Rwakakamba Morrison
The recent debate on Uganda’s working class’s disinterest in borrowing money to invest in assets like homes, apartments, farms and firms, etc, is largely due to the overall price of money. The average rate of return (RoR) / return on investment (ROI) for most businesses in Uganda is around 15% (Metadata: Tourism 20%, informal SMEs like boda-boda 15%, and formal small businesses 5–10%). This is below-average commercial loan interest rates at around 20%, excluding hidden fees. How will businesses afford credit that is above the profits they are able to generate?
That is why most businesses are thriving informally, and mostly large formal ones are thriving due to really good government incentives. I can tell you without fear of contradiction that an efficient and effective tax collector i.e. Uganda Revenue Authority would mean the collapse of most medium and small informal businesses and drive millions into poverty. Informal businesses account for almost 80% of Uganda’s economy.
The focus on indirect taxes has been crucial in Uganda’s tax code balancing act. Access to low-cost credit — ideally below 5% to almost 0%, as with perhaps the agenda of expanding the Parish Development Model — is what will be a game changer medium term and long term. Commercial Banks of all tiers will also have to reimagine credit risk assessments and work with business and farmer groups to strengthen credit management, affordability and business support services.
The government will need to borrow externally and concessionally to avoid providing commercial banks cushion and safe haven. This will lessen the ongoing crowding out of local businesses. Price of money is at the center of how Uganda will progress or fail to progress at envisaged ambitions. Let the flames of conversation keep leaping skyward.
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Based in Uganda. Working to empower citizen agency to pursue large scale change in Uganda, Africa and the World.
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