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Fortune favours the bold

 

The Ugandan Kiira car on tour of western Uganda recently

Why government of Uganda should heavily invest in Kiira Motors even in the face of many impediments

THE LAST WORD | Andrew M. Mwenda | Uganda wants to manufacture cars. It doesn’t have any comparative advantage in this field. It does not produce iron ore from which to make steel, an important input into the car manufacturing industry. It is landlocked. It has no prior experience in manufacturing anything significant. And it is trying to do it using a state owned enterprise, Kiira Motors Corporation (KMC), in a government riddled with corruption and incompetence.

For many observers, this is a toxic combination that produces economic disasters, right? Yet I think Uganda should try. The heading of this article is drawn from the title of a 2003 book by an economics professor at the Massachusetts Institute of Technology (MIT), Lester Thurow. It is MIT that initiated the project that produced the innovation that Kiira is trying to turn into a product and a business. Kiira’s journey seems improbable but that is how transformative projects that have altered the course of history initially seem.

Take the example of Japan, the country from where I am writing this article. When it sought to enter the automotive industry in the 1930s, it seemed improbable. Japan did not have iron ore. It lacked technology. It had to first pass a law that only companies majority owned and controlled by its nationals could sell cars in the country. Yet it did not have a comparative advantage in manufacturing cars. American and European automobile firms were so advanced they could supply Japan with high quality cars at lower prices.

Yet Japan took the bold step. In 1932 it banned American Automobile companies, Ford and General Motors, from establishing assembly plants in the country. Look at Toyota, the world’s second largest automobile company. According to David Magee’s book, How Toyota Became Number One, its first vehicles had numerous quality issues, the manufacturing process was rudimentary and the company was not competitive in global markets. Its first products were a little more than modified versions of Chrysler, Ford and General Motors vehicles.

For the first 20 years Toyota could not break-even. So it depended on subsidies from the Japanese government. In its first seven years, it produced only 1,500 cars. Its first entry into the USA market was a disaster and after three years and severe losses it withdrew the model it had taken there. Three times in its life in the 1950s it came close to bankruptcy, three times the government of Japan rescued it. Toyota grew to become number one (now number two) because the Japanese people and government believed in it.

The story of Japan’s rapid economic development is a story of many improbable journeys. When it entered the computer industry in the 1960s, Japan seemed to be undertaking a mad man’s dream. American computer companies like IBM were the world champions. Japan’s companies like Toshiba were mere mosquitoes, to use the words of Peter Evans in his book, Embedded Autonomy: States and Industrial Transformation. But again, Japan took the bold step and by the 1990s it was dominating this industry.

The story of Japan’s industrial transformation is the story of all late developers. Comparative advantage is not just based on initial endowments. It can be actively constructed. When South Korea sought to enter the automobile industry in the 1960s, it established the Pohang Iron and Steel Corporation (POSCO), a state enterprise. Its American benefactors said the country lacked iron ore and technology and was using the state to produce steel, a recipe for disaster. South Korea insisted and forged ahead. By 2000 when I visited the country, POSCO was the most successful steel company in the world, knocking the living daylights out of privately owned American steel firms in global market.

Today we look with awe at Sam Sung, Hyundai and LG, forgetting that when it started her journey, it seemed a pipe dream. Fortune favours the bold. There are one million reasons why Kiira may fail. There are three reasons why it should succeed. Kiira should be given a chance for only those three reasons. Uganda needs to be bold and throw everything at it and at other projects.

There will be mistakes and blunders along the way. There will be corruption, incompetence and fraud. It is not these scandals that will kill Kiira but how we respond to them as a country. We can choose to use such problems as opportunities to grandstand and score political points and prove our initial claims that this KMC was a pipe dream, a pet project by President Yoweri Museveni to steal or misuse public funds. Or we can choose to see such problems as opportunities to learn and improve how we do business.

The difference between successful and failed countries is their attitude to the challenges they face in the initial stages of developing an industry. For instance, it is politically appealing and psychologically gratifying to take a populist stand on such issues and condemn public officials for misusing public funds and call for an end to public financing of a government project. But this is rarely the right thing to do. On the other hand it requires quiet tenacity and patience to build an industry from scratch; especially when the journey is riddled with fraud and incompetence.

Yet the history of all successful projects, even political ones, always seems improbable. Take Museveni’s political journey as an example. Imagine him and his motely crew of 42 youths with 27 guns and hardly any experience in war heading to the bush to begin a revolution against a trained army backed by a foreign power, Tanzania. Their first attack on Kabamba was a failure. Their initial years were characterised by little progress. By 1983, they came close to annihilation and even discussed leaving Luwero for the Rwenzori Mountains. But they persisted and finally won.

Museveni has proved daring in his pursuit of power but been excessively cautious in his pursuit of economic development. Where he believed in the capacity of Ugandans to liberate the country politically, he believes in foreign investors – Indians, Europeans, Americans, Chinese and Arabs – to liberate Uganda economically. Instead of using the state to support private business initiatives by Ugandans, he has been giving tax holidays, prime land and other state benefits to foreign investors. In venture capital, only one in ten projects they finance succeed. If the failure rate by private venture capital is 90%, why should the state in Uganda not take a risk on Kiira and other innovations by our youths?

