What drives Kampala’s economy?

Kampala is the capital city of Uganda with a myriad of activities. Being the nerve-centre of the country, it brings different people from all works of life, who later engage in different activities to make ends meet.
The continuous sprawl of people from villages has seen Kampala’s population shoot up. According to statistics from the 2014 Census, Kampala has a resident population of 1.5m while the day population is 4.5m.
This is attributed to the need to access services especially trade, which is perhaps lacking in some other parts of the country.
Kampala contributes approximately 6o per cent of Uganda’s Gross Domestic Product and this implies that it’s the heart of Uganda’s economy. It also accounts for 80 percent of Uganda’s industrial sector.

In 2011, Kampala’s management was reverted back to the central government whose management is now under the Kampala Capital City Authority (KCCA) as provided for by the KCCA Act which was made by Parliament in 2010.
The major purpose was to transform the city into a better economy by establishing new systems of governance and make it more administrative than political.
This has since increased the revenue collection hence provision of services to the city dwellers unlike during the Kampala City Council (KCC) times where lots of queries were being raised on revenue management and poor service delivery in the city.
For instance, in 2011/12 when KCCA had just taken over the management of Kampala, the total annual Non-Tax Revenue (NTR) was Shs25b.
However, this has since tripled over the past couple of years. KCCA currently collects a NTR of about Shs80b annually.
This, when summed up with collections from the Uganda Revenue Authority (URA), makes Kampala the biggest contributor to the country’s economy.

Business and trade
The source of the revenue in the city includes; business licences, property rates, road user fees, advertising, markets, land fees, building fees, local service tax, local hotel and hotel tax, among others.
But majority of people in Kampala are involved in informal businesses. For instance, more than 55 per cent of people in the informal sector operate in Kampala. The collected revenue funds part of KCCA’s budget.
The NTR is collected from all the five divisions of Kampala, basing on the different taxable activities people engage in. The divisions are; Kampala central, Nakawa, Kawempe, Makindye and Rubaga.

In each division, there are the drivers of their revenue collections and these collections are later tallied to come up with the total annual NTR. So what drives Kampala’s economy?
The urban informal sector in Kampala consists of all economic activities outside the formal institutional framework. Trade is by far the most important activity with 72 per cent of the informal sector employment, manufacturing at 23 per cent and services at 6 per cent.
Statistics from KCCA show that the city’s economy heavily depends on trade and properties, with the central division being the highest contributor to Kampala’s economy.
For instance, for both FY 2015/2016 and 2016/17, the central division has maintained the lead of the highest revenue collection. In 2015/16, central division contributed 43 per cent, Nakawa 13 per cent, Makindye 7 per cent and Rubaga 6 per cent while Kawempe was the least contributor with only 5 per cent.
In FY 2016/17, central division contributed 45 per cent, Nakawa 14 per cent, Makindye 7 per cent, and Rubaga 6 per cent while Kawempe again came last with only 4 per cent.

Why the disparity?
An official from KCCA who preferred anonymity because they are not allowed to speak to the press, said whereas the central division is the commercial hub both in trade activities and properties, other divisions are not well developed.
For instance, he refers to Kawempe division which he says has less business and that most of their buildings are residential and not commercial. Kawempe, despite being the biggest division, is less developed in terms of infrastructure and trade activities.
“Kawempe is the division with the highest number of slums, which poses a threat to the growth of Kampala’s economy. But when you look at divisions such as Nakawa, it has many commercial buildings, institutions like Mubs, Kyambogo, posh places like Ntinda, Bugolobi and Luzira whose properties fetch a high property tax,” the source says.
The source adds that divisions like Makindye and Rubaga, despite being small, have good structures, with some financial institutions which contribute a lot to their revenue.
In a recent interview with this newspaper, Mr Andema said that KCCA’s projection of the new property rates, will triple from the current annual collection of Shs 20billion to Shs 50billion.

In an interview with Daily Monitor, Mr Fred Andema, the KCCA director of revenue collection, said KCCA has been collecting about Shs20b from properties in the city annually because they have been using the old roll of the rating system which was last updated in 2004.
“When we finish evaluating properties in all the five divisions of the city, we will be collecting over Shs 50 b. The difference in the figures is that for the period of 14 years, we have been using the old roll yet some of the places have since developed hence making more money than before. We are hopeful that this will boost our financial base.” Mr Andema said.
He explained that the evaluation exercise, which started last year, will end by next year in July because of the magnitude of the work.
KCCA valuation team has since covered Kampala central and Nakawa divisions. The team, according to Mr Andema, will now handle all the other three divisions of Makindye, Kawempe and Nakawa at once.

