Big bets, no budget: Manufacturers' ambition hits financing wall

Some of this is already taking shape. A plant in Namanve produces 120,000 hairdryers and 60,000 refrigeration parts a year.
Pharmaceutical companies are making more than 4 million HIV pills annually, and milk processors handle 800 million litres out of the 5.3 billion litres produced.

The country is also exporting $120 million worth of flowers yearly, plus avocados, bananas, solar products, and electronics that bring in another $60 million.

The government believes improved infrastructure, electricity, rising incomes, and a growing middle class can lift manufacturing output, now at $8 billion, toward levels seen in countries such as South Korea or Malaysia. That is a huge leap from $237 million in 1986.

This confidence is backed by what economists call effective demand: the ability of local and regional markets to absorb what factories produce.

According to the Trade Ministry, Uganda is using at least 50 percent of its installed manufacturing capacity, a sign that demand is strong enough to support expansion. Declining poverty and rising incomes are also fueling this momentum.
But scaling up manufacturing also means scaling up electricity. In 2023, factories used 70 percent of national power, with demand peaking at 863 MW, data from the Energy Ministry shows.

If the total value of goods and services produced in the country – Gross Domestic Product (GDP), grows tenfold without structural changes, electricity needs could hit 8,600MW—four times the current supply.
Add in automation and tech upgrades, and Uganda may need up to 20,000 MW just to stay on track. The long-term energy plan aims even higher: 52,000 MW—getting close to where Vietnam is today, Uganda’s benchmark.

The Finance Ministry wants exports to grow from 12 percent to 50 percent of GDP, with manufactured goods rising from 19 percent to 50 percent of merchandise exports, and high-tech products growing from 21 percent to 50 percent of manufactured exports.

It is an ambitious plan with tough targets and big assumptions. But it is also a shift in mindset: from raw goods to refined products, from local hustle to global competitiveness.

The bottleneck
Manufacturing is a vital pillar of Uganda’s economy, employing over two million people and contributing 24.5 percent to GDP.
With more than 7,700 firms, the country ranks among the top manufacturing investment destinations in the region.
Despite this promise, the sector is struggling, held back by limited access to affordable, long-term financing, especially for Small and Medium Enterprises (SMEs), which are the majority in Uganda’s manufacturers.

A recent policy survey of 100 manufacturers paints the picture clearly: 85 percent rely on retained earnings, 40 percent mix in commercial bank credi. But only 25 percent manage to blend development and commercial bank financing, and just 12.3 percent access bank loans, well below the national average.

Among those with loans, 44.5 percent cite high interest rates—averaging 17 to 23 percent— as the main obstacle, far above their average return on investment of 10 percent.

“This financing mismatch is stifling growth. It limits innovation, restricts expansion, and discourages risk-taking. Banks favour lending to the government, which offers lower risk and better returns, while SMEs struggle to meet rigid collateral requirements, says Uganda Manufacturers Association (UMA)’s policy officer, Patrick Kumakech in an email response.

“Banks should assess visionary potential, not just physical security,” he adds.
Many manufacturers say current loans come with short tenures and high rates, unsuitable for an industry that needs patient capital.

Out of a Shs72.4 trillion budget for 2025/2026, manufacturing received just Shs311 billion.
UMA has long called for interest rates between 8–10 percent and customised loan products that align with manufacturers’ investment cycles. It has previously written policy papers on the subject, both to the Trade Ministry and the Cabinet.
Even the Uganda Development Bank (UDB), which should offer relief, comes with cumbersome procedures.

While domestic capital markets could offer an alternative, manufacturers rarely use them. Only a handful—Cipla, Uganda Clays, British American Tobacco Uganda (BATU), are publicly listed, and none went public to raise capital. Kakira Sugar issued a corporate bond in 2013.

The reason? Uganda’s capital markets are still shallow.
As Michael Katende, an investment associate with Cornerstone Asset Managers, notes, listing requirements like open disclosures and complex legal frameworks are often too demanding for SMEs.

Meanwhile, investors are flocking to government securities offering up to 18 percent yields, leaving little appetite for corporate bonds, even though they offer better terms—no collateral and slightly higher rates than treasury bonds.
UMA executive director Dr Ezra Rubanda says: “The only manufacturer not challenged by financing is the one that does not exist.”
Beyond finance, he adds, are structural issues in Uganda’s factor markets—inputs don’t flow as predictably as finished goods.

The National Development Plan (NDP IV) identifies manufacturing as the engine for socio-economic transformation.
But for it to truly power up—improving output, quality, and exports—the National Planning Authority believes that Uganda must develop financing models that reflect the sector’s real needs, especially for small and medium businesses, which are the majority.

UMA chairman Aga Sekalala Jr puts it bluntly: “We still face financing constraints that threaten to undermine the sector’s high potential.”
The challenge is clear. The question is whether Uganda can align its financial architecture with its industrial ambition.

