Chapter 12 Culture as a Facilitator and a Barrier to Entrepreneurship Development in Uganda

In: Entrepreneurship in Africa
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Jane N.O. Khayesi
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Arthur Sserwanga
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Rebecca Kiconco
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Abstract

Keying into the stream of research on culture and entrepreneurship, this chapter analyses the contribution of culture to entrepreneurship development in Uganda, East Africa. Using existing evidence, this chapter examines the role of different governmental and non-governmental institutions in the development of entrepreneurship in Uganda. Existing evidence reveals that various institutions have put in place policies, initiatives and programmes that facilitate and/or hinder entrepreneurship development in Uganda. This chapter examines these institutions and their roles in detail. Following this discussion, we focus on culture as an institution. We use existing literature, empirical evidence and a case study to analyse and illustrate culture’s facilitative and constraining role in the development of entrepreneurship in Uganda. Our findings reveal that culture facilitates entrepreneurship development by making it possible for individuals to access a social network that may avail various resources for entrepreneurs. Additionally, culturally-induced social obligations contribute to increased costs of raising resources thus hampering entrepreneurship development in Uganda. This chapter offers recommendations for entrepreneurship development in Africa.

Introduction

There has been substantial scholarly interest in culture as an institution that affects human life, including entrepreneurship (George and Zahra 2002; Hayton, George, and Zahra 2002). Most of this research, however, focuses on Western and Eastern countries, with limited research on the relationship between culture and entrepreneurship in Africa. For instance, a search of business and management literature on 23 May 2016 using the key terms “culture” and “entrepreneurship” in the isi Web of Science database yielded 654 articles, of which, only ten focused directly on Africa. There remains ambivalence about the contribution of culture to entrepreneurship development in African countries. While, on the one hand, there are stories of successful entrepreneurial efforts, on the other hand, there are tales of failure attributed to cultural factors. Furthermore, the different strands of research on culture and entrepreneurship development in Africa remain scattered and have not been consolidated into an easily accessible resource. This chapter aims to fill this gap in knowledge by synthesising and discussing available evidence showing how the cultural factor facilitates and/or constrains entrepreneurship development in Uganda.

Following the introduction, the next section discusses what the existing evidence reveals about the situation of entrepreneurship development in Uganda. Specifically, we discuss the efforts of governmental and non-governmental initiatives and programmes in entrepreneurship development in Uganda. We then discuss culture as an institution, examining its facilitative and constraining role in entrepreneurship development in Uganda. This section assesses culture-related opportunities and difficulties encountered by Ugandan entrepreneurs in the development of their businesses. Based on research conducted by Khayesi and George (2011), the third section provides a case illustration of culture’s facilitating and constraining effect on entrepreneurship development in Uganda. This illustration is based on empirical evidence gathered by Khayesi and George (2011) on the contextual effect of socio-culture on entrepreneurs’ resource assembly efforts through their social ties among micro-, small-, and medium-sized entrepreneurs in Uganda. The chapter then concludes with a discussion of policy, research, and practical recommendations for entrepreneurship development in Africa based on the preceding sections.

The Situation of Entrepreneurship Development in Uganda

The 2014 Global Entrepreneurship Monitor’s (gem) data ranks Uganda second in the world in terms of Total Early-stage Entrepreneurial Activity (tea), and first in the world in terms of new and established business ownership rates (Singer, Amorós, and Moska 2015). Taken together, these facts have earned Uganda the title of the most entrepreneurial country of the world, with approximately 28 per cent of the adult population owning a new business and 36per cent of the adult population owning an established business. One may wonder, in a country where approximately 20 per cent of the population live in poverty (Uganda 2014), how does such a country become the world’s most entrepreneurial country?

