Enhancing Uganda s Competitiveness in Information Technology Enabled Services - Business Process Outsourcing. Strategy and Model 2012

1 Enhancing Uganda s Competitiveness in Information Technology Enabled Services - Business Process Outsourcing Strategy and Model 2012 (Abridged Version) National Information Technology Authority, Uganda (NITA- U) Palm Courts, Plot 7A, Rotary Avenue (Lugogo Bypass) P.O.Box 33151, Kampala Uganda Website: www.nita.go.ug Twitter: @NITAUganda1 Facebook:facebook.com/NITA.Uganda

Uganda BPO Strategy Abridged Version 2 REVISION HISTORY VERSION DATE OF RELEASE OWNER SUMMARY OF CHANGES 1.0 21 st February 2014 Michael Newman Byamugisha Initial Draft 2.0 March 2014 Julius Torach Review of structure, content and proofreading

3 Table of Contents Abbreviations and Acronyms... 5 1 Executive Summary... 6 1.1 Introduction... 6 1.2 The Global ITES-BPO Industry... 8 1.3 ITES-BPO - Opportunity for Uganda... 10 1.4 Current State Analysis of Key Drivers to the ITES-BPO Industry... 11 1.4.1 Human Capital... 13 1.4.2 Infrastructure Driver... 14 1.5 BPO road map for the Short term (0-2 Years)... 25 1.5.1 Generating Demand... 25 1.5.2 Infrastructure... 26 1.5.3 Business Environment... 26 1.5.4 Skill Development... 28 1.6 BPO road map for the Medium to Long term (2-5 Years and beyond)... 28 1.6.1 Generating Demand... 28 1.6.2 Infrastructure... 28 1.6.3 Business Environment... 29 1.6.4 Skill Development... 29 2 Developing the Skill Base... 30 3 Marketing and Branding strategy... 32 4 Building Infrastructure Technology parks... 36 5 Target Markets for Uganda s BPO Industry... 38 5.1 Key Industry Verticals... 38 5.1.1 Telecom... 38 5.1.2 e-government Initiatives... 38 5.1.3 Utilities and Essential Services... 38 5.1.4 Banking, Financial Services and Insurance... 39 5.1.5 Healthcare... 39 5.1.6 Education and Content Development... 39 5.2 Key Service Lines... 40 5.2.1 Contact Centre Services... 40

4 5.2.2 Data Entry and Processing... 40 5.2.3 Information Technology Helpdesks... 40 5.2.4 Human Resource Outsourcing... 41 5.3 Projected growth... 42 6 Expected Returns for the Government... 43 7 Outsourcing Risks... 44 7.1 Risks in implementing Uganda s BPO Strategy... 44 7.1.1 Country level risks... 45 7.1.2 Firm level risks... 47

5 Abbreviations and Acronyms BPO BUDS COMESA EAC ERT FDI FTE IRR IT ITES IVCA MoICT NBI NCHE NITA-U NSDC PFSU SMB SWOT TTT UBPOA UCC UEPB UEPC UGX EASSy EGI CICS UNCCI Business Process Outsourcing Business Uganda Development Scheme Common Market for Eastern and Southern Africa East African Community Energy for Rural Transformation Foreign Direct investment Full Time Employee Internal Rate of Return Information Technology Information Technology enabled Services Indian Venture Capital Association Ministry of Information Communication Technology National Broadband Infrastructure National Council for Higher Education National Information Technology Authority, Uganda National Skill Development Council, India Private Sector Foundation Uganda Small and Medium Businesses Strengths, Weakness, Opportunities, Threats Think Tank Team, Uganda Uganda Business Process Outsourcing Association Uganda Communications Commission Uganda Export Promotion Board Uganda Export Promotion Council Ugandan Shillings East African Submarine Cable System E-Government Initiative Competitiveness and Investment Climate Uganda National Chamber of Commerce and Industry

6 1 Executive Summary 1.1 Introduction The Ugandan government has identified Information Technology Enabled Services Business Process Outsourcing (ITES-BPO) as one of the key sectors to enhance economic growth and reduce youth unemployment in the country. The overall vision of the Ugandan government is to transform the country into a Knowledge-Based Uganda where national development and good governance are sustainably enhanced and accelerated by timely and secure access to Information and efficient application of ICT. It recognizes the fact that the growth of ITES-BPO sector has a multiplier effect on the economy of the country, leading to higher investments, increased job creation and improvement in quality of life. The government of Uganda established the National Information Technology Authority Uganda (NITA-U) in order to strengthen efficiency and effectiveness in the delivery of public service through the use of Information Technology. NITAU s cardinal Vision is To make Uganda an internationally competitive and vibrant ITES-BPO destination. In pursuance of the above vision the Authority is will: Co-ordinate, supervise and monitor the utilization of the Information Technology in the public and private sectors Identify and advise Government on all matters of Information Technology Development, utilization and deployment Set, monitor, and regulate standards for information Technology planning, acquisition, implementation, delivery, support, organization, sustenance, disposal, risks management, data protection, security and contingency planning Regulate and enforce standards for Information Technology hardware and software equipment procurement in all Government Ministries, Departments and agencies Provide first-level Technical support and advice for critical Government Information Technology Systems To develop Uganda s ITES-BPO capability, the Ministry of Information and Communications Technology (MoICT) & Think Tank Team (TTT) led the development of a BPO strategy and model for the period of 2008 to 2011. In 2012, National Information Technology Authority-Uganda (NITA-U) reviewed and updated the strategy in light of global and regional developments in the industry. With a natural flair for the English language and one of the most advantageous demographics globally, Uganda has the capability to be one of most competitive and niche ITES-BPO destinations. The formation of focused organizations like NITA-U, incentivizing ITES-BPO companies and recognition of the ITES-BPO sector as one of the prime levers of job creation, are steps in the right direction. However, to compete effectively, it has to reduce its infrastructure costs significantly and enhance the infrastructure reliability. It will have to supplement the employability of its youth by providing industry aligned trainings. Finally, incentives and supporting structures will have to be extended to facilitate the industry growth.

7 To develop its capability internationally, it will have to target small and medium businesses regionally and globally and collaborate with more matured destinations like India. Implementing the strategy will require coordinated effort from various stakeholders in the Uganda ITES-BPO industry and planned investment in capacity building and industry promotion initiatives. With the right structure and support in place, Uganda has the potential to create a niche in ITES-BPO services as identified below.

8 1.2 The Global ITES-BPO Industry The ITES-BPO Industry Business Process Outsourcing is the delegation of one or more IT intensive business process to an external provider that in turn owns, administers and manages the selected processes based on defined and measurable performance criteria. Historically the Offshoring industry started off with major multinationals setting up shared service centres in India to achieve cost arbitrage. The evolution of the industry is shown in the adjoining table. BPO service lines can be divided broadly into domain specific services, horizontal services and knowledge based services. This is diagrammatically represented below: Years 1960s 1970s 1980s 1990s 2000s 2000s 2000s Process Time sharing Data processing Entire IT operations Shared business services B2B partnerships via Internet Process outsourcing via Internet IT-enabled offshore services Table 1- History of Outsourcing Figure 1 - Verticals and Horizontals in ITES-BPO Services Vertical specific service lines solve problems related to business process characteristic to a particular industry. The BPO services or solutions made for a particular vertical are usually non-transferrable and are unique to a particular industry.

9 Some examples of vertical BPO service lines are given below: Banking & Healthcare Telecom e- Utilities Education Finance Government Retail and Clinical Data Network G2C Income Billing & Course design Merchant Core mgmt. mgmt. tax, passport Collection Content Banking Medical Billing and visa, e e- Development Solutions writing Assurance posts, social registration Remote Consumer & Clinical trials Supplier & security Service Learning Trade Finance support Partner G2B Excise, Fulfilment Assessments Credit and Medical mgmt. Company Score Analysis Debit cards transcription Service Affairs, mgmt. Fulfilment Commercial Retirement taxes, e- Services procurement Table 2 - Service Lines within key BPO Verticals Horizontal Services cut through verticals and provide business supporting and back office services that include customer interactive services, finance & accounts, human resource, training and procurement. These services and their relation to Uganda are discussed in detail later; however, horizontal services cover the following range of activities: Customer Finance & Human Resources Training Procurement Interactive Services Accounts Telemarketing Accounts Payable Payroll Content Source to Product Enquiries Accounts Compensation & Development Contract Collections Receivable Benchmarking Content Design Contract Customer Helpdesk Expense mgmt. HR Audits Content Management Financial Reporting Time & Deployment Procure to Pay Project Accounting Attendance E-learning Transaction Tax mgmt. Leave Tracking Assessment Management Asset mgmt. Recruitment Performance Management Spend Analysis Table 3 Key Processes within BPO Industry Horizontals Knowledge Processing Outsourcing (KPO) refers to outsourcing knowledge intensive tasks that help businesses make strategic decisions. It broadly covers the service areas of business research, analytics and legal process outsourcing (LPO).

