SMEs Driving the Economy

The last thirty years have seen Africa change from an economically backward continent to being the world’s most exciting economic frontier. By 2035 the number of Africans joining the work age population will surpass the rest of the world combined according to the International Monetary Fund (IMF). At the moment Africa is offering hope to more than 200 million youth between 15-24 years to become a new generation of accomplished and engaged youth.

It is clear that there’s something unique about what is happening to the continent, which experts say is on course to achieving an economic growth of around 4.5% by 2016. Africa has grown despite the global recession, Eurozone crisis, low growth and stagnant wages in the west and a slowdown in china. This development carries the uphill task, of creating jobs for 600 million people in the next 15 years to absorb the ever growing global workforce, mainly in Asia and Sub-Saharan Africa.

This can be achieved through the vibrant small and medium sized enterprises which can help to create jobs and spur economic prosperity. These small but growing businesses create around 80% of the regions employment, with formal small and medium sized enterprises contributing up to 45% of the total employment and 33% of the national income (GDP) in emerging economics and establishing a new middle class fueling demand for goods and services.

The Micro, Small, Medium, Enterprises (MSMEs) are the engine of growth for the economic development, innovation, wealth creation of Uganda. They are spread across all sectors with 49% in the service sector, 33% in the commerce and trade, 10% in manufacturing and 8% in other fields. Over 2.5 million people are employed in this sector, where they account for approximately 90% of the entire private sector, generating over 80% of manufactured output that contributes 20% of the gross domestic product (GDP).

Uganda Bureau of Statistics has adopted to categorize enterprises based on any of the following criteria: number of employees, capital investment and annual turnover. In quantitative terms, micro enterprises are those businesses employing not more than 5 people and their total assets do not exceed UGX: 10 million. On the other hand small enterprises employ between 5 and 49 people and total assets between UGX: 10 million but not exceeding UGX: 100 million. The medium enterprises therefore, employ between 50 and 100people with total assets of more than UGX: 100 million but not exceeding UGX: 360 million.

Thanks to liberalization and Uganda’s entrepreneurial spirit coupled with a conducive investment climate, private ownership of businesses has led to Uganda’s economy growing in the recent years,  in 2014 Uganda saw the consolidation of macroeconomic stability and a gradual recovery if economic activity, with real GDP growth of 5.9% in FY 2014/15 and 6.3% in FY 2015/16.

There are a number of constraints or barriers which affect small, medium enterprises in doing business like lack of knowledge of opportunities in foreign markets. There is also limited information flow regarding the different regulations in trading within the region which hinders SMEs from gainfully engaging in trade.

Notwithstanding, Africa offers a huge investment opportunity.  The United Nations Economic Commission for Africa asserts that the average return on inward investment for Africa as a whole is four times that of the G-7 countries, and twice that of Asia. New policies and political stability is slowly creating a completely new economic environment across the continent.

The focus of African governments and Uganda in particular should be on how to boost the competiveness of MSMEs so that they can thrive within the market in the continent.  Only then, can they contend in the global market as Africa’s economies become more and more liberal in their trade and investment policies.