While it might be speculated that the 28 per cent of adult Ugandans might have gone into business as a last resort, clearly the 36 per cent who are already established must have a reason for surviving in business. In fact, Uganda relies heavily on small- and medium sized enterprises (smes) as job creators and income generators for its economy (Uganda Investment Authority 2008). This warrants an examination of entrepreneurship development in Uganda with a focus on facilitative and/or constraining factors. Both governmental and non-governmental institutions play different roles in putting in place policies, initiatives, and programmes to facilitate entrepreneurship development in Uganda. We hereby examine these roles and institutions in depth.

Government Role

The government’s effort at entrepreneurship development mainly takes the form of putting in place and enforcing, as far as possible, policies and programmes that support micro-, small-, and medium-sized enterprises in Uganda. We examine these policies and programmes in this section.

Government Policy

Generally, Ugandan national experts agree that national policies outlined in policy documents such as the Poverty Eradication Action Plan (peap) are supportive of entrepreneurship in Uganda (Namatovu et al. 2011). Over the past three decades, the Government of Uganda has maintained a policy divesting itself from doing business. Instead, entrepreneurship has been left mainly to the private sector. Nevertheless, the government of Uganda has encouraged entrepreneurship through its policies aimed at reducing predatory taxation, for instance removing implicit taxation on exports, liberalising the foreign exchange rate, supporting industrialisation, and improving the financial system, and opening sectors, which were previously a monopoly of government (Walter et al., 2003). These policies facilitate the participation of entrepreneurs in international trade.

The government has continued to maintain low inflation as one of its macro-economic policies. Coordinated prudent fiscal and monetary policy management have been employed to contain inflation. By maintaining low inflation, the government provides a stable investment climate that attracts entrepreneurial start-ups and enables existing ones to grow (Kasaija 2015; Kiwanuka 2014).

Government policy has also targeted financial inclusion and deepening. One of the challenges faced by entrepreneurs in developing countries is lack of access to credit. The emergence of new mobile telephone technology and agency banking are key drivers of improved financial inclusion. Government has put in place policies and laws that accommodate alternative banking approaches like mobile banking, agent banking, bank assurance, and Islamic Banking. These new financial approaches will ease the credit accessibility barriers faced by business start-ups and small- and medium-sized enterprises (Kasaija 2015; Kiwanuka 2014).

The government has enacted the Public-Private Partnerships (ppps) policy, as an important option for delivering public infrastructure projects and services. ppps provide entrepreneurs with new business start-up or growth opportunities. Entrepreneurs can exploit innovative business opportunities offered by government. The entrepreneurs together with government will be in a good position to exploit resources and advantages that either party could hardly explore single-handed. The Public-Private Partnerships are creating a new era of doing business with government (Kasaija 2015; Kiwanuka 2014; Walter et al., 2003).

In addition to national and regional initiatives, the government of Uganda has put in place policies aimed at improving the participation of Ugandan entrepreneurs in international trade. Such policies promote participation in international trade through inter-regional organisations and agreements like the East African Community (eac), the New Partnership for Africa’s Development (nepad), smart partnership dialogue, the African Growth and Opportunity Act (agoa), and Everything But Arms (eba) (Walter et al., 2003).

Despite efforts to put encouraging policies in place, it is important to highlight that Uganda still has a long way to go with respect to a taxation system favourable to micro, small and medium enterprises. Additionally, some of the Ugandan national experts perceive the regulatory and administrative bureaucracy as limiting entrepreneurship (Ibid. 2003).

Government Programmes

Over time, the Government of Uganda has established a number of organisations and initiatives to provide specific support to entrepreneurs in the hope of facilitating entrepreneurship development. These programmes include (Uganda Investment Authority, 2008):

