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Manufacturing TransformationComparative Studies of Industrial Development in Africa and Emerging Asia$

Carol Newman, John Page, John Rand, Abebe Shimeles, Måns Söderbom, and Finn Tarp

Print publication date: 2016

Print ISBN-13: 9780198776987

Published to Oxford Scholarship Online: August 2016

DOI: 10.1093/acprof:oso/9780198776987.001.0001

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The Evolution of Industry in Uganda

The Evolution of Industry in Uganda

Chapter:
(p.191) 10 The Evolution of Industry in Uganda
Source:
Manufacturing Transformation
Author(s):

Isaac Shinyekwa

Julius Kiiza

Eria Hisali

Marios Obwona

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198776987.003.0010

Abstract and Keywords

Uganda obtained independence from Britain in 1962, emerging as a poor agrarian economy dominated by agriculture. After a decade of economic and political stability, in 1971 Idi Amin led a military coup, initiating a period of political and economic chaos lasting until 1986. The National Resistance Movement led by Yoweri Museveni took power, and has remained the ruling political organization since. During the first two decades of rule, economic development was significantly hampered by civil war in the North. A period of relative peace has followed, even though improvements in peace and stability mask substantial governance concerns—rising inequality, youth unemployment, and corruption in public office. Against this background the recent performance of the Ugandan economy is impressive—GDP growth averaged 6.5 per cent per annum in the 1990s and 2000s. The growth experienced is simultaneously associated with impressive economic trends and depressing levels of industrial transformation.

Keywords:   Uganda, agriculture, economic growth, inequality, unemployment, industrial transformation

10.1 Introduction

Uganda obtained independence from Britain in 1962, emerging as a poor agrarian economy dominated by agriculture. After a decade of economic and political stability, in 1971 Idi Amin led a military coup, initiating a period of political and economic chaos lasting until 1986. The National Resistance Movement led by Yoweri Museveni took power, and has remained the ruling political organization since. During the first two decades of rule, economic development was significantly hampered by civil war in the North. A period of relative peace has followed, even though improvements in peace and stability mask substantial governance concerns—such as rising inequality, youth unemployment, and corruption in public office.

Against this background the recent performance of the Ugandan economy is impressive—GDP growth averaged 6.5 per cent per annum in the 1990s and 2000s. The economy also appears to have weathered the global financial crisis well, with a growth rate of 5.3 per cent in 2013, predicted to increase to 6 per cent for 2014 (World Bank 2014) and projected to increase to 6.3 per cent according to the National Development Plan II (Republic of Uganda 2015).

However, roughly 80 per cent of Ugandans still live in rural areas, primarily as peasant farmers. In 2012, agriculture accounted for 24 per cent of GDP but 82 per cent of employment (OECD 2014). Furthermore, about 50 per cent of economically active young people are not in income-generating jobs (Republic of Uganda 2010a). The growth experienced over the last decade is simultaneously associated with impressive economic trends and depressing levels of industrial transformation.1 Uganda’s trade statistics are also unimpressive—the country’s (p.192) export to GDP ratio has not grown since 2008, and is well below that of other sub-Saharan African (SSAn) countries.

The focus of this chapter is on the evolution of the industrial sector in Uganda. It will be argued that while the level of GDP growth has been impressive over the last two decades, the economy still relies on agriculture and low value-added industrial output for job creation, public finance, and exports. Uganda appears to have failed to industrialize, contrary to the promises of pro-market policies and macroeconomic stabilization. The industrial sector is populated by small-scale firms with limited manufacturing value addition. The larger industries are predominantly foreign owned, last-stage assembling firms. These realities point to the need for Uganda to rethink its premature adoption of economic liberalism, together with the associated ‘private sector-led’ industrial development strategy. For these pro-market approaches to work over the long term, the state must, over the short to medium term, coordinate industrial manufacturing, for example by encouraging foreign companies to partner with local industrialists and adhere to Asia-like performance targets. Once national firms become competitive, the country can gradually, and only gradually, liberalize the economy and integrate it into competitive global markets.

The rest of the chapter is organized as follows. Section 10.2 provides an overview of industrial development since independence in 1962. In Section 10.3 the current state of industry is discussed. Section 10.4 presents industrial policy, discussing in more detail some sector-specific policies and the relevant institutional set-up, while Section 10.5 presents the regulatory framework. Section 10.6 describes the key sunrise and sunset industries. Section 10.7 concludes the analysis.

