manufacturing in mbarara uganda

FINAL REPORT 08 Jun 2010

Authored by: Ashwin Prabhu, Asma Ahli, Daniel Xavier, Kerry-Jo

Lyn, Tevita Lesuma, Timo Falkenberg & Yuki Lo

Development Planning Unit, University College London

34 Tavistock Square, London WC1H 9EZ, United Kingdom

www.ucl.ac.uk/dpu

Potential for poverty reduction and structural transformation

Manufacturing in Mbarara, Uganda

Development Planning Unit

UCL Development Planning Unit – DA4/UE3 Uganda Field Trip Report 2010 of 76

Table of Contents

Introduction ............................................................................................................................................ 4

Acknowledgements ................................................................................................................................. 5

About Us ................................................................................................................................................. 8

Glossary ................................................................................................................................................. 10

Maps ..................................................................................................................................................... 12

PART ONE INCEPTION REPORT ................................................................................................................... 14

1. General Background ...................................................................................................................... 15

a. The National Context ................................................................................................................ 15

b. The Policy Context .................................................................................................................... 20

2. Institutional Landscape ................................................................................................................. 25

3. Role of Manufacturing in Poverty Reduction and Structural Transformation .............................. 29

a. Manufacturing and Poverty Reduction ..................................................................................... 29

b. Manufacturing and Structural Transformation......................................................................... 29

c. Key Conflict Between Poverty Reduction and Structural Transformation ............................... 30

d. Features of Pro-Poor Manufacturing Industries ....................................................................... 31

4. Mission Scope and Objectives....................................................................................................... 33

a. Mission Scope ........................................................................................................................... 33

b. Mission Objectives .................................................................................................................... 34

c. Research Questions .................................................................................................................. 35

5. Analytical Framework ................................................................................................................... 36

a. Potential Industries ................................................................................................................... 36

b. Enabling Environment ............................................................................................................... 38

6. Methodology ................................................................................................................................. 42

a. Research Questions .................................................................................................................. 42

b. Research Strategy ..................................................................................................................... 42

PART TWO RECOMMENDATIONS ............................................................................................................... 47

1. Introduction .................................................................................................................................. 48

2. Research Question 1: Findings and Recommendations ............................................................... 50

a. Potential Industries ................................................................................................................... 50

b. Agro-Processing: Specific Opportunities ................................................................................... 54

3. Research Question 2: Findings and Recommendations ............................................................... 57


a. Findings Across All Manufacturers ............................................................................................ 57

b. Findings Specific To Fruit and Dairy Processors ........................................................................ 61

c. Recommendations .................................................................................................................... 62

4. Limitations and Further Research ................................................................................................. 65

5. Conclusion ..................................................................................................................................... 66

References ............................................................................................................................................ 68

Appendices ............................................................................................................................................ 72

a. Appendix A: Quantitative Questionnaire .................................................................................. 72

b. Appendix B : Full List of Interviewees ....................................................................................... 73

c. Appendix C : Full List of Recommendations .............................................................................. 75


Introduction

As part of the Masters programme at the Development Planning Unit of the University College

London, the seven-member team was commissioned to conducted research in Mbarara, Uganda.

The research team analysed the potential of the manufacturing sector for poverty reduction and

structural transformation. Over the past few decades, Uganda has made significant progress in

poverty reduction and has experienced sustained economic growth.

Despite development successes at the national level, the economy remains dominated by

agricultural production and various problems persist. Particularly the manufacturing sector is lagging

behind the overall economic growth of the country. The research team utilised available secondary

sources as well as primary research conducted in Mbarara to investigate the role of the

manufacturing sector in poverty reduction as well as structural transformation.

Through interviews with a range of stakeholders in Kampala and Mbarara, the contribution of

manufacturing to poverty reduction and structural transformation are explored and the industries

with the greatest potential for growth are identified. On the basis of the findings, the research team

devised recommendations for both the manufacturing sector as a whole and the specific high-

potential industries identified. Uganda’s rich natural resources and strategic geographic position

within East Africa provide the nation with large potential and opportunities, however, various

challenges and constraints hamper its economic development.

This report is divided into two parts:

The Inception Report is subdivided into six sections. Firstly, the General Background of Uganda is

established in regards to both the national and policy context. Secondly, the Institutional Landscape

is described and key stakeholder groups identified. The Role of Manufacturing for Poverty Reduction

and Structural Transformation is then theoretically discussed. The Mission Scope and Objectives of

this research are outlined and the research questions identified. Fifthly, the Analytical Framework

used to guide the research and analyse the findings is described. Lastly, the Methodology used to

conduct the research is explained.

The Recommendations Report presents the findings and recommendations of the primary research

conducted. It is sub-divided according to the research questions and utilises the analytical

framework described in the Inception Report. The recommendations are split between general

recommendations for the entire manufacturing sector and specific recommendations for the high-

potential industries identified. Finally, the limitations of the research are highlighted and further

areas of research are identified.


Acknowledgements

This section is dedicated to expressing our sincere gratitude for all those who supported our

research from both London and Uganda. Without the assistance and support of all those mentioned

within this section, this research project would have not been made possible.

Whilst in London, we were fortunate enough to harness the insights of with two Uganda experts,

namely Dr. Michael Twaddle from the Institute of Commonwealth Studies (London), who gave us

great insight into the political history of Uganda, and DPU’s Prof. James Oporia-Ekwaro who without

his ‘local’ account for Uganda’s geopolitical situation, intimate knowledge of key players and access

to his ‘black-book’ of contacts, our report would not be as thorough as it has become. A special

thank you to Ambassador Oporia-Ekwaro.

It is important to mention that actual ‘on-the-ground’ research is not only crucial to any research

activity, but in the case of Uganda, we as a team found it to be both enlightening and humbling.

Therefore, the largest portion of our acknowledgement is directed at all the local experts and

organisers who made the in-field research possible.

We would like to recognise the generous contributions made by all our Uganda contacts, most

important of all Mrs Tumuhimbise. With absolute certainty, this report and the data we collected

from Mbarara would not have been possible without the guidance, commitment and patience of

Mrs Tumuhimbise. We sincerely thank you.

To ensure our safe travel whilst in Uganda, we must acknowledge our local fieldtrip coordinators Mr

Leonard Bufumbo (Kampala) and Mr Moses Tukwasiibwe (Mbarara). We are sure that without you

coordinated efforts we would have never made a meeting on time.

During our time in Kampala, DPU arranged for us to meet with important organisations that laid a

strong foundation for our research efforts in Uganda. Our team would like to acknowledge the key

individuals who gave up their time and shared their views with us. To Prof Emmanuel Tumusiime

Mutebille, Governor of Bank of Uganda, we would like to thank you for making the time and effort

to speak with us (twice). Not only have you provided us with an insider’s view of the National

Development Plan, but also showed us extreme generosity and hospitality. We thank you and your

staff for hosting us.

We found the Ugandan government officials very accommodating and knowledgeable on our

research topic. We would like to acknowledge that not only were our discussions quite open and

comfortable, we were often provided with various government publications to help us better

understand the national perspective on potential economic growth areas. We thank Eng. Samuel

Ssenkungu, Commissioner, Industry and Technology of the Ministry of Tourism, Trade and Industry;


Ms Rosetti Nabbumba, Ministry of Finance; and Mr Tom Buringuriza, Deputy Executive Director of

the Uganda Investment Authority. Without their guidance we would not have been so confident in

the validity of our findings.

Central to our research was the recently released National Development Plan and we were very

fortunate to meet and speak with the Deputy Chair of the National Planning Authority, Dr Abel

Rwendeire. Thank you Dr. Rwendeire for providing greater insight into Uganda’s development

objectives.

Also in Kampala the team was privileged to meet with industry associations. We would like to

acknowledge the time and discussions provided by Mr Andrew Luzze Kaggwa (Policy Officer for the

Uganda Manufacturers Association, Mr James Kawooya (Programme Manager for the Uganda Small

Scale Industries Association), Executive Director Mr Gideon Badagawa and Trade Policy Analyst Mr

Joseph Mawejje of the Private Sector Foundation Uganda. We thank you for your invaluable

contribution towards this report.

As the team strived to obtain a more holistic view on Uganda’s poverty situation related to the

market and manufacturing, we had the great opportunity of meeting with Mr Peter Christopher

Werikhe (Secretary General) and Mr Yazid Baligasima (Programme Assistant) of the National

Organisation of Trade Unions; Mr Kyoratungye Karemente who spoke on behalf of the United

Nations Industrial Development Organization; Ms Kate Wedgwood (Deputy Head Programmes) and

Ms Jo Bosworth (Social Development Adviser) of United Kingdom’s Department for International

Development; and Ms Catherine Nimusiima, ACTogether Uganda. We would like to thank you for

your time and contributions towards this report.

Also within the international aid agency arena, we would like to acknowledge Mr Kasper Dalsten, the

Special Assistant to the Country Manager, Partnerships & Aid Effectiveness, from the World Bank for

providing a very informative and comprehensive presentation on Uganda’s interactions with the

World Bank.

Of the research institutions we visited and had discussions with, we would like to acknowledge and

thank Dr Peter Atekyereza, Senior Lecturer and Head of the Sociology Department at Makerere

University and the Centre for Basic Research; and Mr. Simon P. Rutabajuuka, Director at the Centre

for Basic Research for providing an academic view on Uganda’s poverty and development issues.

Furthermore, we would like to extend our gratitude to the Mbarara University of Science and

Technology. Without the support, hospitality and expertise of their staff our report would have

been incomplete. We would like to thank and acknowledge Mr Emmanuel Kyagaba, Dean of

Students; Mr Bernard Kakuhikire, Head of Department from the Faculty of Development Studies;

and Mr Charles Tushabomwe-Kazooba, Lecturer for Faculty of Development Studies.


In addition to our academic support from Mbarara, the team would like to acknowledge the

generosity received from Mr Gregory Tweheyo, the Statistician for the Mbarara District Local

Government, for providing us with the latest Mbarara statistics, giving us a more up-to-date dataset

to work from.

As the majority of our research involved operating manufacturers within Mbarara, an

acknowledgement of the willingness and openness we received from our interviewees from across

the sector must be mentioned. This will undoubtedly form a solid basis for our report

recommendations and truly help contribute to understanding the relationship between Mbarara’s

manufacturing sector and poverty reduction and structural transformation. We would like to thank:

– Mr. Joseph Tugume (Director of La Vie (U) Ltd)

– Mr. George Kiberu (Manager of Production of Paramount Dairies)

– Ms. Eunice Wekesa (Director of Wes Knit & Chair of Uganda Gatsby Trust, Mbarara Branch)

– Mr. Eric Bugume (Director of Brown Furniture Showroom)

– Ms. Monica Kiiza (Owner of Ahimbisibwe Truth Honest Furniture Workshop)

– Mr. Dennis Lule (Owner of Hope Furniture)

– Mr. Ainebyoona Ronald (Employee of Kambad Metal Works)

– Mr. Kisaame William (Production Manager of Super Quality Millers)

– Mr. Tukamuhabwa Rashid (Chief Employee of Bekiza's Workshop)

– Ms. Rosemarie Bangirana (Owner of Mariaba Country Wine Food)

– Mr. Godwin Tumwebaze (Director of Production, Mbarara of GBK Dairy Products (U) Ltd)

– Mr. Robert Matsiko (Managing Director of Numa Feeds)

– Mr. Ibrahim Kakaire (Quality Assurance Coordinator of Century Bottling Company Ltd)

– Ms. Kiberu Sarah Kizza (Sales Analyst of Century Bottling Company Ltd)

We would like to sincerely thank you for your contributions and wish you the best in your future

endeavours.

Last but not least, we would like to acknowledge the staff from the Development Planning Unit of

the University College London: Dr. Julio Davila, Mr. Michael Walls, and Dr. Le-Yin Zhang. We thank

them for their continued support, guidance and expertise throughout the project to help stretch our

thinking and refine our findings and recommendations. Also within the faculty, we would be lost,

hungry and confused without the help of Ms. Yukiko Fujimoto and Ms. Virginia Stephens, thank you

for making sure we were fed and sheltered throughout our time in Kampala and Mbarara.


About Us

Ms. Yuki Lo, Project Manager

Current Study Program: Masters of Science in Development Administration and Planning from the

University College London, United Kingdom.

Country of Origin: Hong Kong, China.

Undergraduate Study: Bachelor of Business and Information Technology at the University of

Technology, Sydney, Australia.

Experience: Formerly a consultant to the banking sector across Asia-Pacific.

Ms. Asma Ahli



Country of Origin: United Arab Emirates.

Undergraduate Study: Bachelor of Architecture at the American University of Sharjah, United Arab

Emirates.

Experience: Previously worked for a leading real estate firm in Dubai, United Arab Emirates.

Mr. Timo Falkenberg



Country of Origin: Germany.

Undergraduate Study: Bachelor of Science in Public Health at the University of East London, United

Kingdom.

Experience: Conducted health sector research for a non governmental organisation based in London,

United Kingdom.

Mr. Tevita Lesuma



Country of Origin: Republic of the Fiji Islands.

Undergraduate Study: Bachelor of Business with majors in International Business and E-Business

from the Queensland University of Technology, Australia.

Experience: Formerly a manager from the education sector in Australia and United Kingdom, with

research experience from various projects in Fiji.


Ms. Kerry-Jo Lyn



Country of Origin: Jamaica.

Undergraduate Study: Bachelor of Science (Honours) with majors in International Relations and

Psychology from the University of the West Indies, Jamaica.

Experience: Formerly a Project Manager on a USAID Community Empowerment Project in Jamaica.

Mr. Ashwin Prabhu

Current Study Program: Masters of Science in Urban Economic Development from the University

College London, United Kingdom.

Country of Origin: India.

Undergraduate Study: Bachelor of Science in Applied Mathematics and Economics from Columbia

University, United States.

Experience: Formerly a researcher for Columbia University (United States) and the Centre for

Sustainable Transport (India).

Mr. Daniel Xavier

Current Study Program: Masters of Science in Urban Economic Development from the University

College London, United Kingdom.