Analytics Business Research LPO 10 Customer Analytics Industry Research Contract Management Services Supply Chain Analytics Market opportunity assessment Document Review Services Finance & Accounting Analytics Competitive Analysis Intellectual Property Services Human Capital Analytics Company Research Legal Research Services Data Mining & Predictive Analytics Financial Reports Litigation and Administrative Retail Analytics Support Services Table 4 - Key Processes within Knowledge Processes 1.3 ITES-BPO - Opportunity for Uganda As services sector is becoming more competitive and globalized, organizations are looking to outsource their non-core functions in order to gain agility, efficiency, access to newer talent and markets and save costs. ITES-BPO, defined as outsourcing of business functions to third party service providers or captive centres in low cost countries is an important lever to achieve this objective. For offshoring destinations, ITES-BPO industry has created jobs at massive scale and facilitated economic growth, prime examples being India and Philippines globally and South Africa and Egypt in the African continent. Its major impact on the offshoring countries has been in terms of: Accelerated economic growth: In India, the ITES- BPO sector grew 16 times in the last decade, employing 835,000 people in 2011 and contributing 1.2% to GDP. Direct Job Creation: Revenue of an ITES-BPO service provider depends on the number of agents that are being billed to the clients. This creates an impetus for an ITES-BPO service provider to grow linearly by employing more agents. The sector also requires lower educational standard as compared to IT sector and is easier to address. Indirect Job creation: Typically for every agent employed, three jobs are created indirectly in dependent industry and service sectors. These include real estate, infrastructure, education, transport and technology. Increased foreign investment: Significant cost arbitrage provides the businesses in the buyer s geography to increase their outsourcing spend in favorable destinations. Having a lower currency valuation in the global market provides more room for an emerging economy to increase foreign direct investments.

11 Uganda s geographical proximity with Europe, large youth population and growing service sector employment provides it an excellent opportunity to grow its ITES-BPO market share, domestically, regionally and internationally. Having recognized the ITES-BPO as an employment creator of youth and enabler of economic growth, it has taken a positive step forward. Further, NITA-U s initiatives like strategizing the ITES-BPO growth, creating incentivizing schemes, developing the infrastructure and initiating ITES-BPO training are encouraging signs for the growth of Ugandan ITES-BPO industry. 1.4 Current State Analysis of Key Drivers to the ITES-BPO Industry Uganda s ratings and four critical areas human capital, infrastructure, business environment and supporting structures were benchmarked and compared against most relevant leading and emerging destinations which were India, Kenya, Ghana and Jamaica. Information related to the factors and subfactors were collected through interactions with key international, domestic and regional stakeholders along with references to published industry, business and economic reports.

12 The following SWOT diagram summarizes Uganda s current potential to create a vibrant ITES-BPO industry. Strengths Weakness Large pool of potentially good English speaking population. Competitive labor costs differential to U.S. and U.K. companies. Stable geo-political environment in comparison with neighboring as well as other countries worldwide. ITES-BPO sector identified as a focus areas for economic development by the government. Availability and penetration of telecom and Internet services are rising. Cyber laws to protect ITES-BPO investors have been promulgated. Employability in the context of the ITES- BPO industry of large talent pool is proportionately low. Inadequate ICT education infrastructure and training facilities. High cost and lack of availability of high quality buildings. High Telecom costs and lack of last mile connectivity High inflation and interest rates, despite recent decreases. No policies or incentives specifically for the ITES-BPO sector. Opportunities Threats Leverage the image of its democratic and relatively stable political environment towards establishing itself as a regional hub for offshoring services. Establish itself as a subcontracting hub for more established destinations. Develop offerings such as call centre and data processing in the short and medium term for the domestic, regional and international market Leverage opportunities created by the e- governance initiatives to kick start the Industry Lack of participation at premier ITES BPO Business Linkage events may not create visibility for Brand Uganda Proactive investment promotion of the ITES-BPO industry by competing regional destinations, such as Kenya Currently there is a lack of participation and synergy between the key stakeholders in the industry. Mature BPO destination lowering costs by moving into smaller cities and towns.

13 1.4.1 Human Capital Talent quality and availability is one of the key evaluation criteria for prospective investors in the ITES- BPO sector. Inherent skill and capabilities of the workforce also dictate the market segments that could potentially be targeted. Based on the review and analysis of the market done, the strengths, weakness and recommendations for the Human Capital factor have been summarized in the following table: Current Strengths English is Uganda s business and official language and also the medium of education from primary to tertiary level. High unemployment rates of 11% keep costs competitive and make a larger pool of talent available. Attrition rates in the existing ITES BPO companies are in the range of 5%, much lower than compared to matured destinations. The labour costs are competitive with leading offshoring destinations There is strong cultural affinity with the US and UK The manpower in Uganda is more attuned to rules based processes. As most BPO processes are rule based, this is a positive sign for Uganda The current talent coming out of universities is IT savvy and possesses basic skills in Word and spread-sheet packages Current Weaknesses There are capacity constraints for provision of ICT education at the senior secondary school and college levels There is also an absence of market/ demand led curriculum; course curriculum needs to be aligned to industry requirement. Whilst talent pool availability is substantial at entry level, it is not so at middle management and senior levels Labour cost differential offered by Uganda is not very diverse from the same offered by countries such as India and Philippines There is a paucity of readily deployable technical talent and professionals in Uganda Training requirements are high in order to reach requisite quality levels of service delivery PC proliferation is very low outside of the main towns and cities and this is challenge for the widespread adoption of ICT and development of ICT skills throughout the country Lack of ITES-BPO business knowledge and entrepreneurship skills. These include awareness of US/UK markets, domain expertise and ability to create strong business linkages. Most youth have theoretical knowledge but lack practical skills Recommendations Implement the training initiatives supported by NITA-U at the earliest and encourage more participation from the Industry. Invite international experts to develop course modules and undertake parts of Train the Trainers program Provide training incentives to firms in the ITES BPO sector that would be linked to the total number of jobs created.

14 The industry academia linkage is currently not very strong. Some efforts have been taken to bridge the gap. Initiatives such as formal partnerships between education institutions and existing companies to identify training gaps and structure customized training programs are encouraged. The academia should be included on the Uganda Business Processing Outsourcing Association (UBPOA) platform as members. The BPO service providers should also partner with the local universities to recruit the students. In such an arrangement, the university will need to have a dedicated BPO career cell. Initiate action on developing a national skill registry database which could be readily accessed by firms setting up operations in Uganda Build Uganda s image, especially that of Kampala as a hub of knowledge economy in East Africa. This will help in attracting talent from various neighboring countries. Some of these countries have a large pool of French speaking people who can complement the large English speaking talent available in Uganda. Conduct Train-the-Trainer programs with skilled trainers from India, Kenya and Egypt to up-skill the training teams in Uganda. 1.4.2 Infrastructure Driver ITES-BPO companies by virtue of their global clientele and support of critical business processes are required to operate 24/7 making them critically dependent on factors such as telecom and internet links, quality power supply, road and air connectivity and suitable real estate. Infrastructure forms a very critical and major component of decision making process for location selection, with the availability and quality of infrastructure directly impacting the ease of doing business as well as the cost of doing business in a location. The key strengths, weakness and recommendations for the infrastructure driver have been summarized in the following table: Current Strengths The Telecom industry in Uganda is liberalized and has presence of multiple players across different segments Internet availability and penetration is on the rise. Telecom operators have been licensed to offer broadband on 3G and 4G which is further improving internet penetration Access to telephony (as measured by teledensity) has significantly improved over the last five years, primarily due to the introduction of mobile telephony in the country Initiatives are being undertaken towards ensuring that telecom costs for BPO operations are competitive with other destinations. E1 costs Current Weaknesses Quality of internet network needs substantial improvement Bandwidth rates are currently higher than most competing countries and it s expected to continue until there is increased penetration of last mile connectivity and greater adoption. Telecom set up time (especially where location requires substantial last mile interventions) has come down, but is still high High taxes on calls constitute a substantial part of the telecom costs for end users (30%) There is a lack of quality real estate Grade A buildings

15 have come down over the years and rates are expected to fall further Cost effective services such as VOIP have been allowed for ITES-BPO services Setting up and propagation of the Incubation centre by NITA-U should kick start the BPO operations in Uganda Recommendations As most of the technology park projects are currently in the planning stage, park availability is limited in the short to medium term. Frequent power outages make electricity supply unreliable Relatively higher costs of IT hardware and software Uganda has made significant improvements on the cost of bandwidth though it has not yet reached international costs competitiveness levels. It is recommended that in the initial years the fledgling ITES-BPO industry be given priority while allocating telecom bandwidth for their operations. The government through UCC should perform continuous international benchmarking of prices and regulate prices to keep Uganda costs competitive in the telecom space. Commercial real estate costs are very high. Reducing the real estate costs by means of incentivizing and rebating for the initial period is recommended. Accelerate the development of Technology Parks. Keeping in mind all amenities required, transport connections, support services, recreational facilities, residential townships, etc. It is further recommended that uninterrupted supply of quality power be assured to occupiers of the tech parks and designated zones, treating BPO as essential services. This factor should be considered in the design and planning stages of tech parks. Alternative sources of energy like Geo- Thermal need to be looked at. Local traffic congestion issues need to be addressed. Steps should be taken in this regard of decongesting the city for traffic by putting in place proper traffic planning and introducing quality and cost effective mass rapid transport system that ensures smooth flow of people within the city

