DYNAMICS OF SMALL SCALE BUSINESS IN UGANDA.
According to research, there is no generally accepted/ universal definition of small business. Let's venture in some of definition from credible sources in Uganda.
The National Social Security Fund (NSSF) defines a small-scale enterprise as an enterprise employing less than 5 employees.
Uganda's Ministry of Finance Planning and Economic defines;
Mirco enterprise as an enterprise employing up to four people, with annual turnover of 12million Uganda shillings
Small enterprise as an enterprise employing 5 and 50 people with annual sales/ revenue turnover total asset of up to 360 million Uganda Shillings.
Medium enterprise as an enterprise employing more than 50 people with an annual sales turnover between (360 million and 30 billion) Uganda Shillings.
The World Bank Reconnaissance Mission on rural small-scale enterprise defined it as an enterprise as having a maximum capital investment of US$300,000.
A further dimension of small-scale enterprise relates to the formality/informality of the business. At times confusing small-scale enterprise with the informal sector and associating small-scale enterprises with illegal activities.
The truth is most micro and small scale enterprises are partly formal and partly informal. Most have no legal status as regards registration, licensing and tax clearance.
Small-scale business facts in Uganda.
MSMEs constitute 90% of private sector.
Employ about 2.5 million people.
14% of MSMEs work in agricultural sector.
16% of MSMEs are less than 10 years old
Distribution of business by region; Central 35%, Western 23.4%, Kampala 18.2%, Eastern 13.9% and Northern 9.4%.
Source; https://www.nathanic.com/wp-content/uploads/2017/10/National-Small-Business-Survey-report.pdf
Did you know? Uganda was ranked as the world's most entrepreneurial country in 2014 by Global Entrepreneurial Monitor (GEM).
Factors that influence growth of small business in Uganda.
1. Flexible specialization and growth contracting; peripheral activities of large scale industries create need of specialized contractors therefore the growth of small-scale business.
2. Change in consumers demand; change from mass goods to more specialized good puts small firm at an advantage because they are able to react more quickly to changes to consumer tastes and preferences.
3. Growth in self- employment; a large number of emerging small business has been due to the growth in number of people seeking self employment.
4. Retrenchment; has influenced people to venture in small business in search of alternative source of income.
5. Downsizing; in attempt to reduce costs private organization by downsizing employees this has contributed to the upsurging of small-scale enterprises as a mode of maintaining a stable revenue source.
Roles of MSMEs in Uganda.
1. MSMEs are breeding grounds for new industries and seedbed from which future large companies emerge.
2. MSMEs instills competition to the monopolistic tendencies of large companies.
3. MSMEs innovate new products, services and processes in an economy.
4. Act as specialist suppliers and sub- contractors to large businesses.
5. MSMEs enhance economy diversification providing forward and backward linkages in production industries.
6. MSMEs provide employment to large of the population especially in rural areas.
7. MSMEs is a deployed strategy for development due to inadequate financial resources.
8. MSMEs provide entry points for entrepreneurial talent.
Advantages of Small-scale business.
1. Decision making is quick and easy with less/ no bureaucratic processes.
2. It is flexible and easier for an entrepreneur to change from one business to another.
3. They are closer to the customers hence easy to detect customer shift in demand.
4. Require less capital to start up and run.
6. Direct supervision is very possible hence maximize production efficiency and profits.
Disadvantages of small-scale business.
1. Suffer unlimited liabilities because it's not a separate entity from the owner.
2. Higher cost per unit production hence suffering from diseconomies of scale.
3. Difficult to acquire loan from financial institution due to lack of collaterals.
4. Prone to risk and uncertainties since their legal status is not well defined.
Problem faced by the MSMEs in Uganda.
1. Regulatory environment is quite hostile for MSMEs because their legal status is not well defined.
2. Poor macro-economics, instability, inflation and high interest rates restrictions of exchange/ dividends/ capital.
3. Inadequate financial funds to access fixed assets and working capital.
4. Lack of managerial/ technical skills inhibiting access to credit, expansion and management of business.
5. Higher business failure rates at infant stage mainly because of easy entry into business with/ without managerial skills.
Why small firms continue to operate alongside large scale firms.
1. Limited capital makes small firms fear to undertake certain risky ventures that can make them expand.
2. The nature of products produced may dictate the small size of the firm.
3. Quantities sold to consumers are usually appropriate, small business break bulky.
4. Small business sell most of the products of large firms.
Owner's choice/ reluctance to enlarge small scale business.
5. Small business are usually easy to manage and supervise hence enhance business efficiency.
6. Flexibility of small business to switch between innovations due to low cost/ initial cost compared to large firms.
7. Small business provide services, raw materials to large firms providing linkages in distribution, storage and transportation.
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