Factors inhibiting the Development and Growth of Ugandan Diaspora’s Enterprises and Entrepreneurship

The Uganda Diaspora has the potential to actively participate in enterprise development and entrepreneurship in Uganda. However, their potential is hindered by many factors ranging from a lack of capital, Lack of information on Investment opportunities and Regulations, poor infrastructure in Uganda, and the lack of good government contingency plans. The purpose of this paper is to point out the obstacles people in the Diaspora face in setting up business and other investment ventures and what the government has done or is doing to ease these limitations and we conclude by providing some policy recommendations.

 

Inadequate Capital
The government of Uganda has initiated a number of schemes like micro finance schemes, Poverty Eradication Action Plan (PEAP) to help small and medium sized firms with raising capital. The funds from these schemes are available domestically and firms have to meet certain criteria. In addition to government schemes, firms in Uganda have access to local banks where they can attain bank loans for business set up and growth. However, none of these financial sources are available to the Ugandan Diaspora. Ugandans in the Diaspora work hard and economically contribute both to their host nations as well as to their mother land.

A recent joint report by the World Bank and African Development Bank indicates that 20 per cent of investments in Uganda come directly from remittances abroad, which signifies how important Ugandans living abroad have become in Uganda’s economic development. Remittances lead to increased investments in health, education, and housing in Uganda and Africa as a whole.

The report titled Leveraging Migration for Africa abroad also shows that education is the second-highest form of remittance in Uganda. The state cannot afford to be the biggest employer, what Uganda needs instead are entrepreneurs not more government bureaucrats. The government would benefit in turning western educated graduates who want to come back home into entrepreneurs but this can only be achieved if there are enough incentives and the financial burdens are eased.

Diasporas also provide capital, trade, knowledge, and technology transfers. With about 30 million Africans living outside their home countries, migration is a vital lifeline for the continent. This implies that African governments need to do more to realize the full economic benefits of the phenomenon. The Uganda government can do more by not only providing investment opportunities and information but also make available a fund to provide capital for business minded people in the Diaspora. Government cannot be a source of fund for private investment but we believe something has to be done to help the people in the Diaspora. For instance the government can think about lowering the amount of capital investment required to be classified as an investor and therefore benefit from all the benefits that foreign investors enjoy.

Banks, Local councils and Charities in the host country were all sources of capital. However, after the outbreak of the global financial and the government cuts which followed it is almost impossible to get a bank loan. The government of Uganda needs to be aware of this and everything should be done to help enterprising people in the Diaspora.

Lack of information on Investment opportunities and Regulations

Information on what business opportunities are available is not readily available to many Ugandans in the Diaspora. A number of Ugandan Diasporas are prevented from developing new enterprises in their homeland because of a lack of sufficient knowledge of the intended market. The few who have gone ahead and open business has done so without feasibility studies but depending on hearsay from relatives back home that turn out to hold selfish interests.

However, it is vital to emphasise that the problem is not the lack of information, for this information is indeed available through the Uganda Investment Authority but rather the inaccessibility of this information. The Uganda Investment Authority (UIA) is the agency set up by an Act of Parliament (Investment Code 1991) to promote and facilitate private sector investment in Uganda.

The agency serves to:

  • Provide first hand information on investment opportunities in Uganda
  • Issue Investment Licenses
  • Assist in securing other licenses and secondary approvals for investors
  • Help investors to implement their project ideas through assistance in locating relevant project support services
  • Provide assistance in the acquisition of industrial land
  • Help to obtain work permits and special passes for investors and their expatriate staff
  • Arrange contacts for potential investors and organize itineraries for visiting foreign missions in the country
  • Assist investors in seeking joint venture partners and funding
  • Review and make policy recommendations to Government about investment.