Country of Origin: Brazil.

Undergraduate Study: Bachelor of Economics from the Universidade Presbiteriana Mackenzie, Brazil.

Experience: Formerly a credit and risk analyst for the banking sector in Brazil.


Glossary

AGOA African Growth Opportunity Act

B2B Business-to-Business

BOU Bank of Uganda

CBR Centre for Basic Research

CIA Central Intelligence Agency

CICS Competitiveness and Investment Climate

COMESA Common Market for Eastern and Southern Africa

DfiD Department for International Development

DPU Development Planning Unit

EAC East African Community

ERP Economic Recovery Programme

FDI Foreign Direct Investment

GBK GBK Dairy Products (U) Limited

GCI Global Corruption Index

GCR Global Competitiveness Report

GDP Gross Domestic Product

GOU Government of Uganda

IMF International Monetary Fund

ISO International Standards Organisation

LDC Least Developed Countries

MDG Millennium Development Goals

MFI Micro Finance Institution

MoFPED Ministry of Finance, Planning and Economic Development

MoWT Ministry of Works and Transport

MTCS Medium Term Competitiveness Strategy

MTN MTN Uganda Limited

MTTI Ministry of Tourism, Trade and Industry

MUST Mbarara University of Science and Technology

NDP National Development Plan

NGO Non-Governmental Organisation

NIP National Industrial Policy

NPA National Planning Authority

NRM National Resistance Movement

NTP National Textile Policy

OECD Organisation for Economic Co-operation and Development

PEAP Poverty Eradication Action Plan

PIBID Presidential Initiative on Banana Industrial Development

PSFU Private Sector Foundation Uganda

SIP Special Import Programme

SME Small and Medium Sized Enterprises

SMS Short Message Service

ST Structural Transformation

UBOS Uganda Bureau of Statistics

UCL University College London


UGX Ugandan Shilling

UIA Uganda Investment Authority

UMA Uganda Manufacturers Association

UNBS Uganda National Bureau of Standards

UNCTAD United Nations Conference on Trade and Development

UNDP United Nations Development Programme

UNESCO United Nations Educational, Scientific and Cultural Organisation

UNIDO United Nations Industrial Development Organisation

UPE Universal Primary Education

USA United States of America

USD United States Dollar

USSIA Uganda Small Scale Industries Association

WB World Bank

WDI World Development Indicators

WEF World Economic Forum


Maps

Districts of Uganda

Source: UBOS, 2009


Municipality of Mbarara

Source: DPU, 2010


PART ONE

INCEPTION REPORT


1. General Background

a. The National Context

by Kerry-Jo Lyn

Uganda in Context

Since its 1962 independence, the Republic of Uganda experienced two decades of political strife and

violence. Comprised of an ethnically diverse society, Uganda has historically been divided along lines

of region, tribe and religion. Most recently, the discovery of an estimated 2 billion barrels of oil

reserves in the country has sparked discussions and debates about how best to apportion the

benefits (and costs) of this development.

Over the past 25 years, East Africa’s third largest economy has had a stable government led by

President Yoweri Museveni. With an average annual economic growth of 7% since 2000, Uganda has

become one of sub-Saharan Africa’s fastest growing economies (DfID, 2009).

The year 2010 is an auspicious one as it has seen several significant events, which will inevitably help

shape the next decade of the country’s development. Notably is the launch of the new National

Development Plan as well as the establishment of the East African Community (EAC), along with

Kenya, Tanzania, Rwanda and Burundi. Even though it has been considered by many to be a success

story for poverty reduction, poverty still remains an issue of great concern to Uganda.

Demographics

Uganda currently has an estimated population of 30.7 million persons (UBOS, 2009) with 56% being

children under the age of 18 years (Ibid). The country’s population growth of 3.24% is one of the

highest in the world (UNCTAD, 2008) and by year 2050, Uganda’s population is projected to be 106

million.

Figure 1 - Census Population Estimate

Source: UBOS, 2009

9.512.6

16.7

24.2

30.7

0

5

10

15

20

25

30

35

1969 1980 1991 2002 mid-2009

Mil

lio

n


Average life expectancy at birth for both sexes has steadily increased over the last decade and is

currently at 50.4 years, with males registering a lower average life expectancy than females.

Between 1991 and 2002, there was a gain of 2.3 years for each sex (UBOS, 2009).

With an increasingly younger population, the levels and quality of education have become even

more significant. The government’s introduction of the Universal Primary Education (UPE)

Programme in 1997 has facilitated an increase in primary enrolment from 3.1 million in 1996 to 7.4

million in 2008. Yet, 1.3 million (16%) children of primary school age have never enrolled in school

(UNDP, 2009).

According to the UNESCO 2007 statistics, only 51% of children completed a full course of primary

education, although on average 97% and 94% of girls and boys respectively are enrolled in primary

school. The data on secondary enrolment is telling as only 18% of girls and 20% of boys are in

secondary school. One third of the population (approximately 10 million) – and almost half the

women – is unable to read and write, as is illustrated below in Table 1.

Liberalization of the education system has led to an increase in private higher learning institutions

and introduction of more courses. In 2006, 67% of tertiary enrolment was to universities with 58%

being male (UBOS, 2009).

Table 1 - Uganda Comparison with selected neighbouring states

Source: UNCTAD 2008, World Bank Indicators 2008 & 2009 [* at national poverty line]

Poverty & Politics

The population living below the poverty line was estimated to be 56% in 1992. In 1997 when Uganda

became the first African country to adopt a Poverty Eradication Action Plan (PEAP) as their central

policy framework, poverty levels were at 44% and then continued to decrease to 31% in 2007 with

further decreases projected. Regional differences in poverty are quite large with the highest level in

the north of Uganda, being around twice the national average.

The strong GDP growth performance has significantly contributed to the reduction in poverty levels

of the country. Other factors attributed to the reduction include liberalization and stabilization of

the economy (World Bank, 2004).

COUNTRY Population (millions)

Population growth (%)

Literacy Rate (%)

GDP

(USD billions)

GDP per capita (USD)

Poverty Headcount Ratio* (%)

Kenya 38.7 2.6 86.5 30.3 783 46.6

Uganda 30.7 3.3 74.6 14.3 453 31.1

Tanzania 42.4 2.9 72.6 20.4 496 35.7


While the PEAP was originally focused on social sectors, over time the focus shifted to production

and competitiveness as key drivers of growth and poverty eradication. In April 2010, as a result of

the Government’s commitment to revision of the PEAP, the National Development Plan (NDP) for

2010/11 – 2014/15 was launched (Government of Uganda, 2010). Policies and reforms relevant to

the manufacturing sector will be discussed in greater detail in the following sections.

GDP & Labour

During the period of the PEAP, between 1997 and 2002, the average rate of GDP growth was 7.2%

per annum. Due to the global recession, GDP growth declined slightly to 6.2% in 2008/2009 but the

government has projected this to increase slightly to 6.4% in 2009/2010 (NDP, 2010).

Only 20% of the working age population (14-64 years of age representing 47.9% of the population) is

reported as having a formal job. In 2005/2006, the agricultural industry employed 73% of the

working population. The share of the labour force employed in manufacturing decreased from 6.8%

to 4.2% in 2008 despite rising GDP shares of this sector (UBOS, 2009).

With respect to wages, the industrial sector recorded the highest average employee earnings when

compared to the agriculture and service sectors. The Employment and Earnings Survey (UBOS, 2009)

in the 2006 Uganda Business Register shows that the median earning across all industries was UGX

140,000. As shown in Figure 2, employees in the manufacturing sector earn a higher average wage

relative to most other sectors.

Figure 2 - Median Earnings Per Month (UGX)

Source: UBOS, 2009

As illustrated below in Figure 3, the contribution of the agricultural sector to GDP has been declining

while the industry (for which manufacturing has been disaggregated) and service sectors have

shown steady increase over the same period.

Agriculture Manufacturing Construction Education Hotels

120,685

200,000

265,000

120,000100,000


Figure 3 - GDP % by Sector 1990 - 2006

Note: Manufacturing figures are disaggregated from Total Industry percentages

Source: UNCTAD, 2008

Manufacturing Sector

The manufacturing sector, including both formal and informal, represented 7.2% of GDP in 2008 (at

current prices). The Ugandan manufacturing sector is relatively small, dominated by small to

medium scale enterprises that make up around 90% of the sector (PSFU, 2010).

In the period between 2001 and 2006, the number of manufacturing businesses employing 5 or

more persons increased by 32%. In 2006, the GDP share of the formal manufacturing sector (as

distinct from informal) was 6.1% (UBOS, 2007).

Despite its small scale the sector involves various industries, including agro-processing, such as fish

processing, sugar, tea, cooking oil, dairy processing, and soft drinks. There are also factories for

textiles, paper products, furniture making and tobacco processing. Between the years of 1997/98

and 2005/06, manufacturing experienced an annual growth of 1.3% (Ishengoma & Kappel, 2008),

which is significantly lower than the average 7% national GDP growth rate. Most industries are

judged to be performing at less than 50% of capacity (NDP, 2010).

In 2008, while the number of employees in manufacturing firms decreased the same period saw the

monthly average earnings increase by 18% as shown in Figure 4.

52.8

12.5

6.4

34.7

46.5

16.0

7.9

27.5

36.9

20.1

9.3

43.0

32.2

21.4

9.0

46.4

Agriculture Total Industry Manufacturing Services

1990 1995 2000 2006


Figure 4 - Average Earnings For Manufacturing Establishments1 (UGX per month)

Source: UBOS 2009, PSFU 2010

The disaggregated composition of the manufacturing sector (Figure 5) illustrates that agro-

processing comprises 43% and other types of manufacturing industries account for the remaining

57% (PSFU, 2010).

Figure 5 - Composition of Manufacturing Sector (2007 data)

Source: PSFU, 2010

Changes and Challenges

A few of the challenges identified in the new NDP include slow or no growth in the agriculture and

industrial sectors; recognition that sectors are not effectively absorbing a growing (and younger)

labour force, dominance of primary commodities over industrial products, as well as the slow

accumulation of core production infrastructure (energy, transport) (NDP, 2010).

The growth potential of small and medium scale manufacturing businesses are restricted by: limited

access to financial and business services (including private investment, internal and external finance),

1 Note: A total of 123 manufacturing firms were selected for the UBOS statistical report on the basis of

reliability and consistency of data relating to number of employees and labour costs for the period.

237,542 245,679274,291

316,029

373,341

2004 2005 2006 2007 2008

3.4% 11.6% 15.2% 18.1%

Other57%

Grain Milling 18%

Textiles & Leather 7%

Bakeries & Other Food Items 6%

Coffee 6%

Beef, Dairy & Fish 3%Beverages & Tobacco 2%Tea 1%

Agro-processing43%

Furniture & Other 22%

Metal Works 15%

Saw Milling, Print & Publishing 12%

Plastics 5%

Chemical & Products 3%


high taxes, limited access to varying markets, poor infrastructure, lack of technical capacity,

discouraging tax systems, a strict regulatory system, expensive transport and transaction costs,

corruption, low educational levels and vocational training, intermittent and expensive power supply,

weak institutional support and significant reliance on regionally imported raw materials, equipment

and products. (Ishengoma & Kappel, 2008). Furthermore, international standards require adherence

to strict quality measures for all exports thereby enhancing constraints to Uganda’s export prospects.

These factors as well as shifts in domestic as well as donor policy, ambitious plans for the oil industry

and the multiplicity of already existing obstacles within the political climate all combine to present a

complex web of challenges for the people and government of Uganda. If the country’s solid

performance through this recent global recession gives any indication, a closer look at its policies

and plans are indeed necessary to further understand how poverty reduction may continue to be

achieved.

b. The Policy Context

by Asma Ahli

Uganda went through decades of political turmoil that affected its' economic growth. By the 1990s,

a period of political stability and a comprehensive plan by Museveni’s government to create a

business friendly environment revived the economy. The liberalization process, supported by the

IMF/World Bank, prompted an economic environment with scaling back of government intervention.

Despite overall economic growth in the past three decades, the manufacturing sector lags behind

the overall rate of growth. High interest rates as a result of the IMF conditionality on loans and funds

hindered the growth of many local businesses (Rasiah & Tamale, 2004). Table 2, summarises the

three stages of economic reform.

Table 2 - The Three Stages of Economic Reform (Robinson, 2006)

The first stage

(1986-1991)

Path to recovery

The National Resistance Movement (NRM) government was characterised as

severely interventionist; adopting policies of complete control over foreign

exchange rates and prices of imports. The impact of these policies proved to be

catastrophic, as inflation soared to almost 300% within the first year. By 1987,

the declining conditions elicited conversations with the World Bank and IMF for

financial support and to plan a comprehensive Economic Recovery Programme

(ERP).

The second stage

(1992-1998)

Government

ownership and

deepening

reform

Designed to promote long-term economic growth and macroeconomic

stabilization through foreign investment in physical assets and infrastructure.

The ERP included policies for structural and institutional adjustment reforms

such as currency reform and liberalizing foreign exchange allocation and

exchange rate. The reform process reduced inflation rates and stimulated

growth rates back to positive figures.


The third stage

(1999-2004)

Reform

consolidation:

Poverty

reduction and

public services

PEAP was established in 1997 as recognition that the reform policies may not

positively impact the poor. PEAP was the platform under which poverty

declined from 56% in 1992 to 35% 2000. It addressed causes and dimensions of

poverty, and underlined 4 goals; rapid and sustainable economic growth, good

governance, income increase for the poor and improved quality of life (Ntale &

McClean, 2004). PEAP involved plans to modernise the agriculture sector,

promote universal primary education and healthcare. Despite economic growth

and the government’s continued commitment, chronic poverty has persisted.

Policy reforms for the private sector

Since the 1980s, the government adopted several policy reforms, including the ERP in 1987, the

PEAP in 1997, the Medium Term Competitiveness Strategy (MTCS) in 2000 and the Competitiveness

and Investment Climate Strategy (CICS) in 2006 (MOFPED, 2008). The ERP was to promote the

private sector and export-led growth and investment. Policies included investment in infrastructure,

trade liberalization, privatization of public institutions, liberalization of interest rates and foreign

exchange. Since the ERP, the private sector has led the majority of investments and financing.

