Value Chain Upgrading in the Informal Agricultural Economy of Uganda: Networks among Small Business Owners as a Solution to Institutional Voids

Abstract

The purpose of this paper is to analyze how networks between small business owners (SBOs) in the informal economy of agriculture in the East African country Uganda can be a tool to overcome the barriers caused by institutional voids, in order to upgrade agricultural value chains. The analysis suggests that weak or absent institutions in the agricultural sector lead to various impediments that especially affect SBOs operating in the informal sector of agriculture. Yet, SBOs seem to have found a way to overcome those hurdles through establishing business networks to access capital, resources and markets. Moreover, those networks are based on informal, internal mechanisms like bylaws or internal guidelines that have positive impact on SBOs’ work. Subsequently, with the help of networks better quality and larger quantities can be produced, leading to an upgrade of the respective value chain. These findings demonstrate a valuable and feasible solution for SBOs operating in the informal sector of agriculture in developing countries to upgrade their value chain despite a weak institutional environment. In addition to that, the study illustrates that networks are an informal type of institution, not an organizational form that substitutes institutions, hence meaning that the very existence of networks is not sufficient to guarantee long-term success for SBOs. The paper opens paths for future research to focus on the use of networks as supplementary informal institutions as a solution to other barriers SBOs are facing in developing countries’ informal agricultural sectors.