50 YEARS OF ENTREPRENEURSHIP IN UGANDA, TEN YEARS OF THE UGANDAN GLOBAL ENTREPRENEURSHIP MONITOR

By

Waswa Balunywa. Peter Rosa  and Diana Nandagire Ntamu

September 2013

Introduction

The GEM team first participated in the GEM in 2003, ten years ago.  It was the first sub-Saharan African country outside South Africa to do so. In this section we take this opportunity to reflect on ten years research by the MUBS GEM team, and celebrate 50 years of entrepreneurship in Uganda. We consider how far entrepreneurship has developed in the country and whether it is having a significant impact in alleviating Uganda’s serious strategic problems of long term under-development, poverty and unemployment.

This reflection has only been made possible by the data gathered under the GEM initiative. The GEM team at the Makerere University Business School has pioneered the methods of conducting such demanding surveys in a complex African context. It has participated in 2003, 2004, 2009 and 2012. This, when combined with data from other regions of the world since 1999, provides a unique resource for researching objectively the relationships between entrepreneurship and economic growth and development, and for challenging the many assumptions and preconceptions that surround the nature and impact of African entrepreneurship. 

Overview

Very few Ugandans today live in traditional “tribal” self-contained systems of subsistence and self-sufficiency of the type once common in the 19^th century. Even the most isolated and traditional peoples such as those in the North and North East of Uganda, are integrated to some degree into the modern capitalist consumer economy and state system of government and taxation.  However, there is still a large proportion of the rural population to whom subsistence (agricultural and pastoral) forms an important part of their production and consumption. About 85 percent of Uganda’s people (Table 1) reside in rural areas and depend on agriculture and pastoralism  for their livelihood (Background to the Budget, 2012). Of these about 70 percent of the population continues to rely on some form of subsistence production.

Table 1: Urban Population Trends in Uganda from 1980 to 2012

Year	Population in millions	Percentage
1980	0.8	6.7
1991	1.7	9.9
2002	2.9	12.3
2012	5.0	14.5

Source: Uganda Bureau of Statistics, 2012

Such a large proportion of people reliant on some form of subsistence is characteristic of most sub-Saharan African countries, and is a symptom of high levels of poverty. Sub-Saharan Africa in the middle decades of the 20^th Century failed to reproduce the progress in poverty alleviation and development achieved in Asia and Latin America. There has been only a marginal decline in poverty rates across sub-Saharan Africa, a fraction of that registered in other continents (Collier and Dollar, 2001; Sala-I-Martin, 2006),  from 55.7 per cent in 1990 to only 50.3 per cent in 2005 ( UN Department of Public Information – DPI/2517 T – September 2008). 

This average trend across the continent, however, disguises some significant variation between countries. In Uganda there has been a dramatic fall in the proportion of absolute poor Ugandans (Table 3) from around 50 per cent in the early 1990s to current levels of 22 per cent (Uganda National Household Survey, 2012/13). In recent years the non-monetary GDP has reduced to about 14 percent in 2012 of total GDP from about 36 percent in 1986 (Table 2). This is associated with significant economic growth averaging at over 5 per cent a year since the 1990s from virtual stagnation and periods of negative growth in the 1970s and 1980s.  Growth in GDP has been consistent since 1999 (Table 4). These dramatic improvements have been achieved despite the fact that the country is having to absorb a rapidly rising population. The question is has entrepreneurship contributed to this improvement?

Table 2: Monetary and Non-monetary GDP in Uganda

Year	Monetary	Percentage	Non-monetary	Percentage	Total
1998	391	64	218	36	610
1990	991	66	510	34	1,501
1995	4, 037	74	1, 385	26	5,468
2001	9,349	84	1,783	16	11,132
2005	15, 165	85	2, 713	15	17,878
2007	19, 888	86	3, 121	14	23,009
2010	29,792	90	5,019	10	34,811
2012	45,929	86	7,273	14	53,202

Source: Ministry of Finance, Planning and Economic Development, 2013

Table 3: Decline in absolute poverty since 1992

Year	Percent
1992	56.4%
1999	33.8%
200/10	24.5%
2012	22.4*

* Sources

Uganda National Household Survey, 2012/13Poverty Status Poverty Status Report Uganda’s Ministry of Finance Planning and Economic Development

Table 4: Uganda Growth in GDP

Year	Growth in GDP
1999	5.5
2000	6.0
2001	5.1
2002	5.5
2003	4.4
2004	5.0
2005	4.0
2006	5.3
2007	6.0
2008	6.9
2009	5.3
2010	5.2
2011	6.7

Entrepreneurship and Entrepreneurship in Uganda

Entrepreneurship is associated with “the creative extraction of value” (Scott et al., 1998). In the last 50 years entrepreneurship has been increasingly promoted  as playing a key role in economic growth, development and job creation, particularly in Africa (Neck and Nelson, 1987:6-7). This involves processes of adding value to the economy through matching new business opportunities emerging from global change and innovation, to human and capital resources (Baumol, 1968; Schumpeter, 1934; Drucker, 1985; Foss and Klein, 2008). The entrepreneur plays the vital role in this matching process by identifying new opportunities and exploiting them through creating new ventures. The result is new economic value, measureable through economic growth and employment.

How far has the value added by entrepreneurs contributed to the improvements in poverty alleviation and economic growth since the 1980s? The Uganda Global Entrepreneurship Monitor has recorded some of the highest world rates of entrepreneurial activity in Uganda, with over one in three Ugandan adults engaged in some form of early stage entrepreneurial activity (GEM Uganda 2003,2004,2009, 2012).  Some of Africa’s most prominent large scale entrepreneurs and entrepreneurial families are also Ugandans (Balunywa, 2009). None have achieved success through the exploitation of commodities such as oil or minerals as has been the case in some other parts of Africa.  Additionally there has been a proliferation of entrepreneurship education, support and training in Uganda, with large amounts of donor and government funding (particularly since the Millennium Goals in 2000) devoted to raising the entrepreneurship capacity of Ugandans.  Ugandans starting new businesses have never been better supported.  This would seem to indicate, prima facie,  that the dramatic falls in poverty levels and the non- monetary GDP may be linked to an entrepreneurial renaissance.

