Why 2022/23 Budget is short on funds for small businesses

Smallscale businesses in downtown Kampala. SMES can improve on their skills and quality of work to compete, and also sub-contract, with foreign contractors in the supply of goods and services. PHOTO/MICHAEL KAKUMIRIZI

What you need to know:

About Shs500 billion has been earmarked for clearing SMES’ arrears in the 2022/2023 budget. Yet small and medium sized enterprises have more than Shs2.5 trillion in arrears.

The 2022/2023 national budget is eliciting some kind of unique agitation among small business.

Industry players, economists, policy analysts and researchers interviewed for this article attribute this to the timing of the national budget—coming into force in barely eight weeks. Currently, the economy is struggling with the rising prices of essential commodities such as cooking oil, laundry bar soap, fuel and high transport fares.

According to the members of the Civil Society Budget Advocacy Group (CSBAG) analysis, prices of laundry bar soap increased by 48 per cent, cooking oil by 78 per cent and fuel by 34 per cent in the last one year. 

This, the analysis notes, is partly attributed to the increased demand against the supply/production channels. Although there might be no control of some of these drivers, it is crucial for government to consider strengthening and enforcing current regulations on essential commodities to guard Ugandans against anti-competitive practices. The beginning point, according to the expert analysis is for the Parliament to expedite the enactment of the Competitive and Consumer Protection Bills. 

While that plays, the crux of the matter is the incremental but constrained resource envelope.

The total resource envelope for FY 2022/2023 is projected to increase by 6 percent which translates to slightly more than Shs2.4 trillion. Specifically it will increase from Shs 44.7 trillion in FY 2021/22 to Shs47.2 trillion in FY2022/23.

Nearly 40 per cent of (Shs18.6trillion) of the overall budget will be for statutory expenditure while 60.7 percent (Shs28.6 trillion) will be appropriated for service delivery.

However, the animal called debt servicing is waiting to pounce on its prey—the national budget, and suck the life out of it.

This is because it is no longer a secret that large public debt stock constrains government’s ability to finance important policy initiatives. The increasing public debt also exerts pressure on the country’s revenue obligations.

“For instance, high debt repayment reduces debt sustainability, fiscal space and perpetuates poor distribution of public resources. This impedes government from public spending which affects service delivery,” reads the analysis.

The Bank of Uganda Monetary Policy Report (February 2022) revealed that public debt increased from Sh69.7 trillion in June 2021 to Shs73.6 trillion in December 2021 indicating a 5.6 percent increase.

Where does that leave MSMEs?

According to government, the country’s economic development is premised on Micro, Small and Medium Enterprises (MSMEs). The sector spreads across all sectors with 52 per cent in the services sector, 33 per cent in commerce and trade, 10 per cent in manufacturing and 8 per cent in other sectors.

This sector of the economy already provides over 2.5 million jobs, making it the largest employer in the country. The MSMEs Enterprises also account for approximately 90 per cent of the entire private sector, with over 80 per cent of manufactured output contributing between 18 t0 25 per cent of the Gross Domestic Product (GDP).

Most MSME interviewed for this article don’t believe the 2022/2023 national budget has their interests at heart. And the reason is simple – unpaid arrears!

To date, there is more than Shs2.5 trillion in arrears. This is the amount of money owed to SMES who supplied the government with several goods and services over the years. The government’s inability to pay in good time for services and goods it has consumed is incapacitating SMES inability to grow especially in wake of the ongoing Covid-19 induced shocks. 

In an interview, the Director Economic Affairs at the Ministry of Finance, planning and economic development, Mr Kaggwa Moses told Prosper Magazine that about Shs500 billion has been earmarked for clearing SMES’ arrears in the 2022/2023 budget.

Further, he noted that MSMEs who will supply Ministries, Departments and Agencies of government henceforth should be paid by those agencies using their budgets which include procurement of goods and services.

“The MDAs can pay some of their suppliers. They don’t need to wait for us at the ministry to clear their arrears. That has been taken care of in their budgets. So they should be able to pay for services they procure from MSMES,” Mr Kaggwa told Prosper Magazine. 

He also disagreed with the notion that the budget has nothing for MSMEs, saying programmes such as the small business recovery fund,  Emyooga, Microfinance Support Centre Funds and even the Parish Development Model initiative are all geared towards supporting the MSMES sector. 

He said: “There is no money which is called MSMEs for people to come and pick. What we have in offer are the initiatives that can help propel the cause of MSMES .”

He continued: “Support for strategic investment for SMES is still there. We still provide up to 10 year tax holiday and tax exemption among others things to SMES. I can tell you all these are still part of the budget and SMES can make use of them.”

Experts show their hand

Research fellows in the macroeconomics department at the Economic Policy Research Centre, Corti Paul Lakuma, when commenting on the impact of the national budget on SMES, the economy and livelihoods responded:  “Our budget is more than 60 percent procurement of goods and services. So suppliers will benefit immensely. The only problem has been delays in paying suppliers also known as arrears. However, I am told the arrears problem is being resolved.”

Responding to how best SMES and the economy can harness the benefits of the national budget, researcher Lakuma noted: “SMES can improve on their skills and quality of work to compete, and also sub-contract, with foreign contractors in the supply of goods and services in the energy and transport sectors.”

As for Senior Research Fellow, Dr Madina Guloba, the budget should always be proactive as opposed to reactive.

She said: “Now that our budget is programme based then under the trade sector, programme policies that can boost MSMES access to market or improve quality and standards needed in the market should be the focus.”

“UDB should be more tailor made in terms of its support to SMES because that is how the budget can trickle down with some impact. But that will also be dependent on the interest rate charged.”

Dr Madina also observed that while the budget is incremental in nominal terms, in percentage terms it means nothing because the increments in the national budget are for specific sectors which see increases year in, year out such as the security and works sector at the expenses of social sectors.

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