Currently the UIA Information is available on their website http://www.ugandainvest.com/ and a few leaflets can be found at the Uganda embassy. This information should be readily available in other formats and there should be a promotion or campaign by the UIA to sensitise and educate the Uganda Diaspora about the agency’s objectives and how people can benefit from it

Poor infrastructure in Uganda

Geographically Uganda is a landlocked country and faces all the problems landlocked countries face. Geography is an important determinant of growth as important as trade policy and institutional infrastructure. ‘Ugandan firms face some considerable cost disadvantage from Uganda being landlocked and from high energy and indirect costs’ (World Bank, 2007). Uganda ‘depends on the inefficient port at Mombasa and the notoriously inefficient rail service from Mombasa to Kampala’ for its imports and exports. The distance between the ‘potential trading partners’ and Uganda affects the ‘supplier access’ and ‘foreign market access’ transport to the port and the shipping costs reduces the amount and profitability of exports and discourages potential investors.

Due to its geographical location Uganda consequently depends on the political and social stability of Kenya which means Uganda’s economy is exposed and more vulnerable to external shocks. For example, it took only a couple of days of political violence in Kenya over the 2007 disputed elections to paralyse Uganda’s economy. Within 48 hours, the violence in Kenya had led to severe fuel shortages all over the country, pushing oil prices up, doubling bus fares, raising food prices and seriously affecting business and public life. Dealers took advantage of the crisis to hoard and demand exorbitant prices, up to four-fold in the case of petrol.

Contrary to other countries, ‘which have oil reserves that can last months or even years, Uganda’s reserves seem to be minimal. As of 2008 the country needed 1.2m litres of diesel per day, almost half of which was used for power generation, and 543,000 litres of petrol’ (New vision 04, Jan 2008) and fuel demand is steadily growing at 7%. Uganda started building oil reserves in Jinja, Nakasongola, Gulu and Kasese in the 1970s. However, only the Jinja oil reserve was built with a capacity of 30 million litres. At the time of the fuel crisis in 2007 the reserve not operational.

Following Kenya’s post election violence, a decision was made to refurbish and restock the fuel reserves in the country with a capacity of 30 million litres at a cost of sh31.23bn but this process was never completed. As a result, Uganda continues to suffer from acute oil shortages whenever there is a disruption in the supply line from Kenya. The country now relies on oil companies whose limited facilities can hardly store fuel to last the country 10 days.
http://www.commodityonline.com

We would like to appeal to the government to rethink the sale of the Jinja oil reserves and instead go ahead and complete and restock all the various oil reserves to limit the scale of shocks arising from fuel shortages and disrupt economic activity.

Though Uganda faces high transport costs to the port of Mombasa its domestic transport costs have an even stronger influence on the level of exports. The poor infrastructure makes it difficult for coffee and other agricultural products traders to access the producers.

Government is however, committed to improving the infrastructure. In 2004, the government with the help of the World Bank secured a grant and credit amounting to US$107.6 million for a roads project. ‘This project aims to improve access to rural and economically productive areas by removing major constraints to transport services on the country’s road network’ (WorldBank, 2004). There is also an increased use of the Dar es Salaam port to ease the pressure on Mombasa.

Problem of insufficient electricity.

Electricity self generation is the norm for large firms which is a costly alternative given the ever increasing current world oil prices. Over 60% of medium and 93% of large firms now have a generator (World Bank, 2006). Firms that self generate electricity face high costs of generator fuel. Running a generator is ‘between 2 and 6 times more expensive than obtaining electricity from the national grid’ (World Bank, 2006). However, On December 21, 2007 The World Bank Group’s US$360 million investment of loans and guarantees for Uganda’s Bujagali Hydropower Project took effect. The 250 Megawatt project on the Nile River is an integral component of Uganda’s strategy to close an energy supply gap that seriously constrains the country’s social and economic development (World Bank, 2007).