10.2 The Evolution of Industry: Historical Perspective

When Uganda gained independence from Britain in 1962, the agricultural sector accounted for 60 per cent of GDP and, of the total population of 6.5 million, less than 25 per cent was in wage employment. Mining and industry were small sectors in the economy. Relative to other post-independent African nations, the extent of manufacturing activity was not insignificant, but the level of value-added industrial manufacturing was low. Living standards were also low; less than 15 per cent of the population lived beyond 45 years, and roughly 50 per cent of children died before the age of 15 (Elkan 1961).

The spirit of state-guided capitalist development, which started in the dying years of colonial administration, continued in the post-colonial era. While the First Five-year Development Plan for independent Uganda (1961/62–1965/66) focused on agricultural development, industrialization featured prominently (p.193) in the Second Five-year Plan (1966/67–1970/71). The goals of this latter plan were consistent with the views of the Economic Commission for Africa (ECA). The ECA Conference held in Zambia in 1965 underscored the need for industrialization and economic transformation in the whole of eastern Africa,2 with priorities including the textile, wood and cork, rubber products, and iron and steel industries (Stoutjesdijk 1967).

As a result of the initiatives of the 1960s, GDP in 1966 prices grew by 4.8 per cent per year from 1963–70, while the population increased at an estimated rate of 2.6 per cent. Uganda’s domestic savings averaged 13 per cent, a level that ‘permitted implementation of an ambitious investment programme without undue pressure on domestic prices and the balance of payments’ (World Bank 1982: 3). In the 1960s, the terms of trade for Uganda’s exports were favourable and public finances were relatively healthy.

The development crisis in Uganda began in the 1970s with the rise to power of Idi Amin. Amin’s administration destroyed the economy and disorganized industrial infrastructure. The statistical records of the 1970s and 1980s show a virtual absence of heavy industry. The bulk of manufacturing activities in Uganda (at a stage of development comparable to Taiwan in the 1950s and 1960s) were light industries characterized by low value addition.3

The availability of cheap labour and the high cost of imported technology meant that light industries were a natural starting point on the path to industrialization. However, output substantially declined in virtually all sectors after 1970. For example, in the machinery sub-category (which would serve as a basis for heavy industrialization), steel ingots declined by over 90 per cent from 19,500 tons in 1970 to only 1,900 in 1980. Superphosphate production (a potential growth pole of chemical industries) declined from 24,800 tons in 1970 to no production at all in 1980. At a stage of development when other countries in Asia were undergoing industrial transformation, Uganda registered declining output in both light industries and the growth poles for heavy industrialization. In 1980, Uganda’s economy contracted by 5.2 per cent.

Following the virtual collapse of what was a very promising industrial sector in the 1970s and early 1980s, Uganda embarked on a broad range of policy and institutional reforms in the late 1980s and early 1990s (Siggel and Ssemogerere 2004). The main thrust of the reform process was to reduce the role of government in the economy and to promote the role of the private sector. Generous incentives (through the tariff code, for example) continued to provide support to both local and foreign investment.

The Evolution of Industry in Uganda

Figure 10.1 Manufacturing as a share of GDP, 1980–2008

Source: World Bank, World Development Indicators, available at: http://data.worldbank.org/data-catalog/world-development-indicators, accessed 17 November 2015.

(p.194) Despite these efforts, the manufacturing sector has continued to play a peripheral role. As Figure 10.1 shows, while the share of agriculture in GDP declined from over 70 per cent in 1980 to about 25 per cent in 2008, the share of manufacturing in GDP improved only slightly, before declining to about 7 per cent. This falls below the average of 11 per cent for the least developed countries (UNCTAD 2008).

In short, while neoliberal Uganda has attained rapid growth, real manufacturing sector outcomes are still modest. Since the 1990s, the institutionalization of a conservative model of economic governance has been reflected in the current structure of the industrial sector in Uganda, to which we now turn our attention.

10.3 The Structure of Industry

The industrial sector in Uganda consists of construction, mining and quarrying, formal manufacturing, informal manufacturing, electricity supply, and water supply. In 2010/11, the construction sub-sector was the largest, accounting for 61 per cent of GDP, followed by formal manufacturing (20.2 per cent), water supply (6.9 per cent), informal manufacturing (6.6 per cent), electricity supply (3.9 per cent), and mining and quarrying (1.4 per cent) (Republic of Uganda 2010a, 2010b, 2011).

