Municipality

Micro and Small enterprises (henceforth, MSEs) play a key role in economic growth and industrial development of a country. They make vital contributions in improving economic and social sectors of a country through stimulating large scale employment, investment, development of indigenous skill and technology, promotion of entrepreneurship and innovativeness, enhancing exports, and also building an industrial base at different scales. However, Ugandan micro- and small enterprises (MSEs) still perform poorly as a result of a combination of factors ranging from internal to external factors. The paper relies on data collected from selected MSEs for the period of October 2011 to February 2012 in Mbarara municipality. Using a stratified random sampling, a sample of 60 MSEs were surveyed. These included fabrication industry, Milling industry, carpentry and small roadside shops. The paper examines the extent to which the growth of MSEs is associated with environmental constraints. The results reveal that MSEs ’ growth potential is negatively affected by limited access to productive resources (finance and business services), by high taxes, lack of market access, erratic and costly electricity, lack of infrastructure, lack of human resources, and competitive practices that were dysfunctionally imitative rather than innovative