Ease of doing business: Ugandan manufacturers name required reforms

By Patrick Kagenda

Registration procedures for land, licenses, high taxes, and low electricity supply are major obstacles

What is the most crucial factor in setting up, running, and ending a business? Is it the ease of procedures involved, the amount of time required, the flexibility of policies, or the financial costs?

Every year in early September, the American-based World Bank Group publishes the Ease of Doing Business Report which ranks over 180 countries around the globe on these parameters. The report ranks the procedures, time required, extent of flexibility, and financial cost of starting a business, dealing with construction permits, employing workers, registering property, getting credit, protecting investors, trading across borders, enforcing contracts and closing a business.

The goal is for countries to identify and correct areas that favour their economy. This year’s report is published against the backdrop of the worst global economic slowdown in generations.

The report, compiled under the theme ‘Reform through Difficult Times’, notes Rwanda as the top business reformer in the world. It is the first time since Doing Business started tracking reforms that a sub-Saharan African economy has led the world.

Rwanda introduced reforms in 7 out of the 10 categories. It has reduced the number of procedures needed to start a business to two and the time to three days, the procedures to register a business to four and the number of documents needed for export and import to nine. It has also eased the employment of workers, improved the provision of credit information and the protection of investors.

Uganda meanwhile, is rated highly on only one parameter: the ease of hiring and firing workers. This is the second consecutive year that Uganda is scoring highly on this parameter. It was in eight best last and improved to seventh this year. Its nearest best score on the 10 parameters places it in 53rd ‘” for ease of closing a business.

Businesses in Uganda need 18 procedures completed and 25 days to start, 16 procedures and 143 days to get a construction permit, 13 procedures and 77 days to register, and six documents and 35 days to import or export.

Maggie Kigozi, whose job as Executive director of the Uganda Investment Authority puts her at the centre of creating the environment for doing business, is aware of the constraints. ‘There are many things that need to be done,’ she says, ‘The most urgent ones being registration and licensing of companies and simplifying the procedure of processing land titles’.

Unlike last year when Kigozi criticised the World bank over the way it conducts its survey without verifying facts on the ground, this time she said the World bank has broadened its survey base.

She adds: ‘In spite of the World Bank ranking of Uganda, investment is taking place in the country which explains that the investment environment is conducive’. ‘This year UIA registered 800,000 SME`s of them 5,000 are foreign and both the domestic and foreign investors have a total investment valued of $ 15 billion’. Kigozi says ‘the Investment numbers is what shows that the investment environment is improving’.

But Kampala City Traders Association (KACITA) spokesperson Issa Sekitto says as long as the Uganda government continues to allow foreigners to do petty trade, with no value addition being done, it will continue to be rated poorly.

‘Investment in Uganda is aimed at value addition,’ he says, ‘Look at the Chinese and the substandard goods that are imported into the country, they are enough to discourage any serious investor because he can’t compete with them. They will knock off any one trying to start a business bearing in mind the fact that power tariff in Uganda is the highest in the region, not forgetting the tax burden and the controversy surrounding land acquisition.’

Uganda Manufacturers Association (UMA) Chief Executive Officer Gideon Badagawa says the statistics in the report does not reflect the situation as it is. ‘It’s not easy to hire and fire a worker in Uganda as the report says,’ says Badagawa, ‘Uganda has an employment act, the labour unions are becoming strong, and there is the labour law. Even the casual workers in the plantations are not easy to fire because of the relationship the company will have developed with them.’

He says ease of employing workers is not the most critical reform needed. Instead he says the most critical ones for the manufacturers are on the supply chain.

‘I mean infrastructure, skilled labour, access to finance at interest rates not exceeding 18%, power and those that relate to our supply chain to enable us feed the market,’ he says, ‘The biggest constraint to Uganda is its high power tariff at 15 cents a unit. It’s the most expensive in the whole of east and central Africa’.

Regionally, however, apart from Rwanda which has improved dramatically in overall ranking, Uganda’s economically is averagely good for business. Uganda stands at 112 of the 183 countries ranked, ahead of Tanzania at 131 and Burundi at 176. Kenya is more attractive than Uganda at 95. In trend terms, all East African region economies appear to have declined in rank. Uganda slipped one place, Tanzania 4 places, and Kenya seven places. This years decline follows a similar downward trend last year.

Uganda`s declining rating comes hardly a month after the international credit ratings firm Fitch Ratings upgraded its opinion on Uganda’s overall financial outlook from ‘stable’ to ‘positive’. Fitch Ratings cited Uganda’s responsible economic policies, single digit inflation until 2008 and an average growth rate of 7.2% over the past decade as important factors in its decision to upgrade the rating.

According to Fitch, Uganda also continues to do well in the face of the global recession and has outperformed countries in its peer group.

However, a day after the Ease of Doing Business report was released on September 9, violence erupted in the Ugandan capital, Kampala and surrounding areas. The scare and loss of property will impart Uganda’s ranking next year, especially on the ‘protecting investors’ parameter.