Factors mitigating the possible contribution of entrepreneurship in Uganda

There is, however, a less celebratory interpretation of this success. Since the high levels of entrepreneurial activity were detected by the Global Entrepreneurship Monitor, in 2003 there has been a revision of the role of entrepreneurship is thought to play in stimulating economic growth in countries such as Uganda. This has been a fundamental change from viewing entrepreneurship as a single phenomenon in the original GEM model of 1999, to differentiating different forms of entrepreneurship. Only one form, innovation driven entrepreneurship, is currently viewed as being strongly related to economic growth (Bosma et al., 2011). These different forms are:

a)      Necessity versus opportunity driven entrepreneurship:  It has been pointed out in several Global GEM Reports that much of the entrepreneurship detected in countries such as Uganda is driven by necessity and poverty. Hence it contributes little to economic growth. The large numbers of rural poor are driven not by opportunity, but by the need to survive. They start new businesses not because they see opportunities, but because they need to move on from their latest failed business. The high reported rates of business closures in the Ugandan GEM surveys, the highest in the world, would at first sight appear to vindicate this. Poorer Ugandans pursue different activities to make a living, not because they are serial or portfolio entrepreneurs interested in growth and capital accumulation. This leads to a conclusion that while  high levels of business ownership may possibly have a positive effect on economic development, this is likely to be only in a limited way if the level of development is low (van Stel et al., 2005).

There are some problems with this view (Rosa et al., 2006; Smallbone and Welter,2008; Williams et al., 2009).

-          Firstly although Uganda does have the highest rate of necessity based entrepreneurship in the world, it also has the highest rate of opportunity based entrepreneurship too. This statistic is conveniently overlooked by proponents of the necessity hypothesis.

-          Secondly the GEM measurement fails to take into account the complex blend of opportunity and necessity motives that underlies most entrepreneurial venturing world-wide. 

-          Thirdly high rates of business closures are not necessarily detrimental to economic growth.  A large proportion of Ugandans who close a business start another one very soon, often because they have accumulated enough capital their first business to allow them to start a more ambitious business. This is in keeping with the “churn” factor in the original GEM model where high rates of startup and closures were associated with entrepreneurial dynamism and growth (Reynolds and Maki 1990; Reynolds et al., 1995).

-          Fourthly it fails to account for the rising prosperity of thousands of Ugandans who have emerged from absolute poverty since the 1990s without a corresponding increase in the number of waged jobs.

-          Finally it fails to address empirical evidence that the poorest people usually do not have enough capital to start businesses. Extreme poverty can inhibits business start-ups rather than inspire them. Caree et al. (2007), for example, point out that in poor developing economies, people can be pushed into self-employment but that poverty (lack of capital) and low levels of economic opportunities in these economies may also hamper start-ups (Verheul et al. 2006). The poorest people have few resources of money, time, and social capital, all considered vital for entrepreneurial success and might even be experiencing a negative resource burden if they are in debt, stigmatized and marginalized by the wider society.

b)     Innovation driven entrepreneurship versus arbitrage:  Innovation based entrepreneurship and its relation to economic growth is rooted in Schumpeteriuan theories of entrepreneurship. The most advanced and developed countries in North America, Europe, and the Far East are driving their economic growth through knowledge based innovation. Uganda in contrast is in the bottom category of least developed countries, the “factor driven” economies in the current GEM model. Apart from some minor innovations such as mobile money, Sub-Saharan African countries such as Uganda are not innovating. Indeed Uganda has not got any world patents yet. Hence most of their nascent entrepreneurship cannot contribute to economic growth.

There are also some problems with this view:

-          Firstly it downplays Kirznerian theories of entrepreneurship (Kirzner, 1979) in which value is created through exploiting imperfections in competition and through information asymmetry which are common in the world economy. Information asymmetry is particularly common in Uganda, where “alert” entrepreneurs are constantly discovering new products and services to sell, new models to adapt and develop from other countries.  Interestingly almost a third of Ugandans, consistently feel in the GEM APS surveys that the products or services they are selling are innovative and new (new to Uganda, or new to their town, or even new to their village). Every new innovation introduced sparks a chain of new activities and reactions which leads to some degree of social change and development. 

-          Secondly most entrepreneurs in developed countries are not “innovators” either but feed on and develop the innovations of the small core of Schumpeterian innovators. One does not have to live in the country where the mobile phone was invented to adapt it innovatively as the mobile phone revolution in Africa shows.

c)     Productive versus unproductive entrepreneurship: Baumol (1996) first introduced the concept of productive versus unproductive entrepreneurship,  the former beneficial to economic growth, the latter, often associated with illegal “destructive” forms of entrepreneurship hindering economic growth. Unproductive entrepreneurship is increasingly being associated with Africa (Brixiova, 2010), which inhibits and even reverses the gains of legitimate economic growth.  Uganda is documented as having a high perceived corruption index by Transparency International, ranking 140^th of 175 countries in 2013 (www.transparency.org). Hence the high rates of entrepreneurship in Uganda as well as being necessity driven and not innovative, are also, it could be argued, non-productive.

