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Uganda’s Industrialization Journey: Ups and Downs

Uganda has more than 5,000 manufacturing industries, but they are too small to compete on the international market, according to NPA Chairperson, Pamela Mbabazi.
25 Nov 2021 15:41

Audio 5



The local business community and foreign investors have disagreed with the government on why industrialization of the country is yet to bear fruit despite several interventions.

For decades, Uganda has had on top of her agenda, industrialization for import substitution, export promotion and protection of local production, but according to experts and the business community, the pace towards its goals is too slow.

And earlier this year the country launched the Uganda National Industrialisation Policy, 2020, as an improvement on the 2008 policy, to spur growth by talking into account new dynamics in the global and domestic economy.

The Policy aims at boosting the pace of industrial development, economic transformation and guide its industrialization, employment and wealth creation agenda. 

The policy also seeks to address trade imbalances through enhancement of import substitution, lower costs of industrial finance, improve integration with agriculture and mineral exploitation among other domestic natural resources. 

Both government officials, experts and the business community agree on the need to bring down the cost of doing business in a sustainable manner, especially if large investors are to be attracted.

  

Speaking at the 5th Economic Dialogue dubbed Economic Mkutano, the Chairperson of the National Planning Authority, Pamela Mbabazi said manufacturing, despite its importance to the economy, has remained at unacceptably low levels. 

“Our manufacturing exports are constituting just 13.8% of total exports, which is way lower than our neighbors; Kenya and Tanzania," she told the dialogue on the theme: Building a Sustainable and Competitive Industrial Sector in Uganda. "93.5% of firms operating in the sector are SMEs which are usually not able to reap the benefits of economies of scale.” 

She however, says if the plans and policies like the National Development Plan are followed, the objectives can be attained.

“NDP III has three programmes targeting manufacturing through which we want to increase the share of labour force in the industry sector from 7.4% to 10% and also increase manufacturing and value addition as a percentage of GDP from 8.2% to 10%,” she said.   “Countries that have industrialized have had labor productivity increase significantly which has made mass production possible and this has translated into improved standards of living.” 

 

She says the country might be boasting of more than 5,000 manufacturing companies, but these are usually smaller than what would be required to be able to compete internationally. 

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However, the government was criticized for not involving the private sector, or consulting comprehensively on up coming policies concerning the business sector. 

The Uganda National Chamber of Commerce and Industry Acting Secretary General Blessing Owomugisha said several policies are not appreciated by the private sector because they are not involved, citing the green production strategy. 

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Former Trade, Industry and Cooperatives Minister Amelia Kyambadde, who presided over the formation of both the industrialization policy and the Uganda Green Growth Development Strategy said the government has always endeavored to consult widely.

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The members of the private sector also criticized the heavy government infrastructure funding, saying some of the projects are not well throught-out and they end up not benefiting the economy.

They cited the high cost of power which they said continues to be a hinderance to industrialization despite the high generation capacity which is far above the demand currently, on top of the unreliable supply.

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The Deputy Director General, Uganda Investments Authority, Paul Kyalimpa, said the government will continue investing in projects that enhance production and productivity, citing the industrial parks.

“UIA has done a lot, like extending affordable power solutions to these parks, setting up one stop centers (physical and online) where all business documentation is carried out,” he says.

The government is also planning to start transmitting electricity from the generation plants directly to the industrial parks, bypassing the current distribution system.  

Godfrey Byamugisha, from the Ministry of Finance Department of Policy and Research agrees that the incentives so far that the government has put in place are good but not yet enough.

He revealed plans that are underway to create a fund for investors who are willing to establish industries in processing zones. 

This should make it easy for investors to access cheap finance, and supplement what the Uganda Development Bank has been doing.  He says that they are currently consulting with the World Bank.  

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This move was supported by the African Development Banks Principal Country Economist for Uganda, Peter Rasmussen. 

He however says that Uganda has not benefitted much from the Bank because it has few large industries. 

“Uganda is in a good place now in the industrialization journey," he said. "What we need now is infrastructure that is competitive like rail lines, roads and energy. We also provide funding to the private sector. The challenge is that we are looking for big projects for the lending to be feasible to us.”

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