(p.195) 10.3.1 Sectoral Composition: General Trends

The contribution of the industrial sector to GDP growth between 2000 and 2011 can be seen in Obwona et al. (2014: Table 4). The industrial sector has experienced steady growth over the last decade, at an average of 7 per cent per annum.

The Evolution of Industry in Uganda

Figure 10.2 Cumulative flow of investment in Uganda between 1991 and 2009 (US$)

Note: The UIA has not conducted any empirical study to establish actual investment during this period. This implies that planned cumulative flows of investment should be used and interpreted with caution. It is likely that about a half of planned cumulative flows of investment are realized as actual.

Source: Uganda Investment Authority Database (2010), available at: <http://www.comesaria.org/site/en/uganda-investment-authority.159.html>, accessed 17 November 2015.

Between 1991 and 2009 Uganda attracted substantial foreign direct investment (FDI), with the largest proportion (45 per cent) going into the industrial sector (Figure 10.2). Manufacturing received the largest share of FDI inflows—close to one-third of the total, amounting to US$2.9 billion.

In spite of the progress made in the industrial development of Uganda in the last decade, the sector remains small (Republic of Uganda 2010a, 2010b). In Section 10.4 we describe the key sub-sectors.

10.4 Sub-sectoral Analysis

10.4.1 The Manufacturing Sector

The Evolution of Industry in Uganda

Figure 10.3 Manufacturing value added (% of GDP), 1988–2009

Source: Statistical Abstracts of the UBOS (various years).

The manufacturing sector in Uganda remains relatively small and is dominated by subsidiaries of multinational corporations. The sector faces high costs (p.196) of electricity, strong competition from imported products, and poor purchasing power in the domestic market. Contribution to total value added is small, averaging about 7.5 per cent over the period 1988–2009 (see Figure 10.3). This can be attributed to increased import competition following the premature adoption of economic liberalism in the 1980s and 1990s, the signing of the East African Community (EAC) treaty, as well as excess capacity at plant level owing to infrastructural constraints.

The Evolution of Industry in Uganda

Figure 10.4 Manufactured exports (% of total exports)

Source: Statistical Abstracts of the UBOS (various years).

Most manufacturing production is for the domestic market, with manufactured exports contributing to just over one-quarter of total exports (Figure 10.4). The recent improvement in export performance is largely the result of new market opportunities in the Democratic Republic of Congo, South Sudan, and Rwanda.

(p.197) The main data source for describing manufacturing firms in Uganda is the Business Registry, collected by the Uganda Bureau of Statistics (UBOS 2007).4 The registry lists 3,280 formal manufacturing establishments employing five people or more in Uganda.

10.4.1.1 Size Distribution

Small- and medium-scale enterprises (SMEs) account for over 90 per cent of enterprises (Republic of Uganda 2010a, 2010b). As illustrated in Obwona et al. (2014: Table 6) out of the 3,280 firms registered in 2006/07, 58 per cent employed between five and ten people. Firms that employed between eleven and twenty people account for 18 per cent of the total, while firms employing between twenty-one and fifty people, in this case medium-sized enterprises, constitute only 9 per cent of the total. The proportion of firms employing over 50 people is very small.5

10.4.1.2 Regional Distribution

During the 1960s and early 1970s, Jinja town in the eastern region was the main industrial hub of Uganda. This has since changed, with Kampala emerging as the major industrial town. There is a high concentration of manufacturing firms in the central region.6 The northern region has the lowest number. This could be because of the legacy of colonial policy that defined the North as a source of cheap labour for the southern half; inadequate infrastructure (such as roads and energy), and the conflict (roughly 1989–2010) that rendered northern Uganda unattractive to private business investors. This depressing situation is likely to change with the return of peace, backed by the government’s efforts to build tarmac roads, and mobilize local, national, and donor resources for northern Uganda with a view to proactively unlocking the development potential of the North.

A further disaggregation of the distribution of firms by region shows that Kampala has the highest proportion of firms in all manufacturing sub-sectors except for coffee processing, grain milling, and tea processing. While the eastern region has the highest proportion of grain milling firms (32 per cent), the western region has a commanding lead in tea processing with about 60 per cent. Finally, the central region has the most coffee processing firms (51 per cent). The northern region is not specialized in any particular sector.