Whilst the problems of corruption are very real, its relation to entrepreneurship remains largely unexplored or unresearched in sub-Saharan Africa. in general, and Uganda in particular. The literature on corruption, whilst mostly focused on its destructive effects, also indicates some benefits and advantages (Fadahunsi and Rosa, 2002). Corruption provides a means of oiling business transactions which would otherwise be very difficult to undertake within the cumbersome bureaucratic systems which are a legacy of much colonial rule.  Where corruption money flows into the economy many legitimate businesses emerge, thrive and prosper, and trickle down opportunities for poorer entrepreneurs.  The effect of corruption on entrepreneurship remains to be researched in sufficient detail to provide a definitive verdict. In the case of Uganda, however, if the high TEA is accounted for mainly by unproductive entrepreneurship, then why has there been such a large fall in poverty levels in the last thirty years?  

d)    High entrepreneurship activity is associated with low quality entrepreneurship and low levels of GDP.  Earlier GEM Executive reports have shown that rates of early entrepreneurship activity differed markedly according to different levels of economic development (e.g. Minniti et al, 2005: Figure 1A). The Uganda 2004 Country Report (Walters et al, 2004) Table 7 reported high negative correlations between the Global Competitive Report Index, Real GDP per capita and early entrepreneurship activity.  Thus the high rates of entrepreneurial activity in Uganda are associated with low achievement in economic development. This appears to further strengthen the hypothesis that factor driven economies such as Uganda have a less valuable form of entrepreneurship in terms of economic growth. It is less valuable not just because it is necessity driven, or non-productive, but also because it lacks “quality”. This poor entrepreneurship is caused primarily by a lack of education, particularly lack of exposure to modern management and entrepreneurship education. The large injection of donor money since the Millenium to upgrade entrepreneurship capacity in Uganda and other African countries is primarily a reaction to this perceived lack of human capital development.

Later GEM Reports (for example Kelley et al. 2010), have shown that the relationship between the TEA and economic development is not linear but complex, with levels of entrepreneurship falling as economic growth creates more jobs and takes people out of ventures started from  “necessity” based poverty.  It also rises again as innovation based entrepreneurial venturing becomes more prominent in the most developed countries. 

Relating entrepreneurial activity in countries such as Uganda to low levels of GDP per capita implies some causal relationship:

-          Low levels of development cause high rates of entrepreneurship because necessity forces large numbers of people into self-employment, and larger industries are not sufficiently developed to absorb employment.

-          OR because there are high levels of poor quality entrepreneurship, countries like Uganda remain underdeveloped and have low GDPs per capita.

Entrepreneurship, therefore, is largely negative in its contribution- only becoming positive when sufficient knowledge is developed to match the innovative wealth creating forms of entrepreneurship found in developed countries.

Though plausible, does this argument really downgrade the contribution of Ugandan entrepreneurs, particularly small scale entrepreneurs?  The historic causes of underdevelopment are complex and many, and have nothing to do with entrepreneurship per se. If the perceived poor quality of Ugandan entrepreneurship is a factor in underdevelopment, then it is a minor one compared to factors such as colonialism, the cold war, insecurity, trade inequalities and barriers, and a pre-19^th century heritage of isolation from innovations in the wider world.  The real issue is whether entrepreneurship helps in alleviating underdevelopment.  Hence the key dependent variable should not be GDP per capita (the level of economic development) but GROWTH IN GDP.  Has entrepreneurship helped economic growth, and if so, which form of entrepreneurship in particular? As far as we can see there has been no analysis by GEM researchers outside Uganda with economic growth as the dependent variable rather than the level of GDP achieved.

The original GEM model was not intended to explain the relationship of entrepreneurship and economic development, but entrepreneurship and economic growth! When growth in GDP is the dependent variable, there is in fact a highly POSITIVE correlation between entrepreneurship and economic growth.  Table 5 emphases this point. The trends are remarkably similar in 2009 as they were in 2004 when the figure below was first published in the Ugandan GEM report 2004.

Table 5 Percentage GDP Growth at Constant Prices Correlated with Early Stage Entrepreneurial Activity (Spearmans)

GDP GROWTH YEAR	Number of GEM Countries	TEA	TEA Opportunity	TEA Necessity
2004	34	.500*	.477*	.479*
2009	53	.639**	.627**	.545**

What is startling about these results is that there is no detectable difference between the effects of opportunity based and necessity based entrepreneurship. Both forms are highly associated with economic growth. A correlation does not indicate causality, but it does imply that where economic growth is high, there entrepreneurship will be thriving.

The Ugandan Entrepreneurial Renaissance: A Historical Overview

The available GEM survey data is insufficient to answer the question of whether Ugandan entrepreneurs have contributed directly to the growth in GDP and the alleviation of poverty, or whether they have thrived as a result of growth in GDP caused by other factors. To shed insights on this a historical perspective is taken which demonstrates the development of entrepreneurship in the last 50 years.

Emergence of Entrepreneurship in Uganda

-Uganda’s Pre-independence (1873 -1962)

To understand Uganda’s entrepreneurship environment, patterns and future, it is important to look at its past political and economic history. Uganda was not a single country until when declared a protectorate by the British in 1873 (Uganda National Report, 1962). Uganda consisted of several kingdom and non-kingdom areas. Buganda, by 1873, was the most organized and most powerful kingdom along with Bunyoro. Uganda was declared a protectorate, by the Imperial British East Africa Company (IBEAC) which had come to trade in Uganda. The company experienced difficulties in administering the region and this responsibility was finally taken over by the British Colonial Government. To overcome the difficulties the colonial government had in administering the protectorate, the British introduced cotton and coffee as cash crops in 1935 which was an attempt to monetize the activities of the ordinary people and have a basis for levying taxes (Mamdani, 1996).  While there had been some trade prior to this, the production of coffee and cotton were the first systematic attempts to introduce some kind of entrepreneurship in Uganda. This started off the exchange process in earnest. This provided opportunities for Asian entrepreneurs who had first begun to migrate to East Africa when the east African railway was being built, This was facilitated by a bar on white settlement within Uganda. Indigenous Ugandans, however, had little access to these opportunities. Between 1903 and 1962, there was little effort to bring the majority of the population into the economic mainstream of exchange. At the time of independence in 1962, still over 90 percent of the population lived largely on subsistence farming (Wasswa –Kintu, 1995). Farmers produced a few agricultural products that gave them an income which enabled them buy a few products but most importantly to provide a basis for government to generate tax revenues.   Entrepreneurship among the ordinary people was therefore not a common practice. Production was largely from self-consumption.

