THE EFFECT OF SMALL SCALE ENTERPRISES ON THE GROWTH OF TOWNS IN UGANDA: A CASE STUDY OF BANDA PARISH, NAKAWA DIVISION KAMPALA DISTRICT
BY
CHARPTER ONE
INTRODUCTION
1.0 Introduction
This chapter presents the background to the study, the statement of the problem, the purpose of the study, objectives of the study, the research questions, and the hypothesis, the scope of the study, the significance, justification and operational definitions
1.1 Background to the Study
Globally, the concept of performance of small enterprises developed in the 17th and 18th centuries as the public grew to overcome great hardships to carve a home and a way of life out of the wilderness (Hill, 2001). Also according to Donald(2011) as the nation’s population grew and cities assumed increased economic importance, the dream of being in business for oneself evolved to include small merchants, independent craftsmen, and self-reliant professionals as well that conceptualized the emergence of small enterprise growth and performance (Donald, 2011). In Uganda small enterprises and businesses were mostly peasant agricultural production based economic activities since pre-colonial times (Kikonyogo, 2000). Despite an active trade in ivory and animal hides linking Uganda with the east coast of Africa long before the arrival of Europeans, most Ugandans were subsistence farmers. After declaring Uganda a protectorate in 1893, Britain pursued economic policies that drew Uganda into the world economy primarily to serve Britain’s late nineteenth -century textile industry.
The performance of small enterprises in Uganda has been affected by a number of factors that include managerial skills, government support, access to finance and the general business environment (Byaruhanga, 2008) asserts that Uganda was once rich in human and natural resources and possessed a favorable climate for economic development of towns all over the country, but in the late 1980s it was still struggling to end a period of political and economic chaos that had destroyed the country’s reputation as the “pearl” of Africa.
The Government of Uganda launched an Economic Recovery Programme (ERP) in May 1987, followed by a series of rehabilitation and development plans (Kasekende, 2003). Initial efforts were aimed at rehabilitating the production sectors and infrastructure, especially small enterprises on which the economy depended. Problems in the balance of payments were addressed by liberalizing the exchange rate, encouraging exports and seeking donor support. The trade regime has been fully liberalized, and there are no restrictions on both the current and capital accounts. In addition, the government pursued, with vigour, a policy of privatizing parastatals, with the result that more than a half of them have been divested with the intention of promoting the performance of private businesses and enterprises (Kasekende, 2003).
According to Hall (2002), microfinance institutions refer to entities that provide financial services to micro-entrepreneurs and small businesses which helps to develop towns as they bring about increase in economic activities. However small businesses face numerous challenges like; lack of access to banking and related services due to the high transaction costs associated with serving these client categories. The Financial Institutions Act (2004) gives two main mechanisms for the delivery of financial services to such clients and these are relationship-based banking for individual entrepreneurs and small businesses but very few small business owner have enough security to qualify for this service; and group-based models. In here, several entrepreneurs come together to apply for loans and other services as a group based on the set policies and procedure by the government (Donald, 2011).
The government is crucial in enhancing better performance of small enterprises since it helps to improve and develop their businesses by providing business advice, training and finance , build stalls and provide financial support, provide business start-up training, entrepreneurial skills, and mount a proper monitoring system to help in the running of small businesses (Mukras, 2003).
Development of towns in terms of improved peoples welfare, infrastructure and revenue, asset base as a result of profitability of small business enterprises is the focus of this study. The growth of these towns is perceived to be affected by the performance of small scale enterprises.
1.3 Statement of the problem
There has been a considerable increase in the number and size of the small scale enterprises in Uganda according to Kasekende (2003). The authorities in Banda Parish have been implementing measures to address the barriers to performance of small enterprises through the Competitiveness and Investment Climate Strategy (CICS) through physical infrastructure development mainly in roads, water supply. As a result, the business environment in Banda can be rated good and small enterprises are supposed to perform since there is access to finance through many microfinance institutions, SACCOs and Rotating Savings and Credit Associations (ROSCAs). Despite the above strategies and the fact that small enterprises constitute a large population of the private sector from which income and more jobs are created Banda, the performance of small enterprises remains relatively low compared to other countries and with a business failure rate of 60% before they reach five years in Banda according to UBOS (2010).This leaves some information gap on what could be the factors affecting the performance of small enterprises in Uganda. This therefore necessitates an investigation through a study research in order to get empirical evidence on this scenario for better management and performance of small enterprises in Banda Parish.
1.4 Purpose of the study
The purpose of this study is to examine the factors affecting the performance of small Business in Uganda.
1.5 Objectives of the study
- To assess the benefits of small scale enterprises on the development of Banda Parish.
- To examine the challenges faced by small scale enterprises in developing towns like Banda
- To examine the relationship between small business enterprises and the growth of towns in Uganda.
1.6. Research questions
- What are benefits of small scale enterprises on the development of Banda Parish?
- What the challenges faced by small scale enterprises in developing towns like Banda?
- What is the relationship between small business enterprises and the growth of towns in Uganda?
1.9. Significance of the study
The research findings will be useful to stake holders in Banda because it provides information to both local and central government authorities on the factors affecting the performance of small enterprises.
The findings of the study will enable policy makers, planners and economists especially at national and district level to make informed decisions and plans based on researched information made available by this study.
To the research community, the study will be a basis for future research on how to improve the performance of small enterprises, especially by identifying the knowledge gaps for future research. Besides, it will add on the existing knowledge about performance of small enterprises particularly in Banda business environment.