FROM REGULATORS TO ENABLERS: THE ROLE OF CITY GOVERNMENTS IN ECONOMIC DEVELOPMENT OF GREATER KAMPALA SEPTEMBER 2017 © 2018 International Bank for Reconstruction and Development / International Development Association or The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202 - 473-1000 Internet: www.worldbank.org and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or hte governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colours, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaires. Rights and Permissions The material in this work is subject to copyright. Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for non commercial purposes as long as full attribution to this work is given. Publishers, The World Bank, 1818 H Street NW, Washington DC 20433, USA; fax: 202 - 522 - 2422; e-mail: pubrights@worldbank.org. Photography: Morgan Mbabazi Design/Layout: Typesetting, graphics and page layout: Shetty Foto Fast Ltd Printied in Uganda by Shetty Foto Fast Ltd Additional material relating to this report can be found on The World Bank Uganda website (www.worldbank.org/uganda) REPUBLIC OF UGANDA From Regulators to Enablers: Role of City Governments in Economic Development of Greater Kampala SEPTEMBER 2017 i Standard Disclaimer: This volume is a product of the staff of the International Bank for Reconstruction and Development/ The World Bank. The findings, interpretations, and conclusions expressed in this paper do not necessarily reflect the views of the Executive Directors of The World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgment on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. Copyright Statement: The material in this publication is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. The International Bank for Reconstruction and Development/ The World Bank encourages dissemination of its work and will normally grant permission to reproduce portions of the work promptly. For permission to photocopy or reprint any part of this work, please send a request with complete information to the Copyright Clearance Centre, Inc., 222 Rosewood Drive, Danvers, MA 01923, USA, telephone 978-750-8400, fax 978-750- 4470, http://www.copyright.com/. All other queries on rights and licenses, including subsidiary rights, should be addressed to the Office of the Publisher, The World Bank, 1818 H Street NW, Washington, DC 20433, USA, fax 202-522-2422, e-mail pubrights@ worldbank.org. ii Acknowledgments The report forms part of the Non-Lending Technical Assistance (NLTA) Project on the Economic Performance of African Cities, which aims to support the Kampala Capital City Authority and the Ministry of Kampala and Metropolitan Affairs as one of four African cities covered by the project. The task team at the World Bank was led by Emma Wadie Hobson (Task Team Leader, Urban Specialist, GSURR1) and Megha Mukim (Co-Task Team Leader, Senior Economist, GSURR), under the supervision of Somik V. Lall (Global Lead for Territorial Development, GSURR) and Bernice Van Bronkhorst, (Practice Manager, GSURR). Team members included Angus Kathage (Consultant, GSURR), Joel Mundua (Consultant, GSURR), Olivia D’Aoust (Economist, GSURR), (Juni T. Zhu, Private Sector Specialist, GTC), Martin Onyach- Olaa (Senior Urban Specialist, GSURR) and Stephen Ajalu (Urban Development Specialist, GSURR). Strategic guidance was also provided by Roland White (Global Lead for City Management, Governance and Financing, GSURR) and Peter Ellis (Lead Urban Economist, GSURR). This report was written by Angus Kathage (Consultant, GSURR) and Emma Wadie Hobson (TTL, GSURR) based on background papers produced for the project by various prominent researchers and World Bank staff: - Economic Policy Research Centre (2017) Barriers to Firm Expansion and Transition in Greater Kampala, Kampala - J. Randriamamonjy, Thurlow, J. International Food Policy Research Institute, IFPRI (2016). Investing in Job Creation and Income Growth in Kampala. Washington D.C. - Anderson, S,J, Lazicky, C, Titley, J. (2017) Growth Constraints of Small Businesses in Greater Kampala, Uganda Stanford University - Kathage, A (2016) Enabling Factors For Micro-Enterprise growth in Kampala. Department of Geography and Environment. The London School of Economics and Political Science. London. - Iddawela, Y (2016) Do Access to Land Issues Constrain the Growth of Manufacturing Firms? A study of Manufacturing Firms in Greater Kampala. Department of Geography and Environment. The London School of Economics and Political Science. London. - Bouasba, S (2016) Small firms and taxation in Greater Kampala. Department of Geography and Environment. The London School of Economics and Political Science. London. - Tingting Zhu, J. Mundua, J. (2017) Greater Kampala Institutional Analysis, Washington DC - Uganda Bureau of Statistics (2017) National Manpower Survey, Government of Uganda - And background data analysis of Kampala’s Economic Profile by Olivia D’Aoust (Economist, GSURR), Angus Kathage (Consultant, GSURR) and Tristan Reed (Consultant GSURR). We would like to especially thank, the Executive Director of KCCA, Jennifer Musisi and her staff including, Patrick Musoke, Edson Masereka, Aceku Philemon and Enock Agwaimo. The Executive Director of the National Planning Authority, Joseph Muvawala and his staff most especially, Patrick Birungi, George Bwanga, Emmanuel Ongora and Justine Arinaitwe. Special thanks also go to the staff and management of Ministry of Kampala and Metropolitan Affairs, Ministry of Local Government and Ministry of Land Housing and Urban Development. Many thanks also to the Chief Administrative Officers and staff of the GKMA Local Governments including Mpigi District Local Government, Wakiso District Local Government, Mukono, Entebbe Makidye Ssabagabo, Nansana and Kiira Municipality. This report and technical assistance project would not be possible without the generous support of UK Aid, Department of International Development (DFID). 1 Social, Urban, Rural and Resilience Global Practice at the World Bank. iii Contents Acknowledgments........................................................................................................................................................iii Acronyms...................................................................................................................................................................v Executive Summary.......................................................................................................................................................................vi 1. Background and Greater Kampala’s Scope and Capacity.....................................................................................1 1.1 Greater Kampala’s scope and capacity...........................................................................................................5 2. Greater Kampala’s Importance and Recent Economic Performance....................................................................13 2.1 Greater Kampala’s economic role and performance...................................................................................14 2.2 Understanding Greater Kampala’s Informal Sector......................................................................................21 2.3 Generating jobs in high productivity sectors................................................................................................28 2.4 Challenges Greater Kampala faces to build its productive sectors.........................................................33 3. Building a competitive city – Greater Kampala’s urban environment................................................................35 3.1 Moving from a disconnected toward a connected city..............................................................................36 3.2 An expensive urban environment for business.............................................................................................46 3.3 An Underlying issue - Complex land tenure.....................................................................................................49 3.4 Effective Institutional Coordination will be key to better urban planning and infrastructure provision across the GKMA ...............................................................................................................................51 4. Enabling business growth – Enterprise Support in Greater Kampala..................................................................55 4.1 Cost of finance – too high and prohibitive to growth..................................................................................56 4.2 Labour skills – lack of coordination................................................................................................................58 4.3 Tax system – too complex.................................................................................................................................60 4.4 An underlying issue -Tax administration and a lack of business engagement.............................61 4.5 Enterprise support services – A role for Local Governments...................................................................62 Summary of major recommendations....................................................................................................................................64 References....................................................................................................................................................................65 Annex 1: Examples of Practical LED Actions that LGs internationally undertake.............................................68 Annex 2: Sub-sectors that are more concentrated in Kampala and employ the largest share of labour................................................................................................................................................................70 Annex 3: Kampala Production and Employment 2013..............................................................................................72 Annex 4: Employment Results for Detailed Investment Sectors................................................................................73 Annex 5: Regression summaries of informal sector growth and business practice constraints.........................74 iv Acronyms B2B Business to Business BRT Bus Rapid Transport CBD Central Business District CCKB World Bank’s City Competitiveness Knowledge Base CGE Computable General Equilibrium COBE Census of Business Establishments EG Ellison-Glaesar GDP Gross Domestic Product GIS Geographic Information Systems GKMA Greater Kampala Metropolitan Area GMCA Greater Manchester Combined Authority GoU Government of Uganda GSURR Social, Urban, Rural and Resilience Global Practice at the World Bank ICT Information Communications Technology KCCA Kampala Capital City Authority KCC Act Kampala Capital City Act (2010) LED Local Economic Development LGs Local Governments LIS Land Information Systems LQ Location Quotient MDAs Ministries, Departments and Agencies MoESTS Ministry of Education, Science, Technology and Sports MoK Ministry of Kampala and Metropolitan Affairs MoLG Ministry of Local Government MoLHUD Ministry of Lands, Housing and Urban Development MSMEs Micro, Small and Medium Enterprises NDPII National Development Plan NLTA Non-Lending Technical Assistance NPA National Planning Authority NTMP Uganda National Transport Master Plan (2008-2023) OP Uganda Office of the President SAM Social Accounting Matrix SMEs Small and Medium Enterprises TREP Tax Register Expansion Project TTL Task Team Leader at the World Bank UBOS Uganda Bureau of Statistics UGX Ugandan Shilling UIA Uganda Investment Authority UMA Uganda Manufacturers Association UN United Nations UNBS Uganda National Bureau of Standards UNHS Uganda National Household Survey URA Uganda Revenue Authority USAID United States Agency for International Development USD American Dollar UTODA Uganda Taxi Owners and Drivers Association VAT Value Added Tax WBES World Bank Enterprise Survey v Executive Summary Uganda’s Vision 2040 aims to transform the economy through industrialization. The Greater Kampala Metropolitan Area (GKMA) is well positioned to be the engine to drive this positive structural transformation. The capital city region is the main urban area in Uganda capable of delivering scale economies in terms of concentrated demand, specialization, diversity and depth of skills and innovation. Greater Kampala is currently following a broad economic development strategy set out in both the Kampala Capital City Authority (KCCA) strategy and the GKMA Development Framework. Under the economic growth theme, KCCA is seeking to develop a more specific city economic development strategy that will provide a framework for sustained economic growth driven by an efficient infrastructure network2. Also, the Government of Uganda (GoU), recognizing the need for a coordinated effort toward economic growth in the Greater Kampala Metropolitan Area (GKMA), has tasked the Ministry of Lands, Housing and Urban Development, Office of the Prime Minister, KCCA and relevant Local Governments to develop an integrated framework for the development of GKMA3. To assist KCCA’s and other GKMA stakeholder’s efforts, this report aims to do three things. Firstly, it seeks to profile Greater Kampala’s economy, emphasizing its importance to Uganda’s development and goals outlined in Vision 2040 4. Secondly, the report identifies the key constraints and opportunities to growth and competitiveness for Kampala’s firms. Finally, the report provides policy makers with practical actions to unlock the city’s economic potential. These recommendations focus specifically on what local governments can do but also addresses complementary national-level actions5. 1. Greater Kampala’s economic role, challenges and potential The GKMA is the main centre of economic activity within Uganda. The city represents 10% of the country’s population6, a third of the Gross Domestic Product (GDP) and hosts 46% of all formal employment in the country7. Moreover, Kampala is the heart of Ugandan industry. 70% of the country’s manufacturing plants are clustered in the city and subsequently produces a third of Uganda’s manufacturing GDP8. Kampala’s economy has been performing well, but underemployment and informality are major issues, as formal job creation is not keeping pace with population increases. While Kampala’s overall GDP growth rate (6.7%) is modest compared to other similar cities9, it’s per capita GDP growth is on par and better than other cities with similar per capita income. However, the city’s formal employment creation is not keeping up with its accelerating population. While Kampala’s outright unemployment, currently at 10%10, although concerning, is not considered high relative to comparator cities in East Africa, underemployment and informality are the 2 KCCA (2009). Strategic Plan 2014-2019 3 Government of Uganda, (2015) National Development Plan II 2015 - 2020 4 The primary unit of analysis in the report is the Greater Kampala Metropolitan area which includes Kampala city as well as Mukono and Wakiso Districts. Any reference to “Kampala city” refers specifically to the Kampala city administrative unit 5 This report is part of the Economic Performance of African Cities project. Within this technical assistance project, the Kampala Capital City Authority (KCCA) requested the World Bank to support the development of an Economic Development and Job Creation strategy for the city. This report presents analysis targeted at Greater Kampala to address knowledge gaps and assist the development of this strategy. 6 UBOS 2014 7 Ibid 8 Lall, Schroeder and Schmidt 2008 9 Oxford Economics 2012 10 Uganda Household Survey 2013 vi primary concern. Underemployment is currently estimated at 23% and informal firms account for 57% of the city’s employment11. Understanding Kampala’s informal sector12 The evidence in this report counters three common notions prevalent in the usual discourse around the informal sector in Uganda: i) that the majority of informal firms are evading taxation and therefore depriving formal firms of their hard-earned profits, ii) that the informal sector could be an untapped reservoir of entrepreneurial energy13, and that iii) informal enterprises should locate themselves outside the city to reduce congestion. Firstly, the majority of people working in the informal sector are poor, rather than evading taxation. Nearly all (97%) of the firms in the informal sector employ 5 or less people and 59% are self-employed. Our analysis estimates that 93% of microenterprise owners would be beneath the World Bank’s poverty line of $1.90/day, in purchasing power parity, if the business were their only source of income. This is consistent with the informal sector being primarily a source of livelihood for the urban poor, rather than a substantial generator of value added. Indeed, when asked why owners had chosen to start their businesses, 24% of owners responded it was because they lacked alternative opportunities to generate income. Importantly, 69% of firms generate UGX10 million or less in annual turnover and are below the minimum tax threshold for small business income tax14. This suggests that efforts to formalize informal firms are unlikely to lead to substantial tax revenue gains. Secondly, it is unlikely that the majority of informal firms will be able to grow and generate jobs for others. Policy makers are often interested in the question of how to support the informal sector to grow and become more productive. However, using a range of indicators, our analysis indicated that only 18% of firms have potential to grow and expand. Moreover, international experience suggests that it is difficult to identify these firms ex-ante. The analysis also suggests that informal firms are facing increasing competition due to the lack of viable markets and competitive business models. When asked about the biggest constraints to expanding their business, 45% of respondents reported that it was a lack of customers, competition or the profitability of their business model. If formal employment is not generated to keep pace with population growth, this competition is likely to intensify as those without other opportunities increasingly join the informal sector. Thirdly, location and access to customers is important for informal businesses. Kampala’s informal sector clusters in three locations in close proximity to the central business district, indicating that location and access to customers is critical for informal firms. Furthermore, 97% of informal businesses were found to sell to other households or individual customers (as opposed to other businesses). 84% of businesses sell to customers within a 30-minute walk. As such, close proximity to population densities is essential for the livelihoods of those operating in the informal sector – this is particular true for those firms working in street trading and retail. Consequently, polices aimed at re-locating informal firms away from population densities, without communicating with them to find alternative marketing locations, may negatively affect people’s livelihoods. 11 Uganda Urban Labor Force Survey 2009. 12 Given the paucity of data on the informal sector, the team commissioned the 2017 Uganda Bureau of Statistics (UBOS) informal sector survey to provide relevant statistics for analysis and decision making. Unless otherwise indicated, this is the data source for the remainder of this section. 13 De Soto 2000 14 GoU Income Tax Act (2014) vii Generating higher productivity jobs To keep pace with its population growth and satisfy the expectations of its population for better quality jobs, Kampala must create jobs in sectors which will encourage industrialization and economies of scale. To reach its potential, Greater Kampala needs to generate more jobs but also the right kind of jobs. To ensure growth is sustainable, employment in sectors which produce goods and services tradable outside the local market (such as manufacturing) will accelerate the city’s transition from a market town to a production centre. Investment in manufacturing and tradable service sub-sectors can increase productivity and stimulate structural transformation. Our analysis, using an econometric model of the Kampala economy, show that while investments in manufacturing and tradable service subsectors create fewer jobs than local service sub-sectors in the short term, they lead to larger increases in economy-wide labor productivity. Such a shift from lower to higher productivity activities in East Asian countries, for example, led to higher levels of growth (and higher earnings at the individual level), which in the long term compensated for lower labor intensity. So, despite creating fewer jobs in the short term, manufacturing and tradable service sub-sectors are likely to stimulate job generating growth in the longer term. The analysis also revealed several win-win subsectors which generate above-average job creation as well as labour productivity gains. Grain milling, chemical manufacturing, other food manufacturing, and financial services all have both above average returns to job creation and productivity15. Greater Kampala is more specialized than the national economy in a number of tradable sub-sectors, yet the share of labour employed in these activities remains negligible and some sub-sectors are declining. Of the sub-sectors in which Greater Kampala is highly specialized, nearly half are in manufacturing16 . However, not all sub-sectors that the city is specialized in have been growing. Most concerning are those large sub-sectors including manufacturing in structural and fabricated metal products, manufacturing in basic iron and steel, and manufacturing in plastics, where employment has been declining 17 . Additionally, employment growth in large and medium firms has been reducing. In particular, large firms in the tradable sector have lost five thousand jobs during 2001-2011 in Greater Kampala (four times more than that in the non-tradable sector)18. This is a cause for concern given that medium and large firms are not fulfilling their potential for creating higher value added jobs and the majority of people seem to be forced to engage in survival activities, whether or not there is a market for them. The city’s ability to gradually develop alternative subsectors of specialization will be important to avoid a worsening in unemployment and informality levels. 2. Binding constraints to firm growth and job creation and recommendations for action by subnational governments For Greater Kampala to accelerate its transition to a production centre and lead Uganda’s structural transformation, its local governments will need to better understand the constraints to firm growth and job creation. The research undertaken identified three major areas of constraints: i) the built environment is disconnected and costly for business, ii) enterprises face a myriad of constraints, internal and external to their business, and iii) there is no institutional and financing mechanism for coordinated investment across Greater Kampala. This calls for a deliberate policy transition of the role of subnational government, from merely being a regulator of businesses to a facilitator of private sector growth and job creation. 