THE STRUCTURE OF ENTERPRENEURSHIP IN UGANDA

INFORMAL AND FORMAL SECTORS

The informal business sector refers to those workers who are self-employed or who work for
those who are self-employed.
Are units engaged in production of goods or services with primary objective of generating
employment and income to persons concerned.
It’s any system of employment that does not abide by any form of legality.
A FORMAL SECTOR
A sector which encompasses all jobs with formal hours and regular wages and is recognized as
income sources on which taxes must be paid.
The workers are employed by government or private enterprises. Examples Banks, schools,
universities etc.
AN INFORMAL SECTOR:
Is a diversified set of economic activities enterprises, jobs and workers that are not regulated or
protected by the state.
The concept originally applied to self-employment in small un registered enterprises.
However, it has been expanded to include wage employment in unprotected jobs.

 In Uganda, the informal sector accounts for 75% of total employment.

 However ,85% of working women are employed in the informal sector.
 92% of the youths entering the workforce join this sector.
 Across all businesses surveyed, secondary school dropouts run majority informal
businesses. (UBOS,2020)

Examples of informal sector businesses in Uganda

-Food and tea markets -Un paid workers in family businesses

-Street vendors -Dependent subcontract workers
-Casual workers -Shoe shining
-Domestic workers -Hawkers
-Market gardeners , -Pavement sellers etc.

ED lecture notes for BBA3 & BPSCM3,MUBS, November 2022,by Andrew Ssemakula
FEATURES OF UGANDA’S INFORMAL SECTOR

 Unregulated and non-subsidized

 Low or irregular incomes
 Long working hours
 Lack of access to information, markets and finance
 Lack of access to training and technology
 Un safe and unhealthy working conditions
 Low levels of skills and productivity
 Small or undefined work places
 Low capital intensity
 Family labour most used
 Ease of entrance
 Labour intensive methods of production

WHY MOST BUSINESSES ARE IN THE INFORMAL SECTOR

 Low level of education

 Discrimination
 Poverty
 Lack of access to economic resources
 Unemployment
 Failure to get employment in the informal sector
 Desire to take advantage of existing business opportunity
 Limited opportunities in the formal sector
 Limited skills (unskilled labour force)

CONTRIBUTION OR ROLE OF THE INFORMAL SECTOR IN UGANDA’S

ECONOMIC DEVELOPMENT

 Poverty alleviation
 Boosting income
 Offers goods and services in areas that may be impossible for formal networks
 Employment (85% women ,92% youth)

ED lecture notes for BBA3 & BPSCM3,MUBS, November 2022,by Andrew Ssemakula
  It’s a transit to formal sector.
 Acquisition of skills or experience /training grounds.
 Source of creativity and innovation.
 Crime reduction.
 Provision of low cost labour, goods and services
 Competition

NEGATIVE EFFECTS OF UGANDA’S INFROMAL SECTOR

 No taxes
 It’s a burden to the informal sector
 Competition
 Low productivity
 Less expenditure on public utilities (no taxes)
 Increased taxes to the formal sector
 Raise the level of pollution (Waragi business)

CHALLENGES FACING INFROMAL SECTOR IN UGANDA

 Accessibility to finance
 Burdensome regulatory frameworks
 Structural challenges like limited power supply
 Limited support from government
 Limited access to technology
 Limited skills

QN; How can the Ugandan government help small businesses in the informal sector to
formalize them.

QN; Discuss the process of formalizing a business in Uganda

QN; Discuss the relevance of business formalization to an entrepreneur in Uganda

ED lecture notes for BBA3 & BPSCM3,MUBS, November 2022,by Andrew Ssemakula
ED lecture notes for BBA3 & BPSCM3,MUBS, November 2022,by Andrew Ssemakula