Gov’t Must Address SMEs’ Concerns

Doreen Namuyanja

The Latest World Bank report on “Ease of Doing Business in Uganda 2015” has ranked Uganda 150th out of 185 countries, visit web an improvement by 2 places compared to the 2014 ranking.

This marginal improvement is attributed to aggregate efforts of the government to ease trade across borders, resolving insolvency, access to credit and extension of electricity to many parts of the country especially the rural areas.

However, the same report also indicates retrogression in some of the benchmark indicators and this, cumulatively, continues to scale up the cost of doing business in Uganda.

For example, on starting business indicator, Uganda’s ranking increased from 162nd (2014) to 166th (2015), getting electricity 181st (2014) to 184th (2015), registering property 120th (2014) to 125th (2015).

This improvement means that Uganda needs to intensify efforts at creating robust and favorable environment – especially for small and medium enterprises as a panacea for millions of rewarding jobs in Uganda.

Recently, a paper published by Agency for Transformation  and Uganda Small Scale Industries Association shows that the World Bank index is not centered on small businesses- this must be rectified by Uganda launching its own SME’s doing business perception index.

Yet, according to the Bank of Uganda Sector Report (2009), Small and Medium enterprises (SMEs) contribute significantly to economic development through job creation, widening of the tax base, innovation, and the competitive disciplining of markets.

This justifies why developed, developing and emerging economies like Uganda have continued to recognize SMEs as a major economic entity, and SME performance as an opportunity for accelerating the country’s economic growth.

Most Ugandans either own or manage SMEs either as formal or informal enterprises. Yet Uganda has one of the highest business mortality rates because of the high costs and other attendant rigors of starting and later on operating an enterprise to a break-even point.

Whereas both Government and non-state agencies continue to explore ways of engagement to support SMEs through efforts like microfinance access, business formalization and advocacy, SMEs that form the bulk of trade continue to suffer the shocks of high costs because they are not insulated by the advantages of economies of scale that are enjoyed by the large scale industries.

For example Agency for Transformation (AfT), a Kampala based Think and Do Tank with support from USAID-GAPP-RTI is currently engaged in dialogues with SMEs owners in the districts of Mityana and Mubende. The dialogues are aimed at strengthening the oversight role of the local  governments to improve integrity and reduce the cost of doing business.

However, thus far, these dialogues show that it is becoming increasingly difficult to start and maintain a business especially in the rural areas. The local entrepreneurs described the escalating costs of doing business and the repulsive local government bureaucracy as one of the main issues affecting their businesses.

Government agencies that offer key services to these enterprises like the Uganda Registration Services Bureau (URBS) should decentralize their services to make them accessible especially to rural based SMEs. This would for example greatly reduce both the direct and indirect costs related with registration of businesses in rural areas.

More so, this can also promote the formalization of many SMEs that operate informally and this in turn benefits the economy through the widening of the tax base among others. Otherwise it makes no economic sense for a struggling entrepreneur in Mubende district to spend on transport and accommodation and travel all the way to Kampala for an otherwise simple exercise of registration and formalization of his business. This not only erodes the profit margins of such a business but it also impedes business growth.

There is also the problem of high tariffs on water and energy. The high cost of energy in Uganda diminishes competitiveness of our products and services. Thus, our local market gives way to cheap products from China, India and South Africa where the same goods and services are produced more cheaply because of lower tariffs on water and energy.

The entrepreneurs need to be supported with cheaper alternative sources of energy like bio-mas, solar energy and others especially for the cottage industries which do not require high electricity consumption. SMEs make up 90% of the entire private sector, so any efforts directed towards supporting this sector of the economy has both backward and forward benefits to the overall economy.

By Doreen Namuyanja, Program officer, Agency for Transformation,


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