Last week Kenyan President William Ruto called for an elimination of all barriers to importation of Ugandan milk.
Ugandan milk production companies have been unfairly targeted
in recent years understandably because thy posed a potent threat to market
leader Brookside Dairy Ltd. The company is partly owned by the Kenyatta family.
Ruto’s argument was simple one. Ugandans produce milk
cheaper, Kenyan dairy industry should focus on adding value to their own milk and
export it and consume the Ugandan milk locally.
"Kenya’s president recognizes that Uganda has a competitive advantage
in milk production, noting that the cost of production in Uganda is a fraction
of that in Kenya, and instead of resisting the inevitable should cede ground
and look for other markets...
The naysayers of course will argue that without a local
foothold, in Kenya, expanding into foreign markets will not be easy.
This column has argued now for more than a decade, that one
of the best things to come out of the common market is that competitive advantages
will be sharpened. So for example Uganda can easily produce food for the region
that should be recognized and should be reflected in our development policies
and actions. Kenyans have their own competitive advantages that they can
exploit and so do other members of he community.
Trying to duplicate ourselves is inefficient, raises
unnecessary confrontation and is unsustainable in the long run.
The challenge of course is that many times interest groups ossify around these inefficiencies and fight tooth and nail not to give them up. At great cost to the population and economy, because ethe energies expended to perpetuate the fallacy would be better employed in developing industries where we have a better chance of success...
Imagine for example if the farmers of western Uganda got it
into their heads that they are going to go int o sim sim production and compete
with the farmers from northern Uganda. Or the farmers of northern Uganda
decided they are going into matooke production to compete with the farmers of
central and western Uganda.
They would soon realise they could not compete. Then they
would come together and ban the importation of matooke by the north and sim sim
by the west to support their farmers. A real waste of time.
This does not happen because of the free movement of goods
through the country. The people of the west don’t bother with sim sim because
if they want it they can buy and the people of the north don’t bother with
matooke because if they want it they can order for it.
As result the sim sim and matooke production expand in their
respective areas to cater for the expanded market. Economies of scale come into
play and specialization means the quality of the respective crop improve.
That is what will happen with the actualization of the East
African free market.
As mentioned above it will be fought by entrenched interest
groups, looking to safeguard their interest at the expense of the consumer and
national interest.
For the above reasons I always cringe when I hear people talking
about import substitution, it only serves to build up a small group of
connected people while making us endure substandard products.
"The success of the south eastern Asia economies comes mainly from refusing to be seduced by this import substitution argument. They recognized early on that to lift their people out of poverty and develop their economies they needed to aim for bigger external markets...
Following this thinking the governments biased resources
towards businessmen with export ambitions over those with import substitution as
the main driver of their business. Of course, in an effort to target foreign
markets the local market is used as a stepping stone but that is all it is, a
stepping stone. They also did not try to do it themselves through state
enterprises. The rest is history.
Of course, for Ruto now he has to seat down with the
existing dairy industry and see how his government can support them increase their
production capacity – they are welcome to use Ugandan milk if they want, improve
quality standards and help them break into foreign markets.
Uganda too has export ambitions for its milk and they will
do well to see how the Kenyans do it, before they launch their own effort.
