By KABONA ESIARA
High costs of doing business is making it difficulties for enterprises to fully tap opportunities in Buy Uganda Build Uganda trade policy era.
The policy which came into force in 2017 is to encourage consumption of locally produced goods and services, especially where productive capacity already exists.
Indeed, consumption of local goods and services has many advantages, which include job creation. Thus, for a country like Uganda which is grappling with high unemployment rates is set to benefit.
Reports indicate that at least 650,000 jobs are needed annually about 1,780 jobs each day between 2015 and 2030 to absorb new entrants to the labour market.
The BUBU policy also positions Uganda to boost domestic production and reduce pressure on foreign reserves. In December 2019, Bank of Uganda reported that Uganda’s overall balance of payments position weakened in the 12 months to October 2019.
“Uganda’s current account deficit increased by 45.1 per cent to US$3,290.2 million, largely driven by higher private sector imports that grew by US$801.9 million during the year,” according to the central bank.
Uganda trade deficit rose by 21.7 percent to $2,783.9 million, largely on account of the $850.2 million increase in the import bill that surpassed the $352.9 million growth in exports receipts.
President Museveni, a chief campaigner for Buy Uganda Build Uganda trade policy is among people seeking answers.
“I am always fighting people wasting our money buying things from outside. Why don’t you buy things here?” wondered Museveni while commissioning a Health Care Division at Southern Range Nyanza Limited (NYTIL) factory in Jinja on August 16, 2020.
Uganda Manufacturers Association (UMA), Private Sector Foundation Uganda and Kampala City Traders Association (KACITA) cite high costs of doing business in Uganda which make business uncompetitive in pricing.
High end user tariffs
The President’s Office is aware of the challenges facing the manufacturing sector and investors in general, and is particularly concerned about the cost of electricity.
In October 2016, the president vowed to lower electricity tariffs from $0.11 to $0.05, but we understand this measure has not yet been implemented.
Regional market shrinking
The recent ban of Lato Dairy products, Uganda’s processed Sugar and sugarcane in Kenya and Rwanda’s move to restrict Uganda’s frustrating commercial activity has put Uganda in a shaky position
Kenya also levied prohibitive taxes on poultry products from Uganda, a protectionist response to demands from local farmers to bar Ugandan products from their market.
Eric Sempambo, a Senior Private Sector Development Officer at PSFU said the situation can be reversed for the benefit of both Kenya and Uganda if each country concentrates on areas they have competitive advantage.
According to Sembambo, it costs Ushs25 ($.006) to produce a litre of raw milk in Kenya, a cost which is passed on to a final consumer while in Uganda, the farmer spends only Shs10 ($0.002) per litre.
Uganda milk offers more returns and the dairy products are competitive in Kenya. For instance, when a 400gms Lato Full Cream Milk is delivered in Nairobi, it costs about $4.7 while a 500 gms Kenya Highland Full cream milk costs ($6.8). The Ksh16 difference gives Uganda milk a competitive advantage in pricing over Kenyan milk.
The price of milk produced in Kenya remains high, largely because of the intensive zero grazing method as opposed to Uganda’s free range system.
But in general, processing milk in Kenya remains cheaper. According to PSFU, processing a litre of milk in Kenya costs $0.05 cents while Uganda a processor forks out $9 cents.
Curtailing Uganda’s imports and exports has hurt the Uganda manufacturers most with many BUBU Magazine that they have scaled down production, reduced the worker force after losing the Rwanda market.
And prospects of Uganda manufacturer’s regaining the $200 million Rwanda market remaining slim.
The trade ban has significantly affected Ugandan manufactures including Uganda Mukwano Industries, Sugar Manufacturers.
Multinational and regional companies dominated the Uganda logistics services including air, water, road and warehousing, an indication that Uganda have not built the capacity to tap the multimillion-dollar industry.
The industry, according to player’s capital intensive which locks out Uganda struggling clearing and forwarding firms. The international players include Bollore Transport and Logistics, Spedag Interfreight, Maersk Uganda Ltd., Kenfreight Uganda Limited, CMA CGM Uganda Ltd., DHL International Gmbh and Aramex.
Ugandans’ love for everything imported is also adding to the challenges the private seeking to tap fruits of BUBU policy.
“The mindset of Ugandans that everything imported is superior is suppressing the BUBU to transform the Ugandan economy.” said Mohammad Mabirah Muzamil Assistant Manager Policy and Advocacy Uganda Manufacturers Association (UMA).
High cost of capital
The high interest rates reaching 25 per cent in commercial banks, though they have started easing after central bank intervened have also been named as a constrain to businesses in Uganda.
Many firms also face cash flow problems, especially when supplying government.
In some instances, government has been known to pay suppliers months or years later than the agreed date which makes it difficult for firms to borrow for the productive investment that is required to achieve high rates of economic growth.
In order to bring down the cost of capital, UMA suggests that government sets up a fund where commercial banks and development finance institutions can borrow at low interest rates to lend to the business community.
While Uganda Development Bank, a government-owned bank mandated to support commercially viable investment with a longer-term horizon – which commercial banks are reluctant to finance is also constrained.
UDB plans to lend at 12.5, however business lobbyists find the interest rate high when they compare to their Kenyan counterparts borrowing at a single digit figure.
Its priority sectors are agriculture, tourism, manufacturing, infrastructure, human capital development and extractives. UDB offers finance in various forms: loans, trade financing, equity investment and bank guarantees.
UDB’s gross loan portfolio increased from Shs183 billion ($49 million) in 2016 to 309 billion ($83 million) in 2018 (UDB, 2019). Given the favourable conditions offered, UDB loans are in high demand, and there is a backlog of projects to be approved.