(p.198) 10.4.1.3 Employment

According to the Business Register the manufacturing sector employed about 72,200 people in 2007. The majority of employment is in firms of more than one hundred employees (52 per cent of the total).7

10.4.1.4 Ownership

The legal ownership of manufacturing firms consists mainly of sole proprietors (55 per cent), followed by private limited companies (29 per cent), and partnerships (11 per cent). This small proportion of private limited companies implies that most manufacturing firms are not listed and cannot therefore raise capital through the capital markets.

Other forms of ownership are domestic, foreign, and joint ventures.8 We compute the proportions of firms by ownership using the Private Sector Investment Survey data of 2009 collected by the Bank of Uganda. The largest proportion of manufacturing firms is wholly owned by foreigners, accounting for 42 per cent in 2009. The high presence of foreign-owned firms reflects government policy which has, since the formation of the Ugandan Investment Authority (UIA) in 1991, consistently albeit naively promoted FDI without any state-coordinated performance targets (such as partnering with local industrialists).

10.4.1.5 Productivity

To examine labour productivity we use the 2006 wave of the World Bank (WB) Enterprise Survey, which covers a sample of 358 firms. Labour productivity is computed as total annual sales divided by the total number of employees. The construction sub-sector has the highest labour productivity, while the garments sub-sector has the lowest.9

Descriptive statistics on technology usage of enterprises using the same data source are presented in Obwona et al. (2014: Table 11). We use two measures: the actual output of the establishment in comparison to the maximum output possible; and the use of email and websites by firms. Even when the average capacity utilization of all the sectors is above 70 per cent, there is still much more required to realize optimal technology usage. Overall the use of email and websites is low in the sector.

10.4.2 Mining and Quarrying

The mining industry in Uganda has a long history that is traceable to the pre-colonial era. Ancient kingdom states (such as Bunyoro-Kitara) developed (p.199) the art of iron mining, smelting, and artisanal value addition to produce day-to-day tools such as spears and arrows (for national defence), and hoes, pangas, and knives (for household use) prior to the advent of colonialism. The mining activity continued on a larger scale in the colonial period with one key ‘innovation’. The high value-added activities were, by colonial decree, located in the economy of the colonizing power.

In the 1950s and 1960s, mining reached peak levels when the sector contributed to 30 per cent of export earnings and 7 per cent of GDP. This trend was reversed with the political and economic instability of the 1970s. Although in the 1990s the sector experienced a recovery, the contribution to GDP has since been maintained at less than 1 per cent. Production volumes have increased from 4,827 tons in 2005 to 17,620 tons in 2007 (Republic of Uganda 2010a). The monetary equivalent in exports grew from UGX173 million to UGX153,347 million (Republic of Uganda 2008).

10.4.2.1 Size Distribution

Table 10.1 Distribution of firms in mining and quarrying by employment band

Employment size band

Mining of iron ores and non-ferrous metals

Quarrying of stones, sand, and clay

Other mining and quarrying

Total

%

Scale

0

1

0

1

2

5.1

Small

1–4

4

0

0

4

10.3

5–9

3

9

0

12

30.8

10–19

1

5

0

6

15.4

20–49

2

4

1

7

17.9

Medium

50–59

1

3

1

5

12.8

Large

100 plus

2

0

1

3

7.7

Total

14

21

4

39

100

Source: UBOS Business Register (2007).

The distribution of firms in the sub-sector by employment size is presented in Table 10.1. Evidently, the categories employing between five and ten people constituted the highest proportion. Given that there are hundreds of informal undertakings in the mining and quarrying sector, this analysis probably under-reports what is actually happening on the ground.

10.4.2.2 Regional Distribution

Most of the activities in the sub-sector are centred on quarrying, which is a low value-added extractive activity. The rapid expansion of quarrying is associated with the rapid growth of the construction sector, which requires raw materials such as hard core stones, clay, and sand. The Business Register reported a (p.200) regional concentration of quarrying activities in and around Kampala (55 per cent) where most construction is taking place, followed by the eastern and central regions (15 per cent each).

10.4.2.3 Employment

According to the National Development Plan (Republic of Uganda 2010a), the current employment status in the sub-sector is 130,000 people working as artisans and small-scale miners. More than 100,000 of the miners work in the production of industrial minerals such as salt, clay, sand, aggregates, limestone, and slates.

