How govt can tackle supply side of the economy

By John Walugembe

The outcry from the business community that the present interest rates are adversely affecting business, especially the small and medium enterprises (SMEs) that constitute over 90% of the private sector and contribute over 70% to our gross domestic product is real.

The fundamental causes of this inflation are from the supply side. Whereas, we are strategically positioned to take advantage of trade opportunities in the East and Central African region, through our membership of both COMESA and EAC Common Market, import growth has, on average, outstripped export growth.

Our economic growth has largely been unbalanced and reliant on increasing levels of imports. Most of our arcades and plazas are full of consumer goods.

Evidence suggests Uganda has become a less competitive place to do business. While other countries reduced taxes, removed barriers to growth and supported exports, wefell behind. Reversing this will require tough choices for the Government.

Sustainable growth requires a rebalancing of our economy from a reliance on a narrow range of sectors to one built on investment and exports.

The Government needs to enhance the efficiency of the productive sectors particularly the service sector, manufacturing,tourism and Agriculture.

Exporters face a lot of procedures, which raise the cost of production and hence affect exports. To sustain the rapid growth of exports, it is necessary to have a well-functioning infrastructure. The Government needs to urgently invest more in infrastructure.

To support exporters, the Government should deliver a package of support to SMEs which helps those new to exporting to build their trade capacity.

The Government should consider having varying degrees of SME support through direct export financing and export credit insurance.

The Government-sponsored direct export finance could take the form of pre-production financing of a domestic exporter, refinancing of export credits extended by commercial banks, or interest rate subsidies. The Government could provide trade insurance.