Friday , May 25 2018
Home / COLUMNISTS / Andrew Mwenda / Why our nations remain poor

Why our nations remain poor

Dependence on agriculture is synonymous with poverty.

African elites are victims of their own delusions about distorted history of developed countries

THE LAST WORD | Andrew M. Mwenda | On Dec.01, I attended the Joseph Mubiru Memorial Lecture hosted by Bank of Uganda and featuring Prof. Ha Joon Chang of the University of Cambridge. A brilliant economist lecturer, Ha is one of the smartest unorthodox thinkers. I owe him an intellectual debt because his work has influenced my thinking. Three of his books – `Kicking Away The Ladder, Bad Samaritans and 23 Things They Don’t Teach You About Capitalism’ – are must reads. Ha empasised the importance of industrialisation for any country seeking to become rich.

His lecture came four days after President Museveni invited me to State House to discuss manufacturing. He asked me to go see how, with available electricity, factories are springing up in the Namanve Industrial Park of Kampala.

Despite the surge, in reality Museveni superintends over an economic bureaucracy; especially in the Ministry of Finance and the Central Bank, whose ideological leanings are hostile to the idea of industrial policy. Even many Ugandan elites who are sympathetic to industrial policy are hostile to its implications. This explains why Uganda has not pursued an industrial policy. Uganda’s industrial policy is to have no industrial policy. This had led Museveni to constantly make ad hoc interventions to support this or that investor whenever reality confronts him.

Yet there is no country in the world where agriculture employs 80% of labour that has a per capita income of more than $1,000. So dependence on agriculture is synonymous with poverty. And save for finding huge rich mineral deposits and managing them well, no country has jumped from an agricultural to a service economy and become rich. Uganda must industrialise if it wants to become rich.

So I told the President that while investments in infrastructure; dams, transmission and distribution lines for electricity, and roads, expressways, railways, water systems and airports are absolutely necessary, they are insufficient to drive the manufacturing growth Uganda needs.

Instead, there is a toolbox for industrialisation from historic experience that Uganda can pick from.

First, the leading manufacturing firms in the sectors Uganda considers necessary for her transformation must be owned by Ugandans. This is because, as a rule, multinational corporations do not transfer the most valuable aspects of their business to their subsidiaries. Ha repeated this point. Otherwise we can assemble but will not be able to manufacture goods. Why?

Countries that have developed did so by selling abroad more value than they bought from there. In economics it is called terms of trade. And international trade is a form of hierarchy: some countries produce cotton; others weave cloth while others market high fashion. Some nations mine iron ore; others make steel while others sell automobiles. How much you earn from international trade depends on the niche you occupy in this value chain.

Those who produce and sell raw cotton earn 1.9% of the international market price; those who weave cloth take about 12%, while those who sell high fashion like Louis Vuitton, Gucci or Hugo Boss take 65%. The same applies to the niche one occupies in the value chain of iron ore, steel, and automobiles. Being relegated to a producer and exporter or raw cotton or iron ore means remaining poor. This has powerful implications on politics and the welfare of your citizens.

Take the iPhone. On its back it says: designed in California, assembled in China. Design and marketing, which are done in the USA, take 65% of the value of the iPhone. Assembling takes 15%. This is why China is developing her own smart phones in order to capture the 65%. DR Congo that sells Coltan from which these phones are made gets about 2%. So America eats the iPhone dinner, China the leftovers while DRC gets crumbs.

Second, if we are to industrialise, then we have to adopt industrial policy to protect our infant industries from international competition. Such policies would include tax holidays, subsidies, access to cheap long-term credit, free prime land, high tariffs on imported substitutes etc. This places the state in a position to choose which sectors, firms, and individuals to get these benefits.

Stanbic Home Sweet Loans

14 comments

  1. In allocating subsidies and cheap long-term credit to favoured firms, the state will be playing the role of venture capitalist. In venture capital, the average success rate is one in ten. The success rate is indeed very low but there must be a beginning and it is often those close to any political system who will be naturally favoured to undertake start ups and at the same time stay loyal to the ideals and requirements of government. The best way to keep the system in control is to allow trusted local companies to partner with foreign investors with technical skills and the money to undertake new industrial projects; from which we can reap part of the benefits; a win win situation. What Africa needs is a more robust partnership with the industrial West and East. In my view, our nations will remain poor if we continue to limit the guarantees and safeguards to foreign investments/investors. nothing more nothing less.

