Why we should use these five years to begin change in policy frameworks

Jun 06, 2016

Apart from being surrounded by some of the fastest growing cities in the world, with shiny high rise properties, these slums are an expression of Africa's inability to quickly take advantage of the rural to urban migration, to source cheap labour for manufacturing.

What does Makoko floating village on stilts with several schools, hospitals, businesses and housing for well over 300,000 people (with 2,000 arrivals daily) right at the entrance of the city of Lagos, Nigeria or the Kibera slum (250,000 people) in Nairobi, Capetown's Khayelitsha informal black settlement with over 400,000 in South Africa and Kasokoso in Kireka, Kampala with 150,000 people, have in common?

Apart from being surrounded by some of the fastest growing cities in the world, with shiny high rise properties, these slums are an expression of Africa's inability to quickly take advantage of the rural to urban migration, to source cheap labour for manufacturing. This internal migration is driven by rapid improvements in education, health and security in Africa in the last 25 years. The youth are moving in search for opportunities in urban areas or wherever they might locate them.

This phenomenon is not new. It drove the change in skills and attitude to work and underpinned the industrial revolution in Europe in the 16th and 17th centuries. The Peruvian Economist, Hernando De Soto says it better: "the fundamental problem for non-western nations is not that people are moving to urban centers that garbage is piling up, that infrastructure is insufficient or that the countryside is being abandoned. All of that happened in advanced nations.

The primary problem is the delay in recognising that most of the disorder occurring outside the West is the result of a revolutionary movement that is more full of promise than of problems. Developing nations must choose either to create systems that allow their governments to adapt to the continual changes in the revolutionary division of labour or continue to live in extralegal confusion- and that really is not much of a choice"

Even earlier, in 1460s in the city state of Venice, large movements of residentially isolated minorities from the countryside or neighbouring states, created a new term in the vocabulary of the times-- the Ghetto. The word 'Ghetto', which we today interchangeably use for 'slum', meant, at that time, a "foundry". It became a place of high concentration of glass and steel making capabilities along with the financial architecture to support the industry, even if it this was in dirty living and work conditions.

The ghetto was the best expression of the 'law of unintended consequences'. While the idea alluded to and seemed to promote the prevalence of deep poverty, the inhabitants in there, largely Jews and other minorities under the Roman Empire, turned them into places of buzzing creativity and industrialisation for a future Europe.

What are we doing with our Kasokosos, Ki-Mombasas, Ki-fumbiras of modern Kampala?

Politicians, instead of recruitment agencies looking for factory workers, descend on the slums in electoral cycles and radicalise youth groups to use them for political and security purposes against their opponents. The city authorities struggling with amenities built for the elite 50 years ago chase them out of the city and confiscate their merchandise. Uganda, however, has an opportunity to turn around the emerging slums into business hubs and sources of industrial labour in the next 10 years with a better policy framework for industrialisation. It begins with changing our own mindsets and attitudes towards the slums and recognising them for what they potentially hold- sources of industrial labour that will drive manufacturing and exports for the country. 

There are several facts pointing us to the spectre of slums being a competitive advantage rather than a problem. Uganda's business statistics show that over 26% of all registered business owners are university graduates and 98% of all have had some formal education. We can interpret this in several ways. The key one for me is that the large youth numbers arriving in slums have basic education and, therefore, form a good base for being retrained as industrial labour and as business owners to bring into the formal sector.

We also know that a sizable chunk of mass manufacturing held by China for the last three decades is slowly shifting to low cost countries in Asia and largely Africa. For example, an average factory worker in China earns about $27.50 a day ($825 a month); in Indonesia, $258 while in Uganda, about $117.6. Ethiopia, in Africa, is probably the cheapest labour market at about $40-$70 a month for a factory worker yet the nation has the fastest growing infrastructure and the rapid flattening of business costs in Africa.

