TRADE POLICIES AND PERFORMANCE OF SMES IN WESTERN DIVISION,

NTUNGAMO MUNICIPALITY

BY

ASIIMWE PETER

20/BSU/BSEC/0973

+256751623950

A RESEARCH REPORT SUBMITTED TO THE FACULTY OF BUSINESS

ECONOMICS AND GOVERNANCE FOR THE PARTIAL FULFILLMENT
OF BACHELORS DEGREE OF SCIENCE IN ECONOMICSAND
STATISTICS OF BISHOP STUART UNIVERSITY

AUGUST, 2023
 DECLARATION

I, Asiimwe Peter, hereby declare that the research work entitled "The Impact of trade policies on
the Performance of Small and Medium-sized Enterprises (SMEs) in Western Division,
Ntungamo Municipality," is entirely my original work. I affirm that this research has not been
previously submitted for any other academic qualification or degree at any other institution.

Signature_________________ Date_______________________

ASIIMWE PETER
20/BSU/BSEC/0973

ii
 APPROVAL

This research work entitled "The impact of trade policies on the Performance of Small and
Medium-sized Enterprises (SMEs) in Western Division, Ntungamo Municipality" has been
examined and approved by the undersigned as the supervisor of this study and is now ready for
submission to the Academic Board of Bishop Stuart University.

Signature_________________ Date_______________________

DR. ATWIINE JOHNSON

RESEARCH SUPERVISOR

iii
 DEDICATION
I offer my heartfelt dedication of this research to my dear parents, Mr. Asiimwe Yowasi and
Mrs. Kyomugasho Aida. I also extend this dedication to the esteemed family of Emeritus Right
Reverend Bishop Elisha Kyamugambi, particularly Mr. Kasingye Kyamugambi. These
individuals have served as the strong pillars of support and inspiration during my academic
pursuit. Their constant love, deep comprehension, and continuous motivation have significantly
contributed to my accomplishments and triumphs.

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 ACKNOWLEDGMENT:
I would like to express my deep gratitude to Dr. Atwiine Johnson my supervisor, for his
invaluable guidance throughout my research study. May God bless you abundantly for your
support and mentorship.

I extend my appreciation to the respondents who willingly provided the data that played a crucial
role in the success of my study.

I also wish to acknowledge the Faculty of Business, Economics, and Governance at Bishop
Stuart University, particularly the lecturers, for their unwavering efforts in imparting knowledge
related to my course of study.

Furthermore, I am grateful to the respondents from Western division, Ntungamo municipality

who willingly shared the required data for this research.

Finally, I want to thank my friends and course mates for their unwavering social and academic
support. May God reward them for their kindness and assistance.

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 TABLE OF CONTENTS

DECLARATION............................................................................................................................. ii
APPROVAL ................................................................................................................................... iii
DEDICATION ............................................................................................................................... iv
ACKNOWLEDGMENT: ................................................................................................................ v
TABLE OF CONTENTS ............................................................................................................... vi
LIST OF TABLES ......................................................................................................................... ix
LIST OF ACRONYMS................................................................................................................... x
ABSTRACT................................................................................................................................... xi
CHAPTER ONE ............................................................................................................................. 1
INTRODUCTION .......................................................................................................................... 1
1.0 Introduction ............................................................................................................................... 1
1.1 Background to the study ........................................................................................................... 1
1.2 Problem statement ..................................................................................................................... 4
1.3 Purpose of the study .................................................................................................................. 5
1.4 Objectives of the study.............................................................................................................. 5
1.5 Research questions .................................................................................................................... 5
1.6 Scope of the study ..................................................................................................................... 5
1.6.1 Content scope ......................................................................................................................... 5
1.6.2 Geographical scope ................................................................................................................ 5
1.6.3 Time scope ............................................................................................................................. 6
1.7 Significance of the study ........................................................................................................... 6
1.8 Conceptual frame work ............................................................................................................. 6
CHAPTER TWO ............................................................................................................................ 7
LITERATURE REVIEW ................................................................................................................ 7
2.0 Introduction ............................................................................................................................... 7
2.1 The effect of Local Businesses Registration and Licensing on SMEs performance ................ 7
2.2 The influence of Government Procurement Policies on the performance of SMEs ................. 9
2.3 The impact Financial and Tax Incentives on SMEs performance........................................... 13
2.4 Research Gap .......................................................................................................................... 16

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2.5 Literature summary ................................................................................................................. 17
CHAPTER THREE ...................................................................................................................... 18
METHODOLOGY ....................................................................................................................... 18
3.0 Introduction ............................................................................................................................. 18
3.1 Research Design...................................................................................................................... 18
3.2 Area of Study .......................................................................................................................... 18
3.3 Study Variables ....................................................................................................................... 19
3.4 Study Population ..................................................................................................................... 19
3.4.1 Sample size .......................................................................................................................... 19
3.5 Sampling Technique and Procedure ........................................................................................ 20
3.5.1 Simple random sampling ..................................................................................................... 20
3.5.2 Purposive sampling .............................................................................................................. 21
3.6 Sources of data ........................................................................................................................ 21
3.6.1 Primary sources .................................................................................................................... 21
3.6.2 Secondary sources ................................................................................................................ 21
3.7 Research Instruments .............................................................................................................. 21
3.7.1 Questionnaire ....................................................................................................................... 21
3.7.2 Interview guide .................................................................................................................... 22
3.8 Data collection methods .......................................................................................................... 22
3.8.1 Questionnaires...................................................................................................................... 22
3.8.2 Interview guide .................................................................................................................... 22
3.9 Data collection procedure ....................................................................................................... 23
3.10 Ethical Consideration ............................................................................................................ 23
3.11 Validity and Reliability. ......................................................................................................... 24
3.12 Data analysis and presentation .............................................................................................. 25
3.12.1 Quantitative data analysis .................................................................................................. 25
3.12.2 Qualitative data analysis .................................................................................................... 25
3.13. Limitations of the Study....................................................................................................... 26
3.14 Chapter Summary ................................................................................................................. 26
CHAPTER FOUR ......................................................................................................................... 27
PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS ............................... 27

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4.1. Introduction ............................................................................................................................ 27
4.2. Biographic data of the respondents ........................................................................................ 27
4.2.1 Sex distribution of the respondents ...................................................................................... 27
4.2.2 Age distribution of respondents ........................................................................................... 28
4.2.3 Marital status of the respondents ......................................................................................... 28
4.2.4 Education level of respondents ............................................................................................ 29
4.2.5 Length of business registration ............................................................................................ 30
4.3 The Effect of Local Businesses Registration and Licensing on SMEs Performance ............. 31
4.3.1 Hypothesis testing on the Effect of Local Businesses Registration and Licensing on SMEs
Performance .................................................................................................................................. 35
4.4 The influence of Government Procurement Policies on the performance of SMEs ............... 35
4.4.1 Hypothesis testing on the influence of Government Procurement Policies on the
performance of SMEs ................................................................................................................... 39
4.5 The impact of financial and tax incentives on SMEs Performance ........................................ 39
4.5.1 Hypothesis testing on the impact of financial and tax incentives on SMEs Performance ... 42
CHAPTER FIVE .......................................................................................................................... 43
DISCUSSION OF FINDINGS, CONCLUSIONS AND RECOMMENDATION ....................... 43
5.0. Introduction ............................................................................................................................ 43
5.1 Discussion of findings............................................................................................................. 43
5.1.1 The effect of Local Businesses Registration and Licensing on SMEs performance ........... 43
5.1.2 The influence of Government Procurement Policies on the performance of SMEs ............ 46
5.1.3 The impact Financial and Tax Incentives on SMEs performance........................................ 48
5.2 Conclusion .............................................................................................................................. 51
5.3 Recommendations ................................................................................................................... 52
5.4 Further research ...................................................................................................................... 53
REFERENCES ............................................................................................................................. 55
APPENDICES .............................................................................................................................. 58
Appendix I: Questionnaire for the SMEs owners and managers .................................................. 58
Appendix II: Interview Guide for Key Informants in Western Division, Ntungamo Municipality
....................................................................................................................................................... 62

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 LIST OF TABLES
Table 1: Showing sample size of the SMEs .................................................................................. 20
Table 2: Showing sex distribution of respondents ........................................................................ 27
Table 3: Showing age distribution of respondents ........................................................................ 28
Table 4: Showing marital status of the respondents ...................................................................... 28
Table 5: Showing Education level of respondents ........................................................................ 29
Table 6: Showing length of business registration ......................................................................... 30
Table 7: Showing the effect of local businesses registration and licensing on SMEs performance
....................................................................................................................................................... 31
Table 8. Pearson's correlation coefficient between the registration and licensing and the
performance outcomes of small and medium-sized enterprises (SMEs) ...................................... 34
Table 9: Showing the influence of Government Procurement Policies on the performance of
SMEs ............................................................................................................................................. 35
Table 10: Pearson's correlation coefficient between Government Procurement Policies and
Performance of SMEs ................................................................................................................... 38
Table 11: Showing the impact of financial and tax incentives on SMEs Performance ................ 39
Table 12. Showing the correlation between financial & tax incentives and SMEs’ Performance 42

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LIST OF ACRONYMS

EAC East African Community

ECOWAS Economic Community of West African States

ERS Economic Research Service

EU European Union

GDP Gross Domestic Product

JIT just in time delivery

NTMs Non-tariff Measures

PP Public Procurement

RECs Regional Economic Communities

SADC Southern African Development Community

SMEs Small and Medium-Sized Enterprises

TQM Total Quality Management

TRQs Tariff-Rate Quotas

UNBS Uganda National Bureau of Standards.

WTO World Trade Organization

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 ABSTRACT

This study investigates the impact of trade policies on the performance of Small and Medium-
sized Enterprises (SMEs) in Western Division, Ntungamo Municipality. The purpose of the
research is to assess the effect of Local Businesses Registration and Licensing, Government
Procurement Policies, and Financial and Tax Incentives on SMEs' performance in the region.
The study employs a cross-sectional survey research design with a quantitative approach,
utilizing questionnaires and interviews for data collection. The study population comprises SMEs
owners and managers, URA officials, and committee council representatives.

The findings reveal that business registration and licensing positively influence SMEs'
performance by providing legal protection for intellectual property, enhancing credibility, and
facilitating international market entry. However, some respondents expressed concerns about the
burdensome nature of the registration process. Government procurement policies are
acknowledged for promoting fair competition, networking opportunities, and enhancing SME
competitiveness. Nevertheless, challenges related to fair competition need to be addressed to
ensure equitable opportunities for all SMEs. Financial and tax incentives are perceived as crucial
in providing SMEs with access to capital, managing cash flow, and promoting overall economic
growth. However, uncertainties remain concerning the effectiveness of these incentives.

Based on the findings, the study recommends streamlining business registration processes,
expanding support programs for SMEs in public procurement, and regularly evaluating financial
and tax incentive programs. Policymakers are urged to promote the benefits of formalization and
participation in government procurement and to collaborate with relevant stakeholders to design
effective policies. By implementing these recommendations, policymakers can foster SME
growth and development in Western Division, Ntungamo Municipality, contributing to regional
economic prosperity.

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 CHAPTER ONE

INTRODUCTION

1.0 Introduction
This chapter represented the background to the study, statement of the problem, purpose of the
study, objective of the study, scope of the study, significance of the study and conceptual frame
work.

1.1 Background to the study

Globally, trade policies such as protectionist measures and government support of agricultural
sectors affect the level of global trade. Bilateral, multilateral, and regional trade agreements to
eliminate trade barriers among member countries have taken on greater significance amidst an
evolving international trading environment. The United States is a member of the World Trade
Organization (WTO) and has membership in trade agreements with a number of countries.
Compliance with China’s food standards and regulations can be a challenge for exporters
aspiring to sell to that country’s growing market. Refusals of imports fluctuate from year to year,
peaking in 2007 and 2017 and dropping to their lowest-ever totals in 2018-19 (China's Refusals
of Food Imports, March 2021).Economic Research Service surveys the first 20 years of World
Trade Organization members’ tariff-rate quotas (TRQs) for agricultural products, providing data
for an analysis of how TRQ market access for agricultural products has evolved from 1995 to
2015 and the extent to which TRQs are fulfilling their goal of increasing that access (Agricultural
Market Access Under Tariff-Rate Quotas, January, 2021).

Japan is one of the largest beef importers in the world and an important destination market for
the United States. A recent ERS report examines how Japanese importer’s view U.S. beef vis-à-
vis imports from Australia and other countries and how market access reform might affect
Japanese beef imports from the United States (Tariff Reforms and the Competitiveness of U.S.
Beef in Japan, January 2016).Export restrictions could increase world prices for food
commodities, thereby exacerbating food insecurity and poverty among the world’s poorest
people. An ERS report has examined alternative policies to a conventional export tax that are less
market distorting and welfare diminishing (see Alternative Policies to Agricultural Export Taxes

1
That Are Less Market Distorting, June 2015).Non-tariff Measures (NTMs) such as sanitary and
phytosanitary measures and technical barriers to trade have become among the most commonly
cited barriers to agricultural trade. An ERS report found such measures to be significant
impediments to agricultural trade in selected commodities between the United States and the
European Union (see Estimating the Effects of Selected Sanitary and Phytosanitary Measures
and Technical Barriers to Trade on U.S.-EU Agricultural Trade, November 2015).

In Africa, trade policies and SMEs are important as they play a crucial role in economic growth
and development on the continent. Trade policies in Africa are often geared towards regional
integration, as many countries on the continent are members of regional economic communities
(RECs) such as the East African Community (EAC), the Economic Community of West African
States (ECOWAS), and the Southern African Development Community (SADC), Sanusi, R. A.,
&Isah, U. A. (2019). These regional integration efforts aim to promote free trade and reduce
barriers to trade between member states.SMEs in Africa face similar challenges to those in other
parts of the world, including limited access to financing and a lack of resources and expertise to
navigate complex trade regulations. Additionally, African SMEs face unique challenges such as
poor infrastructure, limited access to electricity, and low levels of education and training,
Wamalwa, F. M., &Obwogi, M. (2021).