Benefits of the Bujagali hydro power project

  • Increased supply of reliable electricity
  • Lower energy costs
  • Improved air quality
  • Jobs for Ugandan workers (approximately 2,000 new jobs during peak construction)
  • Improved community services (e.g., water supply, education and health facilities in nearby villages)
  • Social improvement programs such as; livelihood restoration and agriculture enhancement http://www.bujagalienergy.com/bujagali_projectOverview1.htm

However, the shortages will go on until 2012 when the project is due to be completed. According to the government owned New Vision newspaper dated the 1st April 2011 the first 50MW of electricity will be produced by October 2011 and by April 2012, the plant will be producing to capacity. The plant is also anticipated to shift reliance from the costly thermal power to the more reliable and less expensive hydro power to spur the country’s social and economic development. When the power plant is complete, Load shedding and electricity tariffs are expected to reduce. http://www.newvision.co.ug/D/8/12/750865

Even after its completion the Bujagali Hydropower plant would still be vulnerable to exogenous shocks like the regional drought which reduced the already inadequate electricity capacity and resulted in ‘a production gap of nearly one-half of demand’ The government should have a well laid out contingency plan to absorb the shocks.

Despite of all the above discussed obstacles to economic involvement and development Uganda has enjoyed a decade of strong growth and this has been due to the efforts by the government of offering incentives and tackling some of the obstacles as well as the peace and favourable environment which has attracted investors. Uganda has attracted $604 million in planned investment in the 1st quarter of 2011 from $210 million in the same quarter last year. http://af.reuters.com Even after the violence and unpredictability of the recent presidential elections which were followed by protests against the soaring commodity prices, planned investment in Uganda rose by 43% in April from March defying the instability in the country.

However, although Uganda’s economy has for long thrived on the back of sound and stable macroeconomic policy that has underpinned a decade of strong growth; analysts say the ongoing unrest might reignite fears of instability and scare foreign investors. The Uganda Investment Authority added that “Peace is essential to investment … the current trend of riots and demonstrations do not augur well with our efforts,” a statement read. In fact although planned investment is on the rise the tourism industry has suffered tremendously from the weekly protests. Uganda’s tourism industry says it may be losing $100 million every month as result of visitors cancelling their bookings over security concerns in the country. Many would be investors may also be discouraged from investing in Uganda because of the current violence especially in the capital Kampala.

We therefore, appeal to both the government and the opposition to find a peaceful solution and end the protests which are actively stopping investment and obstructing economic development.

Key Actions for Promoting and Encouraging Ugandan Diasporas Enterprise Development and Entrepreneurship

There is no doubt that Ugandan Diasporas have a huge potential to contribute to enterprise development and prosperity of host and home countries if necessary support is provided to overcome some or all of the barriers identified above.
The following key actions are recommended to aid in stimulating the development and growth of Ugandan Diasporas enterprises and entrepreneurship.

  • Develop European Union/UK policy & strategy on Diasporas entrepreneurship/ enterprise development
  • Encourage home countries to have diasporas friendly investment policies in order to attract investments from Diaspora community
  • Provision of tax incentives for cross border Diasporas investments
  • Encourage the setting up of Diaspora’s micro finance banks to service the access finance requirements of the Diaspora community
  • Encourage the development of an integrated cross border information bank, including publishing investment opportunities
  • Encourage the setting up of, and use of Business Development Agencies to provide support to Diaspora entrepreneurs
  • Encourage the setting up of joint ventures and co-operatives by Diasporas both in the host and home countries

In particular Ugandan Diasporas should consider the following actions which are crucial to their achieving their entrepreneurship objectives.

  • More Positive and Dynamic attitude/approach
  • Think Global- Consider viable business opportunities in Africa and elsewhere
  • Be Better informed
  • Develop better networks/become well connected
  • Consider adopting Consortium/Partnership Approach for Synergy
  • Take positive steps to identify resources internally and external.

Exploiting Opportunities in Uganda
There are numerous business opportunities which Africa Diasporas can consider in their home countries either individually or in partnership with others and companies in host and home countries. The following specific areas have been identified.

  • Joint ventures
  • Small and large scale manufacturing
  • Agriculture/Food production
  • Oil and Gas
  • Business Development/Consultancy
  • Engineering/Construction
  • Building Construction/maintenance
  • Education/human capital development

No doubt, there is scope for Ugandan Diasporas to participate fully in enterprise development and entrepreneurship both in host and home countries with beneficial economic results. They can only achieve this with a clear vision, absolute commitment, a willingness to take calculated risks backed up by an enabling platform and a tripartite strategic partnership involving the host and home countries and Diasporas themselves.

 

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