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amwenda@independent.co.ug

 

 

8 comments

  1. Dr Eng Kant Ateenyi

    Andrew,
    Your main point on ‘Fortune favouring the bold’ or its more understandable form: ‘luck helping those prepared for it’ cannot be queried. Nor should we be debating whether or not it is right to support Kiira MV project. My problem(s) is/are with your uncritical comparisons and constant (now routine) citing of the ‘one in ten’ success statistic.
    You compare Japan’s move to start MV manufacturing in the 1930s with Uganda’s – almost a century later, when world trade wars (I think even local East African ones) are peaking. This is lack of contextualisation an intellectual like you should not be making (sorry to be so harsh brother). Contextualisation would help you consider in more detail (I am sure you know these), effects of other factors at play in such a game: local skill base, local patriotism, local economy resilience to absorb shocks from learning mistakes, etc.
    My friend M9, this business of 1 in 10 success rate: forget its random use anywhere you want to present an argument. Let me tell you for example: at one time Uganda was considered to be one of the most entrepreneurial country on this globe. That was may be a decade ago. With your 10% success rates, we would be ahead of everyone else on the continent – development wise. You know we are not. Then what must have become of the nearly one hundred thousand entrepreneurs who should be in this 10% category? Where are the effects of their success?
    You see brother, success rate is not just determined from a figure read in books and academic writings. It is determined by objective conditions in the economy under consideration. Moreover for a small economy such as Uganda’s, even a single ‘big’ failure from among the so called 9 in 10 can necessarily lead to failures of some of the ‘ones in tens’ because of its aftermath effects.
    Anyway brother and friend, I have already expressed my concerns (and advice) on this subject elsewhere, and had wanted this magazine to run a longer exposition on the same. I wholeheartedly support Uganda developing a MV industry, but in different ways from what we are now doing.

    Cheers,

    Dr. Eng Kant Ateenyi

  2. This is a Ramage from Andrew. And to be fair, he should. He has no concrete evidence to have seen it work. He doesn’t have the science nor the imagination for it. We are on a train journey to completely nowhere and Mwenda knows it. His weird assumption are not backed by David Riccardo.

  3. ejakait engoraton

    “Take the example of Japan, the country from where I am writing this article.”

    More than anything I think M9 just wanted us to know that he is currently in Japan.

    YES, fortune favours the BOLD , but not the FOOLISH.

    There is nothing wrong in taking an outrageous risk, but there are many factors that one must take in to consideration when doing so and I do not see any of these factors being at play when looking at the MV project.

    Even when you are doing guess work, there is what we call an educated guess, and in the case of business there is what we call a calculated risk.There are a lot of countries which have or did take on aspects of the MV industry with varying degrees of success,countries that M9 has chosen not to mention, and I wonder if any of the people involved in the KIIRA project have taken the time to study these cases.

    India, Mexico, Spain,Kenya,South Africa,Nigeria and a host of other countries have ventured into the MV industry. MAHINDRA and TATA in India for instance went into collaboration,where they took on old factories to manufacture vehicles that had been discontinued by these companies and where the companies had installed newer more efficient facilities, especially TATA which took on the DAIMLER BENZ manufacturing facility to start manufacturing TATA lorries which were essentially an older MERCEDES model but in name.

    Likewise,MEXICO set up its MV industry,not solely as manufacturing but as ASSEMBLY mostly for proximity and tax purposes for the South American markets for VW and American companies.

    SOUTH AFRICA set up assembly plants , mostly to by pass sanctions then.NIGERIA,buoyed the oil boom, set up assembly plants as did KENYA at some point in time.

    UGANDA, as they say, is coming late to the party.

  4. Ever since M7 became president of Uganda there is a certain level of economic independence and confidence Ugandans have gained so the idea of Kiira MV should not be underestimated.For example the BUBU campaign has been so successful we produce and consume our own products,Ugandans these days prefer visiting their own tourism sites,When we travel we dont bother going to designer shops.

    Last Sunday i watched a documentary on Aljzeera about the rivary between Bill gates and Steven Jobs that eventually changed the face of social media and Technology perhaps Kiira MV needs a business rival to improve

    ISO is not serious how could they deport the CEO of MTN? Didnt they know that the CEO of MTN and his wife Barbra are born again xtians who worship with the mighty Watooto church?They own a successful tour and travel company bambi i know them they are good and decent people.

    So Rwanda has imposed a trade embargo on Ugandan products? they did this coz they know deep in their hearts that they are not one of the original member of EAC and common wealth so no one can reprimand them .Its not by accident that most of the former British colonies are doing well for example Uganda,Kenya,Ghana,Zambia. I am convinced that they had no interest in nations like Congo and Rwanda coz they are naturally problematic.This also serves Uganda right coz we keep on opening the skirts of every lady yet they are whores for example Burundi,Congo,S.Sudan,Rwanda have been our women but they are not loyal.

