Mixed year: Private sector grapples with high costs of doing business

As the year closes, the country’s private sector players can only hope for the best in the year 2015 after registering a rather mixed fortune in the past 12-months.

Compared to the previous three years, economic analysts and business association leaders say 2014 has been slightly a fair year.

This is because in the last twelve-months, inflation has been within range while the exchange rate remained fairly calm, and importantly, fuel prices weren’t as erratic.

In an interview with the head of the private sector players in the country, Mr Gideon Badagawa, it emerged that the government has been trying to respond to the private sector issues although more effort is needed in that direction, given that the manufacturers and traders, continue to grapple with high cost of doing business here.

“It’s been quite a difficult year but not compared to the previous ones,” Mr Badagawa, the Private Sector Foundation Uganda (PSFU), executive director, said Thursday in an interview.

He continued: “We have not registered so many complaints from our members. Clearance through the custom has gotten better and with the commissioning of Bujagali dam, supply power has been fair although we need more electricity so that we can produce at full capacity.”

However, Mr Badagawa noted that the cost of power is still high, making the cost of doing business here high.

Coupled with the perennial problems, among them lack of cheap and coordinated mode of transport—railway system, and poor infrastructure—poor uncoordinated roads, has made it difficult for the farmers to link up with the market—in urban areas.

Uganda Manufacturers Association policy analyst, Mr Godfrey Ssali said Thursday that the year 2014 has been a tricky one. He said it brought out the resilience of the sector, a characteristic that is important in navigating challenging times or tricky situations.

Mr Ssali description is based on the fact that manufacturers and traders major exports market was disrupted almost throughout the entire year, yet it constitute nearly half of the earnings the manufacturing firms generates.

He said: “Democratic Republic of Congo market has been disrupted by the M23 activities, South Sudan unrest earlier in the year also impacted on the operation of the manufacturers and exporters—these events in many ways made the year quite tricky to navigate.”

He continued: “Back home, the utility bills are being calculated based on exchange rate volatility, inflation and fuel prices, this means that it is difficult to tell how much electricity bill will cost next month. And private sector players hate unpredictability because it’s bad for business.”

And with election quickly approaching, speculation will be rife. According to Mr Ssali this therefore presents another challenge that must be pre-empted before it gets out of hand.

The Chairman of Kampala City Traders Association (KACITA), said in an interview Thursday that despite interruptions such as holding Uganda-bound cargos at the port of Mombasa in Kenya, weeks ago and the somewhat depreciation of the shillings also in recent weeks, 2014 will close as fairly good year.

He said: “We have seen increased credit for our members and a fair improvement in terms of business compared to the previous three or four years.”

He continued: “But those gains were recently reversed when Kenya Revenue Authority arbitrary introduced a tariff that saw nearly 400 Uganda-bound containers held up at the Mombasa port. In situation like that we do not only suffer delay but unnecessary cost, all raising the cost of doing business and derailing the spirit of integration.”

Meanwhile, mid this month, while opening Fine Spinners, a $40million (about Shs111billion) factory that will add value on cotton, President Museveni said the government will be selling electricity to manufacturers at no more than $5cents. He also said to achieve this government is prepared to buyoff Bujagali Power dam which he said sells a unit of electricity at $11cents.

According to Mr Badagawa this pronouncement has excited the private sector. But according to Mr Ssali, not until this happens it is too early to celebrate.

Lack of enough power coupled with the exorbitant cost, estimated at between $16 and $25cents is among biggest reason explaining high cost of business here. Kenya, South Africa and Egypt all manufacture their products at much less price than in Uganda, making them a more attractive destination for business.

country’s export trade performance
Uganda Uganda’s export to the regional countries grew by eight percent in the previous year, according to Uganda Export Promotion Board (UEPB) statistics.

The UEPB data further indicates that by close of last year, 2013, Uganda’s total exports to EAC stood at $633million (about Shs 1.7trillion) compared to $581.4million (about Shs1.6trillion) in 2012, translating into a growth of eight percent.

As a result of the surge in volume of trade between Uganda and its neighbours, total export to EU took a slight tumble.

According to UEPB statistics, the country’s total export to Europe hit $613million (about Shs1.6trillion) although it minimally dropped by two percent by close of 2013.

Additionally, the volume of Ugandan exports to South Sudan, the country’s biggest export destination, according to Ministry of trade and Uganda Manufactures Association data, declined by about 60 per cent since a civil war broke out towards the end of last year.

South Sudan is Uganda’s largest trading partner with an annual export of more than Shs890 billion (about $358 million) as per the 2013 data from the Ministry of Trade.

Manufacturing sector overview
Uganda’s industrial manufacturing sector is relatively small.

The sector is dominated by subsidiaries of multinational corporations.

The presence of subsidiaries of multi-national corporations is largely attributed to the Government of Uganda’s privatisation programme which commenced in the mid 1990’s.

This sector is currently facing some challenges that have hampered its growth.

These include; intermittent power supply, increased cost of electricity required for production, strong competition from imported products and relatively high poverty levels that directly impact on the purchasing power of the domestic market.

The Government is currently implementing both long term and short term solutions that will mitigate the impact of the challenges faced by the industry thereby triggering growth in the sector. Source: PwC

Poor ranking
The World Bank Doing Business survey released in mid this year, giving details of the bureaucratic and legal hurdles faced by entrepreneurs wishing to incorporate and register a new firm in nearly 190 economies ranks Uganda at 166, implying that Uganda has to do more in easing business.

Another report, titled: Doing Business In Uganda: 2014 Country Commercial Guide for U.S. Companies, quoting the World Bank 2014 Doing Business survey ranked Uganda132 out of 185 countries for ease of doing business.

It stated that Uganda scored poorly in the categories of starting a business and getting electricity, but fared better in the categories of resolving insolvency.