  2. ejakait, you will forgive my outburst. I know you will understand.
    1. Mwenda has a way of spinning his narrative that I at times regret why I ever learned English (which I cannot un-learn) and why I keep coming back to read the Last word ( which I have miserably failed to quit)
    2. During the early 60s and 70s, NYTIL Jinja made Khakhi American ( a super-combed cotton fabric) that had look of stainless steel, which had no equal,let alone a rival all over the world. The cotton was Ugandan grown and processed. I know it so well,having worn it in primary school and even in Nyangole. No stain had ever stuck on it. Shikibo,Kurabo and Yamato were Japanese names but the cotton fabric they were made from was Ugandan in origin,processing and finish. 50 years down, even South Africa has not made it as was.
    3. Those who talk of industrialisation;manufacturing I don’t know what (because there are more than 100,000 items churned from industries world-wide) are simply the type that either: (i) want to get a kickback from infestors by being on their fake boards (ii) are totally ignorant of the market forces (iii) are totally ignorant of the effects of pollution and smog; which is the same as selling your foot for a car, reasoning mbu because after getting the car you won’t need the foot.
    4. If you could give a 72 hour deadline to switch off every smoking chimney in Uganda ( never mind whether the factory was manufacturing what) and deployed a merciless-battle group to shoot-to-kill whoever will default on the directive. Uganda would be paradise in 6 months.
    5. Cement costs equivalent of 2,000 UGX in China and even one can bargain with them to deliver it at that price in Kampala. Modern Agriculture the Israel style can give Uganda employment for all, food for everybody and more foreign exchange than all other earners put together. Unpolluted Uganda can feed the whole of Africa with minimum farm in-puts.
    6. Uganda can ranch and process beef,goat-meat ,pork and fish which can be best in quality worldwide. People who have never been outside Uganda think it is shallow talk.
    7. Is it disputed that in the 60s, people of all nationalities flocked to Uganda for survival,asylum,education and stuck including whites? Is it impossible to re-create that type of Uganda? can anyone dispute that Ugandans used to work 6 hours and rest the rest of the day and yet manage to run the country including contributing to international organisations?
    8. Mwenda should do readers some justice one day and tell us whether a rich country means also rich citizens because in the 1960s to early 1970s, every person who had hands could comfortably pay tuition fees in a secondary school. There were no classy schools catering for the rich; otherwise yours truly would not have been in the same classroom with the beloved son of a serving cabinet minister. Medical assistants drove cars bought cash,primary school teachers bought Vespa scooters and dressed like present day MPs
    9. Mwenda does not know that Uganda can grow more and better Cocoa than Cote d’ivoire, more and cotton than Egypt. More and better coffee than any other African country and have a very healthy population with very little pollution or introduction of toxic substances in water bodies. It is even easy to control neighbouring countries that would not adhere to the standards.
    10. The wealth(real wealth) of Uganda lies in Agriculture, value adding to produce and proper and high-class silos.
    11. Industries have created homelessness and greed,pollution and money drain, stress and anxiety and all associated ills that come with greed borne of those suckers who want to invest 10 and reap 1000 at the expense of 100 slaves. Show me one industry from the 90s that did not disrupt lives of indigenous.
    12. If God gives you land to live on and leave for posterity and you give it to another who left his own land (no matter what title you give them,investor,tourist etc…) doesn’t that prove you did not deserve it in the first place?
    13. Let an industry be non-polluting,indigenous owned,use 75% local material and employ 95% local population or just not even set up. Agriculture can employ,feed,clothe and cater for all national needs.
    14. The only alternative that should be allowed to Agriculture is underground mining never open cast.
    15. Anyone sane enough is compelled to ask,why court polluters which impact on everything including human health,displaces people from their habitat, reduces food production,benefits only a few,impoverishes over half the people and still claim or lie that it will develop a country? If you were sick and sought medical and a doctor tells you that you will first be drowned in a waterbody then rise on the other side the next day cured, would you believe him? Industrialisation are a means to kill off all natural resources including people, leaving only a few who will be a raised countryside with first medical insurance but the ordinary person gains one thing; slave labour disguised as employment. Gen Biraaro was talking of a FARMERS PARTY but the people long vaccinated against truth by perennial lies could just not absorb.

  3. If Uganda isn’t paradise, why did certain people commit suicide when they were given 3 months to arrange going back whence they came? To spoil paradise with pollution mbu industrialising is sacrilegious. Chinese can manufacture anything and everything you need at a lower cost and the pollution will be restricted to their land, you just use the goods. When will people learn? at 90 what they failed to learn at 30?

  4. When we were young in primary school, we used to sing how our Tooro has wealth sufficient to give even white men and count 1. Copper of Kilembe 2. Coffee of Bwamba 3. Tea of Mwenge 4. Salt of Katwe 5. Wildlife of Queen Elizabeth….. we did not know of the Limestone in Hima and many other yet undiscovered wealth. If Tooro had all that, how about other Districts (then 16) Even arid Karamoja was pregnant with gold and how about docile Mubende? A country governed by selfishness will benefit noone because even what is looted is taken outside. But a nation governed wisely benefits all including birds and foreigners who come seeking livelihood. Reconstruct the Uganda of the 60s with 16 districts and visualise what each had. There was cocoa trees in Hoima, rubber was grown in Bundibugyo. How much can a well looked-after Lake Victoria produce in a year?