15 Randriamamonjy, Thurlow (2016) 16 See Annex 2 for full table 17 COBE 2001-2011 18 WB calculations based of COBE 2001-2011 viii Currently, subnational governments main relationship with the private sector is one of taxation and regulation. And yet, the private sector faces major constraints in their ability to grow and create jobs, many of which could be alleviated by subnational and national government. The report therefore makes three main recommendations to the subnational governments of Greater Kampala, to play a greater role as a facilitator of private sector success in the city: a) Invest in coordinated transport and economic infrastructure together with land use management, b) Empower domestic firms to improve productivity and c) Capacitate institutions & coordination structures. a) INVEST in coordinated transport and economic infrastructure together with land use management, Greater Kampala’s built environment is disconnected and costly for business. Kampala’s urban form does not encourage economic density and poor infrastructure makes production activities expensive. As the city has expanded, firms and employment have dispersed further from the urban core in a non-uniform fashion reducing economic density and creating a more fragmented city. In general, firm concentration in Kampala’s Central Business District (CBD) has declined from 65% of firms in 2002 to 55% in 201119. Beyond this, leapfrog development20 has more than doubled from the 1990s to 2000s, leaving patches of land within the city underdeveloped21. Such development inhibits density and disconnects people living in Kampala from opportunities. Moreover, while clustering of firms within similar industries is a factor proven to be important to their productivity, there are low levels of firm clustering in Kampala22. Transport: improve mobility within the city to encourage increased economic densities and agglomeration effects. Investment in transport infrastructure has been shown to decrease the cost of motorized transport in Kampala, which would reduce costs for business. A primary issue for transportation in Kampala is road congestion, with the number of vehicles on the roads in Greater Kampala increasing faster than infrastructure investment can keep up. Kampala’s lack of systematic and reliable public transport is a key and underlining reason for the level of road congestion. The only affordable transport is offered by the ‘matatus’ or local taxis. However, the lack of coordination of their routes and stops—as well as their small capacity—means that the number of times a taxi has to stop in order to collect or drop-off passengers is high23. This slows down the speed of the service and has knock- on effects on other forms of motorized transport. One quick win is to strengthen the regulation of the current minibus taxi system - Before Kampala is ready to make new public transport investments, such as Bus Rapid Transit (BRT) or rapid rail systems, the current transport system and regulatory environment needs to be further strengthened. A complete and sudden phasing out of taxis will not be feasible in the short run. As KCCA has taken over more control of the taxi industry’s regulation since 2015, this provides an opportunity to better regulate and coordinating taxi routes and stops, hopefully leading to less congestion and better traffic management. Strategic roads and public transport investment to better connect people with jobs - Road investment is strongly associated with density increases and economic activity. KCCA and Local Governments have made significant progress in increasing paved roads in the city but further investments are needed, particularly those of a cross GKMA nature, which would have a bigger impact on better connecting where people live with where they work. Research suggests that road improvements of the northern bypass around the city would enhance the connectivity of east and west parts of the city and improve city mobility. The feasibility of Bus Rapid Transit. 19 Jones et al 2016 20 Areas of development interspersed with vacant land. 21 Baruah 2015 22 See Annex 2 for top industries by Ellison Glaesar (EG) Index 23 MoWT 2013. ix To support access to markets for informal enterprises, taxi stops could also be coordinated with investments in markets and premises for them24. Finally, providing a conducive environment for non-motorized modes of transport (such as cycling and walking) will also be important. Land: facilitate better access to land for investment. Two main constraints in relation to land were highlighted by firms in Kampala; the price of land (which is a particular constraint for small and medium firms) and the complex land tenure regime. Uganda’s land price index has more than tripled in the past decade25 and firms explained that the high cost of procuring land constrains their capital supply and reduces their ability to invest in machinery or raw materials, etc. In addition, the majority of the land in Kampala operates under a complex land tenure regime — giving rise to legal disputes and blocking investment. Subnational governments do not, however, have control over land management in the city and must therefore coordinate with the other land management institutions to facilitate better access to land for investment. Piloting affordable housing schemes that also release land for mixed use development in the city’s core - KCCA should re-attempt to pilot a high density affordable housing scheme in one slum area, that also frees up land for economically productive investments26. The idea would be to work in collaboration with landowning institutions such as the Church or the Buganda Kingdom as well as an affordable housing mortgage finance provider which would finance the upfront cost of housing construction and mortgage provision to dwellers. KCCA would provide supporting infrastructure and facilitate the partnership between stakeholders. Land use zoning and land purchasing. Land zoning and city planning is crucial to encourage the efficient use of space in the city. KCCA and local governments are unable to effectively zone and plan given the lack of land which local governments control and the multitude of large land owners that city that local governments need to work with to secure land. As an initial step, vacant and underdeveloped land should be first identified through GIS mapping. KCCA and local governments will also need to work closely with current major landowning institutions (such as the Church and the Buganda Land Board) to jointly collaborate on land zoning. Furthermore, the potential for land swaps can be further explored with landowning institutions in order to facilitate land development of essential city locations. In order to finance land purchasing it is recommended that KCCA and local governments begin to coordinate purchasing vacant and underdeveloped land through a land banking mechanism, using financing from the GoU’s existing Land Fund. b) EMPOWER domestic firms to improve productivity Enterprises in Kampala face many constraints – internal and external to their business. Cities are not limited to their built environment. The role of a city authority and local government lies in creating a conducive environment to support enterprise growth, through understanding the constraints they face and acting to alleviate them. Firms in Greater Kampala (formal and informal) face a number of constraints including access to finance, labour skills, business skills and tax administration. In terms of skills, skilled labor appeared to only be a constraint for medium and large sized firms, some of which mentioned difficulties in finding and recruiting technically skilled employees. Whilst for small and micro or informal enterprises, the evidence indicates that behaviours focused on external factors such as market research, experimentation of new approaches, and researching competition were strongly correlated with performance indicators. Underlying these issues were firms’ mistrust of the Kampala Capital City Authority (KCCA) and local governments, which makes public private cooperation difficult. 24 E.g. Artisan parks, vendor markets, etc. 25 Bank of Uganda (2016) 26 This was attempted before with Development Partner support but was not able to get off the ground as the negotiations with the landowners (in this case, the Church), were not concluded within the timeframe that the donor funding was available. x Local tax collection by KCCA and local governments was considered more aggressive and heavy handed than income tax and VAT collection by the Uganda Revenue Authority (URA). Practices such as locking-up businesses’ machinery or premises due to payment delays were perceived as draconian and unnecessarily leading to loss of livelihoods27. The fact that the assessment of local tax payment level and band relies on observation of the business by a tax collector (compared to self-assessment for national taxes with URA), was felt to be introducing major avenues for corruption. Business services: Establish business engagement and support centres at a subnational level. Providing improved support and business engagement is both within local government’s remit and strategic plans, however currently very limited enterprise support services are being provided (some micro-enterprise development programs and business licensing centres) due to limited funding and capacity. KCCA and Local Governments have an opportunity to develop business engagement centres within their administrations which could engage in a range of activities: • Tax education - work with URA in producing tax advice print and radio communication materials as a way of further disseminating key taxation information. If demand for tax advice is large enough, a taxation helpline could also be trialed for firms in Kampala. • Assisting firms to developing bankable business plans – provide firms with business plan development advice to increase their chances of accessing finance. • Providing information on skill gaps – improve public dissemination of information regarding skill gaps in the Greater Kampala economy to encourage a better matching of skills to local business needs. • Trial mentorship programs focused on increasing firms’ understanding of their markets and customers. The evidence shows that the effectiveness of mentorship programs in Uganda could be enhanced if programs focused on helping business owners focus not only on their internal business management (record keeping etc), but also on their external environment: customers, competitors and suppliers. This is particularly relevant for informal sector enterprises to help them better develop products that have market potential. • Improve public private dialogue - hold town hall meetings to disseminate the kinds of business services which KCCA and local governments can provide and are looking to provide in the future and listen to the issues and constraints facing the private sector. This could help decrease the distrust between local government and the business community. • Investment promotion. The business centre could play a leading role by promoting Kampala as an attractive investment location. Additionally, the centre could identify potential areas for public private partnerships (PPPs). Partner with business associations to provide engagement centre services – in order to provide the above mentioned services, KCCA and local governments can partner with business associations like the Uganda Manufacturers Association (UMA), The Uganda Small Scale Industries Association (USSIA), and the Private sector foundation (PSFU), among others, which enjoy strong engagement with firms and are key stakeholders in the provision of business training. 27 Bouasba (2016) xi Cascading e-governance tax administration systems to all local governments of KGMA is an important quick win. Given the above findings regarding the current tax administration opening avenues for corruption, there is a need to further reduce the human element in the process and provide the services online. KCCA has already introduced e-governance for a significant proportion of the process and this successful experience can be further cascaded to the other local governments. Protect the livelihoods of informal enterprises. As our analysis on the informal sector showed, this sector mainly provides a livelihood for the city’s poorest and most disadvantaged people who work in it out of necessity. But given the small percentage of firms that have a potential to grow and the difficulty in identifying them, the most impactful policies are likely to be those aiming at encouraging investment and job creation in the formal sector and worker mobility to these new opportunities. At the same time, to protect the livelihoods of informal sector workers and help increase their incomes, subnational governments should work with representatives of the informal sector to identify viable locations for their markets and access points to consumers. Any re-location of informal sector vendors and enterprises should be done in consultation with them, while giving them viable alternative locations that take population densities and access to transport into account. Provide infrastructure that increases access to markets and suitable working premises for informal enterprises. Research shows that firms with permanent establishments are more likely to see increased performance and to formalize. KCCA and local governments could therefore increase access to serviced premises and market infrastructure for micro-enterprises throughout the city. c) CAPACITATE institutions & coordination structures. Currently KCCA and Greater Kampala’s other local governments lack crucial institutional mechanisms to coordinate investments across the metropolitan area, for more impact. The multiplicity of agencies and lack of coordinated framework for development within the GKMA, compounded by weak coordination between these agencies have resulted in confusion and lack of clear cut leadership for the development of the GKMA. It will be imperative for these institutions to work collaboratively in order to manage the future growth of the city. A quick win would be to put in place the Greater Kampala Working Group as provided for in the NDPII. This would bring the various agencies together on a voluntary basis to coordinate urban and economic development plans as well as marshal political support and traction for the continual urban development of Greater Kampala. The experience of the Greater Manchester Combined Authority is a relevant example for the GKMA to learn from. Put in place common financing mechanisms for pooled funding on metropolitan wide projects. The Ministry of Kampala and Metropolitan Affairs (MoK), The Ministry of Lands Housing and Urban Development and the Ministry of Local Government (MoLG) could also design a common financing mechanism that both KCCA as well as surrounding local governments can jointly draw from in order to finance common infrastructure projects across Greater Kampala. This mechanism would provide a key incentive for increased coordination. It is also recommended that the Ministry of Lands, Housing and Urban Development fast tracks the ratification of an Urban Development policy that clearly provides for the GKMA. Given the special provisions for the GKMA in the Vision 2040 and its declaration as a special planning area, Government needs to streamline the operations and build the capacity of the Ministry of Kampala Capital City and Metropolitan Affairs to be able to coordinate and enhance economic development in the GKMA. xii 3. National policy levers and the role of the private sector Some significant business constraints are outside the remit of local government and require policy leadership from the central government. Chief among these constraints are Uganda’s complex land tenure system, the high cost of finance and the reliability and cost of electricity. Addressing Uganda’s complex land tenure system – One of the most crippling constraints facing capital expenditure and firms in Greater Kampala is Uganda’s complex land tenure system. In the longer term, the central government needs to prioritize significant land policy reforms that improve access to land and reduce tenure disputes. In the meantime, further collaboration between local governments and the various official and customary land management institutions will be required so that Greater Kampala’s urban development is managed in the most efficient form possible. Central to this will be the effective implementation of a transparent land information system. Evidence suggests that increased transparency will also foster competition in the land market and drive down prices. Lowering the cost of finance – The high cost of finance is a concern for businesses across Uganda, but is felt severely in Kampala given the higher concentration of industrial firms, with higher financing needs. For large and medium size businesses, high interest rates have curtailed their ability to make long term investments and to compete regionally. For small businesses, high interest rates directly affected their ability to not only expand but to run their daily operations. For informal firms, access to finance was linked to increased likelihood of formalisation and increased profitability. However, lowering the cost of finance is clearly outside the remit of local government and demands central government leadership to address. As briefly mentioned in this report and more compressively in World Bank Ugandan financial sector reviews, there are a number of causes for high lending rates outside of macroeconomic pressure. These additional causes include, the high cost of due diligence, the banks’ lack of capital reserves to lend to domestic clients, and the level of Government borrowing. These issues will require serious work from the Bank of Uganda together with private sector associations particularly the Uganda Bankers Association. Reducing the cost and reliability of electricity - Greater Kampala’s industry suffers from high input costs. Central to these costs is the reliability and price of electricity. Due to the frequency of power outages and surges, a number of the firms interviewed had resorted to running their machines on generators to avoid damaging machinery, making their production costs more expensive and thus less competitive in the region. Despite continued difficulties, the electrical network in Uganda and Kampala has improved greatly over the past decade. This challenge is a responsibility for central government and has been publicly acknowledged by President Museveni28. The central government is already making large investments in new hydroelectric facilities (Karuma and Isimba Falls projects) which are hoped to reduce the cost of electricity. The private sector is an essential stakeholder in the future development of Greater Kampala. In the above recommendations, involving the private sector will be an important step for KCCA and Local Governments. The potential for PPPs should be further explored for all infrastructure options. This may require further institutional development for KCCA and Local Governments to develop the required expertise. It will also be important for the private sector to be consulted in regards to identifying labor skill shortages and designing training programs to meet skills gaps. Finally, KCCA and local governments future physical and integrated plans should consult heavily with private sector associations to ensure that public plans align with private development. A crucial link with the private sector for KCCA and local governments will be the various business associations which represent the private sector in Uganda. Further strengthening the relationship between local governments and associations will be a crucial first step in further involving the private sector. 28 Ibid xiii Summary of recommendations Local Governments (incl. KCCA) Central Government Private Sector Infrastructure Regulate transport system, Increase electric generation Invest in potential PPPs specifically local taxi routes and through planned hydro- related with infrastructure stops electric power investments investment Further road improvement and public transportation investments Skills & Business Partner with business Improve the rate of lending Engage with government services associations to provide training for domestic firms through and assist with identifying and other business services for current financial sector labor skill shortages local firms. reform agenda and designing training curricula. Establish a business engagement and support center to provide services – including through egovernance Land Re-attempt pilot of high density Implement land policy Work with local affordable housing scheme. reform with a focus to governments to assist improve dispute resolution, with zoning and effective Increase coordination with large land price information and release of land. land owners towards better strengthening the ability of zoning and release of land for local governments to acquire mixed use development land for infrastructure improvement and Increase access to serviced investment facilitation premises and markets for informal firms Institutional Actively participate in the GKMA The Ministry of Kampala in Participate in the GKMA co-ordination technical group to design partnership with the NPA, working group to provide interventions and strategies for MoLHUD, MOLG and OP advice and guidance the Greater Kampala area to establish the Greater for Greater Kampala’s Kampala Working Group and development strategy. Establish alongside national technical group to facilitate ministries, the GKMA working coordination within the group to provide policy oversight Greater Kampala. and planning leadership for GKMA Establish a common financing mechanism for infrastructure development across GKMA jurisdictions xiv 01 Background and Subnational Government Scope and Capacity within Greater Kampala 1 The purpose of this report29 is to Uganda is urbanizing provide Ugandan policymakers with economic analyses on rapidly. If not proactively the role of Greater Kampala in managed, Uganda will achieving Uganda’s economic miss a major opportunity goals outlined in Vision 2040 for structural and the actions needed to unlock the city’s economic transformation. potential. The report is part of the World Bank’s Technical Assistance The latest World Bank Uganda project on Enhancing Economic Economic Update, “The Growth Performance of African Cities. Challenge: Can Ugandan The project aims to apply the Cities get to Work?” shows learning from the World Bank’s that between 2002 and 2010, global report on Competitive Uganda’s urban population grew Cities30 to support policy makers by 5.6%, almost twice as fast as in selected African cities, including the rural population. As is the Kampala, to plan reforms case in many other developing and investments that would countries, the prospects of good alleviate constraints to the city’s jobs, higher incomes and better productivity and employment living conditions in the cities creation performance. The continue to attract Ugandans project was launched in February from rural areas. With 70 percent 2016 and has, so far, provided of Uganda’s nonagricultural GDP support to the city governments being generated in these urban of Kampala and Addis Ababa in areas, the prospect of higher the two areas of (i) economic productivity jobs is considerably analyses that fill knowledge gaps better than in the countryside. demographic explosion. Currently, that policy makers face, and (ii) Going by global experience, the opportunity presents itself for institutional support and capacity urbanization is likely to accelerate Uganda to leverage urbanization development to strengthen their with economic development. As to benefit a large proportion of ability to plan and implement a result, Kampala is projected the population. However, the relevant reforms31. to become a mega-city of more achievement of these goals will than 10 million by 2040, and other require a comprehensive set Ugandan cities will also see a of actions that will establish 29 In addition to the analytical part of the project, culminating in this policy report, the project is supporting capacity development efforts for various departments in KCCA and LGs. These have included Executive Training on City Competitiveness for city leaders; Doing Business indicator reform agenda and the Construction Permit Office; and technical support in the areas of investment promotion, cluster development and public private dialogue. 30 World Bank (2015). Competitive Cities for Jobs and Growth: What, Who and How? Washington D.C. June 2015, p. 9-10. 