John Walugembe is the Executive Director for Federation of Small and Medium Enterprises, an umbrella body for SMEs in Uganda. The Independent’s Julius Businge had an interview him on the impact of COVID-19 on SMEs.
What major milestones has the federation recorded since its establishment?
The Federation was established in 1990 but reconstituted in 2017. The organization plays a pivotal role in creating a robust and conducive business environment for small and medium businesses in Uganda. The organization also offers business development services to SMEs, either directly or indirectly. We have over the years grown our membership base to more than 25,000, with a presence in every district of Uganda. We regularly organize digital literacy trainings countrywide – these have benefitted close to 5,000 people.
Could you sum up the contribution of SMEs to Uganda’s economic growth aspirations?
The SMEs in Uganda constitute more than 80% of Uganda’s private sector, employ 8.5 million people and account for between 70-90% of non-farm employment. SMEs are the engine of economic growth, innovation and wealth creation. Uganda cannot therefore attain middle income status without paying sufficient attention to this sector.
The government has put in place a stimulus package for SMEs to support their recovery from COVID-19 effects. What is your assessment of this package?
The COVID-19 pandemic has had both supply side and demand side negative impacts on the businesses of our members. The pandemic and the restriction measures adopted by the government have led to job losses, supply chain disruptions, cash shortages and a sudden drop in demand for goods and services leading to very minimal or no sales. In our position paper presented to the Parliamentary committee on the national economy, we argued that any stimulus package should include the following measures: tax relief to SMEs, measures to boost liquidity, the payment of domestic arrears, reviewing of the budget to remove any wastage and support to SMEs to digitalize. Subsequent to our statement, the Government announced a Stimulus Package which included Shs130 billion being allocated for labor intensive works to boost demand, Shs256 billion being allocated as seed capital for youth and women, Shs94 billion being allocated to SACCOs and MFIs and Shs1.045 trillion being allocated to Uganda Development Bank for lending to SMEs among others. In addition, Shs673billion was allocated towards payment of domestic arrears. Overall, we find these measures to be well thought out and sufficient. However, I think that the decision to defer taxes, instead of waiving them, is a problematic one.
The Uganda Securities Exchange already has a platform for SMEs to list and raise capital – Growth Enterprise Market Segment – but none of your members has taken advantage of it. Why?
African stock exchanges are struggling to convince SMEs to sell their shares to the public. For instance, in a period of five years since launching their SME trading platforms, the Nairobi and Dar es Salaam stock exchanges only attracted five companies. In Uganda, many companies are family owned and are not ready for very strict corporate governance regulations and scrutiny, once they list. Secondly, the USE is also performing poorly due to its illiquidity. My advice to the USE is to look at relaxing some of the reporting and corporate governance requirements in order to accommodate more SMEs.
Starting a business is one thing and finding market for the products in another…What are your thoughts on this problem?
Although the Federation is supporting its members in the area of market linkages through organizing exhibitions, buyer-seller meetings and running an online market portal it is vital that SMEs only start businesses after thoroughly assessing their market potential. Starting by manufacturing a product and then looking for a market for it is not a very smart way of going about things. That is why the Federation of SMEs is supporting SMEs to develop business plans and feasibility studies, through its start-up centers.
How have your members benefited from Buy Uganda Build Uganda policy that appears not to be implemented fast enough?
The BUBU policy was approved by Cabinet in 2014 with a goal of promoting locally produced goods and services. Key actions included engaging supermarkets and shops to stock locally produced products, branding Ugandan products and services, building the capacity of local producers in procurement and others. Unfortunately, this policy has remained largely on paper. However, with the recent passing of the Local Content Act 2019 by the Parliament of Uganda, we are confident the implementation of preferential schemes will be expedited.
What supporting factors are behind those SMEs that are succeeding in their operations today?
The SMEs that will succeed in the post COVID-19 era are those that will reposition their offerings to meet their clients’ needs. Secondly, it is those SMEs that will digitalize their operations. Business activity is shifting online and SMEs must recognize the opportunities that are available online and leverage them. SMEs that handle their human resources with care will succeed, since staff are the heartbeat of any business.