Private sector: Here’s how to salvage the economy

Tuesday June 2 2020

Some business have resumed in Kik

Some business have resumed in Kikubo, downtown, Kampala. PHOTO BY ALEX ESAGALA 

By Dorothy Nakaweesi

KAMPALA- The business community has issued six-crossing cutting interventions that the government must address if the economy is to recover from the effects of Covid-19.

The business community, under Private Sector Foundation Uganda (PSFU), says businesses that had been operating at between 50 and 60 per cent capacity has since dropped to or below 20 per cent.

In the May 19 document signed by PSFU chairperson Elly Karuhanga, the business community says because of Covid-19, local demand for both goods and services has reduced by or more than 50 per cent while international demand has dropped by between 5 per cent and 26 per cent.

“This was largely caused by lockdowns and adherence to the standard operating procedures (SOPs). Loss of income due to unemployment reduced cash flow and increased prices,” the document reads in part, adding that on the demand side, Covid-19 has seen a reduction in access to inputs, which has eaten into operations of small and medium enterprises (MSMEs).

“At least 38 per cent of MSMEs have no access to inputs, 55 per cent face a moderate increase in input prices and 90 per cent businesses have had to increase operating expenses by at least 25 per cent while those who could not handle suspended operations,” the document said.

Therefore, PSFU said, the survival of businesses will be more reliant on government intervention.


Domestic arrears
Key among the interventions, according to PSFU, will be the need for government to pay domestic arrears and outstanding value-added tax (Vat) refunds, which currently stand at around Shs3.7 trillion.

In an earlier meeting with Finance minister Matia Kasaija, government expressed willingness to clear private sector arrears but only for productive sectors of the economy such as agri-business and manufacturing.

PSFU also wants the government to recapitalise Uganda Development Bank (UDB) by $1b (Shs3.8 trillion), secure a two-year non repayment moratorium on government’s foreign debt as well as amend the Insolvency Act to include non-performing loan asset rehabilitation.

This, they argue, will allow organised transfer of non-performing loans from banks but also bring back insolvent companies to life.

Other suggested interventions include addressing the enactment of the NSSF Amendment Bill, 2019, to increase supply of local and long term affordable financing, which will allow NSSF to participate more effectively in buying financial instruments.

The impact of the interventions, according to PSFU, will improve cash flow and in the short-term makeup for significant decline in sales in the domestic and export market as well as reduce the cost of doing business, while allowing businesses to minimise layoffs in the short-run and prevent bankruptcy.
PSFU also demands that there should be immediate deferment of tax payment obligations.
To achieve this, PSFU calls for deferment of statutory payments for six to12 months interest-free and reduction in the rate of corporate tax from 30 per cent to 20 per cent.

“This will incentivise investments both foreign direct investments (FDI) and local. Government should reinstate the investment allowance for the next four years at least. Lower taxes (Excise tax) on products produced with locally sourced raw materials,” PSFU noted.

PSFU argues the impact of the above interventions on taxes will see companies retain about 2.2 million workers while liquidity improvement will ensure business survival.

“We also think that this will see increased locally manufactured goods leading to increased income opportunities for the poor that supply local raw materials,” PSFU added.

On the issue of poor quality and high cost of telecommunications (Internet), PSFU want to increase resources targeting internet penetration from 37 per cent to at least 80 per cent and increase financing of ICT in schools and software development.
This is aimed at reducing the cost of data to support digitalisation which offers efficiency in service delivery.

Government efficiency
PSFU wants the government to procure goods/services through online reverse auction system (bidding by private companies to supply government) to address the efficiency in government spending.
“We think this method of government procurement through online auction can save spending in the budget by approximately 50 percent (eliminating corruption/saving on expenditure/ extra funds),” PSFU shared.