SMALL BUSINESS SUSTAINABILITY AND THEIR PERFORMANCE IN UGANDA
The small business sector, like in others parts of the world, is seen as a vital contributor in the evolution to a market economy, through job creation and income generation among other factors (Hisrich, 1999). A Small business, in Uganda is defined as an enterprise employing a minimum of 5 people and a maximum of 50 people, with annual sales turnover of maximum 360 million Uganda shillings and total assets of maximum 360 million Uganda shillings (Ministry of Finance, 2008).
The fact that small businesses are a viable option for employment and job creation means that it would be an ideal avenue to point the youth of Uganda towards, in so doing they can start their own businesses and hopefully employ others as their businesses grow The government of Uganda has embarked on the promotion of youth self employment through the establishment of the National Youth Funds. Examples of these include the Youth Venture Capital Fund (UYVCF) established in 2011, worth about US$ 10 million; and the Youth Livelihood Program (YLP) which is worth about US$ 100 million over a five-year period, established in 2013 (AHAIBWE, 2014).
However, this has led to many people ask themselves several questions weather age has effect on business performance in any way since a high performing business have tendency to growth and employ more people. According to Dr. Olutayo K. Osunsan 2015, several studies have explored the effect of gender, experience, qualifications among others, but few have taken on age in the context of Africa particularly Uganda. Thirdly, several scholars have called for more age related research in order to find out more accurately how older and younger entrepreneurs make a contribution to business performance and thus employment but however, these have not looked enough on how to sustain these small businesses. Some small business enterprises include; Salon, Mobile Phone Support, real Estate Brokerage, Hawking. Motivational Speaking, Counseling, Graphics Designing, Shoe Repair, Second Hand Clothes and Shoes shop, Small manufacturing industries, Transport services, Trading, Computer and internet services among others. This study therefore sought to find out the sustainability of small businesses in Uganda and their performance. This research will use secondary analysis research approach to classify their performance and develop a model showing the potential relationships and behaviors that breed sustainability or success.
Before the 1980s Uganda had a closed economy in which the Government protected the local market. This changed in the 1980s when Uganda took on a set of reforms in the shape of Structural Adjustment Programs (SAPs). The World Bank started to give out loans to governments under certain conditions with the aim to liberalize Uganda’s market (Schouwenburg, 2016).
According to the Patton, (2016) Uganda is a land of entrepreneurs, but her questions are the number of business, which can survive for more than three years. On scale, there are many small business enterprises opened up every year, but unfortunately among 10, only very few can survive. There are a number of reasons why most newly opened small businesses cannot survive for many years yet others can. In this research, we shall be basically looking at how these few small enterprises operate and what enables them to operate for many years.
In this research I will be using secondary data as a type of methodology from different sources since several people have come up with a similar research though the problem is not yet solved. The purpose of this survey is to investigate the reasons for small business enterprise failure. Another reason for the survey is to determine the financial impact of “age” to the businesses that owned by people of different age groups. Case studies of businesses in a few towns around Kampala in Uganda were made for the businesses studied, causes of failure and some practical measures suggested are outlined. This knowledge could help in mapping out strategies for solving the number of problems faced by these businesses especially the newly opened before their collapse, thereby contributing to poverty alleviation, which is one of the Millennium Development Goals (MDGs) therefor leading to successful businesses in Uganda.
2. Literature review
Uganda is located in eastern Africa, west of Kenya, south of South Sudan, east of the Democratic Republic of the Congo, and north of Rwanda and Tanzania. It is in the heart of the Great Lakes region, and is surrounded by three of them, Lake Edward, Lake Albert, and Lake Victoria. Uganda covers 197,100 square kilometers of land and 43,938 square kilometers of water, making it the 81st largest nation in the world with a total area of 241,038 square kilometers. Uganda became an independent state in 1962, after gaining its sovereignty from The United Kingdom. The population of Uganda is 35,873,253 (2012) and the nation has a density of 182 people per square kilometer. The currency of Uganda is the Uganda Shilling (UGX).