Following the ERP, steps were taken towards further market and price deregulation, in addition to

macroeconomic stabilisation. The ERP launched several other policies, including the Special Import

Programme (SIP) in 1989. PEAP aimed to reduce poverty and promote economic growth through

good governance, security, human development, competitiveness and economic management. CICS

aimed to improve the competitiveness of the productive sector by making it easier to do business in

Uganda.

The establishment of the Common Market for Eastern and Southern Africa (COMESA) (1981)

instigated a new stage for economic integration and consolidation by implementing policies for

sustainable growth and development. Policies include abolishing all non-tariff barriers to trade,

facilitating transit trade within the common market, eliminating rigidities in production and

manufacturing, coordinating policies in agricultural research, extension, and regional food

sufficiency, and adopting common standards of quality (COMESA, 2008). The treaty encourages free

trade of goods, services, capital and labour and promote regional integration and foster macro-

economic policies.

More recently, the East African Community (EAC), comprising the five east African countries Kenya,

Uganda, Tanzania, Rwanda and Burundi, will form a common market to enable the free movement

of people, capital, goods and services across borders. The treaty, expected to come into effect in July

2010, is a step towards intra-regional trade. However, many fear that the opening up of borders may

result in Kenya dominating the manufacturing sector for its advanced industries. Kenya is currently

the most industrially advanced country in East Africa, with industries in food processing, consumer

and household goods, and clothing.


Policy reforms for the manufacturing sector

The National Industrial policy of 2008 attributed the stagnant growth of the manufacturing sector to

unstable power supply and high electricity costs, and emphasised the importance of transforming

Uganda into a modern, competitive and industrial country (MTTI, 2008). Policies focused on utilizing

natural resources, promoting agro-processing, and knowledge based industries to achieve a business

friendly environment and improve the productivity and quality of products. In addition, it aims to

invest in infrastructure, promote innovation and technology, attract Foreign Direct Investment (FDI),

support the development of skilled labour, create jobs, and promote sustainable small and medium

enterprises.

By the end of 2009, in response to the United States’ African Growth and Opportunity Act (AGOA)

the Ugandan government introduced the National Textile Policy to promote textile exports. The

strategy aims to revive the textile sector that has been experiencing declining rates since the 1970s.

A total of USD 250 million was allocated to re-establish the textile and clothing industry. With China

however controlling over one third of the world’s textile market, the sector proved to be challenging

to infiltrate (Olanyo, 2010). Therefore the government is now refocusing to develop its domestic and

regional markets.

In addition to AGOA, the European initiative Everything but Arms, where all imports (excluding

armaments) from least developing countries (LDC) are duty free, was initiated to promote the

development of LDC and encourage trade. Despite the two global initiatives, the Ugandan

manufacturing sector still finds it difficult to penetrate the global market due to strict quality

controls and standards.

The government formulated several plans and policies to support the growth of the manufacturing

sector. Table 3 summarises a few action plans for these challenges:

Table 3 -Key Policy Consideration to promote the manufacturing sector

Challenge Policy Reform

1. Poor

Infrastructure

In 2009, the government allocated an estimated UGX 1.1 trillion, 18% of

its total budget, to upgrade and extend the road network.

2. Private

investment

(Internal and

external)

The establishment of Uganda Investment Authority (UIA) to “promote

and facilitate investment projects, provide serviced land and advocate

for a competitive business environment.” It also aims to attract foreign

investment that brings technology, skills and jobs to Uganda (UIA,

2010).

3. Lack of technical

skill and capacity

Under the National Planning Policy 2008, the Government reoriented

its education curriculum from academic to vocational training to

produce skilled industrial labour.

4. Intermittent and The construction of additional dams (eg: the Bujagali dam),


expensive power

supply

hydroelectric plants and transmission lines.

5. Quality control The establishment of the Uganda National Bureau of Standards (UNBS),

encouraging investment in new technologies, strengthening existing

codes and standards, raising awareness on quality controls and

participating in international codes and standards settings (MTTI,2008)

The National Development Plan (2010/11-2014/15)

The NDP released in April of 2010 introduced a new vision: “ To transform Uganda from a peasant to

a modern and prosperous country through growth, employment, socio-economic transformation for

prosperity” (The Republic of Uganda 2010, p.1). It seeks to increase household incomes,

employment, investment in infrastructure, access to social services, promotion of technology,

research and innovation, human capital, and good governance.

The NDP devised an overall strategy to revive the manufacturing sector, which includes four

objectives (The Republic of Uganda 2010, p.122) :

1. “To promote development of value added industries by enhancing value addition to primary

products and building capacity in specific skills.

2. To increase competitiveness of local industries by strengthening industrial development and

the promotion of small and medium enterprises.

3. To enhance the development of productivity of the informal manufacturing sub-sector. This

is achieved by developing the skills of non-formal manufacturing sector.

4. To promote and improve applied research and technology development by strengthening

research and technology developments in industrial application.”

The NDP projects the growth of the manufacturing sector share in GDP from 6.7% in 2009 to 25% by

2015, and a 30% contribution of manufactured exports to total exports.

Even though good policies are devised and well founded, there are challenges for implementation

and enforcement. Many responded to the new NDP with skepticism and its ability to achieve its

targets. For one, a predominant portion of the manufacturing sector is informal. The ability to

implement these policies on the informal sector remains disputed. In addition, despite efforts to

implement policies, institutions such as the UNBS remains understaffed and underfunded.

Furthermore, corruption remains a crucial impediment to growth. Figure 6 illustrates Uganda’s

position on the Global Corruption Index (Transparency International, 2009). Tackling issues of

corruption and bureaucracy is therefore essential to promoting the growth of private industries.


Figure 6 - Corruption Perceptions Index Score 2009

Source: Transparency International, 2009

1.1

2.2

2.5

2.6

3.6

4.7

7.5

9.4

180. Somalia

146. Kenya

130. Uganda

126. Tanzania

79. China

55. South Africa

19. United States

1. New Zealand


2. Institutional Landscape

by Tevita Lesuma

This section details key stakeholder groups identified within Uganda’s manufacturing sector,

specifically Mbarara, as having a major role in influencing both poverty reduction and structural

transformation. The basis of identifying these key stakeholders has been derived from a close

analysis of Uganda’s recently released National Development Plan (2010) and various Ugandan

publications specific to national manufacturing.

Although the list of key stakeholders have been identified and targeted for interviews, it is important

to state that the level of importance they play in providing solid recommendations towards the

research questions will only be determined during and on completion of the field work and made

available as part of the findings sections of this report.

Specification of key stakeholders

The research team plans to interview a large number of key stakeholders identified from the London

based desk research that covers a large cross-section of Uganda’s manufacturing sector (time

permitting). The interviewees will be clustered into nine different stakeholder groups: Ugandan

Manufacturing Firms; Industry/Trade Associations; Workers’ Unions; Government Ministries and

Departments; Bi/Multilateral Agencies; Non-Government Organisations; Financial Institutions;

Research Institutions; and Media Firms.

Ugandan Manufacturing Firms

This stakeholder group has been identified as influential in determining the potential for reducing

poverty and promoting structural transformation. The objective of meeting with this group is to

determine the current level of engagement with the poor within the sector. It is desirable that the

team engage with firms from rural and urban areas, of various firm sizes ranging from small to large,

and also incorporating formal and informal operators. As manufacturing is central to the research

questions, direct contact with the actual actors is fundamental to providing accurate

recommendations.

Industry/Trade Associations

Industry representatives within Uganda’s manufacturing sector tend to have a clearer understanding

of the challenges affecting the sector. They also have closer dialogue with manufacturing firms than

other organisations may. This stakeholder group is also targeted as it promotes and develops

innovative manufacturing processes to their members, whilst also lobbying the government to

provide better conditions for manufacturing prosperity.


Workers’ Unions

As the literature on poverty suggests, increasing employment opportunities to the poor is an

essential step in reducing poverty (Khan, 2002). Workers’ Unions are seen as having first-hand

insight regarding the labour conditions within the manufacturing sector as well as constraints

around creating more employment opportunities for the poor.

Government Ministries and Departments

The government has significant influence on the growth of the manufacturing sector. As mentioned

previously, the NDP highlights the extent to which the government is committed to generating

prosperity for the nation through the support of the manufacturing industry. It is through

government that both regulations and policies are designed to protect, promote, and enhance

Uganda’s economic growth. Therefore, it is imperative that the team establish discussions with

Uganda’s key ministries.

Bi/Multilateral Agencies

Uganda is a donor recipient nation (Atingi-Ego, 2005) and therefore it is pertinent to this research

that dialogue is sought with bilateral/multilateral donors. The significance of these actors lies in

their ability to provide research and funding to help strengthen the manufacturing sector. These

stakeholders also work with government ministries and influence relevant policy decisions. Vital

assistance is additionally provided through technical and logistical support.

Non-Government Organisations (NGOs)

NGOs have traditionally been regarded as advocacy agents for civil society. The NGOs are often

influential in lobbying government, and to an extent the private sector, on creating a pro-poor

manufacturing environment. They will also supply this report with relevant information in order to

better link increased manufacturing efficiency and employment with poverty reduction and

structural transformation. Based on the low proportion of female workers in the sector, it is

therefore important to meet with women’s groups to understand what barriers hinder their

employment opportunities.

Financial Institutions

Lack of access to credit has been identified as a major barrier to a higher performing manufacturing

sector (NDP 2010, p.120). Therefore, it is important to gauge the perspectives of Uganda’s financial

institutions, both micro-finance firms and commercial banks.

Research Institutions

There are a number of research bodies in Uganda with expertise on the manufacturing sector. They

will be included as part of our research to augment any findings, as local expertise would provide the


team with particular insight and well-documented research. This group is predominantly comprised

of universities and think-tanks.

Media Firms

Through discussions with a London-based Uganda expert, media firms were selected as an alternate

source of information. Media firms have the potential to provide a more apolitical and uncensored

account of the nation’s economic journey and its influences.

Potential Interviewees

From the nine specific stakeholder groups, the team has identified over thirty potential interviewees.

This is detailed below in Table 4. The final list of interviewees will be detailed in Appendix B.

Table 4 -Key Policy Consideration to promote the manufacturing sector Key Stakeholder

Group Identified Organisations

Ugandan

Manufacturing

Firms

Urban, Peri-Urban and Rural

Micro, Small, Medium & Large Sized Firms

Different industries: furniture, grain milling, coffee/tea, textile, metal

etc.

Industry/Trade

Associations

Uganda Manufacturers Association (UMA);

Uganda Small Scale Industries Association (USSIA); Private Sector

Foundation Uganda (PSFU); Uganda Gatsby Trust

Workers’ Unions Uganda Beverages, Tobacco, And Allied Workers’ Union; Uganda

Textiles, Garments, Leather And Allied Workers’ Union; National

Organisation of Trade Unions

Government

Ministries and

Departments

Ministry of Agriculture, Animal Industry and Fisheries; Ministry of

Finance, Planning and Economic Development (MoFPED); Ministry of

Gender, Labour and Social Development; Ministry of Tourism, Trade

and Industry(MTTI); Uganda Investment Authority (UIA); Bank of

Uganda (BOU); National Planning Authority (NPA); Mbarara District

Local Government

Bi/Multilateral

Agencies

UNIDO Uganda; DfID Uganda; World Bank

NGOs Uganda Women’s Network; Action Aid;

Women’s Movement

Financial Commercial and Microfinance Institutions


Institutions

Research

Institutions

Makerere University;

Mbarara University of Science and Technology; Centre for Basic

Research

Media firms The Independent magazine

Institutional Context

In researching Uganda’s manufacturing sector, it is evident that government plays a major role in

devising national policies to encourage economic stimuli. In the previous section, various types of

national policies which link to the promotion of the manufacturing sector have been discussed.

Below, Table 5 summarises the key policies related to the sector and the stakeholders involved.

Table 5 - Mapping of Key Policies to Stakeholders

Manufacturing-related Policies Year Key

Stakeholder

Stakeholder

Type

Economic Recovery Plan (ERP) 1992 MoFPED Government

Ministries and

Departments

Poverty Eradication Action Plan (PEAP) 1997 MoFPED

Medium Term Competitiveness Strategy 2000 MoFPED

Competitiveness and Investment Climate Strategy 2006 MoFPED

National Industrial Policy 2008 MTTI

National Textile Policy 2009 MTTI

National Development Plan 2010 NPA

Table 5 shows that the government has demonstrated continued commitment to the manufacturing

sector. Although Uganda’s government has been considered stable, with the same party and

president for 25 years, a parliamentary and presidential election scheduled for early 2011 may have

an impact on shaping Uganda’s economic future.

While the institutional context is discussed above, it is best described through the International

Institute for Environment and Development’s stakeholder power analysis as devised by James

Mayers (2005). This analysis will be provided on completion of the in-field research.


3. Role of Manufacturing in Poverty Reduction and Structural

Transformation

by Timo Falkenberg

In order to assess to what extent the growth of the manufacturing sector contributes to poverty

reduction and structural transformation it is necessary to establish the theoretical linkages between

both manufacturing and poverty reduction and manufacturing and structural transformation. Some

key conflicts between the competing objectives are discussed and ultimately the features of

manufacturing industries to achieve both structural transformation and poverty reduction identified.

a. Manufacturing and Poverty Reduction

Economic growth induced by a growing manufacturing sector provides potential for poverty

reduction through the mechanism of the ‘trickle-down’ effect. Accordingly, the economic benefits

created by economic growth ‘trickle down’ to the poor through increased wages and decreased

prices of necessities (Islam, 2004). However, the automatic link between economic growth and

poverty reduction and particularly the ‘trickle-down’ effect have been put into question by empirical

evidence (Khan, 2002). Therefore, it is important to identify the mechanisms through which

manufacturing can reduce poverty.

