The other day, the executive director of Enterprise Uganda, Mr. Ocici Charles, contributed to the need-to-be checked bias by advising Ugandan youth meeting in Kampala not to be derailed by calls from government agencies to formalise their business. Lately, the Uganda Registration Services Bureau and the Uganda Revenue Authority have been urging informal businesses to increase the tax base by opting for formalising of their entities. Mr. Ocici argues that while formalisation supports enterprise growth, businesses should be allowed to first establish themselves, and that formalisation can be done as they grow.
On the same day, Mr. Aguma Denis, the founder of National Association of Students Enterprise, decried the scope of youth unemployment in the country. Uganda is, indeed, the most entrepreneurial country in the world, yet it also has one of the world’s highest rates of youth unemployment. In fact, more than 400,000 youth enter Uganda’s job market annually yet only 80,000 to 90,000 are absorbed in the labour market.
As such, Uganda is extremely informal, extremely unregulated, has a limited understanding of the procedures necessary for successful formalisation, and is with a predominant use of untraceable cash. This is because the many entrepreneurs, who give us a top spot, are in it purposely for their personal survival, and not necessarily to change the world. Most businesses are not innovative enough to embrace ever availing opportunities and to progress onto bigger things.
The reason for these extremes lies in the nature of career guidance presented to many a student. The transition from their parent’s homes to their schools and to a job – for those who get one – is an easy one – there is always someone to take care of them, to feed them, to channel their sense of direction. However, all this happens within an already shaped structure, one which is not amenable enough to accommodate the unfathomable figures of the unemployed.
Most of the unemployed are because even when they still have to earn a living, they are not introduced to the different ways they can make careers out of identifying opportunities and making the most of them. After graduating from school, the get lost from not being adopted into the aforementioned system, which they go on to blame for many misfortunes.
The best that could happen to them is helping them appreciate, for example, various vocational activities. These may include, for example, carpentry, with intent of developing into a furniture business. It is at that nascent, under the radar stage that most of the skills which would be needed for the better stages of their business, such as book keeping, building a brand, and a loyal clientele.
For that transition to be made, it is inevitable for the business owners to formalise their entities. It would help them prepare to be compliant with the authorities, to open up access to credit, and safety nets like insurance of their business at a much earlier stage. For that transition to be effectively made, the choices for formality are going to be dependent on the structure of the economy.
Uganda’s economy is one that needs an overhaul in the form of restructuring. Importantly, with particular emphasis on how information is packaged, and relayed. It is notable that existing businesspeople are still scared of what might come of formalisation. Their fears develop from the uninformed impression that most businesses are not innovative enough to deserve formalisation. That is not true. Every business, in these times, must be able to always find innovative ways not only to survive but to, also, face the ever intensifying competition.
There is also an anticipation of hefty taxation from the Uganda Revenue Authority. That is not true, too. The formal sector is participating in the market, but using services from the informal sector. That is, the formal sector is borrowing, especially money, from the informal sector. What formalisation would achieve is that it would bring more informal businesses, which employ 70% – 80% of Ugandans into the formal sector, with the effect of increasing the tax base in such a way that many would pay a little instead of a few paying a lot. It would reduce the tax burden on the few existing tax payers. It would help in reducing tax evasion and avoidance and erasing the black market.
In a highly competitive market, protecting one’s innovation necessitates that entrepreneurs formalise. In addition, it is only after formalisation that they can ably and successfully enter partnerships and interest alien interests and clientele. Amongst others, formalisation also helps a business create more employment opportunities through expansion, and enables registration for licences.
Our education system cannot train people with employable skills. Career guidance is patchy and too dependent on individual teachers having the right expertise – with employers finding out that school leavers do not have the necessary skills or training to do the work which they are employed in. The youth need to, first, be equipped with skills and confidence to develop their ideas and vocational interests in the formidable businesses that will help them combat unemployment. There may not be employment, but there is a lot of work.
Formalisation would lose meaning after growth. It is better to be, like the youth say, “legit” from the onset. It would help them be organised and transparent and to be characterised by integrity from the very beginning.
It is therefore incumbent upon the authorities, especially the Uganda Registration Services Bureau and the Uganda Revenue Authority to enlighten the informal sector on the benefits formalisation avails to it. The informal sector comprised of 49% of the GDP in 2014, which was an increment from 43% in 2002. The inclusion of the informal sector would enable it to contribute to national development through the payment of taxes.