In 2006, Sarah Akera Acaya decided to take advantage of the numerous food resources around her, such as groundnuts, simsim (sesame seed) and honey, to kickstart a cottage industry centered on value-addition. Started in her home in the suburb of Mbuya, some seven kilometres from Kampala’s central business district, Acaya’s MAPA Enterprises has grown steadily since its founding. Acaya recounted that registering this micro-enterprise was a lengthy and burdensome process.
“When I decided to set up my business, I had to go through several tedious procedures to have it registered and certified,” said Acaya. “For example, the registration of the business alone took me at least two weeks while the approval from the Uganda National Bureau of Standards took one month,” she added.
Like Acaya’s business, most businesses in Uganda are micro or small enterprises. In Uganda, as in many countries in Africa, smaller companies are bigger creators of jobs than their larger counterparts. Unfortunately, smaller companies are also more likely to go bust, partly because they are unable to cope with costly administrative procedures. Until recently, 790 different business licenses existed in Uganda.
With a goal to better understand the obstacles to private sector growth, the government of Uganda launched a series of stakeholder consultations in 2009. The consultations unveiled the following five bottlenecks for businesses:
- Legal and regulatory barriers
- Deficiencies in infrastructure
- Lack of access to finance
- Deficiencies in power supply
- Corruption
To help tackle these obstacles, the government recruited the World Bank Group to help eliminate legal and regulatory barriers in the country. The investment climate teams of the World Bank and IFC worked hand in hand to complete a comprehensive review of the business licensing regime in Uganda. The review was done over a six-month period and included validation workshops with business representatives from fifteen different sectors of the economy to truly hear their point of view on the business environment in the country.
The main findings of the licensing regime review were the following:
- A total of 790 licenses, permits, and user charges are issued by the central and local government agencies across the country;
- The most burdened sectors include Agriculture, trade, transport and logistics, and tourism;
- The trading license is a major driver of the high compliance costs and is issued by the local government as a tool for revenue generation, rather than for regulation;
- There are numerous overlaps with regards to licenses, levies, fees, and permits at national and local government levels;
- Outdated business registers, along with poor coordination between government agencies and insufficient digital connectivity, fail to integrate and streamline administrative processes.
Most importantly, the findings revealed that compliance to these 790 business licenses costs the private sector an estimated $280 million annually and that the elimination of only 27 of the licenses would save businesses $21 million.
“It is evident from these findings that legal and regulatory barriers contribute greatly to the high cost of doing business in Uganda,” said Carolyn Ndawula, Program Manager of the Uganda Investment Climate Program. “Therefore, through World Bank Group’s Investment Climate Program, we aim at reducing the cost of compliance by 25 percent by June 2014.”
Reducing the compliance burden would have a major impact for small businesses in Uganda. High administrative costs are known to be one of the major reasons that small and medium enterprises in the country often do not pay decent salaries. Lower business costs would mean higher salaries which would help improve the purchasing power of people living on an extremely tight budget.
“Government should consider certain businesses when setting up regulations, especially the small scale enterprises. We do have a lot of potential to grow because the market for honey and peanut butter is very big, but the process of formalising one’s business, and registering for tax coupled with the numerous licenses poses a great challenge to us,” Acaya said.
The Ugandan government has promptly adopted the findings and recommendations of the licensing regime review by the World Bank Group and has now embarked on the elimination of the recommended 27 business licenses. On June 11, 2013, the government rolled out an e-licensing business portal, which will allow businesses to inform themselves on what licenses they need to operate. The total savings anticipated from the implementation of this portal is $123 million. In addition, the government has allocated $300,000 for fiscal year 2013–2014 to further support the implementation of licensing reforms, and has pledged to reform its entire licensing regime and to automate the entire licensing process.