The basic reason for poverty considered is the lack of an adequately high income and access to

employment for the poor (Khan, 2002). As the wage level in the manufacturing sector is higher than

in traditional sectors, the role of the manufacturing sector in poverty reduction lies in the creation of

jobs that are accessible to the poor. Therefore, labour-intensive growth is of particular importance

(Ernst & Berg, 2009) as such creates a high demand for labour and thus creates many employment

opportunities. Labour-intensive manufacturing requires relatively low-skilled labour, which increases

the accessibility for the poor (Söderborn & Teal, 2003). The manufacturing sector has high potential

for productivity increases through skills training and technological progress (Gries & Naude, 2010).

This also increases the wage level of workers, providing further potential for poverty reduction.

Additionally, transferable skills obtained enable individuals to find other, better-paying jobs in the

longer term.

b. Manufacturing and Structural Transformation

Structural transformation is an essential aspect of economic development (Cownie, 1974). In order

to transform the economy from a traditional to a modern one, it is necessary to make large numbers

of workers more productive (ibid). This structural transformation is primarily characterised by “the

movement of labour from traditional agricultural activities and other primary sectors to ‘modern’

industry” (Rodrik 2006, p.1) and tertiary activities. The key to initiate structural transformation lies in

productivity gains in the agricultural sector, as this provides food and frees up labour for urban

economic activity (Timmer & Akkus, 2008). However, agricultural modernization merely forms one


aspect of structural transformation, the manufacturing sector also has a crucial role to play in this

process.

The role of the manufacturing sector for structural transformation is three-fold:

1. Through the creation of jobs manufacturing industries absorb surplus labour from the

traditional sector (Gries & Naude, 2010).

2. Growth of the manufacturing sector increases the productivity of both the modern and

traditional sectors (ibid).

The highly progressive nature of the manufacturing sector enables productivity increases

through technological progress and increases in worker skill level (Singh, 2004). The higher

wages paid in the manufacturing sector (relative to the agricultural sector) as well as higher

employment and livelihood opportunities in urban compared to rural areas pulls agricultural

labour into the cities. The reduction of the agricultural labour force in itself increases the

productivity of the traditional sector. The higher demand of skilled labour and the higher

wage of these higher skilled jobs increase investment into human capital, thus raising the

overall level of human capital (Gries & Naude, 2010). This provides further potential for

productivity increases. The growing manufacturing sector can also raise the productivity of

the agricultural sector through the manufacturing of agricultural inputs, such as fertilisers

and machinery. The increasing employment share in the manufacturing sector creates

increases in demand for agricultural products creating incentives for agricultural producers

to invest in productivity-enhancing methods and machinery (Cownie, 1974).

3. The backward and forward linkages of the manufacturing sector create demand for

additional manufacturing firms, particularly for the production of inputs and intermediate

goods, as well as increasing the demand for the service sector (Söderborn & Teal, 2003).

Therefore, growth of the manufacturing sector fuels further growth of the sector itself while

promoting growth of the service sector. As the size and number of manufacturing firms

increase the demand for services such as transport, accounting, logistics, and legal services

increases, driving structural transformation forward even further.

c. Key Conflict Between Poverty Reduction and Structural

Transformation

In the long term the objectives of structural transformation and poverty reduction are the same,

both aim to increase the average income and living standards of the population. In the short term,

however, structural transformation is likely to increase inequality and increase poverty. Highly

productive manufacturing - essential for successful structural transformation - requires high-skilled

labour, whilst the majority of surplus labour (particularly the poor) is generally low-skilled. As a

result the poor and unskilled workers are not absorbed by the formal manufacturing sector and are

forced into informal, low-paying employment. Additionally, increasing the productivity of the


manufacturing sector is achieved through shifting from labour-intensive to capital-intensive

production, which results in decreases in labour demand, further placing the poor at a disadvantage.

In the short and medium term this results in increases of poverty rather than poverty reduction

(Timmer & Akkus, 2008). Additionally, the increases in farm wages, induced by higher agricultural

productivity, are time-lagged (Landesmann, 2000). Therefore, in the short-term agricultural wages

will remain low, resulting in a widening income gap between the rural and urban areas (Timmer &

Akkus, 2008).

d. Features of Pro-Poor Manufacturing Industries

Size of the Enterprises

The reduction of poverty requires jobs with a relatively high wage, whereas structural

transformation calls for highly productive jobs. As productivity levels and wage levels are directly

correlated (Ernst & Berg, 2009) a common feature should be identifiable. Larger firms tend to be

more productive and pay higher wages than smaller companies (Söderborn & Teal, 2003). However,

this is a result of the employment of high-skilled labour in these larger firms (ibid).

While, the required skill level does not hamper structural transformation it forms a constraint for

poverty reduction, as the usually unskilled poor cannot access these jobs (ibid). In the short-term

this forms a contradiction between poverty reduction and structural transformation. Small and

medium sized enterprises (SMEs) have higher potential for poverty reduction as these firms

generally employ unskilled and low-skilled labour. The low productivity of SMEs, however,

significantly limits the speed of the structural transformation process.

Therefore, SMEs should be promoted in the short-term to build the capacity of the labour force,

however in the long-term, larger firms are necessary to achieve rapid structural transformation and

long-term poverty reduction.

Labour-Intensity of Industries

The nature of the industry, whether labour-intensive or capital-intensive, places poverty reduction

and structural transformation in apparent opposition. Labour-intensive manufacturing is highly

important in poverty reduction for two reasons: it requires a lower skill level than capital-intensive

production and it creates a high demand for labour, thus generating more employment

opportunities (Söderborn & Teal, 2003).

Structural transformation, on the other hand, requires high productivity of the manufacturing sector.

Capital-intensive industries are much more productive than labour-intensive industries as capital, in

form of technology, replaces labour and thus enhances productivity (ibid). Yet, structural

transformation also requires the growing manufacturing sector to absorb high quantities of labour,

which is not possible with solely capital-intensive industries (Timmer & Akkus, 2008).


Therefore, labour-intensive industries form a key feature of pro-poor manufacturing for poverty

reduction and are also important for the initial stage of structural transformation. In the initial stage

absorbing the surplus agricultural labour is imperative; in the later stage manufacturing labour is

freed up through a shift towards capital-intensive production and absorbed by the service sector.

Given the context of Uganda and its stage of structural transformation, labour-intensive industries

are necessary for both poverty reduction and structural transformation. These industries include

food processing, textiles, weaving, leather and wood (Khan, 1999).

Outward Orientation

Enterprises that are export oriented generally have higher productivity and pay higher wages than

companies solely producing for the domestic market (Söderborn & Teal, 2003). This is particularly

true among African countries, as their domestic market is rather small (ibid).

Among SMEs the potential for export is relatively low due low productivity and low quality of goods.

Through the expansion beyond the local market into neighbouring districts and cities (outward

orientation) these firms adapt their production to meet quality standards, resultantly increasing

their productivity and quality of goods. In the long-term this outward orientation should enable

firms to become export oriented reaping the benefits of higher revenue, higher wages, and higher

growth.

Outward orientation of enterprises contributes to both poverty alleviation and structural

transformation through productivity gains and increases of wages. Additionally, in the long-term the

national economy should benefit from increased export earnings and resulting increases in GDP

growth.


4. Mission Scope and Objectives

by Ashwin Prabhu

Our project team has been contracted to analyse the extent to which the manufacturing sector in

Mbarara, Uganda plays a role in reducing poverty levels and the extent to which it can contribute to

the structural transformation of the local economy. This section will refine the scope and state the

objectives of this mission.

a. Mission Scope

In order to refine the scope of our mission, the project team had to consider several major questions

– What outcomes can be considered to constitute poverty reduction? What constitutes structural

transformation? What is the appropriate geographic extent of the project? What types of

manufacturing should we focus on?

The following decisions were made about the scope of the mission:

The outcomes considered most relevant to poverty reduction are employment generation

and income growth. However, as is well recognised, poverty is multi-dimensional in nature

(Kakwani & Salber, 2008). It is not only about low incomes or a lack of employment, but also

encompasses other factors such as a lack of asset accumulation, vulnerability to external

shocks, and a lack of empowerment and voice. Although the main focus of this mission will

be on issues of employment and income, we will also consider these other dimensions and

the role manufacturing can play in mitigating their negative impacts, albeit in a less rigorous

manner.

Structural transformation can be defined in many ways. In the broadest sense, structural

transformation consists of the following four outcomes: a falling share of the agricultural

sector in overall output and employment, the increasing importance or urban economic

activity in manufacturing and services, increased urbanization of the population, and a

demographic transition to lower birth and death rates (Timmer and Akkus, 2008). For the

purpose of this report, however, a more narrow definition of structural transformation is

used, limited to its economic effects. The definition of structural transformation used will

thus be restricted to: an increase in productivity in the agricultural sector eventually

resulting in the shift of increasing proportions of the labour force and overall output from

the primary sector to the secondary and tertiary sectors. Several studies have identified the

historically important role of manufacturing in achieving this outcome (Chenery & Taylor

1968; Maddison 1995; Syrquin 1988). Aside from a growing manufacturing sector accounting

for a greater proportion of output and employment, manufacturing activities can also help

achieve structural transformation through several additional and interrelated pathways:

producing agricultural inputs that increase productivity in the agricultural sector, generating

employment to absorb the consequent excess labour force from the agricultural sector,

generating an increase in demand for goods from the manufacturing sector itself, and


increasing the demand for service sector activities. The focus of this report will therefore be

on promoting structural transformation in Mbarara by increasing manufacturing activity.

In terms of geographic scope, this project report will focus solely on the manufacturing

sector in Mbarara district, and its effect on reducing poverty and promoting structural

transformation in the local economy. The surrounding rural and hinterland areas will be

considered only to the extent of exploring the linkages between it and manufacturing

activities in Mbarara, mainly in terms of the supply of labour and primary inputs. This report

will not focus on the manufacturing sector in Uganda as a whole, although it is expected that

many of the findings and recommendations can be generalised to the country level.

Within the manufacturing sector, this report is primarily concerned with those forms of

manufacturing activity most relevant for poverty reduction and structural transformation.

This research will therefore focus only on those manufacturing activities that are best

capable of contributing to sustained increases in job creation and wages and to a shift from

an agriculture based rural economy to a manufacturing based urban economy.

b. Mission Objectives

The objectives of this mission are as follows-

Objective 1:

To identify the types and scale of existing manufacturing activities in Mbarara, and assess

their roles in reducing poverty and achieving structural transformation

Manufacturing activities that have increased overall employment levels and that provide relatively

high wages will have a positive impact on poverty reduction. Similarly, manufacturing activities that

absorb former agricultural workers or produce goods that increase agricultural productivity will have

a positive impact on promoting structural transformation.

Objective 2:

To identify potential manufacturing industries that can be successfully introduced and/or

scaled up in Mbarara.

This will involve identifying the areas in which Mbarara enjoys comparative and competitive

advantages relative to neighbouring regions and countries. The aim will be to identify manufacturing

activities that have the greatest scope for sustained growth and competitiveness in domestic,

regional and international markets. In line with the brief for this research, the emphasis will be on

identifying those industries that have the greatest potential for reducing poverty and promoting

structural transformation.


Objective 3:

To identify the factors most important for the growth of the manufacturing industries

identified.

This will involve assessing the impact of factors such as institutions, infrastructure, labor force,

finance and market size, among others. Although the aim is to identify the constraints on the

manufacturing sector in Mbarara specifically, it is likely many of these constraints will also be

relevant to manufacturing in Uganda as a whole.

Objective 4:

To recommend actions and strategies that can be undertaken by relevant stakeholders to

promote the manufacturing sector in Mbarara.

These relevant stakeholders include the local and national government, manufacturing firms,

industry associations, donor agencies, civil society, research institutions and financial institutions.

The recommendations will draw upon, in part, the factors identified in objective 3.

c. Research Questions

Based on the discussion of the mission scope and objectives above, our research project will be

concerned with answering the following research questions

Question 1: What manufacturing activities have the most potential to be introduced and/or

scaled up in Mbarara?

Question 2: What kind of enabling factors would help these firms grow?


5. Analytical Framework

by Daniel Xavier The two research questions identified in the section above focus on two distinct ideas. As such, two

analytical frameworks are required – one for each question. These two frameworks are discussed in

detail in the following sections.

a. Potential Industries

Research Question:

In order to identify the right type of manufacturing industry that can be introduced or promoted in

Mbarara, a framework that helps identify and contrast the relative comparative and competitive

advantages of the various potential industries under consideration is needed. In order to do this, a

list of factors that influence the advantages faced by a given manufacturing industry was generated.

These factors have been drawn from Michael Porter’s ‘Diamond Model’ for assessing

competitiveness (Porter 1998).

In his original model, Porter explains that there are four main, interrelated factors that help

determine the competitive advantages experienced by an industry or nation (Porter 1998). These

four factors are: “Firm Structure, Strategy and Rivalry”, “Factor Conditions”, “Demand Conditions”,

and “Related Firms and Industries”. In addition, Government Policy plays a role in determining the

impact and influence of each of these factors.

While the aim of this research project is similar, it differs in one crucial aspect. The research team is

seeking to determine the competitive and comparative advantages experienced by a potential

manufacturing industry in Mbarara, rather than assessing the competitiveness of an existing industry.

In order to do so, the factors in the original Porter Diamond model have been modified. The main

modification is replacing the ‘Firm Structure, Strategy and Rivalry’ factor in the original model with

‘Labour Conditions’. The rationale for this is that the purpose of this analysis – to identify potential

industries, in some cases those which may not exist in any form presently – renders a study of an

existing ‘Firm Structure, Strategy and Rivalry’ less useful. At the same time, although ‘Labour

Conditions’ technically fall under ‘Factor Conditions’ in that it is an input for the manufacturing

sector, desk research has indicated that labour force issues are a particularly significant in the

Ugandan context (OECD 2008). Therefore the research team believes it needs to be assessed

independently of other manufacturing inputs. Additionally, ‘Demand Conditions’ has been renamed

‘Market Conditions’, in order to emphasis the focus on determining the size of the potential market

for the manufacturing industries considered. Table 6 below defines each of the four factors.


