Uganda’s false start in building industries

By Juma A. Okuku

In the fourth part of our Insight series on late industrialization, Juma A. Okuku comes home to Uganda, examining whether the country possess what it takes to carry out an industrial transformation. The first part was published in Issue 035.

Does Uganda possess what it takes to carry out an industrial transformation? Successful industrialization requires the existence of a complex set of institutions, political and socio-economic arrangements. It also demands the constructing of coherent industrial policies, which are cognizant of complex historical, political, economic and social context of the countries.

Uganda’s current industrial strategy

Uganda’s current industrial strategy operates within a liberalized policy framework of Structural Adjustment Programmes (SAPs) since June 1981. SAPs have no specific industrial policy prescriptions and does not subscribe to strategic thinking about industrialization.

Since the 1950s with the establishment of Uganda Development Corporation (UDC), Uganda’s industrialization has been dominated by state intervention through ISI. ISI in the 1950s and 1960s created a complex of import-dependent industries whose existence became predicated on the continuous transfer of resources from agriculture. These had literally collapsed by 1979 due to the effects of the 1972 ‘economic war’ which expropriated the Asian entrepreneurs.

Since 1994, there have been efforts to construct a coherent industrial policy for Uganda. The policy statements in this regard have located Uganda’s industrialization process within free markets and export orientation. There is little attempt to identify; selectively strategic sectors that would create a generation of dynamic economic activities in other sectors. Yet the moment of a country’s industrialization determines which industries must serve as its engine of growth. The nature of that growth in turn determines the social, technical, financial resources and institutional structures that must be mobilized for industrialization to be successful.

The current national industrial policy draft (2007) objective is to become a strong agent in achieving the national vision and aspiration of sustained structural economic transformation of Uganda.

According to Mr. Okulo Cankwo, Assistant Commissioner, Department of Industry and Technology, MTTI, the focus of the policy is on promoting export-oriented industries as opposed to import substitution industries. The current industrial strategy is influenced by three factors: 1) globalization, 2) liberalization and privatization and 3) politics.

For industries to be competitive, Uganda’s industries must be knowledge-based. The stress of the new industrial policy is on technological absorption capacity. Accordingly, the government has to organize an enabling environment that takes into account what is happening globally.

The policy is that for industries to be competitive, they have to be privatized within a liberalized market. The policy at the same time recognizes the need for state involvement in certain sectors and instances. Uganda’s industrial policy initiative in its current form is caught between liberalization and state intervention to support industry.

Despite the policies of liberalization and privatization, the thinking at the Ministry of Industry (MTTI), is that private interests, both big and small industries, have to be supported particularly in regard to financing industry. During the Forum on Industrial Policy held in September, 2007 in Kampala, it was proposed that the Uganda Development Bank (UDB) should be re-capitalized and UDC should be revived. Both should be closely linked to the industrial sector.

The new policy regime, as authored by Prof. E. Kamuntu, Minister of State of Trade and Industry, states that ‘there will be strong support for Small and Medium Enterprises (SMEs) as primary vehicles for fostering entrepreneurial capabilities, innovation and competitiveness and for linkage and interaction with big industries as part of Uganda’s industrial sector’.

SAPs since 1980s have led to the implementation of several structural reforms in Uganda: 1) liberalization and privatization, 2) reform of the bureaucracy and creation of several institutions to facilitate the EOI drive.

The examination of Uganda’s historical and recent institutional and policy regimes would indicate that the country is ill-prepared to embark on a programme that can lead to successful industrialization.

Bureaucracy

The bureaucracy is the foremost important institution in the formulation and implementation of policy. Therefore, any country embarking on any developmental programme must possess an effective bureaucracy. This demands a high level of administrative and technical competence and bureaucratic autonomy. To get high quality bureaucrats calls for a merit-based recruitment and promotion of officials rather than political appointment. This creates a highly motivated, competent and cohesive bureaucracy that can internalize national objectives. Does Uganda possess such a bureaucracy?

In the 1960s, the inherited colonial bureaucracy maintained most of the above features. Civil service recruitment was relatively merit-based, political interference was minimal and the bureaucracy was relatively autonomous.

The military regime in 1970s presided over a gradual erosion of these features, the growing recruitment of relatives and along ethnic lines without regard to merit or technical competence. The result was a bloated and incompetent bureaucracy. The returnees (exiles) after the fall of Idi Amin in 1979, ignored civil service rules, recruited and dismissed civil servants at will, purportedly fighting Aminism.

