When offering incentives, African governments must treat local investors the way they deal with foreign investors if they are to boost local entrepreneurship and investment, a new report advises. The 2014 report on investment in Africa by the United Nations Conference on Trade and Development (UNCTAD) has warned that often governments like Uganda have paid a lot of attention to foreign entrepreneurs, offering tax breaks, sureties for cheap credit, free land for their businesses to thrive at the expense of the local entrepreneurs.
While Uganda attracts substantial foreign direct investment, it usually doesn't guarantee jobs to the locals and neither do some investors continue operating in the country when the incentives have been scrapped.
Titled, Catalysing investment for Transformative growth in Africa, the report notes: "African governments offer generous incentives to foreign investors that put local investors at a disadvantage and go against efforts to promote domestic entrepreneurship and investment."
Ssembule Company and Pioneer Easy Bus are some of the examples of local companies that have struggled to survive after being weighed down by debt and failure to get a government bailout. Yet foreign groups like the AYA group, and Bidco have received incentives some for as long as 25 years. For fair measure, there are a number of local firms that have received incentives although the foreign firms appear to be getting more.
The study, which was launched recently at the Makerere University-based think tank, the Economic Policy Research Centre (EPRC), said local businesses that are promising should never be left to fold. A 2012 Global entrepreneurship monitor report showed that many people in Uganda started businesses because they did not have anywhere else to work.
But then, the report says, these businesses don't last because of difficulties in accessing finance and an unfavourable national policy on entrepreneurship, among others. Some private players, however, say that some of the investors who bring huge amounts of capital into the country deserve the kind of incentives they get from the government.
"[Foreign] investors come here with a lot of money and government has to welcome such people. Just imagine how much money Bidco has brought the country.
You can't compare with small local start-ups," said Godfrey Ssali, a policy analyst and advocacy officer at Uganda Manufacturers Association (UMA). Ssali said, however, that government should recapitalise Uganda Development bank and cooperatives to help local people access cheap credit and markets.
Meanwhile, Uganda Investment Authority (UIA) has also tried to help local investors. Local entrepreneurs are given free training on how to sustain businesses. The UNCTAD report advises governments to endeavour to strengthen linkages between local and foreign investors. The report calls for a vibrant domestic private sector, a better infrastructure network, and skilled labour if the linkages between local and foreign investors are to be strengthened.
"Vibrant and dynamic local firms can absorb technology and knowledge spillovers faster and contribute to investment, productivity and employment, strengthening domestic demand in the process," the report says.
"In this regard, the promotion of FDI should not be done in isolation but, rather, as part of an overall strategy to boost private sector development," it adds.