Trade policies have a significant impact on the performance of SMEs in Africa. As noted earlier,
many African countries are members of Regional Economic Communities (RECs) such as the
East African Community (EAC), the Economic Community of West African States (ECOWAS),
and the Southern African Development Community (SADC),Aliyu, A. S., Amran, N. A., &
Ahmad, H. (2019). The regional integration efforts of these RECs aim to promote free trade and
reduce barriers to trade between member states Ali, A., & Hameed, I. (2017). In Africa, many
governments and organizations have implemented initiatives and programs designed to provide
targeted support Aidoo, J. B., Mensah, A., & Ofori, D. (2018). For example, the African
Development Bank has launched the SME Finance and Development Program, which provides
financing, technical assistance, and training to SMEs across the continent. Similarly, the
International Trade Centre has launched the Trades initiative, which aims to connect women
entrepreneurs in Africa with international markets and buyers, Ahereza, A. M., &Nuwagaba, A.
(2017)

2
Uganda is a landlocked country in East Africa, with a population of over 45 million people
(UBOS, 2021). The country's economy is largely driven by agriculture, which accounts for about
23% of GDP, while services and industry account for 53% and 24% of GDP, respectively. Small
and medium-sized enterprises (SMEs) play a crucial role in Uganda's economy, contributing to
employment, innovation, and economic growth (UNBS, 2019). However, SMEs in Uganda face
a range of challenges, including limited access to finance, infrastructure constraints, and
difficulties in complying with trade regulations and standards. Trade policies can either facilitate
or hinder SMEs' access to markets, financing, and resources. One of the key trade policies that
impact SMEs in Uganda is the East African Community (EAC) Common Market, which aims to
create a single market for goods, services, and capital across the EAC member states, including
Uganda. The Common Market could facilitate SMEs' access to larger markets, reduce trade
barriers, and promote trade facilitation and capacity building, (EAC, 2020).

Ntungamo is a municipality located in the southwestern region of Uganda. The town has a
vibrant business environment, with many small and medium-sized enterprises (SMEs) operating
in various sectors, including agriculture, manufacturing, and services. The performance of these
SMEs is influenced by various trade policies, including local, national, and regional policies.
One of the key trade policies that affect SMEs in Ntungamo is the local government trade
licensing policy, (Mary T,2016). The policy requires SMEs to obtain licenses from the local
government to operate their businesses. The licensing process can be time-consuming and costly,
and some SMEs struggle to obtain the necessary licenses, which can limit their ability to operate
legally and access government support, (Tumuhimbise JB, 2017).National trade policies,
including tax policies and import/export regulations, also affect SMEs in Ntungamo. For
example, high tax rates can reduce SMEs' profitability, while complex import/export regulations
can increase the cost of doing business and limit access to foreign markets, (UNBS. 2020).

National trade policies, including tax policies and import/export regulations, also have a
significant impact on SMEs in Ntungamo. For example, high tax rates can reduce SMEs'
profitability, while complex import/export regulations can increase the cost of doing business
and limit access to foreign markets. Moreover, there are some constraints, such as limited access
to finance, inadequate infrastructure, and limited access to skills and technology, which can
hinder SMEs' growth and competitiveness thus it’s against this background the researcher based

3
on to investigate the impact of trade policies on performance of SMEs with a case of western
division, Ntungamo municipality.

1.2 Problem statement

Small and Medium-sized Enterprises (SMEs) are critical drivers of economic growth and
development in most countries around the world. They contribute significantly to employment
creation, income generation, poverty alleviation, and technological innovation. However, SMEs
face numerous challenges, including access to finance, market competition, technological
advancement, and global economic trends. One such challenge is the impact of trade policies on
their financial performance.

Trade policies such as Local Businesses Registration and Licensing, Government Procurement
Financial and Tax Incentives trade policies affect SMEs' ability to compete in local and
international markets. SMEs face higher input costs due to import tariffs, which can reduce their
profit margins and competitiveness. Similarly, export taxes and subsidies affect the
competitiveness of SMEs in the international market. The imposition of Local Businesses
Registration and Licensing, Government Procurement Financial and Tax Incentives trade policies
on SMEs in Ntungamo municipality has become a common practice for governments seeking to
protect domestic industries from foreign competition.

Despite the positive impact of trade policies on SMEs economic growth, most SMEs in western
division, Ntungumo municipality fail to access information about available incentives,
understanding complex regulations, and navigating bureaucratic processes, others are faced with
cumbersome and time-consuming procedures to register and obtain licenses at the local level, the
lengthy process results in delays and increased administrative costs for small businesses.
Whereas others fail to access government procurement contracts this reduces the market
opportunities for SMEs, hampering their growth potential, URA reports, 2021).

There is a need to investigate the effect of trade policies on SMEs financial performance,
considering the challenges faced by SMEs in adopting and implementing these policies, to
inform policymakers and SMEs on the necessary measures to enhance their financial
performance in the context of trade policies. Therefore, there was need to investigate the effect of
trade policies on the performance of SMEs in western division, Ntungamo municipality.

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1.3 Purpose of the study
The purpose of the study was to investigate the impact of trade policies on the performance of
SMEs in western division, Ntungamo municipality

1.4 Objectives of the study

• To find out the effect of Local Businesses Registration and Licensing on SMEs
performance western division, Ntungamo Municipality
• To identify the influence of Government Procurement Policies on the performance of
SMEs in western division, Ntungamo Municipality
• To examine the effect of Financial and Tax Incentives on SMEs performance in western
division, Ntungamo Municipality

1.5 Research questions

• What is the effect of Local Businesses Registration and Licensing on SMEs performance
western division, Ntungamo Municipality?
• What is the influence of Government Procurement Policies on the performance of SMEs
in western division, Ntungamo Municipality?
• What is the effect of financial and Tax Incentives on SMEs performance in western
division, Ntungamo Municipality

1.6 Scope of the study

1.6.1 Content scope

The study investigated the effect of trade policies on financial performance reviewing the how
local businesses registration and licensing, government procurement policies and financial and
tax incentives affect financial performance of SMEs in Western division, Ntungamo
municipality.

1.6.2 Geographical scope

The study was carried out among the SMEs in Western division of Ntungamo municipality.
Ntungamo is a growing town, located on the Mbarara-Kabale highway with a tarmacked road
that branches off at Ntungamo to lead to Rukungiri.

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 1.6.3 Time scope
The study took a period of six months that was Mar– Jul, 2023 and it considered literature
information in relation to the period between2015-2022. This was because the range of years are
long enough to help the researcher to establish the relationship between the study variables.

1.7 Significance of the study

The study will contribute to the understanding of the impact of trade policies on the growth and
development of small and medium-sized enterprises. This knowledge can be used by
policymakers to design appropriate trade policies that promote the growth and development of
SMEs.

The study will provide insights into the specific mechanisms through which trade policies affect
SMEs financial performance. This information may be used by SMEs to develop strategies that
enable them to navigate the challenges posed by trade policies and optimize their financial
performance.

The study will help to identify the key factors that mediate the relationship between trade
policies and SMEs financial performance. This understanding may be used by SMEs to identify
the factors that contribute to their financial success and develop strategies that leverage these
factors.

The study will contribute to the development of a more comprehensive understanding of the
relationship between trade policies and SMEs financial performance. This knowledge may be
used to inform policy and practice and promote the growth and development of SMEs.
1.8 Conceptual frame work
Independent variable Dependent variable
Trade policies performance of SMEs

• Local Businesses Registration • Increased profits

and Licensing • Increased competitiveness
• Government Procurement and market share
Policies • Secures domestic production
• Financial and Tax Incentives

Source: Akinrinade, L. A. (2008) advanced by the researcher, 2023

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 CHAPTER TWO

LITERATURE REVIEW

2.0 Introduction
This chapter includes the theoretical review, and related literature regarding the impact of trade
policies on SMEs performance with guide of how local Businesses Registration and Licensing
on SMEs, Government Procurement Policies and Financial and Tax Incentives influence SMEs
performance

2.1 The effect of Local Businesses Registration and Licensing on SMEs performance
Djankov et al (2002) conducted study on how registration affects SMEs performance, he found
out that the number of procedures for registering a business ranged from 2 in Canada to 21 in the
Dominican Republic in 1999. Most work on this study has been based on cross-country studies,
yet such an approach suffers from identification problems, such as reverse causality and omitted
variable bias. Recent work has also looked at cross-country, cross-industry variation for an
identification strategy. However, this approach cannot quantify the overall effect of differences in
entry regulation, since all estimates are relative to a benchmark value of the ‘‘natural’’ rates of
entry within industries. The effect of simplifying entry regulation on registration, employment,
prices, and income. Specifically, it exploits cross-municipality and cross-time variation in a
recent business registration reform in Mexico to measure the effects of this reform, which allows
for establishing causality more convincingly than cross-country studies do. The results show that
the reform increased the number of registered businesses by 5% in eligible industries, supporting
the finding of the cross-country literature that less regulation leads to more entry. The use of
microdata also makes it possible to trace out the effects of the reform on the functioning of the
product and labor markets.

Kaplan, Piedra, and Seira (2006) have investigated the effect of the same business registration
reform in Mexico on firm creation. A key difference is that they use registration and employment
data from the Social Security Institute (IMSS), while my paper uses household data from the
labor market survey. The IMSS data do not capture registered firms without employees since
owners do not typically register themselves with social security. Moreover, not all registered
firms with employees are in the IMSS database since a significant fraction of owners does not

7
register their workers with IMSS. Consequently, the estimated increase in the number of
registered firms in Kaplan et al. is 7.6 times smaller than the increase in the number of registered
firms estimated in this paper. Another difference is that providing direct evidence that newly
registered firms are not previously existing informal firms, but instead new firms created by
former wage earners. Furthermore, Kaplan et al.’s data do not include information on income.
My paper, however, identifies the effect of the reform on the income of different pre-reform
occupation groups

Ketchen et al., 2014), on their study on effect of local businesses registration and licensing on
SMEs performance, he strengthened that a new sub-discipline of the entrepreneurship literature
has emerged that seeking understanding of entrepreneurship in the informal sector, by which is
here meant starting-up and/or owning and managing an enterprise that is not declared to the
authorities for tax, benefit and/or labor law purposes. This has begun to counter the conventional
negative depictions of entrepreneurs operating in the informal sector. Informal sector
entrepreneurship has been widely depicted negatively as poorly performing, unproductive
endeavors, which is deleterious to economic development and growth (Baumol, 1990; La Porta
and Shleifer, 2008, 2014). By revealing that formal enterprises that start up unregistered and
spend longer unregistered witness higher subsequent levels of firm performance than enterprises
that started up registered, the intention is to re-represent informal entrepreneurship in a more
positive manner. Report by WBES data on the relationship between informal entrepreneurship
and firm performance in India, an influential emerging economy with an informal sector that
absorbs about 85 percent of the working population (Sharma, 2012).

In my view, Registration and licensing in Ntungamo municipality facilitate better business

relationships with other entities. Many suppliers, distributors, and partners prefer to work with
registered businesses due to the credibility and accountability they offer. This can lead to
improved collaboration and access to better business opportunities for SMEs. Compliance with
registration and licensing requirements can create a competitive advantage for SMEs. It can
distinguish them from informal businesses and ensure a level playing field within the industry,
protecting legitimate businesses from unfair competition. Registration and licensing can enhance
consumer confidence in SMEs. When customers know that a business is registered and licensed,
they may feel more secure in their transactions, leading to repeat business, positive reviews, and

8
referrals. Consumer Protection: Registration and licensing often come with regulations that aim
to protect consumers. Compliance with these regulations can enhance consumer trust in SMEs. It
can also ensure that SMEs adhere to certain quality standards and provide reliable products or
services, which can lead to customer loyalty and positive word-of-mouth.

Hypothesis

H1: This hypothesis suggests that the registration and licensing processes implemented by
local authorities have a positive effect on the performance of small and medium-sized
enterprises (SMEs).

• Streamlined entry regulation, Simplifying the procedures for registering and licensing
businesses reduces barriers to entry, making it easier for SMEs to formalize their
operations. This increased ease of entry is expected to have a positive impact on SMEs'
performance.
• Enhanced credibility and accountability, Registered businesses are perceived as more
credible and accountable by suppliers, distributors, partners, and consumers. This
enhanced reputation can lead to better business relationships, collaboration opportunities,
increased access to resources, and improved market opportunities for SMEs.
• Consumer confidence and protection, Registration and licensing often come with
regulations aimed at consumer protection. Compliance with these regulations enhances
consumer trust in registered SMEs, leading to repeat business, positive reviews, and
referrals. Meeting quality standards and providing reliable products or services further
strengthens consumer confidence, contributing to SMEs' performance.

