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Govt must lead Uganda’s Industrialisation – Economists

Prof Julius Kiiza

Kampala, Uganda | THE INDEPENDENT | Researchers Ramadhan Ggoobi and Prof Julius Kiiza say for Uganda’s economy to transform into an industrial one the government must take the lead by intervening and investing in strategic areas like manufacturing.

The duo were dialoguing with editors and journalists in Kampala under the theme “Economic Development and Industrial Policy in Uganda”, based on a report by German think-tank Friedrich Ebert Stiftung (FES).

Ggoobi, an economics lecturer at Makerere University Business School, and lead author of the report, said development is fundamentally about structural transformation of the economy and this not through market forces but deliberate government intervention in strategic sectors and areas.

He said it is a fallacy that in Uganda we think that we shall use market forces to industrialize minus government stimuli, yet there is no country that has industrialised purely based on market forces.

Uganda’s National Industrialisation Policy sets at 25 percent the contribution of manufacturing to GDB, but latest figures put it at about seven percent, less than the East African Community average of 10 percent skewed in favour of Kenya.

Ggoobi said had countries like the United States of America, Germany, Thailand, China, Malaysia and South Korea not defied dictates of external forces not to industrialise they would perhaps have remained agrarian economies.

He said although Uganda has registered impressive economic growth and GDP expansion in the past 25 years, efforts to transform the economy have been largely unsuccessful.

For example, agriculture remains the largest employer of Ugandans, at 72 percent, and the main contributor to Ugandan exports, at 80 percent, despite reduction in its contribution to GDP at 25 percent.

As a result, household incomes in Uganda have stagnated, with nearly half of the households earning a living from subsistence farming, and poverty and vulnerability at 21 percent and 44 percent respectively.

Ggoobi reasoned that for Uganda to industrialize, the best path would have been for agriculture to feed into industry and then into services, unlike the trend whereby services have catapulted industry.

According to Ggoobi, the agriculture-to-industry-to-services model is what the Uganda Development Corporation (UDC) was doing until most of the industries it set up were sold on the advice of neo-liberal forces led by the International Monetary Fund and the World Bank.

On arguments that Uganda has a weak domestic demand, Ggoobi argued that that is not true because Uganda is a net importer of manufactured goods which all get consumed. He said since 1980, Uganda’s balance of trade has been negative, meaning dependence on imports have persisted for a long time.

Ggoobi also argued that the government must invest in certain strategic areas like manufacturing, even if they are not competitive, but are able to provide jobs and incomes to a significant number of people.

He explained that no country has industrialized by focusing on comparative advantage alone but by the government taking the lead in strategic areas as it promotes private sector-led development. He said almost all developed economies used interventionist policies that encouraged industrialization and industrial upgrading.

Ggoobi said proponents of free market economy must not use the argument of government failure to do business as an excuse for government not to invest and lead in strategic areas, proposing investments in manufacturing value chains as opposed to piece meal interventions.

He gave the example of textile firm Nytil that had developed an entire cotton value chain by the time it was privatised, adding that many of the government-owned industries were performing much better than after they were advertised.

According to Ggoobi, the National Industrialization Policy 2008, was not only haphazardly formulated but focused on just agro-processing and left out key areas like industry financing, labour management, standards and regulations, nationalism and enabling policies. This has been worsened by haphazard implementation.

He recommended that Uganda’s industrial policy needs to be reviewed and adopted with a bias towards manufacturing in strategic areas like agro value chains, steel, petroleum and export-oriented manufactures.

Ggoobi identified some of the spoilers of industrial policy in Uganda as fear, private interests, a frustrating bureaucratic elite, external influence, multinationals with vested interests and reluctant political elite.

Makerere University political economist, Prof Julius Kiiza, said the real focus of Uganda’s industrialization should be on real manufacturing chain of a product, like the manufacturing of a product like shea butter encompassing all associated products including biofuels.

Prof Kiiza argued that industrial progress happens through defiance of and compliance with comparative advantages, as was the case with South Korea and America. He explained that England had never wanted America to industrialize claiming she was inefficient and would be a disaster but they defied that making America the industrial powerhouse she is today.

According to Prof Kiiza, the argument that development is through economic liberalism and not economic nationalism is flawed, because then you would be open to the dictates of externalities.

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