Kampala, Uganda I HABARI DAILY I For many years now, the Uganda Government has pursued a mission of implementing an industrial policy whose focus hinges on import substitution.
Import substitution referred to the practice of replacing imported goods and services with domestically produced ones. Despite all the efforts, Uganda still remains a net importer, importing more than it exports.
According to the Government development blueprint, the NDP III “import replacement/promotion of local manufacturing” isone key development strategy Uganda is going to pursue between the financial years 2020/21 and 2024/25 to achieve industrial development objectives.
Many imported products that keep on flooding the market have however denied Uganda the opportunity to establish cottage industries and create more jobs. As a result, local firms keep on losing the market to foreigners.
PRIVATE SECTOR CRUCIAL
Many a local economists have however pointed out that the private sector alone cannot succeed in the mission of import substitution, saying that in countries where this initiative has succeeded, the Government had to be directly involved.
“Liberalisation has enabled this economy to thrive; there is no question about that. But in order for the economy to embark on the next phase of growth leading to industrialization, cottage industries have to be supported to come up in every sector, producing all kinds of products,” said John Walugembe, the managing director, Federation of Small and Medium Sized Enterprises (FSME).
He said in order for that to happen, the authorities have to ring fence the market of some products and opening up markets through deliberate creation of demand. “Government has to be directly involved if we are to ever take this route and succeed as an economy,” he said.
Walugembe further called for Government’s intervention as local traders positioned themselves to access the Africa Continental Free Trade Afea (AfCFTA), a market of over 1.3b people.
Being a private sector led, Uganda’s economy has strived and failed to drive import substitution due to the high cost of doing business and lack of incentives to make their investments work.
Researchers have said that the country needs to produce household products, industrial inputs and output in order to retain the money domestically.
In a report titled: “Import-Substitution: Uganda’s Post COVID-19 Industrial Policy Strategy,” economists say whatever economic arguments for or against import substitution are deployed, only a sound combination of functional state institutions, an energetic private sector plus an adequate banking system will allow for its success.
“We have to substitute products with the largest multiplier leakages and produced by manufacturers that source locally produced raw materials. These include: machinery equipment and other accessories used in repairs of motor vehicles and motorcycle service; repair and installation of machinery and equipment; as well as repair of computers and personal and household goods service,” reads part of the report.
A report Commissioned by Friedrich-Ebert-Stiftung (FES) Uganda and authored by Ramathan Ggoobi, the finance ministry’s permanent secretary, recommends that the Government starts with industries that will not over-stretch existing capabilities such as food processing and agrochemicals.
“After that, it should move to relatively more complex industries such as paper and wood industry, aluminium and other related building materials.”
Ggoobi further urged the Government to use industrial policies such as production subsidies and preferential access to credit and equity capital for manufacturers.
“Desist from using trade policies such as higher tariffs, quantitative restrictions or import prohibitions. Substitute products with the largest multiplier leakages and produced by manufacturers that source locally produced raw materials,” further reads the report
It points out that such products include machinery equipment and other accessories used in repairs of motor vehicles and motorcycle service; repair and installation of machinery and equipment; as well as repair of computers and personal and household goods service.
MUSEVENI ADVOCATES
President Yoweri Museveni has been one of the main advocates of import substitution, saying that sectors such as manufacturing and agriculture will get a boost, once they are given a chance to produce goods massively both for the local and regional markets.
“There is an urgent move to turn Uganda’s market from a dumping ground for foreign goods to a manufacturing hub for not only household products by also for industrial products,” he was quoted in the media as saying.
He pointed to the records which say that Uganda imports goods worth over $7b annually, saying, “We need to turn misfortune into opportunities that would create thousands of jobs for our youths.”
TURNING THE TIDE
The tide towards real import substitution started four years ago, when Uganda had a favourable balance of trade with Kenya in the financial year 2017/18 of $122.7m, which included exports of $628.4m against imports of $505.7m.
It further registered a record highest trade balance in the East African Community (EAC) region of $413.8m, which included exports of $1,220.63m against imports of $806.77m in the same period.
The Uganda Bureau of Statistics, in its monthly Merchandise Trade Statistics Bulletin for October 2022 says trade flows in August 2022 increased by 45.5% to $1,301.8m from $894.9m recorded in August 2021. Imports increased by 55.2% to $1,006.9m in August 2022 compared to $648.8m recorded in August 2021.
Similarly, Exports increased by 19.9% to $294.9m in August 2022 in comparison to $246.0m registered in August 2021.
The ministry of finance, in its “Performance of the Economy Monthly Report for October 2023, in merchandise exports, Uganda exported merchandise worth $632.06m in September, 2023, representing a 5.6% decline in comparison to $669.88m exported in August 2023.
“This decrease was majorly attributed to lower export earnings from beans, maize, tobacco, flowers and coffee registered during the month,” reads part of the report.
It however says that in comparison to the same month the previous year, merchandise exports grew by 93.1% from $327.28m in September 2022 to $632.06m in September 2023. “This was attributed to increased export earnings from gold, coffee, maize among others.”
It has become evident that import substitution is a worthy undertaking which releases foreign exchange for capital equipment required by the growing manufacturing sector.
