A year later, SMEs still await stimulus

Despite the ongoing Covid-19 vaccination programme a year after the pandemic took its toll on businesses, there is a consensus among most economists that the economy is not out of the woods yet.

This position is being reinforced by industry captains, most of whom are still reeling from the one year of being rendered unproductive, thanks to Covid-19 pandemic and the resultant containment measured instituted by the government since March last year. 

Mid-last week, Stanbic Bank and dfcu bank released their financial results for the last year (2020). Like many other financial institutions in the country, the two leading banking industry players registered profit.

The only concern is the recorded profits were unusually low for a sub-sector that guarantees proper returns on investment year in, year out.

As a result, industry analysts say this is an indication of how tough the year was for an industry that finances businesses which wish to invest and expand. This is crucial because loans and business investment financial institution provides are important for enabling economic growth.

Further, since the Coronavirus (Covid-19) became a permanent fixture, disrupting the way of life in addition to taking a huge toll on some key sectors, leaving many businesses struggling to stay afloat over the last year, the question from micro, small and medium enterprises sector is: Where is the stimulus package the government has been talking about for a full year now?

One of Covid-19

When the World Health Organisation (WHO) on March 11, 2020, declared the novel Covid-19 outbreak a global pandemic, there was an immediate impact on labour as thousands of Ugandans were suddenly rendered unemployed while many others were asked to take a pay cut.

Some economic sectors such as tourism, accommodation  and  catering,  mining  and  quarrying, manufacturing, culture, sport  and  entertainment, wholesale  and  retail  trade, falling under the MSMES, are still experiencing the biggest layoffs as they live to fight another day.

According to the projections contained in the Economic Policy Research Centre (EPRC) survey done during the peak of the lockdown and containment measures declared by President Museveni last year, in the event Covid-19 persists for six months, which has since passed with additional six months, about 3.8 million workers would lose their jobs temporarily while 0.6 million would lose their employment permanently.

More than 75 per cent of employees projected to lose their jobs permanently are from the service sector, which has over the years been the country’s largest economic sector compared to the industrial sector. 

The other major concerns highlighted in the EPRC report relates to reduced product demand and potential inability to meet costs of operation by most small and medium enterprises, which make up the majority of businesses in the country.

No funds for MSMEs

Uganda Development Bank (UDB) in a public notice published in the Daily Monitor on March 22, 2021, stated that it has not yet received any funding for bail out of struggling businesses or any funds to be given out as packages or grants to businesses negatively impacted by the pandemic.

The government owned financial institution went ahead in the same public notice to reaffirm: “No borrower received a Covid-19 bailout package as the Bank has not received such funding.” 

This is in contrast with what the government seems to perpetuate. Government through the Ministry of Finance says it has so far released more than Shs1 trillion in total as the stimulus Package.  Some of the beneficiaries include UDB which it says has gotten Shs455b and Shs103b in two phases.

Then there is the Emyooga programme which has since been allocated Shs416b to boost the Youth Fund and Women Entrepreneurship.  Uganda Development Corporation (UDC) has so far received Shs38b and Shs100b to cater for the Public Private Partnerships. For the Micro Finance Support Centre, Shs50b additional funds has been available as a stimulus package.

Confusion

Speaking in an interview after a dialogue about MSMEs and the need for stimulus package for this segment of the economy, Mr Charles Ilukor, a Member of the Parliamentary Committee on Finance and Budget, said the problem is the confusion surrounding the access of the money meant to help MSMEs.

Save for UDB which seems to have been meant for the “big boys” across the economic sectors, Mr Ilukor believes that Micro Finance Centre funds should easily be accessed by MSMEs.

He said: “Money has been allocated but we don’t know how it is being accessed. It is possible that it could end up in the hands of wrong people and the MSMEs who need it most and for the right purpose miss out.  So, what we need to do is to have relevant government Ministries, Departments and Agencies in charge of the Stimulus Package to give accountability on how the funds have been utilised.”

As for the Ms Jane Avur Pacuto, the vice chairperson, Parliamentary Committee on Finance,  the issue is not at all about the availability of funds, but clarity and access especially for Emyooga and Micro Finance Support Centre which should directly address the MSMEs situation. 

The issue, however, remains that MSMEs who constitute over 90 per cent of the private sector and contribute about 19 per cent to country‘s Gross Domestic Product, are not accessing these funds, compelling Ms Joanita Nassuna, an advocate for Women and Economic Justice Programme at SEATINI Uganda in a recent dialogue with the stakeholders to ask: “Where is the government stimulus package for MSMEs?”

She continued: “One year after this discussion started, nothing has happened yet the Covid-19 crisis continues deepening with the MSMEs, including women-led MSMEs bearing the biggest brunt. We have been entertained with different versions of stories related to stimulus package for a sector that is the engine of the economy.”