The banks’ dilemma
The banks know this problem so well, but their hands are tied.
At the heart of every economy are two levers: monetary policy and fiscal policy. How well a country merges these two determines whether it fuels sustainable growth or overheats and crashes. Uganda is no exception.

On the fiscal side, government spending is looked at as one that must increasingly support productive sectors, especially manufacturing, which remains the backbone of output and job creation.

But if monetary policy does not manage inflation and interest rates wisely, it can nullify the gains from fiscal expansion.

Godfrey Sebaana, DTB Uganda’s chief executive officer, acknowledges that the financing problem among Uganda’s manufacturers is valid—and largely rooted in how the banking industry’s financial system prices risk.
To understand the cost of financing in Uganda, he elaborates that “we must look at what informs the pricing decisions of commercial banks.”

Banks are required to hold a portion of deposits in reserve. This is “dead capital”—they earn no return from it, but must keep it accessible. It is a safety buffer for you, the depositor.
So that only locks in a certain amount of cash that would have been put up for lending to borrowers like the manufacturers.

These commercial banks already have at least Shs8 trillion trapped in Uganda’s court system due to unresolved bad loans. These funds, if unlocked, could be recirculated to support more lending.
This is why Sebaana says that banks have consistently advocated for reforms that untie idle liquidity and support faster dispute resolution.

So, the remaining money available to them is geared towards the less risky borrowers, and when government comes into the mix, it is considered first.

“The riskier you appear, the higher the cost of credit. Uganda, for instance, does not borrow at the same rate as a developed country—even if we always repay—because lenders factor in perceived risk,” Sebaana says.

The rate at which the government borrows—currently offering up to 18 percent on some treasury bonds—directly affects the lending rates to the private sector. If banks can earn more lending to government risk-free, why lend to SMEs at lower rates with higher default risk?

“Plus, longer loans often come with higher rates, though even shorter tenures can carry costs. It depends on how the capital is deployed, when it begins generating returns, and the sector involved.

So when we talk about offering credit below 5 percent, we must be clear-eyed. Without addressing these structural issues, such pricing is unsustainable,” Sebaana explains.

Collateral is still emphasized in credit access. But in today’s world, credit decisions are shifting towards cash flow-based lending. Banks want to see evidence that you generate reliable income, whether you are an SME, a manufacturer, or a mobile money agent.

Traditional credit models still dominate, but winds of change are blowing.
Even without formal financial statements, digital footprints—from mobile money usage to utility bill payments—can now act as indicators of creditworthiness. This is the very thing powering Uganda’s fast-growing micro-lending market.

Bank executives like Sebaana advise manufacturers to align their loan repayments with income generation, especially when procuring capital equipment. One way to do this is through documentary credit arrangements, which allow manufacturers to begin repaying loans only when the equipment is en route or already operational, not months before.

According to Irene Mutyaba Kakiri, corporate banking director at Absa Group, manufacturers should have open discussions with banks about their operational costs. This helps unlock funds tied up in stocks, debtors, or goods in transit—assets that can be financed to free up working capital.

Banks like Absa are now offering solutions such as commodity-structured financing, where financing begins from the moment stock enters the warehouse and continues until it is sold. This ensures that capital is not unnecessarily locked into inventory.

What they advise policymakers is having their part to play. Beyond monetary policy alignment, financiers ask lawmakers to ease access to credit reference data for smarter lending decisions, reform judicial processes to speed up loan recovery, and champion inter-sectoral collaboration to unlock capital stuck in one part of the economy.

Blended finance?
A recent International Finance Corporation (IFC) diagnostic from the private sector arm of the World Bank Group confirmed the lack of productive finance as a persistent challenge across Uganda’s private sector.
To address this, Anita Louise Mwandha, the IFC country officer, says blended finance—mixing concessional and commercial capital to lower interest rates can largely solve the financing problem in Uganda’s manufacturing sector.

The state’s play
David Bahati, Minister of State for Trade, Industry and Cooperatives (Industry) says the state is reforming lending practices, urging banks to assess vision, innovation, and growth potential, not just physical collateral.
He adds that UDB is being capitalised further to offer loans at rates as low as 8 percent.

Local manufacturers are now urging the Finance Ministry to pick lessons from India to make the Capital markets more attractive to the industrialists and increase participation from the general public. 
India established three development institutions—Industrial Development Corporation, Industrial Development Bank of India, and Industrial Finance Corporation—to manage high-value projects with long gestation periods.

Plus, while its commercial banks were provided with working capital, it was renewed annually to facilitate continuous operations. 
Relatedly, India fostered an equity culture, reinstated an investment culture, and introduced depreciation benefits for companies investing in stocks. The government also removed capital gains tax from shares to attract more public investment and made dividends tax-free.

“We need to have a concerted effort by the government, policymakers and private sector. Decisions to leverage the capital markets should be deliberate and intentional by regulators and policymakers to grow our industries,” says Rubanda.

Uganda's factories may be ready to roar—but without the right financing gear, they remain stuck.