If Ugandan small-scale manufacturers had full access to the upcoming public special economic zones, the country's export volumes, especially to the African continental free market, would exponentially increase, according to the Uganda Free Zones Authority (UFZA).

According to UFZA, approximately 80% of the country’s manufactured goods come from small-scale manufacturers and producers, who still face a number of capital and infrastructure challenges.

And although the share of manufacturing to the national Gross Domestic Product (GDP) is estimated above the East African region average at 9%, growth in the sector was slow until 2008, before jumping rapidly to 16.47% in 2021.

Hez Kimoomi Alinda, executive director, UFZA says the small-scale manufacturers can now take advantage of the special economic zones to increase their volumes for export, especially to the continental market, under the Africa Continental Free Trade Agreement (AfCFTA).

Hez Kimoomi Alinda, executive director, UFZA

He says under the AfCFTA, a comprehensive protocol on trade (article 23) special economic zones have been recognised as special purpose vehicles to promote intra-African trade and exports, as well as integration into the continental and regional value chains.

Alinda adds that under the protocol, products that will receive preferential treatment under the AfCFTA must satisfy the 40% rules of origin requirement, meaning that 40% of the components that constitute a product must be sourced locally.

“In the special economic zones, they can take advantage of the economies of scale, technological advantages and other benefits to meet this rule. In addition, we can easily ensure quality, branding and packaging, and other areas that normally plague our products on the international market, in order to optimally benefit from this market,” he said, during a recent MoU signing with the Uganda Small Scale Industries Association (USSIA).

He said this would promote backward linkages to the export market, ensure growth, and diversify the economy. 

The rules of origin define the conditions that firms must comply with in order to authenticate that their goods originate from the Free Trade Area (FTA) and are thus eligible for preferential treatment.

The Rules of Origin (RoO), crafted under the AfCFTA arrangement, are meant to determine the national source of a product, to avoid importation from abroad and re-distribution of such products on the free African market.

Signing of an MoU between the Uganda Free Zones Authority (UFZA) and the Uganda Small Scale Industries Association (USSIA).

Already, experts have been complaining over compliance with the RoO, saying they are very restrictive, especially to SMEs and small-scale manufacturers, including women cross-border traders.

The experts have instead been suggesting more flexible, clear and predictable rules of origin for such businesses to also benefit from the continental trade.

However, according to Alinda, the rules were reviewed in December last year, and have since been adopted by the sectoral council responsible for investment, finance and trade in EAC, to enable fair and equitable trade under AfCFTA.

AfCFTA is part of the African Union Agenda 2063 flagship initiative established to create an integrated continental market for goods and services and to support the movement of capital and natural persons.  

Full implementation of the agreement started in January 2020 and is already reshaping markets and economies across the region and boosting output in the services, manufacturing and natural resources sectors.  

Implementation of AfCFTA also means nationals of the 54 African states can freely move their capital and natural persons across the states for business. 

The arrangement, according to experts, is expected to enhance competitiveness, promote industrial development through diversification and regional value chain development, and foster sustainable socio-economic development and structural transformation of the region. 

Additionally, it is expected to boost intra-African trade by approximately 52.3% through the elimination of import duties and reduction of non-tariff barriers, which hitherto are faulted for the paltry activity on the estimated $ 3.4 trillion continental market.

Alinda noted that for Uganda and any other African country to develop, the products that the nationals produce must be exported, especially in light of opportunities like AfCFTA, supported by the existence of special economic zones.

“For some time, we have been having challenges for entrepreneurs because when investors come into the market, they import most of the inputs into the production process, and then export these things as made in Uganda. This is perfectly okay, in terms of exposing the Ugandan economy to the outside market, but what is most important, is for the Ugandan national to benefit from these exports by supplying the producers, processors and manufacturers to add value and export,” he says.

He said any country that wants to integrate itself into the global trading system, must be able to create an environment that facilitates the private sector, to manufacturer in an internationally recognised environment, in order to attract big capital from multinationals, but also have the locals tap into the knowledge and experience.

He said UFZA has for some time been seeking a partnership with the small-scale association because of their capacity and potential to turn into multinationals in due time and turn around the country’s economic fortunes.

USSIA executive director, Veronica Namwanje said the main reason why MSMEs do not reach their first birthdays is because of the many bureaucracies along the way.

She said:” If free zones can offer these services to our members, this is what we have been waiting for. If we can get them to lower their costs, support value addition etc, it will even increase job creation. Some of them have been having challenges with technology investment, but if this is already taken care of, then we are ready to produce.”

She said if supported, promoted and given the right information, there are a lot of opportunities that small-scale manufacturers could tap into.

According to the free zones publicist, Doreen Kembabazi, the development of Free Zones offers an opportunity for the government to direct resources towards tackling challenges of low value-added agricultural production, and manufacturing activities, in order to deliver new employment and market opportunities.

She said already, the Entebbe Airport free zone is 40% complete, and the authority has also completed feasibility studies on the Jinja free zone.

A free Zone, also known as a special economic zone, is a designated area where goods are regarded as being outside the customs territory, as far as import duty is concerned.  

It usually takes the form of manufacturing or processing facilities, science and technology parks or even a tourism development zone.

According to the World Free Zones Organisation (2020), there are currently 5,000 Free Zones in over 140 countries, and the trend is rising

Currently, there are an estimated 237 free zones and more than 200 single enterprises on the Continent, which accounts for only 4% of the total number of free zones worldwide.