2.2 The influence of Government Procurement Policies on the performance of SMEs

Edler and Georghiou (2017 conducted study on how government procurement policies affect
SMEs performance, he strengthened that public procurement (PP) generally represents a
significant share of aggregate GDP. In the European Union (EU), PP represents 13.3% percent of
total EU GDP, with public authorities spending some €2 trillion per year during the 2015–2017
period on the purchase of services, works, and supplies (European Commission 2019). Most
countries have put in place legislation that regulates the process through which public contracts
for goods, services, and works are allocated. These generally seek to assure “value for money”

9
and accountability for the outcome of contract award decisions. In the EU, specific directives
define in some detail how procuring government entities both EU institutions and at the member
state level must behave when undertaking public procurement that exceeds certain threshold
values. The basic principles include competition, nondiscrimination, and transparency,

Findings from studies such as Belás et al. (2017) and Scuotto et al. (2017) indicate that SMEs
that engage in government procurement tend to experience higher sales revenues, profitability,
and business growth compared to those that do not participate. Winning government contracts
can provide SMEs with stable revenue streams, enhance their reputation, and open doors to other
business opportunities. While government procurement policies can offer advantages, they also
present challenges for firms. Research by Osei-Kyei and Chan (2015) identified hurdles such as
complex bidding processes, stringent qualification criteria, and requirements for financial
resources and technical expertise. These barriers may limit the participation of small and
medium-sized enterprises (SMEs) in government procurement. Winning government contracts
can confer a competitive advantage on firms. Research by Ugur et al. (2014) demonstrated that
government procurement positively influenced firms' innovation capabilities and
competitiveness. Furthermore, participating in government procurement processes enhances
firms' legitimacy and reputation, which can attract additional business opportunities (Shen et al.,
2020). Further Studies by Ruuska and Möttönen (2015) and Massol and Taminiau (2019)
indicated that engaging in government contracts can lead to improvements in SMEs' quality
management systems and overall operational efficiency. Compliance with procurement
requirements can enhance the reputation and reliability of SMEs, leading to increased customer
trust and market opportunities. Government procurement policies can create significant market
opportunities for businesses. Studies by Acquier et al. (2018) and Hajjem and El Mekkaoui de
Freitas (2019) highlighted that government procurement can act as a catalyst for business
growth, enabling firms to access larger contracts and expand their operations.A number of
studies have investigated the impact of government procurement policies on firm performance.
Research by Arrowsmith and Kunzlik (2011) found that access to government contracts
positively influenced firm growth and profitability. Similarly, Beck and Walgenbach (2017)
demonstrated that government contracts positively impacted the financial performance of firms
in the construction industry.

10
Knack et al. (2019), conducted study on the same topic, he strengthened that much of the extant
empirical analysis of the effects of PP regulation tends to take a public sector governance
perspective. Studies have shown that adoption of internationally accepted good practices in
public procurement, such as transparency and use of design and award processes that reduce
discretion and the scope for corruption, lowers project costs and/or increases quality by
increasing competition for contracts. using enterprise data for 88 countries, find that firms are
more likely to participate in public procurement markets in countries with more transparent
procurement systems that rely more on open competition, Taş (2020). focusing on public
procurement in the European Economic Area, finds that PP regulation that is more aligned with
internationally accepted good practice standards significantly increases competition and lowers
average contract prices for procuring agencies.

Stam and van de Ven 2019 on their study observed that public procurement policies have a
leveraged or multiplicative impact on SMEs and ultimately economic performance. PP
regulation arguably is a salient dimension of the entrepreneurial ecosystem, an element of both
the “quality of government” that helps to define the investment climate in which firms operate
and a specific source of demand for There is a substantial literature assessing the (potential) role
of PP as a mechanism to support innovation (Edler and Georghiou 2007; Aschoff and Sofka
2009; Edler and Yeow 2016) and SME entrepreneurship (Dennis Jr 2011; Harland et al. 2019).
One reason is that PP can represent a meaningful source of demand for firms, so that a
government contract may encourage firms to invest more, expand employment, and increase
productivity (Ferraz et al. 2015; Hoekman and Sanfilippo 2019). Success in promoting greater
participation by SMEs in PP may help attain broader industrial development objectives (Geroski
1990; Acemoglu et al. 2018), including through spillovers within geographical clusters of
economic activity (Porter 1990).

According to Leenders et al (2008), purchasing adds value to the organization. Procurement

practice is an area that can be improved to further contribute to organizational performance.
Organizations tend to choose procurement procedures that are familiar to them; they should
instead choose the ones most suited and most beneficial to their organizations’ success.
Narasimhan and Kim (2002), states that there has been increased pressure for purchasing
integration. Purchasing integration links purchasing practices to organizational performance

11
Gattorna, 2006). The direct link of operational efficiency and supply chain to organizational
performance therefore means that the adoption of procurement practices is crucial to
organizational success. Consolidation of the entire procurement process leading to the
implementation of procurement practices such as, green purchasing, just in time delivery (JIT),
Total Quality Management (TQM) and e-procurement is necessary so as to boost the overall
organizational performance. Streamlined procurement systems lead to efficiency and increases
the confidence of employees, customers and stakeholders of the organization. Shifting away
from traditional purchasing and moving into modern and more efficient procurement practices
leads to continuous improvement and benchmarking. This is where an organization measures
itself against the leading organizations in its class. Procurement is no longer a process but a
strategic function in the organization, it reduces cost and achieves maximum savings for the
organization. Organizations should always benchmark against the ‘ best in class ’ and implement
continuous improvement in its processes (Guth, 2010). Some of the procurement practices that
organizations can engage in include: commitment to green purchasing, commitment to just in
time delivery, commitment to total quality management and e-procurement. Organizations must
broaden their view of productivity from the predictable company-oriented view to a dual
company - customer perspective. Furthermore, Evenett and Hoekman (2015) argued there are
two important dimensions of procurement regulation. One relates to “leveling the playing field”
by removing discrimination that impedes participation by some firms (often foreign). The other
centers on transparency and related mechanisms that reduce discretion and the potential for
corruption or collusion in the allocation of contracts. Competition and transparency are core
elements of what is internationally recognized as good procurement practice, where the goal is
value for money. Nondiscrimination may reduce the prospects that SMEs successfully contest
procurement opportunities as it will boost potential competition, Aschoff and Sofka(2019).

In my view, in Ntungamo municipality, western division, government procurement policies

influence SMEs' innovation and capability development. SMEs involved in public procurement
are more likely to invest in innovation, research and development, and human capital. Access to
government contracts can serve as a stimulus for SMEs to improve their technological
capabilities, adopt innovative practices, and enhance competitiveness. Engaging in government
procurement can facilitate networking and relationship building for SMEs. SMEs involved in
public contracts can establish valuable connections with government officials, other suppliers,

12
and industry stakeholders. These networks can lead to collaborations, knowledge sharing, and
access to new markets, fostering SME performance and growth.

Hypothesis

H2: Hypothesis: Government procurement policies positively influence the performance of

SMEs by promoting innovation, capability development, and networking opportunities.

2.3 The impact Financial and Tax Incentives on SMEs performance

Megersa (2019) found that tax incentives in China contribute to predicting GDP growth, has
positive effect on research and development expenditure in Taiwan, and causes sizeable increase
in employment, output, fixed capital and number of firms in India. Again, Siyanbola, Adedeji,
Adegbie and Rahman (2017) also discovered that tax incentives are significant strategic drive for
business and industrial growth in Sub-Saharan States including Ghana. Besides, the more
governments make revenue, the more they are better positioned to provide incentives to tax
payers (Siyanbola, et al., 2017). Empirically, it is found that tax exemptions decrease tax burden
of SMEs more than that of tax rates (Liakhoyets, 2014), which positions them to reinvest their
capital for their efficient functioning. Government’s support such as tax reduction and
simplification of tax system also stimulate SMEs’ growth (Louis &Macamo, 2011). Tax
reduction, lower tax amount payable and tax exemption could support the growth SMEs
(Bozdoğanoğlu, 2016). In a given empirical comparative study in Uganda, it was discovered that
firms with incentives performed better than firms without incentives in terms of gross sales and
value added (Mayende, 2013). Better still, streamlining tax incentives was a strong stimulus to
improving firm performance (Mayende, 2013). Particularly

Kiser &Karceski, (2017) on the study on how tax incentives have influence SMEs performance,
they strengthened that a decrease in the rate of corporate tax increases the incentives for
incorporation (Agbenyo, 2016) and thereby increases after-tax earnings. Tax incentives refers to
an exemption or relief granted to an individual or a firm to reduce the effect of taxation and thus
encourage savings and investment (Chukwumerije & Akinyomi, 2011). Numerous incentives
have been incorporated into the Ghanaian tax system over the years. Notable among such
incentives, as claimed by tax authorities, include, but not limited to, tax rebates, reduced tax
rates, tax holidays, incomes exempted, capital allowances, fresh graduate incentives, free-zone

13
incentives, double tax treaties, capital gains exempted, import duty exemptions and exempted
export duties (PwC Ghana, Ghana Tax Facts and Figures Report, 2019; Ugwu, 2018; Bekoe,
Danquah &Senahey, 2016). The creation of some special incentives is based on industry type,
number of years of operating, nature of transactions, business size and origin of businesses and
so forth (PwC Ghana, Ghana Tax Facts and Figures Report, 2019). Market failures negatively
affect SMEs due to their sizes and ages in the business life cycle. Again, tax system
disproportionally goes against SMEs. These hard-hit conditions inform collectively call for SME
support in terms of preferential treatments (Bozdoğanoğlu, 2016).

Wagner (2007) and De Mooij and Ederveen (2008) indicated that the complexity of incentive
programs, eligibility criteria, and reporting requirements can be burdensome for SMEs,
particularly those with limited resources and capabilities. Simplifying procedures and providing
support services can enhance SMEs' ability to take advantage of incentives. Financial and tax
incentives can help SMEs navigate compliance and regulatory requirements more effectively.
Research by Becker and Mohrenweiser (2019) and Ljungqvist and Smolyansky (2019) suggests
that targeted incentives can alleviate the administrative burden on SMEs, reduce compliance
costs, and improve regulatory compliance. This allows SMEs to focus on core business activities,
improve productivity, and enhance performance. Financial and tax incentives can promote SMEs'
job creation and employment growth. Studies by Coad and Rao (2008) and Fritsch and Wyrwich
(2018) demonstrated that financial support and tax incentives are associated with higher
employment levels in SMEs. By reducing costs and providing resources for expansion, these
incentives enable SMEs to hire additional staff, contribute to local economies, and support
overall employment generation.

Fritsch and Sorgner (2013) and Grillitsch and Nilsson (2021) indicate that start-up grants,
incubator programs, and seed funding initiatives can stimulate entrepreneurship, promote
business creation, and contribute to SME performance. Support for start-ups can drive
innovation, job creation, and economic dynamism. Financial incentives can encourage
entrepreneurship and support the growth of start-ups. Studies by Stenholm et al. (2013) and
Brown et al. (2019) indicate that start-up grants, incubator programs, and tax incentives for new
businesses can stimulate entrepreneurial activity, promote start-up survival and growth, and
contribute to SME performance. Research also emphasizes the importance of evaluating the

14
effectiveness of financial and tax incentives. Studies by Czarnitzki et al. (2014) and Hall et al.
(2020) highlight the need for rigorous impact assessments to determine whether incentives
achieve their intended outcomes and deliver value for money. Evaluation helps policymakers
refine incentive programs, target resources effectively, and maximize their impact on SME
performance.

According to my view in Ntungamo municipality, financial incentives, support SMEs in their

efforts to enter international markets. Export promotion programs can improve SMEs' export
performance, increase foreign market penetration, and enhance overall competitiveness. Access
to financial support for internationalization can open new avenues for growth and expansion.
Financial and tax incentives can play a significant role in promoting SMEs' participation in
international trade. Export promotion programs, such as export credit guarantees and tax
incentives for exporters, can enhance SMEs' export capabilities, expand their market reach, and
improve overall performance.

Financial and tax incentives can stimulate SMEs' innovation and research and development
(R&D) efforts. Tax incentives positively impact SMEs' innovation activities, leading to improved
product offerings, increased productivity, and enhanced competitiveness. These incentives
encourage SMEs to allocate resources to innovation and foster a culture of continuous
improvement. Financial incentives can stimulate SMEs' investment in technology, equipment,
and innovation. Tax incentives, research and development grants, and innovation vouchers
encourage SMEs to allocate resources to research and development activities. Increased
investment in innovation can lead to the development of new products, improved processes, and
enhanced competitiveness.

Hypothesis

H1: Financial and tax incentives positively impact the performance of SMEs by reducing tax
burdens, increasing after-tax earnings, and providing resources for efficient functioning.

Financial and tax incentives contribute to the growth and expansion of SMEs by
stimulating employment, output, fixed capital investment, and the number of firms.

15
 Simplified procedures and support services related to financial and tax incentives
enhance SMEs' ability to take advantage of the incentives, leading to improved
compliance, productivity, and overall performance.

2.4 Research Gap

The research gap in the study "Trade Policies and Performance of SMEs in Western Division,
Ntungamo Municipality" lies in the lack of existing research or limited studies specifically
focusing on the relationship between trade policies and the performance of SMEs in the given
context. While there may be some studies on the performance of SMEs or the impact of specific
policies on businesses in general, the specific focus on trade policies and their effect on SMEs in
Western Division, Ntungamo Municipality appears to be unexplored or limited.

By addressing this research gap, the study aims to contribute to the understanding of how trade
policies, local businesses registration and licensing, government procurement policies, and
financial and tax incentives impact the performance of SMEs in the specific context of Western
Division, Ntungamo Municipality. Through this investigation, the study seeks to fill the
knowledge gap and provide valuable insights for policymakers, local businesses, and
stakeholders in the region.

The research findings from this study can potentially inform policymakers in designing and
implementing more effective trade policies, licensing procedures, government procurement
practices, and financial and tax incentives that are conducive to the growth and performance of
SMEs in Western Division, Ntungamo Municipality. It can also guide SME owners and
managers in understanding the factors that influence their performance and inform their decision-
making processes regarding business registration, procurement strategies, and financial planning.

It is important to note that without access to the specific study you are referring to, it is
challenging to provide a comprehensive analysis of the research gap. Therefore, for a more
detailed understanding, it is recommended to refer to the study itself or related literature on
SMEs, trade policies, and performance in the specific context of Western Division, Ntungamo
Municipality.