10.4.2.4 Ownership

Table 10.2 Ownership of firms in mining and quarrying between 2007 and 2009

2007

2008

2009

Ownership

Number

%

Number

%

Number

%

Joint-venture majority foreign

11

38

11

39

11

48

Wholly foreign

12

41

12

43

12

52

Wholly local

6

21

5

18

Total

29

100

28

100

23

100

Source: Authors’ calculation based on data from Bank of Uganda (2009).

The ownership of the firms in this analysis is recorded along business unit groupings as reported in UBOS (2007), and origin of capital, computed from the Bank of Uganda Private Sector Investment Survey data. The most dominant type of business unit is the private limited company, accounting for more than half. This is followed by the sole proprietor, capturing close to a third of firms. The Private Sector Investment Survey (2009) data reveal that the majority of firms are foreign owned (Table 10.2).

The informal sub-sector is largely dominated by local ownership, although the exact magnitude is not known. Informal businesses are mainly sole proprietorships operating on a very small scale.

10.4.3 Construction

The construction industry experienced tremendous growth following the end of the 1981–6 guerrilla war. Contribution to GDP in the recent past grew at an annual rate of 12 per cent from an average of 5 per cent in the 1990s and early 2000s. The production of building materials is an important element of the (p.201) construction sector. However, enterprises still depend heavily on imported machinery, spare parts, and raw materials.

10.4.3.1 Size Distribution

The Evolution of Industry in Uganda

Figure 10.5 Construction industry firms by employment band

Source: UBOS (2007).

The Business Register coverage of the construction industry was restricted to firms employing five people or more. A total of 282 construction firms were surveyed. The distribution of construction firms by employment size band is given in Figure 10.5. The firms employing between five and ten people had the highest proportion at 29 per cent, followed by firms employing between eleven and twenty people at 22 per cent. Very few firms employ one hundred or more.

10.4.3.2 Regional Distribution

The regional distribution of firms follows a similar pattern to that of other industries. The Business Register shows that Kampala had the highest number of construction firms, accounting for 63 per cent. This was followed by western and northern regions, each with 11 per cent.

10.4.3.3 Employment

The estimated total employment in the sector was close to 9,000 in 2007. The industry is dominated by male employees (78 per cent). These statistics significantly understate the total numbers employed. There are many casual and informal workers in the construction industry who contribute significantly to the sub-sector.

(p.202) 10.4.3.4 Ownership

Table 10.3 Ownership in the construction industry

Ownership

2007

2008

2009

Number

%

Number

%

Number

%

Joint-venture majority foreign

38

18

35

16

29

14

Joint-venture majority local

8

4

8

4

8

4

Wholly foreign

98

46

99

46

99

48

Wholly local

71

33

75

35

72

35

Total

215

100

217

100

208

100

Source: Authors’ calculation based on data from Bank of Uganda (2009).

Of the 282 construction firms in the Business Register, close to 80 per cent are private limited companies. This is followed by sole proprietorships with approximately 8 per cent and partnerships with 7 per cent. Table 10.3 illustrates the domestic and foreign ownership of firms in the industry. Almost half of all firms are wholly foreign owned and an additional 18 per cent consist of joint ventures.

10.4.4 Summary

This section described the current structure of industry in Uganda. There are no up-to-date statistics that are representative of the current state of the industrial sector, and there is a dominance of informality that is not covered by official surveys. Notwithstanding this caveat, we can summarize the key characteristics of the industrial sector as follows:

  • Uganda has a very small proportion of large-scale manufacturing firms.

  • Kampala has emerged as the major industrial town in Uganda over the last few decades.

  • Sole proprietors and public limited companies form the major type of business ownership in Uganda, followed by partnerships.

  • The majority of firms are foreign owned and the numbers are increasing in both the form of joint ventures and firms that are wholly owned by foreign nationals.

A number of challenges confront the industrial sector, particularly the manufacturing and mining sub-sectors. These sub-sectors struggle with weak institutional support, thanks to the erroneous but widespread claim that government has no business in business in an era of economic liberalization. (p.203) Additionally, locally owned industrial firms have limited access to credit; suffer low levels of technology; and have poor managerial capabilities. We will return briefly to a discussion of these ‘binding constraints’ once the industrial policy framework has been articulated.

