Tuesday, July 13, 2010

MANUFACTURERS BETWEEN A ROCK AND HARD PLACE

The Uganda Manufacturers Assocition (UMA) is pushing for a five year extension of tax regime which saw some finished and semi-finished goods treated as raw materials. When treated as raw materials good s such as paper, steel sheets and semi-processed cement attracted less tax as inputs for some of our manufacturers, a situation that is written into the East African Community books.

However about five years ago Ugandan manufacturers had this extended again, claiming they had not developed enough capacity to compete with regional manufacturers and therefore needed an additional five years to get their act together.

Five years down the line they are seeking another extension on the grounds that government had pledged to improved the infrastructure situation around the country – regular power, improved transport network and lower financing costs, and little progress has been made, so they would be badly disadvantaged in an open playing field.

The Kenyan manufacturers’ lobby – understandably, is pushing for a scrapping of this concession.

The manufacturers are right in insisting government should live up to its end of the bargain but wrong in thinking that they can compete with the more established and better supported Kenyan manufacturers in five years time.

In Michael Porter’s model of competitiveness of nations, he makes the point that a country is only as competitive as its industries and then goes on to say that government strategy is critical to promoting this competitiveness.

Competitiveness here, means the ability to dominate markets or market niches and extract the benefits of this dominance in terms of growing profits and profit margins over the long term.

Government strategy determines whether in support of a certain industry, education curricula needs to be adjusted, road, rail and water transport needs to be developed, lower finance needs to be availed and international marketing support is required.

There has been widespread criticism of governments picking favorites and those criticisms have their merits, but competitiveness does not happen by mistake, there is method to the success.

Given the state of our roads and general transport networks, the high cost of finance and lack of affordable long term finance, the unresponsive tax regime and atrophied education system, one detects a lack of a national competitiveness strategy or maybe an inability to execute this strategy if it exists.

However, the government’s apparent apathy towards competitiveness, one has got to wonder about our manufacturer’s. One has got to wonder about their choice of enterprise.

There are numerous industries that would not standup to regional competition in an imminent single East African market.

About ten years ago a study done for the Uganda Investment Authority showed that Uganda could attain regional competitive advantage in ------ areas – agricultural processing, education and health services, ICT, tourism, power generation and mining, the is crux of the study is that if you were not in any of these fields you would be fighting an uphill climb to developing competitive advantage. And the company’s sole aim should be to develop competitive advantage.

For the time being the manufacturers may win a few concessions for themselves, even get another five year extension on the way raw materials are classified but they had better realize it is not a sustainable situation and they will best advised to rethink the long term viability of their industry.

This is obviously a hard pill top swallow when you have invested billions of shillings on your operation over the last two decades, employ hundreds and your family’s financial security is the entwined with the survival of your ‘baby”.

Some manufacturers have already seen the light relocating their industries out of Uganda to countries where they can be more competitive, making the shift to agricultural processing, securing their wealth in real estate and exploring the nascent ICT sector.

The writing is on the wall for manufacturers and they can not count on the Ugandan consumer to back them up – ask the textile industry.

To try and resist globalization will on delay poverty eradication, the government and manufacturers need to come together to first understand the globalization’s gathering momentum and then strategise on how to position as an industry or country to take advantage, not to try and stem the tide, of this movement.

Some hardnosed decisions are going to have to be taken in coming years and there will be sacrifices made for the general well being of our economy, manufacturers should make sure they are ion the right side of the table when that time comes.


Published May 2009, New Vision

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