16 Business Environment Business and financial environment, tax and regulatory environment, general law and order situation, administrative hurdles etc. have a direct impact on the ease and cost of doing ITES-BPO business. The following table summarizes the key strengths, weakness and recommendations for the Business Environment factor. Current Strengths Uganda is one of the most politically stable democratic countries in the region. Compared regionally, the law and order within the country is well under control and forms a major attraction for investors A well established and functioning NITA-U with different departmental initiatives provides the necessary impetus for stimulating investment into the sector The Uganda Government has signed host of Direct Taxation Agreements (DTAs) and other form of Investment guarantees that would provide confidence to investors Reduced time to setup businesses will help drive investments upwards in the BPO sector Low taxes are a strength for attracting foreign players into Uganda Passing of laws related to computer misuse, e-signatures and e-transactions to instill confidence in foreign investors Current Weaknesses Uganda has high inflation and interest rates which are not conducive for domestic entrepreneurs There is need to further improve the interactions between the various government bodies and the private sector to promote Investments in the BPO Sector Bank loans are hard to come by for small and medium sized companies. Also, lack of availability of venture capital / private equity funding is a big hindrance Lack of specific incentives to the BPO sector hampers the scaling up of the sector Recommendations A coordinated effort by various agencies including NITA-U, UIA and UBPOA is needed in putting across the message of attractiveness of Uganda as an ITES-BPO destination and the available benefits to investors. With this regard regular meetings of the representatives of various facilitating agencies would go a long way in addressing this issue. Increase awareness on information security, data privacy and intellectual property laws Encourage government sponsored venture capital fund for investment in the ITES-BPO sector.

17 Supporting Structure Supporting structure includes the established ITES-BPO service providers & presence of immediate supporting environment for the growth and development of the industry in the country. The immediate support environment includes the recruitment agencies, training firms, transportation, catering, office support, real estate maintenance, security, general office supplies, housing market, recreational facilities and such other connected firms. The presence of established service providers is a sign of vibrancy in the sector and their success is a major factor in attracting foreign investment in the sector. Key findings and recommendations for the supporting structure factor are summarized below: Current Strengths Initiatives have been undertaken by NITA-U to introduce ITES-BPO training UIA has proven to be a one stop shop to encourage and ease the set-up of business in Uganda Various supporting bodies such as the Private Sector Foundation and Enterprise Uganda have a good understanding of the BPO sector The UBPOA association is formed and promoting the BPO industry Current Weaknesses Private sector training institutes primarily provide training in IT and networking skills. ITES-BPO specific training program is limited. Financing and venture capital industry is not matured. Culturally, even the promoter s general tendency is not to dilute their stake. There is a lack of co-ordination between the various supporting entities The UBPOA is still in a very nascent stage and needs guidance to clearly identify its mandate Recommendations The government should promote investments in the BPO sector through its venture capital fund. Currently interest rates are too high and bank loans are difficult to obtain. Initiatives must be taken to educate the VC fund on ITES Sector as well as Service Provider on fund raising. Venture capital fund should also be encouraged by local and provincial governments to further attract companies in their region. This would also improve competition among regions to attract investment. A roadmap and an investment promotion strategy needs to be developed for the UIA as well as NITA-U to effectively brand and market the BPO sector in Uganda. A fixed budget needs to be allocated towards investment promotion Housing is expensive in Kampala. BPO firms that would like to bring in large chunk of people initially to stabilize operations would face a huge challenge in finding affordable housing. It is recommended that sufficient attention be given to housing during the design and development of technology parks. The UBPOA will have to build a mandate and road map for the future. They will have to become a strong driving force to advocate policies and initiatives that would be conducive to the growth of the BPO sector in Uganda.

18 Target Market Segment The current state analysis of Uganda ITES-BPO industry has shown that Uganda can establish its competitiveness by carving out a niche in certain ITES-BPO segments. Based on the review of Ugandan market, key target markets for Uganda were identified. The key target markets include certain key industry verticals, horizontal services as well as select geographies. Based on the review and assessment of the inherent drivers in Uganda and global experience, the following key areas are recommended as the top priority for Uganda: Niche Areas Drivers Contact Centre for Domestic and Regional Telecom companies are growing at a very healthy rate and the Telecom & BFSI customers are demanding better service. (Domestic Short High English speaking population term; International Labour shortages and rising wages in the India, Ireland and other preferred call centre Medium term) locations are driving shifts to alternate locations that can provide a healthy mix of labour arbitrage and a sizable and scalable talent pool. Uganda can also attract small and medium size enterprises (SME s), who are evaluating offshoring of their contact centre functions, in order to ease the pressures on their bottom line. Uganda enjoys a very small time zone difference with Europe which makes it an ideal location for voice based processes

19 Contact Centre for E- Governance (Domestic Medium Term) Contact Centre for Utilities (Domestic Short term) Contact Centre services for Health Care Telemedicine (Domestic : Medium Term; International- Long term) IT Helpdesks across Industry Segments (Domestic Short term; International Medium Term for BFSI, Telecom and Other Sectors) Digitization and Data Processing for e- Government Initiatives (Domestic Short term) Digitization and Data Processing for Utilities (Domestic Short term, International Long term) Government s focus on ICT adoption in near term through E-Government infrastructure Need to reduce queries and cycle time in processes like business registrations and taxation Establishing one stop shop for government related information Improving data collection from businesses and citizens to develop country level statistical information Rising customer expectation in the domestic market Operational efficiency in the Utilities sector Emerging trend worldwide to outsource customer service activities for utilities to third party providers Various telemedicine initiatives have been taken up by the Government of Uganda In the short term, Contact Centre Helpdesk for HIV and Malaria can be provided The current environment and lack of opportunities in country is leading to the brain drain in the healthcare sector Uganda has the maximum number of Cisco certified network administrators in the region IT education at a tertiary level is popular and sought after There is a move towards digitization in the domestic market The regional and international demand for IT helpdesks is a large segment e-government s initiative will drive the requirements to digitize and centralize the current record keeping system The e-government initiatives in Uganda have a huge scope to subcontract various digitization and data conversion activities to service providers Digitization activities require less training and limited infrastructure NITA-U is responsible for various e-government projects as well as kick starting the ITES-BPO industry, making collaboration easy Need to increase operational efficiencies Improve accessibility to business and citizens by modernizing billing system, provisioning and access to information

20 Data Entry in the health care for International Clients Medical transcription (Domestic Short term, International Medium term) Improve access to information for international and domestic agencies dedicated to healthcare improvement Large population of senior secondary school graduates that can be trained and made employable, in addition to graduates and medical professionals There is pressure to outsource medical transcription in order to further reduce the cost of operations in U.S. and European countries. Opportunity of low-end medical transcription getting outsourced from countries such as India and mature destinations to cost-effective destinations. Increasing cost of insurance and health care in the U.S. and Europe, which is driving offshoring of these processes. Data Processing for Banking, Financial Services and Insurance (Domestic Short term; International Medium term) Content Development & translation for the Education Sector (Domestic Short term, International Long term) Knowledge Process for Health Care (Domestic Long term, International Long term) Knowledge Process for Law/Architecture and Market Research (Domestic Medium term, International Long Term) Low cost of resources in Uganda with respect to various emerging destinations makes it an ideal location for data entry and processing activities High number of graduates as well as high school pass-outs make Uganda suitable to perform these activities Training requirements are relatively lower in basic data entry operations The BFSI industry is growing in Uganda with more than 20 banks present and 21 Insurance companies present Uganda has a good amount of fairly qualified graduates passing out every year Education is very important to Ugandan community and the diaspora A focus on education and e-learning by the government creates an opportunity for content development in the domestic market Uganda s skills in English and graphics along with a flair for creativity makes content development an area of focus Reduce the brain drain for medical staff like doctors and nurses Leverage on current research on medical aid in Uganda Assist international firms trying to develop medications specific to Uganda in market research activities In the medium to long term scenario, KPO provides a good platform to market the country as a location with skills to perform high complexity tasks There are large market research firms already in Uganda employing between 300-500 people each namely Synovate and TNS Architecture and Law are taken up by students in the university level and fair number of them pass out every year There is a brain drain amongst Architects, indicating a lack of jobs for them, providing an avenue to them would increase employability amongst these sets of people