16
2.5 Literature summary
The literature review discussed the impact of trade policies on the performance of small and
medium-sized enterprises (SMEs). It focused on main areas: local business registration and
licensing, government procurement policies, financial incentives, and tax incentives. Regarding
local business registration and licensing, the review highlighted that streamlined and efficient
processes can facilitate SME growth by reducing barriers to entry and promoting formalization.
Additionally, the availability of information and support for SMEs during the registration process
was emphasized as a crucial factor.

Government procurement policies were found to have both positive and negative effects on
SMEs. While access to government contracts can provide significant opportunities for SMEs to
expand their business, the review also noted the challenges faced by SMEs in meeting
procurement requirements and competing with larger firms. Financial and tax incentives, such as
grants, loans, and subsidies, were identified as effective tools to support SMEs. These incentives
can provide much-needed capital for investment, innovation, and expansion. However, the
review highlighted the importance of targeting and tailoring financial incentives to ensure they
reach SMEs effectively. Tax incentives were found to have a mixed impact on SMEs. While
certain tax incentives, such as reduced tax rates or exemptions, can stimulate SME growth and
investment, the review also noted potential drawbacks, such as administrative complexities and
eligibility criteria that may limit their effectiveness.

The literature review provided insights into the relationship between trade policies and SME
performance. It emphasized the importance of supportive trade policies in facilitating SME
growth and formalization. However, it also highlighted the need for further research to address
the identified research gaps, such as focusing on specific countries/regions, employing
quantitative analysis, exploring sector-specific dynamics, considering technological
advancements, and conducting comparative analyses. The findings of the literature review may
inform policymakers, entrepreneurs, and other stakeholders in developing effective trade policies
and support mechanisms that foster the growth and development of SMEs.

17
 CHAPTER THREE

METHODOLOGY

3.0 Introduction
This chapter describes the research methodology that was used in the study. The research design,
population and sample were described. The instrument used to collect the data, including
methods implemented to maintain validity and reliability of the instrument, ethical consideration
and anticipated limitations to the study.

3.1 Research Design

The research design is a blueprint for conducting the research that specifies the procedures
necessary to obtain the information needed to structure and solve the research problems (Cooper
et al., 2003). Across sectional survey research design was used in this study with a quantitative
approach of data collection and analysis. This is the design that analyzes data from a population,
or a representative subset, at a specific point in time (Creswell, 2004). Quantitative approach
allows the collection of large amounts of data from a sizable population in a highly economical
way. The quantitative data was analyzed quantitatively using inferential statistics (Saunders et
al., 2009). According to Polit and Beck (2010), this design gives rise to a more economical mode
of collection of data at one point in time and which is a fundamental objective in analysis due to
the timing similarity. The study was analytical in nature. The analytical approach allowed the
researcher to examine two or more variables the interrelationships among variables and to draw
explanatory inferences (Sekarani, 2009).

3.2 Area of Study

The study was carried out in western division, Ntungamo municipality, Uganda. Ntungamo
municipality is made up of three division, Eastern, Central and western division. Western
division being the targeted area, it is neighboring Central division in West, Eastern division in
southern, Ntungamo sub-county in Norther and Eastern Part.

18
3.3 Study Variables
The study was about the impact of trade policies on SMEs performance in western division,
Ntungamo municipality. Under the study topic the variables considered trade policies as
independent variable measured in; Local Businesses Registration and Licensing, Government
Procurement Policies and Financial and Tax Incentives and SMEs performance as dependent
variable measured in; increased profits, increased competitiveness and market share and secured
domestic production

3.4 Study Population

The study population is a group of individuals taken from the general population who share a
common characteristic (Kothari, 2011). This section includes a collection of study units for
which samples of interest will be possibly determined (Mugenda and Mugenda, 2003). The study
population was consisted of Small and Medium Enterprises (SMEs) which include retail stores,
restaurants, manufacturing companies, SME Owners and Managers, Other Stakeholders i.e
representatives from business associations, trade organizations, financial institutions, tax
authorities, in western division, Ntungamo municipality. These were chosen because they had
knowledge on trade policies. The study targeted population of 50 Small and Medium Enterprises
(SMEs)Owners and Managers, 04 URA officials, and 06 from the committee council western
division, Ntungamo municipality who were having relevant information on the study variables
i.e Trade policies and the performance of SMEs.

3.4.1 Sample size

A sample size representative of the study population was selected using simple random sampling
and purposive sampling. From the above population, the sample size was obtained using the
formulae that was put forward by Miller and Brewer (2003) formula and supported Krejcie, R.V.,
& Morgan, D.W., (1970) table as below;

Sn= N/(1+Ne2)
Where;
N: Number of target population that conforms to the characteristics of the sample required,
E: Margin of error (5%).
Sn: sample size

19
 Given the population of 60 respondents,
Sn= 60/ (1+(60(0.05)2)
Sn=52
From the above the researcher employed a sample size of 52 respondents

Table 1: Showing sample size of the SMEs

Respondents Population Sample Sampling technique Data collection

size Methods
SMEs owners and 51 43 Simple random sampling Questionnaires
managers
URA officials 04 04 Purposive sampling Interviews
Division Committee 05 05 Purposive sampling Interview
council
• Human Resource
Manager

• Finance and
Planning
department;
(Head of finance,
Ass. Sen
Accountant,
Senior planner,
Economic
planner)
Total 60 52

3.5 Sampling Technique and Procedure

Mugenda and Mugenda (2003) defines sampling as a formulation of a procedure of selecting the
subjects or cases to be included in the sample. This study used simple random sampling and
purposive sampling methods to select the sample.

3.5.1 Simple random sampling

According to Mugenda and Mugenda (2003), simple random sampling involves allocating equal
chance to the selected elements in the population. This method involved giving a number to
every respondent in the accessible population, placing the numbers in a container and then
picking any number at random. This was used during the selection of Small Medium enterprises

20
owners and managers in western division, Ntungamo municipality.

3.5.2 Purposive sampling

Purposive sampling is a sampling technique that allows researcher to use cases that have required
information with respect to the objectives of one’s study. Cases of subjects will therefore be
handpicked because they possess the required information. Purposive sampling was used to
select the URA officials and Committee council who were informative and knowledgeable about
the study area.

3.6 Sources of data

3.6.1 Primary sources

These are sources of original information that has not existed before. The primary data was
collected from the area of study. The source of primary data was the population sample from
which the researcher had collected the data from.

3.6.2 Secondary sources

These are sources of data from the published and documented sources that aids in providing
answers to the research problem and they include journals and books.

3.7 Research Instruments

3.7.1 Questionnaire
The main instrument used in data collection for this study was self-administered questionnaires
(SAQs), consisting of closed ended questions so as to increase quality responses and limit
unnecessary and un solicited responses from the participant. The questionnaire helped to derive
quantitative interpretation used in examining the relationship between the variables under study.
Questionnaires mainly was used to collect quantitative data. The questionnaires were designed
according to five (5) Likert scale of strongly disagree, disagree, not sure, agree and strongly
agree. This consists of a set of items which respondents are expected to respond. The scale
allowed respondents to rate their opinion with each statement using the scale provided. The
Likert Scale is easy and quick to construct, reliable and provides a greater volume of information
than other scales.

21
3.7.2 Interview guide
An interview guide was drafted with a set of questions that the researcher asked during an
interview. The researcher personally recorded the provided responses as per the study
respondents during the process of carrying out an interview. The researcher used a semi
structured interview guide when collecting data on the URA officials and Division Committee
council (Human Resource Manager, Finance and Planning department; (Head of finance, Ass.
Sen Accountant, Senior planner, Economic planner). The researcher designed an interview guide
which contains both closed and open-ended questions. A semi-structured interview guide was
administered to the URA officials and Division Committee council (Human Resource Manager,
Finance and Planning department; (Head of finance, Ass. Sen Accountant, Senior planner,
Economic planner) on the effect of trade policies on SMEs performance in western division,
Ntungamo municipality.

3.8 Data collection methods

The study incorporated the use of various methods in the process of data collection in a bid to
come up with sound, concrete and credible research findings. The researcher therefore
amalgamated the use of questionnaire, and interviews in the process of collecting primary data.

3.8.1 Questionnaires
The questionnaire is a set of questions to which the respondents were allowed to fill in their own
time and this made respondents feel free to give answers to sensitive questions. The
questionnaire tool collected data from the SMEs owners and Managers. The questionnaire tool of
data collection was chosen because it was cheap to administer to respondents and scatter over a
large area and at the same time the method provides information with maximum errors. Thus,
questionnaires were administered to SMEs owners and managers

3.8.2 Interview guide

The researcher used formal interviewing method of data collection and the interviews will offer a
chance to explore topics in depth and allows interaction between the researcher and the
respondents such that any misunderstanding of the questions and answers provided were easily
corrected. The researcher interviewed the URA officials and Division Committee council
(Human Resource Manager, Finance and Planning department; (Head of finance, Ass. Sen

22
Accountant, Senior planner, Economic planner) on the effect of trade policies on SMEs
performance in western division, Ntungamo municipality who were the key informants and
knowledgeable about the study variables.

3.9 Data collection procedure

The researcher will seek for an introductory letter from theDean Faculty of Business
Economics and Governance of Bishop Stuart University which will introduce him to the
authorities, seeking to carry out research in the area. With the permission, the researcher will
carry out the study, access documentary sources, carry out interviews and avail copies of
questionnaire to respondents under ethical considerations.

3.10 Ethical Consideration

This study being both quantitative and qualitative, the researcher’s interaction with participants
was imminent. As such it was the researcher’s obligation to respect the rights, needs, values and
desires of respondents (Creswell, 2003). Accordingly, the researcher was aware of the following
before, during and after research.

The researcher had ensured that no participants would be put in a situation where they could be
harmed as a result of their participation, be it physical or psychological. Thus, in that study, the
questionnaires and interviews were conducted in well-furnished rooms with good lighting,
furniture, and flooring.

Ensuring participant’s privacy, confidentiality, and anonymity: Adhering strictly to all the ethical
guidelines serves as standards about the honesty and trustworthiness of the data collected and the
accompanying data analysis. The researcher will ensure that the confidentiality and anonymity of
the participants will be maintained through the removal of any identifying characteristics before
widespread dissemination of information. The researcher will make it clear that the participants'
names are not used for any other purposes, nor will information be shared that revealed their
identity in any way.

23
3.11 Validity and Reliability.
Validity of an instrument to be used in this study will be consistent with the definition provided
by Miles and Huberman (1994), as the” extent to which the items in the instrument measure what
they are set out to measure.” The validity of the instruments will be established by the supervisor.

Validity After constructing the questionnaire, the researcher will contact two research experts in
order to understand whether the questionnaires are valid in a way of collecting information that
will be used to understand the research problem. Hence the researcher will construct the validity
of the instruments by using expert judgment method as suggested by Gay (1996). The instrument
will be refined based on experts’ advice. The following formula will be used to test validity
index.

CVI = No. of items regarded relevant by judges

Total No. of items

The questionnaire will be considered valid, if the generated coefficient is 50% and above as
recommended by Amin (2005).

Reliability

Mugenda and Mugenda (2011) define reliability as a measure of the degree to which a research
instrument yields consistent results or data after repeated trial. Reliability is defined by Vogt
(2007) as the consistency of either measurement or design to give the same conclusions if used at
different times or by different scholars. Mugenda and Mugenda (2011) define reliability as a
measure of the degree to which a research instrument yields consistent results or data after
repeated trial. Reliability is defined by Vogt (2007) as the consistency of either measurement or
design to give the same conclusions if used at different times or by different scholars. The first
step in ensuring reliability is by providing clear operational definitions of the variables under
study. Thereafter, internal consistency is measured through internal consistency reliability
(Sekaran & Bougie, 2010) as well as split-half reliability using Cronbach’s alpha. If internal
consistency reliability value equal to 0.7 and above, then the instrument will be considered
satisfactory (Sekaran & Bougie, 2010). Internal consistency reliability will be obtained using the
formula of Vogt (2007) as;

24
Where α – is the statistical tool, Cronbach’s alpha

N - Number of items,

C-bar is the average inter-item covariance among the items and

V-bar equals the average variance

3.12 Data analysis and presentation

The findings of the study was analyzed using both quantitative and qualitative methods. This
involved uncovering structures, extracting important variables, detecting any irregularity and
testing any assumptions (Kombo & Tromp, 2006).

3.12.1 Quantitative data analysis

Quantitative data analysis involves use of both descriptive and inferential statistics in the
Statistical Package for Social Scientists (SPSS). Descriptive statistics entails determination of
frequency distributions and percentages. Data was processed by editing, coding, entering, and
then presented in comprehensive tables showing the responses of each category of variables.
Inferential statistics include correlation analysis using a correlation coefficient and regression
analysis using a regression coefficient in order to answer the research questions. According to
Sekaran (2003), a correlation study is most appropriate to conduct the study in the natural
environment of an organization with minimum interference by the researcher and no
manipulation. A correlation coefficient was computed because the study entails determining
correlations or describing the association between two variables (Oso & Onen, 2008). At
bivariate level, innovative approaches of trade policies as an independent variable was correlated
with SMEs performance as the dependent variable using Pearson‘s moment Correlation
Coefficient.

3.12.2 Qualitative data analysis

Qualitative data analysis involves both thematic and content analysis, and, is based on how the
findings relates to the research questions. Content analysis was used to edit qualitative data and

25
reorganize it into meaningful shorter sentences. Thematic analysis was used to organize data into
themes and codes are identified (Sekaran, 2003). After data collection, information of same
category was assembled together and their similarity with the quantitative data created, after
which a report was written. Qualitative data is interpreted by composing explanations or
descriptions from the information. The qualitative data was illustrated and substantiated by
quotation or descriptions.

