This week government launched the Shs 200 billion Covid-19 recovery fund to support Small and Medium sized Enterprises (SMEs) that have been greatly affected by Covid-19.
This will also lead the country out of the projected shutdown from the pandemic and institution of containment measures.
The Nile Post spoke to John Walugembe, the executive director Federation of Small and Medium Sized Enterprise (FSMEs) to give the general overview of the economy as the country heads to recovery.
Can you paint a picture of the economy now as the country tries to recover from the adverse effects of the pandemic?
The economy is on the road to recovery, most of us have projected a growth rate of about 3 to 3.8% in the next two years. The International Monetary Fund (IMF) has been more optimistic painting growth figures of about 4.7%, thankfully the inflation has also been low about 1.9% .
However, there has now been a spike in the price of fuel and this kind of energy inflation can lead to other things because fuel is kind of a key driver of economy.
We have been told by experts that the fuel price spike has been driven majorly by external events, namely the reopening of the economy, increased demands of crude oil globally.
How has Covid-19 pandemic affected the SMEs and how has the federation assisted them during these tough times?
The federation has been at the forefront of being the voice of SMEs in the country. When we conducted a survey, we found that about 68% of our businesses were having cash flow problems, meaning that they were not earning enough money to run their businesses .
Another 22% had sold off some assets in order to keep on running. Another 36% said that if nothing is done to support them, they will close. It is in this kind of context that we are saying we must do something to support businesses. Many businesses have closed, there are even sectors that are not yet reopened as I speak now.
The government released Shs 200 billion stimulus package to support SMEs that have been hit by Covid-19. Will this kickstart the economy?
First of all I want to thank His Excellency the president for having committed these funds to support the recovery of SMEs from the negative impact of Covid-19. Through negotiation between ourselves, the ministry of Finance, Bank of Uganda and Uganda Bankers’ Association, we were able to come up with a package that to a certain extent addresses the challenges out there.
But this money is not enough. Shs200 billion is very little money if you look at the challenges and the extent of the impact however, it is a good starting point.
Are the terms and conditions put in place [to access this money] favourable to SMEs?
The terms and conditions if you compare to what is on the market I would say ,yes, they are favourable. First all they are negotiated terms.
The banks did not just sit and come up with these terms, we negotiated, we agreed. For instance we said the interest rate should be 10%.
There is even a possibility that it could be lower than 10% and then the interest will only be charged on the government portion. Remember the government is contributing Shs100 billion, meaning that if you borrow Shs 10 million, interest is only charged on half not the all amount.
We said people should not engage in multiple borrowing. It means many people can benefit from these funds. We said that facilitation fees that are charged by financial institutions should not exceed 0.5% and it should be one of charge.
These conditions really are good, most of these loans don’t even have grace periods. I would say we are satisfied.
The biggest challenge is that most of these SMEs are not formally registered and some may not have clear records. How are they going to be helped?
Although they said people must be registered what we are looking for are SMEs in operation. SMEs with bank accounts because without bank account you are not going to receive this money.
We can only encourage SMEs to be formal but if formal means someone who has a bank account, if formal means someone who has a trading license, then all the businesses we are targeting are formal.
The bottom line should be having records that show how the business has been performing. The business should have been in existence before the pandemic.
The business must show it was negatively impacted by Covid-19, the business must show that they will do better and they will contribute to the tax base. These are what we are looking for.
Apart from stimulus packages, what other ways can the government help the SMEs to recover from the effects of the pandemic?
The government can help by trying to address the binding constraints that we have been talking about for a long. Issues of access to finance, issues of public procurement and creating opportunities for people to sell locally and take advantage of government tenders, issues of the legal framework and the ease of doing business.
How do we ensure that there is less red tap as people run their businesses? Issues of access to finance, all these are long standing issues that need to be addressed whether or not Covid-19 has come, whether or not we put in place a stimulus package because ultimately, this will determine how competitive our economy is.
How has the pandemic changed the way businesses are done in Uganda?
A lot of businesses have had to digitalise. This, in our view, is a good thing but not so good because sometimes not everyone has the capacity to use the internet.
Remember,we also have shortage of electricity, we also have issues with network connectivity. Digitalisation is good but it can be challenging to a particular people especially people who are excluded in rural areas.
The businesses have had to innovate in regard to how they source their raw materials because their supply chain was disrupted ,so some businesses for example were sourcing things from China ,now China has been having issues, it means we have to source from other places sometimes even locally which is a good thing.
What advice can you give to the business community especially SMEs amidst the growing threat of terrorism?
That is a very big concern to us but we have been assured by the government that it is something that will be handled. Yes, we recognise that the terrorists simply want to cause fear and want to disrupt the economy .
Because by creating fear and uncertainty and discontent, they are likely to lead to another voluntary lockdown that is unrelated to Covid-19. So as a federation we urge SMEs to continue with their businesses but to take precautions and also to be vigilant.
Businesses should also learn to take advantage of insurances because if your building is bombed, who pays you to recover?
On one hand we are telling the government that please put in place some funds to compensate people whose businesses were hurt by these terrorist activities but we also recognise that even if government establishes such a fund, it will not be sufficient to address all, the needs of SMEs .So we are telling SMEs to consider taking out insurance.