Uganda in East Africa is a very liberal economy. All its major priority sectors like Commercial Agriculture and Agro-Processing, Oil and Gas, Information Communication Technology, Tourism, Pharmaceuticals, among others, have been open to investment and trade, making Uganda a trade and investment hub. The tax regime typically has no discrimination when it comes to domestic and foreign investment.
Uganda experienced the pandemic setbacks very early on, especially in its trade and tourism, even before the coronavirus found its way to the country. It had to respond to the virus situation by containing it through lockdowns, closing its borders and other restrictions. Doing so has hugely impacted its economy.
The workforce attendance dropped, workers were also laid-off, companies tried to adapt to the situation but failed to keep themselves afloat. The costs of operation significantly increased, and micro and small businesses experienced a significant setback.
Why Corporate Financing is the Need of the Hour
Corporate financing is the financial means that a company resorts to grow and maximize its shareholder value and implement financial plans and strategies. A company performs several financial activities. It has to make informed capital investment decisions and ensure that proper, timely cash distribution is taking place.
Corporate financing can do wonders for a business. It can save the workers’ jobs and help ensure that the interests of the suppliers are protected. It can also help create a ripple in the urgent need to revive Uganda’s economy.
Banks have to be more relaxed and flexible in these times. Banks can’t maintain such a liberal attitude in isolation. That is why Government support by way of recapitalization of commercial banks is so important. Banks may then be able to provide emergency loans to MSMEs with repayment terms that are well suited to the times.
The loan repayment arrangement in the present circumstance must aim to extend the period of repayment as much as realistically possible. Good repayment terms will allow the company sufficient room to overcome difficulties, raise enough funds and get itself back on its feet in a reasonable time to pay back the owed debts. Debt restructuring is an absolute necessity for companies in the Ugandan economic climate.
Small and Medium-Sized Enterprises (SMEs) should look out for angel investors as a source of corporate financing. It is not as complex or as time-consuming as Venture Capital Investments, which require many meetings and formalities. Angel investors typically don’t participate in the management.
The industries in Uganda can also greatly benefit from corporate financing sources such as government grants and donations. They must also consider making organizational changes, such as the corporate governance structure and managerial reforms, to help cut down on expenditure.
If it thinks it is expedient, a company can also make internal changes such as alterations in its share capital. In section 71 of the Companies Act, 2012, the Ugandan legal regime allows for issuing new shares of an amount that the company thinks convenient and practical. It is also the ripe time to call on members, who have unfulfilled obligations, to pay up for shares.
It is also wise for a Company to make the necessary changes in its incorporation documents, i.e., the company’s memorandum of association and articles of association, to increase the company’s borrowing power. Debt financing will require companies to provide security to the bank, creating a charge on the companies’ assets to receive securities and bonds.
Ugandan companies may also consider mergers and amalgamations, which can help with growth, diversification, eliminating competition, and increasing economies of scale. The Ugandan Government can also force two or more sick units to merge into a healthy unit, which can significantly help address sustenance and unemployment problems.
The Ugandan Government needs to keep in mind that most Ugandan workers are in the informal sector. It is imperative to support micro-entrepreneurs in this sector as their contribution to GDP is undoubtedly significant.
Microfinance Institutions (MFIs) in Uganda are renowned for helping Ugandan microentrepreneurs over the years. They help to increase the business standards through investments, technical assistance and acquiring the necessary skills. MFIs are instrumental in developing healthy economic portfolios.
To Sum Up
It is the need of the hour for Ugandan Governments to introduce a relief and economic stimulus package. Without the appropriate relief measures from the Ugandan government and Uganda’s well-to-do financial institutions, Uganda may struggle to stand back up on its feet. It is well known to be a vulnerable economy.
Therefore, the relief package must help companies obtain tax waivers, reducing the overall costs and fees involved. The Ugandan Government can also bring changes in its tax regime by reducing its tax rates, imposing less taxes on Ugandans’ income and offering them plenty of tax refunds. For Uganda to move positively, all the systems and participants need to work in synergy.