31 In addition to the analytical part of the project, culminating in this policy report, the project is supporting capacity development efforts for various Bureaus of the Addis Ababa City Administration. These have included Executive Training on City Competitiveness for city leaders; Doing Business indicator reform agenda with the Land Development and Management Bureau and the Construction Permit Office; and technical support in the areas of investment promotion, cluster development and public private dialogue. 2 Cities are drivers of economic The link between urbanization Old residential development and structural and economic development structures in transformation. 80% of global and structural transformation Kibuli slum, in the economic activity is generated in Africa has been less direct. background is the in cities32 and cities generated The population in African cities view of modern 58% of all new private sector is expanding on average by 3.5% buildings in Kampala jobs, despite being collectively per year and some cities will City center home to only a quarter of total double their population in the private sector employment33. next 15 years36. By 2040 Africa International evidence has shown will on average have more than how agglomeration in cities 50% of its population living in improves economic productivity34. cities37. However, this high rate As economic activity of urbanization has not been agglomerates, firms are able to; matched with the anticipated mix and match their requirements economic development as seen for inputs; access a wider range of in other urbanizing regions in the shared services and infrastructure; world including East Asia and Latin and spark innovation by the America. Africa’s manufacturing sharing and receiving of ideas. and service sectors have remained Growing agglomeration in small and unproductive38. The cities leads to economies of only structural change has been a scale, raising productivity in reduction in agriculture’s share of non-agricultural sectors and output and a commensurate rise in contributing to economic growth. services39. This is resulting in African Hence, all industrialized countries countries becoming (low value have gone through a process or added) service economies, even urbanization35. before they have industrialized, the necessary business and or in other words, experiencing regulatory environment. premature deindustrialization40. Appropriate investments in the Cities in Africa are not delivering development of the country’s Cities are drivers agglomeration economies or cities are therefore vital if Uganda of economic reaping the expected urban is to prevent urbanization from productivity benefits. resulting in dysfunctionality and development diseconomies of scale. and structural transformation. 32 World Bank (2013). 33 Fikri, K. and T.J. Zhu (2015) 34 For a compendium of developing country evidence, see Overman, H.G. and A.J. Venables (2005). Cities in the Developing World. CEP Discussion Paper No. 695. London, July 2005. 35 OECD (2016). 36 UNECA (2014). 37 World Bank (2013). 38 McMillian, M., Rodrik ,D., Verduzco-Gallo, I. (2011) 39 Fox, L., Haines, C., Huerta Muñoz, J. and A. Thomas (2013). Prospects in the New Century. IMF Working Paper 13/201 3 The Commercial Commercial centre in centre Nakasero AFTER BEFORE There is need for improved urban planning to keep pace with population and needs of business community in the city and the Greater Kampala Metropolitan Area. The World Bank’s recent industries less competitive both The World Bank’s global research research on the spatial regionally and internationally. on competitive cities42 shows development of African Cities In order for African cities to that job creation and economic shows that African cities’ grow economically as they have growth in cities are clearly linked development is constrained grown in size, they must create to the cities’ success in facilitating because they are more crowded, productive environments to attract all three sources of private sector disconnected and costly41. The investment, increase economic growth, (i) expansion of existing study finds that African cities are efficiency and create livable firms, (ii) creation of new firms, not economically dense and that environments that prevent urban and (iii) attraction of investors. investments in infrastructure, costs from rising with increased The review of successful cities industrial and commercial population densification. For worldwide identified four drivers structures have not kept pace with African cities to take advantage of competitiveness, that cities the concentration of people. Cities of agglomeration forces, policy need to invest in improving: (1) have developed as collections makers will need to resolve central institutions and regulations, (2) of small and fragmented structural problems and improve infrastructure and land, (3) skills neighborhoods limiting workers’ conditions for both people and and innovation, and (4) enterprise job opportunities and preventing businesses. support and finance (see figure 1). firms from reaping scale and Successful cities were also found agglomeration benefits. And Learning from competitive to have strong political leadership that African cities are expensive cities worldwide, their that spearheads a collective effort - 55% of African households face improved economic towards economic development, higher costs relative to other performance has not been by in partnership with the private countries with comparable per accident. It typically involves sector, and sets a clear vision capita GDP. This high cost of a strategic vision and critical for the success of prominent living raises nominal wages and action from both national as economic subsectors43. transaction costs, making African well as local Governments. 40 Rodrik, D. (2015). 41 Lall, S., Henderson, J.V. and Venables, A (2016) 42 World Bank (2015) 43 See Annex 1 for practical actions on local economic development for Local Governments 4 Figure 1: Four categories of interventions Source: Competitive Cities for Jobs and Growth 2015 1.1 Greater Kampala’s scope and capacity City governments around the The City Wedge framework and staffing discretion and world have taken on increasing outlines how policy reforms and expenditures, revenue discretion responsibilities to deliver service interventions at the city level are and political system. A city’s and facilitate economic growth channelled through a city capacity is further disaggregated through various program and government’s operational scope in terms of human resource policy interventions. and capacity – that is, the powers management; public financial at the government’s disposal management; controlling Several factors have contributed and the ability to effectively and corruption; and building “growth to this, including the efficiently carry out those powers. coalitions” (See Figure 2 below). decentralization of administrative, The framework includes city scope Importantly, aspects of both political and fiscal powers to local components of institutional and scope and capacity need to be governments, providing cities with economic development context, aligned to the city’s overall vision an increasingly expanding ‘wedge’. functional assignments, budget for development. Figure 2: City Wedge Framework Source: World Bank (2015). Competitive Cities for Jobs and Growth: What, Who and How? Washington D.C. 5 Greater Kampala is To assist KCCA’s and other is administered by KCCA which GKMA stakeholder’s efforts, in 2010 was elevated to legal currently following this report seeks to provide authority under the central a broad economic detailed recommendations on government and reports to development strategy policies and investments which its own MoK48. The Authority set out in both the would help stimulate structural consists of both democratically transformation, job creation appointed members49 as well as KCCA strategy and and economic growth in Greater members appointed to represent the Greater Kampala Kampala. professional bodies50. KCCA Metropolitan Area reports directly to the cabinet Greater Kampala Minister for Greater Kampala. (GKMA) Development KCCA’s administration is headed Framework. contains a variety of by the Executive Director who local governments with manages ten directorates. For an One of the four themes of KCCA’s varying jurisdictions and organizational chart explaining strategy is economic growth. KCCA’s reporting structure, see Under this theme, KCCA is seeking accountabilities. figure 3. This current institutional to develop a more specific city framework means that no one economic development strategy GKMA includes Kampala city single government entity has that will provide a framework for which is governed by KCCA as planning authority or service sustained economic growth driven well as portions of Mukono, delivery responsibilities over by an efficient infrastructure Entebbe, Wakiso and Mpigi, all Greater Kampala. For these network44. The Government of of which are governed by their reasons, this report’s audience Uganda (GoU), recognizing the respective local governments46. encompasses the range of need for a coordinated effort Uganda has a high level of stakeholders (KCCA, central toward economic growth in the administrative decentralization. government and relevant local Greater Kampala Metropolitan Local governments have executive governments) in Greater Kampala. Area (GKMA), has tasked the and legislative powers and A breakdown of roles and Ministry of Lands, Housing and are responsible for key service responsibilities between local and Urban Development, Office of delivery and implementing central government in Uganda is the Prime Minister, KCCA and local development plans. Local outlined in Table 1. relevant Local Governments to governments are overseen by the develop an integrated framework Ministry of Local Government47. for the development of GKMA45. Kampala city on the other hand 44 KCCA (2009). Strategic Plan 2014-2019 45 Government of Uganda, (2015) National Development Plan II 2015 - 2020 46 Government of Uganda, (2010) KCCA Act 47 Government of Uganda, (1995) Local Government Act 48 Government of Uganda, (2010) KCCA Act 49 The authority includes: The Lord Mayor, Deputy Lord Mayor, one councilor per electoral areas in Kampala city, two councilors representing the youth and two councilors representing persons with disabilities 50 The Uganda Institution of Profession Engineers, Uganda Society of Architects, Uganda Medical Association, and Uganda Law Society 6 Table1: Roles and responsibilities of local and national government in Uganda51 Skills & Innovation Institutions & Regulations Infrastructure & land Support & Finance Enterprise National - Business Name - Industrial Parks - Skills development - Business assistance Government Registration & Company - Land leases for foreign and capacity and Information Registration Investors Building. provision - Issuing Investment License - Application for water - Uganda Industrial - Grants and Loans - Secondary Licenses and supply Research Institute is for Investment permits for some sectors - Electricity supply a platform for value promotion. before UIA issues a permit - Strategic catalytic addition; product - Export promotion - Tax Registration and Investments by UDC development; services issuance of TIN - Road Infrastructure process design as - Registration with NSSF52 well as sourcing - Issuance of Certificate of technologies Approval for Non-Citizens and business - Work permit issuance incubation. - Quality certification Skills & Innovation Institutions & Regulations Infrastructure & land Support & Finance Enterprise KCCA/local - Trading License Issuance. - Carry out physical - Extension services - Agro input governments - Impose and collect fees planning and - Investments in the provision in Greater and taxes (rent, rates, development control education and its Kampala royalties, stamp duties, - Improving Road workforce. Re-tooling of city trading licenses, fees from Networks53 artisans, promotion registration and other fees - Water supplies of MSMEs, and taxes, Local service outside the networking tax, property Tax and hotel jurisdiction of the tax National Water - Public Safety and Law and Sewerage enforcement in areas of Corporation; the city - Ensuring Sanitation, - Provision of construction health and safety permits and Control - Investment Land of development – - creation of urban enforcement of building growth centers in the rules peri-urban - Tourism infrastructure - Resolving local land issues Five years since its inception, KCCA has made significant progress in generating increased revenues and moving closer toward financial independence. Since 2011 to the 2015/16 financial year KCCA has been able to increase its internal revenue collection by 250% (table 2). A great deal of this growth has been through reforms 51 Tingting Zhu, Mundua (2017) 52 Under the NSSF Act Cap 222, a compulsory saving scheme for private-sector employees, all employers with more than 5 employees are obliged to pay an NSSF contribution of 10% to their employees. 53 KCCA 2014/15- 2018/19, Mukono, Wakiso, 2014/15- 2018/19) Strategic Plans 7 in the efficiency of taxation confidence, as grants from debt for further financial collection. The primary growth in international agencies doubled flexibility56. While starting form revenue has come from property from 2014 and 2015. Additionally, a modest base, KCCA in a short rates, licenses and parking fees. in 2014, Global Credit Ratings period has been able to improve KCCA has also managed costs (GCR), a South African credit its governmental efficiencies well, leading to large surpluses in analysis agency, gave Kampala and drive growth in its revenue. the 2015 and 2016 financial years. an “A” rating, a rating which has Further budget surpluses and Prudent financial management since been maintained55. KCCA is potential access to commercial has also encouraged confidence currently limited from borrowing credit will enable KCCA to increase from the central government by national legislation however its investment and service delivery with transfers increasing by 20% there is growing interest in lifting in the city. in 201554. KCCA’s performance this constraint to allow the city has also engendered external government to access commercial Table 2: KCCA’s local revenue has increased dramatically being carried out. The economic (UGX Billions) development functions as detailed in the KCCA five-year strategic plan Year Local Revenue Total Revenue % of Own Revenue (2015/16-2019/20) are anchored KCCA of Total budget in the Gender, Social Services and 2011/12 44.4 Production Directorate, under the 2012/13 75.7 187.2 40.44 Deputy Director of Production and Marketing at KCCA. On the 2013/14 68.2 199.2 34.24 other hand, the tourism portfolio 2014/15 94.5 268.8 35.16 is under the Directorate of 2015/16 111.08 359.83 30.87 Education. Similarly, within the Local Government structure, Source: KCCA Revenue Department 2016 commercial officers, gender officers and production offices all Budget constraints and the ad- This directly affects subnational have a role to play in economic hoc organization structure of governments’ ability to deliver development functions.59 Due to KCCA and Local Governments has their mandates in economic varied capabilities among these meant they have been unable to development or even their basic officers in different line functions, staff their organizations with service delivery mandates. some departments might receive adequate technical focus on Analysis of KCCA and Local more support on a specific topic/ local economic development. Government organizations shows sector depending on the expertise KCCA has 10 directorates with an that economic development of the officers located in that approved total of 1,428 technical talents are scattered across specific location. Thus, economic staff. But as at December 2015, different departments which development expertise in KCCA only 415 (29%) positions57 had makes integrated economic and Local Government has been been filled. Similarly, staffing development solutions next to spread thin and inconsistent levels in Local Governments58 is impossible, and only ad-hoc support for local firms. only 56% due to limited budgets. efforts in specific sectors are 54 KCCA Treasury Department 2016 55 GCR 2017 56 Ibid 57 KCCA 2016/17 Ministerial Policy Statement 58 Ministry of Local Government Ministerial Policy Statement, 2016/17 59 Most of the Commercial Officers are former staff of the Cooperative Department. 8 Affordable housing Providing quality affordable housing in high growth population centers will help prevent the sprawling slums that plague the Greater Kampala Metropolitan Area. Slums The rapid growth of population and employment in Greater Kampala is forecasted at 10 million residents 10 million 50% in the Greater Kampala Metropolitan Area live in slums, 16% Residents which comprise Land 62 in Kampala City, with an estimated population of informal settlements 560,000 more than 1500 tons KCCA only has 50% capacity to dispose of solid waste are generated of it. per day in Kampala yet 9 Construction is still going on at the Toll road facility on the Kampala - Entebbe Express Highway in Kajjansi. 10 Outline of the report Based on these international in the value-added sectors, like This section concludes with frameworks and background manufacturing, for sustained practical suggestions for the information, this report drills economic development and GKMA stakeholders and identifies down into the case of Greater concludes by identifying promising opportunities to better manage Kampala and outlines the sectors which have the greatest Greater Kampala’s urbanization. metropolitan’s main challenges potential to create productive Section 3 addresses the business to promoting economic jobs. This report then argues that constraints which Kampala’s development and recommending there are three focus areas which formal firms face. This section areas for government action. are crucial to Greater Kampala’s discusses how governments can Following this introductory future economic development: i) best engage businesses to address section, Section 2 profiles Greater Built environment and; ii) Business barriers to firm growth including Kampala’s economic strengths constraints affecting the tradable access to finance, taxation and and weaknesses as well as sector. Section 2 evaluates Greater skills. The report concludes by outlines the vital role it plays in Kampala’s built environment, outlining all recommendations in Uganda’s economy. The section assessing the city’s urban form a sequenced plan. will show that Greater Kampala and infrastructure and how they is not generating enough jobs impact on firm competitiveness. 11 12 Figure 3: KCCA REPORTING STRUCTURE DD = Deputy Director DIR = Director 02 Greater Kampala’s Importance and Recent Economic Performance 13 Vision 2040 sets the ambitious heart of the country’s burgeoning with an annual growth rate of goal of transforming Uganda industrial sector. Consequently, 3.9%61. Greater Kampala hosts from a low-income country to a Greater Kampala will play a approximately 4 million people, competitive upper middle-income central role in Uganda achieving with Kampala city housing over country by 2040. To achieve Vision 2040 targets. However, the 2 million people62 in 2016. The this goal, the strategy identifies city faces a number of challenges UN projects that Kampala city’s Uganda’s low competitiveness which it will need to overcome population growth will accelerate and low industrialization as key to realize its growth potential. to 4.8% and will reach 4 million challenges for the country to This section outlines Greater people by 2030 (figure 4). overcome. Subsequently, the Kampala’s important economic strategy aims to triple industry’s role, some of the challenges it Moreover, Kampala is larger share of the labor force by 2040 faces and identifies key sectors to than any other Ugandan city. As and increase the percentage of help Kampala and Uganda grow figure 5 shows, the next largest manufactured exports by 45%60. and prosper. cities all have a population To achieve faster socioeconomic below 400,000 people. The next transformation, the strategy seeks 2.1 Greater Kampala’s largest urban center is Nansana, to invest in better urban systems economic role and followed by Kiira and then to enhance productivity, livability, performance Makindye Ssabagabo which are and sustainability. Greater all within Greater Kampala. It is Kampala is the economic engine Kampala is by far Uganda’s clear that Greater Kampala, is of Uganda. It’s the country’s center largest city. Kampala is one of central to Uganda even in simple of economic activity and the the fastest growing African cities, demographic terms. accelerate Figure 4: Kampala population is set to Figure 5: Uganda’s largest cities. Kampala is by far the largest Source: UN Urban futures 2016 Source: UBOS 2014 60 Vision 2040 61 UN World Urbanization Prospects 62 World Urbanization Prospects Database 2014. 14 Table 3. Kampala in the National Economy Greater Rest of National Kampala country Total GDP ($ billion) 7.3 16.1 23.4 Share of national (%) 31.2 68.8 100.0 Total employment (million) 2.2 21.3 23.6 Share of national (%) 9.5 90.5 100.0 Private consumption ($ billion) 5.5 13.0 18.6 Share of national (%) 29.8 70.2 100.0 GDP per capita ($) 1,832 482 626 GDP per worker ($) 3,257 753 991 Consumption per capita ($) 1,391 391 498 Source: 2012/13 Uganda National Household Survey (UBOS 2014); 2013 Social Accounting Matrix (SAM) (Randriamamonjy and Thurlow 2016). Greater Kampala also makes a Greater huge contribution to the Ugandan Kampala economy. While Greater Kampala represents over 10% of Uganda’s population63, it contributes over a third of the national GDP. Greater Kampala is the main center of economic activity within the country, hosting 9.5% of all jobs in the country (Table 3). Moreover, Kampala is the Population heart of Ugandan industry. Kampala accounts for approximately a third of manufacturing GDP in Uganda, especially non-agriculture- related manufacturing, such as chemicals and machinery64. Further, it’s estimated that 70% of the country’s manufacturing plants were clustered in Greater Kampala65. Figures 6 and 7 show how economic Greater growth and firm clustering is highly concentrated Kampala in the Greater Kampala area, respectively. National GDP 63 UBOS 2014 64 Ibid 65 Lall, Schroeder and Schmidt (2008) 15 Figure 6: Economic growth has been Figure 7: Manufacturing firms are concentrated in Kampala concentrated in Kampala Source: World Bank (2015)66 Source: Lall, Schroeder and Schmidt (2008) While Growth has been slowing, grows faster, because they start at per person68. Here we see that it’s per capita GDP growth remains a lower base. We see this pattern growth rate of 2.7%, out performs steady. Kampala’s overall GDP within Africa when comparing per Nairobi, which has similar income, growth rate (6.7%) is modest capita GDP growth rates of 5.6% and is even on par with Hanoi, compared to other comparator and 10.3% in Kigali and Addis which has a substantially higher cities67. However, Kampala’s per Ababa respectively, which have GDP per capita, at $4,721 (figure capita GDP growth, is on par or the lowest incomes per capita, to 8). Though Kampala is performing better than other comparator those of 3.1% and 1.9% in Dar es well, faster growth is still possible: cities with similar per capita Salaam and Nairobi respectively, Coimbatore, which has similar income. In a simple model of which have higher incomes (table income, has achieved more than economic growth, one expects the 4). It is therefore appropriate to double the growth rate in per growth rate in per capita income benchmark Uganda’s per capita capita GDP, at 6.5%. to slow as per capita income growth rate to cities with income rises. Productivity in poorer cities per capita near its own, $2,918 66 Economic growth calculated using night light imagery (DMSP-OLS) 67 Oxford Economics 2012 68 Ibid 16 Table 4: Benchmarking Kampala’s economic performance City Population GDP Growth GDP per Capita Forecast Population GDP per Capita Growth CAGR, % Growth Population Millions USD CAGR, % CAGR, % Growth CAGR, % 2008-2012 2008-2012 2010-2012 2017-2030 2017 2012 Kampala, UGA 4.0 6.7 2.7 5.0 2.1 2,516 Dar es Salaam, TZA 5.7 8.8 3.1 5.0 5.7 2,918 Kigali, RWA 4.0 9.7 5.6 4.2 1.3 1,295 Nairobi, KEN 3.9 5.7 1.9 4.1 4.2 2,624 Johannesburg, ZAF 3.5 2.6 -1.0 1.3 9.8 11,006 Addis Ababa, ETH 2.1 12.4 10.3 4.2 3.4 732 Hanoi, VNM 5.4 8.2 2.8 2.6 3.9 4,721 Coimbatore, IND 4.1 10.5 6.5 2.5 2.7 2,957 Wenzhou, CHN 4.0 9.2 5.2 1.8 3.4 20,163 Source: WB staff calculations using Oxford Economics 2012 17 Figure 8: Kampala’s GDP growth vs regional comparators Kampala’s GDP growth is being driven by its 16% manufacturing and other tradable goods and services sector. Figure 9 breaks down by 14% sector Kampala’s 6.7% cumulative annual Addis Ababa real GDP growth between 2008 and 2012. 