3.13. Limitations of the Study

The study faced a problem of not finding all respondents in the study area, especially the SME
owners and managers who went to the field as a group. However, the researcher arranged with
them to fix an appropriate time to collect reliable and valid information for the study.

The researcher further encountered a problem of some respondents not providing information for
the study, particularly information relating to the study variables. To address this, the researcher
explained to them that the information was only for academic purposes and helped them
understand the study variables.

The study was also expensive in terms of stationary. However, the researcher mobilized funds
from their friends and family members to successfully complete the study on time with the help
of their supervisor.

3.14 Chapter Summary

This chapter presents the various methods and procedures the researcher will adopt in conducting
the study in order to answer the research questions raised in the first chapter. The chapter is
organized in the following ways: the research design, population and sample, data collection
methods, sampling design and sample size, research procedures and data analysis. The next
chapters present the results and findings of the study.

26
 CHAPTER FOUR

PRESENTATION, ANALYSIS AND INTERPRETATION OF FINDINGS

4.1. Introduction
This chapter is structured to present the analysis of data, along with tables and figures, focusing
on the interpretations aligned with the research objectives. It is divided into two subchapters,
namely: "demographic characteristics of respondents" and "findings on the study objectives." In
these sections, relevant information pertaining to the respondents' demographics is examined,
and the results related to the research objectives are thoroughly discussed and interpreted.

4.2. Biographic data of the respondents

This section presents the biographic information of respondents. This includes age, sex, marital
status and level of education.

4.2.1 Sex distribution of the respondents

Table 2: Showing sex distribution of respondents

Sex Frequencies Percentages

Males 38 73.1
Females 14 26.9
Total 52 100
Source: Primary data, 2023

From the information provided, it is that in the study conducted on how trade policies affect
SMEs (Small and Medium Enterprises) performance in Ntungamo municipality, Western
division, the majority of the respondents were males. Specifically, out of the total respondents,
38 individuals, which accounts for 73.1% of the participants, were male. On the other hand,
females constituted a smaller proportion, with 14 individuals, making up 26.9% of the
respondents. Based on these findings, it is inferred that in Ntungamo municipality, Western
division, most of the SMEs are operated or owned by males. This conclusion is drawn from the
higher representation of male respondents in the study, indicating a potential gender disparity in
SME ownership or participation in the region.

27
4.2.2 Age distribution of respondents
Table 3: Showing age distribution of respondents

Age bracket Frequencies Percentage

Below 30 12 23.1
31-40 30 57.7
41-50 08 15.4
51 & above 02 3.8
Total 52 100
Source: Primary data, 2023

According to the data presented in Table 2, the majority of respondents, comprising 30

individuals (57.7%), fell within the age bracket of 31-40 years. Another group of respondents,
consisting of 12 individuals (23.1%), were below the age of 30. Additionally, there were 8
respondents (15.4%) aged between 41 and 50 years, while the smallest group comprised 2
respondents (3.8%) aged 51 years and above. This signifies that the higher number of
respondents in the age bracket of 31-40 and below 30 years because in their 30s and below 30
years are likely to be recent graduates or in the midst of pursuing higher education. They are
more willing to engage in entrepreneurial ventures to apply their skills and knowledge gained
through education. Younger individuals often have a higher level of familiarity with technology
and digital tools, which are essential in today's business environment. This may encourage them
to start and operate SMEs that leverage technology for growth and efficiency.

4.2.3 Marital status of the respondents

Table 4: Showing marital status of the respondents

Marital status Frequencies Percentage

Single 18 34.6
Married 31 59.6
Divorced 01 1.9
Widowed 02 3.8
Total 52 100
Source: Primary data, 2023

28
Based on the data provided in Table 3, it is evident that the majority of the respondents,
comprising 31 individuals (59.6%), were married. Following that, there were 18 respondents
(34.6%) who reported being single, 2 respondents (3.8%) were widowed, and only 1 respondent
(1.9%) had divorced. The data shows that the highest proportion of respondents were married,
while the second-largest group consisted of those who were single. This indicated that being
married might provide additional financial support and resources, which could be beneficial in
starting or growing an SME. Joint income and shared financial responsibilities may enable
married individuals to invest more in their businesses.

4.2.4 Education level of respondents

Table 5: Showing Education level of respondents

Education level Frequencies Percentages

Never attended 12 23.1
Certificate 08 15.4
Diploma 25 48.1
Bachelor degree 05 9.6
Post graduate 02 3.8
Total 52 100
Source: Primary data, 2023

Based on the data provided in table 4, it is observed that the majority of the respondents,
comprising 25 individuals (48.1%), had a diploma level of education. Additionally, there were 12
respondents (23.1%) who had never gone to school, 8 respondents (15.4%) with a certificate, and
5 respondents (9.6%) with a bachelor's degree. The smallest group consisted of 2 respondents
(3.8%) who were postgraduates.

From these findings, it is inferred that the majority of the respondents had a diploma level of
education. This suggests that a significant proportion of the participants possessed intermediate
educational qualifications, which provides them with a foundational understanding of the study
variables and related concepts. The distribution of educational levels among the respondents
indicates a diverse range of educational backgrounds, with some respondents having no formal
education and others having achieved higher academic qualifications. This diversity could

29
potentially offer valuable insights and perspectives when examining the impact of local business
registration and licensing, government procurement policies, financial and tax incentives, and
SME performance.

4.2.5 Length of business registration

Table 6: Showing length of business registration

Period Frequencies Percentages (%)

Less than a year 08 15.4
1-3 12 23.1
3+ 30 57.7
Total 52 100
Source: Field data 2023

Based on the data presented in the table, it is observed that the majority of businesses (57.7%)
were registered within the past three years. Additionally, 12 businesses (23.1%) were registered
between 1-3 years ago, while 8 businesses (15.4%) were registered within the last year.

From these findings, it is inferred that a significant proportion of SMEs had been registered for
over three years, given that they constitute 57.7% of the total businesses surveyed. This suggests
that a considerable number of business owners and managers had a relatively longer experience
of operating their businesses, which could potentially imply that they have acquired a better
understanding of how trade policies can impact their business growth over time.

The longer duration of registration might have allowed these SME owners and managers to gain
insights into the various trade policies and their effects on their respective businesses. This
knowledge and experience could enable them to make more informed decisions, adapt to policy
changes, and navigate the regulatory environment more effectively, ultimately contributing to
their business's growth and success.

30
 4.3 The Effect of Local Businesses Registration and Licensing on SMEs Performance
Table 7: Showing the effect of local businesses registration and licensing on SMEs
performance

Statement SA A NS SD D
f % f % f % f % f %
Registering a business provides legal protection 11 21.2 32 61.5 3 5.8 4 7.7 2 3.8
for intellectual property assets such as
trademarks, copyrights, and patents.
Registering and obtaining licenses is a 26 50.0 20 38.5 4 7.7 2 3.8 0 0.0
prerequisite for establishing partnerships and
collaborations with other businesses.
Registering and obtaining the necessary licenses 24 46.2 18 34.6 4 7.7 2 3.8 4 7.7
for a local business enhances its legitimacy and
credibility in the eyes of customers, suppliers, and
financial institutions.
Registration and licensing facilitate SMEs' entry 22 42.3 30 57.7 0 0.0 0 0.0 0 0.0
into international markets.
The registration and licensing process imposes 10 19.2 22 42.4 4 7.7 6 11.5 10 19.2
costs and administrative burdens on SMEs,
especially those with limited resources.
The registration and licensing process provides 30 57.7 22 42.3 0 0.0 0 0.0 0 0.0
SMEs with access to business support services,
such as training, mentoring, and networking
opportunities.
Source: Field data 2023

The study's findings shed light on how local businesses registration impacts SMEs' performance
in the western division of Ntungamo municipality. A significant majority of the respondents,
comprising 82.7%, acknowledged that registering a business provides crucial legal protection for
intellectual property assets like trademarks, copyrights, and patents. This indicates a strong
understanding and recognition among the participants of the importance and benefits of formal
business registration in safeguarding their intellectual property rights. However, a small
percentage of respondents (5.8%) expressed uncertainty about the relationship between business
registration and intellectual property protection, while 11.5% disagreed with the view that formal
registration offers such legal protection.

31
In addition to the intellectual property aspect, the study also explored the relationship between
business registration and partnerships or collaborations with other businesses. A significant
majority of respondents, accounting for 88.5%, agreed that registering their businesses and
obtaining licenses are essential prerequisites for establishing partnerships and collaborations in
the business environment. This finding highlights the participants' understanding of the crucial
role that formalization and compliance with licensing requirements play in building trust and
credibility when engaging with potential business partners. However, a small percentage of
respondents (7.7%) were uncertain about this correlation, and 3.8% disagreed with the view that
business registration and licensing are crucial factors in forming partnerships and collaborations.

Furthermore, the study delved into the impact of business registration on legitimacy and
credibility. Among the respondents, a noteworthy 80.8% agreed that registering their local
businesses and obtaining the necessary licenses enhance the legitimacy and credibility of their
enterprises in the eyes of customers, suppliers, and financial institutions. This finding indicates
that the majority of the surveyed individuals recognize the positive influence that formal
registration and compliance with licensing requirements can have on their business reputation
and stakeholder perception. However, a small percentage (7.7%) expressed uncertainty about the
connection between business registration and its influence on legitimacy and credibility, while
11.5% disagreed with this view.

The study also explored the impact of business registration on international market entry for
SMEs. Remarkably, there was unanimous agreement among the respondents, with 100%
agreeing, that registration and licensing facilitate SMEs' entry into international markets. This
strong consensus underscores the widespread understanding among the participants that
formalizing a business is pivotal in accessing global opportunities and expanding business
horizons beyond national borders. The unanimity in this aspect reflects a collective awareness of
the significance of formalization as a pathway for SMEs to venture into international markets
and compete on a global scale.

On the topic of perceived burdens, the study investigated the participants' views regarding the
costs and administrative challenges of the registration and licensing process. 61.6% of the
respondents acknowledged that the process imposes burdens, particularly in terms of costs and

32
administrative requirements, especially for SMEs with limited resources. Surprisingly, 30.7%
disagreed with this view, suggesting varying opinions among respondents regarding the
challenges associated with formalization. Additionally, 7.7% expressed uncertainty about
whether the registration and licensing process indeed imposes such burdens.

Lastly, the study addressed the access to business support services provided through the
registration and licensing process. Notably, a unanimous 100% agreement was observed among
the respondents, with none disagreeing, that formalization opens doors for SMEs to access
various business support services. These services include training, mentoring, and networking
opportunities, which are instrumental in supporting SME growth and development. The
unanimous consensus underscores the collective recognition among the participants of the
potential benefits of formal business registration in fostering an environment where SMEs can
access crucial support systems. By unanimously agreeing on this aspect, the respondents indicate
a strong belief in the value of business formalization as a pathway to unlocking valuable
resources for SMEs and nurturing their success in the business landscape

The study's findings emphasize the importance of business registration for SMEs' performance in
the western division of Ntungamo municipality. The majority of respondents recognized the
benefits of formalization, such as legal protection for intellectual property, improved credibility,
and access to international markets. While there were differing opinions on associated burdens,
all respondents unanimously agreed that registration provides access to valuable business support
services. These results underscore the significance of formal business registration as a key
enabler for SMEs to thrive and succeed in the competitive business landscape.

During a recent interview with the Head of Finance in the Western Division of Ntungamo
Municipality, significant insights emerged regarding the profound impact of business
registration and licensing on the performance of SMEs. According to the Head of Finance, “…a
core consequence of engaging in business registration and obtaining necessary licenses resides
in the establishment of a robust legal framework. The process of formal registration serves as a
catalyst, furnishing SMEs with an acknowledged legal standing, thereby bestowing them with
legitimacy and a sense of accountability. This consequential status, in its wake, amplifies their
pathways to securing funding, expanding their market presence, and fostering collaborative

33
 partnerships. By aligning with the requisites of licensing, SMEs not only showcase their
dedication to upholding industry regulations and ethical standards but also cultivate an
elevation in their standing of trustworthiness, culminating in building confidence among their
clientele and prospective associates…”. (Head of Finance, Ntungamo Municipality, July, 2023).

During a dialogue with representatives from the Uganda Revenue Authority (URA), it was
emphasized that “…a significant number of business owners in the division have proactively
embarked on formalizing their enterprises. This prevailing inclination towards business
registration is primarily motivated by the aspiration to tap into a range of beneficial financial
and legal advantages. A central driving force behind this trend is the pursuit of eligibility for
enhanced banking services. Entrepreneurs are focused on creating dedicated business accounts
that cater precisely to their unique needs. Through this approach, their aim is two-fold:
enhancing their credibility while simultaneously reducing perceived risks. This dual effect
subsequently paves the way for streamlined access to credit from financial institutions. This not
only enables avenues for cost reduction but also elevates their fiscal dependability, contributing
to an overarching sense of financial stability and well-being…”. (URA tax official, July, 2023)

Table 8. Pearson's correlation coefficient between the registration and licensing and the
performance outcomes of small and medium-sized enterprises (SMEs)

Registration and SMEs performance

licensing
Registration and Pearson correlation 1 .959**
licensing Sig. (2-tailed) .000
N 52 52
SMEs performance Pearson correlation .959** 1
Sig. (2-tailed) .000
N 52 52
**.Correlation is significant at the 0.01 level (2-tailed).

The findings presented in table 8 above unveil a noteworthy pattern: the presence of credit
accessibility holds a considerably positive impact on the growth of SMEs in Nyamitanga
division (r = .859, p-value < .05). These outcomes propose that the registration and licensing
processes exert a robust influence on the performance of SMEs in the western division of
Ntungamo municipality. Consequently, based on these results, the researcher arrived at the
conclusion of rejecting the null hypothesis and embracing the alternative hypothesis. This

34
 alternative hypothesis asserts that there exists a statistically significant correlation between
registration and licensing procedures and the performance of small and medium-sized enterprises
(SMEs), thereby indicating that the quality of registration and licensing distinctly affects the
performance of SMEs within the western division of Ntungamo municipality.

