The Independent Uganda: You get the Truth we Pay the Price
Uneven potential
Import substitution is usually practised on a national scale, but the growth of regional markets is creating a pan-African equivalent. Regional economic communities are deepening, and a continental free trade area is on the horizon. In Africa’s Business Revolution, a 2018 book, McKinsey consultants forecast that “three-quarters of the growth opportunity in manufacturing lies in meeting intra-African demand and substituting imports”.
Carlos Lopes of the University of Cape Town says the potential is uneven. “I think the strategy for Africa’s industrialisation will be centred on import substitution mostly on the agro-processing area, but not for other areas. Sectors such as light manufacturing may be more oriented towards world exports.”
In some countries import substitution never really went away. In Nigeria, a large domestic market creates economies of scale for local industry. Its “backward integration policy” helped Aliko Dangote build a domestic cement business – a trick he is hoping to repeat in sectors from fertilisers to oil refining. At the same time, clumsy import restrictions have pushed up prices for consumers and encouraged smuggling.
Ugandan policy has taken a more circuitous route. A “Ten Point Programme” developed by Museveni’s 1980s rebel army argued that import substitution would stop the “endless haemorrhage” of national resources. But after winning power in 1986, he shifted to free trade and reduced state intervention.
“At that time the IMF, the World Bank and the US Treasury were promoting the Washington Consensus and this was a new government, it was broke,” says Ramathan Ggoobi, an economist at Makerere University Business School. “So they right away abandoned the Ten Point Programme. But over the years they have been gradually trying to get back to where their initial plan was.”
In 2014 Uganda introduced a “Buy Uganda, Build Uganda” policy, which seeks to promote consumption of Ugandan products through branding, public procurement preference schemes and supporting small businesses to meet supply-chain requirements. Museveni has commissioned new factories and industrial parks, which typically receive tax holidays. In 2018, he opened a factory run by Goodwill, a Chinese-owned ceramics manufacturer, which today claims to meet 70% of Ugandan demand for ceramic tiles.
Effect of border closures
The Covid-19 pandemic has focused minds. “Suddenly every country closes its border and you are in your own house,” says Emmanuel Mutahunga, Uganda’s commissioner for external trade. “You either provide for yourself or die.” The government has increased import duties on agricultural products and on some locally manufactured goods.
“The import substitution of now is to develop the capacity to compete… We are not talking of banning imports, but rather we are looking at how we use that import substitution drive to make our own products more competitive domestically, and then in the regional market and in international markets.”
That is an acknowledgment that import substitution and export promotion are not mutually exclusive. It also reflects the ambivalence in Uganda’s approach. Museveni is yet to sign the National Local Content Bill, passed by parliament in May to promote the role of local companies in supplying the oil industry. He reportedly considered parts of the bill unworkable.
“They seem to be overstretching the existing capabilities in the country, wanting to do everything from assembling buses to building all sorts of industries,” says Ggoobi.
Risks range from the careless use of tariffs, which could push up the cost of industrial inputs, to the danger that government insiders use subsidies to support their private businesses, he says.
The usual challenges of doing business remain. Three years ago CiplaQCIL agreed to supply pharmaceuticals to the Zambian government. But the cash-strapped Zambians stopped paying, sending the company into the red and its share price plummeting. If more businesses are to make things in Africa then it is consistent policy, not patriotic rhetoric, which they need.
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Adapted from African business magazine