12% The main observation that emerges is that GDP real growth Kigali tradable goods and services drove two thirds 10% Dar Es Salaam of GDP growth, indicating that Kampala is 8% on the way to transitioning from a “market Kampala town” producing local services towards 6% Nairobi being a “production center” which produces 4% tradable goods and services. Manufacturing’s contribution to growth, 31.1%, was greater 2% than its share of GDP in 2008, 27.7%, indicating an expansion of the sector. This pattern was 0% similar for transportation, storage and ICT, 100 1,000 10,000 100,000 which drove 26.2% of growth, off a base of GDP per capita 2008 ($) only 11% of GDP, indicating a rapid expansion Source: Oxford Economics 2012 of the wholesale trading sector. Non-tradable services contracted as a share of GDP, indicating a decreasing reliance on local demand. Consumer services, for instance, which includes mostly retail trade, comprised 39.4% of GDP in 2008 fell to 29.5% of growth between 2008 and 2012. Figure 9: Sectoral Decomposition of GDP growth in Greater Kampala Source: World Bank staff calculations using Oxford Economics 2012 18 Nonetheless, this structural Figure 10: Sectoral composition of GDP transformation is still at an early stage. Figure 10, shows Agriculture Manufacturing Tradable Services Non-tradable Services the composition of GDP for each Wenzhou, CHN comparator city and Kampala, Nairobi, KEN breaking GDP in to four categories, Hanoi, VNM manufacturing, tradable services, Dar es Salaam, TZA non-tradable services and Johannesburg, ZAF agriculture. This figure emphasizes Coimbatore, IND that Kampala has the third lowest Kampala, UGA Addis Ababa, ETH share of output in tradable goods: Kigali, RWA agriculture, manufacturing or tradable services. It is thus at 0% 20%4 0% 60%8 0% 100% the beginning of its transition away from a “market town,” to Source: Oxford Economics 2012 a “production center,” with a higher share of tradable, high value-added output. The only of residents in the GKMA with 23% two cities below it in structural transformation, Addis Ababa and high skills and post secondary Kigali, have much lower per capita education are working in relatively income, as shown in Table 4. low-skilled and low-wage jobs Moreover, job creation in formal currently 10%, which while large firms in the tradable sector employment is not keeping concerning, is not considered high have lost five thousand jobs during pace with Kampala’s growing relative to comparator cities in 2001-2011 in Greater Kampala population. Uganda has the East Africa71. Underemployment (four times more than that in the third fastest growing population and informality is the primary non-tradable sector). Kampala in Africa, with the population concern for the Greater Kampala. will not be able to keep pace with doubling around every twenty Currently underemployment is its population growth and satisfy years.69 Young people are entering estimated at 23% and informal the expectations of its population the workforce at a rate of 4 firms account for 57% of the for better quality jobs unless it is million people per year, which is city’s employment72. The majority able to create more formal jobs forecasted to increase to over 8 of Kampala’s employment is in in sectors which will encourage million by 204070. Current evidence micro or small firms. As figure 11 further industrialization and suggests that formal job creation shows, employment growth has economies of scale. in Kampala is not keeping up with dramatically increased in micro the rise in population. Kampala’s firms and actually reduced in large outright unemployment is and medium firms. In particular, 69 USAID (2015). Frederick S. Pardee Center for International Futures. 70 Ibid. 71 Uganda Urban Labor Force Survey 2009 72 Ibid 19 Jobs especially in the informal sector 46% of all formal workers are 57% businesses in Kampala employed in Kampala are informal 46% of the informal businesses employ 24% workers in the informal 5 or less people, sector derive their of which primary source of income 57% are self employed. from their businesses Only 60% 18% of the informal firms have of the informal firms the potential to grow, generate less than expand and create jobs UGX 10 million annually hence are not taxable 97% 84% of informal businesses of informal businesses have a limited market for their goods and services and can only sell to customers within a trade among other households 30-minute walk and individual customers. 20 Figure 11: Change in Employment by Firms Size and Sector in 2.2 Understanding Greater Kampala Kampala’s Informal Sector 1500 A large unregulated informal sector focused in low 100000 productivity sectors presents a significant barrier to Kampala’s Additional Jobs 50,000 structural transformation. However, policies aimed at reducing the informal sector’s 0 dominance needs to be informed by an understanding of the kind of -50,000 MicroS mall Medium Large MicroS mall Medium Large firms and people working within Non tradabl eT radable it. This report synthesizes findings from the 2017 UBOS informal Source: COBE 2001 - 2011 sector survey to shed light on the composition of Kampala’s informal sector73. Greater Kampala’s informal Figure 12: Main activities in Greater Kampala’s informal sector sector is largely concentrated in non-tradeable services (e.g. retail trade, transportation, or restaurants). Figure 12 shows the distribution of informal firms by main activity. Most firms (56%) are primarily engaged in trading and services within which the most common occupation is shopkeeper or street vendor. The next sector, hotels, bars and restaurants, comprises 26%. Manufacturing, which includes primarily tailoring and woodwork, comprises just 13%. Not surprisingly for an urban area, agriculture comprises only 4% of Source: World Bank staff calculations based off UB0S 2017 firms. 73 Further analysis of this data will be conducted by the World Bank following this report. 21 The informal sector is largely Figure 13: Annual turnover in the informal sector made up of micro-firms who are not required to pay taxes. Uganda defines micro-enterprises as businesses employing five or less staff, or having assets below UGX10million74. According to survey data, 70% of the informal sector is made up of microfirms. Significantly, 69% of informal firms generate an annual turnover of UGX10million which is the lowest company income tax threshold as defined by the Income Tax Act (Figure 13). Importantly, this means that the majority of the informal sector are not avoiding tax responsibilities but are rather Figure 14: Firm sizes in the informal sector under the size revenue threshold required to pay tax. In terms of employment, the informal sector is largely made up of self- employment. Figure 14 shows the breakdown of firm sizes in the informal sector. The vast majority of people in the sector are selfemployed (59.3%) or employ less than 5 people (38%). Only a very small number of firms (2.2%) could be considered a small business in terms of employment. Source: World Bank staff calculations based off UB0S 2017 The majority of people in the informal sector are The majority of women. Women account for 66% of firm owners in the informal sector and for the vast majority of those employed by informal firms. Further, as people employed in shown in Figure 15, women are largely concentrated in self-employment the informal sector or firms with less than 5 employees. Female owned firms experience lower are poor, rather than performance compared to maleowned firms. Male-owned firms outdo their female counterparts in three important outcomes: firm size, Business- evading taxes to-Business (B2B) customers and market reach. Possible reasons for this could be that retail businesses are targeting individual customers (hence 74 MTIC 2015 22 fewer B2B customers); and that less market reach). By contrast, a because female business owners females, who are responsible for statistically larger proportion of have less capital of their own (as looking after the household, are female business owners accessed suggested by their having fewer more constrained in their ability to credit in the past year, particularly assets), which would make them travel away from the city to build formal credit from savings groups, more reliant on credit to start and and serve different markets (thus MFIs and banks. This could be run a business. Figure 15: Employee size comparison for female and male owned firms Source: World Bank staff calculations using UB0S 2017 The informal sector is made up business and over half of the the informal sector, the share of of youth, and people with lower employees. The level of education workers with secondary education levels of education. The informal in the informal sector is also much or higher is 56% with the most sector is also made up largely of lower than compared to Greater common level of education being young people (figure 16). Business Kampala’s broader labor force. primary school (36%). owners under 29 years old 70% of Kampala’s labor force has account for 43% of informal sector secondary education or higher. In Figure 16: Majority of Kampala’s informal sector are youths Source: World Bank staff calculations using UB0S 2017 23 Firms in the informal sector when asked why owners had in low income residential areas provide a subsistence income for chosen to start their businesses, with large informal settlements. owners, who entered the sector 24% of owners responded it was This is unsurprising given that a out of necessity, using their own because they lacked alternative large proportion of informal firms resources. While the total income opportunities to generate income. are household based, suggesting of firm owners is not reported in This response was higher among that those who live in informal the UBOS survey, one can provide those in self-employment. The settlements are likely to run a rough estimate of the incidence majority of firms have used informal businesses. Secondly, of poverty among informal firm their own savings to start their the clusters are close to high owners by applying a profit margin businesses, typically money population densities and the city to annual turnover. Assuming generated through previous work center. Being close to customers this margin is 10%75, then 93% in the private sector (65%). is essential for informal firms. of micro firm owners would be 97% of informal businesses sell beneath the international poverty Location and access to customers to other households or individual line of $1.90/day in purchasing is important for informal customers and 84% of businesses power parity, if the business were businesses. Kampala’s informal sell to customers within a their only source of income. If sector is concentrated in three 30-minute walk75. The Income Tax the margin is lower, as is likely major clusters in close proximity Act applies a 3% tax to turnover for particularly in petty trading to the central business district. small firms, and a 30% tax to the businesses, owners of small firms, Figure 17 shows a heat map of profit of medium/large firms. If the in addition to micro, could also be informal firm location density. tax rate of profit were constant for in poverty. This is consistent with Figure 18 shows a zoomed in map both groups of firms, the implied the informal sector being primarily of three main clusters in Katwe, profit margin on turnover would a source of livelihood for the urban Kasubi and along Masaka road. be 10%. poor, rather than a substantial Each cluster shares a number of generator of value added. Indeed, features. Firstly, the clusters are Figure 17: Informal Firm Density in Greater Figure 18: Three informal firm clusters close to Kampala Kampala CBD Source: World Bank staff calculations based off UB0S 2017 75 The Income Tax Act applies a 3% tax to turnover for small firms, and a 30% tax to the profit of medium/large firms. If the tax rate of profit were constant for both groups of firms, the implied profit margin on turnover would be 10%. 24 There appears to be little co- possible economic exclusion of informal sector, co-agglomeration agglomeration between formal those working in the informal with other manufacturing formal and informal firms in Kampala. sector. This is further corroborated firms may be advantageous. It Figure 19 maps formal firm in the survey, which found only is reasonable to assume that density with the informal 8.5% of firms trading with medium informal activity does not benefit firm clusters overlaid. As to be and large firms. For the majority in the same way formal firms do expected formal firms show an of informal firms, which are in from agglomeration economies, even spread throughout the city service and retail sector, a lack either through the sharing of with particular concentration in coagglomeration with formal firms sector specific inputs, labor the CBD and greater density in the may have little effect. As noted and/or knowledge. Moreover, northern parts of the city. While above, for these firms, proximity informal manufacturing firms’ co- the Katwe cluster has the greatest to markets and populations agglomeration with formal firms overlap with formal firm location, densities (i.e. customers) may may bring unique advantages as a the clusters in general do not share dictate location choice as number of studies have found the much space with formal firms. opposed to positive externalities interaction between formal and The spatial separation between related to agglomeration informal manufacturing firms are informal and formal firms suggests economies. However, for the beneficial for both sectors76. little economic integration and few manufacturing firms in the Figure 19: Formal firm location density with informal firm clusters overlay RECOMMENDATION: ENSURE THE PROTECTION OF LIVELIHOODS OF INFORMAL ENTERPRISES Close proximity to markets and customers is crucial for the viability of informal sector firms. Given the sector’s important role in providing the poorest in the city a livelihood, policies to re-locate informal sector enterprises away from the CBD will have negative results. Importantly, policies seeking to encourage informal firms to move from their current location are unlikely to succeed, as any move away from a large number of customers and foot traffic will affect firm profitability. It is recommended that KCCA along Source: World Bank staff calculations based off UB0S 2017 with other Greater Kampala local governments work closely with vendors to zone land specifically for trading. 76 Duranton (2008), Venables and Overman (2005); Arimah (2001); House (1984) 25 Kajjansi Market Locations of any new markets should take into account population density and foot traffic 26 Locations of any new markets is impossible to forecast growth score---whether a firm has at least should take into account rates with any certainty for a 4 of the 9 indicators – just 18% of population density and foot single firm, one can examine the firms have potential. Restricting traffic for them to be an incidence among the informal the score to those with 5 or more attractive option for informal sector of indicators typically indicators, this share drops to 4%. firms. It would be ideal to used by investors to assess the coordinate these demarcated likelihood of future growth. Table trading areas with newly regulated 5 presents 9 such indicators, as RECOMMENDATION: matatu routes and stops. well as an overall growth potential score derived from the indicators. FOCUS ON LIVELIHOODS AND Informal firms face major The indicators cover owner’s LABOR MOBILITY FOR THOSE IN constraints related to ambition and ability, past growth, THE INFORMAL SECTOR WITH increased competition and the resources available and age of LOW GROWTH POTENTIAL. profitability of their business the business. Age, or whether a The informal sector in Kampala model – in addition to access to firm was established within the provides essential livelihoods finance. When asked what was last year, 2016, is considered an for the city’s poorest in the the biggest problem in potentially indicator of potential growth absence of more formal jobs expanding their business, 45% of because older firms have shown in the city. As discussed above, respondents reported that it was a themselves to have remained only a small portion (18%) of lack of customers, competition or small for more than a year, and are informal firms are estimated to the profitability of their business thus plausibly less likely to grow in have the potential to grow. For model and 40% reported that the future. Looking at Table 5, only the remaining informal firms, they it was access to finance. Other 61% of firms have plans to grow, provide essential livelihoods for items such as access to inputs placing an upper bound on the those in the city without formal job such as capital equipment, land, share that might expand. Further, opportunities. For the city to assist utilities, labor or skills were not while larger firms are more likely this large group of poor people, ranked highly at all. When asked than small and micro firms to have KCCA and local governments the biggest problem in running an owner with a post-secondary need to focus on generating more their business at its current scale, school degree, only 16% of micro employment in the formal sector. again, 35% reported it was a lack firms do, suggesting that the However, it is also crucial to assist of customers, competition or smallest firms may be less likely to those in the informal sector to the profitability of their business have the human capital required attain those jobs once they are model, and 22% reported access to expand. A similar pattern is seen available. Instead of trying to to finance was the issue. Again, for record keeping. Finally, though stimulate growth in informal firms access to inputs was not ranked 33.5% of large firms started which do not have much growth by many. because they saw an opportunity potential, local governments in the market, just 9.9% of micro should focus attention on labor It is unlikely that many informal firms did so. Overall, only 13.5% mobility for those at the bottom firms will be able to grow and of informal firms in general started quintile of the informal sector generate more jobs in their for this reason, indicating that they so that they are more able to businesses. This is particularly may not be in the highest potential transition to formal employment. true for self-employed and micro- markets. This is consistent with Training and labor matching will firms. A key question to ask about the observation above that most be important to improve labor the informal sector is what share sell local services to nearby mobility. Local governments of its firms, if constraints were residents—their output is limited can work closely with business removed, or if supported with by the size of the local economy, associations to identify key skills additional capital or resources, and is unlikely to become widely in growing industries in order to could potentially grow, become traded. Overall, using the most design these interventions. formal and create jobs. While it generous overall growth potential 27 Table: 5 Informal Sector Growth Potential Firm Size Category Micro Small Medium/ All Annual Turnover (UGX) <10 Mn 10-50 Large Mn >50 Mn Owner ambition and ability Owner has concrete plan to expand 55.5% 77.5% 52.7% 61.5% Owner keeps written records 31.2% 58.4% 81.2% 39.8% Owner has post-secondary school degree 16.4% 14.2% 28.2% 16.0% Primary reason to start firm was the market size 9.9% 21.2% 33.5% 13.5% Past growth More than one employee 31.6% 61.8% 69.4% 40.7% Primary customers are outside Uganda 4.4% 6.1% 2.3% 4.8% Resources Available Firm received loan from financial institution in last year 8.0% 9.4% 7.1% 8.4% Firm has multiple shareholders 3.4% 4.4% 3.7% 3.7% Age Firm established in 2016 33.9% 13.7% 18.2% 27.9% Growth Potential Score At least 4 of the above 12.3% 32.8% 9.2% 17.8% At least 5 of the above 4.3% 3.1% 5.2% 4.0% At least 6 of the above 1.0% 1.1% 1.7% 1.0% At least 7 of the above 0.0% 0.4% 0.7% 0.1% Number of observations 1,623 447 143 2,213 2.3 Generating jobs in high Kampala. However, the majority found that the most competitive productivity sectors of jobs in the city are still in low- cities exhibit a particular emphasis productivity sectors. on the production of tradable Enabling Greater Kampala’s goods and services as a way to industry sector and other Long-term job growth in cities boost economic growth and job priority sectors will be key to is usually driven by tradable creation. The study found that for delivering on Uganda’s goals of sectors (like manufacturing). those cities that grew the fastest, further industrialization. A key Non-tradable sectors (like retail, tradable sector employment objective of the NDPII and Vision hairdressers and street vending) growth outstripped nontraded 2040 is to promote growth with encounter diminishing returns sector growth. “positive structural change”. The because they are limited by their latter occurs when workers migrate size of the local markets. Tradable Further growth in Kampala’s from less to more productive sector (such as manufacturing) on high-productivity sectors sectors, thereby increasing the other hand offer the prospect will be key to delivering on economy-wide labor productivity. of increasing returns by selling Uganda’s goals of further The NDPII prioritizes a number of outside the local market both industrialization and formal high productivity sectors which regionally and globally. The World employment generation. are primarily located in Greater Bank’s Competitive Cities report Over the last ten years, tradable 28 sectors in Greater Kampala the structural linkages between Using an econometric model are overrepresented in the top sectors and households within the of the Kampala economy, 20 sectors creating new jobs. local economy, and between the investments in higher value Greater Kampala unsurprisingly city and the rest of the country. manufacturing and service has a comparative advantage in We use the model to assess the sub-sectors creates fewer jobs tradable sectors, yet the share of economy-wide impact of investing than lower value added sub- labor employed in these activities in each of Kampala’s economic sectors but leads to larger remains negligible. Conducting sectors, including industries and increases in economy-wide location quotient77 and shift services and, given the structural labor productivity81. Importantly share78 analyses shows which characteristics of the local shifting from lower to higher sub-sectors Greater Kampala economy, the analysis indicates productivity activities leads has a comparative advantage in which sectors are most likely to to higher overall growth (and and which industries have been stimulate local job creation and higher earnings at the individual growing compared to the rest of income growth in Greater Kampala level), which compensates the economy79. The subsectors as well as in the rest of the country. for lower labor intensity. So, where Kampala has a comparative The model also included the despite creating fewer jobs in advantage over the national assumption of limited supply of the short term, manufacturing economy are mainly tradable resources such as skilled workers and tradable service sub- industries and services. While or scarce land and capital in sectors have the potential to non-tradable activities on the order to realistically assess which stimulate job generating growth other hand are overrepresented kinds of economic activities are in the longer term. The model in the sectors that have lost most likely to be the most effective at also revealed several win-win jobs. Micro-enterprises are also stimulating local (and national) subsectors which generate overrepresented in the economic economic development80. above-average job creation activities losing jobs. as well as labor productivity gains (figure 20). Grain milling, To assist policy makers’ future chemical manufacturing, efforts to understand the Investment in higher other food manufacturing, and subsectors most important value sub-sectors, financial services all have both to job creation and structural above average returns to job particularly in transformation, a sectoral creation and productivity82. job multiplier analysis was manufacturing, have It is clear from this analysis commissioned for Greater a greater contribution that future development of Kampala. The analysis estimates to productivity. industry and tradable services the size and economic structure can encourage increased of Greater Kampala’s economy, productivity and stimulate develops an economic model for structural transformation in Greater Kampala that captures Uganda. 