At the time of independence in 1962, there was a lot of hope among Ugandans that independence would bring economic emancipation and prosperity. Little did they know that just prior to independence in 1961, the World Bank mission to Uganda had guided the likely government on the economic measures to take for the development of the country (Uganda National Report, 1962).     The Bank recommended emphasis on the private sector and holding back expenditure on public services.  The World Bank in its recommendations had noted that Africans were in agricultural production and what was known as backyard industries. These were production of simple tools through the local blacksmiths, crafts and local durable products among other local items.  The Indian community controlled trade and owned most of the shops in urban and even rural areas and controlled the purchase of coffee and cotton from the farmers. The Indian community was also involved in light manufacturing and agro processing industries.   Manufacturing and heavy industry were largely in the hands of the Uganda Development Corporation (UDC), a government parastatal established in 1952 (Hafsi, Kiggundu and Jorgensen, 1987). Other players in the manufacturing industry were multinational companies. A few Indian families had also established themselves as industrialists. These included the Madhvani group in Kakira, Jinja and the Mehta Group in Lugazi. Key services like railways, post and other public utilities were owned and managed by the East Africa Common Services Organization (EACSO) which later turned into the East African Community in 1967.  

The World Bank recommendation came as a result of the conditions prior to independence. The Protectorate Government on realizing that Africans did not have entrepreneurial competencies and capital to start industry, had started the Uganda Development Corporation (UDC) in 1952. This was largely influenced by the politics in the UK where the Labour Party had formed government after World War II. The Labour party put emphasis on the public sector.  The UDC was charged with the responsibility of spearheading industrial and commercial agricultural development in Uganda. In the mid-1950s, led by Ignatius K. Musaazi, the Africans had rioted demanding that they too be given opportunity to participate in business (Kirunda – Kivenjinja, 1995). They accused the colonial government then, of locking out Africans out of business.  The population of non-Africans who controlled trade was not even one percent of the total population. At that time, only the Indians were allowed in trade. They had also got involved in buying and selling of cotton and coffee throughout the country.  50 years back therefore, indigenous Africans who were the majority were not involved in entrepreneurial activities. They were expected to grow coffee and cotton as cash crops and a few others in the cottage industries that fabricated simple products for ordinary people’s use.

            Table 6: Uganda’s Population by Type (1911-1959)

Year	African	Percentage	Non-African	Percentage	Total
1911	2,463,469	99	2,856	1	2,466,325
1921	2,847,735	99.7	6,873	0.3	2,854,608
1931	3,535,014	99.7	17,267	0.3	3,542,285
1948	4,917,555	99.1	40,965	0.9	4,958,281
1959	6,449,670	98	87,058	2	6,536,616

            Source: Uganda Bureau of Statistics, 1959

-          Immediate post-independence period (1962-1971)

After independence, the Uganda Planning Commission which drew up Uganda’s First Five Year Development Plan accepted the recommendations of the World Bank (First Five Year Development Plan, 1962). In the plan, the Planning Commission reported that they had accepted the recommendations and the plan that had been drawn largely based on them. In essence, the first plan left Africans out of entrepreneurial activities that would create value.  

 On the political side, Uganda was going through political changes that subsequently affected the country’s economic history.  Following a struggle for independence by different groups, elections were held for self-government and won by the Democratic Party led by Benedicto Kiwanuka. Subsequently, elections for independence were held in 1962 which created a degree of stability in the country with the Buganda region (Kingdom) being given a federal status (Karugire, 1980). Buganda was given some autonomy over more services than other areas or kingdoms. A few other kingdom areas including Bunyoro, Toro, Ankole and Busoga were given a semi-federal status (Kirunda - Kivejinja 1995). This political environment facilitated growth in the economy with economic policy guided by the World Bank recommendations.

While the World Bank had recommended emphasis on the private sector, Uganda Government, through the UDC expanded the activities of public sector. The UDC initiated several businesses and also went into partnership with both local and international investors to start and manage new businesses (Hafsi, Kiggundu and Jorgensen, 1987). Besides the UDC, the private sector also performed well.  Among the local companies that expanded tremendously was the Madhvani group based in Kakira, Jinja. The Madhvanis developed up to 70 different businesses some of them in partnership with the UDC.  By 1971, the Madhvani group alone was responsible for 10 percent of Uganda’s taxi revenues (Fick, 2003). A group of other businesses owned by Ugandans of Asian origin prospered and this included the Mehta Group, the Alam group and many other medium sized enterprises.

In the early post-independence period, the entrepreneurship structure in the country could be observed through ownership of business. Manufacturing and heavy industry was in the hands of government, multinationals and a few Indian families.  The Indian community controlled trade and services and owned the majority of shops in the whole country. Indians were found in most of the towns including small towns in Uganda. Africans were largely in farming, producing mainly for self-consumption but also produced coffee and cotton which was marketed by the Indian community.  Africans sold their products through the co-operatives which was a very strong movement representing poor farmers. There were few Africans in trade and services and hardly any in manufacturing. African entrepreneurs were found in very tiny shops or in markets owned by local governments that sold fresh and dry food stuffs, crafts and locally manufactured products.   In a way, the entrepreneurship structure followed a pattern prior to independence.  However government through UDC had become a key player in the economy. The UDC saw tremendous growth in its activities (Hafsi, et al., 1987).  