21 ITES BPO opportunity in Africa Africa has been seeing sustainable economic growth and development in many countries. At an average growth rate of 5.6 per cent a year, Africa was one of the fastest growing developing regions from 2001 to 2008 (AfDB and UNECA, 2010). Not only was the growth widespread across countries, with about 40 per cent of them growing at 5% or above, it was also broad based, with many sectors contributing resources, finance, retail, agriculture, transportation, Information technology and telecommunications. A recent analysis by the Economist also finds that over the 10 years to 2010, six of the world s 10 fastest-growing economies were in sub-saharan Africa. Over the last decade, the simple average of the countries growth rates was virtually identical in Africa and Asia, with Africa likely to take the lead in the next five years. This growth could be attributable to government action to end armed conflicts, improved macroeconomic conditions, microeconomic reforms undertaken to create a better business climate, widespread connectivity and larger capital inflows, among other factors. Africa is set to continue to profit from rising global demand for resources like oil, natural gas, minerals, food and arable land as the continent boasts an abundance of riches. But what will drive Africa in the next decade or two is its burgeoning youth population that could become a real blessing for the region. According to the 2010 Africa Economic Outlook, more than 60 per cent of Africa s population is under the age of 25. The United Nations Population division also observed that Africa s youth bulge is quite unique. The region will account for 29 per cent of the world s population aged 15-24 by 2050, up from 9 per cent in 1950. By comparison, Asia/Pacific and Latin America/Caribbean countries will maintain their 1950 shares of 54 per cent and 7 per cent respectively by 2050. Most of the African nations have embarked or are in the process of embarking on comprehensive & innovative strategy to tackle today s youth unemployment largely with a renewed focus on information and communication technology (ICT). Africa has become a prized investment destination. The dynamism in mobile telecommunications has provided a vibrant source of growth for many African countries. Modernizing the banking system has also provided further sources of growth. African nations are also investing a lot on training and skill development. The telecom penetration is steadily increasing year after year. It is estimated that telecom has grown more than 5000 times over the last 5 years and has a subscriber base exceeding 400 million. This presents an excellent opportunity for BPO as services in areas like Know Your Customer (KYC) and Call Centre. Further, Africa has good English and French speaking capabilities which make it a good choice of a nearshore destination for Europe. BPO s provide jobs to youth from a wide range of educational qualifications. Noting this opportunity, countries like Kenya, Ghana, Mauritius, Tunisia and Morocco have started investing in initiatives to build their BPO capabilities. The digital connection of East Africa with Europe by the landing of optical fibres in Mombasa, Kenya, is greatly expected to raise the quality of telecom infrastructure in the region and bring down the telecom costs. Initiation of regional communities like EAC will further integrate the efforts of Kenya, Uganda, Tanzania, Rwanda and Burundi to attract FDI and grow its human and infrastructure capacity. With existence of a Customs Union (started in 2005) and a Common Market (started in 2010) along with plans to form a monetary union, Uganda will benefit greatly from access to its regional markets. COMESA has also supported this trend by establishing free trade among its 19 member countries and members of EAC.

The ITES-BPO Framework and Roadmap for Uganda 22 To sustain and scale the ITES-BPO industry in Uganda, a robust ITES-BPO frame work that comprises of three key elements is recommended The Governance Group, the Implementation Roadmap and the Monitoring and Evaluation framework as described in the figure below.

23 The Governance Structure: The Governance structure should have two levels which include: I. The Strategic Committee: This level of governance would include representatives from the Ministry of ICT, Ministry of Education, Ministry of Finance Planning and Economic Development, Ministry of Trade, Industry and Cooperatives and the Office of the President. The key role of this committee would be to directionally align each of the ministries, lobby favorable policies for the ITES-BPO industry and integrate the efforts to attain a common objective i.e. to create an environment that enables and facilitates implementation of the efforts in the key focus areas across various ministries. The committee will also advise the cabinet on the key decisions required to make Uganda a highly attractive ITES BPO destination. Key Role of the strategic committee aim to a. Ensure enabling laws, regulations, policies and strategies for the growth and development of BPO/ITES are developed and enforced; b. Build ICT infrastructure that will facilitate the growth and development of the BPO industry c. Engage senior stakeholders and donors to support BPO/ITES policies and initiatives d. Assign ownership and accountability for BPO governance to stakeholders. e. Establish guidelines for investment in the BPO industry f. Provide BPO incentives g. Investigate and provide ways to remove impediments to industry competitiveness. II. The Operational Committee: The operational committee would comprise of key representatives from NITA-U, Chairman of UBPOA, Representative from UIA, Representative from the Academia and Key Training institute, Representatives from other supporting bodies such as Enterprise Uganda, Private Sector Foundation, Competitiveness and Investment Climate Strategy (CICS) Secretariat, MoFPED, Representatives from other ministries such as Ministry of Foreign Affairs, UCC, NPA etc. The role of this committee would be to a. Oversee and own the various strategic initiatives to scale up demand for the BPO sector b. Lobby for Infrastructure development c. Work towards enhancing business environment including investment promotion and policies d. Operationalise various skill development initiatives and monitor their implementation e. Identifying and mitigating challenges and risks faced by the BPO sector

Roadmap for scaling up the BPO sector Implementation Roadmap 24 - Roadmap for Successful scaling up of the BPO sector Uganda has certain inherent strengths and advantages to quickly kick start the BPO industry. Harnessing those strengths such as language skills, IT knowledge, lower wages, presence of basic infrastructure etc. in the short term would be essential to build the base of the Industry. In the medium term, with greater awareness and incorporation of adoption of the best practices Uganda will see a presence of scalable BPO industry. In this phase emphasis should be to build process capabilities in the country. In the long term, with the BPO industry acquiring scale and service providers reaching maturity curve, Uganda should strive for high value work and end to end process or functional capabilities. Uganda will also need to create a very strong value proposition that meet the needs of diverse groups: For all target segments: Show that Uganda is a great place for business and lifestyle For African targets: Create awareness of the benefits of outsourcing and Uganda s comparative advantages For UK & US targets: Dispel misconceptions and promote Uganda as the destination for outsourcing For India & Philippines service providers: Create awareness about Uganda as the next spoke in the wheel for their global delivery models.

25 1.5 BPO road map for the Short term (0-2 Years) In the short term focus should be on various incentives and initiatives to attract investors and entrepreneurs to adapt to the outsourcing industry in a planned fashion. A thrust towards creating awareness, beginning various skill development initiatives and putting together the basic infrastructure would be essential. Results of various initiatives taken up in the short term will start yielding results in the medium to long term. The suggested road map is for the critical drivers for the BPO industry which includes generating demand, infrastructure development, enhancing the business environment and building the skill base. Various recommendations for each of these drivers have been highlighted in the section below. 1.5.1 Generating Demand Creating Awareness Government Outsourcing Pilot Project Market Promotion in Key Buyer regions Market Promotion in Key Service Provider regions Building awareness within local and regional buyers about the BPO industry through organizing various workshops will help create awareness about the BPO industry. Uganda, in the short term should identify key buyers within the government and the private sector to sensitize them on BPO through a series of workshops. The latent potential within Uganda needs to be harnessed initially to bring the BPO industry to an effective size and scale which helps in marketing Brand Uganda in the medium and longer term Government in Uganda can act as a source of anchor demand and in the immediate short term, pilot projects can be outsourced to service providers which arise from the various e-government Initiatives. Digitization projects act as an avenue to build the skill sets, generate employment as well as propel Uganda to achieve the digital revolution. Identifying Service provider with capabilities to deliver on project and supporting creation of joint ventures would be required to jump start the industry In the short term, Uganda will have to immediately work towards identifying and targeting buyer regions to effectively market and promote the industry. Road shows for branding Uganda would play a key role in generating a strong Brand Uganda and would put Uganda on the sourcing map. Uganda should strategically target market promotion activities in key service provider regions such as India and Philippines to take on the excess work that flows to these regions. Targeting service providers to set up operation in Uganda to complement their existing business in India or Philippines to build capacity and reduce risk through diversification would be essential to bring in large investments.

26 1.5.2 Infrastructure Plug and Play facilities for BPOs Power Broadband Physical infrastructure which is at par with the international standards plays a very critical role in attracting large Service providers. This not only instills confidence in them but also reduces the infrastructure setup time. Uganda has already taken the first step by creating the incubation centre with 240 seats in Kampala. Thus helping service providers to setup operations in a plug and play facility with various incentives on rent, power and connectivity. Similar set ups will need to be created for at least a 1000 seats. This would enable easy scaling up of operations and reduce set up costs and time for new market entrants substantially. This would also immediately act as a strong incentive to set up operations in Uganda. Power quality has been a deterrent to the BPO industry. While the country is making long term investments to improve the quality and distribution of power better, in the short term, reimbursing BPO organizations for the downtimes would help reduce costs of service providers. Excluding duty on diesel generators for the BPO companies would help mitigating the power problems in the short term Internet connectivity is the life line of the outsourcing industry and in order for the industry to grow and mature Uganda will need to invest heavily on upgrading the broadband connectivity and penetration across the country. Currently providing the Broadband from the national backbone to new locations is a challenge. The Government in Uganda will need to incentivize telecom operators to enhance the last mile connectivity for Broadband. The focus should be to enhance last mile connectivity in Kampala region, immediately. 1.5.3 Business Environment Incentives Fiscal incentives play a very critical role in attracting investors to a country especially in the nascent stages. Careful implementation of the fiscal incentives can result in improving country s marginal competitiveness. The fiscal incentives should achieve the following objectives: 1. Equalise the local environment with global locations; 2. Display government commitment to industry growth by further improving labour cost competitiveness in the short-term 3. Attract 2-3 large scale players as anchors to kick-start Uganda s ITES BPO industry. In the short term, the Government along with UIA should focus towards building an incentive structure to develop both the domestic BPO sector and attracting foreign investments. Incentives that would help propel the ITES-BPO industry are:

27 Building the ITES-BPO fund Building ITES-BPO standards Data Protection and IP laws Infrastructure : - Subsidized Broadband and Electricity costs usually to the tune of 50% for the initial 2-3 years time frame - Longer lease duration and reduced rentals in the technology parks or incubation centres. - Reimbursement of expense incurred by service providers in providing power backup during power outages by the national grid Financial incentives : - Funds to be available to set up ITES-BPO companies at a lower rate of interest as compared to market rates - Tax holidays on exports for the initial 5 years and reduced taxes (50% lower) for the next 5 years - 100% FDI to be allowed in the BPO sector - Duty free imports of hardware and software equipment required to set up the delivery centre Training Incentives : - Building a training grant structure based on skill assessment and providing BPOs with 50%-100% subsidy or a fixed amount for every employee trained and successfully absorbed in the organization. Building and sustaining an ITES-BPO fund by NITA-U and Ministry of ICT would be essential in short term to successfully scale up the sector. This fund would help in infrastructure and human capacity building initiatives NITA-U is in the process of working towards setting up standards for the ITES-BPO industry. This would reduce the learning curve and establish BPOs which are internationally competitive - Develop BPO standards, benchmarked to international standards - Incentivize all key BPO firms to adopt these standard Passing of laws regarding Data and IP protection will instill confidence in International players to invest in Uganda

28 1.5.4 Skill Development Skill Assessment and requirement development Developing skills in the short term would require a focused approach towards identifying the skill gaps between the industry requirements and the current workforce. A detailed assessment of the current state scenario would have to be done. A step by step approach to developing the skill base is highlighted in the Developing skill base section of the document. It should be kept in mind that skill development should be synchronized with investment promotion, thus ensuring students graduating have a job in the sector. 1.6 BPO road map for the Medium to Long term (2-5 Years and beyond) In the medium to long term, a sustained effort on various initiatives started during the short term phase will have to be continued. The results of efforts put in the small term will begin to unfold in the medium to long term. Effort will be required to adopt and customize these initiatives depending on the changes in the Macro and Micro economic factors affecting them like revisiting the Investment promotion initiatives and taking infrastructure to the next level by building large scale infrastructure projects such as IT parks. By this time, BPO industry in Uganda should have established itself as a strong brand in the domestic/regional markets and higher focus should be put towards placing it as a strong location in the international market. 1.6.1 Generating Demand Sustained efforts towards generating business linkages The sustainability and scalability of the BPO industry requires a two pronged approach of targeting both the International and Domestic/Regional market. As a follow up to the investment promotion activity in the short term, planning for long term business linkages in essential. Identifying key international events for participation and enabling UBPOA to build capacity to promote the BPO industry via both inbound and outbound events would help build brand Uganda. 1.6.2 Infrastructure IT Business Parks An important component for the development and growth of the BPO sectors is the availability of infrastructure. Countries worldwide have initiated several projects around the creation of technology parks or IT Parks that provide organizations and employees a development-friendly environment and therefore encourage the formation and growth of businesses in the BPO industry. There has been an increased adoption of Public private partnership in building the IT Parks.

29 1.6.3 Business Environment Customized and Value based incentives Sustenance of the incentive structure defined in the short term and providing customized incentives based on value of the proposition would be required. Encouraging large international providers to participate in government contracts with a rider of creating specific number of local jobs would help bring large flagship ITES-BPO companies and captive setups to Uganda Enhancing the Funding structure through developing and encouraging Venture Capital Funds Since non-governmental investors seek the highest possible return consistent with the risk of the investment, government support programs should aim either to increase the potential rate of return for nongovernmental investors, or reduce their risk of loss. Some of the key initiatives the Government can take are : - Direct participation or seeding of venture funds in younger companies. Government can invest on the same basis as private investors, thus increasing the size of the fund and allowing greater diversification of its investments - Government Loans or loan guarantees to licensed venture funds that would invest within government guidelines, or guarantees of fund borrowings - Leveraged equity participation by government in private equity funds - Governments can provide guarantees against loss for investors as a way of encouraging them to invest in venture funds 1.6.4 Skill Development Targeted skill set development Integrating requirements of the BPO Industry in the education curriculum In the Short term, Uganda needs to harness the existing capability in the workforce and work towards building on them. However in the long term, a focus on building specific skills based on the market requirements will be essential. Developing the high value low volume segment, which essentially is the KPO, would require building strong domain skills in areas of Law, Market Research or Analytics and Medicine. Specific course designed with the help of public private partnership will help build this. Post analysis of the skill gap, an effort should be made to include generic BPO trainings in the secondary and tertiary education. Improving written and spoken English language skills, computer literacy, foreign language skills can be made as a part of the secondary education curriculum. Building a feedback loop between the Industry Body/Association such as UBPOA and the NCHE would help achieve this objective in the long term

30 2 Developing the Skill Base Human capital is the most important part of a successful ITES-BPO industry. Currently, Uganda does not have the talent pool required for sustaining the future ITES BPO sector s growth. It will need to boost the talent pipeline as much as possible over the next five years. However, this target is extremely ambitious and will require significant commitment and resources. Moreover, such a target can only be reached by launching key programmes at a National scale and cannot be driven only at an Industry or Ministry level. Understanding the gap between current skill sets available and required skills sets for the industry would play a critical part in developing the skill base of Uganda. A structured approach to classify Skill Sets would be required to develop the skill base in the long term. The four key categories of skill sets that encompass a wide range of job skill requirements in the BPO ITES functions are as follows: Technical Skill Set, includes core and hard skills essential for an ITES-BPO role. This category includes areas such as Data Management, Communication, and so on. Functional Skill Set, includes domain knowledge required for working in an ITES-BPO role. This category presents skill sets specific to a client business unit required for various job roles in ITES-BPO industry, such as Financial Management, Call Centre/BPO Industry Awareness, and so on. Behavioural Skill Set includes soft skills essential for the BPO ITES industry such as coaching and Mentoring, Persuasiveness, and so on. Client specific Skill Set, includes a combination of soft and hard skills essential for working on specific projects. This category presents three client specific skill sets, including Client Knowledge and Responsiveness, Operational Excellence, and SLA and Global Delivery. - Developing Skills at a National Level

31 The road map to skill development should encompass the following key phases: I. Skill Gap Analysis: A detailed study will need to be commissioned to identify the current levels of skill sets in each of the above mentioned attributes and identify gaps with the industry requirements. This will also outline the priority skill development areas within the BPO industry. II. Skill Set Standards: Setting up standards for skill set requirements and acquiring individual certifications would be required to match Uganda s capabilities with global benchmarks III. Curriculum Design: Post identification of the skill gaps between the standards and the existing skills for the niche areas identified for Uganda, the following steps would need to be undertaken: a. Create a comprehensive ITES BPO training curriculum for the potential and incumbent workforce that will increase speed to efficiency. b. Create a flexible and modular ITES BPO Curriculum Map that enables training institutions in Uganda to tailor training programs to meet the business needs of the local industry. c. Publish a set of well defined criteria for the eligible private or public players in the training industry in the form of curriculum guidelines for ITES BPO Curriculum Map rollout. IV. Program Accreditation Mechanism: The Accreditation Mechanism addresses the need recognize the course quality of the various ITES-BPO programs offered by training institutions. The Accreditation Mechanism is designed to prepare institutions to certify learners for professional practice. Designing an accreditation mechanism should include the structure of the accreditation body and the criteria for certification. The accreditation process is key to developing and marketing the skill base globally. V. Training matching grant for implementation: To ear marks funds for broad based skill development, creating a financial model and incentive structure would be necessary. The financial model should include funds for providing equipment, training manuals, trainer s salaries, and rebate on tuition fees. VI. Implementation of the Skill Development Roadmap: Having developed the roadmap, implementing the roadmap which would include areas such as train the trainer program, selecting and training individuals would be essential. A strong partnership with the private sector would be required by the government to administer large scale training initiatives.

