Budget: What is in it for SMEs?  

Friday June 11 2021

Former Trade Minister Amelia Kyambadde (C) is taken around the Soroti Fruit Factory recently. Value addition, especially in agro-processing is a key area that is expected to recieve susbstantial funding during the 2021/22 budget and onwards. PHOTO | FILE


Unlike before, the budgeting process has transitioned to programme-based in line with the National Development Plan (NDP) III.
This implies that government will now release funds directly to projects in the 2021/22 financial year onwards as opposed to output-based budgeting. 
Fortunately, the transition benefits Small and Medium Enterprises (SMEs) that continue to contribute a large chunk to the resource envelope. 
Charles Ocici, the Enterprise Uganda executive director, says the 2021/22 budget provides SMEs a unique opportunity as opposed to waiting for government tenders. 

According to the Ministry of Finance, the budget has increased by 70 per cent from Shs26.2 trillion in the 2016/17 financial year to a projected Shs44.778 trillion in the 2021/22 financial yerar. 
This is attributed to an increase in gross domestic product from Shs108.5 trillion in the 2016/17 financial year to Shs 150.23 trillion expected by end of the 2021/22 financial year. 
The 2021/22 budget will largely be financed through domestic revenue, which is 50 per cent (Shs22.4 trillion), representing a 16.2 per cent increment.

As indicated, agro-industrialisation, which is made up of majorly SMEs is allocated Shs1.6 trillion, which represents about 3.8 per cent. 
Here, according to Mr Ocici, SMEs can tap in by supplying food to schools and hospitals directly without a government contract.
In integrated transport infrastructure and services, government has injected Shs5 trillion (11.2 per cent), from which SMEs can tap into by supplying materials incuding sand and water to construction companies.  

Parish model
The Parish Development Model is a new approach conceived under the National Development Plan III. It seeks to improve incomes and welfare of Ugandans at household level.
The model has seven pillars including production, storage, processing and marketing, infrastructure and economic services, financial inclusions, social services, mindset change, parish-based management information system, governance, and administration.
The Parish Development Model has already aroused appetite for investment with SMEs seeking opportunities to supply priority commodities among them coffee, cotton, cocoa, tea, vegetable oil, maize, rice, sugar cane diary among others for farming.

“This budget is a public-private partnership budget, which means there is going to be a lot of private sector participation which SMEs can take advantage of,” Asad Lukwago, an audit partner at KPMG, says, noting that SMEs need to look out for programmes such as agro-processing. 
Also, he notes, the recapitalisation of Uganda Development Bank (UDB) recently to support enterprises, especially those in agribusiness, value addition, manufacturing, tourism, hotel, and accommodation is another area SMEs can position themselves to tap in. 
Government, through the Ministry of Finance, indicated that it would recapitalise UDB with Shs1 trillion to support recovery of the economy,  which continues to struggle due to Covid-19.

Worrying trends and challenges
According to the Uganda Bureau of Statistics, SMEs contribute about 75 per cent of the country’s gross domestic product and employ approximately 2.5 million people. 
However, they still face existantial  challenges such as high taxation and ungazetted fees and charges, among others. 


SMEs, Julius Mukunda, Civil Social Budget Advocacy Group executive director, says need cushioning, especially at a time when their operations have been ravaged by Covid-19. 
“Some of these tax measures are regressive. For example, the 12 per cent tax on Internet shall increase the already high Internet cost which may impede businesses, especially SMEs from integrating ICT in their work,” Mukunda wrote in a pre-budget paper. 

Fears of corruption remain high in many government programmes, riding on the lack of willingness to fight the vice and favouritism in government tendering.
John Walugembe, the Federation of Small and Medium Enterprises executive director, says beyond this is the delayed payment of domestic arrears by government, which scares SMEs away from participating in government programmes.
“We should be mindful that government is not the best payer. Government owes a lot of money to SMEs,” he says.

Inadequate allocation  
Small and medium enterprises in Uganda are engaged in almost all major income-generating activities of the economy. 
At least 49 per cent of SMEs are engaged in the services sector while 33 per cent in commerce and trade. 10 per cent are in manufacturing and 8 per cent in others. 
Therefore, you can rightly conclude that the country’s budget should be developed for SMEs only. 
However, proper allocation of this part of the private sector in the national budget remains low yet the sector is the most important development instrument that government uses to transform the economy, 
As such, government must plan for inclusive participation when budgeting.