77 Location quotient analysis compares a region’s industry share of employment with its share of national employment and helps determine which industries make the regional economy unique, but at the same time could increase the vulnerability of the city economy, if in decline. 78 Shift-share analysis, identifies industries where a regional economy has competitive advantage over the larger economy by decomposing regional growth in employment and calculating how much can be attributed to national, industry and regional factors. 79 See Annex 2 for complete list 80 Randriamamonjy, Thurlow (2016) 81 Randriamamonjy, Thurlow (2016) 82 Ibid 29 Figure 20: Trade-Offs Between Job Creation and Structural Change in Kampala 600 BEVE Economywide average GDP Number of new jobs created 500 MEAT TRAN per worker HOTL 400 TRAD LEAT FVEG 300 Average number of new FOIL GMLL FOOD FSRV jobs created CHEM 200 WOOD PTOB COMM OSRV CLTH NMET METL 100 OMAN PETR TEXT ELEC CONS WATR 0 02 ,000 4,0006 ,000 8,0001 0,0001 2,0001 4,0001 6,0001 8,0002 0,000 Average GDP per worker in new jobs 83 Source: Randriamamonjy, Thurlow (2016) There are also several win-win Table 6. Investment Sectors with Above-Average Contributions subsectors which generate to Job Creation, Poverty Reduction and Structural Change above-average job creation (Constrained Supply of Better-Educated Workers) as well as labor productivity gains. As Figure 18 shows, grain Areas with above-average Targeted investment sector milling, chemical manufacturing, returns other food manufacturing, and Jobs, poverty & structural Chemicals. financial services (highlighted) all change have both above average returns Jobs & structural change Finance and insurance; Grain milling; to job creation and productivity. Other foods. In addition to these, investment in a number of sectors generates Poverty & structural change Clothing; Communication; Machinery & vehicles; Metal products; Non-metal above average returns in job minerals; creation, structural change or Real estate activities; Tobacco; Wood & poverty alleviation. These sectors paper. are summarized in table 6 It Jobs & poverty Beverages; Footwear; Hotels & catering; is clear from this analysis that Transportation & storage; Wholesale & future development of these sub- retail trade. sectors will encourage increased Jobs only Fats & oils; Fruits & vegetables; Meat, fish productivity and stimulate & dairy. structural transformation in Structural change only Construction; Business services; Elec- Uganda. However, local service tricity, gas & steam; Petroleum; Textiles; sectors will remain important for Water supply & sewage. job creation. Source: Randriamamonjy, Thurlow (2016) 83 MEAT = Meat, fish & dairy; FVEG = Fruits & vegetables; FOIL = Fats & oils; GMLL = Grain milling; SREF = Sugar refining; FOOD = Other foods; BEVE = Beverages; PTOB = Tobacco; TEXT = Textiles; CLTH = Clothing; LEAT = Footwear; WOOD = Wood & paper; PETR = Petroleum; CHEM = Chemicals; NMET = Non-metal minerals; METL = Metal products; MACH = Machinery & vehicles; OMAN = Other manufacturing; ELEC = Electricity, gas & steam; WATR = Water supply & sewage; CONS = Construction; TRAD = Wholesale & retail trade; TRAN = Transportation & storage; HOTL = Hotels & catering; COMM = Communication; FSRV = Finance and insurance; REAL = Real estate activities; BSRV = Business services; OSRV = Other services. 30 While greater Kampala is created jobs in the last decade, structural and fabricated metal specialized in manufacturing four manufacturing sub-sectors products, manufacturing in basic sub-sectors, not all of these appear, along with sub-sectors iron and steel, and manufacturing subsectors have been growing. in wholesale and services. These in plastics where employment Of the sub-sectors which Greater subsectors appear to be promising has declined despite being highly Kampala is highly specialized areas within Greater Kampala specialized in Greater Kampala. (LQ>1.7) nearly half are in (Table 7). Developing alternative subsectors manufacturing. When restricting of specialization will be critical for those sub-sectors that However not all sub-sectors have to avoid a deterioration in Greater Kampala is specialized been growing. Most concerning unemployment and informality. in and employ at least one are those large sub-sectors thousand workers and have including manufacturing in Table 7: Promising sub-sectors in Greater Kampala Sector Sub-sector Share of Location Regional Labor Quotient Share Tradable Manufacturing Soap and detergents 0.40% 1.79 196 Soft drinks 0.22% 1.99 46 Pharmaceuticals 0.22% 2.02 378 Other Manufacturing 0.71% 2.07 657 Wholesale Textiles, clothing and footwear 0.60% 1.75 3132 Household goods 0.89% 1.02 1428 Real estate 0.62% 2.03 155 Non-tradable Services Cargo handling 0.24% 1.99 188 Source: COBE 2011 Uganda’s manufactured exports, Uganda’s manufacturing sector comparator countries (figure 22). as a whole, have recently declined has recently been performing Key factors explaining this decline but market opportunities continue poorly. Figure 21 shows the in manufactured exports include to exist. City level export data declining export performance primarily the consequence of the does not exist. But an analysis of three subsectors that Greater reduced level of demand from of Uganda’s exports shows that, Kampala is specialised in – South Sudan and Eastern DRC while food and raw commodities machinery, beverages and which have been affected by make up the majority of Uganda’s textiles. Additionally, Uganda’s instability) and in Europe, where export basket, the share of non- merchandise exports have recovery from the recession has food exports had been growing stagnated in stark comparison been slow85. over past decades84. However, to 84 IGC 2016 neighbouring 84 IGC 2016 85 WB 2015 31 Figure 21: Exports in key sectors in which Kampala is specialized have been declining since 2012 Figure 22: Uganda’s Merchandise export have stagnated compared to its neighbours Source: UN Comtrade Despite recent events disrupting When disaggregating Uganda’s export data further we see that only three sectors have decreased in their world export Uganda’s manufacturing market share between 2005 and 2015 - computer and trade, it is important to communications services; fishing and fishing products; and note that export markets for upstream metal manufacturing (see figure 23). Further, while Uganda’s exports are dominated by primary commodities manufactured goods exist and and food processing, a number of smaller manufacturing have potential for growth. sectors have been growing in their world market share. 32 These sectors include footwear, Figure 23: Uganda’s world export market share production of heavy machinery, IT and analytical instruments and automotive. This suggests that there is indeed a market for Uganda’s manufactured goods to be exported. Source: Porter, Michael International Cluster Competitiveness Project, Institute for Strategy and Competitiveness, Harvard Business School 2.4 Challenges Greater This section has highlighted the shrinking, whilst the number of Kampala faces to build importance of Greater Kampala micro enterprises have grown its productive sectors. to the Ugandan economy and considerably. The following the central role in which the sections report findings on key city will play in Uganda’s future constraints for Greater Kampala’s For Greater Kampala industrialisation. However, the subnational Governments to to transition to city faces a number of challenges. address to ensure future growth a production Economic growth is slowing of the metropolitan’s productive and the city faces accelerated sectors: centre and lead population growth amidst Uganda’s structural pervasive underemployment I. A disconnected and costly transformation, its and a dominant informal sector. environment (section 3) – To reach its economic potential Greater Kampala’s urban form local governments the city must generate more does not encourage economic will need to better wage employment in tradable density and poor infrastructure understand the sectors that can benefit from makes production activities scale economies. Greater expensive. The spatial constraints to firm Kampala has a comparative configuration of a city growth in order to advantage in the tradable sector, affects the location and support job and in particular manufacturing. density of infrastructure, productivity growth. However, a number of promising which in turns affects tradable subsectors have been economic competitiveness. 86 Lall, Schroeder and Schmidt 2008 33 High production costs has to alleviate the constraints Crucially, while city a direct impact on firm which businesses face in the governments are important competitiveness. As regional city. Firms in Greater Kampala stakeholders in promoting their integration accelerates in East face a number of constraints city’s firm competitiveness Africa, Kampala is increasingly which relate to their business through coordination, placed in direct competition environment and human engagement and investment, with other regional cities, capital. These included the report highlights a number particularly Nairobi and constraints with access to of key constraints which Dar es Salaam. Uganda’s finance, labour skills, business requires central government burgeoning industrial sector is skills and tax administration. leadership. Chief among these located in Greater Kampala86. Underlying these issues were constraints are Uganda’s complex For Uganda to meet the firms’ mistrust of the Kampala land tenure system, the high industrialisation targets set Capital City Authority (KCCA) cost of finance and the reliability out in Vision 2040 and National and local governments, and cost of electricity. These Development Plan (NDPII), which makes public private constraints are outside the remit Kampala’s industrial sector cooperation difficult. The key of local governments and are will need to become more cost to any successful enterprise currently being addressed by a competitive. support, is to understand the number of national projects and particular barriers in depth as such have not been the focus II. Lack of enterprise services and how they affect firms of of this program. However, local and support (section 4) – varying types and sizes. governments still have a role Cities are not limited to their to play in lobbying the central built environment. The role government for swift and effective of a city authority and local reform and investment. Without government lies in creating these national constraints being a conducive environment to addressed, Greater Kampala’s support enterprise growth. In growth potential, and Uganda’s practice, this translates into economic development, will be understanding and acting significantly hampered. 86 Lall, Schroeder and Schmidt 2008 34 03 Building a competitive city – Greater Kampala’s urban environment 35 How a city is spatially infrastructure makes production markets and electricity. Cities expensive. Underlying these and urban density also provide configured and the issues and making potential increased knowledge spill infrastructure it offers remedies difficult, is a complex overs which makes it easier for are key determinants as land tenure system which slows information to be shared and to whether a city is able the effectiveness of future innovation to be generated. investments. However, Greater Recent evidence suggests that to generate and promote Kampala is still in its early Kampala’s workers have a higher competitive industries. stages of urbanization. Local wage than rural counterparts, and Governments working together that this in part is driven by higher The World Bank’s recent research can contribute to a well-managed productivity affects generated by on the Spatial Development city which supports clusters of the city87. of African Cities shows that houses and firms, and allows African Cities are crowded, transport to connect people to Within the city, studies have disconnected and costly, and jobs, making the city more livable shown that firms within the that this is likely inhibiting their for its residents and reducing the tradable sector - specifically ability to take advantage of the cost of living and production. The manufacturing - benefit most benefits of agglomeration. This section concludes with practical from agglomeration and scale section evaluates Kampala’s built suggestions for the Greater economies88. Additionally, environment, assessing the city’s Kampala local governments to empirical evidence suggests that urban form and infrastructure, coordinate Kampala’s urban Kampala’s land tenure also plays and how these may be impacting investments. an effect on firms’ productivity89 firm competitiveness. The section – these findings are further argues that Greater Kampala is Well managed cities can discussed throughout the report. currently disconnected, which have large benefits to firm Cities are crucial for generating curtails mobility and inhibits productivity. Cities allow firms improved productivity. However, economic agglomeration. to access and find suitable skills if not managed well, cities can and labor quickly, they also impede firm productivity through And secondly that Greater provide common resources and congestion, lack of services and Kampala’s urban form and poor infrastructure, such as airports, weak economic density. 3.1 Moving from a disconnected toward a connected city Kampala has expanded rapidly, towards Entebbe, north towards This is low compared to other but expansion has left the city Luwero, Wakiso and north-west cities. For example, in Kigali’s with low population density. towards Mpigi. As the city has downtown, employment density Kampala is not a dense city. The city expanded, firms and employment is 25,000 workers per square over time has spread out, tripling have dispersed further from the kilometer, and in 1990s downtown its built-up area over the past 40 urban core. Employment densities London and Seoul, employment years (Figure 24 & 25). Growth in around the CBD of Kampala are density was 42,000 and 58,000 the city’s built environment has between 5,000 and 10,000 workers workers respectively91. spread east towards Mukono, west per square kilometer90. 87 Jones, D’Aoust and Bernard 2016 88 Lall et al 2009 89 Venables et al 2015 90 Jones et al. 2016; Grover and Lall, 2016 36 Figure 24: Greater Kampala’s built-up Figure 25: Greater Kampala’s built-up environment environment 1974 2014 Kampala Central Kampala Central Source: Global Human Settlement Layers Kampala’s urban development core. Figure 26 compares the trend is increasing, the share of has not been uniform, leading population densities of Kampala new development happening in to scattered population density and Surat, India. The Surat leapfrog has more than doubled peaks instead of clustered population shows a compact from the 1990s to the 2000s92. density which can enhance scale form, with contiguous spikes of Such development put a break economies. Recent research has population. While Kampala’s on density and disconnect people found that Kampala’s population population spikes are larger they from opportunities. densities are fragmented in its are separated by gaps. And this Ibid 91 Baruah 2015 92 37 Figure 26: Population Density Patterns of Cities in Kampala ad Surat Source: Henderson and Nigmatulina, 2016 Kampala’s fragmented form evidence suggests that firms in shows that most of Kampala’s also has an effect on businesses. Kampala within the tradable labor force is scattered94. Those Businesses within cities benefit sector - specifically manufacturing industries which are most spatially from dense economic activity. - benefit most from agglomeration concentrated are largely tradable However, Kampala lacks any and scale economies.93 This activities such as manufacturing clear industry clusters. Greater is unsurprising given that the and food processing. Kampala’s density allows firms to access a vast majority of Kampala’s urban form is currently not wider market of inputs and buyers employment is concentrated in facilitating industrial clusters while reducing the Kampala local services which have less to and, in general, the EG index Central Kampala Central cost gain from clustering than other shows there are low levels of of production thanks to scale sectors. Using the Ellison Glaesar firm clustering by industry in economies. In particular, empirical (EG) index on Kampala’s industries, Kampala95. 93 Lall et al 2009 94 WB staff calculations based of COBE 2011 95 See annex 2 for complete EG index table 38 RECOMMENDATION: Outside of Kampala’s core, secondary points of PRIORITIZE ZONING AND city and local governments need employment have emerged. DEVELOPMENT OF VACANT to work with to secure land. However, these secondary LAND As an initial step, vacant and centers’ density remains low underdeveloped land should given the high commuting costs. be first identified through In general, firm concentration Further land zoning GIS mapping. KCCA and local in Kampala’s CBD has declined and city planning is governments will also need to from 65% of firms in 2002 to 55% work closely with current major in 201196. As firm concentration crucial to encourage landowning institutions (such in Kampala’s CBD has declined, the efficient use of as the Church and the Buganda secondary employment space in the city. Land Board) to jointly collaborate concentrations have emerged, on land zoning. Furthermore, the the most significant of which is in potential for land swaps can be Entebbe. However, employment There are powerful agglomeration further explored with landowning densities in these areas are still incentives for firms, particularly institutions in order to facilitate low, representing only about in manufacturing sectors to land development in essential city 10% of those in the urban cluster with one another. A lack locations. In order to finance land core97. Outside of the CBD, high of industrial clustering suggests purchasing it is recommended that commuting costs to new potential coordination failures within the KCCA and local governments begin sub-centers are preventing their city. Given the high cost of land to coordinate purchasing vacant growth. When commuting is and land tenure issues, it appears and underdeveloped land through cheap, various localized centers unlikely that firms will be able to a land banking mechanism, which of production and employment harmonize locations and generate could potentially make use of the emerge. Decreasing transport industrial clustering without GoU’s Land Fund. The efficient costs can therefore encouraging some government assistance. purchasing and reallocating of the concentration and clustering KCCA and local governments underused or vacant land would of firms and lead to increased can address this coordination increase land supply for mixed job creation in other secondary failure by facilitating increased uses, including commercial and clusters outside downtown firm clustering for key sectors, industrial activities. Crucially, Kampala.98 through increased zoning and in order to discourage further infrastructure provision. However, speculation and corruption, To encourage increased KCCA and local governments are land should be earmarked and economic densities which unable to effectively zone and reallocated in a transparent lead to agglomeration plan given the lack of land which process that benefits a large effects, it is crucial for Greater local governments control and the number of firms or citizens. Kampala to further develop multitude of large land owners its transportation system and improve mobility within the city. 96 Jones et al (2016) 97 Grover, Lall (2016) 98 Ibid 39 Economic activities, especially troublesome for medium and of road congestion. Kampala’s those in the tradable sector, large firms in the tradable sector, roads are dominated by private benefit from agglomeration who rely on the transportation motorcycle taxis (boda bodas) effects resulting from improved of goods around and outside of and private cars (private cars connectivity and economic the city. Road congestion is an estimated to be growing at 11% density. Investment in transport increasing problem in Kampala, per year)105. Boda bodas have infrastructure is therefore critical and road infrastructure cannot become increasingly popular and has been shown to decrease keep pace. As the economy grows, due to the poor state of the road the transport cost of motorized the number of vehicles on the infrastructure and high level of transport in Kampala. Indeed, roads in Greater Kampala has congestion. While they are highly other residents also benefit been increasing at a faster rate prone to accidents, they provide through decreased prices, than infrastructure investment can their customers with fast and translating in lower costs of living. keep up. Motor vehicle ownership flexible transport. However, boda With time, people relocate: the is on the rise, a trend which will bodas are not the most efficient rich can move further from their only accelerate as incomes rise use of public roads. Table 8 shows job as commuting times have and cost of vehicles reduce. The that while boda bodas represent decreased, lowering the pressure existing roads in Kampala were the largest share of vehicles in the on land close to the city center constructed in the 1960s for city, they only carry under 10% of. and allowing the poorer to settle 100,000 vehicles per day; today close to their job, reducing their 400,000 vehicles use the roads share of transport costs.99 every day.103 Compounding the Because of the traffic issues of increased use is that 73% jams, it takes 6 hours for Greater Kampala’s fragmented of roads in Kampala are unpaved, urban form and inefficient which slows traffic and increases a 30km round journey, transportation system is a barrier the likelihood of accidents.104 this means I can’t make to firms. The World Bank Enterprise Kampala’s road system is radial multiple deliveries in a Survey found that 15% of firms and has most traffic running day and can’t promise in Greater Kampala considered through the city center. that deliveries will transportation a major or severe constraint to their businesses. This While the northern