In 1966, the country experienced some political change. The political alliance between the Uganda People’s Congress (UPC) and the Kabaka Yekka (KY) made during the elections of 1962 collapsed.  UPC was a socialist learning party led by Milton Obote, Uganda’s Post Independence Prime Minister. KY was a party in Buganda formed to take care of the interests of the Kabaka. The political change led to the ousting and exiling of the Kabaka (King) of Buganda. This political change was followed by a change in ideology. The ruling UPC government introduced the Common Man’s Charter also known as the ‘Move to the Left’ which was introducing socialism in the country (Balunywa, 2009).  This policy was in contradiction of the World Bank recommendations of putting emphasis on the private sector. Following the announcement of this policy, government announced nationalization of major industries in the country. Government took 60 percent shares in the large sized companies including banks which were owned primarily by multinational companies. This policy was intended to transfer ownership and control of business to government. In the process, entrepreneurship was being transferred from private hands to government. This reinforced the already dominant public sector through the UDC. This did not affect the entrepreneurial patterns of the Africans and majority of Indians who owned small and medium sized businesses. Africans continued to produce cash crops for sale to meet their economic needs and marketed them primarily through the co-operative movement. The Indian Community continued to control trade through ownership of shops and trade in coffee and cotton.

In 1971, the UPC government was overthrown by Idi Amin and among the reasons for the overthrow of the government was an allegation of introducing socialism in the country (Kyemba, 1977). Amin reversed the policy of the previous government to nationalize major industries and reintroduced free enterprise in the country. Unfortunately, Amin did not take long to distort his own policies. In 1972 he allegedly dreamt that he should expel the foreigners who were in the country, mainly the Asian community who controlled trade and services and were visible on the streets. The Asian community was given 90 days to leave the country. Amin declared the ‘Economic War’ in which he handed over the departed Asians’ property and business to Africans in an attempt to create a new entrepreneurial class.  While the economic policy was not changed, the policy on ownership of business changed the policy environment.

-          Idi Amin’s ‘Economic War” Period - 1971 - 1979

Prior to 1971, there were hardly any major indigenous African entrepreneurs. A few Africans like Mulwana, Wavamunno had started business in the 1960s but were unknown at that time. The ‘Economic War’ brought a swarm of individuals into entrepreneurship. Idi Amin allocated businesses left by the Indian community to indigenous Africans based on loyalty, kinship and even at random (Wavamunno, 2000). There were cases of individuals who lined up and were allocated businesses (Mamdani, 1996). A new entrepreneurial class was thus created overnight in an unconventional manner. Most of the “new entrepreneurs” had never owned a business, some were attendants in some of these shops and some were just soldiers.  The swarm of entrepreneurs mirrored Schumpeterian swarm like entrepreneurs when a new idea, product or technology is introduced (Balunywa, 2009). In this case, the entry into entrepreneurship was a result of the vacuum created by the departure of owners of the businesses. Few of the entrepreneurs who existed then took advantage of the situation then to consolidate their businesses.  Wavamunno, Mulwana and Thomas Katto[i] were among the local entrepreneurs who emerged as leading entrepreneurs at that time. A few new ones also emerged during that period who are prominent now, Mohan Kiwanuka of Oscar Industries and Bulaimu Muwanga Kibirige of Hotel Africana are some of them.  Since those allocated departed Asian businesses were largely novices in business, an opportunity emerged for existing entrepreneurs to find their position on the country’s entrepreneurial map. Unlike the Schumpeterian creative destruction where new replaces old, the “new entrepreneurs” that had been allocated businesses were shaken out of business but were not replaced by others. Most of the businesses taken over from the Indian community collapsed and closed for lack of managerial and entrepreneurial skills. This is reflected in the decline of the economy between 1971 and 1979 when the GDP declined by 25 percent (Balunywa 2009).

The earlier government policy of nationalization had been repealed by Idi Amin, however the departure of the Asians and even the foreigners who were running the multinationals left many companies and most of the parastatals without proper management. Idi Amin decided to nationalize some of the large scale businesses that were left by the Asian community that were not allocated to individuals.  He established a holding company, the Uganda Advisory Board of Trade (Wasswa –Kintu, 1999) to manage the companies that had been left by the Uganda Development Corporation and the Asian community. Amin’s actions reemphasized government ownership of business in absence of skilled entrepreneurs. Unfortunately, like the small enterprises most of these companies wound up because of entrepreneurial and management challenges.

The political conditions in the country in 1971 to 1979 were those of anarchy. Amin suspended the Third Five Year Development Plan of 1971/ 72 to 1974 /75 and introduced the Action Plan in 1973 to guide the country’s economic development. This was to consolidate his vision of the Economic War. Unfortunately by his own conduct of terrorizing the population, the political conditions did not allow realization of the Action Plan objectives. Extra judicial killings led to departure of many local business people from the country and even of top civil servants who felt insecure (Kyemba, 1977).  Between 1971 and 1979, the country was ruled by military junta.  The economy witnessed negative growth and by 1979 when Idi Amin was thrown out, the economy had declined by 25 percent over the period of 8 years (World Bank, 1989).

Entrepreneurial activity of the non-self-consumption sector declined tremendously in the country. The Indian community that was in trade and services had left, their businesses which had been allocated to Africans had collapsed, the government parastatals too had collapsed and the economy was in decline due to entrepreneurial failure.

