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Limited awareness hampering uptake of venture capital in Uganda

(L-R) Stanbic Bank sustainably Manager, Cathy Adengo, Finance and investment Specialist, Olivia Byanyima, EAVCA Coordinator Uganda, Doris Acheng and Andrew Mugerwa, a director at UDC during the Economic Mkutano in Kampala on Nov.23.

Kampala, Uganda | ISAAC KHISA | Ugandan businesses have an opportunity to tap into venture capital to facilitate their growth and expansion but they have limited information in relation to their existence and their mode of operation.

Doris Acheng, the coordinator for Uganda for the East African Venture Capital Association said during the Economic Mkutano 2021 held at the Mestil Hotel in Kampala on Nov.23 under the theme ‘Building a Sustainable & Competitive Industrial Sector in Uganda’ that there are many venture funds seeking to invest in the local businesses them but they are nowhere to be seen.

“There is a significant number of primarily Pan-African focused venture capital funds. The problem is not on the supply side. Some of them have technical assistance facilities to raise the capability of African firms to absorb that capital,” she said.

“There’s need to create awareness to the SME’s about the alternative source of funding such as venture capital. Success stories of businesses that have grown as a result of venture capital needs to be in the public.”

This comes at the time small scale businesses are up in arms over their inability to access long term funds from the government owned Uganda Development Bank. The situation is complicated with the high interest rates charged by privately owned financial institutions.

Meanwhile, Andrew Mugerwa, a director at the Uganda Development Corporation said the government’s investment arm is considering sourcing additional funds from the venture capital to invest in the struggling but promising industrial firms countrywide.

This, he said, is because of the government limited funds. Currently, the government extends Shs 50billion per annum although this figure went up last year.

Prof. Pamela K. Mbabazi, the board chairperson at the National Planning Authority said owed to the fact the manufacturing in Uganda is dominated by small and medium enterprises (SMEs), which make up some 93.5 percent of firms operating in the sector, they are usually not able to reap the benefits of economies of scale.

“… given the strong correlation between firm size and export capacity, these SMEs have had difficulties competing internationally,” she said, quoting a study done by the World Bank in 2017 that indicated that  of the top 500 firms in Africa, Uganda had only three companies on the list, and none of these were in the manufacturing sub-sector.

Prof. Mbabazi said for the country to achieve the National Development Plan III target, the government will consider coming up with various measures including levying higher import tariffs on selected commodities that are either being produced domestically or could competitively be produced here; fast track the construction of industrial parks to efficiently increase access of potential manufacturers to strategic infrastructure; and review tax policy to promote local investments in industrialization.

Others are; prioritize infrastructure development supportive of the regional and global trade aspirations roads, rail, cold storage facilities and electricity;  prioritize the development of industrial value chains that have a low import content (signaling availability of domestic raw materials), and strong backward and forward linkages.

She said the Science, Technology Development and Innovation Program Working Group has already prioritized the development of eight industrial value chains, namely: iron and steel, engineering, mobility, agro-industry, beauty and apparel, pathogens, digitalization, and oil and gas and the associated petrochemical industry.

“This working group, with the support of the National Planning Authority, will provide an effective coordination framework for the development of these industrial value chains by working hand in hand with promising industrial establishments and innovators to create an effective business model and strong eco-systems,” she said.

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