ring road arrive on time.” – Medium was reiterated in firm interviews100 system, which was completed in manufacturing firm passengers. which highlighted the debilitating 2009, has reduced traffic in the effect of congestion. One firm city, it now too suffers from heavy interviewed101 explained: congestion. Currently, Greater On the other hand, the informal Kampala’s road infrastructure mini-bus taxis (matatu) transport KCCA currently estimates that cannot keep pace with the rise of the largest portion of people 24,000 man hours a day are lost vehicles on its roads. Kampala’s despite making up the smallest by commuters due to traffic lack of public transport is a key group of vehicles using the road. jams.102 Congestion is particularly underlining reason for the level However, according to a study by MoWT, 64% of congestion 99 Bernard, Bird and Venables, 2016 100 76 Firm interviews were conducted in 2016 in collaboration with the London School of Economics and the Economic Policy Research Centre 101 Iddawela 2016 102 KCCA 2012 103 KCCA 2016 104 Ibid 105 KCCA 2012 40 problems are due to frequently Reducing congestion will be key a Bus Rapid Transit (BRT) system stopping taxis. The lack of to lowering commuting costs for has also been suggested and coordinated routes and stops— workers and firms, however little feasibility study conducted. as well as their small capacity— in the way of public transportation However, work implementing this means that the number of times reform has been made. The system has yet to begin and there a taxi has to stop in order to pick- National Transport Master Plan are doubts regarding the feasibility up or put-down passengers is (NTMP) 2009-2023 outlined a plan of such a system in a low income high.106 This slows down the speed to develop a high-quality public and low density city setting. There of the service and has knock-on transport network. However, is a need, therefore, to ensure that effects to other forms of motorized there has been little progress in the Multi-modal urban transport transport. terms of reforming the public masterplan for Greater Kampala transport system in Kampala. currently being designed under Table 8: Boda Boda’s dominate In 2012, a private company – the Kampala Institutional and the roads but matatu’s Pioneer Bus Company – began Infrastructure Development transport more people operating conventional single Program (KIIDP) gives rise to decker buses on allocated routes. a more tightly focused Public Type of % % However, one year after operating, Transport Policy for Kampala. vehicle trips persons the bus company’ services were suspended for tax reasons. While Motorcycle 42 9 the company has repaid the tax Providing a conducive taxis (boda boda debt and services have resumed, environment for non- it is still faced with the challenge Private cars 37 9 of accessing the areas within the motorized modes of Mini buses 21 82 other metro local governments, transport (such as (matatu) since the agreement was signed cycling and walking) can with KCCA who have no jurisdiction improve city mobility Source: KCCA 2012 beyond Kampala City. Introducing RECOMMENDATION: TRANSPORT – IMPROVING outlines a broad transport plan for (UTODA) and rival associations CONNECTIVITY AND REDUCING the Greater Kampala, there is need assigned routes and prices to its CONGESTION IN GREATER to ensure that the Multi-modal members – in essence the industry KAMPALA urban transport masterplan for was informally self-regulating with Regulate current transportation Greater Kampala currently being a number of governance issues. system - Before Kampala is designed gives rise to a more However, since early 2015, KCCA ready to invest in a new public tightly focused Public Transport has taken over more control of the transport system, the current Policy for Kampala. A central task taxi industry’s regulation. transport system and regulatory of this policy will be to address environment needs to be the regulatory framework for local A complete and sudden phasing prepared. While the National taxis. For decades, the Uganda Taxi out of taxis will not be feasible in Transport Master Plan (NTMP) Owners and Drivers Association the short run. Instead, increased 106 KCCA 2012 41 structuring of the local taxis system Improve non-motorized Further road improvement and can enhance labor mobility in the transport - Attention should also public transport investments. city and reduce congestion quickly. be given to providing improved Road investment is strongly Key to improving congestion in conditions for non-motorized associated with density increases the city will be to coordinate taxi transportation. For the poorest and economic activity. KCCA and routes and stops to ensure that urban residents, the cost of vehicle Local Governments have made traffic is not slowed down by taxis transport is prohibitive. Data significant progress in increasing constantly stopping to pick up reported in the Uganda National paved roads in the city but and drop off passengers. It will be Household Survey (UNHS) suggest further investments are needed, imperative for taxi stops and routes 70% in Kampala’s population particularly those of a cross GKMA to be planned to accommodate walk to work. Typically, transport nature, which would have a bigger where city workers live and the choice is determined by incomes, impact on better connecting main areas of employment – with the mode and number of where people live with where including informal sector hubs. trips increasing with incomes. As they work. Research suggests As an initial step, maps of the Kampala has expanded, market that road improvements of the taxi system should be updated opportunities for people who have northern bypass around the city and plans should be made in line to walk to their employment has would enhance the connectivity to connect current high density been diminishing. This may also of east and west parts of the city residential area and employment even exacerbate slum formation and improve city mobility. The hubs. Once immediate steps are as many people will trade off feasibility of Bus Rapid Transit taken to regulate the current housing quality to be close to (BRT) and light rail investments are informal transport system, jobs. While it is crucial to ensure also being considered. To support investments can be made to affordable vehicle transportation access to markets for informal further upgrade the system to systems, improving the safety for enterprises, taxi stops could also higher capacity vans, light rail or pedestrians and cyclists should be coordinated with investments a bus system. The private sector not be ignored. Furthermore, in markets and premises for could be further involved in future consultation with the poor in them107. transport upgrading could be regards to transportation is often financed through a Public-Private an area which is neglected in Partnership (PPP). policy formation. Improved transport infrastructure can decrease the cost of motorized transport in Kampala, which would reduce costs for business 107 E.g. Artisan parks, vendor markets, etc. 42 Rift Valley Railways (RVR) passenger train transporting people to Kireka from the Central Business District, Kampala. 43 Pioneer buses destined for Bweyogerere wait for passengers in Kampala 44 Boat transportation on Lake Victoria. Water transport has potential to decongest the city’s road networks and boost mobility and trade within the Greater Kampala Area Infrastructure Improvement on the Landing sites (Bule-butebo, Ggaba, Kigungu, Kasenyi, Entebbe Zoo, Nakiwogo, Busabala, Nakabugo and Kyanvubu) and developments on the inland ports such as Bukasa and Port bell would contribute to the city’s economy, particularly in tourism, recreation, transportation and fishing. Lake Victoria’s shoreline, its islands, and the associated resources are unique to Greater Kampala and play a key role in the city’s economy, particularly in tourism and recreation, transportation and fishing. 45 3.2 An expensive urban This is particularly damaging for environment for smaller businesses who struggle business We had a power with tight cash flows, limited surge once, which savings and expensive finance109. High production costs and the caused a fire that price of land all have a direct incinerated our impact on firm competitiveness. As machinery and regional integration accelerates in people can import East Africa, Kampala is increasingly damaged the goods from China placed in direct competition with factory. From then and Kenya, even other regional cities, particularly onwards, we made after being taxed, Nairobi and Dar es Salaam. As a decision to run they are cheaper. outlined in section one of this all the machines report, Uganda’s burgeoning The cost of industrial sector is located in on generators, production here is Greater Kampala. For Uganda which had greatly so high” to meet the industrialization increased our – small sized targets set out in Vision 2040 and production costs” – manufacturing firm NDPII, Kampala’s industrial sector medium sized will need to become more cost manufacturing firm competitive. Greater Kampala’s industry suffers from high input costs. Central to these costs is the reliability RECOMMENDATION: and price of electricity. While the electricity system has shown COORDINATION WITH POWER with system improvements signs of improvement, the cost UTILITY MANAGEMENT planned by Umeme. As an initial and reliability of electricity were It is recommended that step, KCCA and local governments identified as a key business local governments and KCCA will need to meet with Umeme constraint in enterprise survey are involved in advocacy planning teams to ensure that and firm level interviews. Due to and lobbying for improved the city’s industrial clusters are the frequency of power outages electricity in strategic areas provided with commercial grade and surges a number of firms where there are more firms electricity access to prevent interviewed108 had resorted clustered together. Uganda’s system degradation and reduced to running their machines on electricity network is managed by outages. generators to avoid damaging power utility firm Umeme, which machinery, which makes their won a 20-year lease on the power The price of land was seen as a production costs more expensive. network and is responsible for central constraint particularly for In response to the continued most distribution of electricity in medium and small firms. unreliable service, there has been Uganda. However, it is essential Figure 27 shows that Uganda’s an increase in the investment in that local urban planning is aligned land price index has more than generators. The cost of purchasing tripled in the past decade. industrial sized generators is substantial. One business owner stated the cost of their generator was UGX400 million. Iddawela 2016 108 Ibid 109 46 Figure 27: Uganda’s Land Price Index has tripled Many firms explained that the high cost of procuring land constrains their capital supply110. This reduces their ability to invest in machinery or raw materials, consequently stunting firm growth. One firm noted that: land prices have gone up very fast – it is overvalued because there’s a scramble for land with the influx of Source: Bank of Uganda (2016) migrants and corrupt officials who have a lot of cash and need to put Small firms in particular found land prices one of the biggest issues they it somewhere”. face. Consequently, most firms interviewed were renting property as they were unable to purchase it themselves111. One metal fabrication firm stated that: it is impossible for me to buy land, because of the price, it’s very expensive. I want to expand my business, but to do that I require more land”. For informal firms, only 18% rent free space in industrial parks identified as a factor contributing operated from an established or had the means to pay the costs to the sharp increases in land store or building for at least a required113. value115. Some have argued that year112. It was found that those Kampala’s land speculation has businesses without an established A number of factors have been been driven by a lack of alternative and stable operating location identified as contributing to investments, given that interest were less likely to formalize the increase in land prices in on bank deposits is low and the and had reduced profits and Kampala. Firstly, Kampala’s stock market underdeveloped. As productivity. On the other hand, population increase has increased a result, investors turn to land to large firms interviewed did not the demand and competition make easy profits by holding onto express concern regarding the for prime real estate114. Land it for a few years before selling it cost of land as most had access to speculation has also been on and without having to develop 110 Ibid 111 Ibid 112 Anderson et al 2016 113 Ibid 114 Makita et al 2010: 891 115 Giddings (2009); Lawsa (2010:135) 47 the land in any significant way. titles and ownership database, settlement118, while nearly half Land speculation is particularly opportunities for corruption have of the city’s population live in severe in conjunction with the been created117. Bribes to land a slum.119 These settlements announcement of government officials may thus inflate land typically suffer from poor services, physical construction. It’s been values. high population densities, and suggested that individuals will low quality and shanty housing hoard land when they hear that Informal settlements which horizontally takes up a large large-scale public projects (e.g. amount of land. The prominence roads) will be commissioned located in city center of informal settlements in as this would require the locations and suffering Kampala suggests that urban central/local government to from substandard planning and housing provision buy private land in order to has not been able to keep pace physically construct the project116. housing are using large with the influx of rural migrants Corruption also is said to have tracts of land. into the city. Despite poor living an impact on land transaction, standards, migrants will choose elevating land prices. Due to the Approximately 16% of land in to crowd into these settlements in current lack of systematic land central Kampala is an informal order to be close to jobs. RECOMMENDATION: PRIORITIZING AFFORDABLE support but was not able to get housing pilot and begin initial HOUSING SCHEMES THAT ALSO off the ground as the negotiations discussion with key landowners RELEASE LAND FOR MIXED USE with the landowners (in this case, to begin the design processes. DEVELOPMENT AND INCREASE the Church), were not concluded Furthermore, the private sector INFORMAL FIRMS’ ACCESS TO within the timeframe that the could be leveraged through a PREMISES donor funding was available. PPP to assist local governments KCCA should re-attempt to The idea would be to work in financing affordable housing. pilot a high density affordable collaboration with landowning housing scheme within one institutions such as the Church or Increasing informal firms’ access slum area, that also frees the Buganda Land Board as well as to serviced premises. As the up land for economically an affordable housing mortgage study suggests those firms with productive investments in the finance provider which would permanent establishments are city’s core. This would have the finance the upfront cost of housing more likely to see increased twin objectives of improving living construction and mortgage performance and formalize, KCCA conditions for people in slum provision to dwellers. KCCA would could further investigate areas dwellings as well as better access provide supporting infrastructure in the city where firms could to jobs through the release of land and facilitate the partnership be assisted to gain established for more economically productive between stakeholders. As an locations for their business – uses. This was attempted before initial step, KCCA should identify particularly through public private with Development Partner potential areas for the affordable partnerships. 116 Ibid 117 Deininger & Ali, (2008); Irumba, (2015); Obaikol, (2014) 118 UN Habitat 2010 119 Ibid 48 3.3 An Underlying issue - Consequently, the Central Figure 28: Multiple Land Complex land tenure Government must now purchase Tenures in Greater Kampala Greater Kampala has land from these landowners if it multiple and complex wishes to use land for development land tenures which purposes (such as building constrain both public infrastructure). Article 237(3) of investment and firm’s the 1995 Constitution re-instituted ability to grow. Uganda’s four land tenures, as outlined in the below table 9. The Clear land rights are a requirement majority of land in Kampala city for organized and efficient urban is Mailo and Leasehold (figure development. The majority of the 28). The large share of Mailo land land in Kampala operates under a and subsequent private land complex land tenure regime that compensation, has meant the recognizes independent rights construction of each urban road over land and structures — giving is expensive and land is released rise to legal disputes and blocking for development in an uneven investment. The 1995 Constitution manner. and 1998 Land Act, transferred all Source: Bernard, Bird, and Venables land from the central government 2016. to the Buganda Kingdom, local governments (e.g. District Land Boards) and private landowners (including tribes). Table 9: Uganda’s Land Tenure Systems Type of Ugandan land tenure Description Owner of land Percentage of Kampala city120 Freehold Owner has full rights and can sell or develop the land at The purchaser, typically an 3% - 7% to the land, will. individual. Leasehold Leaseholder has the rights to the land Local government authorities 26% - 30% for a long period, usually 49 years. e.g. KCCA. Mailo A dual ownership structure - the Typically the Buganda King- 52% - 75% tenants own the structures on each dom. plot, while the landowner owns the land itself. Customary Tenants on customary land who, by Owned by tribes/clans, but 0% - 7%121 virtue of being long term residents on difficult to establish because of public land, have acquired rights. no formal zoning Compiled by author from Jones et al. (2016), Nkurunziza (2006), Irumba (2015), Lwasa (2010), Porter (2001). 49 Uganda’s land tenure system is residential densities, with the also seen to be a large barrier former particularly leading Uganda’s land to large-scale investments. to high density low-income Mailo land tenure, in particular is neighborhoods. Freehold and tenure system is also beset by overlapping land rights Mailo land systems also negatively seen to be a large between those who are registered impact local service activities in barrier to large-scale owners and the lawful or bona fide particular, primarily because of occupants. The tenure system has the predominance of overlapping investments. become an even greater barrier and conflicting rights of registered since the implementation of the owners on one hand and the 2010 Land Amendment Act, which lawful and bona fide occupants on where this had still not worked out increased the powers of tenants the other. These results highlight for firms. In one instance, a firm over landlords122. Tenant- land the need for action to address discovered squatters on their land, lord’s conflicts continue due to overlapping and conflicting which they had to compensate (as the overlapping land rights and land rights (between registered is required under the Constitution speculation on land thus making owners and lawful and bona fide and National Land Policy), land acquisition not only costly occupants) often found on Mailo leading to a delay of the firm’s but risky for firms. and freehold tenure in Kampala. planned expansion. Another large company had a neighbor who According to recent research123, began to dispute land boundaries leasehold land has been found Interviews with medium and after the land purchased had been to be the most productive in large firms revealed that finalized. Similarly, two other Kampala. The research used businesses have taken a firms experienced overlapping a Spatial Computable General number of measures to avoid ownership claims on small Equilibrium (CGE) Model to analyze land tenure issues. Some of secondary pieces of land they had to what extent the variation in the large businesses interviewed purchased125. In one instance, the productivity in different areas of were located in industrial parks Buganda Kingdom had disputed the city can be explained by the and therefore did not have the registered title and claimed variation in land tenure systems. difficulty with land tenure. The the land rightfully belonged to Preliminary results indicate that rest of the large firms interviewed them, while in the other instance leasehold land was found to be had obtained land through a an individual had claimed the particularly productive, leading personal contact and increased land and built a restaurant on to higher economic activity in due diligence124. This was seen the disputed plot. In all these certain areas of the city across all as a method of circumventing cases, land tenure disputes cost sectors. In comparison, customary fraudulent owners, overlapping businesses in terms of legal fees land and Mailo land reduce title claims, and unfair land prices. and lost revenue resulting from economic activity while increasing However, there were instances an inability to develop and utilize 120 Estimates from Muinde (2013), Gibbons (2009) and KCCA development plan (2009) 121 Customary land doesn’t constitute much of the land tenure within Kampala but is more widespread in the rest of Uganda. 122 Bernard, Bird, Venables (2016) 123 Ibid 124 Iddawela (2016) 125 Ibid 50 the land until the claims became RECOMMENDATION: resolved. There is concern Land management falls under STRENGTHEN LAND that current efforts towards the mandate of a number of ADMINISTRATION establishing a land registry for different institutions in Kampala. Kampala is not expected to address Coordination between these Overall land policy reform, issues around over lapping tenure. stakeholders needs to be which would alleviate the above Firms interviewed believed land strengthened with the focus to issues, is within the remit of tenure issues could be resolved by improve dispute resolutions, the national government. In setting up a better, more effective improve land information addition, land administration centralized online land system databases and strengthen the needs to be strengthened and than the one currently in place126. local government’s ability to improved coordination among Current efforts are underway by acquire land for infrastructure the various land management the Central government, with improvement. institutions. the support of the World Bank, to encourage formal registration of land and to digitize land titles through the Land Information 3.4 Effective Institutional Acts, Ordinances, and Policies. System. However, according to Coordination will be key From 1995 when GoU started key informants, this system will to better urban planning the devolution process127, to not significantly reduce instances and infrastructure 2010 when GoU elevated the of multi-tenure. Another key provision across the status of KCCA to administer the informant, working closely with GKMA capital city area on behalf of the the Land Information System central government128, many explained that the process of Currently Greater Kampala of the laws/Acts/Polices that computerizing land titles was lacks strategic planning and concern the roles and mandates about achieving faster and infrastructure investment of sub national governments cheaper transactions rather than across the metropolitan area. are not fully aligned.129 For addressing problems of multi- Assigning responsibilities to example, the 2010 KCCA Act, tenure. address urban challenges provides for the development and is difficult due to unclear of the Greater Kampala and sometimes conflicting Metropolitan Development Plan mandates among various sub- under a metropolitan physical national government agencies development authority, to enable in Greater Kampala. Uganda’s uniform planning across greater current institutional framework is Kampala. However, the plan’s guided by the 1995 Constitution development has stalled and operationalized by various suffers from unclear institutional 126 Ibid 127 Local Government Act CAP, 243 128 KCCA Act (2010) 129 Subnational governments in Greater Kampala are governed by two different Acts: Local Government Act for the 3 surrounding LGs, and KCCA Act for KCCA. On one hand, the 1995 Constitution of the Republic of Uganda (as amended), and the Local Government Act (CAP 243), devolved service delivery mandates to the sub national governments, the local governments thus play a key role in the implementation of Government’s policies and programmes. The local governments are governed by the LG Act (CAP 243). On the other hand, the Central Government transformed Kampala City from a Local Government into a Government Entity directly under the Central Government. Kampala Capital City Authority (KCCA), a corporate legal entity was established in 2010 to serve as the governing body and administers the Capital City on behalf of the central government. 