Uganda’s SMEs Struggle with Cash Flow Despite Low Inflation

While Uganda’s inflation rate remains relatively low, micro, small, and medium enterprises (SMEs) are grappling with constrained cash flows due to the high cost of fuel and regulatory requirements associated with formalization. The Federation of Small and Medium Enterprises, represented by its Executive Director John Walugembe, has called on the government to prioritize SMEs as key drivers of development, urging measures for improved access to affordable financing and a reduction in regulatory obstacles.

SMEs are a significant part of Uganda’s business landscape, making up 70% of all businesses in the country and employing 7 out of every 10 working-age individuals. The conditions in which these businesses operate have seen some improvement, but certain challenges persist, impacting their operations.

The Uganda Bureau of Statistics recently announced a decrease in the inflation rate, which theoretically should lead to lower operational costs. However, the rising cost of fuel is taking a toll on SMEs. While access to affordable credit can be a lifeline for SMEs, it remains elusive, even after the Bank of Uganda reduced the central bank rate to 9.5%.

A surplus of raw materials due to recent bountiful harvests has provided value-adding manufacturing SMEs with a steady supply of affordable inputs. Uganda’s Ministry of Finance is optimistic about the country’s economic growth in 2023, aiming for a 6% growth rate, but recognizes the need for support to SMEs due to their integral role in fostering forward and backward linkages in the economy.