  1. unido Master Craftsman Programme providing skills upgrading and advisory services in partnership with Uganda Small Scale Industries Association, Northern Uganda Manufacturers’ Association, Nakawa Vocational Training Institute, Uganda Leather Allied Industries Association, Uganda Gatsby Trust, and Textile Development Agency.
  2. Business Uganda Development Scheme working with the Private Sector Foundation to support technology and know-how acquisition.
  3. The Jua Kali Initiative under the Ministry of Tourism, Trade and Industry through facility centres such as Luzira and Soroti Industrial Business Parks enabling the growth of micro-, small- and medium-scale manufacturing businesses owned by local artisans.
  4. Microfinance Outreach Plan strengthening financial services and systems, particularly the microfinance industry.
  5. The Warehouse Receipt System through the Common Fund for Commodities and the Ministry of Tourism, Trade and Industry facilitating the improvement of marketing products for farmers and small-scale traders.
  6. Other government programmes and initiatives include The Uganda Investment Authority, Uganda Registration Services Bureau, Enterprise Uganda, and the Presidential Investors Round Table (Kasaija 2015; Namatovu et al., 2011; Walter et al., 2003).

To improve the performance of these programmes and initiatives, the government has recently embarked on several actions such as the transformation of The Uganda Investment Authority and the Uganda Registration Services Bureau into one-stop centres to efficiently facilitate investors and quicken business registration. The plans for online company registration are complete and some services can now be completed on the internet. These measures have reduced the burden of multiple data requirements for business start-ups, by use of information collected at business registration for taxation and licensing. The Uganda Investment Authority has continued to build infrastructure to ensure serviced industrial and business parks have water, roads, and power. Specific attention has been placed on improving the Luzira, Soroti, and Namanve Industrial Business Parks to make them operational (Kasaija 2015; Kiwanuka 2014; Namatovu et al., 2011).

Additionally, the government is rolling-out the National Land Information System from six zones to 21 land offices, thereby significantly reducing the time and cost of undertaking land transactions, and enhancing the security of land registration. This will reduce fraud and corruption related to transfer and titling of land, which will, in turn, ensure that entrepreneurs have secure collateral to enable them obtain credit from financial institutions. The government also launched the Energy for Rural Transformation programme that has supported rural electrification (Walter et al., 2003). Infrastructure facilities such as electricity have been known to facilitate income generation and business development particularly in rural areas (Kooijman-Van Dijk 2012; Kooijman-Van Dijk and Clancy 2010; Schillebeeckx et al., 2012). Other key interventions meant to improve regional integration under the East African Community include implementation of the Customs Union, the Common Market, and the Monetary Union protocol. East African Community partner states are now undertaking common infrastructure investments and reducing non-tariff barriers. By removing road blocks, weigh bridges, and multiple bonds, the number of days it takes for a container to move from Mombasa to Kampala has been reduced from 18 to a maximum of four, and to Kigali from 22 to a maximum of seven. A Single Entry East African Tourist Visa, and Common Payment system has also been introduced (Kasaija 2015; Kiwanuka 2014). These arrangements not only widen Uganda’s export market in the region, but also reduce the cost of doing business within Uganda and the expanded East African Region thus enhancing entrepreneurship in Uganda.

Despite the government’s efforts to introduce new programmes and reform existing ones, these programmes are viewed generally as unsatisfactory due to implementation challenges (Namatovu et al., 2011; Walter et al., 2003). To overcome such challenges, there is a need for the government to improve and increase specific services for Ugandan entrepreneurs, especially start-ups in the small- and medium enterprises sector. Such services could include increased financial support for entrepreneurs, improved export promotion programmes, and increased scope of existing programmes to take care of the recent business environment dynamics (Walter et al., 2003).

Private and Non-governmental Role

Besides government policies and programmes, Ugandan entrepreneurs benefit from parastatal, private, and non-governmental institutions that offer services ranging from business development, information, and advice, financial support, and other services. These institutions take the form of microfinance deposit-taking institutions (mdis), savings and credit cooperatives (saccos), and banks, business associations, international organisations, and self-organising groups. While most of these institutions are headquartered in the capital city Kampala, they do have branches that operate in various parts of the country.

