Free Access | 2024-04-12

Beyond Business Registration: Does the Regulatory Environment drive Uganda’s informal Sector?

Authors/Editors: Brian Sserunjogi (PhD) ,  Rehema Kahunde ,  Emmanuel Erem (PhD) ,  Hildah Namuleme

Abstract:

This Note presents the link between Uganda’s regulatory environment and economywide informality in the country. It demonstrates how business licensing reforms and the wider regulatory environment for land, labour, as well as the Tier 4 microfinance regulatory environment may exacerbate both business and workers informality. The evidence indicates that outstanding reforms in key informal sectors are still a major barrier to legal registration, even though Uganda has been trying to reduce compliance costs since 2012. Sectors such as agriculture, trade, transport, logistics, and tourism, which have the highest prevalence of informality, also have the highest administrative licensing costs. Regarding the regulation of input markets, the land regulatory environment remains complicated and gaps in labour inspection capacity. Indeed, only 30 percent of the country’s land is registered, and the urban physical development planning functions are weakly enforced. Regarding labour regulation, Uganda has significant labour inspection capacity gaps despite a growing employed population. Besides, different MDAs perform the decentralised labour inspection function, which goes against the ILO’s demand for centralized labour supervision and control. Lastly, the institutional framework for regulating Tier 4 financial lenders to informal businesses needs to be streamlined to reduce mandate overlaps. The findings demonstrate a need to strengthen the implementation of programme-based approach, by strengthening coordination across ministries and local governments, ensuring clear communication to all stakeholders, enhancing capacity for planning and implementation, and establishing robust monitoring and reporting systems.