Uganda business activity drops as rising costs bite
What you need to know:
- New companies that were registered totalled 18,984 in 2022, an eight percent drop from the previous year as per data from Uganda Registration Services Bureau.
Uganda saw fewer new companies registered in 2022 compared to 2021, signalling a decline of formal enterprise.
New companies that were registered totalled 18,984 in 2022, an 8 percent drop from the previous year as per data from Uganda Registration Services Bureau (URSB).
This is the second consecutive decline since 2020, which was dominated by economic lockdown aimed at curbing the spread of Covid-19. In 2021, there was a 10 percent drop in registrations from 22,836 new entities attained in 2020.
Even as she was yet aware of the figures from the registry when Sunday Monitor contacted her on Friday, Ms Evelyn Anite—the junior Investment minister—expressed confidence that the government’s considered priority sectors are yielding positive results.
“We have the four key priority areas—manufacturing, agribusiness, ICT and services,” Ms Anite said by phone, adding, “We are going to continue pushing those priority areas.”
The Finance ministry projects annual growth of 6.5 percent in the medium term driven by the full reopening of the economy, increased demand of Ugandan commodities globally as well as commercialisation of oil and gas.
The other factors include active import substitution of goods, government stimulus to private sector industries, improved access to credit for small, medium and micro enterprises, implementation of the Parish Development Model and digitisation of the economy for efficiency gains.
As of last December, several indices pointed towards improvement in business sentiment with the Business Tendency Index (BTI), which measures optimism among executives, rising to 51.83 from 50.93 last November; the Purchasing Managers Index (PMI), which measures prevailing trends in manufacturing also reaching 52.0; while the Composite Index of Economic Activity (CIEA), a measure that aggregates monthly economic activity hit 150.39 last November from 144.52 in the same period of 2021.
Such bullish outlooks should keep URSB—the company registry—busy. These positive sentiments are, however, far from being shared by some prospective company owners like Mr Osbert Gumisiriza, a 30-year-old beverage entrepreneur in the southwestern district of Ntungamo.
Last year as youth groups joined Emyooga, a government poverty alleviation initiative, Mr Gumisiriza registered his cottage industry at the sub-county and commenced the business of blending and packaging alcoholic drinks he aptly named “Big Boss”.
For the youthful entrepreneur, Mr Gumisiriza’s runaway “success” in hilly Ntungamo soon invited visits to his humble abode by enforcement officers from Uganda National Bureau of Standards (UNBS) who rightly ordered him to formalise, standardise or cease operation.
During the same period, Mr Gumisiriza was contending with rising prices of neutral spirit, a key input for his product, with his suppliers in Kampala citing the surging inflation, a driver of manufacturing costs, as the reason for hiking charges.
“I was advised to register one step at a time until the process ends—that at least having one document is better than having none…,” Mr Gimisiriza told Sunday Monitor, adding, “But I did not have money to go to URSB and also UNBS.”
And so went Mr Gumisiriza’s entrepreneurial initiative, ending up in collapse—much like many other startups in the country that stumble in the maze of informality.
According to the think-tank, Economic Policy Research Centre (EPRC), such businesses have high mortality rates as 64 percent of those in Uganda are six years or younger.
And going by strict definition, 72 percent of businesses in Uganda are informal, a January 21 assessment by the think-tank done for the Finance ministry shows. On the flip side, however, the much lesser-by-number formal businesses contribute just over 71 percent to Uganda’s gross domestic product (GDP), the assessment shows.
Yet “the persistence of informality in Uganda is partly a consequence of lack of information on registration fees paid by non-registered businesses, the recurrent and fixed cost of compliance and the number of days it takes to register,” the EPRC’s assessment notes, also adding that interventions to incentivise business formalisation in Uganda over the past decade have shown mixed results and brought little knowledge on how to address informality systematically.
On the other hand, there is also little awareness of digitisation initiatives such as e-tax, Electronic Fiscal Receipting and Invoicing Solution (EFRIS), Digital Tracking Solution, the Voluntary Disclosure, among others. Infrastructural deficits such as poor internet and power connectivity across the country also have a negative impact on the innovations, the assessment declares.
Indeed, for the uninitiated like Mr Gumisiriza, formalisation and legitimate standing comes with benefits as per minister Anite.
“The incentives for domestic investors are higher than those of foreign direct investors. The reason is Parliament enacted … the investment act and when we enacted that law, the incentives we give to domestic investors are way higher than we give to foreign investors,” Ms Anite said, citing the example of land where the former are permitted to mortgage land given by government at just 30 percent development compared to the latter who must attain 70 percent development before enjoying the same.
“We give priority to them (domestic investors) and we give them 30 percent development because we know that they have to go and mobilise resources. So we even give them permission to mortgage the land,” Ms Anite said.
But in a quick reminder, Ms Ainte also crystallised Uganda’s model of attractiveness that domestic and foreign investors alike should take advantage of.
“We operate a liberalised economy, so within that liberalised economy we only give incentives and do investment promotion. Why do we do that? We don’t target the Ugandan market alone because the Ugandan market is very small. We are talking about only 43 million Ugandans so we are looking at the 300 million East Africans,” Ms Anite said.
She added: “So whatever we do or are attracted to do or encouraged to do in Uganda, there are two things we do for them—we do the market promotion for them. We promote them to access the foreign market. But additionally, we also ensure that we give tax incentives or non-tax incentives.”
There’s hope for Mr Gumisiriza.