A number of organisations offer multiple services. The services offered by these organisations facilitate entrepreneurship development. An illustration of the parastatal, private, and non-governmental services offered by some of the organisations towards entrepreneurship development in Uganda is provided in Table 13.1.

tab000025

Role of Culture in Entrepreneurship Development

Culture plays a key role in influencing and shaping different aspects of society, including organisational phenomena and practices. For this reason, management and entrepreneurship scholars continue to study different aspects of culture in order to establish its effect on organisational practices. For more than three decades, culture has remained central to organisation studies and entrepreneurship research (Giorgi, Lockwood, and Glynn 2015; Hayton, George, and Zahra 2002).

Culture has been defined as shared beliefs, values, and behaviours that shape socio-economic, technical and political institutions (Hayton, George, and Zahra 2002). Culture distinguishes a group of people or society from others through different behaviours (Giorgi, Lockwood, and Glynn 2015). These differences in behaviours may then help to explain differential outcomes among organisations based on culture. Culture can be both facilitative as well as constraining to entrepreneurship development through its effect on organisational outcomes. While different authors have suggested different categorisations of cultural dimensions, Hofstede’s (1980) dimensions of power-distance, uncertainty avoidance, individualism-collectivism, and masculinity-femininity remain the most widely used dimensions in entrepreneurship research.

The way one perceives social obligations is a societal influence and can be attributed to culture (Janoff-Bulman and Leggatt 2002; Oyserman, Sakamoto, and Lauffer 1998). Societal differences have generally been attributed to individualistic and collective orientations (Hansen 2003). Collective societies and cultures tend to be group-oriented, emphasise attending to the needs of other people, discourage personal control (Hansen 2003; Janoff-Bulman and Leggatt 2002), and emphasise success through the fulfilment of duties and obligations towards one’s group (Oyserman, Sakamoto, and Lauffer 1998). Individualistic societies and cultures, on the other hand, emphasise independence, personal control, personal recognition, and achievement (Hansen 2003; Janoff-Bulman and Leggatt 2002), and success through the development and attainment of one’s own goals (Oyserman, Sakamoto and Lauffer 1998).

In the next section, we use results from a study by Khayesi and George (2011) to explain and illustrate culture’s facilitative and constraining effect on entrepreneurship development in Uganda. The results presented here are based on a study on the effect of the socio-cultural context on resource accumulation among entrepreneurs in Uganda. Specifically, this study examines the role of collectivism through the variable of communal orientation.

An Example of the Effect of Collectivism and Communal Orientation on Resource Accumulation among Entrepreneurs in Uganda

The norm of collectivism requires that a social or economic actor gives precedence to the needs of others such as an extended family or other members of the community (Hofstede 1980; Maznevski et al., 2002). In collectivist communities, able and wealthier individuals are expected to help or provide for less able members of society. In the case of entrepreneurship, whereas such help may provide skills and resources that can contribute towards firm growth and development of the recipients, it may also deduct resources from entrepreneurial firms through the fulfilment of social obligations (Kiggundu 2002). When this happens, the firm may experience constraints in its growth.

A study conducted by Khayesi and George (2011) examined the effect of communal orientation on resource accumulation in Uganda. Communal orientation is revealed in controlled behaviour emanating from external forces to an individual that make him/her feel bound to others to the extent of committing time, effort, and resources to meet the needs of others (Janoff-Bulman and Leggatt 2002). Social obligations pressure an individual to comply with others’ requests (Barrett et al. 2004). Social obligations may be viewed as burdens in some societies, and desirable and necessary in other societies (Janoff-Bulman and Leggatt 2002). Social obligations take such forms as providing financial assistance for funerals or the needs of family or community members in distress (Hansen 2003). The study by Khayesi and George (2011) interviewed 242 entrepreneurs in Kampala, Uganda. The entrepreneurs had micro-, small- and medium-sized garment and information and technology businesses. They responded to questions on their communal orientation, which was measured using a scale. They were asked to rate four statements related to communal orientation, for example, “I often go out of my way to help other people”. The study also collected information on the amount of money the entrepreneurs had received and the amount of money they had spent on different social obligations. A statistical analysis revealed that entrepreneurs with high communal orientation had higher social obligations compared to those with low communal orientation. The results also revealed that high communal orientation resulted in increased costs of resource accumulation (see Fig. 13.1).