-          The Immediate Post Idi Amin Period – 1985

Following the overthrow of Idi Amin in 1979, new multi-party elections were held in 1981 after several interim governments. Milton Obote, the leader of the UPC party who had been overthrown in 1971 by Idi Amin formed the next government. The results of the elections were disputed by Yoweri Museveni who decided to wage a guerilla war against Obote’s “elected” government.  In 1981, as Obote started his new term of office, introduced economic reforms to rejuvenate the economy (Revised Recovery programme, 1981). These were in line with Thatcher’s ideas of encouraging the private sector to take lead in the economy following her assumption of premiership in the UK. Obote also enacted a law to return properties to the Indian community who had been expelled by Idi Amin in 1972. A few Indians returned and settled. Some returned, sold the property and left the country. In the meantime, a new group of entrepreneurs was emerging. A small number of Indians who had stayed behind during the Idi Amin period emerged during this period to exploit the opportunities that the declared policies and the civil war in the country created.  These included the Armali Karmali of Mukwano Enterprises and Karim Hirji of Imperial Hotels. A few Indians of prominence returned, the Madhvani family was most prominent. The indigenous Africans that had survived Idi Amin also continued to consolidate their businesses. And a few African entrepreneurs started emerging during this period. In 1985, the elected Obote government was overthrown by the military following internal pressures in government due to the civil war launched by Yoweri Museveni.

In 1986, Yoweri Museveni overthrew the government which had in 1985 overthrown the Obote government. The new Yoweri Museveni, National Resistance Movement (NRM) government was known to be socialist. Indeed in the Ten Point Programme which was their manifesto, there was emphasis for the public sector as a key strategy for economic development (Museveni, 1997). Museveni’s initial policies were not welcomed by the international community. Museveni introduced barter trade in light of shortage of foreign exchange.  A year later in 1987, government realized the policies would not yield sufficient incentives to increase production in the economy and abandoned them. Government declared the policy of economic liberalization which allowed determination of prices by market forces. The policy also allowed the private sector to play a major role in the economy. The policy was followed by enabling legislation in different sectors of the economy to allow privatization of various government organisations and allowing the private sector to enter industries that had hitherto been exclusively government. This included broadcasting, financial services, telecommunications, and coffee marketing among others.

Liberalization was followed by establishment of various agencies to promote the development and regulate the activities of the private sector. Among the agencies established was the Uganda Investment Authority, the Capital Markets Authority, the Cotton Development Authority and the Coffee Development Authority. These bodies were to promote business growth in the respective sectors and also to regulate the industry to allow fair competition among the players.

The impact of liberalization which started in 1987 stated taking effect in the early 1990s. Among the spectacular private sector growth area was telecommunication, broadcasting and financial services. The encouragement to return properties to previous owners also led to growth in those areas where departed Asian had been key players. The return of the Madhvanis and the Mehtas resulted into increased production of numerous agricultural and manufactured products, sugar engineering products, chemicals among others, most of which they previously had produced.

Table 7: Index of Industrial Production (Base 1987=100)

	1990	1992	1994	1997
Food Processing	174.9	245.6	309	423
Tobacco	155.2	155.2	227.6	398.5
Textiles	116.3	111.9	68.1	113.5
Chemicals	183.5	252.0	383.0	776.4
Steel	107.7	190.7	389.9	451.5
All items	155.5	191.2	260.3	441.3

Source: Uganda Bureau of Statistics, 1997

Table 8: Index of production, Manufacturing (Base 2002=100)-Formal Sector 2006-2010

	Food Processing	Drinks & Tobacco	Textiles, Clothing & foot wear	Paper Products	Chemicals, Paint, soap & form products	Bricks & Cement	Metals & Related Products	Miscellaneous	ALL ITEMS
Weight Calendar year	400.2	201.4	42.5	35.3	96.6	75.2	82.8	66.1	1000.0
2006	117.0	146.4	135.3	132.2	131.5	149.0	131.6	121.5	129.6
2007	125.6	179.8	163.3	149.3	145.3	156.5	140.3	137.8	145.2
2008	139.3	192.8	141.7	167.9	166.7	173.1	129.8	151.7	156.4
2009	161.4	196.5	187.2	207.8	225.8	168.7	128.5	155.6	174.8
2010	153.5	211.7	182.7	216.2	235.5	209.3	139.1	157.6	179.9

 Source: Uganda Bureau of Statistics, 2010

A New Crop of Entrepreneurs in Uganda

The liberalization of the economy however brought in a new crop of entrepreneurs. This included corporates, both individual and multinational, individual investors both local and international and various middle size and thousands of small scale entrepreneurs. The various GEM models explain different types of entrepreneurs in an economy. They list existing and new firms. Various sectors in the Ugandan economy have changed dramatically since the early 1990s. As different models suggest, it is macroeconomic policy, economic conditions that give rise to entrepreneurial opportunities. Exploitation of opportunities depends upon attitudes, entrepreneurial skills, access to finance, attitude to risk, and personal factors.  The Uganda economy having declined by over 30 percent between 1971 and 1986, it is possible to trace entrepreneurship activities and the different types of entrepreneurs who emerged in the economy in 1986 onwards. The new Government in 1986 subsequently liberalized the economy in 1987 and set up agencies to attract investments into the country. Existing sectors like banking, financial services chemical industry, the agricultural sector started seeing increases in production. According to the index of industrial production, overall production in the economy went up by over 1000 percent in the different sectors including sugar production, cement production, steel, and soft drinks among others.

During this period, the economy saw expansion of businesses as business opportunity led to increasing capacity in various organisations. The growth however was not limited to only expansion, a variety of new firms were also started.

