While addressing the country on the State of Nation at Senere Conference centre, president Museveni tackled some key issues that were not unique to his previous State of Nation addresses. Although some people expected him to address issues concerning the current Political situation in the country which is only three months old after the feb 2016 general elections, they were left disappointed while others who could not hide thier disappointment stormed out of the session in protest againt the arrest of Dr.Kizza Besigye.
To some people who have mastered the art of Museveni’s governance tactics were not surprised by his action of ingoring the current Political situation.
Leaving that at that, one of the key issues that attracted my attention was the president’s comments about Uganda not to be ran as a “Supermarket” of foreign products. He went ahead and branded this capital outflow as a “donation” to foreign countries stressing that US$5.528 billion accounted to our import expenditure annually. In this case, Uganda spends around US$ 875m on China’s imports, US$1.156billion on India’s imports, US$408m on UAE’s imports, US$637m on EU’s imports, US$89m on USA’s imports.
Literally the president suggested that the country should adopt an Import Substitution Industrial Strategy if the economy is to expand reducing poverty and creating jobs.
In this case, he suggested that Uganda should soon start assemblying cars citing an example of Ethiopia that created 160,000 jobs when they started assemblying cars and supporting the growth of local textile industries.
Today when you look at any vibrant supermarket(90% of thier products being imports) most of them are owned by foreigners who not only receive tax exemptions at the expense of local investors but also repatriate thier profits thus increasing capital outflow.
But the question is, should Uganda adopt an import substitution industrial strategy over an export promotion industrial strategy. To me the answer is a big NO.
In order to bridge the foreign exchange gap, the government must adopt the principle of comparative advantage and only specialise in production of goods where a country incurs least costs of production. In assemblying of cars cheaper than importing already made cars??, My answer is NO.
Ugandans always import cars at a low market price from the producer but thier prices almost double because high import duties levied by the government to the seller. This also means that by government attempts to assemble cars, it will not only lose out on import taxes but also increase its expenditure in the subsidiation of the local assembling firms and this can only widen the budget deficits.
In addition to the importation of raw-materials/Spare parts, the government would also hire some expertise in these local firms since we have inadquate and unskilled human resource.
However the government could achieve more export promotion but it has done less incentive to strengthen local industries to compete in the regional and economic intergration. For example the government has done less to promote the agricultural sector and creation of Agro-based industries. Uganda is gifted with huge chucks of land, favourable climate and abundant cheap labour but the government always spends less than 3% of the annual budget in this sector.
Over a period of the last 26 years, the subsistence sector in Uganda has remained at 70% and this is an indication of lack of sector priority by the government. Although programmes like Plan For Modernisation of Agriculture have been estasblished, the results have been minimal and this explains why were have changed programmes from Prosperity for All to Operation Wealth Creation.
Foe example, in 1993, Uganda and Vietman exported 3 million bags of coffee yearly per country but today whereas Vietman exports 30 million bags, Uganda exports 3.5million bags of coffee yearly yet its our leading export product. This is an indication that if Uganda had priotised its coffee as its leading foreign exchange, Uganda would be a Middle income country.
Poor Sequencing of Policies.
The government is now over funding some sectors such as roads and security at the expense of other sectors. These sectors (Roads & security) do not directly contribute to an increase in household income since they do not act as a direct incentive to local production. For example studies indicate many people living 3 kms away from the tarmac roads are still living in poverty, so how then can the government increase thier welfare??
Reduce funding in the road and security sector and invest more in projects that can lead to livelihood sustainable development for example, increase land protection by granting them property rights and through financial deepening so that people can use thier property rights to access loans even in rural areas.
Secondly the government should not provide seedlings to the farmers but provide quality seedlings, fertilizers, should monitor and evaluate Farmers’ progress and also create market fot thier products. Through this, farmers will increase thier household incomes which will consquently increase thier purchasing power leading to the growth of local non-farm business.
In conclusion therefore as the government is set to reduce its expenditure abroad, it must first look at how it can increase its domestic resource mobilisation either through cutting reccurent government public expenditure or increading the taxable capacity of the locals through investing in thier products first. Secondly it should not rush to produce formerly imported goods before exploiting its local resources that could increase foreign exchange.
And lastly the government must discover & exploit its oppurtrinities abroad and invest in sectors like tourism that can attract more demand and increase foreign exchange.
Lets advocate for an Export Promotion than an Import substitution strategy.