Once again, another wave of Covid-19 infections is up in Uganda. Covid-19 has posed real challenges for both human lives and businesses in the country.
Any businesses that depend on physical access to customers or deliver solutions that require physical contact with customers are affected in one way or another.
As health authorities are working to contain the spread, our experience with the pandemic has delivered some lessons for the economy – not all is bad. As businesses adapt, regroup, and re-imagine the post-Covid era, one of the few bright spots is how the pandemic is impacting Uganda’s continuing industrialization.
Before the crisis, Uganda’s trade balance was already on a declining path. Imports continue to exceed exports according to data from Bank of Uganda. As President Museveni articulated in several speeches, Uganda needed to urgently replace previously imported products with locally-manufactured ones – a policy known as import-substitution/ replacement.
In the past, he referred to the export of raw materials or unfinished products as donating jobs abroad. Likewise, the growth of domestic industry keeps jobs at home, increases reserve of foreign currency, stimulates innovation, and supports national independence in such areas as food, defense, industry and appropriate/ intermediate technologies.
This switch towards local solutions and the opportunities it presents is one area in which the pandemic delivered. The business of the Uganda Development Bank stands witness to this. Recapitalized to support import- substitution (and export-related production) with a government investment of nearly Shs 500 billion,
UDB saw manufacturing become the dominant center of growth, contributing more than 80 per cent in both output and tax, in contrast to other sectors that were losing jobs, expanding unemployment.
Entrepreneurs took advantage of the changing environment to produce essential goods and services including personal protective equipment (PPEs), masks and sanitizers as Covid presents opportunities for the revival of manufacturing.
But this is only half of the story. The Uganda industry sector continues to grow below its potential. It accounts for just 27.4 per cent of GDP (FY 2020/21), well below the 35 per cent threshold for countries aiming to achieve middle-income status. Several factors are responsible for this situation.
Two of them – the cost of doing business and access to long term finance stand out. UDB can help with the former but the reduction of the cost of business depends on the joint efforts by other stakeholders and these include reducing power tariffs, taxes, rental charges, and expanding infrastructure development among others.
So Covid-19 poses this question – how can more Ugandans (and other investors) move from areas such as trade and services to manufacturing?
How can local and foreign investors tap into Uganda’s vast natural resources (for agriculture, fisheries, and minerals including oil) to create vibrant value chains while delivering Made in Uganda manufactured products for the regional and international market?
UDB is a player here. It continues to support the growth of startups and to scale up existing firms in manufacturing primarily by providing affordable, long-term finance through various channels.
These include asset financing, project finance, farmer group lending, private equity investment, trade finance and term loans of up to 15 years. In addition, the bank offers an expanding array of non-financial services aimed at reducing the costs, lowering risks and sustainability for new and existing businesses.
The non-financial services include project preparation and business advisory services for the development of SMEs. Companies that the bank supports today go through a transparent process based on the bank’s credit policy. This requires entrepreneurs to prepare (legal documents along) conduct feasibility studies and businesses plans for their business.
In the coming years, we expect that the attractiveness of the industrial sector will bring more capital and innovation and continue to drive the economy beyond what was witnessed in 2020, despite the pandemic.
Achieving the desired import substitution and export-oriented production levels shall improve Uganda’s trade balance with the rise in exports and the country shall never lack essential commodities in case of another future global trade disruption.
But our future lies with tapping into our comparative advantage - emphasizing the production of goods that can be manufactured domestically at low costs compared to her trading partners in the region and beyond.
The launch of the Industrial Policy 2020 and government commitment to support the sector through increased investment in UDB is a call for more Ugandans to join. The call is for industrialization of Uganda.
The author is an economist with the Uganda Development Bank.