For instance prior to liberalization, coffee, one of the country’s major exports and widely grown throughout the country was produced by ordinary farmers, processed and distributed by the government monopoly, the Coffee Marketing Board. Before liberalization, the coffee farmer did not get a good price for coffee and this was attributed to the monopoly of the Coffee Marketing Board. After liberalization, the coffee farmer got a higher price and the processing and distribution was in the private hands. There are now over 17 different coffee processors (Monitor Directory, 2013).  Liberalization brought in a new set of entrepreneurs in processing and distribution.

 In the banking sector, the Uganda Commercial Bank, a government owned bank which had a monopoly of deposits was sold to the private sector. The bank was bought by a South African Bank, Standard Bank (trading as Stanbic) and this opened up opportunities for the private sector to also play a role. Today there are over 30 commercial bank owners by corporate and individual entrepreneurs.

In the insurance sector, the National Insurance Corporation (NIC) which was the government owned company controlling more that 50 percent on the market was sold. This opened up the sector to numerous other new players both corporate and individual entrepreneurs. Today, there are over 20 different insurance companies owned by private individuals and private corporations.

Broadcasting was also opened up, with the Uganda Television (UTV) and Radio Uganda losing their monopolies. To date, over 300 FM radio stations have been licensed. There are about 10 television stations that are operating in the country.  In the newspaper industry, there was one newspaper owned by government in 1986, the Uganda Times.  Since liberalization in the 1990s, there are over 10 different newspapers majority owned by the private sector.

Another major change in the economy occurred in the telecommunications sector. The Uganda Posts and Telecommunications Corporation (UPTC) controlled the sector including the delivery of mail. Liberalization of the economy led to one of the biggest entrepreneurial activities in the country.  At the time of licensing mobile telephones, there were about 42000 subscribers in the country.  Today due to policies, laws and market conditions, the country has over 10,000,000 subscribers.

5 new firms have up to now been licensed. Retailers of mobile phones have all been new startups. Among the existing firms, the Madhivanis, the Mehtas, the Alam Group have a longer history. Their business activity expanded tremendously during that period.

In sugar production, the existing firms Madhivani, Mehta and Kinyara expanded their production and the same time new firms started up in sugar manufacturing. Mayuge Sugar and Kaliro Sugar started production of sugar. This has seen production of sugar rise from 5000 tonnes in 1986 to over 500,000 tonnes in 2012.  The companies started new businesses as part of the growth strategy.  Among them Madhivani and Mukwano expanded tremendously going into new business. Literally all industries across the country have changed with new entrepreneurs joining them both local and international.  

Looking at the typology of entrepreneurs in Uganda, there are a variety of entrepreneurs including large scale corporate entrepreneurs, large scale portfolio entrepreneurs and a variety of medium, small and micro sized entrepreneurs. Among the corporate entrepreneurs, multinational companies have a leading role. These have a presence in telecommunications, financial services and highly skilled professional services like accounting, architecture among others. A few local companies have a presence in these areas. Examples in this group include Stanbic Bank, Barclays Bank Standard Chartered Bank, MTN Uganda, Airtel, accountancy firms like Price Waterhouse Coopers, KPMG, Ernst and Young, Delloitte and Touche dominate the accountancy and consultancy services. A few local firms like Centenary Bank, Crane Bank have a presence in these areas.  Entrepreneurship in these sectors is clearly dominated by international entrepreneurs.

Large sized portfolio entrepreneurs in the country are less than 30 in number. Of these, 11 of them control almost 50 percent of manufacturing in the country (Balunywa, 2009). These portfolio entrepreneurs are in manufacturing, agricultural production and processing and also have a presence in the financial sector. The key players have been the Madhvani Family, the Mehta family, the Mukwano family, the Alam family, James Mulwana, Wavamunno and Mohan Kiwanuka among others.

The policy of liberalization reduced public enterprises to a minimum. Government divested itself from the banking sector, agricultural production and other areas. Government is largely in the regulatory and promotional sectors. Among the key government companies today are Civil Aviation Authority, Uganda Communications Commission, National Drug Authority, Uganda Electricity Regulatory Authority and the Insurance Regulatory Authority among others. Government has residue stake in some of the industries they owned prior to the 1990s. For instance, government owns a few shares in Stanbic Bank and UMEME.  National Water and Sewerage Corporation is the only company where government owns 100 percent shares and is still in trade.

While the formal business sector has been growing in recent years, the informal sector too has flourished. Both the formal and informal sectors have a large number of medium, small and micro enterprises. According to the GEM studies, Uganda is one of the most entrepreneurial countries in the world with 3 out of 10 people having started, started or about to start a business (Uganda GEM Report, 2003). Even in recent years, Uganda has continued to hold this position. In the last 20 years, there has been growth of urban areas full of small and micro enterprises.  In most urban areas, small and micro enterprises are flourishing typically in organized markets, roadside markets, and night markets.  The large service and manufacturing companies have created a multiplier effect of small and medium enterprises that have cropped up everywhere. For instance the Madhvani group with over 10,000 employees has over 8000 sugarcane out growers supplying sugarcane to the factory (Balunywa, 2009). The telecommunication companies have thousands of vendors distributing airtime and in recent years in mobile money services. A key feature in the small and micro enterprises is the emergence of women entrepreneurs. Traditionally, women are not expected to start, own and manage businesses. However in markets, over 60 percent of the vendors are women. This is creating a new unlikely entrepreneurial class.

Conclusion

From this historical account it is clear that there has been very large shift in the status of entrepreneurs in the Ugandan economy. Denied access to opportunities, indigenous Ugandans until the 1970s had to rely primarily on subsistence-based livelihoods, only partially integrated into the global economy. Since the 1980s their reliance on subsistence has greatly decreased, and integrated consumerism has proliferated and expanded rapidly. Ugandans of Asian origins were the first to access new opportunities emerging from colonialism and the post-colonial era. They were heavily purged in the 1970s, but have risen again to participate in the revival of the country. They have been joined by thousands of new non Ugandan entrepreneurs who have taken advantage of the Government’s liberalization policies and the growth of opportunities. This is a melting pot of entrepreneurship that is arguably becoming increasingly common in growing African countries. 

