Government demand and domestic firm growth: Evidence from Uganda

Policy brief Firms

  • Government procurement is an important mechanism for private sector development in Uganda. The 2014 Buy Uganda Build Uganda policy aims to expand domestic consumption of locally produced goods and services, setting a target of awarding at least 20% of the value of public procurement contracts to Ugandan firms.
  • We study the impact of participation in public procurement on firm performance in Uganda. Compared to other firms, those that sell to government entities report higher sales, have larger networks of suppliers and buyers, and tend to be older.
  • Compared to firms that never sell to government entities, we find that participation in procurement triggers a significant boost in sales and in sales per employee (a measure of labour productivity) by about 73% and 32%, respectively.
  • We also find that firms which enter government procurement contracts report reduced sales to other buyers both within the period in which sales to the government commence and afterwards if they continue selling to government. The reduction in sales to non-government firms, estimated to be about 55%, may reflect the existence of short-term capacity constraints.
  • We find suggestive evidence that this failure to expand production may be due to capacity constraints. Understanding the drivers of this pattern of reallocation away from private buyers following entry into public procurement requires further analysis.