10.5 The Industrial Policy Framework

The last two decades have witnessed a considerable shift in the industrial strategy of many African countries from direct government participation to a more indirect approach prescribed by the IMF/WB fraternity and other architects of economic liberalism. This section provides a description of Uganda’s industrial policy framework.

10.5.1 Macroeconomic Policies

A stable macroeconomic environment is an important prerequisite for the promotion of market-led industrialization. The main goal of monetary policy since the early 1990s in Uganda has been the attainment of a low and stable general price level. The Bank of Uganda uses a monetary targeting approach to monitor developments in base money and weekly indicators of inflation and treasury bill rates (Katarikawe and Sebudde 2000). The adoption of a conservative monetary policy, and the restoration of the productive capacity of the economy have resulted in a decline in the inflation rate from a peak of 250 per cent in 1987 to an average of less than 5 per cent between 2000 and 2010.10

The fiscal deficit, on the other hand, has continued to increase. The deficit as a percentage of GDP increased from about 2 per cent in 1991 to 13 per cent in 2013. It widened further in 2014 due to high levels of public investment.

Uganda continues to rely on aid financing. This approach to deficit financing poses a serious threat to macroeconomic stability. Monetary authorities have responded to the increased donor inflows through the sale and purchase of treasury bills11 and foreign exchange market operations. These responses can limit private sector access to credit and investment and spur an appreciation of the exchange rate, which can in turn hurt export competitiveness.

(p.204) 10.5.2 Trade Policy Reform and its Implications for Industrialization

Uganda’s external trade policy has undergone substantial reform over the last two decades in line with the policy-based lending programme of the WB and World Trade Organization (WTO). At the heart of the reform process has been a reduction in tariffs and exchange rate devaluation whose object is to firmly integrate Uganda into the orbit of global capitalism. Uganda also continues to participate in regional economic groupings. It is a founding member of the EAC (which is now a Customs Union). It also gives preferential market access to imports from the Common Market for Eastern and Southern Africa (COMESA) trading block.

The impact of tariff reduction on the industrial sector is mediated by, among other things, the response of domestic import-competing industries through elasticity of supply and the domestic economy’s elasticity of demand for imports. Uganda’s import demand elasticity is estimated to be −1.22 (Hiau et al. 2005). In general, this suggests that there is only limited substitutability between imports and locally produced goods. This, combined with tariff reductions, has resulted in increased imports. In the context of an agrarian economy whose supply-side constraints have militated against rapid increases of exports, Uganda’s balance of trade has been negatively affected.

10.5.3 Sector-specific Policies

Industry-specific policies usually aim to promote flagship activities within the industrial sector. In line with the country’s liberal economic philosophy, however, the focus of industrial policy in Uganda has been to promote industries in a generic sense. The dominant economic ideology militated against industry-specific industrial policies, the kind that triggered value-added industrial transformation among the northeast Asian tigers.

In Uganda’s case, the priority in the mid-1980s was to stabilize the economy, and generally to pursue the conservative economic policies treasured by the IMF/WB fraternity (Siggel and Ssemogerere 2004). Policies that were implemented in this respect are the Emergency Relief and Rehabilitation Programme of 1986 and the Economic Recovery Programme of 1987/88–1991/92. These were followed by the Way Forward I and II of 1990–5, reforming the tax system, liberalizing the financial sector and foreign exchange, and dismantling state-owned marketing monopolies. The Industrialization Policy and Framework 1994–9 sought to complement the Way Forward I and II by supposedly prioritizing investments that promoted expansion of the export base. The evidence on the ground shows a statistically insignificant share of value-added manufactured products in Uganda’s export basket.

(p.205) Admittedly, the growth of the industrial sector over the initial policy reform period averaged about 12 per cent, and its contribution to GDP increased from 3.5 per cent in 1986 to 9.5 per cent in 2004. However, the contribution of the sector to direct employment and export earnings was quite dismal, standing at 5 per cent and 4 per cent, respectively.

The Medium-term Competiveness Strategy (2000–5) for the private sector sought to address bottlenecks to firm level competitiveness. The key priority areas included:

  1. 1 expanding the coverage of public infrastructure;

  2. 2 strengthening the financial sector to ensure improved access to credit;

  3. 3 improving financial services for micro- and small enterprises through licensing of micro-finance institutions;

  4. 4 strengthening the institutions for export promotion such as the UIA and the Uganda Export Promotion Board;

  5. 5 skills development and training.

