Wednesday September 13 2017

How SMEs drive economy

A worker welds metal frames at a workshop in

A worker welds metal frames at a workshop in Kampala. One should master the required skills before investing in this business. PHOTO BY RACHEL MABALA 

By Peter Mulira

The last 30 years have seen Africa change from an economically backward continent to being the world’s most exciting economic frontier. By 2035, the number of Africans joining the work age population will surpass the rest of the world combined according to the International Monetary Fund. Currently, Africa is offering hope to more than 200 million youth between 15 and 24 years to become a new generation of accomplished and engaged youth.
There is something unique about what is happening to the continent, which experts say is on course to achieving an economic growth of around 4.5 per cent by 2016.

This can be achieved through the vibrant small and medium sized enterprises which can help to create jobs and economic prosperity.
These small but growing businesses create around 80 per cent of the region’s employment, with formal small and medium sized enterprises contributing up to 45 per cent of the total employment and 33 per cent of the national income (GDP) in emerging economics and establishing a new middle class fuelling demand for goods and services.

SMEs and growth
The Micro, Small, Medium, Enterprises (MSMEs) are the engine of growth for the economic development, innovation, wealth creation of Uganda.
They are spread across all sectors with 49 per cent in the service sector, 33 per cent in the commerce and trade, 10 per cent in manufacturing and 8 per cent in other fields.

More than 2.5 million people are employed in this sector, where they account for approximately 90 per cent of the entire private sector, generating over 80 per cent of manufactured output that contributes 20 per cent of the gross domestic product (GDP).
Uganda Bureau of Statistics has adopted to categorise enterprises based on any of the following criteria of; number of employees, capital investment and annual turnover.

In quantitative terms, micro enterprises are those businesses employing not more than five people and their total assets do not exceed Shs10 million. On the other hand, small enterprises employ between five and 49 people and total assets between Shs10 million but not exceeding Shs100 million. The medium enterprises, therefore, employ between 50 and 100 people with total assets of more than Shs100 million but not exceeding Shs360 million.

Thanks to liberalisation and entrepreneurial spirit attached with a conducive investment climate, private ownership of businesses has led to Uganda’s economy growing in the recent years. In 2014 Uganda saw the consolidation of macroeconomic stability and a gradual recovery if economic activity, with real GDP growth of 5.9 per cent in FY 2014/15 and 6.3 per cent in FY 2015/16.

There are a number of constraints or barriers which affect small, medium enterprises in doing business like lack of knowledge of opportunities in foreign markets and the different regulations in trading with our neighbouring countries that hinder trade.

Investment opportunity
However, Africa offers the last big investment opportunity. The United Nations economic commission for Africa asserts that the average return on inward investment for Africa as a whole is four times that of the G-7 countries, and twice that of Asia. New policies and political stability is slowly creating a new economic environment across the continent, mainly political change is the driving force offering opportunity and openness. This has led to liberalisation and privatisation in the region.

AFRICA’s growth
Africa has grown despite the global recession, Eurozone crisis, low growth and stagnant wages in the west and a slowdown in China. This development carries the uphill task, of creating jobs for 600 million people in the next 15 years to absorb the ever growing global workforce, mainly in Asia and Sub-Saharan Africa.

Peter Mulira works in the Investment Promotion Division at Uganda Investment Authority.