51 leadership. KCCA who draws its are also faced with overlapping institutions in the GKMA and authority through the Minister for and conflicting mandates and thus oversight and coordination Kampala and Metropolitan Affairs there is limited coordination functions are weak. This is has no jurisdiction in surrounding among them, sometimes leading compounded by the fact that the local government areas within to conflicting policies. Ministry of Kampala metropolitan the GKMA. Local Governments affairs is a young ministry and is are governed by their respective The lack of a comprehensive inadequately staffed. It is critical councils and answer to the Minister policy framework for the GKMA for a comprehensive planning of Local Government. Different is a critical issue. The current framework for the GKMA to assist jurisdictions within the Greater institutional framework for GKMA agencies coordinate and offer Kampala region have meant a lack urban development has resulted policy guidance. Given the special of clear leadership in developing in a multiplicity of agencies provisions for the GKMA in the the GKMA development plan. in urban development posing Vision 2040 and its declaration Besides, KCCA and the Local numerous coordination problems. as a special planning area, Governments, the other Ministries, The Ministry of Kampala and Government needs to streamline Departments and Agencies Metropolitan affairs, as well as the operations and build capacity (MDAs) by law are supposed to the Ministry of Lands, Housing of the Ministry of Kampala Capital provide guidelines, standards and and Urban Development do City and Metropolitan Affairs support the local authorities in not have direct jurisdiction over to be able to coordinate and implementation, however, they the numerous agencies and development across the GKMA. Box 1 Best practice example: Greater Manchester Combined Authority (GMCA) In 2011, Greater Manchester city created the first combined authority in the UK, the GMCA. The GMCA is made up of ten Greater Manchester councils who work closely with one another to provide local services and improve the city-region. The GMCA has been identified as a stable and accountable platform for local government and a best practice example of local government coordination. The GMCA was the outcome of a long time of consistency of aspiration which developed trust, credibility and capacity necessary for a highly collaborative and “bottom up” governance arrangement. While technical capacity was important in the process, buy in from a wide range of participants was essential. One way of developing trust among stakeholders was the inclusive process of narrative-building which each local authority could support. The City of Manchester was unique in opening the city strategy process to surrounding local authorities to contribute and promote a regional identity based on the economic reality of the city as opposed to the administrative borders. The collaborative strategy also sparked a number of cross-district planning and joint-initiatives (including the Manchester Airport and the Manchester Growth Company) which not only increased planning efficiencies but developed local government technical capacities. 52 RECOMMENDATION: GREATER KAMPALA WORKING KCCA and would be hosted the need for a long-term GROUP. by NPA. The group would be institutional arrangement made up of economic and with a clear mandate, legal It is recommended that future physical planners whose status and budget. It’s coordination of the GKMA responsibilities would be proposed that the above two development plan should be led to design interventions temporary structure should by a national level government for Greater Kampala. This eventually lead to a more agency with mandate to would include responsibility permanent one. operate across the Greater for coordination and Kampala. Given Kampala’s harmonization of A key incentive for increased significance to Uganda’s economy interventions, developing coordination will be the and structural transformation, strategies and drafting policy establishment of a common it’s recommended that the notes for an inter-ministerial financing mechanism which governmental coordination on working group. both KCCA as well as surrounding the GKMA development plan be local governments can draw on represented in cabinet, to ensure ii) Greater Kampala for capital expenditure across high level buy in and harness the Development Inter- the GKMA. Local Governments are required unified political support Ministerial Working Group considerably budget constrained for this agenda. as provided for in the NDPII and are unable to provide large and Vision 2040. for Policy capital expenditure. While KCCA is Coordination does not develop decisions and Problem in a relatively stronger budgetary spontaneously but develops over solving. This working group position, it however, does not have time. Government stakeholders would form a coalition of jurisdiction over the surrounding during consultative forums stakeholders from relevant local government areas. Once an proposed a phased approach national ministries, local agreed infrastructure plan for the to introduce coordination governments, KCCA the GKMA has been put together by mechanisms. It’s proposed that private sector and civil society stakeholders, a key deliverable for the coordination mechanism for organisations. The working the inter-ministerial committee the GKMA development plan be group, would provide policy will be an MOU between Ministries structured as follows: oversight as well as guide to delegate a sole Ministry in the development and charge of increased coordination i) Greater Kampala implementation of the GKMA among GKMA stakeholders. This Development Technical development plan. MoU should also establish a single Group for Planning, funding mechanism which can be Implementation and iii) Long term institutional used jointly by Local Governments Monitoring. The working arrangement for and KCCA for the provision of group will include personnel GKMA development. infrastructure investments across from local governments and Governmental stakeholders the GKMA. repeatedly emphasized 53 Workers in the underground Tunnel at the 600MW Karuma Hydropower Project that will provide additional energy to Uganda 54 04 Enabling business growth – Enterprise Support in Greater Kampala 55 Cities are not only limited to access to finance and taxation as could be strengthened to assist their built environment. The two key constraints facing firms local firms and industries. Key to role of a city authority and local in Greater Kampala. Firm level any successful enterprise support governments lies in creating a interviews reiterated this as well is understanding the particular conducive environment to support as finding labor skills, business barriers in depth and how they enterprise growth. In practice, this skills and tax administration affect firms of varying types and translates into understanding and common constraints for firms. sizes. This section outlines these acting to alleviate the constraints Underlying these constraints were constraints and how they affect which businesses face in the city. firm’s mistrust of KCCA and local firms and offers practical solutions Firms in Greater Kampala face a governments making cooperation which are within the remit of KCCA number of constraints which relate difficult. Institutional analysis and local governments as well as to their business environment found that currently KCCA and highlighting those that fall within and human capital. The 2013 local governments provide only the remit of national government. enterprise survey identified minor enterprise support, which 4.1 Cost of finance – too for long term, capital investment a line of credit, small and micro high and prohibitive to which would require decades businesses either responded growth to pay off. Moreover, a number that they had no need or that the of business owners noted that interest rates were unfavorable. Uganda’s high cost of finance regional competition was difficult For those micro and small is a significant barrier to firm as their international competitors businesses that do use loans, growth of all sizes. The cost of had access to cheaper credit. For the vast majority of their credit finance in Uganda is high – the small businesses, high interest was used to finance materials lending rate is currently 23.5%130. rates directly affected their ability or working capital. High interest For large and medium size to not only expand but to run rates in turn reduced firms’ ability businesses, high interest rates their daily operations. Only 13% of to purchase large quantities of have curtailed their ability to small businesses in Kampala have materials to grow their businesses. make long term investments and a loan or a line of credit132. For Moreover, business owners compete regionally. Given the high informal firms, access to finance showed hesitation to enter into interest rates, banks are inclined was linked to increased likelihood large contracts or fill large orders only to provide short term loans. of formalization and increased as they would be required to For firms in Kampala, roughly profitability. From those firms obtain larger loans in order to 50% of loan durations are under which did access formal credit, the meet the contract requirements. one year131. Interviews revealed largest proportion (6%) received For many of these businesses, that for medium and large sized a loan a microfinance institute. obtaining financing was seen as businesses, loans were required When asked why they did not have too dangerous (see box 2). 130 BoU 2016 131 WBES 2013 132 WBES 2013 56 Box 2 Stories from firms: A fear of finance One firm interviewed explained that the cost of finance has nearly made him go bankrupt. The owner had started a small carpentry business. After modernizing his operations, the owner won a lucrative contract with a large telecommunication firm. Subsequently the business grew dramatically, employing over one hundred staff. To manage this expansion the owner took out a number of business loans. However, following delays in contract payments, balancing loan repayments with purchasing materials became difficult. The bank increased the interest rates due to these delays and the business was forced to sell much of its machinery and lay off most of its staff to manage the repayments. Given this experience the owner vowed to never to take out a business loan again in fear of losing his business. A number of factors explain R E CO M M E N D AT I O N Uganda’s high interest rate, all of which are outside local – LOWER THE COST OF FINANCE will require serious work from governments’ remit. Uganda’s the Bank of Uganda and private lending rate appears to be The high cost of finance is a sector associations particular the delinked from both inflation and concern for businesses across Uganda Bankers Association. the Bank of Uganda set interest Uganda, but is felt severely rate. Research suggests that, apart in Kampala given its central While cost of credit is a from macroeconomic factors, role in Ugandan industry. constraining factor for firms, banks’ high overheads are a However, lowering the cost of the demand side of finance factor in Uganda’s inflated lending finance is clearly outside the in Kampala also plays an rates133. In particular, the cost of remit of local government and important role. Interviews with due diligence for banks which demands central government bank officials found that there target small and micro enterprises leadership to address. As briefly is a lack of “bankable” projects is high. Another reason for the mentioned in this report and which prevents lenders from high interest rates is related to the more compressively in World Bank further increasing private sector share of bank loans that are taken Ugandan financial sector reviews, credit. There is an opportunity for up by the Ugandan Government. there are a number of causes KCCA and Local Governments to for high lending rates outside of support firms to develop bankable macroeconomic pressure. The business plans. These services high cost of due diligence, the could be provided through banks’ lack of capital reserves to business associations which have lend to domestic clients, and the good connections with and trust level of Government borrowing of the private sector. 133 World Bank 2015 57 4.2 Labour skills – lack of There appear to be two reasons with available human capital. For coordination for skill shortages; a lack of Kampala to generate jobs for the supply and labor matching future, it will need to ensure that According to firm level issues. Uganda’s education its young population has training interviews, technical skills in systems appear to not be in skills in higher value sectors. the labor market appeared to training enough people136. The only be a constraint for medium Central Government determined and large sized firms. that only 5% of Uganda’s RECOMMENDATION: A number of firms had difficulties workforce have completed in finding and recruiting secondary education, while only CONNECT LOCAL FIRMS AND technically skilled employees. To 35% of the urban workforce WORKERS TO TRAINING address inadequate skills in the reported possessing a technical OPPORTUNITIES. labor market, businesses typically skill or trade137. Furthermore, of the allocated resources to training people who do possess a technical Local government can play a employees. Between 2006 and skill, most are trained informally coordinating role to connect 2013, the percentage of firms through families and friends (53% businesses and workers to offering formal training increased of the time) or through on-the-job training opportunities. Local by 10%134 . This, however, has led training (16% of the time)138. governments could create a to problems of high employee dashboard to increase public turnover as other businesses The National Government has information on the areas where tend to poach trained workers135: recognized the importance of Uganda has a surplus of skilled Despite this, many medium-sized technical training in helping workers, a deficit of skilled firms acknowledged that when businesses grow. The ambitious workers, and industries which they have managed to find and ‘Skilling Uganda’ program aims employ the most people. Having hire skilled workers, this was to shift Uganda’s skills training a publicly shared dashboard of crucial in enabling them to grow. industry from supply to demand Kampala’s employment trends driven by involving the private would enable future students to sector in policy implementation139. identify areas which have the most we became a However, since its inception, demand for skilled workers. It breeding place for Skilling Uganda has been slow to could also help training providers other businesses implement reforms and has been better tailor their courses to local heavily criticized140. Another issue business needs. Such initiatives because competitors highlighted in the interviews was would need to be implemented prefer to poach our the lack of awareness of what in close partnership with the local trained workers than technical training programs were private sector and academic and training up their own available to businesses. Structural vocational institutions. workforce” – Medium transformation goes hand-in-hand sized firm 134 WBES 2013 135 Iddawela 2016 136 GoU, 2006, 2011; KCCA, 2015 137 GoU, 2014b:12 138 Ibid 139 MoESTS 2011 140 Okurut 2016; Alip Oyoo 2014 58 Qualitative interviews also firm owners noted that access importance of financial tracking indicated that the lack of to training sessions conducted on their business growth. business skills was a constraint by business associations were to the growth of small the most persuasive reasons for Both national and local enterprises. Interviews with small joining, demonstrating a demand governments have recognized firm owners identified that they from owners to develop their skills the importance of business had difficulty with costings, book in these areas142. In particular, training in helping small and keeping, marketing and business informal firms, the study found micro-enterprises grow, but strategy. While the qualitative study that behaviors focused on current interventions have cannot establish a causal link, external factors such as marketing several shortcomings. While business owners who had taken research, experimentation of new the Skilling Uganda program has advantage of business training or approaches, and researching supported some business training had a good level of business skills competition were strongly institutes, it is largely focused on seemed to have more dynamic correlated with performance the provision of technical training. businesses. A number of key indicators143. Additionally, it was KCCA is also involved with the informants also highlighted the found that keeping records of provision of some business importance of business training assets, transactions and debts training for small and micro- for micro and small businesses. is associated with good firm enterprises. This training includes For example, a key informant performance. However very few short courses on financial literacy, from a financial institution noted firms were found to collect any marketing and product packaging. that professionally kept records financial information. This could However, these programs remain were crucial for businesses to be be due to a lack of sufficient time minimal and focused exclusively awarded finance141. A number of or a lack of appreciation of the on micro-enterprises. RECOMMENDATION: LOCAL GOVERNMENT TO received business training, had with firms than government PARTNER WITH ASSOCIATIONS been trained through business agencies. However, the TO PROVIDE BUSINESS associations. These training relationship between government TRAINING sessions were either paid for by and these associations is currently international donors or covered by weak. Business associations can Local Government could partner the associations themselves. While play an important role in bridging with business associations in not all firms interviewed saw value the gap between enterprises and order to provide high quality in joining business associations, government services, particularly business training to firms. many of the firms highlighted due to the current mistrust Business associations are key these business training sessions between enterprises and local stakeholders in the provision of as an important way to build governments. business training. The majority of their skills. Business associations the firms interviewed, which had enjoyed stronger engagement 141 Kathage 2016 142 Ibid 143 Ibid 59 4.3 Tax system – too importantly, the VAT is zero rated then they must absorb the cost complex on all goods or services exported as a business expense and thus from Uganda. Similarly, small are not entitled to a tax refund. The tax rate was a major businesses complained that the However, small businesses concern of all firm sizes in VAT was unfair. However, this may appeared confused as to what Kampala. However, interviews be driven by a misunderstanding refunds they were entitled to or revealed that firms had an unclear of the VAT requirements, which indeed if they were VAT registered understanding of tax regulations recently changed. A common or not. This was exacerbated by and exemptions. The primary concern for small business owners their lack of resources to be able tax which firms felt was too high was that the non-registration to afford accountancy services in was the Value-Added Tax (VAT). of suppliers made it difficult to order to access the information146. Large firms were concerned that “claim back” their tax but this is the VAT was much higher than in not technically correct. In 2015, neighboring countries and in turn the Ugandan VAT registration We assess ourselves reduced their ability to compete threshold was increased from a for tax but at times regionally. However, while UGX50 million annual turnover to this becomes a Uganda’s VAT rate (18%) is indeed UGX150 million145. Consequently, higher than both Kenya (16%) all small businesses in Kampala challenge if you’re and Ethiopia (15%), 18% is the should now not be VAT registered. not knowledgeable standard VAT rate for most other If a business is not registered but about the tax system East African countries144. More pays VAT on a supply product, so you end up assessing yourself incorrectly.” – small business RECOMMENDATION: TAX ADVICE AND ASSISTANCE made it clear that businesses governments can work with URA require assistance with taxation in producing tax advice and radio While not strictly within the advice. Moreover, the enterprise commercial materials as a way of remit of Greater Kampala’s survey results show that more further disseminating key taxation local governments, increased firms in Kampala see tax rates as a information. If demand for tax understanding of the national major barrier than anywhere else advice is large enough, a taxation taxation system will assist in the country. Local governments helpline could also be trialed for firms in avoiding unnecessary in the Greater Kampala region can firms in Kampala, firstly as a way tax burdens. The VAT is a central play a facilitation role, assisting of providing free advice but also government tax and is the firms by providing taxation to collect data on which taxation responsibility of the Ugandan training and linking queries with issues firms find most difficult. Revenue Authority (URA) to the proper services within the URA. administer. However, interviews As an initial step, KCCA and local 144 WB Doing Business Report 2016 145 URA 2015 146 Bouasba 2016 60 4.4 An underlying issue collectors aggressive methods147. KCCA’s recently developed -Tax administration Practices such as locking- online platform to collect local and a lack of business up businesses’ machinery or taxes, should be expanded to engagement premises due to payment delays include assessments and all were perceived as draconian and other procedures and avoid visits Currently, the primary unnecessarily leading to loss by officials to firm premises. interaction local businesses of livelihoods. Moreover, when Online tax collection systems have with local governments asked to describe the efficiency should also be replicated in the is through the tax collection and general approach adopted surrounding local governments. process. Local tax collection was by tax collectors, most business Originally designed for collecting considered heavy handed, souring owners clearly differentiated tax revenue from taxis, e-CITIE, the relationship between business between KCCA agents’ attitude is an online system which will and government. National level and approach, often described allow businesses to pay their taxes (such as VAT and income tax) it as aggressive, and between local taxes online without having involve self-assessment and then URA’s approach which was local officials visit. This online payment to URA through an online preferred for ensuring business process will remove the need for platform. Local taxes, on the other compliance in a more objective local tax collectors to carry out hand, involve 1) an assessment of and reasonable manner. Also, the random and on the spot audits tax category and payment band fact that the assessment for local and assessments and should through local government officials’ tax payment relies on observation reduce avenues for corruption and visits to firm premises, and then 2) of the business by a tax collector improve the relationship between tax payments made through local (compared to self-assessment for government and the private bank branches or KCCA’s online national taxes with URA), was also sector. platform. Businesses expressed felt to be introducing avenues for concerns about KCCA’s tax corruption148. RECOMMENDATION: IMPROVE PRIVATE SECTOR suggesting that local Government kinds of business services which ENGAGEMENT create a specific department or KCCA and local governments can desk, which is responsible for provide and are looking to provide While a weak relationship business engagement and public in the future. Working closely with between local government private dialogue. business associations will also and the business community is be key in further strengthening not a direct constraint on firm To implement initiatives which the dialogue between local growth, government is best will assist business development governments and the private able to facilitate an enabling in Greater Kampala, local sector. Eventually, a business environment for firm growth governments should start by advisor panel, made up of key and competitiveness if there working toward creating a more business leaders from varying is a positive relationship with positive relationship with the industries, and firm sizes (micro the local private sector. Despite local private sector through active to large), could be convened to the uneasy relationship between public private dialogue and a advise local governments on key the private sector and local business engagement desk or services and investments needed. government, business owners one stop shop. As an initial step, This forum could also provide were interested in a new and town hall meetings could be held opportunities to discuss public more positive kind of engagement as a way of disseminating the private partnerships. 