Let's promote import substitution to grow economy

OPINION

In the 2020 State-of-the-Nation address, President Yoweri Museveni distinguished between the real economy which deals with fundamental human needs, such as food, clothing, shelter, health, education and transport and the vulnerable economy, which focuses on leisure and pleasure. 

The vulnerable economy has borne the brunt of the coronavirus (COVID-19) pandemic. The real economy is resilient and may thrive. The vulnerable economy cannot withstand crises and downturns easily, since it thrives during times of prosperity, when consumers have excess cash. The President's focus on import substitution is, therefore, spot-on. 

In lay language, import substitution seeks to support domestic industry to produce goods to replace imports. The goal is to ensure that a country is not dependent on others, for goods that can be produced locally. In our case, the Government's resolve to attract Foreign Direct Investment into critical sectors of the economy is bearing fruit. 

In 2019, Uganda's exports grew by 11.9% to $4b, up from 5.6%, the previous year. Moreover, there has been a slowdown in import growth. Despite the above successes, a lot of work needs to be done. Uganda still has an import bill of $8.28b per year and as the President correctly pointed out, there is no reason why we should spend $40.63m on importing animals and related products and another $452.2m importing vegetable products. I would now like to highlight opportunities in two sectors of the real economy that can be enhanced through import substitution.

First, I shall consider the agriculture sector, since it is the backbone of our economy. More than any other sector in the real economy, agriculture's demand side opportunities both locally and internationally are as strong as ever. The rapid urbanisation taking place in Africa and the exponential growth in household incomes have generated massive demand for higher value and organic foods. 

Uganda can easily leverage its abundant rainfall and arable land to become the region's food basket. In order to accomplish this, we need to enhance agricultural productivity and competitiveness through extending extension services and providing affordable inputs to small-holder farmers. 

We also need to invest in irrigation and water-harvesting technologies. Most importantly, we need to attract private investors to add value to our agricultural produce across the entire value chain. 

The second vital sector of the real economy is manufacturing. A vibrant industrial base is central to any import substitution strategy. Indeed, manufacturing has consistently played a vital role in delivering countries out of poverty, due to its ability to absorb many workers from the low-productivity agricultural sector. 

Unfortunately, many of our young people are simply transitioning from agriculture into low productivity services like bodaboda riding, hawking, selling merchandise in markets, among others. Agriculture needs to be looked at as a business and not just a way of life. The youth must be guided to transition into small-scale manufacturing. 

Similarly, the Government has been at the forefront of attracting foreign investors, who can bring foreign capital, state-of-the-art technologies and world-class expertise to help our domestic industry to take off. Some of the results of these efforts are the following: construction of over 5,200 factories that are manufacturing a range of products both for domestic consumption and export. For instance, last year, Uganda exported $ 57m worth of cement, $110m worth of steel products, among others.

Although more work needs to be done in positioning Uganda as the premier investment destination in the East African region and on the continent, the results, so far, are very promising. Furthermore, the Government's deliberate policy of enhancing the real economy through improving the productivity of the agricultural sector and expanding Uganda's industrial base, is a sound one. 

The ongoing disruption of global supply chains due to the COVID-19 has reminded us that wasting foreign exchange on what can be manufactured locally, is unsustainable and frankly unpatriotic. We should all support the Government, in its noble goal of building a viable industrial base that produces quality products, for both domestic consumption and export.

The writer is an international investment promotion expert