As indicated in the introduction, poverty levels and non-economic production levels have fallen sharply in the last two decades. Economic growth is now vibrant where forty years ago it was negative and declining. The high rates of entrepreneurial activity in Uganda are associated with this rise in prosperity. The academic debates on the relative contribution of different forms of entrepreneurship (opportunity-based, necessity-based, productive, unproductive and quality or low quality) were discussed in detail. The Ugandan data suggest that, overall, all forms of entrepreneurship may contribute valuably to economic growth, not just innovation based entrepreneurship found in developed countries.  The tendency of analyses to be based on real GDP rather than growth in GDP as dependent variables has tended to mask entrepreneurship’s potential contribution.

A widely quoted paradox in Uganda is that while the country is highly entrepreneurial, poverty still lingers amongst people in the country. This implies that entrepreneurship in their view is making a disappointing contribution. Most Ugandans still feel that poverty levels are high and making ends meet is difficult Despite the encouraging figures just reported, there is still far to go in development. There are still thousands of Ugandans who are not producing for the market, who rely on subsistence and small-scale unproductive forms of farming, who reside mostly in the rural areas, and live on less than a dollar and a half per day (Uganda Government Background to the Budget, 2012).   This perceived lack of progress may be due, in part, to increasing consumer expectations as education and living standards rise, and as people have to pay for necessities which hitherto were not in the money economy or not needed (for example it costs little money to live in a traditional mud and thatch house, and people sourced their water free,  but for most better off urban Ugandans they have to pay rent, pay for water, pay for electricity, pay for all their food and so on). 

Additionally while in three important indicators, the decline in absolute poverty, the reduction of the non-monetary economy, and economic growth, Uganda has performed well in the last two decades, the creation of quality jobs and of high living standards has yet to be achieved for most Ugandans. Just supplying basic needs falls well short of the aspirations of Ugandans, as it does in all parts of the world. There is, however, a long way to go yet as poverty and under-employment remain at levels higher than more developed countries.

Entrepreneurship can lead to considerable wealth creation and poverty alleviation, yet create relatively few quality jobs. The GEM research in Uganda indicates that unemployment is really much lower than it is popularly held to be, but is  creating low quality rather than high quality jobs. The reasons why entrepreneurship is not translating into such jobs are only now beginning to be specifically debated. One reason may be the low productivity of most businesses which  fail to add the large value needed to support quality employees.  This is not made easier by the fact that trade restrictions geared in favour of developed economies make it difficult to process value at the source of the commodity rather than at the point of sale. Africa exports cocoa not high quality chocolates, for example. 

However, as one delegate at a recent GEM seminar pointed out, Ugandans cannot just blame  others for their own failings. It was pointed out that government plays a crucial role in creating the conditions   One failing is the lack of investment by the Ugandan Government into science based research and development and  the commercialization of science. This limits entrepreneurs to Kiznerian rather than Schumpeterian entrepreneurial value. Another is the failure to channel the entrepreneurial energies of its most successful entrepreneurs into productive high quality job creation businesses. From this perspective  Uganda in some sense is a victim of its entrepreneurial success, as opportunities for making money for entrepreneurs with capital are plentiful without entrepreneurs having to resort to starting businesses in complex and difficult sectors such as manufacturing and agribusiness. The economy faces a challenge of channeling entrepreneurship effort into productive sectors of value addition and manufacturing. Thousands of jobs today are associated with motorbike taxis, selling of old clothes and merchandising imported Chinese, third rate cottage manufactured products, rather than industrial scale production. Another key sector in the economy is construction and housing. There is a proliferation of shopping malls and supermarkets not factories. These shopping malls are full of cheap imported products. The country has thus yet to produce sufficient businesses that will create high value jobs and spur growth in quality employment.  This, however, is less a problem of poor entrepreneurship, but of too much entrepreneurship exploiting an environment incentivizing low productivity rather than high productivity industries.

Another added challenge the economy is experiencing is that of corruption. Many civil servants have been associated with unprecedented wealth. Many own large buildings, or buy property in upscale parts of the city without a clear source of income. Upscale property is bought cash without evidence of bank transactions. This shows that a large amount of national resources is being stolen and is being channeled in less productive investments. Although much of the entrepreneurial value of such transactions trickles down through the enterprises started, this is at the expense of the development of larger more productive enterprises. 

The GEM Uganda research has shown that Ugandan Governments since the mid1980s have succeeded in creating one of the most energetic and vibrant entrepreneurial communities in Africa. This is impacting positively on economic growth and poverty alleviation.  The future of entrepreneurship in Uganda depends on taking this a stage further through productivity enhancing reforms. Getting the policy right will largely determine how far which form of entrepreneurship will triumph in the future.

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James  Mulwana – Started his business in the 1960s and at the time of his death in early 2013, he was acknowledged as Uganda’s leading entrepreneur. He was a portfolio entrepreneur with several businesses including the manufacture of plastics and batteries among others.

Gordon Wavamunno – Started his businesses in the 1960s and was mentored by an Indian in the Western part of the country. His biggest prize was the Mercedes Benz franchise from which he built a variety of other businesses. He is acknowledged as one of Uganda’s leading entrepreneurs.

Thomas Katto – He was one of the industrialists in the country in the 1970s. he built a business empire trading under the name Sanyu. He left the country in the 80s after selling his businesses but returned to start a bank and was the first person to license a private radio station. He was a business genius whose business was killed by politics.