Property tax is the levy on any property that exists within the jurisdiction of the city.
It is charged in fulfillment of the periodic statutory requirement of the Local Government (Rating) Act 2005. The money collected caters for the infrastructural development.
According to the Act, every property owner is required to pay 6 per cent of the money they collect from the building after expenses on bills such as water, electricity and wages.
Mr Asuman Ntale, the Rubaga division deputy mayor, says Rubaga’s economy is majorly driven by financial institutions, commercial buildings and markets. Their NRT projection, Mr Mulangira says, is about Shs9 billion.

Financial institutions such as banks in Rubaga, Mr Mulangira says, pay a tax of Shs1.3m annually, supermarkets pay annual tax of Shs1.1m while commercial buildings pay 6 per cent annually of the total income they get from their buildings.
Although all the markets in Rubaga are privately owned, Mr Mulangira says they still contribute a lot of money; hence, boosting the treasury of the division.
Nateete market was the only government market in Rubaga division but there are currently a lot of controversies over ownership of land on which it sits.
However, the revenue collected by all the city divisions goes directly to KCCA, which then sends it to URA.
The current setting is that city divisions identify priority areas which are then funded by KCCA accounting officer because powers to manage their own budgets was scrapped from them.

One-activity economy
Dr Lawrance Bategeka, an economist, who is also a former researcher at the Economic Policy Research Centre (EPRC), says Kampala’s economy is more monetised than any other region of the country.
However, he says this doesn’t happen in a vacuum, arguing that when the environment is friendly, the environment for trade is favourable.
The high revenue collected from Kampala, Dr Bategeka says, comes from the banking sector, Telecommunication companies and the transport business, among other.
But he notes that all these income-generating projects are concentrated in the central division, leaving out other divisions. This partly explains why their contribution to revenue is minimal.

Dr Bategeka also says although there are many trade activities taking place in the city, the country’s exports are still low as residents still depend on imports which he says, is a big problem to the economy. His argument is that Kampala isn’t yet fully economically independent.
“Kampala highly depends on what comes from other areas because there is a high consumption rate which is caused by the surging population. Its contribution to the economy is higher than other regions because it is where the government is based and the centre for trade activities which increases revenue.
He says although Kampala has five divisions, they don’t contribute as much revenue as the central division, leaving a big gap in terms of revenue collection.
Mr Patrick Musoke, an economist, who is also KCCA’s head of strategy, blames Kampala’s small economy on one activity - trade.
He says other potential sources of revenue such as tourism and education services, have not been tapped into to boost Kampala’s economy.

Poor city planning
Dr Amin Tamale Kiggundu, a senior lecturer of urban planning at Makerere University, acknowledges the fact that Kampala contributes highly to the country’s GDP.
But he notes that of the collected revenue in Kampala, Kampala central division alone contributes almost 80 per cent to the total revenue collected from the city, meaning all the other four divisions contribute less.
Dr Kiggundu blames the imbalance of revenue collection in the city on poor planning because Kampala has only one commercial centre, hence isolating other divisions, which if well-planned, could start contributing more revenue.
“This type of development doesn’t help in boosting the economy of the city because we now have only one division, out of the five, that is developed. There needs to be a special plan for the entire city which can help other divisions to develop. For instance, if city authorities embark on infrastructure in all the divisions, people will start investing in different businesses that can improve the city’s economy,” he says.

For instance, he gives an example of Kawempe, Rubaga and Makindye divisions which he says are majorly dominated by residential buildings instead of having different business centres that would increase the city’s revenue.
He adds that a division like Kawempe which has the highest number of slums, has for long been neglected in terms of planning.
To expand Kampala’s economy, Dr Kiggundu says city authorities should embark on creating business centres such as recreational parks, entertainment places and other income-generating projects to increase Kampala’s revenue.
He also says instead of KCCA ‘crying’ over funding challenges, they should start marketing Kampala to other countries to lobby for funds and establish commercial projects just like how other cities like HongKong, Singapore and Johannesburg started.