Figure 13.1
Figure 13.1

Moderation of the effect of shared identity on cost of raising resources by communal orientation

Source: Khayesi and George (2011: 485)

The findings of the above study are supported by other studies. For example, Hansen’s (2003) study on Ivorian firms confirms this view by revealing that there are negative effects on the firm, such as poor employee performance, where social obligations come before one’s job and business. Pedersen and McCormick (1999) also identify social obligations as a hindrance to firm resource accumulation in Africa. Dondo and Ngumo (1998) argue that communal and collective values in the African society do not promote individualistic wealth creation and resource deployment activities. With specific reference to Kenya, these authors observe that the communal spirit, once a good quality of the Kenyan culture, has become a millstone around the necks of aspiring entrepreneurs. This is because the community expects entrepreneurs to share their business financial resources with members of the community and this may inhibit entrepreneurial development.

Life Experience of a Practicing Entrepreneur

This section presents the life experience of an entrepreneur from Uganda. He is a male called Joho (not his real name). He is a successful Ugandan entrepreneur who has operated a hostel business in Kampala for over ten years. The hostel comprises 75 accommodation rooms and one study room. Additionally, he has rental houses, a hotel and is involved in real estate and farming. He was motivated to start a hostel business due to a high demand for student accommodation. With the emergence of new universities around Kampala, Joho took advantage of an opportunity to build a hostel since he had land near Makerere University Business School and Kyambogo University.

A total of 1.2 billion Uganda shillings was needed to construct the hostel. Although Joho sold his family land in a village far away from Kampala and invested the money into the hostel construction, this money was not enough to complete the project. He therefore sought a bank loan in order to complete the construction.

Joho’s business has drawn on professional and social networks for such activities as conducting a feasibility study, constructing the hostels, securing a bank loan, and securing tenants. On the one hand, his business networks enabled him learn of the opportunity of getting a bank loan and advice on conducting a feasibility study that helped him establish the viability of the business. His family networks, on the other hand, have been instrumental in business idea development, providing business advice on various aspects of the business, advertising the business through their networks, and keeping a close eye on those who are employed to work in the business (Box 1). Joho clearly states that he does not use family members in the day-to-day management of the business. Rather, he has employed staff members (cleaners, security guards, etc.) who are “not necessarily relatives.”

Role of business and family networks in Joho’s business

Interviewer: How did you get know about the opportunity of getting a bank loan?

joho : Through business networks; also through social capital. Most of the people I was interacting with had the knowledge of the opportunities with the banking institutions. They advised me that if I could work out a feasibility study to establish the viability of this enterprise, then I could go for a loan and put it up and be able to pay and that is what we did. We carried out a feasibility study which was very supportive of the idea and after that we went to the bank, and presented our project proposal. They found it viable and they financed it.

Interviewer: Do you have any family members who contribute to the business in terms of operations, marketing, labour capital, and any other aspects?

joho : Yes, we have family members who contributed to the idea of developing the project and we looked at the market opportunities. We looked at what needs to be in place in order to attract clients and after that advice and sharing ideas of how this business could run then we went forward for it.

Interviewer: Can you give some examples

joho : One example is, for instance, when we, at one time, reached a point where the earnings form the project were not enough to meet the costs of running the business and also costs of loan in terms of interest and payment of principal. I think they advised that we could (1) liquidate some of the idle assets we had to pay the bank, (2) to use other buildings/houses for which we had to remove tenants who were paying monthly and also convert them into students accommodation because they were near Kyambogo university. That way, we would be able to pay and everybody was agreeable to that and I thought that was a very great contribution from the family members. Also, how to manage, for instance, one challenge we had was collecting of the fees by paying cash, but eventually some members proposed that we could use the banks to receive the payments from students instead of the staff of the business to be the ones to receive the money. We had some challenges, money was disappearing and some [clients] were not paying but since we introduced the idea of paying in the bank, it has helped quite a lot and it streamlined the financial management of the organisation

They have also through their networks convinced some people to send their children there to stay in the hostel. So, it has been a concerted effect in running the project.