4.3.1 Hypothesis testing on the Effect of Local Businesses Registration and Licensing on
SMEs Performance
H1: A noteworthy correlation exists between the registration and licensing processes and
the performance outcomes of small and medium-sized enterprises (SMEs) located in
the western division of Ntungamo Municipality.

4.4 The influence of Government Procurement Policies on the performance of SMEs

Table 9: Showing the influence of Government Procurement Policies on the performance of
SMEs

Statement SA A NS SD D
f % f % f % f % f %
Government procurement policies include support 24 46.2 18 34.6 4 7.7 2 3.8 4 7.7
programs specifically designed to assist SMEs in
navigating the procurement process.
Government procurement policies prioritize or set aside a 26 50.0 20 38.5 4 7.7 2 3.8 0 0.0
certain percentage of contracts for SMEs can provide
increased market opportunities.
Government procurement policies encourage collaboration 11 21.2 32 61.5 3 5.8 4 7.7 2 3.8
and subcontracting between large firms and SMEs can
foster valuable networking opportunities.
Government procurement policies encourage SMEs to 22 42.3 30 57.7 0 0.0 0 0.0 0 0.0
enhance their skills, capabilities, and innovation to meet
the requirements of government contracts.
Government procurement policies encourage fair 10 19.2 22 42.4 4 7.7 6 11.5 10 19.2
competition and promote the participation of SMEs can
help level the playing field.
Government procurement policies prioritize the 30 57.7 22 42.3 0 0.0 0 0.0 0 0.0
development of local SMEs by requiring prime contractors
to subcontract a portion of the work to smaller businesses.
Source: Field data 2023

35
The study findings provide valuable insights into how Government Procurement Policies impact
the performance of SMEs in Western Division, Ntungamo Municipality. A significant majority
of the respondents (80.8%) acknowledged the existence of government support programs
specifically designed to assist SMEs in navigating the procurement process. These programs
were widely perceived as valuable resources that facilitate SMEs' participation in public
procurement opportunities. However, a small percentage of respondents (7.7%) expressed
uncertainty about the presence of such support programs, while 11.5% disagreed with their
existence.

Furthermore, the study revealed that a substantial majority of the respondents (88.7%) agreed
that government procurement policies prioritize or set aside a certain percentage of contracts for
SMEs, which leads to increased market opportunities. This finding highlights the importance of
government initiatives aimed at creating a level playing field and fostering SME participation in
public procurement. However, a small percentage of respondents (7.7%) expressed uncertainty
about the study variables, indicating a need for further awareness and understanding of
government procurement policies. Additionally, 3.8% of the respondents disagreed with the
view, suggesting differing perspectives on the impact of such policies on providing market
opportunities for SMEs.

Another significant insight from the study is that 82.7% of the respondents agreed that
government procurement policies encourage collaboration and subcontracting between large
firms and SMEs, leading to valuable networking opportunities. This underscores the positive
impact of government initiatives in promoting partnerships and cooperation between larger
established firms and smaller SMEs. While 5.8% of the respondents were unsure about this view,
11.5% disagreed, indicating varying opinions on the effectiveness of these policies in fostering
collaboration and subcontracting.

Moreover, the study found unanimous agreement among all respondents (100%) that government
procurement policies encourage SMEs to enhance their skills, capabilities, and innovation to
meet the requirements of government contracts. This unanimous consensus highlights the crucial
role of government procurement policies in driving SMEs to improve and innovate, aligning
their capabilities with the demands of government contracts. The unanimous agreement suggests

36
that these policies act as catalysts for promoting a culture of continuous improvement and
innovation among SMEs, enabling them to secure government contracts and thrive in the broader
market.

Additionally, the study revealed that 61.6% of the respondents agreed that government
procurement policies encourage fair competition and promote the participation of SMEs,
ultimately helping to level the playing field. This finding emphasizes the role of these policies in
creating an environment where SMEs can compete based on merit and value proposition,
reducing barriers to entry. However, 7.7% were uncertain, and 30.7% disagreed with this view,
showing different perspectives on the effectiveness of these policies in promoting fair
competition for SMEs.

Finally, a remarkable finding was that 100% of respondents agreed that government procurement
policies prioritize the development of local SMEs by requiring prime contractors to subcontract a
portion of the work to smaller businesses. This unanimous support indicates a collective belief in
the effectiveness of these policies in promoting the growth and participation of local SMEs in
government procurement activities. Subcontracting is seen as a valuable opportunity for SMEs to
gain exposure, access new markets, and enhance their competitiveness. Additionally, these
policies may foster collaborations between large firms and SMEs, contributing to a more
interconnected business ecosystem within Western Division, Ntungamo Municipality.

The study findings on the impact of Government Procurement Policies on SMEs' performance in
Western Division, Ntungamo Municipality, revealed significant insights. The majority of
respondents acknowledged the presence of government support programs to assist SMEs in
navigating the procurement process, indicating recognition of their value. Moreover, a
substantial proportion agreed that these policies prioritize contracts for SMEs, leading to
increased market opportunities and fostering collaboration between large firms and SMEs. The
unanimous agreement that government procurement policies encourage SMEs to enhance their
skills and prioritize local development through subcontracting is noteworthy. However, there
were varied opinions on whether these policies promote fair competition. Overall, the findings
underscore the importance of tailored and well-implemented procurement policies to bolster
SME growth and competitiveness in the region.

37
 In an interview with the Head of finance, Western Division, Ntungamo Municpality.

"Prioritizing or allocating a specific proportion of contracts for small and medium-sized

enterprises (SMEs) by governments establishes a fair competitive arena. This environment
enables smaller enterprises to vie with their larger counterparts for government ventures,
resulting in augmented revenue and a broader market share for the SMEs. This approach grants
them entry into novel and lucrative business prospects."

"Facilitating SMEs in navigating the intricate procurement procedure contributes to their

advancement in bidding proficiency and competitive prowess when seeking government
contracts. This assistance aids SMEs in strengthening their ability to secure such contracts."

"Nurturing collaboration and subcontracting arrangements between sizable corporations and

SMEs generates a climate that encourages partnerships. These collaborations between well-
established entities and smaller enterprises furnish SMEs with invaluable networking occasions,
resource access, and exposure to more extensive undertakings. Such cooperative ventures enrich
the capabilities and standing of SMEs, culminating in their further expansion and business
growth." (Head of Finance, Western division, Ntungamo Municipality. July, 2023)

Table 10: Pearson's correlation coefficient between Government Procurement Policies and
Performance of SMEs

Government SMEs’ performance

Procurement Policies
Government Pearson correlation 1 .892**
Procurement Policies Sig. (2-tailed) .000
N 52 52
SMEs’ performance Pearson correlation .892** 1
Sig. (2-tailed) .000
N 52 52
**.Correlation is significant at the 0.01 level (2-tailed).

The insights depicted in the table above shed light on a notable discovery: government
procurement policies wield a substantial and positive impact on the performance of SMEs within

38
 the western division of Ntungamo municipality (r = .892, p value < .05). These findings
distinctly suggest that the influence of government procurement policies has left a pronounced
mark on the performance achievements of SMEs. In light of these compelling outcomes, the
researcher concludes by firmly refuting the null hypothesis and firmly endorsing the alternative
hypothesis. This alternate stance posits a statistically significant association between
Government Procurement Policies and the financial performance of SMEs situated in the western
division of Ntungamo municipality. This, in turn, underscores the existence of a robust
relationship between these variables, cementing their inter connectedness.

4.4.1 Hypothesis testing on the influence of Government Procurement Policies on the

performance of SMEs

H2: There is significant relationship between Government Procurement Policies and

Performance of SMEs in Western Division, Ntungamo municipality.

4.5 The impact of financial and tax incentives on SMEs Performance

Table 11: Showing the impact of financial and tax incentives on SMEs Performance

Government SA A NS SD D
f % f % f % f % f %

Financial incentives such as grants, loans, or subsidies 30 57.7 22 42.3 0 0.0 0 0.0 0 0.0
provide SMEs with access to much-needed capital.
Tax incentives, such as tax credits or deductions help 26 50.0 20 38.5 4 7.7 2 3.8 0 0.0
SMEs manage their cash flow effectively.
Financial and tax incentives policies that specifically target 24 46.2 18 34.6 4 7.7 2 3.8 4 7.7
investment and innovation encourage SMEs to undertake
projects that enhance their competitiveness.
Financial and tax incentives policies that target SMEs 22 42.3 30 57.7 0 0.0 0 0.0 0 0.0
stimulate job creation and contribute to overall economic
growth.
Financial and tax incentives incentivize SMEs to formalize 10 19.2 22 42.4 4 7.7 6 11.5 10 19.2
their operations and comply with regulatory requirements.
Source: Field data 2023

The study findings indicate unanimous agreement among all respondents, with 100% expressing
those financial incentives, such as grants, loans, or subsidies, play a crucial role in providing

39
Small and Medium-sized Enterprises (SMEs) with access to much-needed capital. This
overwhelming consensus highlights the collective recognition of the positive impact that
financial incentives have on SMEs' financial stability and growth. Grants offer non-repayable
funds that SMEs can use to invest in research, development, or expansion. Loans and subsidies
provide additional capital for various business needs, supporting growth and development that
may have been otherwise challenging. The unanimous agreement underscores the significance of
financial incentives as catalysts for SMEs' progress and overcoming financial constraints.

Regarding tax incentives, 88.5% of the respondents agreed that they help SMEs manage their
cash flow effectively. Tax credits and deductions reduce tax liability, increasing funds available
for reinvestment or expansion. The high percentage of agreement suggests the perceived
importance of tax incentives in easing financial burdens for SMEs. However, 7.7% were
uncertain, and 3.8% disagreed, indicating the need to address doubts and differing perspectives
on their effectiveness.

Furthermore, 76.8% agreed that financial and tax incentives targeting investment and innovation
encourage SMEs to enhance their competitiveness. These policies reduce costs associated with
innovation, fostering growth. However, 11.5% disagreed, warranting attention to concerns about
policy effectiveness. In terms of job creation, 100% agreed that financial and tax incentives
contribute to overall economic growth. These incentives motivate SME expansion, generating
employment and stimulating the economy. The unanimous agreement emphasizes their crucial
role in supporting SMEs and the region's development.

Lastly, 61.6% recognized that financial and tax incentives incentivize SME formalization and
regulatory compliance. By offering rewards, the government encourages SMEs to operate within
the legal framework. While 7.7% were uncertain, 30.7% disagreed, indicating differing views on
the incentives' impact. The study highlights the positive influence of financial and tax incentives
on SMEs' performance and development. However, addressing uncertainties and dissenting
views lead to more effective policies that further support SME growth in Western Division,
Ntungamo Municipality.

40
 During an interview conducted with officials from the Uganda Revenue Authority (URA), they
underscored the substantial impact of financial and tax incentives on the performance of Small
and Medium-sized Enterprises (SMEs) within the Western Division of Ntungamo Municipality.
The URA tax officials emphasized that these incentives play a pivotal role in influencing SMEs'
operational outcomes.

According to their insights, “… financial incentives, which encompass a range of benefits such
as grants, subsidies, and favorable loan terms, have the potential to invigorate the growth
trajectories of SMEs. These incentives can enhance SMEs' access to capital, empowering them to
channel investments into areas like innovation, expansion, and modernization. Consequently, this
infusion of capital can result in heightened productivity, the creation of job opportunities, and
increased competitiveness not only within the local market but potentially on a broader scale as
well...”.

The tax officials further expounded that customized “…tax incentives, tailored to address the
specific needs of SMEs, have the capacity to alleviate the tax-related burdens these enterprises
face. This relief effectively releases valuable resources that SMEs can then redirect towards their
core business activities. The spectrum of relief measures includes the reduction of tax rates and
granting exemptions for specified time frames. Such measures, they noted, possess the ability to
stimulate entrepreneurial endeavors, as they render the initiation and continuation of business
operations more financially viable. This alleviation of the fiscal pressures on SMEs, according to
the officials, creates an environment conducive to sustaining growth over the long term…”.

In summary, as conveyed by a URA tax official in 2023, the interview highlighted the
considerable influence of financial and tax incentives on the performance of SMEs in the
Western Division of Ntungamo Municipality. By providing insights into the strategic significance
of these incentives, the officials underscored their role in shaping SMEs' growth,
competitiveness, and overall sustainability within the local business landscape.
(URA tax official, July, 2023)

41
Table 12. Showing the correlation between financial & tax incentives and SMEs’
Performance

Financial & tax SMEs’ Performance

incentives
Financial & tax Pearson correlation 1 .968**
incentives Sig. (2-tailed) .000
N 52 52
SMEs’ Performance Pearson correlation .968** 1
Sig. (2-tailed) .000
N 52 52
**.Correlation is significant at the 0.01 level (2-tailed).

Table 12, presented above, provides insights into the interplay between Financial & Tax
Incentives (independent variable) and SMEs’ Performance (dependent variable). Through a
bivariate analysis, the correlation between Financial & Tax Incentives and SMEs’ Performance is
indicated as r = 0.968.

This correlation value signifies an exceptionally strong and positive relationship between the two
variables. This is further reinforced by the significance value of 0.000, which is considerably
lower than the threshold of 0.05. The significance value's level being below 0.05 signifies
statistical significance, adding credibility to the robustness of the observed correlation.

