KAMPALA: In Uganda, the increasing collapse of businesses under heavy debt has become a major concern, dominating headlines as panicked business owners call for government bailouts. Hundreds of employees have lost their jobs, and many Ugandans are anxiously speculating on further debt defaults.
A 2016 Global Entrepreneurship Monitor (GEM) Report ranked Uganda as one of the top entrepreneurial countries globally, yet it also revealed that Uganda has one of the highest business failure rates. For every new business started, another one closes. According to the Uganda Registration Services Bureau (URSB), this high failure rate is due to inadequate entrepreneurial and business management skills, financial illiteracy, poor corporate governance structures, unforeseen events such as the COVID-19 pandemic, and the high cost of borrowing, with interest rates reaching up to 30%. These factors collectively affect the solvency of businesses, leading to their unviability.
The Ndere Cultural Centre, owned by Stephen Rwangyezi, is the latest business entity in need of corporate rescue. Struggling with a debt of Shs 10.5 billion from the Uganda Development Bank (UDB), which accumulated during the COVID-19 lockdown, the centre faces auctioning of its three structures. Rwangyezi revealed that he requested UDB to waive penalties, freeze interest, and extend the time to allow them to complete construction projects. However, UDB declined the requests, demanding a minimum payment of Shs 3.5 billion or offering to write off the loan if Ndere could pay a lump sum of Shs 8 billion.
“The bank assessed our 8.7-acre cultural centre at Shs 33 billion, but I believe it’s worth around Shs 50 billion,” said Rwangyezi in an interview with The Observer. He further explained that a manageable payment plan of Shs 40 million monthly could help save the business.
The independent’s report published in July 2016 revealed a significant rise in property repossessions over the first half of that year, driven by bad loans resulting from high interest rates. This trend, observed among various lending institutions, has instilled fear among potential property buyers, discouraging them from acquiring mortgages or using their properties as collateral to finance other business ventures.
A 2016 property report by Knight Frank highlighted a decline in interest, particularly in high-end properties. As a result, property prices dropped by 10% to 15%.
At least five companies, including Hossana Estates, Ms Rabbai, and Paflo, either shut down or went bankrupt. These closures followed the collapse of Property Masters and underscored the challenges faced by proprietors in this sector.
Training
In response to the rising number of businesses struggling with debt, the Directorate of Insolvency and Receivership has announced training sessions for business owners. The Uganda Registration Services Bureau (URSB) aims to equip entrepreneurs with skills in financial management, corporate governance, and business management to prevent insolvency. “The Official Receiver is committed to developing an efficient insolvency system that supports businesses in financial distress while providing support for viable enterprises to thrive,” said the URSB statement.
These trainings are part of a broader corporate rescue initiative under Uganda’s National Development Plan III, aimed at strengthening the private sector. The URSB seeks to provide business owners with practical experience and knowledge of insolvency law, offering corporate rescue mechanisms rather than dissolving businesses.
The Official Receiver has been active in organizing insolvency conferences since 2016, focusing on judicial officers, insolvency practitioners, and business leaders. This latest training initiative is part of the URSB’s commitment to keeping pace with the latest financial trends while empowering business owners with the tools needed to maintain solvency.
The key objectives of the training program are to equip business owners with financial management skills, corporate governance practices, and knowledge of corporate rescue mechanisms available under Ugandan law. The program aims to create a platform for learning and sharing among business experts and owners to ensure sustainable business growth and survival.
The target participants for the training include business owners, boards of corporate entities, regulators, and academia, all of whom play a crucial role in maintaining the solvency of Uganda’s business sector.
As more businesses teeter on the edge of collapse, the government and private sector players alike are increasingly focused on finding sustainable solutions to keep Uganda’s entrepreneurial spirit alive while preventing further economic fallout.