The Budget Viewed With Lenses of a Micro-Business Owner

Nathan Were

16 June 2011

opinion

On June 8, 2011, Finance minister Maria Kiwanuka delivered her maiden budget whose theme is “Promoting economic growth, job creation and improving service delivery”.

This year’s budget presented at a time when Uganda is experiencing runaway inflation in 30 years, currently standing at 16.1 per cent and rising cost of doing business, presents what pundits refer to as a raw deal for micro-business owners, job seekers and the farmers.

According to the budget, the winning allocations have gone to; (Shs1.2 trillion allocated for roads, Shs850 billion for power projects, Shs133 billion for Naads, Shs58.8 billion for A level education and Shs44.5 billion for youth job creation.

Interactions with small business owners have consistently revealed that access to capital for business expansion and growth remains a formidable challenge.

The 2010 FInscope report on financial access indicated that a paltry 21 per cent is served by formal financial services with many small businesses locked out of the financial system.

Small and micro-businesses have been key drivers in employment creation, production and supply of cheap goods and services.

The 2011/12 budget does not provide a concrete solution for improving access to finance.

The prime lending rate for commercial banks has gone up, while interest rates in microfinance institutions have remained extremely high a factor that has affected profitability for most small businesses.

While much of the budget predicts that growth will be driven by the private sector, private sector growth may be curtailed as the cost of capital for expansion continues to rise.

The 2011/12 budget however moved to remove stamp duty applicable on securities given in procuring small loans in order to lessen the burden of borrowing to small income earners whose thresh-hold does not exceed Shs2 million.

Though this was a good move, the stamp duty fees are negligible and may certainly not contribute much to lowering the costs of borrowing for micro-business owners.

Shs44.5 billion was gazetted for youth entrepreneurship venture capital to stimulate job creation for the young people.

The money is to be extended as loans from as low as Shs100,000 to Shs5 million for small scale business start-ups.

While this is a good move, it may not deliver tangible results.

Many small scale business operators have critiqued this move on two grounds. Firstly, it is unlikely that youth will create meaningful enterprises with Shs100,000 loans. At most, this money will be eaten.

Secondly, it is likely to create a crowding out effect, too many small businesses competing amongst each other, the same situation we are seeing with Boda-bodas in Kampala. What happened to the entandikwa scheme?

Who did evaluate the impact of the entandikwa and its contribution to employment creation? The results of this scheme would provide a better insight that could inform better implementation of the venture capital scheme.

The budget provides a paltry 4.4 per cent to the agricultural sector up from 5 per cent in the 2010/11 budget.

Agriculture employs close to 85 per cent of Uganda’s total population directly and indirectly and has strong potential to grow these employment figures if substantial resources are allocated.

It has the strongest potential to generate many more jobs than any sector if focus is placed on value addition for primary products.

While the 2011/12 budget is focused on job creation, sectors that have strong potential to create more jobs are decimally funded.

The Budget provides good long term solutions to reduce the cost of doing business among small business enterprises.

A total of Shs1.2 trillion was allocated for roads and Shs850 billion allocated for energy. While these are good proposals, implementation is key.

Poor roads and power instability are hurting small businesses and strongly eating into their small profits.

If these budget proposals can be implemented, we should see a significant decline in the cost of doing business.

The writer is a market and product specialist

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