Uganda’s digital economy is facing renewed scrutiny over the cost of participation, with industry players warning that high transaction charges and device taxes risk slowing adoption at a time when policymakers are pushing for deeper financial inclusion and startup-led growth.
Stakeholders argue that reducing the cost of digital transactions, alongside scrapping taxes on entry-level smartphones, could significantly expand access to digital services for millions of Ugandans still locked out of the online economy.
The debate is gaining urgency as Uganda accelerates efforts to formalize micro, small and medium enterprises through digital platforms, mobile money systems and fintech-enabled credit.
Richard Zulu, founder of Outbox, says the current cost structure of digital participation remains one of the biggest barriers to scaling innovation and uptake among low-income entrepreneurs, particularly young women running small businesses outside urban centres.
“Government should also consider scrapping taxes on entry-level smartphones to make digital access more affordable, a move that would support the growth of digital startup businesses across the country,” Zulu said during the 10X Digital Startup Accelerator Challenge Demo Day in Kampala.
His remarks come as Uganda’s digital ecosystem continues to grapple with a structural mismatch between innovation financing and early-stage startup realities. According to Zulu, most venture capital firms typically seek minimum ticket sizes of about $500,000 (more than Sh1.8 billion), a threshold that excludes many locally built startups whose capital needs are significantly smaller and often geared toward product development, user testing, and market entry rather than rapid expansion.
To bridge this gap, Outbox, in partnership with Mastercard Foundation, United Nations Capital Development Fund, and other collaborators, is implementing the 10X program aimed at enabling 61,000 young women entrepreneurs to access and use digital tools to reach markets, improve business efficiency, and expand access to finance.
The program is deliberately structured to prioritise local solutions rather than imported platforms, reflecting a growing policy concern that external digital tools often fail to address the specific constraints faced by Uganda’s micro-enterprises, particularly in rural and peri-urban areas.
Zulu said the initiative will identify six local digital solutions with potential to scale among women-led enterprises, while also addressing what he described as a persistent “financing and readiness gap” in Uganda’s startup ecosystem.
Each selected startup is expected to receive about $40,000 in early-stage support, a relatively modest amount by global venture standards but significant in a market where many founders struggle to raise even seed capital.
The broader programme envelope includes a $240,000 returnable grant facility designed to encourage discipline in capital deployment while challenging what Zulu described as a “free money mindset” among some early-stage founders.
The structure is intended to simulate investment conditions, forcing startups to demonstrate scalability, product-market fit and early revenue generation before accessing follow-on funding.
The focus on returnable capital reflects a shift in development finance thinking, where donors and ecosystem builders are increasingly prioritising sustainability over grant dependency. However, industry observers note that Uganda’s startup ecosystem remains heavily dependent on donor-backed incubation, with limited domestic venture capital participation and low levels of institutional risk investment.
Zulu pointed to earlier successes supported by Outbox, including platforms such as Insibuko, which now works with nearly 17,000 women groups, offering digital credit services in partnership with financial institutions.
Another example cited is gnuGrid, a locally developed credit reference solution working with telecom operators to leverage mobile data for lending decisions among women-led groups.
Despite these gains, Uganda’s digital financing landscape continues to face friction. Regulatory reforms in recent years, including changes to investment taxation and ongoing work by the Capital Markets Authority and the Ministry of Finance, have sought to improve the investment climate for startups. But investors still point to persistent barriers, including fragmented regulation, high compliance costs, and limited exit opportunities for early-stage capital providers.
Transaction costs remain another critical constraint. Mobile money and digital payment fees in Uganda, while widely used across the economy, are still seen by entrepreneurs as disproportionately high relative to transaction values, particularly for micro-merchants operating on thin margins.
Industry players argue that this discourages full digitisation of small businesses, forcing many to revert to cash-based systems despite having access to mobile platforms.
Zulu also highlighted consumer-side limitations, noting that smartphone affordability remains a key bottleneck. Entry-level devices, which are essential for accessing digital financial services, online marketplaces and e-commerce tools, remain out of reach for a significant share of potential users.
He argues that removing or reducing taxes on these devices would have a multiplier effect on digital inclusion, especially among young women entrepreneurs targeted by the 10X programme.
Beyond cost barriers, ecosystem builders say digital literacy and consumer education remain underdeveloped. Many small business owners still perceive internet-based tools as expensive or complex, limiting uptake even where infrastructure exists.
This has created what some stakeholders describe as a “usage gap” rather than an infrastructure gap, where connectivity is available but meaningful engagement with digital tools remains low.
The challenge, according to Zulu, is not only to fund startups but also to ensure they build solutions that can scale beyond Uganda’s fragmented market. Without scale, he warned, startups struggle to attract follow-on financing from regional or global investors who increasingly prioritise profitability and defensible growth metrics.
As Uganda positions itself as a regional hub for digital entrepreneurship, the tension between affordability, regulation, and investment readiness is likely to shape the next phase of its startup economy as stakeholders argue that lowering the cost of entry both in devices and transactions may be the most immediate lever to unlock broader participation in the digital economy.