147 Ibid 148 Ibid 61 4.5 Enterprise support Within KCCA, these activities fall private sector. In surrounding services – A role for under the ‘Gender, Social Services Local Governments, economic Local Governments and Production’ Directorate. development functions are Activities so far have been limited housed within the ‘production Local governments are to engagements largely focused and marketing’ directorate responsible for delivering on micro-enterprises. Staff have and typically do not receive a the information, skills and not yet undertaken any outreach significant level of budget. capacities to allow firms to support activities to the wider succeed. A common theme in enterprise support literature is that SMEs often have difficulty accessing information and Box 3 business services relevant to their What works in enterprise support? growth. This creates asymmetric information and thus public The UK’s what works center for local economic growth intervention should seek to did a review of 23 evaluations to better understand which overcome this market failure, since interventions were most effective in enhancing business strong information availability performance. They found the following interventions were is an important pre-requisite for effective: efficient markets. Regular and clear communication between Public Advisory/Mentoring – These involve experienced the private sector and government business mentors providing advice to SMEs or is crucial for enterprise support entrepreneurs. Evidence suggests a positive effect on services being sufficiently employment, firm survival and firm creation. However, tailored to business needs. effects on other measures, such as sales, productivity Providing improved support and and profits are mixed. Evidence also suggests that these business engagement is within methods are cost effective way to promote employment local government’s remit and and firm creation strategic plans, however currently enterprise support services are Subsidized Consultancy – Involves subsidizing limited to microenterprises. consultancy programmes for firms. Evidence is mixed for KCCA’s five-year strategic plan this type of intervention. Costs can also vary significantly identifies ‘Economic Growth’ as central theme. Under this theme, Training – Involves publicly funded courses for firms. For the strategy seeks to promote an entrepreneurs, training was found to lead to increased enabling environment that can likelihood of new businesses. For existing firms, evidence support business establishment suggests a positive effect on profits and employment. and growth. However, currently Again, costs vary, however evidence suggests training costs there is only a modest budget were in line with other interventions apart from tailored allocated for business service support. activities. Tailored Support – Involves the provision of business advice tailored to the requirements of the specific firm and entrepreneur. Tailored support was found to increase employment and productivity. However, this type of intervention was found to be the most expensive intervention reviewed. 62 RECOMMENDATION: – BUSINESS ENGAGEMENT • Assist firms to develop • Trial mentorship programs CENTRE bankable business plans focused on increasing firms’ – provide firms developing understanding of their KCCA and LGs have an business plans with necessary markets and customers. opportunity to develop business skills in project management The evidence shows that the engagement centres within their and risk assessments. effectiveness of mentorship administrations which would • Link citizens with training programs in Uganda could be provide enterprise support providers and disseminate enhanced if programs focused services to firms in Greater information on the skill on helping business owners Kampala. Once set up, business needs of local businesses - focus not only on their internal engagement centres could engage create a dashboard to publicly business management (record in a range of activities to address demonstrate the areas where keeping etc), but also on firm constraints: Uganda has a surplus of skilled their external environment: • Tax education - work with URA workers, a deficit of skilled customers, competitors and in producing tax advice print workers, and industries which suppliers. and radio communication employ the most people. Link • Investment attraction. The materials as a way of further citizens to training providers business centre could play disseminating key taxation and disseminate information a leading role by promoting information. If demand for on skill needs of local Kampala as an attractive tax advice is large enough, a businesses. investment location though taxation helpline could also be • Improve business business engagement and trialed for firms in Kampala. engagement - Disseminate marketing. Additionally, • Grievance mechanism – the kinds of business services the centre could identify provide a mechanism in which KCCA and local potential areas where private which firms can raise concerns governments can provide and financing could be involved. over government behavior, are looking to provide in the For instance an PPP to renew with particular regards to future. tourist amenities around Lake tax collection, and report Victoria. instances of corruption. Box 4 Sao Paulo’s Centre for Innovation, Entrepreneurship and Technology (CIETEC) Cietec is an enterprise incubator, established in 1998 through a partnership between the Sao Paulo State government and the Sao Paulo University and SME support organizations. Cietec provides a range of services to support firms aimed at addressing specific market failures including a lack of: information; finance, physical infrastructure, management skills, and networks. Cietec has achieved significant results. When it first began in 1998, there were only 7 incubated companies. By the close of 2015, the center had 109 associated companies. Additionally, Cietec’s support lead to the creation of 850 skilled jobs in 2015. The Sao Paulo enterprise failure rate is 75% within the first three years, while Cietec’s firms have a 30% failure rate over the same period of time. 63 Summary of major recommendations Given the significance of Greater Kampala to national development, it is a national priority to alleviate these constraints facing firms in order to increase the city’s productivity and encourage positive structural transformation more generally in Uganda. This calls for a deliberate policy transition for the role of Local Government, from merely being a regulator of businesses to an enabler or facilitator for private sector growth and jobs creation. Based on the above findings, it’s recommended that KCCA and Greater Kampala local governments focus on the below three principles: INVEST in coordinated EMPOWER domestic firms to CAPACITATE institutions & transport & economic improve productivity. Findings coordination structures. The infrastructure together with demonstrated that firms in Greater Greater Kampala economic region land use management. Greater Kampala face numerous obstacles encompasses several jurisdictions Kampala’s disconnected and to grow their businesses. KCCA and local governments. It will be costly urban form is hampering and local governments can play imperative for these institutions the competitiveness of its firms. To an important role through the to work collabouratively in order address this, investments should provision of enterprise services to manage the future growth be made in affordable housing and support. Local governments of the city. This report calls on in the city which would also are also in a unique position to Government to put in place the free up land for mixed uses. City provide the business community Greater Kampala Working Group authorities also need to encourage with information on affordable as provided for in NDPII and further industrial clusters by finance and taxation guidance. Vision 2040. This working group priority zoning and subsidies. These business services may be would coordinate urban and However, for these measures to be implemented through dedicated economic development plans as effective it is important to address units within KCCA and local well as marshal political support Greater Kampala’s suffocating government administrations. and traction for continual urban congestion by further managing While the vast majority of informal development. Alongside this, it its transportation system. A longer- firms do not have great potential is recommended that a technical term priority for the city will be to grow, they provide many of committee be established to the need to provide an affordable Kampala’s poorest a livelihood. facilitate technical support for public transport system for its Importantly, reducing the size of the working group and Greater citizens. Finally, one of the most the informal sector will rely on the Kampala stakeholders. There is binding constraint face capital creation of more formal jobs in also a need for a single financing expenditure in the city Kampala’s tradable sectors of the economy mechanism that KCCA and local complex land tenure system. and supporting informal workers governments can draw on to Further collaboration between to find opportunities for formal finance infrastructure investment local governments and land wage employment if they want to. for Greater Kampala. 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Kasenyi landing site in Wakiso is a commercial hub and gateway to the Lake Victoria Islands 67 Annexes Annex 1: Examples of Practical LED Actions that LGs internationally undertake While it is impossible to list here all the policy reform and investment possibilities that could be undertaken, various toolkits have documented the wide variety of interventions that can and have been implemented by cities to improve their economic competitiveness 149. Illustrative examples of actions that may be relevant to the African city context include: 1) Institutions and regulations • Improving the regulatory environment for businesses and investors through: reducing the time it takes to process business registration applications; reducing business costs for MSEs through lowering municipal taxes and local charges; reducing the complexity of legislation imposed on businesses and investors; introducing e-governance, One Stop Shops and other means for providing information and simplifying procedures • Encouraging cluster development through tax incentives and zoning regulations that encourage firms to cluster in one area • Marketing and promotion of the locality as a good place to start a business, location for investment or tourism, etc. through actions such as city or local area brochures and economic profiles, producing information packages for potential investors, direct mailing to potential investors in relevant economic sectors, promotion via media outlets, organising local festivals, exhibitions and community events to promote the area and its products as well as participating in international fairs and exhibitions • Provision of land, utilities, investment facilitation and “after care” services targeted at new or higher value added sectors 2) Infrastructure • Improving transport infrastructures such as roads and multi-modal public transport (road, rail, sea port and airports) • Improving infrastructure necessary for economic production including gas, electricity, telecommunications and water supply • Town centre enhancement or beautification schemes using local labour • Ensuring there is enough land for business needs – e.g. supporting the clearing and preparation of sites for economic activity, putting together a land and property database, etc. • Establishing industrial, business parks or incubators in partnership with the private sector • Investing in infrastructure that supports certain economic sectors – e.g. renovation of sites that could attract tourists, or creation of a market area for informal firms, etc. 3) Skills and innovation • Establishing local skill development partnerships between local industries, businesses, and training providers, to improve information on the type of skills needed and the design of skill development courses 149 See: World Bank (2015). Competitive Cities for Jobs and Growth: What, Who and How? Washington D.C. June 2015; Wadie Hobson, E. (2011) LED Investment Actions: A Guidance Note for Local Government, Available at http://ledna.org/system/files/LED%20 Actions%20Guidance%20Note.pdf; UNHABITAT Manual ‘Promoting Local Economic Development through Strategic Planning’, Volume 4 Action Guide, available at http://www.unhabitat.org/pmss/listItemDetails.aspx?publicationID=2319; 68 • Setting up internship, apprenticeship and training in the work place schemes through partnering with local businesses • Implementing Diaspora attraction initiatives • Encouraging partnerships between research institutions and businesses towards better R&D for business needs 4) Enterprise support and finance. • Increasing access to finance, through providing information to local firms on credit availability, or providing incentives to finance providers to better serve certain types of firms, including credit guarantee schemes, etc. • Increasing access to Business Development Services (BDS) and knowledge on financial management, business plan development, export product standards, etc. in partnership with private BDS providers • Establishment of incubators for start-ups in new sectors, in partnership with the private sector, supporting enterprises with office space at below market rents, MSE financing, BDS, support in navigating registration and licensing etc. to help companies through the first years of their operation • Awards to innovative and diversifying companies through annual prize ceremonies for successful companies and individuals, in cooperation with local Chambers of Commerce Kiteezi landfill It is the only landfill site at which Kampala’s solid waste is disposed 69 Annex 2: Sub-sectors that are more concentrated in Kampala and employ the largest share of labour Share of Location Shift Description labor quotient share Restaurants and mobile food service activities 7.51% 1.02 Hairdressing and other beauty treatment 4.82% 1.09 12 Retail sale via stalls and markets of food, beverages and tobacco products 3.98% 1.13 -995 Short term accommodation activities 2.63% 1.02 Other retail sale of new goods in specialized stores 2.50% 1.36 Private security activities 2.38% 1.64 1056 Construction of buildings 2.03% 1.98 Sale of motor vehicle parts and accessories 1.92% 1.59 188 Retail sale of hardware, paints and glass in specialized stores 1.77% 1.24 Manufacture of structural metal products 1.62% 1.11 -43 Maintenance and repair of motor vehicles 1.61% 1.36 -336 Retail sale of electrical household appliances, furniture, lighting equipment 1.43% 1.37 -4 and other household articles in specialized stores Retail sale via stalls and markets of second hand clothes, textiles, shoes 1.40% 1.35 Other monetary intermediation 1.21% 1.22 -43 Other social work activities without accommodation 1.13% 1.26 -69 Manufacture of bakery products 1.08% 1.33 Retail sale of second-hand goods 0.92% 1.13 Wholesale of other household goods 0.89% 1.85 Retail sale of automotive fuel in specialized stores 0.86% 1.02 Retail sale of computers, peripheral units, software and telecommunications 0.85% 1.18 0 equipment in specialized stores Pre-primary and primary education 0.83% 1.16 0 Super Market 0.76% 1.54 -181 Other manufacturing n.e.c. 0.71% 2.07 -269 Washing and (dry-) cleaning of textile and fur products 0.69% 1.53 Retail sale of beverages in specialized stores 0.67% 1.19 -4 Renting of video tapes and disks 0.63% 1.34 Real estate activities on a fee or contract basis 0.62% 2.03 -221 Wholesale of textiles, clothing and footwear 0.60% 1.75 -355 Car Washing Bays 0.56% 1.61 Real estate activities with own or leased property 0.54% 2.05 Photocopying, document preparation and other specialized office support 0.51% 1.04 activities Printing 0.45% 1.84 119 70 Growing of Flowers 0.41% 2.03 10 Manufacture of soap and detergents, cleaning and polishing preparations, 0.40% 1.79 perfumes and toilet preparations Retail sale of Milk 0.40% 1.24 Service activities incidental to land transportation 0.39% 1.69 Architectural and engineering activities and related technical consultancy 0.39% 1.40 -1243 Wireless telecommunications activities 0.38% 1.69 Legal activities 0.37% 1.60 Construction of roads and railways 0.36% 1.78 Repair of footwear and leather goods 0.35% 1.45 -303 Manufacture of plastics products 0.35% 1.87 -3 Quarrying of stone, sand and clay 0.32% 1.60 Wholesale of construction materials, hardware, plumbing and heating 0.30% 1.60 657 equipment and supplies Photographic activities 0.30% 1.08 -15 Processing and preserving of fish, crustaceans and molluscs 0.30% 1.42 -1311 Wholesale of waste and scrap and other products n.e.c. 0.29% 1.46 116 Other amusement and recreation activities n.e.c. 0.29% 1.10 Repair of consumer electronics 0.28% 1.01 28 Other transportation support activities 0.28% 1.44 Other passenger land transport 0.25% 1.32 66 Cargo handling 0.24% 1.99 Urban and suburban passenger land transport 0.23% 1.54 Manufacture of soft drinks; production of mineral waters and other bottled 0.22% 1.99 waters Manufacture of basic iron and steel 0.22% 1.01 Manufacture of pharmaceuticals, medicinal chemical and botanical products 0.22% 2.02 8 Retail sale of textiles in specialized stores 0.22% 1.02 Other telecommunications activities 0.22% 1.55 -427 Service activities related to printing 0.21% 1.85 Manufacture of footwear 0.21% 1.43 Activities of other membership organizations n.e.c. 0.21% 1.13 Accounting, bookkeeping and auditing activities; tax consultancy 0.20% 1.71 71 Annex 3: Kampala Production and Employment 2013 Share of national Kampala GDP Kampala Ratio to average GDP (%) share (%) employment GDP per worker share (%) All sectors 31.2 100.0 100.0 1.00 Agriculture 2.0 1.8 5.7 0.31 Industry 30.6 21.4 18.0 1.19 Mining 20.5 0.6 1.3 0.46 Manufacturing 30.4 10.2 9.8 1.04 Food processing 20.0 1.7 2.4 0.72 Beverages & tobacco 30.0 1.4 1.8 0.76 Textiles & leather 24.0 0.9 1.1 0.77 Wood & paper 27.1 0.5 0.4 1.29 Chemicals 47.4 2.8 2.2 1.25 Non-metallic minerals 26.6 0.8 0.6 1.33 Metals & products 34.0 1.1 0.4 3.07 Machinery & vehicles 42.0 0.5 0.1 3.53 Other manufacturing 33.0 0.5 0.7 0.66 Electricity & water 44.1 3.9 1.9 2.02 Construction 27.1 6.6 4.9 1.35 Services 46.9 76.8 76.3 1.01 Wholesale & retail trade 42.3 19.3 34.5 0.56 Transport & storage 53.9 4.9 10.5 0.47 Hotels & catering 45.4 4.8 6.5 0.75 Communication 65.8 8.9 2.1 4.28 Finance 40.0 2.9 1.6 1.86 Real estate activities 43.0 6.6 0.4 15.18 Businesses 58.1 9.1 5.0 1.84 Public administration 62.4 6.2 2.2 2.78 Education 37.1 7.1 5.0 1.43 Health & social work 37.3 4.1 2.7 1.53 Other services 44.3 2.9 6.0 0.49 Source: 2013 Social Accounting Matrix (SAM) (Randriamamonjy and Thurlow 2016) Note: Labor productivity ratio is the sectoral average GDP per worker divided by the average Kampala- wide GDP per worker. 72 Annex 4: Employment Results for Detailed Investment Sectors New jobs created per million $ investment in targeted sector Direct versus By sector of By education level indirect employment Total jobs created in Servi Primary Secondary Tertiary Kampala Within Outside No Agric Indu ces schoo schoo educ sector sector schooling ulture stry ling ling ation Meat, fish & dairy 1,259 236 1,023 196 667 323 73 184 314 762 Fruits & vegetables 811 229 582 122 436 202 51 55 280 476 Fats & oils 712 226 486 110 390 170 42 50 254 408 Grain milling 654 191 463 99 353 161 41 45 243 366 Sugar refining 70 41 29 9 38 17 6 1 47 22 Other foods 810 210 600 114 418 216 62 44 292 474 Beverages 1,325 557 768 257 688 299 81 60 626 638 Tobacco 465 132 333 78 225 125 37 13 175 277 Textiles 531 264 267 49 279 184 18 32 252 247 Clothing 691 268 423 65 349 238 40 25 331 335 Footwear 1,557 887 670 118 812 570 58 45 920 592 Wood & paper 510 249 261 65 263 143 39 18 289 202 Petroleum 125 11 114 17 65 34 8 13 28 84 Chemicals 542 282 260 91 280 120 51 12 320 210 Non-metal minerals 424 240 185 79 196 129 20 6 296 122 Metal products 405 95 310 64 187 124 29 15 138 251 Machinery & vehicles 198 88 110 34 85 65 14 6 112 81 Other manufacturing 846 505 341 93 374 312 67 29 550 267 Electricity, gas & steam 502 183 319 53 213 151 84 21 242 239 Water supply & sewage 481 191 290 50 203 145 83 19 238 223 Construction 362 248 114 28 174 134 27 2 269 90 Wholesale & retail trade 770 561 209 130 414 195 31 16 60 694 Transportation & storage 1,376 960 416 114 785 409 68 35 70 1,271 Hotels & catering 837 555 282 151 464 198 25 61 24 752 Communication 650 65 584 85 313 196 56 33 92 524 Finance and insurance 1,142 411 731 232 447 296 167 63 117 962 Real estate activities 233 20 212 33 105 70 25 9 39 184 Business services 437 220 217 59 159 142 77 17 43 377 Other services 1,047 737 310 143 435 431 38 24 52 971 73 74 Annex 5: Regression summaries of informal sector growth and business practice constraints 75 For more information please visit www.worldbank.org/uganda Join discussion on: http://www.facebook.com/worldbankafrica http://www.twitter.com/ worldbankafrica http://www.youtube.com/ worldbank