Table 6 – Definition of Porter's Five Determinants

1. Factor Conditions The availability of raw materials and intermediate products used as

inputs to the manufacturing process

2. Labour Conditions The size, relevant skills and experience of the available labour force

3. Market Conditions The size of the market, existing and potential, for the product

manufactured

4. Related Firms and Industries

The presence and scale of firms and industries that support the

production process

5. Government Policy

Government policies, plans and programmes aimed at improving the

factors that influence the industry

Source: Porter 1998

Figure 7 below illustrates the framework that will be used in the course of this research.

Figure 7 - Proposed Framework

Applying the framework

The framework will be applied in the following manner. For each of the manufacturing activities

considered, a grade (poor/fair/good) will be assigned for each of the 5 factors to indicate whether

that factor positively or negatively impacts the potential for that given activity to be introduced

and/or scaled up in Mbarara. Information gathered from interviews with relevant stakeholders -

from manufacturing firms to policymakers, industry associations and research institutions – as well

as desk research will form the basis of the grade assigned for each factor. After this process has been

Determinants of Advantage

Factor Conditions

Market Conditions

Government Policy

Related Firms and Industries

Labour Conditions


repeated for every factor of each industry under consideration, it is expected that one or more

manufacturing industry will stand out as having the highest degree of comparative and competitive

advantage, and therefore the greatest potential for successful establishment in Mbarara. Table 7

below indicates what each of the grades mean for the relevant factor.

Table 7 - Factor Grading System

Grades

Poor Fair Good

Factor Conditions

Materials and inputs not available locally and/or very expensive

Materials and inputs generally available consistently and at affordable prices but with occasional problems in supply

Materials and inputs readily available locally, in abundant quantity and at low prices

Labour Conditions

Lack of labour force with relevant skills, and lack of formal capacity to provide training

Some problems with labour force skills and wages, but with potential for improvement

Labour force with formal training, relevant skills and experience

Market Conditions

Small or limited domestic market, with no scope to develop regional and/or international market

Large domestic market, but limited scope to develop regional and/or international market

Large domestic market and good potential to develop regional and/or international market

Related Firms and Industries

Lack, or small number of, related firms and industry

Some related firms and industries, but with limited networks and links

Large number of related firms and industries, extensive links and networks, and competition between related firms

Government Policy

Government policies, plans or programmes to support industry do not exist

Government plans, policies and programmes to support industry exist, but are poorly designed or out of date

Government policies, plans and programmes to support industry are comprehensive, up to date and display significant levels of commitment

b. Enabling Environment

Research Question:

Our second research question aims to identify the factors that impact the growth of the

manufacturing sector in Mbarara and recommends a set of actions aimed at removing or mitigating

the effects of these barriers. Hence the framework needs to establish the most important factors

that influence the growth of any economy, and in this case the manufacturing sector specifically.


The framework chosen is the ’12 Pillars of Competitiveness’ as established by the World Economic

Forum (WEF) in their Global Competitiveness Report (GCR) 2009/2010 (WEF 2010). The report

defines competitiveness as “the set of institutions, policies, and factors that determine the level of

productivity of a country” (WEF 2010, p. 4). The level of productivity, in turn, determines the

sustainable level of prosperity that can be earned by an economy. In other words, countries or

regions that can improve the competitiveness of their regional economies are more successful at

producing higher levels of income for their citizens. The productivity level also determines the rates

of return obtained by investments in a given economy. Because the rate of returns are fundamental

drivers of the growth rates of the economy, a more competitive economy is likely to grow faster in

the medium to long term (WEF 2010).

While the framework used by the WEF determines the relative competitiveness of different nations

in the world economy, the ’12 Pillars of Competitiveness’ can also be used as a diagnostic tool to

pinpoint a region’s constraints to economic growth. It is in this manner the framework will be

applied. Table 8 below provides further detail of each of the 12 pillars of competitiveness.

Table 8 - Description of the 12 Pillars of Competitiveness (WEF, 2010)

Pillar Description

1. Institutions This is the legal and administrative framework within which individuals, firms and governments interact to generate income and wealth in the economy. The quality of institutions has a strong impact on growth.

2. Infrastructure Extensive and effective transport, electricity and communications infrastructure is an essential determinant of competitiveness.

3. Macroeconomic Stability

Stability of the macroeconomic environment is a key factor for competitiveness. Although macroeconomic stability alone cannot increase productivity, macroeconomic instability can harm growth.

4. Health and Primary Education

A healthy and literate workforce is essential to increase productivity. A workforce with poor health and education levels cannot perform to its full capacity and this harms the ability of the economy to grow.

5. Higher Education and Training

A highly educated and qualified workforce is important for an economy to move up the value chain beyond basic goods and processes, and adapt quickly to changes in the global economy.

6. Goods Market Efficiency

Goods market efficiency enables an economy to produce the right mix of products and services to meet supply and demand conditions. This depends both on a good business environment, such as low taxes and bureaucracy, and sophisticated consumer demand.

7. Labour Market Efficiency

This refers to the ease with which the labour force can move between firms and industries. Labour market efficiency is important to ensure that the workforce is allocated to their most productive use and have the right incentives to perform well.

8. Financial Market Sophistication

An efficient financial sectors allocates the resources within an economy as well as those coming in from outside to their most efficient uses.

9. Technological Readiness

Quick and ready absorption of both existing and new technologies can help boost an economy’s productivity and promote growth.


Table 8 - Description of the 12 Pillars of Competitiveness (WEF, 2010)

Pillar Description

10. Market Size Large markets are key to promoting productivity as it allows firms to exploit economies of scale. International markets are especially important for low income countries as they can substitute for a small or weak domestic market.

11. Business Sophistication

This refers to the quality of the overall business network in the economy as well as quality of individual firms' operations. It is key to promoting efficiency and thus productivity.

12. Innovation Although improvements in the other eleven pillars will improve productivity, they eventually face diminishing returns. In the long run, innovation in products and processes is the key to growth and maintaining living standards.

It is important to note, however, that while all of these 12 pillars are of importance for every

economy, they are not all equally important in every case. These differences in priority emerge in

large part due to the differential stages of development seen in economies around the world. Table

9 below describes these different stages of development.

Table 9 - Stages of Economic Development (WEF, 2010)

Factor Driven Economies Compete on cost frontier, based on comparative advantage via factor endowments (natural resources and cheap labour) Produces basic goods

Efficiency Driven Economies

Compete based on increasingly efficient production processes Produce goods of increasing quality

Innovation Driven Economies

Compete based on innovative and new products and processes Produce new and unique goods

Since Uganda is classified as a factor-driven economy (WEF 2010), it can be surmised that certain

pillars of competitiveness, or sources of constraints, are of greater priority than others. This

prioritization of the pillars was corroborated by extensive desk research. It was found that in the

Ugandan context institutions, infrastructure, market size, higher education and training, financial

market sophistication, business sophistication and technological readiness generated the greatest

barriers to growth in the manufacturing sector (Ishengoma & Kappel 2008; Obwona 2001; OECD

2008; Rasiah 2009; World Bank 2006).

As a result, the “12 Pillars of Competitiveness” framework was adapted to suit the needs of this

assignment. Figure 8 below indicates the seven pillars considered most influential in affecting the

growth of manufacturing in Mbarara.


Figure 8 - Proposed Framework

Applying the Framework

The research team will be conducting semi-structured interviews with a wide range of

manufacturing firms. A part of each interview will be dedicated to recording each firm’s perspectives

on the effects of each of the seven pillars on their business. The firms will be asked to rate the

impact of each of the seven pillars on a scale of 1-5, with 5 being the most positive. The scale is

described in further detail in the Table 10 below. Based on these responses, an average score will be

established for each pillar. Pillars with low scores will be identified as those requiring interventions.

Table 10 - Explanation For Ratings

Rating Description

1 A major barrier that occasionally disrupts revenue generation

2 A minor barrier that significantly increases cost of business

3 Not a driver of or hindrance to growth

4 Helps the firm successfully compete against existing competitors

5 Firm is a leader in this field compared to existing competitors

0

1

2

3

4

5Institutions

Infrastructure

Higher educationand training

Financial marketsophistication

Technological readiness

Businesssophistication

Market size


6. Methodology

by Yuki Lo

a. Research Questions

Question 1: What manufacturing activities have the most potential to be introduced and/or

scaled up in Mbarara?

Question 2: What kind of enabling factors would help these firms grow?

b. Research Strategy

The research will be divided into three phases, with approximate timeline scheduled as:

Phase 1. Desk Research: to be completed in London by 11th May 2010

Phase 2. In-field Research: to be completed in Uganda by 23rd May 2010

Phase 3. Data Analysis: to be completed by 8th June 2010

The desk research (phase 1) will attempt to establish a series of preliminary hypotheses to address

the two research questions, derived from secondary qualitative and quantitative data from Uganda,

the African continent and other developing countries with comparable characteristics (eg, South East

Asia). The desk research will also help establish the size and composition of the manufacturing

industry in Uganda and identify the type of firms and industries that should be interviewed during

the in-field research. The background information will be used to guide the design of the interviews

and surveys in phase 2.

The desk research will employ both qualitative and quantitative methods outlined in Table 11 below.

Table 11 – Research Methods Employed

Type Primary/Secondary Method Data Source

Quantitative Secondary desk research

Examine available statistics of manufacturers in Uganda

Bureau of Statistics, industry association annual reports, policy documents

Qualitative Secondary desk research

Examine available case studies of manufacturers in Uganda and the East African region

Policy documents, academic studies, industry association annual reports, media articles

Qualitative Secondary desk research

Case study of pro-poor manufacturers in developing countries (eg, Latin America, South East Asia)

Academic studies, policy documents, industry association annual reports

The expected output from this phase is a list of people and organisations to be interviewed in phase

2, as well as a quantitative survey designed to capture the key data points for testing and validating

the hypothesis developed.

The in-field research (phase 2) aims to validate the hypothesis developed in phase 1 through

interviews with representatives who influence policies as well as groups who are impacted by these

policies. The perspectives and insights of local manufacturers are integral to this research and


therefore the team will dedicate more than 50% of its time to meet with employers and employees

of private manufacturing firms.

Based on the research from phase 1, it has been decided that the in-field research must include the

following types of firms:

Small, medium and large enterprises as defined by UBOS (2002). More than 50% of the

interviewed firms with nine employees or less to reflect the typical composition of local

firms.

Formal and informal businesses, as a significant number of firms in Uganda are not

registered with the local authority but nevertheless contribute towards the manufacturing

sector. For the purpose of this research, a formal business is defined as one that is legally

registered and pays tax.

Include at least the following type of industries: furniture making, grain milling, metal works,

beverages (dairy and fruit based) and textile. These industries have been selected as they

are typical of the firms that exist in western Uganda, or have high growth potential.

In addition to manufacturers, the research team will also meet with other groups who help to

influence policy related to the manufacturing sector. Based on desk research, the following groups

have been identified:

1. Government Ministries and Departments. Eg, Ministry of Tourism, Trade and Industry,

National Planning Authority, Uganda Investment Authority, Bank of Uganda, Mbarara

District Local Government.

2. Industry/Trade Associations. Eg, Uganda Manufacturers Association, Uganda Small Scale

Industries Association, Private Sector Foundation Uganda, Uganda Gatsby Trust.

3. Bi/Multilateral Agencies. Eg, World Bank, Department for International Development,

United Nations Industrial Development Organization.

4. Research Institutions. Eg, Centre for Basic Research, Makerere University, Mbarara

University of Science and Technology.

5. Workers’ Unions. Eg, National Organisation of Trade Unions, Uganda Women’s Network.

6. Non-Government Organisations. Eg, Uganda Women’s Network, Action Aid.

7. Financial Institutions. Eg, Stanbic Bank.

8. Media Firms. Eg, The Independent.

The in-field research will employ both qualitative and quantitative methods as outlined in Table 12

below.



Qualitative Primary research Conduct semi-structured interviews with Ugandan organisations

Government Ministries / Regulators, Industry Associations, Multilateral / Bilateral Donor Organisations, Universities / Think-tanks,




Workers’ Union and Local Manufacturers

Quantitative Primary research Complete a standardised survey which captures the size, characteristics and perception of local manufacturing firms (note: survey to be filled in by research team based on interview notes, not interviewees)

Local Manufacturers

During the semi-structured interview, the questions will be tailored to the role and expertise of

individual stakeholders. The proposed questions are listed in Table 13 below.

Table 13 – Proposed Interview Questions

Category Types of information/data to be collected

Ugandan Manufacturing Firms

Qualitative Semi-Structured Interview:

Background of business – products they sell, no. of employees.

How long has the business been in operation. How did they start the business, how did they fund it, how long did it take, how did they find out about the idea? Did they get support from other industry organizations?

Description of manufacturing process, from sourcing raw material to final sale to consumer. Equipment used (technology, safety etc.).

No. of workers, permanent/seasonal positions, how many workers are family members? How did they find those workers? What are the experience/education level of the workers? Average wage?

Suppliers – who do they buy from, how do they transport the goods, do they pay in cash/exchange of goods/on credit? How do they find out about market prices?

Buyers- who do they sell to, how do they transport the goods, do the buyers pay in cash/exchange of goods/on credit? Are they reliable with payments? How do the find out market prices?

Financial services – do they have bank accounts, how do they store their profits, can they borrow from banks/relatives if required?

Technology – what tools do they currently have / would like to have, how do they find out about new technology/processes. Communication devices (phones, computers etc.)

Laws & Regulations – How often do they interact with the local authorities, are they happy with the services they get? Is the tax rate reasonable? How do they form purchasing agreements with suppliers/buyers, is this relational or formal?

Industry organizations – are they part of any associations (formal/informal), how helpful are they? Are they part of a co-op?

Quantitative Survey:

See Appendix A.

Government Ministries and Departments


1. What type of manufacturing firms are most pro-poor? 2. What are the barriers to growth for manufacturing? 3. How can the institution help boost employability of poor workers? What are



Category Types of information/data to be collected some of the issues?