The high correlation coefficient of 0.968 implies that Financial & Tax Incentives significantly
impact SMEs’ Performance within the Western Division of Ntungamo municipality. In essence,
these incentives contribute to influencing SMEs’ Performance by a substantial margin of 96.8%.

In summary, the findings underscore an influential connection between Financial & Tax
Incentives and SMEs’ Performance, with a remarkably strong positive relationship observed. The
statistical significance of this relationship is notable, pointing towards Financial & Tax
Incentives playing a pivotal role in shaping SMEs’ Performance within the context of the
Western Division of Ntungamo municipality.

4.5.1 Hypothesis testing on the impact of financial and tax incentives on SMEs
Performance

H3: A notable and meaningful correlation exists between financial and tax incentives and the
performance of SMEs in the Western Division of Ntungamo municipality.

42
 CHAPTER FIVE

DISCUSSION OF FINDINGS, CONCLUSIONS AND RECOMMENDATION

5.0. Introduction
This chapter presents a comprehensive discussion of the findings, draw conclusions, and provide
recommendations based on the study's investigation into the impact of trade policies on the
performance of Small and Medium-sized Enterprises (SMEs) in Western Division, Ntungamo
Municipality. The study aimed to assess the perceptions and experiences of SME owners and
stakeholders regarding the influence of various government policies on SME performance.
Throughout the research process, we explored the views of respondents on financial incentives,
tax incentives, investment and innovation policies, and the overall effect of government
procurement policies on SMEs.

5.1 Discussion of findings

5.1.1 The effect of Local Businesses Registration and Licensing on SMEs performance
The findings of this study illuminate the influence of local business registration and licensing on
the performance of Small and Medium-sized Enterprises (SMEs) situated in the western division
of Ntungamo municipality. These results provide insightful perspectives that are in alignment
with existing research within this domain. The study effectively revealed the substantial role
played by business registration in affording legal safeguarding for intellectual property assets
such as trademarks, copyrights, and patents. The outcome resonates with prior research (Djankov
et al., 2002) that underscores how formal registration safeguards the intellectual property rights
of SMEs, rendering them competitively advantageous. However, a minority of respondents
(5.8%) expressed uncertainty about the nexus between business registration and intellectual
property protection, while 11.5% contested this viewpoint. These differing stances might emerge
from an insufficient understanding of the legal benefits linked with formal registration.

Moreover, the investigation delved into the interplay between business registration and the
establishment of partnerships or collaborations with other businesses. A notable majority of
respondents (88.5%) recognized the significance of registering businesses and acquiring licenses
as pivotal prerequisites for fostering partnerships and collaborations. This finding aligns

43
harmoniously with literature (Kaplan, Piedra, and Seira, 2006) that accentuates how
formalization and adherence to licensing requirements cultivate trustworthiness and credibility
while engaging potential business collaborators. The process of formalization enhances the
likelihood of attracting reliable and reputable partners, leading to symbiotic collaborations.
Nonetheless, a minority (7.7%) expressed ambivalence regarding this correlation, while 3.8%
voiced disagreement. These divergent viewpoints could stem from varied experiences with
partnership prospects or an incomplete grasp of the value that formal registration imparts upon
business collaborations.

Furthermore, the study explored the ramifications of business registration on the fronts of
legitimacy and credibility. A significant majority of respondents (80.8%) concurred that formal
registration and licensing bolster the legitimacy and credibility of their enterprises, impacting
their standing among customers, suppliers, and financial institutions. This discovery aligns with
existing scholarship (Ketchen et al., 2014), suggesting that formalization heightens SMEs' repute
and perception, consequently fostering enhanced customer trust and potential investor attention.
However, a small portion (7.7%) exhibited uncertainty about the nexus between business
registration and its impact on legitimacy and credibility, while 11.5% held opposing views. These
varying opinions might be attributed to differing perspectives on the extent of formal
registration's influence on business credibility.

In the context of international market entry, a unanimous consensus (100%) emerged among
respondents, affirming that registration and licensing facilitate the foray of SMEs into global
markets. This outcome starkly aligns with established literature, signifying that formalizing
business operations opens avenues for SMEs to access global opportunities and compete at an
international level (Sharma, 2012). By possessing formal registration, businesses are better
poised to meet international requisites and standards, streamlining their expansion beyond
national boundaries. The unanimous consensus underscores a shared awareness among
respondents of the pivotal role that formalization plays in enabling international market access
for SMEs.

Additionally, the study probed into the perceived challenges posed by the process of registration
and licensing. A notable portion of respondents (61.6%) acknowledged the burdens inherent in
the process, particularly in terms of costs and administrative requisites, which can be especially

44
taxing for resource-constrained SMEs. This finding correlates seamlessly with previous research
(Djankov et al., 2002), which underscores the hurdles encountered by SMEs during the
formalization journey. The formal registration process can prove time-intensive and financially
demanding, particularly for SMEs operating with limited resources. Interestingly, 30.7% of
respondents contested this perspective, revealing divergent opinions on the challenges
intertwined with formalization. Moreover, 7.7% expressed uncertainty about whether the
registration and licensing process indeed entails such burdens. These differing viewpoints might
emanate from varying encounters with the registration process or differing interpretations of the
associated costs and administrative commitments.

Furthermore, the study addressed access to business support services facilitated through the
registration and licensing process. Remarkably, a unanimous consensus (100%) emerged, with
respondents concurring that formalization opens avenues for SMEs to access diverse business
support services encompassing training, mentoring, and networking opportunities. This finding
coalesces seamlessly with prevailing literature (Djankov et al., 2002) that posits formalized
businesses as having superior access to support services critical for SME growth and
advancement. Through tailored training, mentorship, and networking avenues, formalization
empowers SMEs with invaluable resources to augment their skills, broaden their knowledge
base, and cultivate strategic collaborations. The unanimous consensus underscores a resounding
belief among participants in the value of business formalization in nurturing the success of
SMEs.

Recent dialogue with the Head of Finance in the Western Division of Ntungamo Municipality
unveiled substantial insights regarding the profound influence of business registration and
licensing on SME performance. According to the Head of Finance, “…the act of engaging in
business registration and procuring essential licenses yields a central consequence in the
establishment of a robust legal framework. The process of formal registration acts as a catalyst,
endowing SMEs with an established legal status that grants them legitimacy and an accountable
demeanor. This consequential status, in turn, amplifies their avenues for securing financial
support, broadening market reach, and nurturing collaborative partnerships. In aligning with
licensing requisites, SMEs not only showcase their commitment to adhering to industry
regulations and ethical benchmarks but also cultivate an elevation in their perception of

45
 trustworthiness, ultimately fostering confidence among their customer base and potential
associates…”. (Head of Finance, Ntungamo Municipality, 2023).

Furthermore, discussions with representatives from the Uganda Revenue Authority (URA)
underscored that “…a notable proportion of business proprietors in the division have proactively
embarked on the journey of formalizing their enterprises. This prevalent inclination towards
business registration is predominantly motivated by the aspiration to access a range of
advantageous financial and legal privileges. A core driving factor behind this trend is the pursuit
of eligibility for enhanced banking services. Entrepreneurs are keen on establishing dedicated
business accounts that cater precisely to their distinct requirements. Through this approach, their
intention is dual-fold: bolstering their credibility while concurrently mitigating perceived risks.
This twofold impact subsequently paves the way for facilitated access to credit from financial
institutions. This not only facilitates avenues for cost reduction but also elevates their fiscal
reliability, contributing to an overarching sense of financial stability and well-being…”. (URA
tax official, July, 2023).

5.1.2 The influence of Government Procurement Policies on the performance of SMEs

The study's findings provide insightful revelations regarding the influence of Government
Procurement Policies on the operational performance of Small and Medium-sized Enterprises
(SMEs) within the Western Division of Ntungamo Municipality. The outcomes shed light on
several noteworthy facets, offering congruence with established literature in this realm.

The study notably indicates that a substantial majority of respondents (80.8%) possess an
awareness of the government's support initiatives tailored to assist SMEs in navigating the
intricacies of the procurement process. This finding harmonizes with existing scholarship (Belás
et al., 2017; Scuotto et al., 2017), which underscores the superior performance of SMEs involved
in government procurement—evident in heightened sales revenue, profitability, and business
expansion when compared to their non-participating counterparts. The existence of government
support programs furnishes SMEs with valuable tools, effectively enabling them to engage with
public procurement opportunities in a more effective manner.

Additionally, the research underscores that a substantial percentage of respondents (88.7%) hold
the belief that government procurement policies prioritize or earmark a certain percentage of

46
contracts specifically for SMEs, thereby fostering a landscape of expanded market possibilities.
This outcome aligns congruently with prior investigations (Ugur et al., 2014), which underscore
the constructive influence of government procurement on firms' innovation competencies and
competitive edge. The government's endeavors in fostering an equitable playing field and
facilitating SME participation in public procurement augments SMEs' financial stability,
amplifies their reputation, and unfolds avenues toward additional business prospects.

Moreover, the study illuminates the affirmative impact of government procurement policies on
the cultivation of collaboration and subcontracting between larger corporations and SMEs,
thereby propelling access to valuable networking prospects. This harmonizes with established
literature (Ruuska and Möttönen, 2015; Massol and Taminiau, 2019), emphasizing the
transformative potential of government contracts in refining SMEs' quality management systems
and overall operational efficacy. The unanimous consensus (100%) among respondents that
government procurement policies incentivize SMEs to augment their proficiencies, capabilities,
and innovative prowess to meet the prerequisites of government contracts aligns congruously
with the understanding that government procurement acts as a catalyst for nurturing a culture of
constant advancement and innovation among SMEs.

The findings further shed light on the viewpoints of respondents regarding government
procurement policies and their impact on ensuring fair competition. While a significant
proportion (61.6%) concurs that these policies stimulate equitable competition and enhance SME
participation, a noteworthy segment (30.7%) takes an opposing stance, indicative of varied
perspectives on the efficacy of these policies in creating a level playing field for SMEs. This
suggests potential challenges in ensuring that government procurement genuinely fosters
impartial competition for all SMEs within the region. Policymakers should duly consider these
perspectives to refine and enhance policies, ensuring equal opportunities for SMEs.

In sum, the study's findings resonate with established literature, validating that Government
Procurement Policies wield a positive influence on the performance of SMEs within the Western
Division of Ntungamo Municipality. Government support initiatives, contract prioritization, and
the promotion of collaboration and innovation collectively contribute to the growth and
competitive prowess of SMEs. Nevertheless, addressing issues related to equitable competition is
imperative to guarantee that all SMEs can equitably benefit from government procurement

47
prospects. The study enriches policymaking by furnishing valuable insights to hone and
strengthen government procurement policies, thereby fostering the continued development of
SMEs and facilitating economic expansion in the region.

"Prioritizing or earmarking a specific proportion of contracts for small and medium-sized

enterprises (SMEs) by governments establishes a fair competitive arena. This environment
empowers smaller enterprises to compete on an equal footing with their larger counterparts for
government projects, ultimately leading to increased revenue and a broader market share for
SMEs. This approach facilitates their entry into novel and lucrative business opportunities."
"Assisting SMEs in navigating the intricate procurement process contributes to their
enhancement in bidding proficiency and competitive strength when seeking government
contracts. This support aids SMEs in fortifying their capacity to secure such contracts."
"Fostering collaboration and subcontracting partnerships between sizeable corporations and
SMEs fosters an environment that encourages alliances. These collaborations between well-
established entities and smaller ventures provide SMEs with invaluable networking prospects,
access to resources, and exposure to more expansive ventures. These cooperative ventures
enhance the capabilities and reputation of SMEs, culminating in their further expansion and
business growth." (Head of Finance, July, 2023.

5.1.3 The impact Financial and Tax Incentives on SMEs performance

The findings of the study elucidate a robust consensus among respondents in the Western
Division of Ntungamo Municipality, acknowledging the substantial positive ramifications of
financial and tax incentives on the performance and advancement of Small and Medium-sized
Enterprises (SMEs). The unanimous agreement across all respondents accentuates the pivotal
role of financial incentives, encompassing grants, loans, and subsidies, in furnishing SMEs with
critical access to capital. Grants, as a form of non-repayable funds, assist SMEs in surmounting
financial constraints, thereby facilitating investment in research, development, and expansion to
drive progress. This finding seamlessly aligns with existing literature on the subject. Research
conducted by Megersa (2019) in China, Siyanbola et al. (2017) in Sub-Saharan States, and
Mayende (2013) in Uganda has underscored the constructive impact of tax incentives on GDP
growth, research and development expenditures, employment rates, output levels, and fixed

48
capital investment. Furthermore, research has suggested that tax exemptions can alleviate the tax
burden on SMEs, enabling them to reinvest their capital and stimulate growth.

The subsequent finding of the study centers on tax incentives, with a substantial majority
(88.5%) of respondents concurring that these incentives effectively contribute to managing
SMEs' cash flow. Tax credits and deductions serve to reduce tax liabilities, freeing up resources
for reinvestment or expansion initiatives. The resonance of this finding with existing literature is
palpable through studies by Kiser & Karceski (2017), Chukwumerije & Akinyomi (2011), and
Bozdoğanoğlu (2016). These investigations have substantiated that tax incentives, encompassing
reductions, exemptions, and simplification of the tax framework, can spur SME growth, amplify
post-tax earnings, and stimulate savings and investments.

Furthermore, the study unearths that a significant proportion of respondents (76.8%) are in
agreement that financial and tax incentives tailored to foster investment and innovation propel
SMEs to enhance their competitive edge. This finding aligns harmoniously with research
conducted by Fritsch and Sorgner (2013) and Grillitsch and Nilsson (2021), which emphasize the
influential role of startup grants, incubator programs, and tax incentives designed for emerging
businesses in nurturing entrepreneurship and contributing to SME performance.

