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CHAPTER ONE

INTRODUCTION

1.0   Background of the Study

Small scale enterprises are a major component of the Ugandan business sector that sustained the economy through the hard times when all the different sectors of the economy were in disequilibrium. In 1986, Uganda undertook economic reforms through the IMF/World Bank funded Structural Adjustment Programs (SAPs). Like in many developing countries these reforms were meant to change the Economy from an inefficient, import dependent economy to one that is more diversified, efficient and export oriented (Ajibefun and Daramola, 2003).The small scale businesses had a role to play in support of the production and import sectors to achieve the goals of the SAPs at the time.

In Uganda, Small Scale Businesses have been a critical source of support to the struggling economy that formerly depended on the agricultural sector and remittances. The Small Scale Businesses (SSBs) led to an increase in the employment levels to 70% of the non farm labor force, thereby contributing to 80% of the manufactured output and 20% of total Gross Domestic Product (World Bank 2009). This reduced poverty amongst the people in the rural and urban areas of the country which encouraged government to undertake more action in support for such investments since they needed less capital per job created, offering a rather inexpensive way of accommodating the labor force for equitable wealth distribution.

The Government of Uganda (GoU) introduced several economic measures to restructure the economy as a way to increase the role of both the public and private businesses. The deregulation of the economy was aimed at altering the incentive structures faced by the small scale sector. Such policies include the payment and trade liberalization, interest rate liberalization, and appropriate pricing of public goods and the reduction of government involvement to enhance production and performance. Most of these policies directly and indirectly affect producers and employees in an economy.

The GoU is currently centered on minimizing its intervention in economic activities so that it encourages private sector participation for increased production and incomes thereby leading to economic self sufficiency and reliance. The efficient role played by the small scale businesses in the utilization of resources as labor has led to poverty reduction for broad based economic growth. 

The large informal sector which is mostly comprised of the small scale businesses offer great potential for employment generation therefore a good target for policy to eradicate poverty. By creating employment opportunities for the unskilled labor, they could increase incomes as a way to reduce poverty. However this potential can only be achieved if the small scale businesses highly absorb the labor force to boost production.

According to the Background to Budget 2008/09, Uganda’s economy was composed of the Small Scale Business sector that were categorized into wholesale and retail trade estimated to be 46%, manufacturing at 31% as restaurants and Hotels constitute 7% during Financial Year (FY2007/08).Small Scale Businesses have played a great role in the provision of employment opportunities to the labor force since they are many in numbers, owned and operated with low volumes of working capital. 

In many developing countries, the growth of Small Scale Businesses (SSBs) is a wide spread concern due to their contribution to Economic growth and Development because they compose the larger informal sector that is significant in the provision of employment in an Economy. It should be noted that Small Scale Businesses are highly diverse in terms of division of labor through which they create opportunities for productive work that leads to an increase in the labor participation rate thereby contributing to poverty reduction, economic growth and development.

According to the Uganda Bureau of Statistics (UBOS 2007), between 2002 and 2006, the proportion of workers in self employment increased from 13% to 22% for the non agriculture activities in which the employment population ratio for men increased overwhelmingly to 82% compared to 79% for women thereby enabling more people to find jobs in SSBs not only out of the need to increase and diversify incomes but in the face of reducing Poverty through employment provision. It was reported in 2006/2007 by Uganda Bureau of Statistics (UBOS) that the total number of businesses registered in Kampala was nearly 26,000 of which those employing 5 or more persons were 17,084 hence showing a growth of over 60% of Small Scale Businesses.

The Government of Uganda (GoU) with the support of International development partners as the World Bank through the Foreign Direct Investments (FDI) to promote the informal sector as a way to reduce unemployment (a key variable for measuring the performance of an Economy). This has led to the influx of unemployed work force to Kampala which is the major trade center in the country; households increased their willingness to participate in the labor market by setting up Small Scale Businesses to meet the social and economic responsibilities associated to their families leading to competition. It is against this justification that Small Scale Businesses in Shauriyako Trade Center have been set up to provide substantial and sustainable employment opportunities trigger development and economic growth.

1.1 Statement of the Problem 

Small Scale Businesses are competitive and dynamistic nature. This makes them a fundamental cause for Economic growth and Development through their contribution to income redistribution, and Unemployment reduction in developing economies. However, there are no clear indicators that unemployment rates have reduced. Unemployment consistently remains a key concern that needs the attention of major economic decisions to focus on the promotion of small scale businesses activities.

1.2 Objectives of the study

The study attempted to examine the nature of SSBs that provide employment to the labor force in Shauriyako trading centre in Kampala District.

1.2.1 Specific objectives
i. To identify the different activities of the small scale businesses in which the labor force is employed.
ii. To identify how the SSBs contribute to development and growth of developing economic.
iii. To identify the size of businesses that provides employment to the labor force.
1.2.2 Research questions.
The study investigated the following questions;
i. What reasons have led to the growth of Small Scale entrepreneurial businesses in the region of study?
ii. What challenges have limited the activities of the Small Scale Businesses in their role to provide employment opportunities?
iii. Is there space for the expansion of the SSBs?
1.3 Purpose of the study 
The purpose of the study is to identify the various activities in which the Small Scale Businesses absorb the labor force.
1.4 Scope of the study 
The study was confined to Small Scale Businesses since they engage the labor force in various activities that require little capital to sustain the possibility of retail, wholesale shops, hardware and general merchandise, restaurants to mention but a few as a way to reduce unemployment levels
The study focused on the reasons for the growth of SSBs towards the provision of employment to the labor force. Through this the role of SSBs with the support of government and other International partners is recognized thereby encouraging small scale trade for employment and improved household earnings.
1.5 Significance of the Study 
The study shall help the policy makers to recognize the importance of Small Scale Businesses and industries in the provision of employment to the labor force for economic development. This shall further guide them to make trade policies to enhance the performance SSBs as regards their activities to accommodate the mushrooming population that is attributed to high birth and fertility rates as well as rural urban migration within the country. 
To students and other scholars who intend to widen their knowledge in the study of the role of Small Scale Businesses, this study shall be a basis of reference since it focuses on the causes of the establishments, how the unique characteristics of the Businesses have facilitated their role in the provision of employment, challenges they face and the solutions that are being undertaken to harness their activities. 

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