This strategy was expanded by its successor, the Medium-term Competitiveness Strategy (2005–9). Uganda’s National Industrial Policy was finalized in 2008. Its thrust is to develop an efficient and reliable infrastructure. Other pertinent aspects of industrial policy include the promotion of innovation to support industrial sector growth and the provision of a skilled labour force. These priorities are also echoed in the country’s National Development Plan (NDP) 2010/11–2014/15. The problem, as already hinted, is the dearth of Asia-like sector-specific industrial policies. This seems to explain why the level of technology deepening and industrial transformation is still dismal in Uganda.

10.5.4 Institutional and Regulatory Framework

The Ministry of Trade, Industry and Co-operatives provides the policy and regulatory oversight of industrial development in Uganda. It also provides policy guidance to the different statutory bodies handling different aspects of industrial development. Statutory bodies under the Ministry’s supervision include:

  1. 1 Uganda National Bureau of Standards

  2. 2 Uganda Industrial Research Institute (UIRI)

  3. 3 Uganda Export Promotion Board (UEPB)

  4. 4 Management Training and Advisory Centre (MTAC)

10.5.5 Summary

Uganda has adopted a laissez-faire approach to industrial policy over the last two decades. The claim was that this pro-market policy regime was necessary (p.206) for enabling the private sector to take the lead in shaping the structure and patterns of industrial development. The evidence on the ground is still unsatisfactory. For example, the level of manufacturing value added is still disappointing. The ability of manufacturing firms to create what the ILO calls decent jobs and create products that will compete in the national, regional, and global markets is still low. As already hinted, the major hindrances to firm level competitiveness include, but are not limited to, the poor quality of physical infrastructure, worsened by limited access to long-term oriented, affordable credit. Notwithstanding these issues/areas, the outlook for growth in the sector is likely to be positive, particularly if the state resumes its role of strategically guiding industrial policy and coordinating economic performance.

10.6 Sunrise and Sunset Industries

Section 10.4 highlights the poor performance of the industrial sector in Uganda, particularly the manufacturing sub-sector. In this section we document the decline of manufacturing. We also highlight a number of sectors where there is potential for growth.

10.6.1 Textiles

Textiles in Uganda rose in prominence in the 1950s and 1960s. Mills were established largely up-country, near sources of either raw materials or energy. A national Textile Board was established in the late 1960s to guide the industry, focusing on IS. In the early 1970s the textile mills were nationalized. In the context of political instability and the lack of spare parts associated with the Idi Amin administration of the 1970s, the mills eventually ran into disrepair and closed.

By the time of the divestiture of the government-owned mills in the 1990s, machinery was obsolete due to a long period of mismanagement. At its peak in 1972/73 the textile industry consumed approximately 400,000 bales of cotton—now consumption is about 15,000 bales per annum. Among other constraining factors are rampant counterfeits, second-hand clothing, and undervaluation/declaration of imports. Access to credit remains a challenge. The interest rate is—in the context of a liberalized, private-sector dominated financial sector—extremely high (between 18 and 24 per cent).

10.6.2 Information and Communications Technology

The ICT sector has grown considerably in the last few years. In the last two decades, Uganda, like most of the world, witnessed phenomenal growth in the telecommunications sector. This growth is attributed to the global (p.207) technological advancements which rapidly spread to Africa. This, it would seem, was clear evidence that certain elements of economic liberalism are development enhancing, provided they are adopted with care.

The telecommunications sector in Uganda is characterized by the heavy involvement of multinational companies including MTN, Orange, Uganda Telecommunications Limited, Afri cell, and Airtel, with a total subscription of about 16 million, which is almost half of Uganda’s total population. In 2009, total investment was US$240 million, having grown from only US$15 million between 1999 and 2000 (UCC 2010). The growth in revenue and investment in the sector has generated employment opportunities directly and indirectly for 300,000 people. Overall, the sector contributed 3.4 per cent to Uganda’s GDP in 2009 (UCC 2010).

10.6.3 Construction

There are many firms in the building and construction industries, and the number is increasing every year. The industry is providing further scope for trade and investment opportunities in areas including the provision of low-cost housing, the provision of mortgage finance, and the construction of commercial buildings.

