Uganda’s liberal business climate combined with its fragmented supply chains, wholesale and retail sub-sectors, is a good piloting ground for innovative business models and disruptive technologies, especially those tailored for addressing market inefficiencies. Additionally, Uganda is an open economy, allowing for the easy acquisition of imported computer hardware with no taxes levied on computers and capital equipment. However, the incentives for formalisation of business remain limited in part due to the relatively higher burden of legal and regulatory compliance and scarce capital. Internet bandwidth costs are on the gradual decline with access to more reliable internet on the increase. Internet and electricity unreliability still pose a threat to smooth business operations. Also, Uganda’s generally low levels of automation of the real economic sector have constrained digital innovation across sectors, particularly for small, vulnerable startups that cannot afford to build the “digital rails” and deliver services along them. It is discernible that the current levels of digitalisation have blurred the normative delineation of markets and sectors, as illustrated by the convergence in telecommunications, media markets and digital platforms. Interesting innovations have none-the-less proved that the digitalization of industry verticals is fast becoming cost-effective and feasible.

Uganda’s existing digital regulatory framework is technology neutral. Also, the Uganda Communications Commission (UCC) operates a technology-neutral regulatory approach. Much has been done by the government of Uganda to invest in broadband infrastructure and lower internet connection costs. As of August 2020, Uganda’s total fibreoptic cable, both public and privately laid, totaled 21,366 kilometers, including the Government’s National Backbone Infrastructure (NBI) cable of 3,224 kilometers.  In Uganda, 2G and 3G coverage currently stands at 93% and 65%, while 4G coverage stands at only 17% and concentrated in the urban areas. Consequently, smart phone penetration per capita continues to grow on account of the dramatic plunge in handset prices over the past few years. According to the Uganda Communications Commission (2020), mobile internet subscriptions reached 18.8 million in the first quarter of 2020, against a unique mobile subscriber base of 28.4 million users. Uganda’s hold 7 million smartphones and 18.2 million feature phones as of March 2020.

Incubators and accelerators have played a useful role in producing new but few innovative tech startups in Uganda. However, numerous potential startups are left out of the fold. Several key factors warrant mention here. Limited collaborative efforts across key ecosystem organizations, including, accelerators and incubators, industry, the academia and the non-governmental organization sector, limit the benefits of “discovery” across sectors and opportunities for scaling ideas with faster-to-market times.  Limited collaboration amongst the actors is partly explained by different levels of interest in ecosystem development, differences in sector priorities, and limited scope for collaboration on account of lack of knowledge of the respective institutional mandates. Additionally, synergies between the startup ecosystem and industry verticals are not fully exploited. This situation is explained by generally low levels of automation of industry verticals and the slow pace of digitalization. Therein lies the opportunity, but also the challenge.

Numerous moderate-growth SGBs do not qualify for finance available through the emerging nascent investment network. Multiple factors contribute to this situation including high levels of informality, poor management systems and record-keeping, a non-existent or thin tax record, and inadequate high-quality business development service (BDS) support. Also, only limited investment vehicles (in the $20 - $300k range) for high-growth SGBs currently exist in the ecosystem.

Investors can exploit several opportunities that emerge against a backdrop of the challenges herein highlighted. For example, investment in retail “fiber-to-home” last mile connectivity solutions could deliver handsome results over the decade, as demand for broadband continues to increase in Uganda. Investors could consider investing in e-Services, particularly IT-enabled value-added services. IT-enabled services have complemented the digitalization of industry verticals in Uganda. E-commerce services have provided business continuity during the Covid-19 pandemic and, in the process, delivered good results for virtual marketplaces. Other potential areas for investment include e-Education, e-Health, and e-Agriculture.

Finally, for the foreseeable future, startups may struggle more to navigate the survival and growth stages of development because of a higher compliance burden that the evolving regulatory environment will inevitably impose on the business environment. For example, compliance with the data privacy and security regulations will be a costly yet mandatory affair as the data economy continues to grow exponentially. The costs of tax compliance by startups may not abate on account of efforts to bring more informal businesses into the tax net. The government of Uganda’s tax policies are trending towards the taxation of digital media, mobile money, as well as international digital technology platforms, many of which serve as commonly accessible online tech-neural intermediaries which provide startups with developer tools and APIs for creating new business models and digital value chains. However, Uganda’s vibrant civil society maintains pressure on the government, with limited success, to keep the internet more open and expand access by removing deleterious taxes.