KAMPALA – Despite the big role that Small and Medium Enterprises (SMEs) play in driving the economy’s growth, they struggle with a host of challenges.
Small and Medium Enterprises (SMEs) suffer with high financing costs among other challenges, a situation that limits them from scaling up their operations.
The definition of an SME varies jurisdiction by jurisdiction. In Uganda, different government bodies segment SMEs differently depending on parameters that fit in their business models. For example, the Uganda Revenue Authority classifies SMEs depending on their tax compliance capabilities.
On the other hand, the Uganda Investment Authority segments SMEs depending on their capital share. However, for purposes of the International Financial Reporting Standards (IFRS) for SMEs standard, any entity which does not operate in public interest can apply the standard.
The 2015 Global Entrepreneurship Monitor Report reveals that most enterprises in Uganda did not expect to grow to the extent of employing at least five people within a five-year period.
“Expansion of domestic commercial enterprises to large scale is important to achieve economic growth. There is no doubt that support for the development of small and medium enterprises can be the answer to both economic growth and job creation,” said Mr Louis Kasekende, the Deputy Governor of the Central Bank said while launching the Absa Small and Medium Enterprises (SME) Academy recently.
Data from the Ministry of Trade, Industry and Cooperatives current estimates suggest that about 160,000 SMEs contribute 20 per cent to the national Gross Domestic Product (GDP) and employ 2.5 million people; 49 per cent of whom are in the service sector, 33 per cent in commerce and trade, 10 per cent in manufacturing while 8 per cent are in other sectors.
Apart from SMEs providing a solution to the country’s unemployment rates, they also reduce underemployment and income inequalities, utilise local raw materials output expansion and transform the indigenous technology.
“In order for us to achieve continued economic growth and sustainability, we need to ensure that we provide all the necessary incentives to expand these enterprises. Most importantly, we need to ease access to funds for SMEs,” Mr Ronald Kasasa, the head of business banking at dfcu, explains.
New research titled ‘Enablers and Inhibitors of IFRS for SMEs Adoption in Uganda’ notes that few SMEs are using the international reporting standards for SMEs. Figures show that only 35 per cent of SMEs in Uganda have fully adopted and complied with all the requirements in the standard International Financial Reporting Standard for Small and Medium Enterprises (IFRS) for SMEs.
Currently, 54 per cent have partially adopted this standard while 11 per cent of the SMEs in Uganda have not adopted the standard at all. Generally, SMEs are characterised by inability to use stock exchange markets, high dependency on commercial banks to source funding and having a fluid distinction between ownership and management.
“The new breed of accountants do not know and appreciate this standard. There is need to reduce this knowledge gap, and one of the ways to do this is to introduce the IFRS for SMEs as a subject on the ICPAU syllabus,” Mr Kenneth Makanga, a partner at BDO East Africa said. While presenting these research findings this month, Dr Mary Maurice Nalwoga Mukokoma, the head of department, Finance and Accounting at Kyambogo University, said some SMEs are producing poor quality reports due to their limited understanding of the standards.
Most SMEs also operate informally. This informal way of operating business impedes growth and expansion of these enterprises and productivity.