4. What type of policies/investments do they have relevant to the problems described above?

5. Who are they working alongside – ministries, associations, firms etc.?

Industry/Trade Associations


1. What type of firms make up their membership? 2. What type of support/training does the association provide? 3. What problems do these firms face in sustaining or growing their business?

(Physical, financial, labour, technology, regulatory etc.) 4. Who can help address these issues – firms, association, state? 5. How do they help promote knowledge sharing within the industry? 6. How can these firms increase their employment of the poor? What are some of

the issues?

Bi/Multilateral Agencies Qualitative Semi-Structured Interview:

1. What are the barriers to growth for manufacturing? 2. How can the institution help boost employability of poor workers? What are

some of the issues? 3. What type of policies/investments do they have relevant to the problems

described above? 4. Who are they working alongside – ministries, associations, firms etc.?

Research Institutions Qualitative Semi-Structured Interview:

1. What type of firms did their study focus on? 2. Finding from studies, it is valid to extrapolate to firms in Mbarara today? 3. What problems do manufacturing firms face in sustaining or growing their

business? (Physical, financial, labour, technology, regulation etc.) 4. Are these problems specific to SMEs, or to larger firms as well? 5. What policies exist and who can help address these issues?

Workers’ Unions Qualitative Semi-Structured Interview:

1. What type of workers make up their membership? 2. What type of firms are they employed by? 3. What are some of the workers’ greatest concerns, is this related to wage levels,

safety standards, job stability, discrimination, unreasonable working conditions etc.?

4. What can the union do to address workers concerns, are they successful in negotiations?

5. What type of service do they provide to help support the livelihood and employability of workers? Skills/legal/health training, access to healthcare, assistance with job placement?

6. Who do they work with to help address these issues – workers, employers, media, regulators?

Non-Government Organisations


1. What type of individuals do they serve and what type of services do they offer? 2. Who are considered the poor? 3. What are the barriers to accessing employment, especially within the

manufacturing sector? 4. What type of policies and institutions exist to support this group?

Financial Institutions Qualitative Semi-Structured Interview:

1. How large is their total commercial loan portfolio and what proportion of this is to SMEs?

2. What are the procedures and documents required to apply for (a) a



Category Types of information/data to be collected transactional account and (b) a business loan?

3. What types of collaterals are acceptable and what is the ratio between collateral versus loan value?

4. What are some of the risks in lending to manufacturing firms and especially SMEs, what attributes are most important in a loan applicant?

5. Are they aware of any government initiatives to provide cheaper financing to manufacturers or SMEs?

Media Firms Qualitative Semi-Structured Interview:

1. How are the poor represented in the policy making process? 2. Who are the influential advocacy groups for promoting livelihood opportunities

for the poor? 3. Who are the influential advocacy groups for promoting the private sector,

specifically the manufacturing sector? 4. Is media reporting geared more towards the larger enterprises, or is there

greater focus on SMEs to represent the actual makeup of the private sector?

The primary output from this phase is a series of interview notes as well as completed surveys

detailing the attributes and perceptions of policy makers/influencers and local manufacturers. As a

secondary output, the research team must also provide an accurate list of representatives who they

met with for referencing in the final report and for ensuring distribution of the completed report.

The data analysis (phase 3) aims to consolidate and contrast the information and data collected

from the field, and to summarise the findings to address the two research questions.

This will be conducted in four steps:

Firstly, to cross check the notes between team members to ensure accuracy of data

collected.

Secondly, to validate the range of interviewees to ensure that a valid cross-section of

stakeholders have been consulted. Due to scheduling constraints in Uganda, it may

transpire that the team was unable to meet with a significant stakeholder, in which case

efforts should be made to conduct phone interviews from London.

Thirdly, to check that the required information has been collected from the interviewees, in

case of missing data the group should try and contact the organisations via phone or email.

Lastly, to categorise the results, contrast against the preliminary hypothesis and provide

answers to the three research questions.

The expected output from this phase should directly respond to the two research questions:

1. A prioritised list of industries that have the best potential for reducing poverty and

contributing to structural transformation in Mbarara.

2. A prioritised list of recommendations to help grow the scale of employment and productivity

of manufacturers in Mbarara, particularly within the industries identified from question 1.


PART TWO

RECOMMENDATIONS


1. Introduction

With generous assistance from members of the Development Planning Unit and Mbarara University

of Science & Technology, as well as local facilitators and organisers, the research team was able to

fulfil the objectives of this research project.

The aim of the research was to examine the potential for manufacturing to achieve poverty

reduction and structural transformation in Mbarara. Based on desk research conducted in London,

the team identified a number of key actors within Uganda’s manufacturing industry to ensure a

comprehensive view of the sector. The in-field research then took place in both Kampala and

Mbarara, Uganda over a total period of 12 days. Important and relevant information about the local

manufacturing sector was gathered during this period which enabled the team to answer the

research questions and propose appropriate recommendations.

The team engaged with a total of 29 stakeholders, comprising of both manufacturing firms and non-

firm actors. The 16 non-firm actors included Government Ministries and Regulators, Industry

Associations, Multilateral and Bilateral Agencies, Universities and Think-tanks, and Workers’ Unions.

It was crucial to engage with actors in the government and ministries to establish a macro-level

perspective on the manufacturing sector. Conversely, industry associations allowed the team to

better understand the practical concerns of manufacturers in Uganda and more specifically in

Mbarara. Other stakeholders, such as donors, think-tanks and local experts were also critical in

broadening our understanding of the challenges facing the manufacturing sector both domestically

and regionally. Appendix B contains the complete list of interviewed stakeholders.

The 13 manufacturers firms interviewed were chosen to represent a cross-section of the types of

manufacturing industries in the Western Region of Uganda. A profile of the manufacturing firms

interviewed is shown in Figure 9 below.


Figure 9 - Profile of manufacturing firms interviewed

Small Medium Large

54%

31%

15%

Formal Informal

69%

31%

Furniture Milk

Processing

Grain

Processing

Beverages Chemical Textile Metal

31%

15% 15% 15%

8% 8% 8%


2. Research Question 1: Findings and Recommendations

a. Potential Industries

In order to identify those manufacturing industries best suited to the context of Mbarara and with

the greatest potential for sustained growth and competitiveness, the framework identified in Part 1

Section 4 was applied to four activities: textiles, furniture making, metal fabrication and agro-

processing. These four activities were chosen on the basis of the existing activities in the Western

Region of Uganda, as well as the recommendation of several of our interviewees (UBOS, 2006).

Table 14 - 17 below summarises the team’s findings and analysis:

Grade Key:

Poor

Fair

Good

Table 14 – Findings Related to Mbarara’s TEXTILE Industry

Factor Positive Aspects Negative Aspects Grade

Factor Conditions Lack of locally available resources

Cloth and yarn mostly imported from Kenya, Europe and USA at high prices

Labour Conditions Availability of cheap labour

Labour force unskilled in textile activities especially in more sophisticated processes (e.g. weaving)

Lack of formal training for unskilled labour

Market Size High demand in local market for readymade clothes

Textile market hard to break into due to high competition from cheap imports from Kenya, India and China

Related Firms Very small number of existing textile firms in Mbarara

Low-degree of specialization

Government Policy

High-degree of support nationally for textile industry

Central government has initiated a National Textile Policy (2009) with financial commitments of USD 250 million

With the formation of East African common market, textile production in Uganda likely to face further intense competition from Kenya


Table 15 – Findings Related to Mbarara’s FURNITURE MAKING Industry


Factor Conditions Raw material (timber) usually readily available at affordable prices

Raw materials not sourced locally, leading to inconsistent supply and higher cost at certain times of the year

Raw materials often not supplied in usable form (wet timber) leading to high preparation costs


Vocational programs are available

Labour force generally unskilled due to high cost of vocational programs

Market Size Mostly made to order goods resulting in high profit margins

Lack of standardized items reduces factor efficiencies and limits growth potential

High price and low quality compared to other regions in Uganda (such as Kampala) -less suitable for export

Related Firms Large number of existing firms with an established production cluster (Makhan Singh Street)

Existing networks for information and common input sharing

Government

Policy

No existing policies

Furniture making seen as ‘unattractive’ sector by policymakers

Table 16 – Findings Related to Mbarara’s METAL FABRICATION Industry


Factor Conditions Scrap metal easily available

High price of non-scrap metal


Vocational programs exist locally

Labour force unskilled in metal fabrication

Limited uptake of vocational programs due to high cost

Market Size Most products custom-made in small numbers,

Lack of standardized items reduces factor efficiencies


Table 16 – Findings Related to Mbarara’s METAL FABRICATION Industry


resulting in high profit margins

and limits growth potential

High price and low quality compared to other regions in Uganda (such as Kampala) – less suitable for export

Related Firms Existing small cluster of firms

Existing networks for information and common input sharing

Cluster ranges over a small portion of value chain, limited benefits from clustering

Government

Policy

No existing policies

Metal fabrication seen as ‘unattractive’ by policy makers

Table 17 – Findings Related to Mbarara’s AGRO-PROCESSING Industry


Factor Conditions Cheap and plentiful raw material

Fertile land

Many varieties of crops grown, though most in very small quantities

Currently, crop production dominated by matooke

Labour Conditions Availability of cheap labour force

Labour force well experienced in handling raw agricultural produce

Limited experience in processing. Most agro-products exported raw

Market Size Region is already large exporter of raw agro-products

Low competition from regional competitors

Related Firms Large number of existing agro-processing firms

Many upstream and downstream firms with experience in handling agro-products (esp. distribution)

Currently, agro-processing firms dispersed over wide region

Government Policymakers have begun to view agro-processing


Table 17 – Findings Related to Mbarara’s AGRO-PROCESSING Industry


Policy industry as Uganda’s best prospect

Strategic planning documents such as the NDP and NIP have identified agro-processing as a sector of focus for investment

Table 18 below contrasts the research findings across the four industries.

Table 18 –Comparison of Four Potential Manufacturing Activities

Factor Textiles Furniture Metal Fabrication Agro-Processing

Factor Conditions

Labour Conditions

Market Conditions

Related Firms

Government Policy

Based on the analysis above, it is clear that agro-processing stands out as the manufacturing activity

with the greatest degree of comparative and competitive advantage in Mbarara. The textiles

industry suffers greatly from poor factor and labour conditions. The furniture making and metal

fabricating industries face almost identical problems. Most significantly, market conditions and

government support are quite poor. On the other hand, agro-processing experiences strong

government support as well as good factor and market conditions. The research team therefore

concludes that agro-processing is the manufacturing activity with the greatest potential for long-

term growth, competitiveness and thus poverty reduction in the Mbarara regions.

Agro-processing also has significant potential to promote structural transformation. The industry has

strong backward links to the agricultural sector. It has the capacity to increase productivity in the

agricultural sector in three ways. Firstly, an increased demand for agricultural products from the

agro-processing industry should raise prices for those products as well as incentivize farmers to

improve production methods and the quality of inputs. Secondly, many of the by-products from

agro-processing can be used as inputs for agriculture, such as compost or animal feed from waste

organic matter. Thirdly, by increasing employment opportunities, the industry can attract labour


from the agricultural sector, thus increasing the productivity of those that remain in that sector. The

agro-processing industry can also provide an impetus for the growth of the manufacturing sector

itself. As the agro-processing industry grows, the demand for manufactured goods such as

machinery or packaging material will increase. Finally, an expanding agro-processing industry can

also promote the growth of the services sector, by increasing the demand for accounting, marketing,

and logistics, etc. Figure 10 below illustrates the ways in which a growing agro-processing industry

can promote structural transformation.

Figure 10 - Linkages Between Agro-Processing and Other Sectors

b. Agro-Processing: Specific Opportunities

In the previous analysis, agro-processing was identified as being the most promising manufacturing

industry in Mbarara. To make the research recommendations and findings more specific, activities

under the broad umbrella of agro-processing were identified which could provide the highest degree

of growth and income. Four potential industries were examined more closely: matooke, grain milling,

dairy processing and fruit processing.

Matooke

Matooke accounts for the largest share of agricultural production in the region surrounding Mbarara,

both in terms of land under cultivation and total production. This would seem to indicate that

matooke processing would be the best industry to focus on. Indeed there are several government

initiatives, most notably the Presidential Initiative on Banana Industrial Development (PIBID), aimed

at finding new and innovative forms of processing matooke into consumer products. The current

research, however, would indicate that matooke processing may not be the best industry to focus on

for two specific reasons. Firstly, the consumer demand for matooke is concentrated in the local area,

and does not extend far into the regional East African market or the international market. This in

itself limits the long term potential for matooke processing. Secondly, within the regional market,

the easily available, fresh matooke limits the demand for processed matooke. Certainly, if the PIBID

program results in the identification of novel uses for matooke, such as cloth fibre or paper, it is

possible that matooke processing can become a major industry. However, such products are not

Agricultural Sector

Service Sector

Increase Demand Increase Demand

Increase Agricultural Yield

Agro Processing


close to commercialization. Therefore, while research into developing new matooke products is a

useful long-term strategy, it appears the scope for matooke processing in the short-term is quite

limited.

Grain milling

Grain milling is one of the main agro-processing industries in the Mbarara region. However once

again we feel that the long run potential for grain-milling to expand is limited. Firstly, grain milling is

a fairly low value-add activity, which implies a relatively slow growth in wages for employees unless

productivity increases very rapidly. However, quick and significant increases in productivity imply a

more capital intensive form of grain milling which is unlikely to significantly increase employment

levels. Secondly, grain milling does not experience any specific advantages in the Mbarara region –

there is significant competition from surrounding regions and countries.

Dairy processing

The region surrounding Mbarara produces a large quantity of milk 36% of the total production in

Uganda (DDA 2008). This milk is also considered to be of high quality compared to other regions in

the country (ibid). The dairy processing industry in Mbarara is quite active with two medium-large

scale firms. Significantly, both of these firms have developed export markets, regionally and

internationally, for processed milk and cheese. The confluence of these factors suggests that dairy

processing can become one of the most prominent industrial activities in Mbarara.