Since, therefore, Uganda has from 2009, had substantial investments in generation and extension of electricity assets at a price to the consumer continuously falling, new roads, ferries and bridges stock, extension of water for production, expansion of Entebbe International Airport to support the cargo terminal; standard gauge railway construction begun, a clear and visible improvement in health and education in the country since 1997, we should all estimate these five years to begin a change in the policy framework to support finance, technology and labour training. These things have a strong ability to cause a structural shift in the economy.

This shift has to be towards manufacturing and this must in turn be labour intensive focusing on textiles, leather, steel and food preservation. Our civil servants fixation with capital intensive manufacturing investors into the country is good but not enough to create the jobs we need. It produces small and short busts of growth but does not squarely attack the problem of huge unemployment at the bottom of the pyramid. Unlike labour intensive type, capital intensive manufacturing also takes a huge effort to attract and highly competed for by nations in a higher rank.

Without labour intensive manufacturing based on large scale investment in Agriculture, it would not be possible to attain the lower middle income country status we are aiming  for by 2020. If we do by all odds, it will be a highly uneven growth leaving us with a deeply unequal society.

In fact, our economy must grow at not less than 8.5% of GDP, if we want a doubling of incomes within the next five years to be an attainable goal. It is also absolutely difficult to create jobs and sustain rapidly increasing incomes without the structural transformation of an economy from peasantry (68% of household in subsistence sector). This growth is only wrought by, initially, low level formal manufacturing and eventually expand this to production of goods of complexity.

Does anyone out there know how else we shall absorb 500,000 graduates of universities and colleges in Uganda annually, a wonderful, albeit difficult outcome of the Movement's freeing education at UPE, USE and tertiary education level?

But why is manufacturing difficult to attract and sustain in our country? Why is it that the fairly prosperous Ugandans would rather invest in real estate, banking and telecoms and not manufacturing yet they need, interestingly, the a rapidly growing middle class which can only be produced by manufacturing to be able to rent out their empty houses and eat out in their (the rich Ugandans) restaurants? Isn't it an irony that you know the medicine to cure a patient but you choose to take a detour to find a low value solution?

Here is what I think is the cause of this:

First, the de-industrialisation of the 1980-1990s African Economies by the IMF/World Bank structural reforms meant that manufacturing was forced into regression and on to the informal sector. A natural form of de-industrialisation would have increased our productivity by shifting our country progressively from low value labour intensive firms to better technology.

The forced form, however, simply took jobs to Europe and the USA from Africa through forced globalisation and left many nations in Africa that had reached a minimum level of industrial growth, very poor. It was akin to the biblical story of the Hebrews losing all their blacksmiths capability and going to the Philistines, their arch enemies, to get their axes, plows and sickles sharpened for battle! 

In fact, it is the reason we have partly been incapable of taking advantage today of AGOA for the US and EBA for the EU trade regimes. The value chains were destroyed along with the attitude and mindset. 

Even where the productivity gains of this informal manufacturing were by far greater than any agricultural improvements in the same period, production went unreported because all large previously public owned factories went into private hands or were immediately replaced by consumption imports or went into the export of raw materials and, therefore, ended all forms of import substitution effort that had begun in the 1960-1970s. Manufacturing, therefore, took a fall.

Secondly, manufacturing requires large, deep and long term investment pockets; it exacts certain demands on discipline and commitment to routines from both the owners and labour.

These demands are difficult to sustain in societies that are still pre-industrial where basics such as time keeping, accounting and managerial competence are hard to come by. Societies in transition like Uganda, suffer more from an infectious negative attitude at a leadership level and the general lack of collective behaviour at a company and society level, to achieve a set objective than just the lack of money, skill or other resources.

A report by the magazine Africa Report in April 2016 says when one accounts for indirect costs such as transport, water and power, the productivity gains of a factory worker in Uganda or Kenya is most lost to a Chinese worker, up to a high of 40%, through a clear lack of an industrial culture. That culture takes time to build across society.

There are three key things we would like to propose in order to focus our planners on the process of improving the exploitation of manufacturing opportunities in Uganda.

