Geza Ulole
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- Oct 31, 2009
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Doubts hit PR industry after ZK collapse
| Written by Jeff Mbanga | ||||||
| Sunday, 10 April 2011 17:20 | ||||||
| When, in August 2010, ZK Advertising Limited won the overall excellence award during the Public Relations Association of Uganda gala, corporate companies took notice of the agency's magic wand when it came to building brands. After all, ZK had managed to turn the Uganda Health Marketing Group into a popular company whose message of the need to fight the spread of HIV/AIDS transcended all generations in the country. But what the corporate companies did not notice was the simmering financial trouble that was about to explode at ZK. Faced with a weak cash flow and a huge pile of debts, ZK bought time by sizing down its staff and prolonging payment to its restless suppliers. The company hoped that Zadock Koola, the owner of ZK Group who is based in Tanzania, would come in with a bailout package. It never happened! So, when ZK Advertising Uganda, one of the largest agencies in the country, decided to suspend business two months ago, the firm's financial woes blew a hole into the optimism that Uganda's growing adverting industry had created. It also represented the start of a long road for managers of advertising agencies to reassure sceptical clients that the ZK debacle was a one-off. And then, the timing of ZK's troubles could not have come at a worse time; international PR companies have started to make their entry into Uganda, snatching lucrative accounts from local players. "The problem with these big companies is greed," says an owner of a fairly small agency, who declined to be named due to his relations with other players in the market. "They are not staffing well and they do not facilitate their staff well," he said, giving a direct reference to how ZK lost its biggest client, Zain. He added that "they didn't bother too much on smaller clients." Our source says that Saatchi and Saatchi's loss of the MTN account to South Africa's Metropole is weighing heavily on the agency's finances. Saatchi and Saatchi, together with ZK, for a long time led the way in designing marketing strategies of the biggest companies in Uganda. Anthony Wanyoto, who was the Managing Director of ZK Advertising Uganda before it collapsed, agrees that the loss of the Zain account took away a huge chunk of the agency's revenue. "The Zain account would take care of our salaries, rent, and many other operations," he said. Wanyoto explained that the Zain account covered about 70% of the company's operations. [h=3]'Burthening' taxes[/h] ZK first managed Celtel before Zain bought the company. In June 2010, India's Bharti Airtel bought Zain Africa for $10bn. Airtel then decided not to renew ZK's contract and, instead, offered the deal to Ogilvy, an international agency. Nevertheless, Wanyoto says that by the time Zain pulled out, it accounted for just 40% of the agency's revenue. He said that ZK had brought on more smaller clients like Uganda Health Marketing Group, Woolworth, Uganda Insurance Association, just to mention a few. The problem with ZK, therefore, was not just the loss of Zain but another bigger issue – tax. Since 2004 when it opened shop in Uganda until July 2010, ZK was not exempted from withholding tax. To qualify for withholding tax exemption, a company has to carry out regular auditing of books, has to be tax compliant and paying tax on time, among others. However, ZK's failure to qualify for this exemption led to the firm's withholding tax to rise up to Shs 1.8bn, which is about $800,000, says Wanyoto. The company, therefore, faced problems of paying off its suppliers, the biggest of whom were media houses. At the time of its closure, ZK owed $700,000 (about Shs 1.7bn) to suppliers. However, ZK still demands about Shs 200 million from debtors, according to Wanyoto. Wanyoto said Zadock Koola still intends to pay off the suppliers as he weighs different options, one of which includes selling a stake in the company. Wanyoto also pointed out that all ZK employees, who by the time of closure had gone down to 12 from 35, would be paid their salaries. He, however, did not give a time frame when all this would happen. Attention now turns to the relevance of local agencies amidst the collapse of ZK and doubts at Saatchi and Saatchi. Allan Bassey Muyinda, the Business Development Director at Brandfield Advertising, points out that companies still need to work with agencies either way. "Agencies know how to draw up concepts and PR strategies. We know this too well. nd we go out deep in the villages to assess these strategies, which many company staff might not be able to do," he said. Muyinda, however, said that the scepticism created by ZK would take its toll on the industry. "Already, the small companies do not like to spend [on advertising] because they see that as a cost and not an investment. We have challenges convincing them," he said. Wanyoto also agreed that "when you lose a big client, the smaller ones start questioning your ability." The three big telecom companies, who, together with the beverage industry and banks, are the largest advertisers, have turned to foreign agencies to carry out their marketing. MTN, utl, and Airtel, are being managed by foreign agencies. Simon Kaheru, the owner of Media Analyst, a PR agency, says the entry of international agencies is good for the local players in the market. "The good thing is that somehow they (international agencies) have to partner with us. Remember, we know where all the potholes in this city are." Kaheru said the entry of international agencies will help raise the standards in the market and, therefore, offer quality service to clients. The Observer - Doubts hit PR industry after ZK collapse ��
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