Uganda's policy reforms, industry competitiveness and regional integration: a comparison with Kenya

Abstract

The paper reviews, first, Uganda's economic policies affecting the industrial sector and analyses the international competitiveness of Uganda's manufacturing industries, using a sample of 21 firms in 12 industries. It computes indices of comparative advantage, export and domestic competitiveness and compares the Ugandan indicators with those of Kenyan firms. It also identifies the main sources and obstacles to competitiveness using a decomposition method, which breaks the unit cost indices down into their main components. The study is timely as Uganda is re-establishing a free trade zone with Kenya and Tanzania, and also faces liberalized trade with the rest of the world. The numerical results of the study suggest that Ugandan firms, although not generally cost-competitive with Kenyan and other international firms, due to the country's land-locked geography and its de-industrialization under the preceding political regimes, have benefited from a recently established business-friendly environment and are more competitive in several industries than is generally assumed. This means that they may not be able to export internationally, but they are likely to hold their ground against Kenyan imports under regional free trade.

Keywords:

• International competitiveness
• comparative advantage
• policy reforms
• regional integration
• manufacturing
• Uganda

Notes

Financial support for this study was provided by the USAID/EAGER/Trade programme. We wish to thank the members of the EAGER technical committee for encouragement, and the participating industry officials for their time in discussions and in answering the questionnaire. We owe gratitude to Mr Tumusiime Mutebile (Government of Uganda), Mr David S. Nsubuga and Mr Jerre Manarolla (both of USAID Uganda), Mr John Cockburn (Laval University) and two anonymous commentators for helpful comments on earlier drafts. We also wish to thank Mr Dan Mwanje-Mambule of the Ministry of Finance and Mr J. W. Mibiru of the Statistics Bureau Uganda for help in the data collection, and Professors G. Ikiara and B. Nganda, who helped in the collection of the Kenyan data.

A more detailed exposition of the method is contained in Siggel and Cockburn (1995), Cockburn and Siggel (1995).

Cockburn et al. (1999)

Siggel (2001).

Siggel et al. (2002).

For comparison, Kenya's manufacturing sector accounted for 13 per cent of GDP during the same period.

This is taken to mean that the nominal protection of import substitutes exceeds that of exports by 12 per cent.

Electricity is supplied inefficiently by the state-owned UEB, according to ESMAP, relying entirely on hydro power from the Owen Falls plant for 150 MW. An extension to this plant by 50 per cent was opened by 1999. About 20 per cent of production is exported.

The Common Market for Eastern and Southern Africa has existed since 1993.

This proposition is demonstrated in Siggel (1993), see also Dornbusch et al. (1977).

The vast majority of outputs are tradable products. For the very few cases of non-tradables, NRPs were estimated by reference to close substitutes.

IMF, IFS Yearbook, 1999, LIBOR on one-year US$ deposits (p.106).

Based on consumer price indices of Uganda and industrial countries, IFS Yearbook 1999.

Comments by Mr Tumusiime Mutebile, Secretary of the Treasury, Government of Uganda, October 1999.

It is interesting to note that commercial banks currently charge 15 – 16 per cent on loans to prime customers rated ‘credit worthy’.

The EXCEL-based program includes worksheets of raw data, calculations and summary results.

Being profitable is taken to mean that the rate of return exceeds the average lending rate.

This conclusion is derived from the corresponding study in Kenya, in which data for 1997 are compared with data for 1984. The findings are reported in Siggel et al., 2002).