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Will Budget incentives spark trade?

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A woman works on a fabric in a factory. For Uganda to remain competitive, it must produce high-quality yet affordable products. PHOTO/FILE

This budget is anchored on a strategy, offering you a multitude of opportunities. It has invested in numerous interventions to further improve the business environment for the private sector,’’ said the finance minister Matia Kasaija during the budget reading for the Financial Year (FY) 2024/2025 last week at the Kololo ceremonial grounds. However, industry players await the realisation of these promises. 

In his remarks, Kasaija indicated that the private sector stands to benefit from this budget, attributing this to what he described as stable economic conditions. 
He further reinforced his position by highlighting the trade and production incentives in his speech.
During the budget speech, Mr Kasaija provided for several incentives and projects to benefit the business communities by stimulating production, particularly for export.

 Productivity programmes 
First, the government has allocated funds to implement two programmes: $217m (Shs824 billion) for the Generating Growth Opportunities and Productivity for Women Enterprises (GROW), and $210m (Shs800 billion) for the Investment for Industrial Transformation and Employment (INVITE).

With a view to enhance opportunities and productivity specifically for women-led enterprises, and to promote agro-industrialisation respectively, the projects aim at providing loans, grants, or other forms of financial support provided by government agencies, development banks, or international organisations. 
Secondly, two years ago, the government established the Small Business Recovery Fund (SBRF) to offer soft loans to Small and Medium Enterprises (SMEs) that faced financial difficulties during the Covid-19 pandemic.
 
Initially, Shs100b was allocated to provide credit to targeted beneficiaries at a 10 percent interest rate. 
Despite this, Mr Kasaija disclosed that only Shs18.4b has been disbursed, benefiting 1,459 businesses, highlighting the fund’s low uptake. 
Looking ahead to the next financial year, the government plans to ease eligibility criteria to enhance participation in the SBRF and foster SME growth.
Mr John Walugembe, the executive director of the Federation of Small and Medium Enterprises-Uganda (FSME) welcomed the initiative but emphasised the need for government to conduct a success analysis to understand who has benefited and why, aiming to address the low uptake before injecting more funds. 

“Before allocating the money, they should address these loopholes. Green traders are accessing funds at 10 to 12 percent interest rates, while others are facing rates of more than 20 percent, which is unfair,” Mr Walugembe said while appearing on NTV Uganda’sMorning AT NTV show.

Another opportunity provided is the agriculture support initiative, with a total of Shs50b designated for capitalising the Agriculture Credit Facility (ACF) to support farmers, particularly agro-processors, focusing on value addition. 
Similarly, Shs85.92b is allocated to capitalise the Uganda Development Bank, supporting the agriculture sector, private sector players, and import substitution efforts. 
“It is a promising initiative in theory, because, in practice, the ACF tends to benefit large-scale businesses and green traders the most,” he remarked. “We must establish a system that ensures equal opportunities for all, as seen in the allocation of contracts to the UPDF.” 

Mr Walugembe emphasised that if contracts are awarded to the UPDF, they should also be liable for taxation to ensure they contribute to government revenues, considering they receive funds from the budget.
However, he urged SMEs to engage in infrastructure development initiatives, such as constructing schools and hospitals and supplying goods amidst emphasizing the dangers of restricting themselves solely to affirmative programmes.
To boost production through manufacturing, President Museveni reiterated his stance on import trade. 

He said for Uganda to remain competitive, it must produce high-quality yet affordable products, highlighting the importance of cheap electricity, low-cost financing, and efficient rail and water cargo transport systems, which are essential for the sector’s growth.
Despite the well-stated strategies, stakeholders feel that the budget fails to address the priorities of the sectors that the government is emphasising.

Mr Allan Ssenyondwa, director of policy and advocacy at the Uganda Manufacturers Association (UMA), mentioned that despite the emphasis on agro-industrialisation, only 6 percent of the budget is allocated to industrialisation. 
Furthermore, the budget for manufacturing, which should receive priority, has been consistently reduced over time.

External trade
According to Kasaija, Uganda’s export promotion strategy has produced positive results. 

During the year ending April 2024, Uganda’s exports increased by $2.534b to $7.471b compared to $4.938b in April 2023, representing a 34 percent growth. 
This increase was largely driven by increased exports of gold, coffee, oil re-exports, sim-sim, tobacco, cotton, and light manufactured products. 

The major destinations of Uganda’s exports are the East African Community (EAC) countries, COMESA, Middle East, and Asia.
Despite the growth, accessing export markets remains challenging, as some external markets reject Uganda’s products to protect their own, and geopolitical factors such as the suspension of AGOA project, as well as the bureaucratic requirements to do business in Uganda.

To circumvent these challenges, the minister outlined efforts including reducing the time, cost, and complexity of business registration and licensing. 
“A Business Facilitation Centre has been established to centralise all business and investor-related services, expediting the registration and operationalisation of businesses. Processes that took weeks or months are now completed in a few hours,” the Minister said.

Tax experts emphasise the importance of monitoring expenditure to achieve its goals.
“Government should exercise fiscal prudence and live within our means. When we have a budget of Shs72 trillion with a significant portion allocated to borrowing for paying salaries, it indicates that we are already exceeding our financial capacity,” remarked Robert Mbaziira, a senior tax advisor at Ernst & Young.

Uganda’s 2024/2025 budget lays a foundation for stimulating trade and production.