On adopting SAPs in the 1980s, one critical demand by the IMF/World Bank was to reform the civil service. The 1982 reform proposal under Mr. Martin Orech, the then Permanent Secretary and head of Public Service, were never implemented. The 1989 under the Public Service Review and Reorganization Commission (PSRRC) (1989-1990), reforms were implemented at three levels: i) retrenchment ii) re-organization of ministries iii) creation of specialized agencies.

Retrenchment

Retrenchment aimed at reducing the civil service to a small, well-trained and remunerated, motivated workforce. The problem of bureaucratic capacity in Uganda goes deeper than numbers. Low salaries have the effect of the inability to attract and retain high quality professionals.

There are now deep-rooted patronage networks in the bureaucracy. The prevalence of patronage networks has resulted in the creation of autonomous projects with different ministries destroying the coherence of the bureaucracy further.

The increasingly unclear career path in the civil service, due to insecurity of tenure and favouritism, has led to the occupation of a bureaucratic office to be seen as an opportunity to maximize private interests and accumulate before exit.

The efforts through retrenchment and freeze on recruitment to create an efficient and effective bureaucracy within a state characterized by corruption and patronage networks, have achieved dismal results. Instead, there has been continued recruitment on the basis of political affiliation, tribal and family into the civil service. Reforms failed to tackle the more challenging task of building and sustaining institutional capacities that impinge on policy-making.

Re-organization of Ministries

The re-organization of the three ministries with immediate impact on industrial policy is of interests here. 1) In 1992 the Ministry of Finance was merged with that of Planning and Economic Development to constitute a ‘super ministry’ of Ministry of Finance, Planning and Economic Development (MoFPED). 2) The Ministry of Tourism, Trade and Industry (MTTI) was created. 3) The Ministry of Public Service was created by removing the Cabinet Affairs portfolio.

The government classified its ministries as ‘core’ and ‘non-core’. The ‘core’ ministries have the first call on budgetary resources. The MoFPED, the ‘super ministry’, was classified as ‘core’ principally concerned with the tasks of financial management. The MTTI is a ‘non-core’ ministry.

There has been centralization of policy and decision-making power to MoFPED and to a lesser extent the Ministry of Public Service. MoFPED is the ministry that serves as a conduit between the state and donors in Uganda’s donor-driven economy.

The shift of policy formulation to MoFPED relates directly to the ascendance of monetarism within the state. There is overriding concern with budgetary expenditure and more effective raising of taxes. Donors fund research groups within MoFPED with the view to improving technical competence. MoFPED receives most training and ‘technical’ assistance ‘” externally funded posts of expatriates.

The MoFPED has hegemony over the policy-making process due to control of donor finances and its relative technical competence funded by donors. Both the Ministry of Public Service and MoFPED are the focal points of the donor-driven policy making framework in Uganda. Donors view the finance ministry and the public services ministry as the two central executing ministries with which they must deal ‘” the former managing money and the latter the personnel.

Relegated to the sidelines of economic policy-making and funding, MTTI is hampered in carrying out its mandate as the industrial sector ministry. The rise of monetarism under SAPs has led to the displacement of the needed strategic focus on industrial policy.

Financing industrialization

Control over financial resources is critical in ensuring the success of industrial policies by providing the state with the power to influence the private sector investment decisions. At the initiation of the industrialization programme in the 1950s, the colonial state had control over substantial finances saved through the ‘Price Assistance Fund’ extracted from cotton and coffee producers.

Christopher Wrigley, the colonial economic historian conservatively estimated that by 1953, ‘voluntary’ savings amounted to 82 million pounds. These savings were used to establish UDC, kick-start ISI and fund the Africanisation programme in the 1950s. The funds were used to create the Uganda Credit and Saving Bank, (UCSB), the forerunner of Uganda Commercial Bank (UCB), in 1950. The purpose of the bank was to mobilise deposits from the public and facilitate loans to Africans. These resources were applied to construct a hydroelectric dam at Owen Falls dam, Jinja, which was to provide low cost power for industrial and commercial activities in Uganda and Kenya. Industrialisation in 1950s was undertaken largely with the country’s resources and thus not dependent on outside capital.

The 1960s and 1970s, saw several financial institutions created with the major objective of availing finance to industry. These included: the Co-operative Bank (1963), to finance cooperatives, ginneries and coffee plants, Development Finance Company of Uganda (DFCU), 1964, Uganda Commercial Bank (UCB), 1965, the National Insurance Corporation (NIC), the Post Savings Bank. To oversee this financial structure, Bank of Uganda was established in 1966 as the Central Bank. The Uganda Development Bank (UDB), 1972 as development finance institution. This created institutional capacity to finance industrialisation.

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E-mail: jaokuku@yahoo.co.uk

Dr. Juma Anthony Okuku is a lecturer in Political Economy at Makerere University, Kampala.