32 3 Marketing and Branding strategy The Government of Uganda will have to adopt a multipronged approach to Market and Brand Uganda as a favourable BPO destination. A detailed plan will have to be prepared to effectively reach out to potential clients and service providers. Some of the key promotional channels to brand and market Uganda are as below - Website A Website acts as a single window of information. NITA-U has a very comprehensive website which would act as the primary site for potential investors and prospects. The following are recommended: Currently www.nita.go.ug/index.php/projects/bpo is the default and lists ITES BPO as a project. http://www.bpo.go.ug/ should act as the central repository of information and should continually add more information and data to make it a rich source of information for visitors. This should include all data on business setup, incentives and policies, business environment, infrastructure details and existing service provider among others. Strong coordination of media / messaging across multiple sites such as UBPOA, UIA and NITA U. NITA-U should work closely with these entities and share its branding and messaging. All other websites would be provided as links to the NITA-U website. A detailed review of the website should be done and suitable recommendations should be made and implemented. Promotional Events UBPOA Promotional events will be the cornerstone of investment promotion roadmap for Uganda s ITES BPO Sector. Uganda will need to participate in a number of in-bound and out-bound events to create awareness about the opportunity available in Uganda. NITA-U should participate in premier industry events such IAOP and NASSCOM events, as they ensure high visibility as well as attract key decision makers. This increases the effectiveness of Uganda s efforts. Conducting couple of in-bound trips is recommended for knowledge sharing and best practice learning sessions. These would be conducted as workshops where key decision makers from Uganda and adjoining regions would participate and awareness about outsourcing would be generated. This would help to create interest in the local industry and hence generate local business. NITA-U should support UBPOA with building its calendar, events and list of activities and support with critical industry issues. NITA-U should continue working closely with UBPOA to gather industry inputs

33 Internet / Electronic Media and feedback and accordingly work on addressing their concerns and Improving the business environment. Recommended that UBPOA promotes the local industry through seminars and workshops with involvement of industry leaders NITA-U should extensively employ electronic media and internet to spread its message to a larger community. The electronic media is highly cost effective and has a wide reach. It is recommended to employ emerging web technologies as well as traditional media such as CD-ROMs etc. Internet Promotion NITA-U should promote information dissemination through new internet tools such as Search Engine Optimization, Blogging, Wikipedia, use of Social Networking such as LinkedIn, Facebook etc. These are very cost effective and would enable NITA U to spread its message to wider prospects. NITA U should also consider hosting certain webinars in alliance with leading industry publications and bodies. CD-ROMs NITA U could develop CD-ROMs / USB Sticks which would complement the print brochures and be effective in events organized by the NITA U. This could typically cover interviews with ministers, industry participants and NITA-U, information packs, presentations among others. Brand Ambassador / Local Leader Brochures, Flyers, Leaflets Industry Publications and Surveys NITA-U should actively consider positioning a local leader as the brand ambassador champion for Uganda s ITES-BPO sector. For example, in India this role was played by Infosys and its Chairman, Mr Narayan Murthy, In Egypt Dr. Tarek Kamal ex Minister of ICT played the part successfully. The individual should be a well-respected, qualified and visionary who could be projected as the face of the industry. Such a strategy would ensure high media visibility and is highly cost effective. It is recommended to continue building more targeted brochures, flyers and leaflets providing detailed information for promoting the ITES-BPO sector. Such material would be used in the conferences, workshops and other such events. It is important to coordinate the messaging across different entities such as UBPOA & UIA so as not to duplicate or send confusing message to the market. This can be accomplished by closely working together with various entities and knowledge sharing. Targeted materials for such brochures and flyers would be reviewed and developed in the next phase of the engagement. NITA-U should actively participate in leading industry publications and surveys such as - AT Kearney Global Services Location Index - Global Services Top 50 Cities Ranking

34 Public Relations Research Content Industry Roundtables Local Media High Commissions & Embassies - Other publications like Global Services, CIO, Economist and Financial Times NITA-U should leverage PR firms and activities to create a positive mind-share with various stakeholders. The PR activities would work with client markets to create a positive perception and also engage in lobbying for any specific issues. Leveraging public relations would assist in additional media coverage in the local media in case of certain events, activities and visits. NITA-U should publish regular newsletters and mailers to various stakeholders as outlined in the operating context. NITA-U should also publish whitepapers and case studies relevant to Ugandan ITES-BPO sector and include these in the regular communication with the prospects. Such content would provide prospective investors with a practical insight into Uganda s value proposition. International Research & Consultancy organization can be engaged in the initial period to create the content of these newsletters and aligning it to the desired communication strategy. NITA-U should invite senior academicians to publish industry research focused on Uganda. Such intellectual property could then be leveraged in other forums and events, as well as shared with broader audience. NITA-U should periodically (preferably quarterly) conduct industry roundtable wherein various government entities and service providers are invited. Such a roundtable should have a clear pre-defined agenda and should include updates from NITA-U and UBPOA. It should also act as a platform for information sharing between various participants as well as gathering opinion from industry leaders on critical issues. NITA-U should continue to work with local media including Print (newspapers, magazines), TV and Radio to educate the larger talent pool as well as business community of the potential benefits of the ITES-BPO sector. It is recommended to leverage Ugandan High Commissions in client markets such as US, UK, India, Philippines and South Africa. The High Commission should host industry and trade events and invite prominent industry leaders as well as Non-Resident Ugandans to participate in such events. The events should focus on educating and sharing the activities undertaken by NITA U as well as Government of Uganda and invite investors to setup businesses in Uganda. Such events send a strong signal to the investor community and are highly effective in attracting investments. NITA-U should also build and leverage relationships with other consulates such as US, UK, France, India for information sharing and exchange about potential foreign companies and sectors interested in Uganda Non-resident Ugandans Non-Resident Ugandans are a well-qualified and strong community in US and UK. It is recommended to leverage this community and their personal

35 MNC s interested in other sectors network to promote Government s vision of promoting ITES-BPO sector. A number of Non-Resident Ugandans are already showing interest in returning to their nation and setting up local businesses. This promotion can be carried out by building a database of such individuals and sharing monthly newsletters and updates with them. Government and NITA-U should actively work with other trade and investment promotion bodies to effectively target multinational corporations who have expressed an interest in investment in other sectors in Uganda such as agriculture, mining and oil and gas among others. This would help NITA-U to promote symbiotic relationships and seek investment in the ITES sector by inviting such firms to setup shared services centres or locally procure BPO services. - Marketing Channels to promote Ugandan ITES-BPO Industry It is recommended to work towards developing a roadmap for 12-18 months with strong business linkages to achieve the following key results I. Identify potential target areas II. Create Marketing and Branding collaterals III. Training and coaching key stakeholders to effectively spread a unified message about Uganda IV. Identify key international events to attend and present on Uganda V. Identify key international stakeholders and conduct inbound events to demonstrate Uganda s capabilities and strengths VI. Organize and attend outbound events to understand best practices and build business relationships with key outsourcing locations such as India, China and Philippines.

36 4 Building Infrastructure Technology parks Technology parks were conceptualized in 1970s, in order to facilitate technology transfer and to enhance entrepreneurship culture among the scientific sector. According to a definition from the International Association of Science Parks, Technology parks stimulate and manage the flow of knowledge and technology among universities, R&D institutions, companies, and markets; they facilitate the creation and growth of innovation-based companies through incubation and spin-off processes; and they provide other value-added services together with high-quality space and facilities. Developing Technology parks would require a structured approach and buy in from key stakeholders. Developing a framework to develop IT parks will require: I. Defining the value proposition and business case for building the technology park II. Finalizing the location for the technology park and ensuring that the location meets requirements of potential clients III. Defining and identifying the key client profiles that would be placed in the technology park IV. Developing the supporting infrastructure such as real estate, telecom, electricity and water V. Promoting entrepreneurship and providing required assistance VI. Creating a management and administrative authority VII. Marketing and promoting the Technology Park - Building an ICT Park Infrastructure With Reference to Uganda, a planned approach and adopting best practices from countries like China, India and Malaysia will enable a fast track development of technology parks. Technology parks boost the prospect of attracting FDI and enable a structured growth of the BPO sector. Technology parks require large capital investments and a carefully thought through approach is required to build and ensure occupancy of these parks.

Synergizing stakeholders to grow Uganda s BPO industry 37 Synergizing the key stakeholders strengthens the ITES-BPO development efforts and provides a monitoring mechanism to ensure rapid growth of the BPO industry in Uganda. The categories of key stakeholders are: I. Government and Government Agencies: The government plays a key role in building any sector in the country. Buy in from the Ministry of Finance Planning and Economic Development, Ministry of Trade, Industry and Cooperatives together with Ministry of Education are important as they directly impact the funding and building skill sets for the BPO industry. II. The Enabling entities: The enabling entities will help in creating a business environment conducive to the growth of the BPO sector. UIA and UBPOA being the two key entities will help in creating investment incentives and advocate policy changes as per the requirement of the Industry. UBPOA will act as a key body in terms of building the feedback loop between the service providers and the policy makers. III. Supporting entities: These are stakeholders who will create a foundation and build capacity for the industry. Educational and training institutes will provide human capital, banking and financial institutions will support the financial needs of the industry, telecom and infrastructure companies will create the infrastructure for the growing BPO industry. Uganda's ITES-BPO Ecosystem

5 Target Markets for Uganda s BPO Industry 38 5.1 Key Industry Verticals 5.1.1 Telecom Telecommunication services remain vital services globally for consumers and businesses alike for next phase of economic growth. Telecom vertical is a key adopter of BPO globally and provides an opportunity for end-to-end outsourcing including customer acquisition, customer service, billing and revenue assurance, and network management. Some of the very large outsourcing deals in the recent past have been in the telecom vertical. The current telecommunications revolution is being led by mobile telephony. Large Telecom operators like Bharti Airtel are looking to harness this large untapped market as well as contribute to the infrastructure development thereby making it a more conducive outsourcing location. Airtel has already invested $ 11 Billion in Africa which has led to almost a 50% reduction in mobile telecom tariffs. During the past five years, Africa s cellular market has grown 5000% to over 400 million subscribers, making the continent the fastest growing ICT market in the world. Given the high growth potential of Telecom sector in Africa and with a 14 Million plus customers base of mobile and fixed line in Uganda alone the Telecom sector becomes a key focus area for Uganda s BPO sector. 5.1.2 e-government Initiatives e-government involves focusing on the use of Information and Communications Technology (ICT) to assist in the transformation of government structures and operations for cooperative and integrated service delivery. There are various initiatives and investments that have been taken up by the Government in Uganda under the e-government initiative. A number of government institutions have also taken on computerization projects which increase the potential to outsource. 5.1.3 Utilities and Essential Services Utility companies and Essential Services around the world are looking for ways to address the evolving needs of their customers. Customer Service in Utilities has traditionally been an integral part of the business however in the recent past, outsourcing in utilities has become a common phenomenon across the world, with major power distribution and energy firms outsourcing an array of services such as billing, call centre support, statement generation and remittance processes.

