Delays in registration are compounded by the burdensome compliance procedures, complex tax regulations, corruption, and an average cost of 500,000 for initial business registration. All this discourages entrepreneurs from formalising their businesses and makes informality attractive.
Three, Uganda has the highest number of young (under 30 years) in the world; that is 78% of the population. Each year, it is estimated that over 400,000 young people enter the job market to compete for approximately 9,000 available jobs. So many are chasing so few jobs and because the educated lack sufficient employable skills, the informal sector continues to expand.
Four, the lack of key business services is a major driver of informality. From difficulty of obtaining property titles to weak institutional capacity of business associations to guide, mentor and support new entrants, the informal sector is the not only the first port of call for economic activity today, but it typically ends up being the final destination for many.
Formalisation is a journey and the end of the road results in higher quality and better-paid jobs, a stronger contract between citizen and state, strengthened and reliable agreements between firms and a broadened tax base, which could potentially lower taxes because it lowers the tax burden currently being carried by few taxpayers.
When Good African Coffee Ltd started our work with coffee farmers in Kasese in 2004, we found that the majority of farmers didn’t belong to any producer groups. We began to bring farmers together into groups based on proximity, shared values, and ambition.
We knew that introducing the washed coffee method as a program in the Rwenzori region would lead to improved coffee quality and increased household incomes, but we had to first build the institutional infrastructure to support this- from SACCOS, producer groups to community trainers with credibility and influence.
My point here is that transformation requires a change in social structures which itself requires a change in the underlying social economic value system. To change values, the people must be organised into viable grassroots associations around a shared vision. The treasure will always lay in unpacking opportunities in the community, and not just by meeting their needs.
With viable associations, we can begin to unpack vocational training programs stressing entrepreneurship and business skills, and developing appropriate apprenticeship programs that give our young people skills, dignity and a better chance to find jobs.
The informal sector shouldn’t just be seen as an “invisible” sector to be “captured” but a major driver of economic opportunity and innovation; a transitional intersection to the formal economy with a visible and beneficial impact.
Andrew Rugasira is the Chairman, Good African Coffee Ltd. This is an edited version of a talk he gave at the URA Open Minds Forum on 5 May 2016 at the Kampala Serena Hotel.