  5. 1. “Ever since M7 became president of Uganda there is a certain level of economic independence” Winnie
    Are you sure? That Ugandans are economically independent today than they were in 1972? What and who own what that is not collateral to a bank and waiting for the axeman? He uprooted a fully-functional railway system (asset) and has miserably failed to replace it……………and wants to replace it with an impossible-to-pay debt thereby substituting an asset for a liability. Is that what you call independence? being indebted.
    What asset has Museveni ever attained for Uganda (bought and paid for) that is not a millstone-on-neck debt? Amin built Uganda House in New York and in London; two big high-cost infrastructures at zero debt. What has Museveni built?
    2. Kiira MV is time-barred and is here to hemorrhage the miserable tax-payer at the expense of the pseudo-elite ‘engineer’ inventors(predators and other scavengers) who are attempting to re-invent the wheel using taxes. Electric vehicles are so old and so common-place that there is nothing new in it worthy calling an invention or innovation. It will end as laughing stock like the ‘Nyayo Pioneer One’ car of 1986 which none other than Moi himself introduced and the money that died and was quietly buried; which should be a lesson to other adventurers not to go there but learn from the mistakes of others.
    3. If MTN CEO was spying as is alleged, why not even jail him let alone deport him? Winnie, his benevolence may have been cover. The government did the right thing…but in the wrong way and they might pay financially.
    4. The trade embargo imposed by Rwanda is justifiable in that a sovereign state knows more than we individuals. Recently, two terrorists (Bazeye and Bega Liaison and Intelligence Chief respectively) were intercepted and caught while they were coming from a high-level meeting in Kampala with our security chiefs and Gen Kayomba of RNC (which some whisperers say Visionary was in attendance). Those terrorists(FDLR) who pillage,kill,loot and rape have been terrorising Rwanda for the past 25 years and have found a haven in Uganda (according to Dr Sezabira). They were later handed over to Rwanda. Sovereign states have a lot to exchange and bargains than individuals so it was no surprise that when they reached Kigali, it is being whispered that they spill all the secrets of the Kampala conference; which revelations made Kigali sleepless and Kampala nearly berserk….so you understand how a cookie can crumble in an oven totally against the plans of the chef. The visionary can never (even if lent 50 more years of a lifetime) establish an infiltration system in Congo like Kagame. Remember Kagame’s general Kabaribe once commanded the Congolese army,navy and airforce. does the visionary have even a permanent secretary in Congo? So all things he may plan with Congo, kagame will be told even without asking. It is said Congolese rich companies and individuals and even religious organisations, NGos and smugglers bank their money in Rwanda. I have never heard any banking here in Uganda……maybe Kenya. So their relationship is too high for visionary to attain and it advisable that he should never confide in Congolese anything against Kagame because they will outdo each other who will tell Kagame first.
    5. As for former British colonies being better of than others, it is true and it always will. However, those Rwanda leaders at the helm, Kagame, Turtaremara, Sezibare and their agemates grew up in Uganda when Uganda was still British colony, so it is ironic that they are in fact Rwandese but they have never been in a Rwandan classroom from elementary school to graduate. So Winnie, they are as (if not more) Ugandan than you and I. That is why when we clash, it becomes a draw…..of course Congolese is different.
    6.And remember Winnie, that border they(politicians) are closing and opening like a car door was put in place in 1921……….by white men. It is not traditional,natural or even social. It was set up by thieving colonialists who were sharing loot and should have been dismantled at ‘independence’.

  6. @Rwasubutare: Have you ever heard of the adage:Make hay while the sun shines?M7 is always urging us to take advantage of the good investment climate to develoP.

    Its always good for a president of a nation to posses great economic skills there is nothing M7 does without making a feasibility study of a project he wants to invest in.

    M7’s legacy and impact will be felt when he eventually leaves power for now work is still in steady progress.its only natural to evaluate one’s performance when they have retired.It was obote and Amin’s duty to build those structures you are proud of.

    Since there were no industries in Uganda what was the train transporting anyway during obote’s regime?Just people from point x to y of what economic vaule was that to the nation?M7 with his great economics saw no need and value in renovating the railway when there are no industries if anything its Kenya that was benefiting from the railway coz all the goods being exported to Uganda were from Kenya.

    Tell me how does Rwanda benefit where it closes its boarder with Uganda? ZERO BENEFIT its like China threatening USA.

    Rajab and Ejakait cant participate in discussion and matters concerning economics.

  7. Yes “Toyota, LG, Hyundai grew because the people in those countries believed in them”. Mwenda, you guys and your mafias have lost credibility among the people of Uganda. It’s like loosing varginity, it happens once! Keep dreaming my friend for time is running out.

    • Albury, learn from this forum to discuss issues, not personalities; else you risk being counter-attacked and you won’t find it comfortable,starting from your spellings….

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