Fruit Processing

The region around Mbarara produces a large variety of tropical fruit - mainly passion fruit, pineapple,

avocado and mango. These fruit are of high value in their processed forms. Although fruit juice

production is already an established manufacturing activity in Mbarara, other forms of fruit

processing such as canning are rare. Large markets exist internationally for processed products

manufactured from these fruits. Indeed, despite the small size of the industry at present, exports of

processed fruit from Uganda are growing at a rapid pace of approximately 6.3% per year (Agona et al

2002). One major constraint for the industry is the limited amount of crop land devoted to these

relatively high value fruits. The fruit processing industry shows great potential but its success

depends on significantly increasing the amount of fruit grown in the surrounding region.

On the basis of this analysis, this report concludes that the dairy and fruit processing industries

exhibit the greatest potential for expanding the manufacturing sector in Mbarara.

Table 19 lists some of the products that may potentially be processed by these two industries in the

short, medium and long terms. Their classification is based on the relative levels of technology

required for each product, given that the more technologically demanding products will take longer

to start production.


Table 19 - Current and Potential Products for Fruit and Dairy Processing in Mbarara

Short Term (1– 5 yrs)

Medium Term (5 – 10 yrs)

Long Term (10 – 15 yrs)

Fruit Juice/Wine Dried Chips

Jam/Marmalade/Chutney Frozen Canned

Beauty Products (eg, soap, cream, face mask)

Dairy Pasteurized Milk Yogurt Cheese Butter

Milk Powder Condensed Milk

Ice Cream Beauty Products (eg, soap, cream, face mask)


3. Research Question 2: Findings and Recommendations

a. Findings Across All Manufacturers

As outlined in Part 1 of this report, a modified version of the World Economic Forum’s Global Competitiveness Index has been used to assess the importance of the seven enabling factors relative to each other. Based on the findings from the 13 manufacturing firms that were interviewed, the aggregate scores for each factor are displayed in Figure 11 below.

Figure 11 – Average Score for the Seven Enabling Factors

When interpreting the results, it is important to note that the scores assigned are based on the perception of the firm representatives interviewed, and it is not based on the value judgement of the research team members.

The positive and negative findings related to each of the seven factors have been summarised in Table 20 – 26 below, in decreasing order of importance.

Table 20 – Key Findings Related to Financial Market Sophistication

Positive Aspects Negative Aspects

– A domestic and regional electronic payment system is available.

– Formal financing (saving accounts and loans) is accessible by all businesses interviewed.

– Microfinance institutions were also noted as being available, although all firms interviewed preferred formal financing due to a lower interest rate.

– Subsidised loans offered by the UNDP and East African Development Bank were used by

– Informal firms do not have access to business loans, instead the owner has to take up a personal loan.

– Large spread between official interest rate (issued by the BOU) of 8.45% and bank lending rate of 20% - 32% according to firms interviewed.

– Loan repayment schedules are too short-term, first payment can be expected one month after loan disbursement which does not reflect the investment horizon of

0

1

2

3

4

5

2. Institutions

3. Infrastructure

5. Higher educationand training

1. Financial marketsophistication

7. Technological readiness

6. Businesssophistication

4. Market size



at least two firm interviewed. manufacturers (especially in factory expansion and equipment purchase).

Table 21 – Key Findings Related to Institutions


– 9 out of 13 firms are formally registered and pay tax.

– The tax rate was noted as being ‘negotiable’ between the firm and the tax collection officer.

– The creation of the UBOS was noted by all of the medium to large enterprises as being a positive step in strengthening the Ugandan manufacturing industry.

– Many industry associations are available for manufacturers, with the UMA and PSFU being the most influential lobbyists, and USSIA and Uganda Gatsby Trust providing many forms of training for its members.

– The UIA has recently established a new desk to focus on channelling investments to SMEs in Uganda, they are also funding the establishment of 22 industrial parks.

– The UMA assists members with import procedures and obtaining exemptions from import tax.

– Tax calculation has been noted by all small to medium firms as being inconsistent and based on crude estimates, this may be related to the lack of formal book-keeping (only 2 out of 11 SMEs mentioned that they use an external accountant).

– The development of quality standards and more stringent enforcement was noted by 4 out of 6 medium to large firms as being crucial to growth as they currently have to compete with many products of inferior quality.

– While industry associations are available, membership fee creates a barrier for smaller firms to join.

– Workers’ unions were available for all manufacturing industries interviewed, however only 1 out of 13 firms had formed a workers’ union.

Table 22 – Key Findings Related to Infrastructure


– Electricity was available to all firms interviewed, although 2 out of 13 firms did not require electricity in their production process.

– 8 out of 13 firms interviewed used transport service providers to receive supplies and deliver goods. The other 5 firms had their own vehicles.

– A domestic and regional ‘courier’ service was provided through the bus network, where goods can be dropped off in Mbarara and picked up in Kampala, or even certain cities in Kenya (and vice-versa). Boda-bodas filled the gap by couriering goods from factory door to bus depot.

– For firms that required water in their production, quality and quantity was not cited as an issue.

– While electricity was available, blackouts were cited as a problem by 7 out of 11 firms who required electricity in their production.

– Inconsistent voltages was also noted as a problem by 3 out of 11 firms, notably the larger operators with more sophisticated machineries.

– Backup generators were used by 4 out of 11 firms requiring electricity, this is significantly more expensive than on-grid electricity as generators can cost upwards of UGX 3 million and run on diesel which is a pricey input.

– The quality of the road network was noted by all firms as needing improvement, with some roads inaccessible during the rainy season. This directly reduced revenue generation for 3 out of 13 firms.


Table 23– Key Findings Related to Market Size


– The Mbarara market is considered one of the larger districts, many customers come to purchase from neighbouring Bushenyi and Isingiro.

– The milk and soft drink manufacturers also serve other Uganda districts and the two dairy firms also export to regional markets.

– The furniture, metal, textile, wine making and grain milling firms catered mostly to the local Mbarara market.

Table 24– Key Findings Related to Higher Education and Training


– 69% of the firm owners have formal tertiary or vocational training, although not all related to the nature of their business.

– All of the firms interviewed offered on-the-job training to unskilled workers, with larger enterprises offering more formal certification.

– A large number of university graduates are available in Mbarara, especially as a result of a local programme to integrate work experience into the curriculum.

– The majority of the workers in the firms interviewed were recent school leavers with no prior experience or vocational training.

– Where more experienced staff were required, they were often recruited from more distant locations (eg, Kampala, Jinja). These workers can often demand a premium to compensate for the cost of relocation.

– The lack of vocationally trained workers were cited as a problem by 4 out of 6 medium to large scaled firms .

Table 25 – Key Findings Related to Business Sophistication


– 62% of interviewed firms have dedicated suppliers and 38% are able to buy on credit.

– Business support services such as lawyers, accountants, transport services, printers are also available in Mbarara.

– For metal fabricators and furniture makers, a significant cluster has developed in Makhan Singh Street in downtown Mbarara, many customers from local and neighbouring districts purchase direct from these factories.

– The UIA, USSIA and Uganda Gatsby Trust have been offering a number of training sessions focusing on enhancing the managerial skill of manufacturers.

– The number of businesses in the Mbarara industrial area has been growing, with the presence of Century Bottling Company Ltd, MTN and Gatsby Business Park. A number of schools, accommodation and eateries have also sprung up in the area in the past few years in response to increasing number of workers in these areas.

– With the exception of agro-processors and furniture makers, all other manufacturing firms had to purchase supplies such as chemical, yarn and containers from either Kampala and Kenya which adds to the cost of production.

– Large firms have to obtain their inputs from multiple sources as no single supplier had enough scale to fulfil their orders, adding to the complexity of managing the supply chain (although it helps to diversify risk).

– 10 out of 13 firms do not have forward purchasing agreements with their suppliers and buy on an ad-hoc basis.


Table 26– Key Findings Related to Technological Readiness


– All manufacturers interviewed said that they can access information on new machineries through their suppliers, the internet or through industry magazines.

– All manufacturers interviewed could name a number of machines that they would ‘upgrade’ to if they had sufficient funds.

– A local cluster of metal fabricators are available to fabricate and mend simple machines.

– The Uganda Gatsby Trust and UNIDO provides highly specialised training on production methods.

– The Uganda Gatsby Trust and UMA also host a series of trade fairs to promote knowledge exchange between members. The Uganda Gatsby Trust also organises overseas study trips, although the cost is bourne by members which acts as s barrier to SMEs.

– Almost all machineries are purchased from either Kampala or Kenya and are not produced locally.

– 7 out of 13 firms have used foreign experts to provide technical training, some hired from Kenya and others provided from OECD countries through development agencies.

– For more sophisticated machines, servicing had to be done through technicians from Kampala and Kenya.

– Importing technology from beyond the neighbouring countries is not accessible to small to medium firms.

The results of the analysis performed mostly confirm the findings of the National Development Plan

(Government of Uganda 2010) but are markedly different from the results of the Global

Competitiveness Report (WEF 2009). The top three enabling factors cited by the respective

publications are listed in Table 27 below.

Table 27- A Comparison of Research Findings

This report National Development Plan Global Competitive Report

Top Enabling Factors for the Mbarara Manufacturing Sector

1. Financial market sophistication

2. Institutions 3. Infrastructure

Constraints to the Manufacturing Sector

1. Infrastructure 2. Institutions 3. Financial market

sophistication

Global Competitiveness Indicators (with lowest score)

1. Infrastructure 2. Technological readiness 3. Higher education and

training

Source: Government of Uganda 2010, WEF 2009

While the comparison in Table 27 points to some discrepancy between the findings of this report

versus other published reports, this may be attributed to two primary reasons. Firstly, this report

focuses specifically on the manufacturing in Mbarara, whereas the NDP focuses on manufacturing in

Uganda. The conditions in Mbarara may be very different to general conditions in Uganda hence

resulting in contrasting rankings. Secondly, the GCR focuses on the entire private sector in Uganda

including the agricultural and services sector which may face significantly different challenges to the

manufacturing sector. Furthermore, the GCR aims to compare Uganda against 132 other countries

rather than identifying the barriers to sectoral growth. This difference in objective may affect the

way the ratings are assigned. Therefore, while the findings of this exercise does not concur exactly


with the NDP or the GCR, this can be attributed to the different scope and objectives of the

respective reports.

b. Findings Specific To Fruit and Dairy Processors

As an outcome of research question 1, fruit and dairy processing were identified as having high

potential for growth. Therefore the findings from the four fruit and dairy processors interviewed will

be further explored in this section. Among these firms, the average score for the seven enabling

factors are shown in Figure 12 below.

Figure 12 – Average Score for the Seven Enabling Factors

The positive and negative findings related to the four most important factors have been summarised in Table 28 – 31 below, in decreasing order of importance.

Table 28 – Key Findings Related to Market Size


– All of the four fruit and dairy manufacturers interviewed sold all over Uganda and not only in the Mbarara district.

– All manufacturers interviewed cited the lack of demand in Uganda as a key barrier to growth. They noted that the local consumers preferred unprocessed produce which was cheaper.

– In addition to pricing, they also noted that fruit juice, butter, cheese and yogurt can be easily made at home which reduced the demand to buy from the stores.

0

1

2

3

4

5

2. Institutions

3. Infrastructure

5. Higher educationand training

4. Financial marketsophistication

7. Technological readiness

6. Businesssophistication

1. Market size


Table 29 – Key Findings Related to Institutions


– 2 out of 4 manufacturers interviewed have received UNBS accreditation on at least one of their products.

– 3 out of 4 firms noted the large number of informal sub-standing providers as a major barrier to growth, firstly because they exert competitive pressure but also because inferior produce can cause reputational damage to the industry (eg, recent case of illegal alcoholic beverages causing blindness).

– The need for more sophistication standards and marketing of these standards is necessary for growing the export market.

Table 30 – Key Findings Related to Infrastructure


– All four manufacturers had access to electricity, roads and water.

– The unpredictability of power outages disrupts the production line, resulting in idle labour and in some cases spoilt produce due to the perishable nature of milk and fresh fruits.

– During the rainy season, road closures can result in unexpectedly long journeys affecting the quality of the final goods as they are delivered to consumers.

Table 31 – Key Findings Related to Financial Market Sophistication


– 3 out of 4 manufacturers had access to company accounts and commercial loans.

– Similar to the challenges experienced by all manufacturers, fruit and dairy processors faced high interest rates and short repayment terms.

c. Recommendations

For Manufacturing in Mbarara

Based on the findings from the previous section, the research team has identified a series of action

that could be taken to enhance the manufacturing sector in Mbarara. While there are many

strategies that can be implemented on a regional, national and district level, the following section

focuses only on the three most feasible and crucial recommendations. A more exhaustive list of

recommendations can be found in Appendix C of this report.

1. Redesign Financial Products Specific to Manufacturers

Stakeholders: Financial Institutions (Commercial and Microfinance), Uganda Development

Bank, East Africa Development Bank, BOU, UMA

Timeframe: Short 1 – 5 years


Reducing the cost and risk of financing is fundamental to the fostering of innovative

enterprises and the scaling up of existing manufacturers. Currently, the interest rate cost is

too high (in the range of 20 – 32%) and the repayment terms are too short, meaning that

many manufacturers are unable to invest in the capital goods that can help increase the

productivity and growth of their business.

This report recommends that:

a. The Uganda Development Bank establish an advisory desk to help manufacturers,

especially SMEs, determine the most suitable types of financial product (including

eligibility for subsidised loans) for their commercial needs.

b. The BOU to increase funding to the Uganda Development Bank and East Africa

Development Bank for the specific purpose of lending to manufacturers with

subsidised interest rate and more importantly, longer term repayment schedules.

UMA can assist in assessing the manufacturer to ensure eligibility, a function that is

already available.

c. The BOU to investigate into the market for, and if suitable, promote the

commercialisation of alternative loan products such as hire purchase, leasing and

factoring. These would increase the flexibility for manufacturers to finance capital

investments such as factory expansions and machinery purchases.

