BANK OF UGANDA
Remarks by
Louis Kasekende (PhD)
Deputy Governor, Bank of Uganda
At the 9th Annual Uganda Top 100 Mid-sized Companies'
Awards- Gala Dinner
Hotel Africana, Kampala
November 10, 2017
Executive Director, Uganda Investment Authority
Country leader, KPMG Uganda
MD of Monitor Publications
MD of DFCU Bank
CEOs/MDs of ICEA General Insurance, Vodafone & South African Airways
Invited Guests,
Ladies and Gentlemen,
Let me begin by thanking KPMG for inviting me to this Gala Award Dinner for
the top 100 mid-sized companies in Uganda and also to commend both KPMG
East Africa and the Nation Media Group/Monitor Publications for this laudable
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initiative. It is laudable because this section of the business community the
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mid-sized companies is crucial for the future growth and development of our
economy, as I will explain in my remarks tonight. The top 100 mid-sized
companies will not only offer recognition to outstanding corporate
achievements but also provide valuable information about this section of our
economy.
The main reason why mid-sized companies are so important for economic
development is their productivity. Sustainable increases in the per capita
incomes of a country require sustained growth in labour productivity. Uganda
cannot hope to reach middle income status without a very substantial rise in
labour productivity.
In a developing country like Uganda, the main source of labour productivity
growth is the modern business sector, for reasons I will discuss shortly.
The modern business sector in many respects is conterminous with medium
sized and large companies. In Uganda, there are few large companies, so the
modern business sector of our economy mainly comprises mid-sized companies.
The Bank of Uganda's
annual Private Sector Investment Survey (PSIS)
provides valuable information on this sector of our economy.
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The 2016 PSIS (which is available on our website www.bou.or.ug) provides
data derived from 630 companies which responded to a questionnaire; and these
companies comprise the majority of the largest companies in Uganda.
More than 70 percent of the companies covered by the PSIS had an annual
turnover within the thresholds for defining a mid-size company for the purposes
of the KPMG Gala Awards; i.e. a turnover of between Shs 360 million and Shs
25 billion.
The data in the PSIS enables us to estimate the average labour productivity,
defined as value added per worker, of the sampled 630 companies. In 2015 this
amounted to Shs 38 million in current prices. For the economy as a whole, value
added per worker in 2015 was just over Shs 5 million. Hence the companies
surveyed in the PSIS generate labour productivity which is more than seven
times the average for the entire Ugandan economy.
Not only are the mid-sized companies much more productive than the economy
as a whole, their labour productivity has been growing much faster than that of
the rest of the economy. In real terms, the labour productivity of the companies
covered by the PSIS increased by an annual average of 5.1 percent between
2010 and 2015. This is much higher than the estimated 2.2 percent average
annual labour productivity growth for the economy as a whole over the same
period.
Why are our mid-sized companies so much more productive than the rest of the
economy, which mainly consists of small scale, micro and household
enterprises? There are four reasons for the large difference in productivity.
The first is that mid-sized companies are able to realise economies of scale that
small and micro enterprises are unable to do. In many types of business,
especially manufacturing, efficiency depends on being able to operate at
optimal economies of scale. Operating at a larger scale also allows individual
staff to specialise in specific tasks which raises their productivity.
Secondly, mid-sized companies combine labour with capital equipment, thereby
raising substantially the productivity of labour. In contrast, at small scales of
operation, the use of many types of capital equipment is not economically
viable, so most small and micro enterprises use very little capital which means
that their labour productivity is low as a result.
Thirdly, mid-sized firms are large enough to employ professional managerial
and technical specialists which enable them to utilise their resources most
efficiently. Fourthly, by applying modern management techniques, mid-sized
productivity improvements through "learning by
firms can generate continuous
doing"; that is utilising the knowledge gained through their own production
activities and those of other firms to make these activities more efficient.
Economic growth theories have identified learning by doing as one of the most
important sources of long run growth.
One of the weaknesses of the Ugandan economy is that the modern business
sector still comprises a relatively small share of it. The companies surveyed in
the PSIS comprise only 5 percent of GDP.
Although these companies have achieved robust productivity growth, their share
of the economy is too small for their productivity growth to make a substantial
impact on that of the economy as a whole. Therefore, if we are to transform our
economy into that of a middle income country, we must expand the size of the
modern business sector many times.
The fact that the modern business sector has remained a relatively small part of
the overall economy despite a quarter of a century of consistently robust real
economic growth indicates that there are major barriers to investment by this
sector. The 2017 Global Competitiveness Report, published by the African
Development Bank, the World Economic Forum and the World Bank, lists
some of the factors which impede the competitiveness of the Ugandan
economy. These include some aspects of the institutional environment,
especially pertaining to public administration, poor infrastructure, higher
education and training, and technological readiness.
The long term prospects for our economy depend on creating a business
environment which is conducive to attracting investment by mid-sized
companies on a large scale. If this sector is to expand to command a much
larger share of the Uganda economy, which is necessary if per capita incomes
are to rise substantially; thousands of new mid-sized companies will have to
invest in Uganda.
The factors needed to attract private investment on such a scale include
prospects for strong long term growth in markets for goods and services,
macroeconomic stability and a competitively priced workforce. They also
include a clear and transparent institutional environment with clear rules and
regulations which are implemented fairly to create a level playing field for all
investors and which protect the legitimate rights of businesses.
To strengthen the business climate in Uganda, the business community should
play a more prominent role, through its collective institutions such as the
Private Sector Foundation and the Uganda Manufacturers' Association, in
identifying and highlighting obstacles to investment and business expansion and
lobbying for economic and institutional reforms to remove or mitigate these
obstacles.
There are many important public policy debates in this country, about for
example the appropriate level of tax rates and import tariffs, the types of skills
needed in the labour force, the type of infrastructure that is required, and the
importance of regional integration, which would benefit from the collective
voice of the business community. I hope that events such as this Gala Awards
Dinner can help to stimulate the debate that is needed in Uganda to strengthen
the business environment and attract much more private investment.
Finally, I congratulate all the entrepreneurs here tonight, especially those that
have received awards, and encourage them to use their experience to nurture
and mentor other aspiring entrepreneurs, so that we can collectively expand the
formal business sector in this country - that is vital for employment generation.
Thank you for listening.