3. Economic overview
Uganda’s economy has grown at a slower pace in recent years, reducing its impact on poverty. Average annual growth was 4.5% in the five years to 2015/16, compared to the 7% achieved during the 1990s and early 2000s. The economic slowdown was mainly driven by adverse weather, unrest in South Sudan, private sector credit constraints, and the poor execution of public sector projects (Kulubya, 2017). Amidst these, and as a reflection of an unrealized fiscal stimulus, growth slowed further to 3.5% in 2016/17. Economic performance generally remained strong despite the recent slowdown in real GDP growth, which is projected to reach 5.9% in 2018, up from 4.8% in 2017 and 2.3% in 2016. The increase in economic growth in 2018 expected to be driven by mainly public infrastructure investment; recovery in manufacturing and construction; and improvements in the services sector, particularly financial and banking, trade, transport, and information and communication technology services.
The significance of the focus on financial inclusions has got access on financial services, which enables individuals, households, and businesses to efficiently balance income and expenses over time; to manage financial shocks; and to invest in the development of their human and physical capital. Most critically, efficient intermediation encourages savers, eases access to credit for borrowers and lowers the cost of credit, which in turn reduces the overall transaction costs for enterprises, making them more competitive (Farhat, 2017).
The State of the Economy report, March 2018, released by Bank of Uganda, reveals that Uganda’s debt burden had risen. As of December 2017, the provisional total public debt stock stood at sh37.9 trillion up from sh34.5trillion in June 2017, signifying an increase of 9.4% in five months. While borrowing facilitates development, the resources must be channeled into sustainable economic activities such as agriculture, capacity development through quality education, local and international trade in order to reap quickly and support loan repayment with the accrued interest (Farhat, 2017). Through these productive activities, the economy will be able to increase its economic growth which in turn will boost re-investment to enable the expansion of sources of income to facilitate loan pay back hence reducing the burden. The government has to pay its short-term loan in a period of 10 years but continues invest these loans in long-term projects like infrastructures, which do not yield immediate returns.
4. Firm death in Uganda
It is estimated that firms in developing countries including Uganda, their death range between 3% per year to over 30% annually (Frazer, 2005). According to McKenzie (2017), Small firms are an important source of income for the poor in developing countries and in this Uganda inclusive. The government develops and target many interventions to help these small firms grow to avoid their death. According to the research that has been done before regarding the death of firms in developing countries, there is no systematic information on the failure or death of such firms. The authors of several research papers like “small firm death in developing countries” (McKenzie David, 2017) find small firms die at an average rate of 8.3 percent per year over the first five years of following them, so that half of all firms observed to be operating at a given point in time are dead within 6 years. This firm death will be illustrated in the later paper among the case studies which where done around the suburbs of Kampala the Capital of Uganda other a few other areas. Death rates are higher most especially for small firms, which are just starting up country, and this is a result of some factors, which include: younger firms, retail firms, less productive and less profitable firms, and those whose owners are female and not middle-aged.
Under firm deaths in Uganda, this paper will discuss about three theories of why small firms die. These theories are: non-separability of business and household decisions, firm closure by choice by the owner, firm competition and firm shocks, and It finds the cause of firm death to be heterogeneous, with different subgroups of firms more likely to die for reasons consistent with each of these theories.
4.1 Theories of firm death
Non-separability of business and household decisions: Un like other theories where owners take different decisions in business form households, under this theory, owners take one absolute time allocation and consumption decision for both business and households. For some decisions taken at home directly affect the business and this is because the owner wants to influence both home and the business. In some instances, because it’s a one person business owned who takes all the decision making, incase of any sickness of the owner or family member, firm owners may require to close their business to take care of the sick since they cant find someone who may replace them. Firm closure in this case is involuntary and will be associated with lower earning and welfare of the owner (McKenzie David, 2017). To examine this theory, a case study is taken from household food security in rural Uganda.
Applications of this model in Uganda either assumed perfect markets, perfect substitutability between family and hired labor, perfect substitutability of labor between wife and husband, or perfect substitutability between purchased and produced foods. These assumptions are unrealistic among rural households in Uganda. Families in the rural are as at times practice substance farming where they grow crops both for food and for sale and this makes it inseparable since a decision is taken at once (Ahmadi-Esfahani, 1999). As a result of combining household and business, the production become less and it does not seem to enlarge so as to acquire a new market and this in turn may lead to collapse of the firm. (TJ Strydom, 2017)