5.1.4 Banking, Financial Services and Insurance 39 Banking, Financial Services and Insurance (BFSI) sector has been pioneers in both outsourcing and offshoring. Competition, consolidation, compliance, geographical diversification, new product introduction are key drivers for BFSI firms driving them to become both efficient and innovative. Total BPO spending by this vertical is estimated to be anywhere between US$ 60 to 75 billion and growing at a healthy rate. BFSI firms also operate one of the largest numbers of shared services and captive centres in offshore locations such as India, Philippines, and China among others. With access to banking and financial products on rise in emerging markets including Africa, BFSI vertical would continue to be a key buyer of BPO services. In our assessment, Uganda has a potential opportunity in providing customer service services, Telemarketing, data entry in the Banking sector and in the future in Policy Administration services in the insurance sector covering policy setup, maintenance and claims management. Due to a smaller size of the Insurance sector in Uganda, there is limited potential currently with insurance clients, but with the rapid growth witnessed in the recent past; this could become a large domestic area with potential for outsourcing. 5.1.5 Healthcare Rising cost of healthcare, increased adoption of technology, prevalence of quality and performance based reimbursement models, evolving physician-hospital -patient dynamics are forcing the healthcare industry to recast business and care delivery processes. By leveraging BPO (Business Process Outsourcing), healthcare companies redefine their operating model and maximize value from their business processes. US healthcare spending has doubled since 2002, spending $2.5 trillion or 17.6% of their GDP in 2009. The industry is however grappling with escalating administrative costs. In UK, administrative costs in the National Health Services cost the government 1.8 million GBP annually along with 400 k GBP lost revenue due to non-standardization of paper based records. The demand for BPO services will be in the areas of payer claims, enrolment, service, billing, provider contracting, care management, records digitization, payment collection, claims and enrolment processing, customer service, analytics, medical management, finance and accounting, procurement, and print management. Besides this medical helplines and tele medicine will also bridge the current gap between demand and supply of medical services in the country. 5.1.6 Education and Content Development BPO services in education require updating, transcription and collection of information related to student progress records, application cycle, fees collection and enrolment which are essentially call centre, data entry and scanning services. With Internet cutting the geographical barriers, E-Learning is becoming a buzz word with school students. E-tutoring is a part of E-Learning wherein students get help and guidance from On-line tutors sitting miles away from them. On-line tutors offer online assistance and help them with Mathematics, Science and other subjects for school students of all standards/grades. The students get experienced teachers to help them with their homework, projects and assignments. US planned to spend USD 941 billion on education in 2012, out of which 252.1 billion would be spent on tertiary education. It is estimated that in US, Universities spend 4%-5% of their total budget spent on outsourcing or IT enabling their administrative functions. Out of this about 15% is spent on BPO related activities. This results in creation of $2 billion worth of BPO opportunities in the US education sector alone. Further, this opportunity is expected to grow by 15%-20% annually as educational institutes increase their BPO spend. The recent budget cuts in UK have forced the government to reduce its spending on the education sector by 70%. The institutions, especially the higher education universities are looking to

40 outsource their administrative functions increasingly to countries like India and Philippines to be able to dedicate the diminished funds towards the purpose of imparting knowledge rather than back office. For example, renowned universities like Stanford University and New York University have outsourced their record management system and data entry to India to enable faster retrieval and standardization of student information. Given the strength of Uganda s education system, regionally, in the areas of ICT and management, there lies a significant opportunity in course content design and development for these subjects. Once the optical fibre is fully functional and last miles are laid out, Uganda can also look at hosting and deploying educational services like e-learning and e- tutorial online for the regional market. 5.2 Key Service Lines 5.2.1 Contact Centre Services Contact centre is an essential corporate resource that is the focal point of internal and external customer interactions. They act as an important bridge between the customer and the client. Typically contact centres focus on Customer Research, Acquisition, Customer Support and Retention. A contact centre can handle inbound or outbound transactions and is used by various industry verticals including banking and financial services, insurance, telecom, hospitality, entertainment, retailing, manufacturing, fund raising, political awareness, education, government and many more. Enterprises also use contact centres for certain internal activities such as human resources, internal help desk, emergency management and communications helpline. 5.2.2 Data Entry and Processing Data Entry Services encompass a wide variety of tasks that involves capturing, manipulating, and sorting data from different sources. Data entry services consists of keying data from manually filled and scanned forms, validation of these forms and involves rule based data entry with minimal (or none in most cases) decision making requirements from operator. The client interface is also minimal and that makes it easier to learn and implement across wide varieties of industry verticals. The outsourcing industry began with data entry services where simple rule based processes across various industry back offices were moved to low cost countries to enable the host companies to channelize their focus on core competencies that builds firm values proposition. Data entry services range from offline to online services across Financial, Healthcare, Insurance, Manufacturing, Airlines, Telecom, Oil & Energy, Utility services, and Government back office operations. There continue to be significant opportunities in the Data Entry Services both regionally and globally for Uganda to target. Uganda s workforce culturally is very adept in managing structured rule based processes. The key markets will continue to be US & UK where there is a growing need of Data Entry Services at a lower cost across various verticals. 5.2.3 Information Technology Helpdesks IT helpdesks are single point of contacts that troubleshoot problems with computers, software and hardware. Organizations typically have a dedicated telephone line or automated bug tracking system that alerts the IT Helpdesk teams about an issue an employee is facing. The issue can relate to email, desktops, laptops, operating system, servers, firewalls or other telecom equipment. The trouble-shooter generally solves the problem online via screen sharing, chat, and email or on the telephone by identifying and understanding the root cause of the problem and its occurrence. IT Helpdesks need customer orientation and process understanding more than specialized skills. Our various primary sources have indicated that the soft skills like empathy and patience are natural to Ugandans. Further, adoption of ICT in rural and primary education should help the students be well versed with ways in

41 which the computer hardware and productivity tools like email, spread sheets and word work. This will help them identify both regular and rare problems that occur with usage of these products. 5.2.4 Human Resource Outsourcing Human Resource Outsourcing (HRO) is a contractual agreement between an employer and an external third-party provider whereby the employer transfers responsibility and management for certain HR, benefit or training-related functions or services to the external provider. The reliance on HR outsourcing has been significant. Increasing complexities in HR-related functions, changing laws and regulations and an inherent pressure to cut costs will continue to drive the market in 2012. In multi-national companies the recent economic crisis increased the appetite for HR outsourcing. Focus within Target Markets and Uganda s Value Proposition Based on the review and assessment of the local landscape and global experience, Uganda is recommended to follow certain focus areas to effectively attract investments and build capability in the ITES-BPO sector. These focus areas should be approached in a phased manner according to the action roadmap. The rationale behind such a phased approach is to: Build skill and capability by targeting the low hanging fruits Progressively build expertise and target more global customers Channelize the limited resources to effectively attract investments A high focus in the short term i s on developing local and regional market as it would enable service providers to attain service maturity and capability which can be show cased to global clients. However, the international markets cannot be ignored as this would put Uganda on the global outsourcing map. These niche segments if targeted effectively will lead to a mix of high value low volume work as well as low value high volume work which would effectively place Uganda in a very healthy zone of competiveness. Short Term: In the short term, 4500 jobs leading to revenue of USD 28.3 Million can be created. A focus towards effectively tapping the domestic market should be created. Building infrastructure to achieve effective contracting and subcontracting will be required. Change Management within the existing industry as well as the Government would be required to embrace outsourcing. Medium Term: The medium term focuses heavily on tapping the regional as well as the international market. Total jobs in the BPO industry are estimated to reach at 11000 people generating revenue of USD 124.7 Million. This would be possible through a two pronged approach of targeting large service providers to set up operations in Uganda as well as create awareness amongst the buyer community about Uganda as a competitive outsourcing destination. Investment towards branding and marketing and an investment promotion roadmap needs to be laid out and effectively implemented now to reap the benefits in the medium term. Long Term: In the long term 16000 people are expected to be employed by the BPO industry. Along with sustaining the domestic and regional market, concerted and focused efforts will be required to rapidly expand the international market. The focus here would be to introduce high value low volume jobs such as research for Law and Architecture. Building skills and domain expertise as well as a brand Uganda along with large scale infrastructure development would be essential to reach this milestone.

