By Ivan Rugambwa
Emulate Asian economies that rely on and support market responsive SMEs
On August 15, the `Youth Manifesto’; a document highlighting key issues the youth want prioritised by leaders, was launched at Makerere University in Kampala. Not surprisingly, unemployment ranked no.1 on the list. It is easy to see why. Of the 35 million Ugandans, 78% are 30 years and below. Of those, 80% remain unemployed. Of the over 40,000 graduates that are churned out by our universities annually, less than a quarter get absorbed in the job market. These statistics are worrying, and should concern us all.
Yet Ugandans are an enterprising people. Approved Index, a global firm that studies the levels of entrepreneurship among countries confirmed this. In a report released just days after the Youth Manifesto, Uganda was ranked the most entrepreneurial country in the world. Economic power houses like the US and the UK trailing in the 41st and 37th place respectively.
The study noted that 28% of Uganda’s adult population started businesses in the last 42months, almost twice as high a rate, as any other country in the world. For the majority of respondents, unemployment and the need for survival catalysed their enterprise.
These findings are important, because more than 30% of Uganda’s working population is in the informal sector. Majority of these operate Small and medium enterprises (SMEs), employing less than 250 people. Globally, the life span of these enterprises is rather short, with less than one-half of start-ups surviving for more than five years, and only a fraction developing into high-growth firms which make important contributions to job creation. In Uganda, the death rate is even higher, with 90% of startups not surviving to celebrate their first birthdays. The main barriers to growth are market failures in capital markets, government regulations, limited access to foreign markets, difficulties in recruiting qualified staff and skilled workers and limited access to credit due lack of collateral.
Yet SMEs, have the potential to not only facilitate rapid economic growth, through import substitution and direct exports that improve a country’s Balance of Payment Position, but are also sources of jobs. This is because they tend to be market-driven rather than research-driven, which makes them quicker in responding to new opportunities than large firms. In this way, they play a key role in pioneering and developing new markets. Moreover, they require less capital to set up, yet their labour intensive nature and expansive reach mean that they create millions of jobs. Indeed, Asian economies like Japan, Malaysia, Sri-Lanka, among others have had SMEs to thank for their economic boom.
In Japan for example, Small and Medium enterprises (SMEs), are considered to be the backbones of the economy. By 1999, there were about 4.8million SMES, accounting for 99.7% of the total enterprises in the country, and employing a whopping 31million people, that accounted for 69% of Japan’s workforce.
But SMEs need to be supported. This can be through setting up micro-finance credit facilities at lower levels, and if possible, specialised development banks to provide low interest rates to those seeking to set up such enterprises. Fortunately, the Uganda government is doing just that.
The Uganda Development Bank, specifically set up for this purpose, was recapitalised with Shs.500billion this financial year, to be able to provide long term loans at lower interest rates to agriculturalists and industrialists.
Specifically for the youth, government introduced the Youth Venture Capital Fund in the 2011/2012 financial year. This is a Shs44 billion fund, accessible through commercial banks to individuals or youth groups with established businesses. It has evolved into a Shs265 billion fund, today known as the Youth Livelihood Programme. Although obviously insufficient for its rather huge mandate, it’s already had undeniable impact. As of December 2014, a total of 36,144 youth had received technical and financial support to enable them establish projects, with 2,788 youth projects worth Shs 19.6 billion having been supported under the Programme.
To enhance youth competencies in business management, the government started the Skilling Uganda Project, to enhance skills development, and mitigate the mismatch between the theoretical training in tertiary institutions and the practical demands of the market. This financial year, the project was also given a Shs5 billion boost.
These interventions, although far from sufficient, are steps in the right direction. There’s of course still need to reduce uncertainties in the tax, regulatory and macroeconomic environment and encourage the mobility of human resources and the markets for specialized services. There is also need to widen access to ICT infrastructure through construction of ICT incubation hubs across the country in collaboration with the private sector, to connect small businesses to opportunities and markets at national and international levels. Although these are important for the entire economy, they produce peculiar value for SMEs.
Fortunately, the infrastructure is in place. Private sector access to credit has continually improved by 24% per annum, thanks to the penetration of commercial banks. Access to financial services has improved, with adults excluded from the financial network declining from 4.3 million in 2009, to less than 2 million today, thanks to SACCOs and mobile money networks across the country. With 19.5 million phone users in the country, the number of internet subscribers is today in excess of 4 million people. If well harnessed, this infrastructure means there’s no limit to what SMEs can achieve.
For the youth therefore, the coming elections present an opportunity to choose a leadership that is appreciative of both the dilemma we face in youth unemployment and the opportunities at our disposal. The youth should be on the lookout for sound alternatives that inspire hope. The political class should note that the youth have the numbers on their side as more than 60% of the registered voters will be first and second time voters.
The writer is a Student of Journalism and Communication at Makerere University. He can be reached at @ivanbfa