Amid festive holidays, business people in Uganda discussed challenges like taxes, electricity disruptions, and delayed government payments in Uganda, highlighting cash flow crises.
They talked about taxes, pilfering, electricity disruptions, smuggling, influence peddling, counterfeits, rising overhead costs, and various other issues that hampered business growth.
In between the munching of snacks and sips of cold drinks or warm beverages, there was a consensus that yes, the government supported the private sector, but that support was also not consistent and at times extremely selective. Although names and companies were mentioned, it would serve no useful purpose to repeat them here.
Then, a young man, who recently arrived from Kenya, brought up the suggestion that the government look into the introduction of a statutory ‘prompt payment’ law. Something along the lines that all invoices must be paid within a specified time or that the customer faces added financial penalties for delays. He said this is the conventional way of doing business that ensures transparency and clarity for both parties.
His reasoning was that this would help limit cash flow problems, which cause many Ugandan enterprises to eventually collapse under the weight of excessive debt. After politely listening to him, some people were amused before someone said, “But this is Uganda!”
The group burst into laughter. It was not out of malice, nor did the young man take it to heart; just an acceptance of present day realities.
Six months before the reading of the next national budget, Matia Kasaija, the Minister of Finance, Planning, and Economic Development, has already figuratively thrown a wet blanket at Uganda’s business community.
Despite the constant pleas and cajoling from the Uganda Manufacturers Association and the Private Sector Foundation Uganda, he recently announced that the 2025/26 budgetary allocation for domestic arrears will be pegged at UGX200 billion. For financial year 2022/23 it was UGX600 billion so one can imagine the disappointment in the business community at this worrying trend.
The UGX200 billion is out of the estimated UGX12 trillion now owed to suppliers. In 2020 the figure was about UGX4 trillion; UGX8 trillion in 2022 and UGX10 trillion in 2023. According to the IMF, efforts to accelerate payments and reduce existing stocks of arrears could be helpful in boosting the economy in the shorter run and would typically not increase deficits if all spending was properly captured when it accrued.
Kasaija said, “The government is to maintain UGX200 billion for domestic arrears unless the country realizes more resources in the process of finalizing the budget.”
Speaking in early January at the reopening of a repaired section of the Kampala-Jinja highway through Mabira Forest works and transport minister, Gen Katumba Wamala said, “We owe Energoprojekt over UGX50 billion in regards to road works and maintenance they have done on various roads which were contracted to them. Because of the delay, they did not move in to work on the Mabira section, but we shall sort them out.”
For waiting suppliers, there is no comfort in being one of many. All are hurting. Delayed government payments adversely affect businesses, particularly smaller enterprises. It puts a strain on cash flow, wipes out any profits, hindering growth, and the longer the delays, the higher the chances of bankruptcy.
Several businesses in Uganda operate under a domino effect. One missed payment affects the whole supply chain. These businesses rely on networks of fellow small enterprises to source goods and services.
When a big client such as the government delays payment, it automatically disrupts that company’s ability to meet its own commitments, setting off a chain reaction of late payments that affect the entire supply chain. Things were particularly bad during the COVID-19 pandemic when understandably the government’s spending priorities went through a 180-degree turn.
For accounting purposes, when payments are late, a positive, but small cash flow can turn negative. Drastic measures, like taking out a loan, are then needed to raise funds to cover the operating costs for a certain period. But in many cases, payment is so delayed that the invoices have to be written off as bad debt. Another thing, our banks are no longer interested in providing stop-gap loans based on delayed government payments.
The finance ministry has a stipulated and well-documented formula for clearing government bills. We have been officially informed about the process plenty of times, but even people who work there say it is largely ignored. It all depends on who you know and how much you are willing to kick back in order to get your name on the ‘list’.
John is a young computer repair technician operating out of a small workshop in one of Kampala’s shopping arcades. Right now he is debating whether to sell off a piece of land because he’s in a financial fix. He is frustrated and angry at being put in a position not of his making.
Last week, and via email, he received a demand note. It was polite in tone, but at the same time quite threatening. It concerned the delayed payment of a UGX7.5 million for the supply of components.
The funny thing, although John was not in the mood for laughing, was that he was owed UGX18 million. This was for services rendered to various clients, who kept warding off his reminders with excuses that the government had yet to pay them.
Some people are known to use this as an excuse when it is not true, but that does not change the fact the government is giving suppliers a hard time. You cannot talk about supporting private sector growth if you keep delaying to pay your bills.