Drivers of Innovation in the Agro-Food Micro, Small and Medium Enterprises of Uganda.

Abstract

Micro, small and medium enterprises (MSMEs) in developing countries are important for provision of employment and are as well significant contributors of Gross Domestic Product (GDP) and domestic tax in these countries. According to Muriithi (2017), MSME contribution to GDP in sub-Saharan African (SSA) countries varies from as low as 8% in Zambia to 70% in Ghana, while contribution to employment ranges from 14% in Zimbabwe to 90% in Ethiopia. In Uganda, MSMEs contribute over 20% of GDP and 94% of all formal employment (Muriithi (2017)). A report by the International Finance Cooperation (IFC) reveals that there are over 1.1 million MSMEs in Uganda (IFC, 2021). Although SMEs are found in almost all sectors of the Uganda economy, agro-based SMEs tend to be more important given the agrarian nature of the economy. Over 75% of the population work directly in agriculture, with the sector contributing more than 20% of the GDP (World Bank, 2021). Agro-based MSMEs support smallholder farmers by providing them with market for their produce, and in some cases providing agricultural extension services and input support (Ba et al., 2019; Manogna, 2021). MSME growth is therefore important in sustaining the livelihoods of millions of people. Such growth and expansion of MSME leads to increased levels of employment, increased market for the smallholder farmers, increased GDP and consequently the government tax base (Chege and Wang, 2020). In the face of increasing competition among the many MSMEs, innovation becomes very important in enhancing and sustaining SME growth (Devaux et al., 2018; Caiazza et al., 2014; Haggblade, 2011). Firm-level innovation has been linked to better performance and growth of agro-food MSMEs (Gellynck et al., 2015; Ho et al., 2018; Kamuri, 2021; Leo et al., 2022; Manogna, 2021). Despite consensus on the significance of innovation to MSME growth and economic sustainability, there is still lack of clear understanding of what drives agri-food MSME innovation that is on the rise in most developing countries. Most studies on factors that drive MSME innovation are either focused on a developed country context, or in a non-agricultural-based context (e.g. Sawy et al., 2001; Ar and Baki, 2011; Senyard et al., 2014; Prajogo and McDermott, 2014; de Klerk, 2015). The few existing studies focused on specific commodities. Iza and Dentoni (2020) assessed the role of entrepreneurial orientation in driving innovation in the coffee multi-stakeholder platforms in Uganda, while Kamuri (2021) studied innovation in Kenya's leather industry. Both studies focus on the specific nodes of the target commodity value chains. However, agribusiness commodities follow a value chain and simply studying a specific node may not give a full account of the overall drivers of MSME innovation. Despite this oversight, national wide interventions to improve the performance of agri-food MSMEs usually focus on the whole agribusiness sector. Such studies that do not provide the whole picture about MSMEs innovations thus do not provide complete information for decision making. This narrow focus of previous studies forms the main motivation of this study. The study therefore seeks to provide additional insight to precursors of innovation in MSME in the agro-food sector in Uganda. In this study, we assessed whether agro-food MSMEs that have such innovation support services are more innovative than those that do not have them in place. With agribusiness value and supply chain actors increasingly recognizing the roles of other actors (Passaro et al., 2022; Lwesya and Achanta, 2022; Owot et al., 2022, 2023), findings of the study are relevant in the sense that agri-food chains are interlinked with innovation in one node of the value chain having a ripple effect on related markets. Additionally, the findings of this studies can inform policy, where innovation support services is prioritized while promoting agro-food MSME innovation. The rest of the paper is structured as follows: in section 2, we conduct a brief literature review on agro-food MSME innovation and present the hypotheses to be tested. In section 3, we present the materials and methods used in the study. The results are described in section 4, and discussed in section 5. In section 6, we present the conclusion and recommendation for policy and practice. Lastly, section 7 identifies the limitations with respect to application of this study findings.