The Monitor (Kampala)

13 May 2010

Uganda: SME Sector Forms the Engine of Growth

analysis

Kampala — Small and Medium Enterprises (SMEs) in Uganda employ more than 2.5m people, constitute up to 90 percent of the private sector and contribute over 70 per cent to total GDP.

It must be noted that the newly launched National Development Plan 2010/11 - 2014/15 strongly emphasises the fact that the private sector is the engine of growth, employment creation and socio-economic transformation. This, therefore, means that SMEs must be brought at the forefront of policy design and implementation if socio-economic transformation is to be achieved. Issues of value chain development, value addition (agro-processing for agribusiness SMEs), access to markets, etc, must be strongly focused on so that the returns from the SME sector more than double.

We must note that the internal set-up of many SMEs is insufficient in terms of having systems and structures for prudent financial management. This is partly why most SMEs have problems attracting financial assistance in terms of lines of credit - and even sustainably managing the businesses. Because their internal management systems are poorly set-up, SMEs cannot show their financial records in terms of inflows and outflows.

The internal management and performance of SMEs has to change if they are to turn out better profits, attract financial assistance and create bigger supply and demand networks. Therefore, financial literacy must be promoted for SMEs. SMEs should have in-house capacity to undertake financial and accounting tracking (and reporting), budget tracking, risk management, etc. In this regard, their managers must have their skills built in areas like bookkeeping (operation of an accounting system, recording routine transactions within the appropriate accounts), record keeping and risk analysis. Government should target this as part of the Human capacity building strategy under the National Development Plan (NDP) and this can be delivered under a Public-Private Partnership (PPP) approach.

There are many Private Sector Promotion Agencies in operation in Uganda that were set-up by Government and the Private Sector which provide various Business Development Services (BDS) to SMEs. It is important that these advisory services must be availed to the micro and small enterprises in the rural areas outside of the central corridor which enterprises would otherwise not get access to such services without policy intervention. We must acknowledge that rural-based enterprises also massively contribute to wealth creation and national development.

Civil Society Organisations like NGOs also have a serious role to play in the promotion of financial literacy for entrepreneurship development in the country. Grassroots NGOs should design programs that build the capacity of rural-based enterprises and other formal groups (farmers, women, youth, etc) in financial management. More so, grassroots NGOs can promote financial literacy for the youth as part of enterprise promotion so that young men and women get to know about the culture of savings and accounting at an early stage.

This would shape their future lives if they later focus on entrepreneurship as a viable career option. Ultimately, it is simple: SMEs can only tap into the various opportunities they are presented with if they have sufficient and prudent internal systems and structures so that their capacity to attract, absorb, utilize, track and account for resources is enhanced. If their financial management and accounting skills are built, then SMEs' capacity to contribute to national development will exponentially rise.

The writer is the Director, Small Enterprise Development Agency Uganda

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