Uganda also has a road construction programme; the Uganda National Road Authority is mandated to develop and maintain the national roads network totalling about 20,000 km. This means that large amounts of raw materials like aggregates, sand, steel, and timber will be required. Opportunities are available in the development of quarries and the establishment of factories to produce such materials. There is also evidence that firms producing construction materials like cement, steel products, and roofing materials are expanding at a fast rate.

10.6.4 Mining

Uganda has a long history of mining and extraction. Today, improvements in exploration activities have confirmed that the country has commercially viable but under-exploited mineral deposits of gold, oil, high-grade tin, and others (MTTI and UNIDO 2007). For example, the discovery of petroleum in the Lake Albert region has boosted the sector. Over the period 1997–2008, a total of US$500 million in private capital was invested in upstream activities in the oil and gas sector (Republic of Uganda 2010a, 2010b).

10.7 Conclusions

The robust performance of the Ugandan economy over the last two decades is impressive, particularly when set against the backdrop of decades of political (p.208) and economic instability. The economy, however, still relies to a large extent on agriculture, particularly in terms of employment, and as a source of revenue and export products. Uganda appears to have failed to industrialize, contrary to the promises of pro-market policies, macroeconomic stability, and the expanding regional market associated with regional integration.

The industrial sector is populated by small-scale firms that verifiably have limited manufacturing value addition. The vast majority of larger industries are foreign owned. Moreover, they are predominantly last-stage assembling firms with most of their activities concentrated around Kampala. These realities point to the need for Uganda to rethink its premature adoption of economic liberalism, together with the associated ‘private sector-led’ industrial development strategy. For these pro-market approaches to work over the long term, the state must, over the short to medium term, coordinate industrial manufacturing for example by encouraging foreign companies to partner with local industrialists and adhere to nationally designed, Asia-like performance targets. The aim is to promote technology transfer and increase local content. The ultimate goal is to ensure that Uganda develops a sustainable industrial development strategy that actively brings nationals (and supportive foreign capitalists) on board. Once the national firms become competitive, the country can gradually, and only gradually, liberalize the economy and integrate it into competitive global markets.

The state also has a key role to play in uprooting the ‘binding constraints’ to development that are outlined in the National Development Plan (2010–14). These include poor and inadequate physical infrastructure; erratic power supply; and high fuel and electricity tariffs, all of which impede industrial manufacturing. The WB Enterprise Survey data also reveal that firms perceive electricity to be the biggest constraint to business growth.

But this is not all. Local workers lack the appropriate technical skills, leading to lower productivity levels. Uganda also lacks the indigenous capacity to adapt and develop technology, and exhibits low capabilities in science, technology, and innovation. All of these point to the potential strategic role for the state in uprooting the country-specific constraints to capitalist development, in partnership with the private sector and development partners.

Despite these constraints, the recent performance of the Ugandan economy suggests that the outlook for the industrial sector is good. This can, to a large extent, be attributed to policy efforts aimed at improving infrastructure. Efforts to improve education and promote science and technology will also be of benefit to the sector in the future. Oil production also, which is due to start in 2018, offers significant potential for boosting economic activity. For example it will finance infrastructure investment and human capital development, provided Uganda navigates past the proverbial natural resource curse.

(p.209) References

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Notes:

(1) The services sector, for example, has impressively attracted high-quality telecommunications companies (such as MTN of South Africa), but is still dominated by tourism (and retail trade) (Kiiza 2007).

(2) In ECA terms, ‘Eastern Africa’ covered twelve member states: Uganda, Kenya, and Tanzania, plus Mauritius, Zambia, Ethiopia, Somalia, Malawi, Zimbabwe, Madagascar, Rwanda, and Burundi.

(3) See Obwona et al. (2014: Table 3).

(4) The large informal sector is not included in the registry, which is a major limitation.

(5) We note that these statistics are outdated and therefore may not represent the current sector status.

(6) See Obwona et al. (2014: Table 7).

(7) See Obwona et al. (2014: Table 8).

(8) See Obwona et al. (2014: Table 9).

(9) See Obwona et al. (2014: Table 10).

(10) Increasing food prices pushed the inflation rate to 21.4 per cent in 2011, but it has since fallen, in 2014, to below 5 per cent.

(11) In 1992, the government surrendered the treasury bills instrument to the Bank of Uganda and since then it has been entirely a monetary policy instrument.