In recent years, the rise of innovative digital technologies has shaped virtually every sector and aspect of daily life as well as changing the way people learn, work, trade, socialize and access services and information. Global events such as the COVID-19 pandemic have accelerated these trends further. Yet in Uganda there are several factors – including the digital divide as well as data security and privacy concerns – that have deterred the government, private sector and individuals from taking full advantage of new digital technologies to modernize operations and improve efficiency and convenience of accessing services.

Uganda’s National Development Plan (NDP III) recognizes that micro, small and medium-sized enterprises (MSMEs) are fundamental players in creating livelihood opportunities in the country through the nurturing and enhancing entrepreneurial skills, yet the majority of Uganda’s MSMEs are still struggling to identify and access markets for their goods and services. Given that MSMEs are a key engine of growth and economic development in Uganda, digitalization is seen as one method of improving their efficiency, productivity and access to markets.

MSMEs in Uganda

MSMEs in Uganda are predominantly informal and young, with around 50% of these enterprises being less than five years old. Given the infancy of enterprises in the sector, the mortality rate of businesses is high and for every new business being established, another is closed within one year of its operation. Many entrepreneurs in Uganda also have multiple small enterprises and then over time may decide to focus on one or the other. According to Uganda Investment Authority (UIA), only about 8% of MSMEs have survived for 15 years or more.

Uganda’s MSMEs are largely concentrated in urban areas and are predominantly engaged in trade, construction, hospitality, manufacturing, finance and insurance. Ownership of the enterprises is almost equally distributed between male and female entrepreneurs at 49% and 51% respectively, while most MSMEs (about 45%) are sole proprietorships, followed by private limited liability companies (around 30%). Others include partnerships (20%), associations (2%), cooperatives (2%) and NGOs (1%) according to Uganda Bureau of Statistics (UBOS) .

Most MSMEs not registered since registration requirements are reported to be cumbersome. Meanwhile, taxation implications for registered enterprises discourage registration and as a result two-thirds of Ugandan entrepreneurs do not pay taxes and remain informal businesses.

Steven Kalema is an entrepreneur who turns leather into footwear, belts and handbags. He has been operating as a medium-sized business for close to 10 years and is among the few who have registered his business with the hope of benefiting from services such as tax holidays, subsidized raw materials and many others. Instead, he claims to be suffering from high tax rates. He claims that this makes it difficult for his business to grow. In addition, he also notes that access to market and access to raw materials still present significant challenges.

“I registered hoping to get better services,” said Kalema. “Instead, I am paying high taxes on almost everything including the raw materials for my products. I end up getting less or even no profit as the cost of production is way too high, yet even the regional markets are hard to penetrate through. I think that if the government revises these tax policies it will be of much help. Digitizing services to help us sell in other regions will also help boost my business.”

It’s against this background that the United Nations Development Programme (UNDP) through the Digitalization, Innovation and Smart Cities (DISC) Programme and Accelerator Lab have engaged consultancy firms to design platforms to facilitate trade, business exchanges and connections as well as self-paced learning to enhance digital literacy and access. The platforms contribute to the transformation of trade, tourism and the MSME sector.

UNDP is prioritizing trade sector digitalization as one way of mitigating challenges that traders are facing, through an online market intelligence platform to facilitate export trade, business-to-business exchanges and connections between Uganda MSMEs and counterparts in other countries. This platform is targeting businesses at different stages of development, from ideation to early and growth businesses, that want to network and learn from counterparts in different geographical regions. 

UNDP is also facilitating the development of an e-learning platform for a self-paced literacy program by the MSMEs to enhance digital literacy and access to government services with a focus on trade and tourism enterprises.