How will the 2021/2022 national budget help revive the economy?

On Thursday, June 10, 2021, the Minister of State for Planning Amos Lugoloobi presented a Shillings 44.7trillion 2021/22 budget to the nation on behalf of the president of Uganda.

EPRC research fellow Paul Lakuma opined how it will affect small and medium enterprises at the virtual post-budget discussion organized by advisory services firm KPF on Friday, June 11, 2021.

Here’s a summary of his takes.

Why did Uganda not achieve middle-income status in 2020 and how will this budget revive the economy?

We were on the trajectory to middle-income status but that has been delayed by two things: in the pre-covid time, our population growth rate was much higher; then we faced interruptions by covid-19 from 2020.

The current budget tries to address these issues in particular the impact of covid-19 on businesses. The minister laid out a four-point strategy of how the country will approach the issue of economic recovery.

1. Resuscitation of Small and Medium Enterprises through credit provision through the Uganda Development Bank; other financing channels like the Agriculture Credit Facility (administered by Bank of Uganda); and emyooga programme. The only issue here is equity in some of these financing structures; providing direct payments to the SMEs may be a little challenging; For SMEs also, a lot of them, are not comfortable giving away their details or keep records and don’t have collateral – I hope the ministry of finance has ways to confront these constraints.
2. The other strategy is through agro-industrialisation which the minister articulated through the parish-based model by developing value chains that are cluster-based/region-based. Submission of technology on chicken, fish and using a more integrated approach that speaks to processing, marketing will help SMEs.
3. Infrastructure development: this is key to trade. One of the biggest problems we have been facing is electricity. We’ve been told that we produce more power but the power is not stable. The minister came up with a strategy to stabilize the power. Government must come up with a strategy on how to reduce the tariff cost – this is a big cost element especially for SMEs.

On poverty numbers, the minister spoke more of reductions in poverty rates but didn’t highlight areas where the poverty rates are actually increasing e.g., in Acholi where poverty grew from 33% to 67%.

I want to pin this to the business environment as one of the key causes of that increase in poverty in northern Uganda. A lot of the businesses in the north barely see electricity for 4 days a week. They are always in darkness. Going forward we hope this issue will be addressed especially power availability in the northern part of the country.

On transport, I must commend the government for developing the transport infrastructure in the last ten years especially the infrastructure connecting the northern corridor to the southern corridor. East to the north, and east to Kampala.

However, the transport infrastructure in the cities is deteriorating. Maybe because a lot of services are being decentralized to such agencies as KCCA. I think there is a need for a review on services that can be decentralized or provided by special agencies in light of a capacity to do so. This affects business.

4. The fourth strategy is the oil, gas, and mineral beneficiation

The only thing I would challenge the minister on is the amount of money and credit allocated to mineral beneficiation. I thought that was not sufficient given the mineral potential that this country has.

The country needs to allocate more resources both financial and human resources so that SMEs can participate in the mineral sector. It’s a big sector and Uganda is endowed naturally and the most mineral-rich country in the world.

We need to invest in how to develop the mineral sector and in SMEs as a key input in mineral beneficiation strategy.

On oil and gas, we have signed deals with Total and state actors such as the Government of Tanzania. This is a great opportunity for SMEs to participate and not necessarily in the upstream activities which are very expensive and technology and capital intensive but there are a lot of things SMEs could do like supplies of food, services, schools, hospitals, warehousing, transport, entertainment, tourism, wielding services, repairs, etc.

They could also participate in the oil pipeline project and supply materials required such as cement, business advisory, and food for the people who will be working.

Government has to provide a good environment and not forgetting security which is key for business to thrive. In the medium term, there are a lot of goodies and sweeteners for SMEs to thrive as provided for in the budget.

What informs Ugandans’ attitude towards taxes?

First is political in that do people see service delivery that is commensurate to the tax they pay? This could explain why people are not willing to pay taxes. We need to reduce inefficiencies in service and leakage in tax collection

The second one is socio-cultural – we need to change the mindset of people from those who celebrate vices such as corruption and cheating the system, to people who have ethics such as honesty, good timekeepers, patience, patriotism, and empathy.

 

The third one is to enforce rental taxes suffice you will require geo-informatics. Mapping each house and street and linking it to the land registry. This may take time. This explains the recent incentive where rental tax will only accrue to 25 percent of income. This is to encourage the property owners to submit to the tax register.