good for consumer protection, it may affect the quality of service

offered by Umeme Limited. Developing countries continue to grapple with important

distributional issues, and in the past the direct use of the pricing system to address these

issues has led to regressive outcomes (Sen, 2014)

While the 2020 customer satisfaction survey returned an increase in customer satisfaction of

72% up from 70% in 2019, customer satisfaction is still low. Therefore, there is a need to

further improve supply reliability and responsiveness of service, especially for new

connections. It is reflected on the reviews on various on-line platforms. Umeme should focus

on areas where it can improve the customer purchase and post purchase experience.

Due to unclear transition of political power and longevity in power of the current president, it

poses political uncertainty in the country which affects investment in distribution

infrastructure. Baker & Phillips (2016) argued that political stability facilitates investment in

electricity infrastructure and leads to increase in electricity demand.

Restrictions to spread the spread of COVID19 meant electricity usage reduced and its price

per unit kilo watt generated increased while at the same time increasing operational costs.

With economic growth, the disposable income among Ugandans has been increasing too
meaning people are able to afford electricity connections and bills. These factors have a

direct or indirect long-term impact on Umeme since they increase the purchasing power of

consumers and could possibly change demand/supply models of electricity. According to Yu

et al (2019), the increase in electricity production will contribute to the sustainable economic

growth in the following period. On the other hand, it is also identified that higher electricity

production will have a positive effect on industrial production in the following period.

Umeme is also able to attract cheap talent especially technicians and engineers from the local

technical colleges and engineering schools. Miller & Richter (2014) argue that labor is a

common focus of energy policy analyses, especially with regard to employment gains.

Although you need cheap labour to develop electricity sector, in return, the sector should

create decent jobs for the communities.

6. Conclusion

Despite of the heavy investments in technology and distribution infrastructure, Umeme still

faces challenges of inadequate distribution network, power loss, and high prices of electricity.

This may affect renewal of the concession agreement since the current one expires in 2025.

Regardless of President’s comments, the concession is expected to be renewed and

negotiations are ongoing. The company is still facing challenges imposed by COVID19

pandemic and will take deliberate efforts to recover to meet needs of growing economy.

Umeme also still faces challenges of vandalism of its infrastructure and power theft. Security

measures need to be put in place to avert this.

The electricity regulatory environment is still challenging, with balancing acts of the desire to

reduce end user tariffs, while driving up sector investments and constrained demand.
With a first mover advantage, monopoly and financially strong shareholders, Umeme is will

keep expanding.
References

1) Nadler, E., 2018. Unplugged: Exploring the Relationship Between Energy Access and

Political Stability (Doctoral dissertation, Georgetown University).

2) Kotler, P., Gregor, W.T. and Rodgers, W.H., 1989. The marketing audit comes of age.

Sloan Management Review, 30(2), pp.49-62.

3) Powell, R., 1996. Stability and the Distribution of Power. World Politics, 48(2), pp.239-

267.

4) Baker, L. and Phillips, J., 2019. Tensions in the transition: The politics of electricity

distribution in South Africa. Environment and Planning C: Politics and Space, 37(1),

pp.177-196.

5) Sen, A., 2014. Divergent paths to a common goal? An overview of challenges to

electricity sector reform in developing versus developed countries.

6) Gürel, E. and Tat, M., 2017. SWOT ANALYSIS: A THEORETICAL REVIEW: The

Journal of International Social Research.

7) du Can, S.D.L.R., Pudleiner, D. and Pielli, K., 2018. Energy efficiency as a means to

expand energy access: A Uganda roadmap. Energy Policy, 120, pp.354-364.

8) Umeme annual report, 2020.

9) Yu, Z., Liu, W., Chen, L., Eti, S., Dinçer, H. and Yüksel, S., 2019. The effects of

electricity production on industrial development and sustainable economic growth: A

VAR analysis for BRICS countries. Sustainability, 11(21), p.5895.

10) Miller, C.A. and Richter, J., 2014. Social planning for energy transitions. Current

Sustainable/Renewable Energy Reports, 1(3), pp.77-84.

ANNEX

The Company operates a 20-year electricity distribution concession effective 1 st March 2005,

from the Government of Uganda. Umeme is licensed to distribute and supply electricity to

customers. This mandate involves; operation, maintenance and upgrade of electricity

distribution infrastructure, electricity retail and provision of related services.

Umeme entered Uganda’s power sector after the electricity sector was unbundled in late

1990’s but its stay in the market is threatened by cabinet’s approval of a proposal to merge

government agencies in a bid to cut expenditure. If parliament approves the proposal,

generation, transmission, and distribution will be merged under one agency.

During the State of the Nation Address, 2021, the president said Umeme was failing

industrialization and as a result, affecting job creation because electricity tariffs are high.

There is also a risk of political instability and terror attacks that can destroy Umeme’s

infrastructure and cause a great loss to Umeme.

Figure 1 - Uganda's electricity industry

Figure 2 - Uganda’s Electricity supply chain

The inflation rate is projected to remain constant closing at 4.93% in 2026.

Figure 3 Trend in inflation rate in Uganda

Economic factors are determinants of a certain economy’s performance. Uganda’s GDP has

been growing at about 6% per annum and drastically reduced to 2.9% in 2020 due to

COVID19 effects. It is projected to bounce back to 6% growth rate in 2022.

Figure 4 Trend in GDP growth rate in Uganda

Umeme is still grappling with low quality of electricity and loadshedding challenges due to

old transmission and distribution infrastructure.

More about SWOT analysis

Strengths come from positive aspects of five key resources & capabilities: financial

resources, human resources, physical resources such as land, building, past experiences and

successes, and activities and processes.

Weaknesses come from lack or absence of five key resources & capabilities; physical
resources such as land, building, activities & processes, human resources, financial resources,
and past experiences and successes.

Opportunities can emerge from various factors such as - political developments & policy

changes, changes in consumer preferences, economic growth and technological.

Threats can emerge from various factors such as changes in consumer disposable income,

political developments & policy changes, technological innovations, economic growth, and

changes in consumer preferences.

Figure 5 - Umeme leveraging technology