SMEs are Uganda’s engine for growth

Deloitte, an international Audit firm operating in Uganda is working on a plan with the Ministry of Trade Industry and Cooperatives to aid small and medium enterprises (SMEs) grow their enterprises and boost economic growth. Its Managing Partner in Uganda, Norbert Kagoro, spoke to The Independent’s Julius Businge about their involvement in SMEs.

Why does Deloitte venture into matters SMEs?

We are a professional services firm offering advice to businesses regarding financial performance and tax advisory. We believe SMEs are Uganda’s engine of growth. We are helping SMEs to comply with laws and regulations right from their formation. We are also aware that the Ministry of Trade is also having discussions with a credit rating agency that will be looking at the ability of SMEs to access finance from banks to be able to invest and expand their operations.

What strikes you most when you look at this segment and its contribution to the economy?

Going by the guidance of the Ministry of Trade, SMEs have been categorized according to the number of people they employ. However, in some instances, this may change especially where companies with very few people record high turnover because they have embraced good technology. When you look at the Ugandan concept, SMEs are those largely categorised to have between one to four people with a turnover of Shs 0-Shs 10 million also known as micro, then those with 5–49 people with a turnover of Shs 10-100 million – categorised as small, and then 50-100 people with a turnover of Shs 100-360 million – categorised as medium. SMEs in Uganda make up over 70% of our economy and contribute above 20% of our GDP which is really sizable. Their work spans from service provision, selling of goods, information technology, agriculture and furniture making among others.

Some people have described President Yoweri Museveni’s giving of youth groups equipment and cash as purely political and not something that would boost SME enterprises. What is your opinion on that?  

I don’t want to sound political because that is a political decision. But I want to believe that the President has got his background as to why he uses that approach. But I know some support of SMEs [under the Ministry of Gender working with Centenary Bank] which is really very good. There is also a program called Youth Livelihood Program which is also good. In government, you have a political and policy side which must move hand in hand.

So how best can SMEs attract financing opportunities?

They need to start from their families. Starters also need to save and form partnerships that can attract cheap capital. There is an option of going to micro-finance institutions or commercial banks or listing on the stock market. But for all these avenues to work, good corporate governance of SMEs is critical because there is no lender or partner who is going to offer credit to a poorly managed business. They need to be open and transparent with good financial discipline. They need proper structures – a Board of Directors, professional managers and more. Lenders will deal with those they think are less or not risky at all.

How best should SMEs survive in a volatile economy?

Good governance practice is the key. They need to search for good markets for their output. Getting the right financing mix from credible sources in addition to formalising or creating groups or investment clubs similar to Uganda Manufacturers Association are important. Forming groups would help them open up their businesses to professionals who can advise them on the challenges they might be having. Up skilling their operations in terms of management, financial reporting would help them attract support from government and survive in bad economic times.

What rebates are suitable for Uganda to apply to lure SMEs to formalise?

URA has already set a platform for SME formalisation and they have structures of paying tax depending on size of the enterprise. There is need for making SMEs meet their tax obligations at the local government level without them necessarily dealing with URA directly. This is because local government knows where everybody operates and can easily follow-up. I think that is an area that we might need to explore to bring SMEs into the tax regime. SMEs should also benefit from the tax that they pay in form of services rendered by government.

What would you say are better sector options for SMEs to focus their resources to grow at the moment?

One of the hot items today is agriculture. I know African Development Bank has set aside money for supporting large scale agriculture industrialisation in Africa. So how can we tap into that money? When starting a business, you start one that you clearly know. Most Ugandans have attained what they have out of agriculture. We need to emphasise value addition; SMEs in agriculture need to know weather patterns properly to benefit from the sector. In the next 2-3 years, services are going to be key and it is one area that SMEs need to look at. Oil and gas and minerals are the other key areas SMEs should prepare to tap into.  The good thing is that we are seeing financing institutions, telecom firms increasing channels for delivery of financing without necessarily investing in brick and motor areas.

What do you envisage as SME contribution to the economy once opportunities available are exploited in the coming years?

They will contribute more to the economy. Actually the 20% contribution to GDP could be small. You may find there is a lot of data that is not captured. Many of our parents are out there producing for consumption and may not be captured in our data. That needs to change. We can capture most of this data at local government level and see what SMEs can do for us. We need to create innovation villages for all sectors to be able organise SMEs and grow them. For all this to happen, it means there has to be favorable government policies.

You recently unveiled SMEs value proposition service in Uganda. How does it benefit the economy?

The recently unveiled Deloitte Small and Medium Enterprises (SMEs) Value Proposition is consistent with our 2020 strategy. This is an affordable subscription – based value proposition designed to meet the unique service needs of Uganda’s SMEs including bookkeeping and accounting, tax compliance, business performance insights and corporate governance. These services are offered on a monthly subscription fee of US$490 (Approx. Shs1.8 million). The service targets SMEs of all sizes and across all sectors of the economy – from ambitious start-ups to SMEs who want to grow and achieve more in Uganda, East Africa and beyond. We aspire to serve organizations that reflect the economic make-up of Uganda from multinational corporations, large local corporations and SMEs. We believe that growing SMEs in accounting and other professional areas is important for job creation, formalisation of the economy, more tax collection by government and ultimately, it is good for improving the general performance of the economy.