What private sector wants government to prioritise in Budget

Wednesday February 14 2018

A section of commercial buildings in Kampala

A section of commercial buildings in Kampala city. Traffic jam and congestion in the city makes it harder for trade, business and distribution more cumbersome. PHOTO BY MICHAEL KAKUMIRIZI 

By Gideon Badagawa

The Private Sector has made proposals to the Budget Framework Paper that should enable it contribute more towards a vibrant economy. These measures focus on maximising benefits to all citizens through mobilisation and efficient allocation of private resources, inclusive growth by supporting production value chains and productivity, as well as creating wealth and employment.
Private sector urges that fiscal policy rather than monetary policy must be used to stimulate production, create wealth/jobs and grow exports to address both inflation and exchange rate and interest rate challenges.

Government should support rural development by strengthening value chains. This will be done with the support of lead firms across value chains and strengthening business linkages. Interventions need to be made in a well-collaborated manner by stakeholders who support various processes. Various supporting government agencies, donor organisations and the private sector including financial institutions need to work together to stimulate production targeting given markets – local and export. Government has targeted a rural household income of about 20 million and this will require careful coordination across ministries and agencies of government, the donor groups and the private sector through Private Sector Foundation to make a contribution based on the proposed business models.

Emphasis should be put on creating synergies between various agencies, donor and private sector players supporting the agriculture sector based on both vertical value chain and horizontal value chains supporting business linkages. Efforts should be driven by leaders in various chains working with smaller players in the sector to address issues of extension services, boost production, address storage issues and provide markets. There is therefore need to link the processing plants (abattoirs) in livestock to the production centres to reduce on underutilised capacities.

Clear mechanisms on food safety, input regulations and phyto-sanitary issues need to be more funded and supported in the budget. Involvement of the security arm (army or police) in managing the substandard inputs on the market could be relevant based on the experience illustrated in illegal fish handling.
Increase the budget for research and development under National Agricultural Research Organisation from the proposed 1.2 per cent to at least 10 per cent of the agriculture budget to support production through enhanced productivity which will help spur exports. The extra resources should be generated through reduction from extension services budget and concentration on private sector participation in this area other than direct government involvement.

The agriculture budget should increase 7 from the proposed 3.8 per cent to at least 5 per cent of GDP. The additions can enhance research and development, regulations, standards and policy development.
Based on the relevance of the industry sector in providing employment, growing the revenue base and managing the balance of payment through increased manufactured exports in GDP, the budget needs to concentrate on boosting consumption that will increase value added production. This can be done through favourable tax regimes and effective regulations especially the Local Content law to enforce the Buy Uganda Build Uganda provisions.

Private sector welcomes the proposal of reviewing the NSSF Act to enable NSSF to tap into both the informal sector and the self-employed sector. We also appreciate the move to establish a contributory pension’s scheme for the Uganda civil service. These proposals should be fast tracked as they are critical to attainment of long-term financing for the economy but also assurance of a better future for all citizens.

The private sector appreciates the government’s prioritisation of infrastructure development as it plays a critical role towards reduction in cost of doing business. However, government should be more inclined to effective private sector participation through the available Local Content policies. Fast tracking of the Local Content Bill is key in this regard.
The private sector is working on creating consortia that can enable them participate more effectively in public procurement markets. If this policy is implemented, it would generate about $11 billion equivalent to 37 per cent of GDP. Government needs to work with the private sector in ensuring implementation of this policy.

Energy continues to play a significant role in the production value chains. The current industry cost of about $11 cent / KWH is still high compared to our major trade partners such as Kenya and Egypt, who are currently in single digits. This is a competitiveness threat from Kenya which could easily over run the manufacturing sector in Uganda given that we may not have measures like import taxes/ tariffs to protect our industries since we are in the EAC Common Market. There is need to reduce the energy cost to about $7 Cents/ KWH over the next two years. Meanwhile Uganda is poised to generate nearly 1,900MW over the next two years. To bring down the cost of power, more investments must be attracted to use the excess power or negotiate with neighbouring countries to take up the additional generation.

Traffic jam and congestion in the city makes it harder for trade, business and distribution more cumbersome. More importantly this challenge has rendered labour less productive. Access to Entebbe Airport is more challenging and likely to take its toll on tourism and investment.
Every year, employers lose three months when they pay for work not done because people are held or sleeping in traffic jam. This is unproductive labour.
The city should be remodelled.

The budget needs to prioritise investments in productive sectors that will support revenue generation, job creation, boost production, grow exports and stabilise forex markets. Allocations in tradable sectors such as agriculture, trade, tourism and industry, ICT and science and technology should be fairly balanced with public sector management, public administration and infrastructure.

The tourism sector budget allocations need to be enhanced from the proposed 0.5 per cent (Shs119 billion) of the budget to at least 1 per cent with clear concentration on marketing of the sector and product development.
The business community, however, believes the set targets can only be achieved if a well-coordinated framework on implementation and budget performance monitoring, comprising of the public, private and the donor community is established.
To achieve this, implementation should be driven by leaders in the respective productive value chains while encouraging them to work with other players in the sector.
Accountability must be enforced to ensure value for money.

Resource Envelope
The 2018/19 resource envelope is projected at Shs29.3 trillion, with 53 per cent of this being financed through domestic resources that is tax revenue and NTR. There is still no innovation to broaden the tax base beyond 14.2 per cent of GDP. Growth in tax revenue remains discretionary with 80 per cent of the tax base being accounted for by only less than 20 per cent of tax payers. Building tax efficiency and formalising the huge informal sector remains a challenge. These two challenges should be managed well to attain the revenue targets while allowing the private sector to grow and contribute to economic development.
The writer is the executive director at Private Sector Foundation Uganda.