Many micro, small and medium-sized enterprises (MSMEs) lack knowledge of the use of different online platforms for business purposes. 

Researchers from the Economic Policy Research Centre (EPRC) have recommended that after many businesses collapsed and others survived the COVID-19 impact, hands-on training on the use of digital platforms can improve business resilience. 

EPRC has been studying 1,111 MSMEs for three years since 2020 to see what happened to them during COVID-19 and after the post-pandemic recovery. The study is entitled: ‘The dynamics of the COVID-19 pandemic effect on SMEs in Uganda’. The enterprises are from the manufacturing, tourism/hospitality, and education sectors in Uganda. 

The study was organised by the EPRC, the Canadian-based International Development Research Centre and the Ministry of Finance, Planning and Economic Development. The findings of the study were released on December 7, 2024, at Protea Hotel, Kampala. 

Dr Sarah Ssewananya the EPRC executive director while addressing the dissemination meeting, said that the objective of the project was to produce evidence of the impact of COVID-19 and interventions necessary in the post-COVID-19 economy. 

Ssewanyana noted that the small business recovery program was part of the earlier recommendations of the study.   

Kirya (second left), Ainomugisha (second right), and EPRC director of research Dr Ibrahim Kasirye (right) at the Economic Policy Research Centre

“Businesses have experienced different impacts on their profitability, employment, and capital. We need to measure the impact to inform the government on what needs to be done differently. Enterprises have a central role in the development of Uganda,” Ssewanyana added. 

Ssewananya called for heightened support of businesses to enable them to survive and to be resilient to shocks. “Our findings show that businesses require a well-designed support system if they are to play a critical role in Uganda’s recovery phase”. 

“We need to avoid wake-up and ad hoc and uncoordinated support to businesses to produce positive results,” Ssewanyana noted. 

Smartson Ainomugisha, a research associate at EPRC the lead investigator of the study presented the findings. 

The study showed that during COVID-19, 64% of enterprises operated partially or shut down operations. While 60% had limited cash flows. 

In Kenya, 46% of the MSMEs temporarily closed for more than one year and 92% scaled down their operations. In Uganda, over 60% of MSMEs registered a reduction in sales and profits and more than 40% of businesses experienced a rise in costs. 

About 83% of businesses registered a decline in product demand, and 90% had a rise in operational costs. On average 85% of the businesses had limited access to credit and inputs. 

According to the Uganda Bureau of Statistics, over 60% of businesses registered in Uganda are from the Central region followed by Western and Eastern regions. 

The findings showed that about 60% of businesses have closed permanently and 41% of the jobs have been lost. Micro enterprises are defined as those employing one to four people while small enterprises employ five to 49, medium sizes 50 to 100 and large scale exceed 100 employees. 

Ainomugisha said that before COVID-19 many businesses (70%) were grappling with many challenges. These include informality, lack of access to credit, some suffered climate shocks such as floods, and locusts. Some were affected by conflicts and tensions at the borders with South Sudan, Rwanda, and Eastern DRC. Many had inadequate business and technical skills, they had limited access to technology and business information. 

Ainomugisha said that many small enterprises were affected more by the closure of business premises and operations. These were followed by micro businesses. While many medium-sized enterprises were able to continue operations with closed premises during lockdowns. 

Ainomugisha said COVID-19 led to an increase in sourcing materials from local sources. And less by importing and more from the local areas away from Kampala. 

He argued that as the businesses formalise the more likely they will lead to a positive impact on the economy. The study showed that many jobs are found in micro and small businesses. The education sector is a big employer. To date, many micro-enterprises have been able to recover lost jobs while medium-sized enterprises have not recovered their jobs. The tourism sector created more jobs and has recovered better. Some businesses in the tourism sector include; hotels, bars, restaurants 

The education sector has not recovered jobs. Teachers in primary and nursery schools have found other employment opportunities. The study showed many businesses' resilience score is low at 0.1%.  

Challenges 

The challenges enterprises face include internal weakness of business, leadership challenges, lack of staff competencies, lack of market sensitivity and difficulty to respond to changes. 

Many businesses lack planning and preparedness, they lack adaptive ability and e-commerce adoption is weak. The businesses lack funding to start up accounts in e-commerce platforms, they lack skills and knowledge to operate online. The fear of exposure to the Uganda Revenue Authority was a reason some businesses fear to go online. 

Policy implications 

The study proposes that there should be provision of patient financial support to small and micro enterprises. Makes small business recovery funds more accessible and increases awareness of the fund. 

They called for the increase in capacity building of businesses to improve their adaptive abilities and resilience to shocks. To this, there should be training in leadership and business management. 

Support MSMEs to adopt e-commerce; create awareness about e-commerce opportunities, provide hands-on training for MSMEs on how to use different online platforms for business, and make digital gadgets affordable for business operators, the government should work with telecom companies to lower the cost of data. 

Participants proposed that many institutions be involved in the formalisation processes of businesses. They said that national identity cards and mobile phone numbers should be used as tools for formalisation. 

John Ssekamate, a business consultant, noted that there could be a compounding effect on businesses of the Ukraine war and scientific evidence beyond the anecdotal evidence was required. 

Patrick Mwesigwa from the Uganda Manufacturers Association proposed that the borrowing capacity of businesses should be studied. “What is the trend of borrowing and are those businesses growing,” Mwesigwa said. 

Hope Katwine the vice chairperson of the Kampala City Traders Association, said COVID-19 led to high interest rates. Similarly, landlords asked for rent when businesses were closed. 

Katwine cried out that the cost of living had gone up. “Taxes are too high, and businesses have collapsed. The Uganda Registration Services Bureau (URSB) has gone online, they are demanding filing returns online and many people are stuck with filing returns”, Katwine said. 

Victoria Ssekitoleko called for the freeze on taxation on baby businesses until they matured. She said there should be investment in the creative industry which raises lots of revenues. 

Steven Mbogo Kirya, assistant commissioner in the trade ministry, said there is a directorate of SMEs at the ministry to tackle issues of small businesses such as competitiveness, quality assurance and formalisation. 

Kirya indicated that constraints often lead to innovation. He expressed worry about many innovations not getting commercialised and used. He called the academia to help innovators market, and package products once they are innovated. 

“Many enterprises continue to face challenges even after the pandemic is gone. The government has come up with interventions and incentives to encourage formalisation and set up the credit rating facility,” Kirya said. 

Catherine Namuli Mugerwa, registration officer at URSB said there was ongoing awareness about formalisation and how to register businesses.