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Can Graduate Venture Capital Fund generate employment?

By MUHAMMAD K. MAYANJA

Summary: The amount set aside of sh16 billion is just peanuts for the 20,000 graduates produced each year to initiate meaningful productive activities. However, owing to the ill-preparedness of graduates for the world of work, the Fund can be used to enhance their entrepreneurial and technical skills for job creation.

Author Biography: Muhammad K. Mayanja is Chairman, Justice Forum Party and former Director of Planning at Makerere University.

In the Budget Speech of June 2012, the Government of Uganda announced the set up of the Graduate Venture Capital Fund of Ush 16 billion, equivalent to USD 6.4 million, to facilitate graduates to develop bankable project proposals and create enterprises for self-employment.

This followed a similar scheme targeting all the youth in the 2011/12 Budget of sh25 billion ($10 million) which is supposed to support young people starting or expanding their business enterprises with loan sizes ranging between sh100,000 ($40) and 5 million, or $2000. It is worthy to ponder upon the graduate venture capital fund and probe the effectiveness of this strategy in addressing the plight of graduates struggling to join the world of work.

First, it is important to appreciate the magnitude of graduate unemployment in Uganda. It is estimated that Uganda’s unemployment rate is 3.5 percent and that of the youth is 32.2 percent, while for those who have University degrees it is a whopping 36 percent. There is a high percentage of underemployment and the above figures, particularly the overall unemployment rate estimate of 3.5 percent, is largely an understatement of the problem. Currently, there are over 30 universities and degree-awarding institutions in the country, producing over 20,000 new graduates every year.

In our previous tracer studies on graduates entering the world of work we found out that the unemployment of graduates is a problem of the education system as well as shortcomings in the economy.

On the side of education, the rapid expansion of opportunities at both Advanced and Tertiary levels over the last 20 years have failed to respond to the need to expand training in the physical sciences and technology. Up to now, merely 20 percent of all university graduates are in the fields of science and technology while 80 percent graduate in the liberal arts, education and administration.

To make matters worse, the effort to link universities with the world of work through, for example, industrial training, have proved to be ineffective owing to resource constraints. Even where it is done, for instance, School Practice for the students of Education, it remains haphazard and mainly done just as a routine.  All universities – both the traditional and the new ones, public and private – are still ivory towers disconnected from the reality on the ground. 

The end results are graduates that can’t be absorbed in the industry, service and agriculture sectors and graduates that have no entrepreneurship skills to initiate their own productive businesses. In the tracers studies referred to above, we found only five percent of graduates had ventured into self-employment despite the long time it took for fresh graduates to search for jobs. The education system is preparing graduates for salaried employment in the formal sector and not for self-employment. The amount set aside of shs 16 billion is just peanuts for the 20,000 graduates produced each year to initiate meaningful productive activities in the formal sector.  Experience shows that the graduates tend to shun the informal sector. The problem of graduate unemployment is not likely to be impacted by this Fund.

Hence, the creation of the graduate venture capital fund must not absolve government from its primary responsibility of creating employment. Creating employment must remain the primary goal of government economic policy particularly the National Budget.

However, this is not to say that the graduate venture capital fund is totally useless. Owing to the ill-preparedness of graduates for the world of work, this Fund can be profitably used to enhance their entrepreneurial and technical skills for job creation. One of the glaring gaps in our graduates is lack of opportunities for business incubation. Incubators provide facilities and environment to empower graduate entrepreneurs to transform their dreams into successful businesses. This is one way in which the graduate venture capital fund can be used to create employment. Hopefully, when the Ministry of Finance comes up with guideline for operationalising the scheme, it will broaden its scope to include such outputs as business incubators.

When we turn to the economy, much as Government figures have been showing high growth rates over the last 10 years, the fact is that it has not created jobs for graduates.  It is good even the NRM Government appreciates that the type of investment going on is not conducive to generating employment. In his State of the Nation Address prior to the Budget last month, President Museveni pinpointed the sectors which have been propelling the high growth rates of over 7 percent for Uganda. These sectors included importing vehicles, beauty saloons, restaurants, hotels and bars.  The President said, “This is where Uganda now is – high rates of growth, but not in sectors that create employment, bring in little or no foreign exchange, and actually sometimes squanders the little foreign exchange we earn from Coffee.”

The government’s failure in this respect is that it has not deliberately initiated measures to develop the private sector which will create employment. The private sector which has the potential to create jobs cannot be left to chance. It has to be built. When we advocate employment creation, we have to emphasize that it must basically originate from the private sector. No one still dreams of bringing back the government into direct economy. But the private sector can through proper economic incentives be influenced to invest in manufacturing, agro-processing and other sectors with high job creation potential. The most effective strategy for employment generation by Government is to nurture and support the private sector to venture into investments that create jobs.

Previous effort to support the private sector didn’t produce desired results. It favored foreigners at the expense of local manufacturers. If incentives are going to be effective, they must have clear rationale and justification, and they must be above partisan considerations. Sector-wide incentives targeting areas of high employment generation are more likely to make sense than basing incentives on the size of the investment, which discriminates against Ugandan small size investors.  While the Presidential Economic Council which the President proposed to revive can assist in this matter, what is even more critical to start with is to come up with a policy on how Government is going to support the private sector and the incentive regime for revitalizing job creation by private industries and businesses.