  5. Dr. Eng. Kant Ateenyi

    Interesting subject – but my problem is that Andrew is focusing on ‘secondary’ and ‘tertiary’ issues in this submission (i.e. resources allocation, policies formulation & implementation, politics, international trade, etc.). Not that they are unimportant – but they can only supplement the following: First – and however small a fraction – we need an inquisitive (rather than simple conformist) crop of citizenry; a creative (rather than simple copiers) crop; then, a fiercely entrepreneurial and self-confident local talent to forge, create and grow local markets.
    How do we achieve that? – Long story – on a forum like this I do not have time or space to expound – but for a start, we ought to be motivating our people to refocus their thought processes and actions towards creativity, self reliance, frugality, away from consumptive (and parasitic), manipulative works (eg. through discriminative but exacting reward systems). There ought to be efforts by the few with these talents to pull along the rest. Then, Andrew’s supplementary recommendations can come in. We, as a people need to stop this business of always expecting governments and their clumsy, ignorant politicians to initiate everything. On the contrary, I want to think that it is our actions that should reshape their thinking and their so called ‘policy initiatives’.

  6. Ah Mr Mwenda; you have really nailed it this time. It’s those damned elites who are keeping us poor with their naïve opposition to favoritism, cronyism and corruption.

    Imagine, without those interfering elites the government could have identified an entrepreneurial Ugandan businessman and given him tax holidays, free prime land such as the old Shimoni school grounds and taxpayer dollars as capital. Such a businessman could have built up an industrial and banking empire to rival the foreign companies that dominate our economy!

    Imagine, another businessman could have been given a prime industrial site like the old Coffee Marketing Board premises, plus free cash as capital, plus cheap workers trained by the government. He could have built up one of Africa’s leading textile company; Uganda could be a major exporter of clothing!

    Oh Mr Mwenda, who will save us from those interfering elites!

    • Yoweri Kaguta Museveni if the “damning” MPs could be more patriotic and amend 102 (b) and give him one more chance. He’s Uganda’s miracle just that his magic is taking a lifetime to happen. It is becoming magical for Ugandans to be this patient, or is it a sickness?

  7. 1.Africa is the richest continent in terms of natural resources but she remains poor coz of primitive ideas and lack of skills She can however,redeem herself if she adopts the following ideas;
    (i)Improve her social capital here i mean who should Africa partner and dine with? Should it be Asia,Europe,America or Africa to Africa?
    (ii)Add value to the products we manufacture .last week i attended a party there were some wines made in Ug there was one in particular that is made from Bushenyi the wine had the smell of firewood and cough syrup in it. The idea of brewing wine is good but how do you make taste good?
    (iii)Send Africans to study in the 1st world nations not the idea of studying from Busoga University.
    (iv)Creat Partnership with big companies for example if you are a dairy farmer why dont you make an appointment to meet the CEO of Nestle Nido?
    (v) If you are a 3rd world nation dont expect to penetrate the international market with ease the big boys are crazy with money 1st study the market dynamics.
    (vi) Market you country even a beautiful women needs to dress provocatively so that men can die in their pants.
    (vii)M7 is a all rounder he is so gifted thats why lifting the presidential age limit was just to reward him for his exemplary performance.
    (viii)Do a good job.can you imagine some service providers can not make good juice and cook good food?
    (ix)Nambooze was not sick what kind of sickness has a timetable mbu she healed just in time for the age limit debate.
    (x)Rajab stop making friends with Fatuma,Faridah Hadija,Abdul,Hashim make friends with people who will give you ideas on how to develop.

    • Sometimes it is just right to be conservative with your ignorance, or being Choosey with whom you share it with. The right of association is clearly embedded in our constitution- it is a basic human right. I do not know why I am always reminded that you’re a “lowuya.”

    • “….made from Bushenyi the wine had the smell of firewood and cough syrup…..” that smell was in your nose not in the wine. You came with it from your home Winnie. Bushenyi wine is the best on earth. Most women in fact cannot keep their pants on after sipping a little of it.

    • Text book/secondary school ideas,style up

  8. Your are right to a larger extent .No further comment!

  9. @ Rwasubutare we prefer our pants off whether we have sipped wine or not.

    We live in a competitive market how will the Bushenyi wine improve if its not criticized?how will it compete with wines from S.Africa that have flooded the Ug market ? dont you think they need to add value to their product?Uganda Waragi has a perfect taste perhaps they mastered the skill from the ladies who brew Kasese Kasesse or Lira Lira.(Ejakait must be knowing the origin of Kasese Kasese and Lira Lira)

Leave a Reply

Your email address will not be published. Required fields are marked *