Monday, August 15, 2011


If there was any doubt the economy was in trouble the doubling of sugar prices last week dispelled them.

While just a symptom of a larger problem, the sugar price hike was loaded with symbolism.

"The older generations will remember the days when sugar granules were as big as rice grain, not as sweet on the tongue and was a luxury more than a staple at the breakfast table. A queue formed instantaneously outside the neighbourhood shop (there were no malls or supermarkets then) on the rumour that the owner had just got sugar...

Sugar shortages would remind us of those days.

The sugar price hike has its roots in the expectation of a lower than projected sugar production at Kinyara Sugar Works, the second biggest sugar producer in the country.

A refusal by some outgrowers to grow sugar cane this season on account of poor prices for their cane has dampened Kinyara’s projected output for the year, that may lead to a shortfall of up to 21,000 tonnes this year. It is estimated that as a country we consume about 370,000 tonnes of sugar annually.

Looking to cash in on this development some traders moved in to corner the market, buying large volumes and hoarding it in anticipation of higher prices. President Yoweri Museveni put paid to this little scheme when he announced last week that in light of the shortages his government will reduce restrictions on sugar importation to bridge the gap.
Since then we have seen a normalization of prices.

But as I said the shortage is only a symptom of major structural problems in the economy.

Our economy is geared towards consumption and away for from production. Its basic common sense that if you keep consuming all you produce or you consume more than you produce, disaster is not far away. Ask the US.

"As an illustration we have a 140 megawatt (MW) electricity deficit at night as opposed to a 50 MW deficit during the day. This statistic is very telling because it means that when our factories are working during the day we need less power than when we are cooking, watching TV or boiling tea at night...

Its not a straight correlation but an indicator of what ails this economy.

Compare this with the electricity utility in the UK where the power consumed by factories is more than the power consumed by commercial offices, state schools, hospitals and domestic use combined, with some to spare. This despite the fact that the UK’s economy is largely dependent on its financial services sectors.

Despite our posting laudable economic growth figures over the last quarter century on closer scrutiny services – financial, telecommunications and transport and the construction sectors, manufacturing growth trails all these.

Some people may argue that the manufacturing-driven economic model is obsolete but they would be wrong.

The beauty of manufacturing is that it can create many low skill jobs quickly, while at the same time pushing up the productivity of the work force. To try and leap frog the industrial age and into the information age is a stretch for a country like Uganda. To begin with the information age work is better educated and secondly the ICT industry does not create as many jobs as the factories. So there is no getting around it we have to start manufacturing to benefit from increased job creation and improved productivity of our workforce.

"Given that over the last quarter of a century we have been rehabilitating our economy, the low capitalized service industries were bound to take off first. But it is also true that during the last 25 years there structure of our incentives have been tailored towards easier things like services and rent seeking rather than more durable, capital intensive manufacturing...

All over the world it takes less money and effort to set up a bank or telecommunications company or consultancy service than it does to set up a factory, which will require major concessions on land, importation of capital equipment and financing to get off the ground.

In addition the management of this process by the bureaucrats will require dedication to a long term vision and attention to detail, unlikely in this part of the world where the incentive is for extracting rent and commissions from investors.

It’s unnecessarily too much trouble establishing durable industry, see the fate of the Bujagali dam, which would have been running at full capacity four years ago, or the BIDCO oil palm plantation on Kalangala or the Madvhani’s attempts to grow sugar in northern Uganda.

As a country we need to embrace big industry within limits of course, if we are to avert such incidentals as sugar shortages in the 21st century!!!

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