42 5.3 Projected growth Based on projections and estimated implementation time frame of various government initiatives, the ITES-BPO industry is expected to create 16,000 jobs at the end of year 5 assuming an average growth, 20,000 jobs at a high growth and 12,700 jobs at a low growth. Post the initial 5 years of investment and building the sector, the BPO sector will grow at the natural rate of progression. It is estimated that the BPO industry will grow at a healthy 3-4% in the average scenario and 7% in the aggressive scenario. The job growth projections are shown in the below graph: Estimated ITES-BPO Job Projections 25000 20000 15000 10000 5000 0 23185 20000 18548 16000 14723 12700 9500 7000 3500 5700 2500 3000 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 Aggressive Growth Average Growth Conservative Growth Based on the above job growth projections and estimated revenue per employee, our revenue projections for the industry is given below: Estimated ITES-BPO Revenue Projections (USD Million) 350.0 300.0 250.0 206.5 200.0 165.2 150.0 71.6 131.2 100.0 52.8 50.0 17.6 43.0 0.0 12.6 15.1 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 Year 9 Year 10 325.0 260.0 206.4 Aggressive Growth Average Growth Conservative Growth

6 Expected Returns for the Government 43 In terms of returns, the Government is expected to reap the benefits in the medium to long term scenario. The Government is expected to have a positive net cash flow of USD 34 Million, starting after year 5 and total cash inflow of USD 102.2 Million over the course of 10 years. Out of the total cash inflow, USD 15.5 million is expected from domestic markets and USD 86.7 Million from international markets. In total, to build the ITES-BPO industry focusing towards the Domestic and Regional Markets, an estimated cash outflow of USD 11.3 M is expected over 10 years, however, to focus on the international markets; an estimated cash flow of USD 56.8 M is expected. A positive cash flow of USD 86.7 Million can be expected by focusing on the international markets which yields a rate of return of a very healthy 18.2% through earnings from Income tax, corporate tax and rents from the infrastructure created, a positive cash flow of USD 15.5 Million can be expected by focusing solely on the domestic and regional markets, hence yielding and rate of return of 8.9% over 10 years. A combined focus would be essential for the holistic development of the BPO industry and a positive return of 16% can be expected by the government on its investments in 10 years time The Internal rate of return thus calculated for the projected cash flow stream would be at a healthy 16% for the 10 years. Focusing solely on the domestic and regional market would lead to an investment of USD 11 Million with a return of USD 15.5 Million in 10 years, with an internal rate of return of 8.9%.Whereas a focus on the international market would require an investment of USD 56.8 Million.

44 7 Outsourcing Risks Introduction Having identified the key focus areas and initiatives in the ITES-BPO roadmap, Uganda will have to ensure that the right mechanisms are in place to track risks and mitigate them to protect its investments and reap the benefits of offshoring. These risks are not always obvious and need expert insight to preempt them and create warning mechanisms for their stakeholders. An expert also helps design an appropriate action plan that minimizes the impact of such risks. The decision to make an outsourcing investment in a country depends on whether the returns outweigh the risks. Such a perception is created by analysing the trends of events in a country that have disrupted social, political and economic stability. The responses to such events by a country are also studied to measure the preparedness of a country. For example, although Egypt was perceived as one of the leading offshore destinations, the social uprising resulted in heavy business losses. This event negatively impacted the perception of Egypt as a favourable destination. The political corruption in India is also seen as a risk as it delays business processes like registration. With more than 50 emerging offshoring destinations promising near shoring, cost effectiveness, consistency of service quality and huge investments in risk control, the switching costs for a buyer are greatly reduced. For Uganda to be one of the leading countries of choice and to stay regionally and globally competitive, it is imperative for it to create and maintain a perception of a risk managed country. Investments in a country are seen as a balance between Risk and Returns Note: In order to manage risks, it is important to identify and monitor them. 7.1 Risks in implementing Uganda s BPO Strategy To have effective implementation of the strategy, it is important to recognize the outsourcing risks and implement a mitigation strategy to minimize their impact. The following section analyses the various risks that could impact the ITES-BPO strategy implementation. They have been broadly classified under two heads, namely country level risks and firm level risks. The tables below highlight the key risks for each of these segments and a mitigation strategy to attenuate the impact.

45 7.1.1 Country level risks Risks Natural calamities like drought and flood Local Terrorism Corruption Political Stability Impact Mitigation Strategy Develop a communication strategy to convey to the buyer market that the country has a well-defined disaster management system to deal with such eventualities. Collect statistics on business days lost due to such calamities and highlight improvement in dealing with such events. Such communication initiative will be beneficial towards building a positive perception about Uganda. Project the efficacy of the law and order system in the country. Communicate the initiatives taken to curb any rebellion and terrorism. Make the procedures for setting up and running ITES BPO business simple by cutting down on bureaucratic delays and red-tape. Provide single window facility for interaction with various government departments. Highlight laws in place to penalize corrupt officials. Communicate through organizations like UIA and in various Trade Forums like EAC and COMESA about the stability of government and its progressive policies. Lack of ITES Conduct a regional and global benchmark study to BPO sector understand the quantum of budgets required to incentives incentivize Uganda ITES-BPO industry. Lobby with the government to create ITES BPO focused funds Encourage and collaborate with international fund High Operating Costs compared to regional levels Delay in Optical Fiber installation & Lack of telecom redundancy agencies and private firms to invest in Uganda. Lobby with the Government to provide incentives, taxation rebates and grants for the first 3 to 5 years of operations. Conduct a cost benchmarking study that regularly monitors the operating costs regionally and internationally, especially for the targeted segments Provide soft loans / grants to telecom service providers to increase the broadband and internet access penetration to ITES BPO units Prioritize access to optical fibre for Technology Parks and BPO units. Impact Attenuation

46 may diminish regional competitiveness Shortage of employable talent Create a roadmap for building a 100% redundant network with adequate bandwidth to ensure up time. Invest in creating alternate landing points for optical fibre via Tanzania to create parallel network. Conduct a national level skills assessment for ITES-BPO industry to understand the quality and quantity of skilled manpower required and assess demand-supply gap Create PPP (Private Public Partnership) programs to enhance training of manpower through vocational and industry specific training. Provide adequate incentives to service providers for providing on the job training. Escalating costs of power and frequency of power outages Performance of Industry Association Provision for backup facilities like Diesel generators / reimbursement for power downtime / subsidy on diesel fuel to the ITES-BPO service providers Incentivize and promote local firms to use and develop alternate energies. Conduct a study to understand the viability of tapping into Geo-Thermal energy for electricity. Closer coordination between NITA-U and UBPOA to create focused initiatives and promote ITES BPO internationally and regionally like marketing & PR, skill development, policy making and ITES-BPO standards Development. Have regular meetings with NITA-U to update and address issues pertaining to the ITES BPO industry Conduct a best practice study to understand how India and Philippines governments support NASSCOM and BPAP respectively. Lack of effective legal framework for supporting ITES-BPO Access to Information act has been passed and will help the legal framework to support the ITES-BPO sector. Country Level risks and Mitigation Framework High High Impact Medium Impact Low Impact

47 7.1.2 Firm level risks Risks Impact Mitigation Strategy Impact Attenuation Unrealistic customer expectations Working Capital Risk Inflexible contracting Operational and Delivery Risk Align stakeholder expectations through detailed service delivery discussions and contract negotiations -Set the right quality expectations -Keep client regularly updated through regular project updates and achievements -Train team on Relationship Management to effectively manage expectation of aggressive outsourcing buyers Ensure that relationships with the investors and banks are maintained and a strong record of performance is sustained Also, keep the investors frequently updated through project updates and achievements Conduct quarterly and yearly negotiations to bring about the required change in contracting for currency fluctuations and scope creep Put in place international best practices for effective contracting During the transition phase ensure requirement gathering is conducted according to client s requirements. Ensure that process training and other basic ITES-BPO trainings are provided to the employees. Use on-the-job training to provide regular feedback to the employee Do a root cause analysis of any major slippage and make the stakeholders aware of the capability enhancement regularly Conduct a study to understand the applicable ITES-BPO standards. Aim to attain such standards and ensure that the relevant certifications for these standards are obtained Ensure a training calendar for the employees is in place which is regularly updated in accordance with the client Ensure back up plans along with business continuity planning (BCP)and data recovery planning. Compliance & Security risk ITES-BPO operators have to agree to comply with the regulatory framework and comply with set benchmarks as stipulated in the law governing BPO operations. Cyber laws and a strong policy framework emphasizing data encryption and security controls need to be in place.

48 Increasing Operating Costs Ensure right infrastructure like CCTVs, swipe-in cards, virus protection and IP protection is in place Ensure employees sign client confidentiality clauses Collaborate with other service providers to appraise NITA-U regularly of rising operating costs in telecom, power etc. and proactively lobby with government departments to sustain health of the industry. Firm Level risks and Mitigation Framework

49 In the current globalization landscape, it is imperative for emerging economies like Uganda to proactively monitor and mitigate outsourcing risks. Having the right risk control mechanisms give clients and investors confidence in a country s ability to provide sustained delivery. Although this section lists the risks and their respective mitigation strategies, it is in Uganda s favour to utilize a globalization expert that has an in-depth knowledge of changing trends and client s demands in global sourcing. An expert who will conduct detailed analysis of risks at various stages of implementation strategy and protect the investment.