Uganda vs Malaysia

By Maria Nagawa

Malaysia is an upper middle income country with a GDP of $313.2b and a population of nearly 30 million people while Uganda is a low income country with a GDP of $24.7b and a population of over 37 million people.

The question is: why are we comparing these obviously very different countries? Well, both countries were British colonies and highly dependent on raw materials exports at the time of independence, both created a rentier (persons who lives on income from property or investments) class based on political and government patronage and both continue to struggle with ethnic division on the basis of wealth distribution.

However, since independence, Malaysia’s economy has leapfrogged to middle income status with large scale modern agriculture and industrialisation while Uganda still struggles with its status as a low income agrarian economy that depends heavily on raw materials exports.

In colonial times, Malaysia became the largest dollar earner for the British Empire with the advent of rubber planting in the early 20th century. The development of the automobile industry, especially in the USA, created an insatiable demand for tires so that by 1929, it had the highest GDP per capita of any country in Asia. It also had a thriving tin mining industry and was later (in the 60s and 70s) to become the world’s largest exporter of oil palm.

At the time of independence, Malaysia had well-developed infrastructure, an efficient administrative mechanism, and a thriving primary export sector with immense potential for expansion. Moreover, the economy was boosted by the development of the oil and natural gas sector in the 70s and 80s.  As a result, GDP growth rate averaged 7% throughout the 80s.

Uganda’s colonial economy was not as rosy. Although the cotton industry was well established, WWI and the Great Depression of 1932-33 greatly destabilised it. In the 1920s, commercial production of sugar and coffee begun, and after WWII, high prices for coffee and cotton helped bring about an economic boom and the country enjoyed a strong and stable economy in the years approaching independence. However, post-independence was dogged by political instability.

 The country changed leadership seven times non-democratically and suffered two major wars before 1996 when President Museveni was democratically elected. Moreover, Uganda’s government continued to fight off rebel groups the Lord’s Resistance Army and Allied Democratic Forces in Northern and Western Uganda respectively. Consequently, Uganda’s GDP growth fell to as low as -3.3% during the 80s and only started to recover in the 90s.

Today, Malaysia has exports to GDP ratio of 81.7%, unlike Uganda, whose ratio stands at 20.2%. After independence, Malaysia followed a policy of import substitution industrialization, but that did not involve forced industrialization through direct import restrictions or establishment of state owned industrial enterprises.

By the late 1960s, the country recognized that it would benefit more if it focused on the expansion of export-oriented industries. Since then, it has passed laws and policies that increasingly benefit private investment geared towards export promotion.

From the Industrial Incentives Act of 1968 through the Free Trade Zone Act, the New Economic Policy, to the National Development Policy of 1990, investors have been offered company income tax incentives, duty free imports of raw materials and capital equipment, streamlined customs formalities, and subsidized infrastructure facilities, among others.

By 1994, it was the developing world’s sixth largest exporter of manufactures moving from food, beverages, tobacco, and wood products in the 70s; to assembly operations in electronics in the late 80s; radios, TVs, cameras, and computers in the 90s; and most recently, an industrial park is being built in its state of Sarawak that has already attracted US$ 9.5 billion.

Although Uganda’s manufacturing sector appeared capable of increasing its contribution to GDP in the 60s especially through the production of foodstuffs and textiles, the mining of valuable minerals like copper, and the development of water power resources, the economy was decimated under the rule of Idi Amin. His use of nationalist and militarist rhetoric, and ill-chosen economic policies eliminated foreign economic interests in favour of building up the military establishment.

Succeeding governments struggled to restore international confidence in the economy but were deterred by the civil war of the early 80s. When the NRM came into power, Uganda became one of the first Sub-Saharan African countries to embrace liberalization and pro-market policies.

Policies such as the Uganda Industrialisation Policy and Framework, The Uganda Investment Statute, and The Uganda Investment Code attest to this. The latter led to the formation of Uganda Investment Authority, which was meant to be a one-stop-centre for the promotion of investments in Uganda. Unfortunately, development of the industrial sector has been dogged by low levels of human capital, weak institutions, and an unimpressive manufacturing sector. Potential benefits from recently discovered oil have also been postponed due to the recent drastic fall in global oil prices.

Evidently, Malaysia, with its stronger economic and stabler political history, has been in a better position to implement strategic plans to promote economic success.

However, Uganda has also been able to enjoy relative stability and average economic growth of about 7% in recent years. A concerted and persistent effort to boost its export performance through the development of the manufacturing sector will enable this country to propel itself to middle income status by 2040 as planned by the government.

The writer is a Research Associate at Economic Policy Research Centre, Makerere University