Cost of doing business reducing, says NPA

Access to financing in Uganda is limited due to stringent financial requirement, particularly land collateral. Photo | File 

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Even with the progress, the report notes that more still needs to be done, especially in regard to easing access to construction permits, electricity access, trading across borders, registering property, paying taxes and access to affordable credit, among others. 

A report by National Planning Authority (NPA) has shown that government has registered progress in reducing the cost of doing business even as there are still major financial and logistical challenges.

The report shows that Uganda has made a 16 percent improvement in doing business in the last five years, driven by improvements in contract enforcement.

However, the report notes that more still needs to be done, especially in regard to easing access to construction permits,  electricity access, trading across borders, registering property, paying taxes and access to affordable credit, among others. 

The report further indicates that a small and medium enterprise business spends nearly a month to undertake 13 procedures to set up a new company while majority of micro small and medium enterprises, which represents about 74 percent, are constrained by access and cost of credit.

The findings are contained in the National Development Plan III 2024-25 strategic plan. 

In notes published together with the report, Mr Joseph Muvawala, the NPA executive director, noted that despite the reforms made in the financial sector, interest rates in Uganda remain high, standing at between 20 percent and 23 percent. 

“Access to finance is limited [due to] stringent financial requirement, particularly land collateral.  This limits growth because [small businesses] cannot acquire or absorb new technologies nor can they expand to compete in global markets or even strike business linkages with larger firms,” he said, noting that the absence of sufficient options for long-term financing forces businesses to resort to short term loans to execute long term projects, which is extremely expensive. 

Uganda generally lacks a solid base for long-term financing due to weak retirement benefits and insurance sectors, which are a foundation for long-term investments. 

Long-term financing also faces challenges due to an underdeveloped capital markets space, which means that provision of equity and debt financing is only available to a small number of large companies. 

Uganda also lacks a solid development finance sector, which is key in provision of long term capital. 

Therefore, Mr Muvawala said, such challenges have constrained expansion of medium, small and medium enterprises yet they are key in providing employment. 

Lack of access to credit, the report noted, is worsened by the public sector accumulation of domestic arrears, which Mr Muvawala said has resulted into failure by at least 19 percent of business enterprises in the private to pay debt and delayed payments for supplied services and products.

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