The study further accentuates unanimous consensus (100%) among respondents, underscoring
that financial and tax incentives significantly contribute to overall economic growth by
stimulating SME expansion, generating employment opportunities, and catalyzing economic
activity. This discovery robustly supports the notion that financial and tax incentives wield a
pivotal role in bolstering SMEs and propelling regional development. This congruence with
existing literature is fortified by research conducted by Coad and Rao (2008) and Fritsch and
Wyrwich (2018), revealing that financial support and tax incentives correlate with elevated
employment levels within SMEs.

A discernible proportion of respondents (61.6%) within the study acknowledge that financial and
tax incentives foster SME formalization and adherence to regulatory requirements. Nevertheless,
a segment (7.7%) remains uncertain, while others (30.7%) diverge from this viewpoint. This
alignment with existing literature underscores the importance of evaluating the efficacy of
financial and tax incentives, as underscored by studies conducted by Czarnitzki et al. (2014) and

49
Hall et al. (2020). Rigorous impact assessments are paramount to refining incentive programs
and optimizing their positive impact on SME performance.

In its entirety, the study's findings resonate harmoniously with prevailing literature regarding the
influence of financial and tax incentives on SMEs. The unanimous agreement among
respondents firmly underscores the pivotal role of financial incentives in bestowing SMEs with
capital access, thereby fostering financial stability and growth. Tax incentives, on their part, are
acknowledged for their adeptness in cash flow management, tax liability reduction, and the
consequent amplification of post-tax earnings, all of which stimulate investment and innovation.
Furthermore, financial and tax incentives are acknowledged for their contributions to job
creation, economic expansion, and the encouragement of SME formalization and regulatory
compliance. Notwithstanding, addressing uncertainties and challenges tethered to incentive
programs is of paramount significance to ensure their efficacious implementation and maximal
positive impact on SMEs within the region. The findings accentuate the significance of these
incentives as catalysts for SME development in the Western Division of Ntungamo Municipality,
while underscoring the necessity for further research and policy refinement to enhance their
effectiveness in buttressing SME growth.

In a recent interview conducted with officials from the Uganda Revenue Authority (URA), they
accentuated the substantial impact of financial and tax incentives on the performance of Small
and Medium-sized Enterprises (SMEs) within the Western Division of Ntungamo Municipality.
These URA tax officials expounded that these incentives wield a pivotal role in shaping SMEs'
operational outcomes.

As per their insights, “… financial incentives, encapsulating an array of benefits like grants,
subsidies, and favorable loan terms, hold the potential to invigorate the growth trajectories of
SMEs. These incentives can augment SMEs' access to capital, empowering them to channel
investments into areas such as innovation, expansion, and modernization. As a result, this
infusion of capital can translate into heightened productivity, the creation of job opportunities,
and heightened competitiveness not solely within the local market but potentially on a broader
canvas as well...”.

These tax officials further delved into the topic, asserting that personalized “…tax incentives,
finely tailored to address the specific exigencies of SMEs, possess the capacity to alleviate the

50
tax-related burdens that these enterprises encounter. This relief effectively unshackles valuable
resources that SMEs can then divert towards their core business endeavors. The spectrum of
relief measures encompasses tax rate reductions and the conferment of exemptions for stipulated
durations. Such measures, they observed, inherently hold the ability to galvanize entrepreneurial
ventures, as they render the establishment and continuation of business operations more
financially tenable. This alleviation of the fiscal pressures on SMEs, as expounded by these
officials, fabricates an environment conducive to the perpetuation of growth over the long
haul...”. (URA tax official July, 2023)

5.2 Conclusion

The study set out to investigate the impact of Government Procurement Policies on the
performance of Small and Medium-sized Enterprises (SMEs) in the Western Division of
Ntungamo Municipality. Through a comprehensive examination of SME owners' and
stakeholders' perceptions and experiences, the study explored the influence of various
government policies, including local businesses registration and licensing, government
procurement policies, financial incentives, and tax incentives on SME performance. The findings
provide valuable insights into the dynamics between government policies and SME development
in the region.

Regarding local businesses registration and licensing, the study found that formalization plays a
crucial role in providing SMEs with legal protection for intellectual property assets, thereby
enhancing their competitiveness. Formal registration also facilitates partnerships and
collaborations with other businesses, leading to networking opportunities and improved
credibility. Moreover, it enables SMEs to access business support services and international
markets, contributing to their growth and expansion. However, challenges related to the
registration process, such as costs and administrative requirements, may impose burdens on
SMEs, especially those with limited resources.

The study explored the impact of government procurement policies on SMEs. The findings
indicated that government support programs and the prioritization of contracts for SMEs
contribute to increased market opportunities, fostering SME growth and competitiveness.
Engaging in government procurement also encourages collaboration and innovation among
51
SMEs and larger firms, leading to valuable networking opportunities. However, there were
differing views on whether government procurement policies truly promote fair competition for
all SMEs, suggesting room for improvement in ensuring equitable opportunities.

The study examined the impact of financial and tax incentives on SME performance. The
findings highlighted the crucial role of financial incentives in providing SMEs with access to
capital and overcoming financial constraints. Tax incentives were recognized for effectively
managing cash flow, increasing after-tax earnings, and encouraging investment and innovation.
Moreover, financial and tax incentives were found to contribute significantly to job creation,
economic growth, and SME formalization and compliance. However, there were differing views
on the incentives' impact, indicating the importance of evaluating their effectiveness for
continuous improvement.

The study's findings underscore the positive influence of various government policies on SME
development in the Western Division of Ntungamo Municipality. Government support programs,
prioritization of contracts, and financial and tax incentives all play essential roles in fostering
SME growth, competitiveness, and access to markets. However, challenges related to registration
processes and fair competition should be addressed to maximize the benefits of these policies for
all SMEs.

5.3 Recommendations

Based on the study's findings and conclusions, the following recommendations are proposed to
enhance the impact of government policies on SME performance in the Western Division of
Ntungamo Municipality:

• To encourage more SMEs to formalize, the government should streamline business

registration and licensing processes, reducing administrative burdens and associated
costs. This can be achieved through the implementation of online registration systems,
clear guidelines, and targeted support for SMEs during the formalization process.
• The government should continue to invest in and expand support programs that assist
SMEs in accessing public procurement opportunities. This includes providing training,

52
 mentorship, and networking opportunities to enhance SME capabilities and
competitiveness in the procurement market.
• Policymakers should take steps to ensure that government procurement policies truly
promote fair competition for all SMEs. This may involve setting clear criteria for contract
allocation, monitoring compliance, and creating a transparent and inclusive procurement
process.
• Regular evaluation of financial and tax incentive programs is essential to determine their
effectiveness and identify areas for improvement. Policymakers should conduct impact
assessments to ensure that these incentives achieve their intended outcomes and deliver
value for money.
• The government should actively promote the benefits of formalization and participating
in government procurement to SMEs. Raising awareness of the opportunities and support
available can encourage more SMEs to formalize and take advantage of government
policies aimed at fostering their growth.
• To further promote innovation among SMEs, policymakers can consider developing
specialized incentive programs focused on research and development. These programs
can encourage SMEs to invest in innovation and technology, leading to increased
competitiveness and growth.
• The government should collaborate with the private sector, industry associations, and
business development organizations to design and implement effective policies.
Involving relevant stakeholders can ensure that policies are tailored to the specific needs
of SMEs and maximize their impact.

5.4 Further research

Based on the findings and conclusions of this study, there are several areas that warrant further
research to deepen our understanding of the impact of trade policies on SME performance in the
Western Division of Ntungamo Municipality. Some potential areas for further research include:

• Conducting longitudinal studies to assess the long-term effects of various government

policies on SME performance would be valuable. Understanding how SMEs evolve over

53
 time after benefiting from government support and incentives can provide insights into
the sustainability and lasting impact of these policies.
• Further research could investigate the factors that influence SMEs' decision to participate
or not participate in government procurement opportunities. Identifying barriers and
motivations can help policymakers design more effective policies to encourage broader
SME engagement.

54
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 APPENDICES

Appendix I: Questionnaire for the SMEs owners and managers

Dear respondents,

I am Asiimwe Peter a student of Bishop Stuart University pursuing Bachelors Degree of Science
in Economics and Statistics undertaking a study on “Trade Policies and performance of SMEs in
Western Division, Ntungamo Municipality”. I humbly request you to spare some few minutes of
your time and answer these questions below. The study is strictly for academic purposes and will
be treated with utmost confidentiality.

Your cooperation is highly appreciated

Section A: Background information of the respondents

1. Gender
(a). Female ( b). Male
2. Marital Status
(a) Single (b) Married
(c) Divorced /separated (d) Widowed
3. Age
(a) 20 -30 (b) 31-40
(c) 41-50 (d) 51& above
4. Level of Education.
a) Certificate b) Diploma
c) Degree d) Master Degree
e) PhD
5. Title
Owner Manager
6. How long has your business been registered and licensed in Western Division, Ntungamo
Municipality?
a) less than a year 1-3 above 3

58
SECTION B: THE EFFECT OF LOCAL BUSINESSES REGISTRATION AND
LICENSING ON SMES PERFORMANCE
For each of the following statement, please tick where applicable the extent to which you agree
using the Likert scale. SA = Strongly Agree; A = Agree; NS = Not Sure; D = Disagree; SD, =
Strongly Disagree

STATEMENT RATING

Registering a business provide legal protection for SD D NS A SA

intellectual property assets such as trademarks, copyrights,
and patents.
1. Registering and obtaining licenses is a prerequisite for
establishing partnerships and collaborations with other
businesses.
2. Registering and obtaining the necessary licenses for a local
business enhances its legitimacy and credibility in the eyes
of customers, suppliers, and financial institutions.
3. Registration and licensing facilitate SMEs' entry into
international markets.
4. The registration and licensing process imposes costs and
administrative burdens on SMEs, especially those with
limited resources.
5. The registration and licensing process provides SMEs with
access to business support services, such as training,
mentoring, and networking opportunities.

Suggest any other effect of Local Businesses Registration and Licensing on SMEs performance
western division, Ntungamo Municipality

…………………………………………………………………………………………………..

59
SECTION C:THE INFLUENCE OF GOVERNMENT PROCUREMENT POLICIES ON
THE PERFORMANCE OF SMES

For each of the following statement, please tick where applicable the extent to which you agree
using the Likert scale. SA = Strongly Agree; A = Agree; NS = Not Sure; D = Disagree; SD, =
Strongly Disagree

Statement SD D NS A SA

Government procurement policies include support programs

specifically designed to assist SMEs in navigating the procurement
process.

Government procurement policies prioritize or set aside a certain

percentage of contracts for SMEs can provide increased market
opportunities.

Government procurement policies encourage collaboration and

subcontracting between large firms and SMEs can foster valuable
networking opportunities.

Government procurement policies encourage SMEs to enhance their

skills, capabilities, and innovation to meet the requirements of
government contracts.

Government procurement policies encourage fair competition and

promote the participation of SMEs can help level the playing field.

Government procurement policies prioritize the development of local

SMEs by requiring prime contractors to subcontract a portion of the
work to smaller businesses.

Suggest any other influence of Government Procurement Policies on the performance of SMEs
in western division, Ntungamo Municipality

…………………………………………………………………………………………………..

60
SECTION D: THE IMPACT OF FINANCIAL AND TAX INCENTIVES ON SMES
PERFORMANCE

For each of the following statement, please tick where applicable the extent to which you agree
using the Likert scale. SA = Strongly Agree; A = Agree; NS = Not Sure; D = Disagree; SD, =
Strongly Disagree

STATEMENT SD D NS A SA
Financial incentives such as grants, loans, or subsidies provide
SMEs with access to much-needed capital.
Tax incentives, such as tax credits or deductions help SMEs
manage their cash flow effectively.
Financial and tax incentives policies that specifically target
investment and innovation encourage SMEs to undertake
projects that enhance their competitiveness.
Financial and tax incentives policies that target SMEs stimulate
job creation and contribute to overall economic growth.
Financial and tax incentives incentivize SMEs to formalize their
operations and comply with regulatory requirements.

Suggest any other impact of Financial and Tax Incentives on SMEs performance in western
division, Ntungamo Municipality design questionnaires

.……………………………………………………………………………………………………

.……………………………………………………………………………………………………

61
Appendix II: Interview Guide for Key Informants in Western Division, Ntungamo
Municipality
1. Provide an overview of the current trade policies and regulations in place in Western
Division, Ntungamo Municipality that affect SMEs?
2. How are SMEs defined or classified in Western Division, Ntungamo Municipality?
3. Are there any specific initiatives or programs aimed at supporting SMEs in the division?
4. What is the process and requirements for registering and licensing local businesses in
Western Division, Ntungamo Municipality?
5. How do you perceive the impact of local businesses registration and licensing on the
performance of SMEs in the division?
6. Has there been any challenge or barrier faced by SMEs in the registration and licensing
process?
7. Are there any government procurement policies or programs in place that specifically
target SMEs in Western Division, Ntungamo Municipality?
8. How have these government procurement policies affected the participation and
performance of SMEs in the division?
9. Have SMEs faced any challenges or obstacles in accessing government procurement
opportunities?
10. Are there any financial and tax incentives or support programs available to SMEs in
Western Division, Ntungamo Municipality?
11. How have these financial and tax incentives influenced the performance and growth of
SMEs in the division?
12. Are there any challenges or limitations in accessing or utilizing these incentives for
SMEs?
13. In your opinion, what are the key factors that determine the performance and success of
SMEs in Western Division, Ntungamo Municipality?
14. Are there any additional trade policies or initiatives that you believe would further
support the growth and development of SMEs in the division?
15. Is there any additional information or insights you would like to share regarding the
impact of trade policies on SMEs in Western Division, Ntungamo Municipality?

Thank the interview

62