Written by Administrator Thursday, 25 March 2010 14:24
The approval by the five East African Heads of State last November of the establishment of a Common Market has heightened stakes for whoever cares about the future of his/her business.
The move set the stage for the expected coming into force of the treaty at the beginning of the next financial year 2010-2011 that will mean more challenges for small and medium enterprises.
The challenges associated with the Common Market however cannot be overemphasized especially for small and medium enterprises, which dominate the region by nearly 90 percent.
In short, the common market will remove existing layers of bureaucracy that hampered businesses to establish or recruit in other countries.
Imagine for instance, that a Kenyan real estate company sets up business in Uganda and starts to operate without having to register as a Foreign Investor company. It competes with Ugandan firms, can afford to employ people from Kenya and repatriate all profits.
The reverse will be true of other firms setting up businesses in other countries.
But the challenges, are quite enormous especially for small companies as well as to the work force.
To start with, the region is facing serious disparities in economic development; Kenya, with its years of stability, has greatly developed its manufacturing sector which has led to the emergency of powerful brands that given chance through the opening up of the borders would greatly expand into new markets in neighboring countries.
In addition, some member countries such as Uganda, Rwanda still face constraints especially in the transport sector that contribute towards raising their cost of doing business and which makes their products less competitive.
Years of industrial development has also helped build strong forward and backward linkages between small and medium enterprises with large manufacturers in Kenya.
These historical as well as geographical aspects have led some for example in the Uganda Manufacturers Association (UMA) to argue for continued protection of their budding industries against the expected avalanche of mature and advanced competitors from Kenya. UMA has lodged a complaint with the EAC Secretariat to review the Common Market but observers say the organisation is unlikely to heed their calls.
On the other hand, SMEs in countries like Uganda are plagued with structural and management problems. Many of them are family owned and run, do not keep proper books of accounts, do not have clear management structures.
To a large extent, these internal issues can impose serious challenges to the ability of Ugandan companies from competing with their counterparts in the region. For example, absence of proper books of accounts can seriously hinder companies from borrowing money from banks or raising capital from the stock exchange.
With a wider market of 126 million people, Ugandan SMEs also face the challenge of having to boost their brands across the region through advertising and promotion if they are to be able to compete.
Managers as well as individuals also face the challenge of improving their Kiswahili if they are to set up businesses in countries like Kenya and Tanzania.
Opportunities
While there are challenges, there are enormous opportunities as well. The common market will open up a wider area for investment as well as markets for domestic SME's.
The opportunities exist in opening up branches of their businesses in other East African states.
Whereas stiff competition can bring serious challenges, it has proved to be a wonderful eye opener. Taking super markets as an example, the advent of big chain supermarkets from South Africa and Kenya has greatly opened the eyes of Ugandans to take the foreign companies head on. Hundreds of super markets owned by local Ugandans have mushroomed all over Kampala and its suburbs.
Ugandan SMEs can also benefit from their knowledge of the market and culture to entrench their presence in the local market.
By Timothy Kihumuro
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