First, the forgotten issue of patents. A South Korean economist and critic of globalisation, Ha-Joon Chang, equates patents with water that "flows from high to low. He says "knowledge has always flowed from where there is more to where there is less.

Those countries that are better at absorbing the knowledge inflow have been more successful in catching up with the more economically advanced nations. On the other side of the fence, those advanced nations that are good at controlling the outflow of core technologies, have retained their technological leadership for longer".

To improve capacity for manufacturing, a nation must produce a lot more of its patents intended first and foremost, to solve her social and economic problems.  Every society has needs and no society should dress, feed, arm, equip and transport another.

This is one of Africa's shameful acts. While the history of industrialising nations shows growth underpinned over time by consistent violation of patents of those with superior technology by those with none, this is no excuse for Africa in our time.

Our own scientists and artists must invent and protect what their communities need, including great foods, music, language, medicine that is now fast disappearing to our children.  To successfully build our patents base, we must improve our overall national commitment and attitude to research and development (R&D).

There are examples in the world where nations have focused on R&D and helped speed up the rate of manufacturing and industry at home. A small country, Israel, with a population of only eight million people, puts well over 4.1% (2010 figures) of its national income (about $1,362 per capita)  to R&D. Uganda with over 35 million people only commit 0.48% of GDP, about $8.2 per person to R&D! How do we hope to compete in the new world? R&D helped Israel create just around the city of Tel Aviv alone, some 3,000 technology related startups for young people.

These businesses bring into the country over $6b annually in sales of shares through mergers, acquisitions, IPOs and other forms of exits. Isreal has registered over 16,805 (2010 figures) patents while all her Middle East neighbourhood has only managed 836. In 2015 alone, this small country registered 3,500 patents on the US Market, ahead of many bigger and richer nations.

Uganda has only 24 patents, largely registered locally according to the registration services bureau. This low level of innovation has to be dealt with, if we need a country that will survive the storms of the future. It is the reason I emphasised the teaching of science in an earlier installment on education. 

 But we shouldn't despair. There are some bright lights on the horizon. Dr. Umaru Bagampadde's research collaboration between Makerere and Ndejje universities on roads construction technology has turned out good results even before the prototype demonstration road unit and products are made.

This research simulated the composition of saliva of an ant and established that the country can save up to 40% on road construction costs using this viscid, watery fluid to stabilise the road surface. And what more: the stabilising ingredient in the saliva gives a 30-year warranty for the road surface as opposed to the current construction methods using bi-products of petroleum that lasts a maximum of 15 years.

In the end, we could produce a cheaper and simpler product that can expand our road construction capability and open new horizons for production in our villages.

The second project in the right direction to spur patents and manufacturing is the Makerere University's Kiira electric vehicle and its sister product, the mass transport Kayoola bus version.

I invite the cynics who laugh and cast doubt on the Movement's prioritisation of car manufacturing, especially on social media, to go read the story of Toyota in the 1950s. They will know truly the meaning of the Luganda saying that "Nezikokolima gali magyi". East Africa's annual vehicle imports is about 300,000 (Uganda at 45,000, Tanzania at 100,000 and Kenya at 150,000) and only about 10% of these are new.

With the rising domestic demand in East Africa and increasing costs of production in Europe, the US and Asia, Uganda and East Africa have a great opportunity to improve their firm level capabilities in the automotive engineering industry. We are able to use this opportunity to build stronger local supply chains in steel, cotton, leather, design and computing.

Kiira EV manufacturing project has great potential for the much needed labour intensive jobs for Uganda in the next 10 years. Already, 64 artisans, welders, machinists from Katwe and Makerere University's software designers for accelerator pedals and the thermal dynamics of the vehicles, have been co-opted and trained. This combination of both white and blue collar jobs is great to build a manufacturing base for Uganda. The result is an expanded economic revolution for Uganda.

Next week, we will deal with the financing of manufacturing processes and the role of clustering manufacturing firms in specific industries to support rapid manufacturing capacity of a nation.

The writer is a farmer and an entrepreneur





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