Interviewer: How about in operations of the business, do you have any family members?

joho : No, in management of the day to day, we have employed a few staff to do it. We have cleaners, we have people who provide security guards, they are employed and not necessarily relatives.

In relation to contributions from family members, Joho’s clearly states that he does “not have any negative interference from relatives from this business.” He, however, adds that he has “had positive contributions from friends from outside the family especially with respect to financial management, public relations, the things that we need to put in place that attract the clients, future development plans.”

An analysis of Joho’s case as well as the research by Khayesi and George (2011) reveals the importance of institutions (North 1990) in facilitating and constraining entrepreneurship development. In the cases in question, both government and culture as institutions have played key roles in entrepreneurship development in Uganda. Culture, for instance, has facilitated Joho’s business through contributions from family mainly in terms of advice, idea development, initial land for the business, and keeping an eye on Joho’s business. Though hailing from and living in a collectivist society, Joho has not experienced any negative interventions from his family. This could be due, in part, to the fact that he has limited the involvement of his family in the day-to-day management of the business. This, in a way, has reduced family involvement and the consequent constraints that come with it; for instance, the inability to sanction poor performance by a relative and work not being biased by obligations from kin members as in the case of Cote d’Ivoire (Hansen 2003). Indeed, for entrepreneurs to reduce negative effects of networks, Khayesi and George (2011: 487) have recommended, among other things, that they “expand their networks beyond their communities.” This could be one of the contributing factors to Joho’s success in entrepreneurship and limitation of negative influences from kin. In another study, Khayesi, George, and Antonakis (2014) found that the cost of raising resources (mainly in the form of obligations imposed on entrepreneurs) increased when entrepreneurs relied heavily on family networks (thus increasing their shared identity). One way that Joho has dealt with this problem is to rely on his business networks for financial matters, thus reducing shared identity among his networks. Reduced family involvement and a reduction of shared identity in the network by expanding beyond his community may help explain the limited negative influence of family on Joho’s business and thus his success.

Regarding finances, the government as an institution has played a key role in Joho’s business through policies that make it possible for banks to lend to entrepreneurs. As North (1990) puts it, institutions are crucial in determining the “rules of the game in a society.” With government policies that support bank lending to entrepreneurs, Joho’s uncertainty is greatly reduced when his business networks point out to him what he needs to do in order to receive a loan from the bank. As pointed out in the second section, the government still has some way to go with regards to implementing programmes that support entrepreneurship development in Uganda. Failure to implement suggested programmes appears to be one of the constraints of entrepreneurship development in Uganda.

Conclusion

The evidence presented from the empirical study and case illustration reveals the dynamics of social aspects of entrepreneurship in Africa. Entrepreneurs are expected to contribute to the well-being of their social networks. The social networks are also expected to contribute to the work of entrepreneurs. The empirical study cited shows that entrepreneurs with high communal orientation incur higher cost to raise resources and also spend more on meeting social obligations than those with low communal orientation. However, entrepreneurs who configure their networks to involve members beyond their immediate families, benefit immensely from reduced negative contributions associated with culture-related social capital. This, coupled with the availability of entrepreneurship support facilities, may partly explain Joho’s entrepreneurial success. Using Joho’s example, this chapter recommends that entrepreneurs in Uganda as well as those from other resource-constrained economies configure their networks wisely in order for their businesses to benefit. Entrepreneurs should aim at involving network members who will contribute positively to their businesses in terms of ideas and other resources.

Whereas this chapter has provided some insights into culture and entrepreneurship in Uganda, there is still more that we do not yet know. A viable strategy to take this research further is to conduct a comprehensive review of the existing literature on entrepreneurship and culture in Uganda and Africa to get a better picture of the issues that have been addressed. Such a review will identify areas that require further research or aspects that need to be revisited.

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