Tuesday, January 31, 2017

JUDGING THE NRM BY ITS OWN GOALS

When the National Resistance Movement(NRM) came to power in 1986 it had great aspirations for the run down, war scarred economy of Uganda as outlined in its original manifesto “The Ten Point program”.

In the fifth point the NRM set as its goal the building of an independent, integrated and self-sustaining national economy. By this the author’s meant an economy “that can move under its own power, not just a puppet of outside economies on which it is dependent” and where the extraction of raw materials was directly linked to the local consumer.

In their analysis of Uganda’s economy, we were backward because our economies were intertwined with western economies on an exploitative rather than symbiotic basis.

But they had very little to work with. The economy’s decline which begun in the 1970s and continued into the 1980’s meant that  GDP per capita stood at $230 or about 60 percent of the level it was at in 1971, according to a 1987 World Bank report on the country.

"With much of the formal sector grinding to a halt the economy regressed into subsistence, with primary agriculture accounting for four in every ten shillings of economic output. Agriculture both subsistence and commercial accounted for 63 percent of GDP. Of the 83 factories surveyed in 1985 only ten of them were working on higher than 30 percent capacity while another 29 were all but shut down...

While coffee production had held its own because it was mostly grown by small holder farmers – the country was producing 160,000 tons of the bean or 72 percent of the 1965 level, other crops which relied on estate farming, like tea, sugar and cotton had for all practical purposes stopped being produced.

Cotton production was at seven percent of the 1965 levels.

Whatever parameters you checked the economy was on its knees. With this context in mind they prescribed six solutions to redress the state of affairs.

The NRM’s thinkers identified the narrow agricultural base as a good place to start, making diversification of the products the pillar on which they would rebuild the economy.

While as stated above primary agriculture accounted for 40 percent of GDP, coffee alone accounted for literally all that Uganda exported bringing in about $400m a year. It was so bad that apart for accounting for all our export receipts, taxes on coffee exports accounted for half of all revenue being collected at the time. Today coffee exports suffer no tax.

This was a precarious situation. While not only was it not prudent to have all your beans in one basket, our over reliance on a primary commodity whose price was set by the buyers meant that revenues were bound to fluctuate wildly depending on fundamentals that were not in our control.

To illustrate, poor weather in Brazil – the world’s largest producer of coffee, in 1994 ruined their crop sending world prices shooting up peaking at about $4.00 a kg in September of that year. But once Brazil’s crop had recovered and new capacity had come onto the market especially from Vietnam prices of the bean collapsed to 47 US cents by the opening of the Uganda season in 2001.

"Today while we still export raw commodities we have a more diversified portfolio of exports.
For starters while coffee receipts have remained about the same at $400m in 2015, the bean only accounts for less than 20 percent of our total export receipts of $2.27b. Even more interesting is that the traditional exports of coffee, cotton, tea and tobacco account for only a quarter of exports by value. Since 1986 fish, maize, cement, beans, cocoa, hides and skins among others are being sent out...

This dramatic change in our export fortunes can be attributed to the economic reforms implemented to jump start the economy, but two in particular stand out – the liberalisation of produce marketing and the floating of the Uganda shilling.

Previously government had monopoly produce marketing across the country. Usual government inefficiencies, late payment for instance, served as a disincentive to production. With the breakup of the monopolies private companies jumped in and production followed suit.

Their second recommendation was to build import substitution industries, “to eliminate the import bill for especially consumer goods eg soap, toothpaste, paper, textiles etc”. It was not enough to have the industries here but that they must use locally produced inputs. “It is of little value to build industries that are heavily dependents on imported inputs if it is scientifically possible to have local alternatives thereby limiting the outflow of resources.”

While we have a few import substitution companies now, most have fallen short of the initial lofty goal of having all their inputs sourced locally. Most of our manufacturing is described last-stage assembly, with the manufacturing straight from raw materials in agro-processing, which accounts for 39 percent of this sector.

While agro-processing dominates our processing of raw materials, accounting for 39 percent of our manufacturing output we are still in early days as most of exports remain primary commodities.
The value added in manufacturing as a function of GDP in 2015 was 9.2 percent compared to 6.4 percent in 1986.

The fifth point of the ten point program also called for the building of basic industries in iron and steel, chemicals, construction and engineering. We have managed to set up some steel factories that use everything from scrap metal to imported billets but we only produce about 30, 000 tons of crude steel annually versus demand of 145,000 tons.

The fifth prescription “ensure that we eventually develop the capacity to make locally machine making machines” still seems a far off dream.

And finally the desire to acquire computer technology as a way to keep pace with international developments must have seemed a higher mountain to climb than building our won machines.
ICT (information & Communications Technology) is more widely used that the authors of the Ten Point may have imagined. The use of mobile phones introduced in the mid-1990s means we have vaulted from connectivity of about one line per 100 Ugandans to the current approximately 57 lines for every 100 Ugandans.

Aided by mobile phones and devices the access to the internet has followed a similar trend lowering the cost of doing business and making the adopters of this technologies more efficient in their processes.

. The Ten Point program offers no timelines to assess progress against.


It is safe to say that while the authors may have had a good idea of what they wanted to achieve it is unlikely that, seating down 30 years later to assess progress, they would have thought that so much would still remain undone.

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