2. Improve Product Standards

Stakeholders: UNBS

Timeframe: Short and Medium 1 – 10 years

The development, enforcement and promotion of standards will be integral to strengthening

the capabilities of domestic producers while also stimulating consumer demand. This would

help local manufacturers compete against imports and to export to regional markets.


a. UNBS be strengthened in staffing and funding to provide greater support to

manufacturers to help them obtain the required quality accreditation.

b. Random sampling should be conducted more frequently by the UNBS to prevent

informal sub-standard manufactured goods to hamper consumer confidence. Once

discovered, the authorities need to be more responsive in investigating factories

that do not meet product health and safety standards.

c. Consumer campaigning should be scaled up to overcome the current perception

that Ugandan products are inferior to imported goods.

3. Increase the Number of Vocational Training Courses and Applied Research

Stakeholders: Public and Private Education Providers, Ministry of Education and Sports


To boost the employability and productivity of the current workforce, a greater number of

vocational training courses is required to supply more suitably skilled labour. In turn, this


would help reduce the cost of recruitment for manufacturers and help them respond more

quickly to growing demands without the current lag of having to train or re-train their

workers. Furthermore, university research should have a closer linkage with local

manufacturers in order to help improve the productivity of the sector, especially through the

introduction of new production processes or technologies.


a. Secondary and tertiary school curriculums should be reviewed to promote the

merits of vocational training. At the moment vocational courses are often seen as a

‘second best’ option behind university education.

b. Vocational schools should be established with closer ties to local employers who can

supplement classroom teachings with on-the-job training to improve the

employability and reputation of vocational school graduates.

c. The Ministry of Education and Sports should investigate the possibility of offering

formal certification to workers who have been trained on-the-job and have passed a

standardised test specific to their trade. Formal recognition of their skills would

boost the employability of these workers leading to higher wages.

For Dairy and Fruit Processors in Mbarara

In addition to recommendations for the manufacturing sector as a whole, the research team has also

identified a series of actions specific to dairy and fruit processors in Mbarara. The four most feasible

and crucial recommendations have been identified below

1. Diversify Crops

Stakeholders: Mbarara District Local Government, Ministry of Agriculture, Animal Industry

and Fisheries


In order to establish a viable fruit processing industry, the first step is to increase the variety

and quantity of suitable fruits that can be sourced locally.


a. The Ministry of Agriculture, Animal Industry and Fisheries help fund the research

into and purchase of new seeds suitable for fruit plantation in Mbarara.

b. Mbarara District Local Government be involved in promoting the adaption of new

crops, working in conjunction with the Ministry of Agriculture, Animal Industry and

Fisheries.

c. A local farmers group be established (perhaps with the assistance of an NGO or the

Mbarara District Local Government), which will be responsible for organising

training sessions and for promoting knowledge exchange. The objective of the

training is to help farmers maximise yield and improve the quality of their produce in

order to meet the specification of the local processing industry.


2. Introduce More Advanced Processes and Technology

Stakeholders: Mbarara District Local Government, UNIDO, Industry Board (see next

recommendation)


Although many fruit and dairy processors already exist, the majority of producers in Mbarara

are SMEs with very little access to technology. Hence an integral part of the growth strategy

is to increase the productivity of these firms and to improve the quality of their products.


a. UNIDO provide industry specific training on processing methods and technologies

that are available.

b. The Mbarara District Local Government, in conjunction with UNIDO or the Uganda

Gatsby Trust, organise domestic factory visits and overseas study trips to help local

manufacturers exchange and absorb new production methods.

3. Establish an Industry Board

Stakeholders: MTTI, Uganda Export Promotion Board


The consumer demand for processed fruits and dairy goods within the Mbarara region and

within Uganda is quite low. The establishment of specific industry boards could help

cultivate a domestic and eventually, regional market to help support the growth of

manufacturers in these industries.


a. An industry board be setup with the specific mandates of (i) increasing the size of

the domestic market for processed fruits and dairy goods through marketing

campaigns, (ii) coordinating with the Export Promotion Board to increase sales of

processed fruits and dairy goods to regional markets, (iii) overseeing sales and

production volume and providing advise to manufacturers and agricultural suppliers

on market access, supply chain management etc. (iv) over the long term, the

industry board is expected to become the industry expert on production methods

replacing the role of foreign assistance (eg, from UNIDO). The industry board can be

managed through the MTTI.

4. Limitations and Further Research

While the research team has taken great care to ensure the reliability and representativeness of the

above findings, there were several limitations of this research. These are highlighted below:

Due to scheduling difficulties, the team was unable to meet with representatives from the

Ugandan media firms, financial institutions and the women’s NGO

The number and types of manufacturing firms interviewed need to be expanded to include

more types of industries and a greater number of firms within these industries


More time should have been spent with each firm to speak to more than one representative

in order to validate information given (especially revenue and wage figures)

Official figures are sometimes contradictory, more time is needed to reconcile the

differences. For example, the GDP contribution of the manufacturing sector can be a highly

inconsistent figure as highlighted in Table 32 below.

Table 32 – Ugandan Manufacturing Sector Contribution to GDP

Source % of GDP (2007)

World Bank 7.27%

UBOS 7.73%

UNCTAD 9.00%

Sources: UBOS 2009, World Bank 2010, UNCTAD 2008

Better insight into the policy making process would help us identify and focus on more

influential industry associations/lobbyists

Furthermore, in order to solidify the findings and recommendations of this report, it is

recommended that further research be taken to interview additional groups of stakeholders who

may also be relevant to the growth of the manufacturing sector. Some recommended research are:

Investigate into the upstream suppliers and downstream retailers to understand constraints

and opportunities for manufacturers

Host group discussions with representatives from different stakeholder groups in order to

realise distinct links or conflicts between groups

Conduct similar data collection from a different area of Uganda as a comparison to

determine if findings from Mbarara can be applied to other districts or on a national level

5. Conclusion

Although the team has acknowledged various limitations to the research conducted, the analysis and

examination of the manufacturing sector in Mbarara, Uganda has led to a more profound

understanding of the sector and its linkages to poverty reduction and structural transformation.

Towards this end, the in-field research in both Kampala and Mbarara has been invaluable. Even

within the relatively short timeframe, the cross-section of stakeholders that the team was able to

interview provided a clearer context within which to frame the research findings.

Agro-processing, and more specifically dairy and fruit processing, have been identified as the

manufacturing industries with the highest potential for employment generation and income growth.

Furthermore, improvements in financial services, public and industry institutions, the electricity and

road network have been recognised as factors that are most influential to the growth of the

manufacturing sector in Mbarara.


As the first report on manufacturing in Mbarara for our sponsor, it is our sincere hope that the

findings presented serve as a strong foundation to guide further research, policies and programme

funding decisions.


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Appendices

a. Appendix A: Quantitative Questionnaire

Questionnaire for Manufacturers Date & Time: Name of Firm:

Interviewers: Firm Representative:

Representative Title:

Firm Phone No.:

1. Types of product produced:

2. Years /months in operation: 3. No. of workers:

4. Revenue estimate:

Currency used UGX / USD

Annual / Monthly / Weekly

2010

2009

5. Minimum and average work experience of workers (in yrs):

6. Minimum and average wage of workers: UGX / USD weekly / monthly / yearly

7. Previous job of workers:

8. Technology, tools available or planned:

9. Perceived barriers to growth (rated 1-5):

i. Physical Infrastructure - Electricity, Water etc.:

5 4 3 2 1

ii. Physical Infrastructure – Transport:

5 4 3 2 1

iii. Access to Financial Services – Loans, Accounts, Payment Systems Etc.:

5 4 3 2 1

iv. Labour – quality and quantity:

5 4 3 2 1

v. Technology and Innovation:

5 4 3 2 1

vi. Law and Regulations:

5 4 3 2 1

vii. Supplier / Buyer Relationship:

5 4 3 2 1

10. Other Services: what type and how much do they spend on ‘other services’ to support their business?

Development Planning Unit

UCL University College London


b. Appendix B : Full List of Interviewees

Non-Manufacturers Interviewed

Date Organisation Representative

13 May 2010 World Bank – Mr Kasper Dalsten (Special Assistant to the Country Manager, Partnerships & Aid Effectiveness)

– Mr Martin Onyach-Olaa (Urban Specialist)

13 May 2010 Centre for Basic Research – Dr Peter Atekyereza (Head of Department, Sociology, Makerere University and Centre for Basic Research)

– Ms Rosetti Nabbumba (Ministry of Finance) – Simon Rutabajuuka (Director, Centre for Basic

Research)

13 May 2010 Department for International Development

– Ms Kate Wedgwood (Deputy Head Programmes) – Ms Jo Bosworth (Social Development Advisor)

13 May 2010 National Organisation of Trade Unions

– Mr Peter Christopher Werikhe (Secretary General) – Mr Yazid Baligasima (Programme Assistant)

13 May 2010 Ministry of Tourism, Trade and Industry

– Eng. Samuel Ssenkungu (Commissioner, Industry and Technology)

13 May 2010 United Nations Industrial Development Organization

– Mr Kyoratungye Karemente (Consultant Director) – Mr. Bruno Otto-Tokwiny

14 May 2010 National Planning Authority

– Dr Abel Rwendeire (Deputy Chair)

14 May 2010 Uganda Manufacturers Association

– Mr Andrew Luzze Kaggwa (Policy Officer)

14 May 2010 Uganda Small Scale Industries Association

– Mr James Kawooya (Programme Manager)

14 May 2010 Private Sector Foundation Uganda

– Mr Gideon Badagawa (Executive Director) – Mr Joseph Mawejje (Policy Analyst – Trade)

14 May 2010 Uganda Investment Authority

– Mr Tom Buringuriza (Deputy Executive Director)

15 May 2010 Bank of Uganda – Prof. Emmanuel Tumusiime Mutebile (Governor and Chairman)

– Mr Hassan Nyangabyaki

17 May 2010 Mbarara University of Science and Technology

– Mr Bernard Kakuhikire (Head of Department, Faculty of Development Studies)

18 May 2010 Uganda Gatsby Trust – Eunice Wekesa (Chairwoman, Mbarara Branch)

19 May 2010 Mbarara University of Science and Technology

– Mr Charles Tushabomwe-Kazooba (Lecturer, Faculty of Development Studies)

19 May 2010 Mbarara District Local Government

– Mr Gregory Tweheyo (Statistician)

Manufacturers Interviewed

Date Company Name Industry Representative Interviewed

18 May 2010 La Vie (U) Ltd Chemical Joseph Tugume (Director)

18 May 2010 Paramount Dairies Milk Processing George Kiberu (Manager of Production)


Date Company Name Industry Representative Interviewed

18 May 2010 Wes Knit Textile Eunice Wekesa (Director)

19 May 2010 Brown Furniture Showroom

Furniture Eric Bugume (Owner)

19 May 2010 Ahimbisibwe Truth Honest Furniture Workshop

Furniture Monica Kiiza (Owner)

19 May 2010 Hope Furniture Furniture Dennis Lule (Owner)

19 May 2010 Kambad Metal Works Metal Ainebyoona Ronald (Worker)

20 May 2010 Super Quality Millers Grain Processing Kisaame William (Production Manager)

20 May 2010 Bekiza's Workshop Furniture Tukamuhabwa Rashid (Chief Employee)

20 May 2010 Mariaba Country Wine Food

Beverages Rosemarie Bangirana (Owner)

20 May 2010 GBK Milk Processing Godwin Tumwebaze (Director of Production)

20 May 2010 Numa Feeds Grain Processing Robert Matsiko (Managing Director)

21 May 2010 Century Bottling Company Ltd

Beverages Ibrahim Kakaire (Quality Assurance Coordinator) Kiberu Sarah Kizza (Sales Analyst)


c. Appendix C : Full List of Recommendations

1. Financial market sophistication

Recommended Next Steps Priority Timeline Stakeholders

Speed up integration of the EAC capital market, so that investors and borrowers can lend/borrow beyond borders

Low Long BOU, EAC

2. Institutions


Develop a more frequent dialogue between the many industry associations (UMA, USSIA, Uganda Gatsby Trust etc.) and policy-makers to share best practices

Medium Short UMA, USSIA, Uganda Gatsby Trust, MTTI, UIA

Focus foreign assistance to the sector on providing skills transfer rather than monetary funding. Encourage more programmes like the UNIDO Master Craftsman Programme

Medium Short UNIDO, UNDP, WB

Form a more active dialogue with SMEs during the policy making process, strengthen supporting institutions such as the USSIA

Medium Short MTTI, NDP, USSIA

3. Infrastructure


Improve monitoring of electricity supply and demand and to predict outages so that manufacturers can ‘plan around’ outages and lower cost of idle labour and spoilage

High Short UMA, USSIA, Uganda Gatsby Trust, MTTI, UIA

Make road network information available via phone or SMS so that firms can better mitigate against risk

High Short UNIDO, UNDP, WB

Promote industry specific industrial parks (eg, only for fruit or dairy processing) to encourage clustering and focus on providing electricity, water and transport services to this group

Medium Medium UIA, Ugandan Gatsby Trust

4. Market Size


Give preference to local manufacturers in government procurement contracts, aim to have a certain % of goods purchased from local suppliers

High Short Mbarara District Local Government, Local Manufacturers


5. Higher education and training


Increase the number of apprenticeship opportunities offered through secondary schools and tertiary institutions

Medium Short Public and Private Education Providers, Local Manufacturers

6. Business sophistication


Establish a business-to-business database for sharing sales and production data, to be managed through industry board

Medium Short Industry Board (see report Part 2 Section C)

7. Technological Readiness


Leverage the metal fabrication and mechanical clusters in Mbarara to focus on machine repairs and refurbishment, offer subsidised training to promote a supporting industry

Medium Short Private metal fabricator or mechanical firm, UNIDO

Collate a regional business directory for technology/machinery suppliers and form an advisory service through the UMA

Low Medium UMA

manufacturing in mbarara uganda

Documents

mr kyoratungye

mr gregory

mr charles

mr yazid baligasima

ms rosetti

mr tom buringuriza

ms kate wedgwood

dr peter atekyereza