THE EFFECT OF SMALL-SCALE ENTERPRISES ON THE GROWTH OF TOWNS IN UGANDA:
A CASE STUDY OF BANDA PARISH, NAKAWA DIVISION, KAMPALA DISTRICT
CHAPTER ONE
1.0 Introduction
This chapter presents the background of the study, the problem statement, purpose, research objectives, research questions, scope, significance, justification, and operational definitions.
1.1 Background to the Study
Globally, the concept of small enterprise performance dates back to the 17th and 18th centuries, when individuals endured significant hardships to establish livelihoods and independent economic activities (Hill, 2001). As populations expanded and urban centers gained economic importance, the desire for self-employment grew to include small traders, artisans, and independent professionals, marking the evolution of small-scale enterprises (Donald, 2011).
In Uganda, small-scale enterprises historically emerged from peasant agricultural activities that characterized the pre-colonial economy (Kikonyogo, 2000). Although Uganda engaged in trade such as ivory and animal hides with the East African coast prior to European contact, most of the population relied on subsistence farming. Following the declaration of Uganda as a British protectorate in 1893, colonial economic policies integrated the country into the global economy, primarily to support Britain’s textile industry.
The performance of small enterprises in Uganda has been influenced by several factors, including managerial competence, access to finance, government support, and the overall business environment. Byaruhanga (2008) notes that although Uganda once possessed abundant natural and human resources conducive to economic development, the country experienced political and economic instability in the late 1980s, which undermined its growth and reputation as the “Pearl of Africa.”
To restore economic stability, the government introduced the Economic Recovery Programme (ERP) in 1987, followed by various development initiatives (Kasekende, 2003). These reforms focused on revitalizing production sectors, improving infrastructure, liberalizing trade, and promoting private sector growth through privatization of state-owned enterprises. Such policies were intended to enhance the performance of small-scale enterprises, which play a vital role in economic development.
Microfinance institutions have also contributed to the growth of small businesses by providing financial services to micro-entrepreneurs (Hall, 2002). However, small enterprises continue to face challenges, including limited access to formal banking services due to high transaction costs. The Financial Institutions Act (2004) provides mechanisms such as relationship-based and group-based lending models to support small businesses, although many entrepreneurs lack sufficient collateral to access these services (Donald, 2011).
Government support remains crucial in promoting the success of small enterprises. This includes providing training, financial assistance, business advisory services, infrastructure such as market stalls, and monitoring systems to ensure sustainability (Mukras, 2003).
The growth of towns—reflected in improved infrastructure, increased revenue, and enhanced living standards—is closely linked to the performance of small-scale enterprises. This study therefore focuses on examining how these enterprises contribute to urban growth, particularly in Banda Parish.
1.3 Statement of the Problem
There has been a notable increase in the number and size of small-scale enterprises in Uganda (Kasekende, 2003). In Banda Parish, local authorities have implemented initiatives such as the Competitiveness and Investment Climate Strategy (CICS), which has improved infrastructure including roads and water supply. Additionally, access to finance has been enhanced through microfinance institutions, Savings and Credit Cooperative Organizations (SACCOs), and Rotating Savings and Credit Associations (ROSCAs).
Despite these improvements and the significant role of small enterprises in employment creation and income generation, their performance remains relatively low compared to other countries. According to UBOS (2010), approximately 60% of small businesses in Banda fail before reaching five years of operation. This raises concerns about the factors hindering their performance and growth.
This gap necessitates an empirical investigation to identify the determinants affecting the performance of small-scale enterprises in Banda Parish, with the aim of informing strategies for improved management and sustainability.
1.4 Purpose of the Study
The purpose of this study is to examine the factors affecting the performance of small-scale enterprises in Uganda.
1.5 Objectives of the Study
a) To assess the contribution of small-scale enterprises to the development of Banda Parish.
b) To examine the challenges faced by small-scale enterprises in developing urban areas such as Banda.
c) To analyze the relationship between small-scale enterprises and the growth of towns in Uganda.
1.6 Research Questions
a) What are the contributions of small-scale enterprises to the development of Banda Parish?
b) What challenges do small-scale enterprises face in developing towns such as Banda?
c) What is the relationship between small-scale enterprises and urban growth in Uganda?
1.7 Significance of the Study
The findings of this study will be valuable to various stakeholders. Local and central government authorities will benefit from insights into the factors affecting the performance of small enterprises, enabling them to design appropriate policies and interventions.
Policymakers, planners, and economists at both national and district levels will use the findings to make informed decisions and develop effective strategies for economic development. Additionally, the study will contribute to the academic community by providing a foundation for future research and expanding knowledge on small enterprise performance, particularly within the Banda business environment.
