Permanent Secretary, Ramathan Ggoobi
Investors in Uganda could start accessing investment capital more cheaply as the government starts on the process of revising downward the interest rate at the Uganda Development Bank (UDB) downwards.
The government is also considering giving more incentives to international companies that intent to invest in local companies, which in the long-run is expected to boost availability of cheap and patient capital.
UDB has been the main official option for investors seeking more affordable capital, since commercial banks are considered too expensive, with the lowest priced loan product going for 17 percent.
UDB’s credit to the private sector costs a minimum of 12 percent because is its primarily money provided by government and its development partners.
However, even at this rate, experts say it is difficult to make profit from a business financed at that rate, considering that the best return on investment in Uganda is about 10 percent.
Emmanuel Katongole, the Vice Chairman of the President CEO Forum, a platform for private sector leaders, says the sector has asked the government to make sure that UDB rates are lower so as to reduce the cost of doing business in the country.
The Ministry of Finance, Planning and Economic Development says they have already started on discussion on how to reduce UDB interest.
Permanent Secretary, Ramathan Ggoobi, admitted that there are challenges with the system at UDB but that apart from capitalizing UDB, they also want to ensure that the interest is lowered and the time taken to process credit reduced.
President Yoweri Kaguta Museveni said he was in support of enabling UDB to lower the interest rate at 10 percent, even if it is a kind of subsidy which he despises.
President Museveni has endured criticism over the last two years rejecting calls to endorse subsidisation of the costs of essential products that were sharply rising due to global inflation. He said the only item he would consider was agricultural inputs especially fertilisers, but not fuel and food.
According to him however, there is need to subsidise the cost of borrowing because it will directly influence he productivity of the loans.
Speaking at the Presidential CEO Forum held at Chobe Lodge in Nwoya Districts, Ggoobi also encouraged the entrepreneurs to also adopt the use of equity as a source of patient capital.
Equity involves a business owner investing money in a company and participating in the ownership of the enterprise for as long as the term of the contract, after which they may exit.
It is aimed at ensuring better management of the company, especially the growing businesses, while also being ready to share in the losses. Ggoobi also said the government has decided to capitalise the Uganda Development Corporation (UDC) from the current 500 billion to 5 trillion shillings starting next year, to build its capacity to provide equity capital to enterprises.
Chris Kaijuka, the chairperson of the Grain Council of Uganda urged the government to extend the services of the UDC to the agriculture sector, including farmers and processors, mainly to support eh Parish Development Model.
According to Kaijuka, the PDM is expected to increase primary agriculture but that unless the market is worked on, the efforts will be wasted.
Emmanuel Katongole questioned some government policies even as it encourages equity financing, saying the equity investors need to be given some incentives especially on taxes.
Venture or equity capital in Uganda is not taxed except when it is exiting; a form of capital gains tax. This amounts up to 30 percent of the value of the capital that the equity investor is turning over to the company owner before quitting. This, according to him discourages capital inflows into the country.
He says that this source of capital, if strengthened could even be used as a compromise position for government support to the controversial Uganda Vinci Coffee Company, UVCC, which would in turn partner with the private sector in Uganda to do coffee processing and exporting.
President Museveni welcomed the proposal by the private sector to work with Enrica Pinetti, the chief executive of UVCC on value addition to Uganda’s coffee.
The members of the forum also asked the government to streamline the policy on value addition especially on unprocessed products.
The government has been insisting on adding value to products especially agricultural products and minerals so as to increase the country earnings.
The same policy also puts prohibitive taxes on raw materials that the government says can be sourced locally.
Deo Kayemba, the Chairman Uganda Manufacturers Association, challenged the policy which he said is benefiting large manufacturers while suffocating the smaller ones who are asked to pay the increased import duty on their raw materials.
Ggoobi said the Ministry of finance will review the policy and study its advantages and disadvantage and discuss it with the president.
On the alleged corruption by government officials especially in the procurement process, Ggoobi said the government is continuing to roll out the digitalized system (e-government), which would make it hard for any malpractice due to the increased transparency.
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