On Museveni’s support to industrialists

What Uganda can learn from countries that enjoyed industrial transformation

THE LAST WORD | ANDREW M. MWENDA |  My friend, Ellison Karuhanga, wrote a brilliant defense of President Yoweri Museveni’s policy of allocating state benefits to private companies in pursuit of Uganda’s industrial development. He argued that the president’s critics focus on procedural technicalities and ignore the substance of his decisions. He gave an example of projects the president has supported and that have succeeded. He also argued that successful countries ignored such procedures and focused stubbornly on the outcome (Kaguta, Mwenda and the brutal truth about nation building).

There is a problem, however, with Ellison’s argument. It is called survivorship bias. This is a type of sample-selection bias that occurs when an observer mistakes a visible, successful subgroup as the whole group. Ellison’s argument is like that in the famous, yet deceptively stupid book, The Millionaire Mind. The author claimed to have studied one thousand millionaires and found that they were of average intelligence (based on their performance at university), but they worked hard and took big risks. Had he studied bankrupt entrepreneurs, he would most likely have found them to possess the same qualities. Same applies to Ellison’s argument. Had he looked at countries that failed at industrial transformation, he would have found that they employed the very same strategies.

It is true states that have been successful at industrial transformation, such as Japan, Taiwan, South Korea, Singapore, etc., offered preferential benefits such as tax exemptions, subsidies, cheap loans, tariff protection, etc. to nascent industrial groups. This is what Museveni is doing in Uganda today. But it is also the case that states that failed, such as India, Brazil (in the 1970s and 1980s), Kenya, Pakistan, Argentina, the Philippines (under Ferdinand Marcos, 1966-85); Ivory Coast, etc., did similar things. So, what made some succeed and others fail when they were using similar policy tools?

This brings us to the second factor that Ellison ignored. Museveni has been in power for 40 years. And over that period, he has been consistent in supporting industrialists with state patronage. The Madhivanis and the Mehtas, Mukwano and Mulwana, Bidco and others have enjoyed his support. This has involved tax exemptions, tariff protection, free land, cheap loans or grants, different forms of subsidies, etc. Yet Uganda has not been as successful as South Korea or Singapore, which underwent industrial transformation in 30 years. In 1990, about 70% of Ugandans depended on agriculture for a livelihood. In 2022, the same percentage depended on agriculture for a livelihood. This means there has been no structural transformation. Why?

Of course, I would like to be fair to Museveni on this. First he was constrained by the IMF and World Bank’s insistence that he should leave markets to allocate resources. At the time, Uganda heavily relied on these “donors” for financial sustenance. He could, therefore, not actively and consistently go against their will. Secondly, the economic bureaucracy he had at the Ministry of Finance was strongly wedded to the IMF’s neoliberal ideology of free markets. Even I in the media was an ardent believer in this ideology. Thus, we formed a formidable coalition of resistance whenever the president tried to promote state support to industrialists.

Even if we had not opposed the president, there were other factors that would have made Uganda’s prospects dim. Many people ignore critical factors such as geographical location, like the authors of another very stupid book, Why Nations Fail. Neighbourhood effects have powerful implications on the destiny of nations. Being a neighbour of countries in civil conflict (as Uganda has been with South Sudan, DRC, etc) imposes high costs on your development prospects. Distance from the coast, limitations in human capital and other initial conditions have played an important role.

Where I fault Museveni is the belief that he alone can be an institution that assesses the viability of industrial projects and qualifies them for government support. He is the one who listens to industrialists in regard to the amount of capital they need and makes a decision to give it to them. Museveni is a great military strategist and an incredibly talented politician. But this does not make him a great business development strategist. And even if he were, as president he is too busy with too many issues to be the one to assess, analyze and scrutinize every single business plan.

Of course Ellison can retort that the president takes these decisions to cabinet. Uganda’s cabinet (or the cabinet of any country, for that matter) cannot be a competent institution to assess such projects at both a technical and financial level. This is even more so because our cabinet is not made of the best and brightest people in the country. Indeed, the president has called them fishermen. In fact, I am inclined to believe Museveni uses the cabinet to rubber-stamp his decisions, not to really assess these projects.

This brings use to what we learn from successful countries. Japan had the Ministry of International Trade and Industry (MITI) while South Korea has the Economic Planning Board (EPB). According to Chalmers Johnson, in his famous book, MITI and the Japanese Miracle, Japan would get the best graduates from the best universities to sit an entry exam to join MITI. Only 2-3% of those who sat this exam succeeded. Johnson says MITI had “the highest concentration of brainpower in Japan”. The same story applied to South Korea’s EPB: 97-98% of the people who sat its entry exam failed, according to Alice Amsden’s book, Asia’s Next Giant, South Korea and Late Industrialization.

The actual story of these countries is much more complex than this idealized version of Johnson and Amsden. There was corruption, there was political favoritism, etc. But there was a basic minimum of technical input into government support for industrial projects. The president needs to do two things. Our country has a blueprint of which economic sectors Uganda has selected as priorities for support. The pharmaceutical industry is not one of them. Second, he needs to have rules stating the qualifications for benefiting. I have not seen any. There needs to be an institution that manages the process. Finally, we need clearly defined targets with timeframes for the beneficiaries of state patronage. We may not succeed even with all this. But we will have put in place the necessary measures for possible success.

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amwenda@ugindependent.co.ug