Private Sector grows despite financing and informality challenges

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Government efforts to stimulate private sector growth are beginning to show results, with improvements recorded in local participation in public contracts, export performance and targeted financing to key industries.

According to the Private Sector Development (PSD) programme performance report, except for the value of exports that exceeded the target for the year, the programme annual performance for the financial year 2023/24 in respect of the key results fell short of targets across all the key results indicators.

Presenting the report at Mestil Hotel, Gorret Kajumba the technical advisor to the Private Sector development Programme, noted that over the four years of NDP III, the sector has registered moderate achievements, specifically in lowering the cost of doing business, strengthening the organisational and institutional capacity of the private sector, promoting local content, and enforcement of standards, among others.

According to Kajumba, interventions through the Uganda Development Bank, agricultural credit facilities and small business recovery funds have helped expand credit, though uptake remains below target.

“Private sector credit rose to 14.37 percent of GDP, still short of the 27 percent goal, largely due to high borrowing costs and the continued dominance of informal enterprises that struggle to access formal financing,” she said.

She said during the period, the Government pushed to increase local content in public procurement, recognising that public spending presents a major opportunity for domestic businesses.

“The share of public contracts and subcontracts awarded to local firms rose from 30 percent to about 60 percent, moving closer to the 80 percent target. However, more work is needed to ensure local firms capture higher-value contracts,” she said.

“Export growth has provided another boost to the sector. The value of exports increased over the review period, with gold shipments playing a major role in lifting overall performance. Even so, concerns remain over product quality and competitiveness, with some Ugandan goods facing rejection in regional markets,” Kajumba added.

She also noted that efforts to mobilise domestic savings and lower the cost of doing business were stepped up through capital markets, insurance products and formal financial services. “Life insurance assets grew steadily, but formal savings levels remain below expectations, limiting the pool of affordable capital available to enterprises,” she said.

Moses Kaggwa the Director for Economic Affairs representing the Permanent Secretary and Secretary to the Treasury told the delegates that now that the NDP III is done and Government has embarked on the implementation of the NDP IV, formalization of a number of informal businesses remains a thorny issue in the development programme.

Gabriel Ulyssea from the University Collage of London said reducing informality of businesses remains critical to unlocking faster growth. “Many businesses continue to operate outside the formal economy, limiting their access to government programmes, financing and market opportunities,” he said.

However, he noted that despite the challenges, sustained investment, improved access to finance, and stronger local participation in government spending will accelerate private sector expansion.

“The goal is to make the private sector more competitive, create jobs and ultimately raise household incomes. While progress has been made, more needs to be done to fully unlock the sector’s potential,” he said.

Sarah Kagingo, Vice Chairperson of the Board of Directors at Private Sector Foundation Uganda, commended the government for creating an enabling environment that has allowed Uganda’s private sector to thrive over the past 30 years.

Kagingo noted that since PSFU’s founding, the country’s GDP has grown tenfold—from $5.8 billion in 1995 to $61.3 billion today—reflecting the strong partnership between government and business.

“Government initiatives, including infrastructure development, macroeconomic stability, and supportive policies such as tax relief for start-ups and the management of domestic arrears, have been critical in reducing the cost of doing business. This year, 82% of PSFU’s proposals were adopted, including increased allocations to domestic arrears from sh200b to sh1.4 trillion,” she said.

She also applauded the government for its commitment to long-term stability, prudent macroeconomic management, and policies which she said have tilted the trade balance in Uganda’s favour.