Small Scale Industries | A credible option for emerging entrepreneurs?

When thinking of business ventures to engage in, there is a great tendency to copy (and a few others will think of modifying) the existing businesses. This tendency has driven most emerging entrepreneurs to trading, agriculture related and service based industries. This trend is further fuelled by a misconception that manufacturing is a complex area to explore mainly because they believe it requires high start-up capital, technical know-how and has high competition from imported low cost products. Whereas this may apply, we have witnessed fast growing industries which were established by vulnerable entrepreneurs with very weak financial capacity and are now enjoying enviable success.

Small-Scale-BusinessMy interest today is to shed more light on industries as a credible option for emerging entrepreneurs. Industries offer numerous benefits not only to the entrepreneurs but also to the economy at-large. For example; Industries are relatively more scale-able and offer better opportunities for expansion. They also offer more employment opportunities which can have a multiplier effect in the economy and also, they offer import substitutes and the economy is able to save foreign exchange.

Industry is the segment of economy concerned with production of goods. Small scale industry (SSI) is a term which applies to the small entrepreneurs who are engaged in manufacture and production on a micro scale. The SSI sector continues to remain an integral part of the Ugandan economy with significant contribution to GDP, industrial production and employment generation.Over the last two decades, the contribution of the manufacturing sector to Uganda’s economy has steadily risen to about 26.1% with services being 52.1% and agriculture at 21.8%. The major advantage of the sector is its employment potential at low capital cost. The labour intensity of the SSI sector is much higher than that of the large enterprises. Worldwide, the SSIs have been accepted as the engine of economic growth and for promoting equitable development, an opportunity that Uganda is yet to benefit from.

At USSIA (Uganda Small Scale Industries Association), Jooga Kawule, the Kampala Zone Co-ordinator informed us that a cottage industry or micro industry as one that employs less than 5 people and with an annual turnover of up-to UGX 12M. Small industries on the other hand are those industries that employ between 5 to 50 people and have an annual turnover of UGX 12M – 360M. The association is comprised of enterprises in over ten (10) industrial categories namely of Metal fabrication, Foods & Beverages, Wood works, Textiles & Garments, Leather work and crafts, Printing & Graphics, Chemicals, Pharmaceuticals & Herbals, Handicrafts, Building Materials, ICT, ceramics and electrical works and electronics. The major industries are based on processing agricultural products such as tea, tobacco, sugar, coffee, cotton, grains, dairy products, and edible oils. The other major industries are beer brewing and the manufacture of cement, animal feeds, matches, metal products, paints, shoes, soap, cosmetics, steel, and textiles.

9There are a number of cottage industries, which produce a wide variety of domestic and commercial iron and wooden products ranging from security doors, household and farm goods, numerous spare parts, and furniture. Ugandans are creative and have managed to utilize iron and other waste materials in the manufacture of useful implements.

In the year 2011/2012, there were over 30,000 businesses in the manufacturing sector in the entire country. More than 30 percent of manufacturing businesses were in Kampala and a further categorization by employment size showed that 86% of the businesses had less than 5 employees. In the same year, data on annual turnover revealed that only 11 percent of businesses had an annual turnover of more than 10 million shillings while 64% had an annual turnover of less than 5 million shillings. In addition, out of all the businesses in the sector, 22% had just started operations in either 2010 or 2011. Analysis of ownership revealed that 93% of the businesses were Sole Proprietorships and 98 percent of the businesses were owned by Ugandans.

Just like any other business, you must understand what the market needs and what it takes for you to have that need fulfilled. In the Industries space, you will also learn that there are a couple of private sector and government led initiatives to support the sector.

From the government side, Some of them include:

a) The Uganda National Industrial Policy which was established in 2008 to promote private sector-led industrialization through development of an efficient and reliable infrastructure. The National Industrial Policy sets out the strategic direction for industrial development in Uganda for the next ten years and the set principles are expected to be sufficiently robust to guide Uganda well beyond that period.

b) The Micro, Small and Medium Enterprises (MSMEs) Policy whose mission is to; stimulate growth and development of MSMEs by creating a conducive business environment to enable them access a wide range of need-based services in order to compete effectively. Its overall objective is to nurture and enhance the growth of the MSME sector to foster job creation and income generation, by promoting the creation of new MSMEs and improving the performance and competitiveness of the existing ones.

c) The Uganda Investment Authority with a mission to promote and facilitate investment projects, provide serviced land, and advocate for a competitive business environment.

d) The Medium Term Competitive Strategy (MTCS) with an objective to improve the business environment so that the private sector could compete effectively; improve the economic performance of the country by increasing production, as well as exports.

e) Uganda Industrial Research Institute (UIRI) is mandated to undertake applied research and to develop and/or acquire appropriate technology in order to create a strong, effective and competitive industrial sector in Uganda. The institute also offers incubation services to start-up industries.

f) The private sector, in particular, the Uganda Manufacturers Association (UMA), the Uganda Small Scale Industries Association (USSIA) and to some extent the Private Sector Foundation Uganda (PSFU), are lobby groups aimed at developing an enabling environment for industrialists.

It also cannot go without mentioning that the industrial sector is faced with bottlenecks which result in high transaction costs that make some locally manufactured products less competitive in comparison with the imported items. The main constraints include;

  • Poor and inadequate physical infrastructure that causes inefficiencies through high transaction costs thus leading to reduced competitiveness.
  • The technical requisite skills and manpower to run the sector are inadequate lowering productivity and increasing costs of hiring expatriates.
  • Heavy reliance of the manufacturing sector on imported industrial inputs and low export of manufactured products.
  • Erratic power supply, high electricity tariffs and high fuel costs
  • Relatively high interest rates for credit from the local commercial and development banks.
  • The problem of excess capacity, with capacity utilization averaging about 50% for most firms.

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Based on the above, it is therefore important for emerging entrepreneurs to consider cottage and small scale industries while setting-up new businesses, given the specific commercial benefits and government support to the sector.

By Brian Ahabwe Kakuru

Brian Ahabwe KakuruBrian is the Managing Director at BLEGSCOPE®, and has 9+ years of management consultancy experience notably in the finance & banking industry, MSMEs, FMCG companies and in the service industry. You can follow him on twitter >> @BrianAhabweK

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