Ms Nassuna’s fears arose from an engagement where SEATINI Uganda provided a platform for the MSMEs and the policy makers to engage on the issue pertaining to accessing the stimulus package.

It was a heart-breaking event as none of the MSMEs present in the room had benefited from the stimulus packages from the above institutions, including UDB, UDC, Emyooga programme or Microfinance Support Centre.

In fact, the MSMEs reiterated that the process of accessing these packages was frustrating and bureaucratic. They also said that administrators of these packages seemed unaware of procedures to follow.  Furthermore, the MSMEs revealed that the administrators “politicised” the packages as MSMEs had to be of a specific political party to access these packages. The loan requirements by UDB also alienated MSMEs from benefiting from the stimulus package.

Presenting virtually in the same dialogue organised by SEATINI Uganda, Ms Justine Ayebare, a senior economist at the Ministry of Finance, said government is finalising on the Small and Medium Enterprise (SME) Fund which is expected to cater for the Small and Medium enterprises whose plight have not been fully addressed by the existing stimulus packages.

She also acknowledged the fact that small and medium enterprises are still facing challenges in accessing funds/credit earmarked for the stimulus package.

Reality

Research fellow at the Economic Policy Research Centre (EPRC), Corti Paul Lakuma, said the stimulus package was provided in the context of available resources, considering that the government cannot provide what it does not have.

“So it was not adequate, but we have to use what we have efficiently and effectively,” says EPRC research fellow. Mr Lakuma was also of the view that the economy is recovering. But not as fast due to ongoing, but highly, recommended Covid- 19 related structures.

When asked about government intervention to hedge the impact of Covid-19, he noted that it is too early to determine the impact of various interventions, saying more time needs to be given to take effect. However going forward he advised that incoming packages can be designed in such a manner that is more inclusive in term of age, gender and spatial representation.

Stimulus package

Government issued a raft of fiscal incentives under a stimulus package immediately after easing the lock down restrictions in June 2020.

The International Monetary Fund (IMF), in probably the single largest intervention of macro-economic stimulus to Uganda provided the Covid-19 recovery interventions. IMF under the Rapid Credit Facility, extended Uganda $491.5 million (Shs1.8 trillion) to Uganda under the address of what it called “urgent balance-of-payments and fiscal need.”

At the announcement in the month of May and subsequent release of the cash, the multilateral lender, stated, “It will help finance the health, social protection and macroeconomic stabilisation measures, meet the urgent balance-of-payments and fiscal needs arising from the Covid-19 outbreak and catalyse additional support from the international community.”

The Private Sector Foundation on its part says under the difficult circumstances of the Covid-19 pandemic on businesses, a partnership with the MasterCard Foundation was able to realise an intervention kitty of Sh3b.

“Jointly with government and development partners, our engagement with MasterCard Foundation saw us secure Shs30 billion , part of which we have since used to procure 6 PCR Machines (Polymerase Chain Reaction) and 45,000 testing kits for Covid-19,” says Mr Francis Kisirinya, the deputy executive director at the PSFU.

He says the retail and trade sectors have also since regained traction, while manufacturing is beginning to stabilise albeit with limited cash flows.

“We see the retail and trade sectors stabilising. While manufacturing is trying to cope with production, their cash flows need to improve. We are engaging with the Uganda National Bureau of Standards to ensure that businesses have their quality assurance certified, in or to ease on their competitiveness,” Mr Kisirinya says.

For the Federation of Small and Medium Enterprises, “interventions by the Central Bank on interest rates through lowering the Central Bank Rate in June from 8 per cent to 7 per cent was very significant. The restructuring of loans which has since been extended for another 12 months, is also a major relief to most of our members,” according to Mr John Walugembe, the executive director.

“We are also hopeful that the commitment by the government to pay off the domestic arrears worth nearly Shs700 billion, would be of major impact should it materialise,” Mr Walugembe says.

Tax deferrals

For senior tax consultants such as Mr Muhammed Ssempijja, a lead partner at Ernst & Young, the tax deferrals were a relief, in particular waiver of penalties due on selected tax arrears.

“The (economic) stimulus had the waiver of penalties on tax arrears and for the companies that benefited from this, it was a relief. But the government needs to ensure it does not over tax the public, if the economy is to recover quickly. For instance, why introduce a new tax (proposed) on motor vehicles? the fuel levy is already high enough,” cautions Mr Ssempijja.

He says, “Productive sectors of the economy are yet to fully expand and they are in need of incentives. The public sector interventions remain very critical considering the fact that the consumers of goods and services barely have sufficient disposal incomes.”

No funds

Uganda Development Bank (UDB) in a public notice published in the Daily Monitor on March 22, 2021, stated that it has not yet received any funding for bail out of struggling businesses or any funds to be given out as packages or grants to businesses negatively impacted by the pandemic.

The government owned financial institution went ahead in the same public notice to reaffirm: “No borrower received a Covid-19 bailout package as the Bank has not received such funding.”