Favouritism in Uganda: How the political economy impacts micro and small enterprise development

Abstract

Micro and small enterprises (MSE) build the vast majority of businesses in Uganda. This contribution shows that their economic development is not only hampered by ‘normal’ business constraints faced by many MSEs in developing countries. The system of favouritism prevailing in Uganda’s political economy disproportionally affects the MSE sector, impacting the country’s economic development to some extent as well. This contribution introduces a new concept of political economy for MSE development based on (1) corruption/rent-seeking, (2) a possible political bias in economic policy towards larger businesses, reflected in the institutional support structure (3) the economic and lobbying power of big enterprises vs. MSEs, (4) and a potentially biased tax system. The concept is applied to the Uganda under Museveni’s rule in the period 1994-2014, giving empirical insights that show how political and economic development are intertwined and to what extent this affects MSE development.