Informality is a key obstacle to entrepreneurship – survey

By Christine Kasemiire

Kampala. Business informality is one of the leading causes of entrepreneurship failure in Uganda, the Uganda Entrepreneurial Ecosystem Initiative survey, has found.
The survey, which was conducted in Kampala and Gulu District, found that majority of small and medium businesses in Uganda are not registered and lack financial records thus missing out on a number of opportunities such as access to credible capital and the inability to participate in meaningful business openings.

Speaking at the presentation of the findings in Kampala last week, Mr Randall Kempner, the Aspen Network for Development Entrepreneurs (ANDE) – the lead agency in the survey – executive director, said the culture of business informality, according to the survey, is derived from the fear to pay taxes and the increasing mistrust in government.

This, he said, has made it difficult for financial institutions to assess the credit worthiness of such businesses thus having limited access to capital.
“Informality is not unique to Uganda. It is a globe problem that makes businesses hard. Most of them grow sideways and not upward,” he said, noting that as a result most small businesses have weak management skills and little access to credit.

The survey, which was supported by ANDE, Centre for Development Alternatives, Argidius, Dutch Good Growth Fund and Enterprise Uganda, examined 111 small and medium enterprises in Kampala with the aim of identifying entrepreneurship constraints and offering solutions to bolster Uganda’s business ecosystem.
Uganda is among some of the most entrepreneurial countries, however, challenges such as lack of hands-on management and entrepreneurship education, limited entrepreneurial success stories and the general lack of financing targeted at small and growing businesses, has resulted into high mortality for young businesses.

Ms Rosemary Mutyabule, the Enterprise Uganda director business advisory, said there is need for provision of practical entrepreneurship and management training at academic institutions, showcasing entrepreneur success stories and attracting new funding to have a meaningful entrepreneurial landscape in Uganda.
This, she said, must be bolstered together with the promotion of new tools to change the risk profile narrative that is associated with small businesses.
The two-phased survey will launch the second phase in which it will seek to implement recommendations, key among them, increasing small growing business’ ability and potential to sustainable growth, incentives to become tax compliant as well maintaining strong records.

Many small businesses, the survey found, are not tax compliant, which according to Mr Vincent Seruma, the Uganda Revenue Authority assistant commissioner for public and corporate affairs, limits their scope to engage, especially in large projects that have the capacity to offer them an expansion platform for expansion.
URA, he said, continues to engage small and medium businesses about the benefits of tax compliance and has established avenues such as the presumptive tax scheme, which allows small businesses with an annual turnover of between Shs10m and Shs100m to pay a fixed rated tax of Shs100,000 and Shs400,000 per month respectively.

Business attrition

The survey, according to Ms Maryanne Ochola, the ANDE East Africa regional manager, also informed stakeholders of the need to address business attrition in Uganda, which has seen many of entrepreneurs fail to sustainably operate for two years. A full report is expected to be released in October before embarking on the second phase of the survey next year.

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