Thursday, July 5, 2018

IF YOU BUILD IT, THEY MAY NOT COME

Earlier this year the World Bank reported that Ethiopia’s economy grew the fastest in the world last year at over eight percent.

These prodigious growth numbers that have been sustained for a decade, have been driven mainly by the big infrastructure investments in road, rail and power generation the country has been engaged in since 2010.

Unfortunately a commensurate flow of Foreign Direct Investment (FDI) has not followed the infrastructure development and as a result Ethiopia is now facing a foreign exchange crunch – it has been reported the country’s reserves have fallen to a month of imports. Three to four months of import cover is considered safe.

It is hoped that this is a temporary bleep, but it nevertheless holds important lessons for Uganda, which has been ramping up infrastructure development spend for almost as long as Ethiopia has.

"The rationale for the aggressive infrastructure development is based on the simple premise that we have a huge infrastructure deficit and in order to enjoy continued economic growth we need to bridge it, fast....

Looking at the road network alone, for a typical middle income country they have about 90 km of paved road for every 1000 square km, Uganda’s comparable figure is about 20 km. Similar figures or worse can be quoted for power generation, railway coverage or any other infrastructure including telecommunications where while we have almost universal coverage our use of the attendant technologies is woefully poor.

Infrastructure lowers the cost of doing business and therefore improves the attractiveness to investors wanting to commit to a country.

However we should not fall into the same trap as Ethiopia by believing that “If we will build it, they will come”.

For starters infrastructure is only part of the overall picture of what businessmen look at in planning to invest. Beyond infrastructure, affordable infrastructure, there are things like the sanctity of property rights, the policy consistency of the relevant governments and the politics of the country. 

Politics in as far as it will not threaten their investment through unpredictable policy environment that may come from a lack of and inability to implement a strategic vision or worse,   political upheavals.

And even if we have all that in place will anyone know about it?

This speaks to the important role of marketing, which makes this week’s fracas at the Uganda Investment Authority (UIA) all the more saddening.

"You can have all the infrastructure in the world all laid out and functional and no one turns up to the party....

An aggressive marketing plan synchronised with the time lines of these projects is critical to ensure the fully and timely utilisation of our spanking new infrastructure.

Related to that our officials need to stop operating in silos and emphasise the building of ecosystems beyond the individual infrastructure projects they are championing.

So for example the Standard Gauge Railway (SGR) is supposed to be a key driver of the nation’s industrialisation agenda. But how is it linked to the plans to boost power generation or the oil production efforts or the development of industrial parks around the country or even the expansion of Entebbe airport.

To extend the argument is there a deliberate and systematic plan that synchronises the development of these infrastructure and the increase in production of any number of things from coffee to fish to a planned petrochemical industry to the attraction of increased tourist numbers?

The point is, by now a prospective investor wanting to tap into Uganda’s power surplus should be able to see from afar not only how far along we are with increasing our power generation capacity but how too we are priming regional markets for our future investors.

The pushing for the free flow of goods and services in the region is visionary. And while most people didn’t see the point, we are beginning to see how this will help alleviate the job issue as we boost our production to serve the region.

A potential investor would be heartened by the progress in that direction.

"An investor wanting to invest in tourism would be glad for the Entebbe express way. But it does not help if he can wheeze from the airport to Kampala in half an hour, but then can’t get around as easily to our prime tourist sites or guarantee the safety of his guests or their health....

A few years ago while visiting Paris I was shocked that there was no bottled water in my room. Thinking it was an oversight by the staff of the small business hotel, I made the “omission” known to the staff at the reception the falling morning.

“But there is water in the tap,” the man at the front desk told me, mirroring the surprise on my face with his own. I could see him wonder how I couldn’t have worked that out.

Well where I come from it is not recommended to drink tap water.

This was a small illustration that tourism is not the business of the tourism sector alone.

One last lesson from Ethiopia, or to emphasise the previous points. They say markets can remain irrational longer than you can remain liquid.

Again we hope Ethiopia after all the work and sacrifice they have put in, that this is just a temporary situation, that investment will begin to flow, production will jump and they can export their way out of their current predicament.


Unfortunately the market is a brutal task master and is often wont to mete out the test in order to teach the lesson, not the other way around like in the classroom. We need to plan accordingly.

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