…A conversation with the stakeholders in the Ugandan cotton-textile industry
It was an exciting moment when I embarked on a field trip to Uganda to examine on-the-ground, some of their trade intervention policies.
As a development enthusiast with an interest in Globalisation, Trade and Industry, I focused my attention on analyzing theoretically before the trip, Uganda’s wonderful “Buy Uganda Build Uganda” (BUBU) trade intervention Policy. The reason was to identify factors that needed to be dealt with for the policy to successfully achieve its developmental aim. To the Ugandan Government, being acclaimed as one of the Sub-Saharan African countries to have reduced its income poverty drastically wasn’t enough. Rather, reducing it to 5% and achieving middle-income status by the year 2040, with trade as the strategic tool, became the national objective, hence the BUBU Policy.
SUMMARY OF DESKTOP FINDINGS
BUBU is a trade intervention policy that gained Ugandan cabinet approval in 2014 with the main mission of encouraging the domestic consumption of locally produced goods and services by individuals and businesses. Its developmental aims are to increase industrialization, attaining a middle-income status, reducing poverty and unemployment by the year 2040.
My research focused on BUBU’s local Content requirement (LCR) of 30% on some selected products and services and how that could be sustainably implemented and enforced for it to achieve its developmental aims. Three major factors were identified as key, as briefly described below:
Sustainable resource endowment was the first factor because, without the continuous availability of locally produced raw materials, investors will struggle to meet the LCR. The second factor was the Industrial capacity.
This is because running a factory competitively and cost-efficiently requires not just sustainable resource endowment but consistent supply and access to cheap capital, well-trained labour, utilities, etc. Finally, BUBU as a protectionist policy means that the existence of any trade agreement that makes its implementation a breach, hence eliciting retaliation from export partners, was the next key factor to consider.
THE REALISATION ON THE GROUND
When I visited Uganda for the fieldwork with my colleagues, we met and had discussions with Cotton Farmers cooperatives, textile manufacturers, regulatory bodies, by-product manufacturers, etc. They brought out some key issues which were happening on the ground that my theoretical findings couldn’t capture, hence making this field trip extreme important and valuable to me as an advocate of smallholder farmers.
Sustainable resource endowment
It was interesting that both the Cotton Development Organisation (CDO) and the farming cooperatives we interacted with all confirmed how resource sustainability was key. The first factor they raised as affecting the sustainable supply of cotton was crop competition.
|
|
This was explained by the CDO and the cooperatives as, farmers’ continuous switch from cultivating one crop to the other, with the next season’s producer price being the deciding factor. The growers’ cooperative society alluded to this practice and highlighted that the cost of production was high and due to the government liberalization of the economy, they receive no incentives to subsidise their production cost. Secondly, the loans they resort to, to support production comes at an exorbitant interest rate. So, there is a need for them to cultivate crops that offer them more revenue, each season, hence the crop competition. The Cooperative Society executives agreed to this practice and highlighted that, aside from liberalisation giving farmers the right to cultivate the crop of their choice, the farmers also have families to feed hence the Government do not have the moral right to force them to produce a crop which earns them nothing substantial. This is concern was of key importance to me because, most times advocates of industrialisation forgets that until the farmer’s livelihood is sustainable, the supply to the factory is highly threatened. Any attempt to sideline smallholder farmers in this case, to venture into commercial farming to secure supply directly impoverish these farmers.
The second concern the growers’ society raised was the continuous creation of national parks which cannibalizes arable lands, hence reducing the size of lands left for cultivation. They added that the Park creation again also led to the encroachment of farms by wild animals from the park, who destroy the crops and threaten the lives of farmers. This they said led to reduced productivity and impoverishment of farmers as they never even received compensation for the effect of the encroachment. Third, was issues surrounding land ownership. The farmers raised the concern that since farmlands are acquired on lease for each season, landowners can decide not to renew the lease for next season or lease on the condition that the land be used to cultivate crop of their choice (not that of the farmer).
However, the farmers’ cooperative confirmed that the government was embarking on various projects and reforms to tone down the effects of the issues raised. One of such government projects was the Mobukuto 2 irrigation scheme meant to support over 380 farmers, at the cost of USh 33bn to reduce their reliance on rainfall and mitigate the effects of climate change on farming. The cooperative confirmed that there has been a parliamentary approval of a bill to ensure that farmers whose farms are encroached and destroyed by wild animals from the Park are compensated. This was a very encouraging step the farmers really appreciated.
From the side of the cooperative society, they have created their savings and loans scheme, which receives savings from farmers and gives out loans at cheaper rates to farmers. Again, the cooperative added that they are procuring tractors that would be hired by farmers at cheaper prices as compared to private rental firms. They will also make the payment for hiring after harvesting, as opposed to private rentals who operate a cash and carry model. These interventions and projects help in improving the sustainability of resource endowment.
Industrial Capacity
|
|
With BUBU’s main focus being on value addition, industrial capacity was another factor that was identified as key towards attracting and sustaining investment for industrialisation. During my interaction with one of the Spinning factory (operates a cotton-to-clothing production) the issue of high electricity tariffs was raised as one of the factors hampering operations. The Spinning factory didn’t seem too worried about the current effects of the high electricity tariffs and interest rates but rather was optimistic that everything was going to be alright. This could be attributed to the fact that they produce mainly for a premium export market, hence may not be too concerned about cost. The cooperative societies rather remained concerned due to the impact this increased cost had on price and subsequently affect the ability of its target market, who are usually the poor, to afford the products, hence affecting their sales. However, the Spinning factory and the Uganda Investment Promotions Authourity confirmed that the government had agreed to give special electricity tariffs as an incentive to manufacturers to reduce their cost of operations to make them competitive.
Concerning access, cost and quality of labour, the spinning factory highlighted that Uganda has a youthful population with a high unemployment rate hence access to cheap labour was very easy. However, because industrialisation is very new to the country, most of the labour is not employable due to a lack of skills, hence investors like them have to take the responsibility to train labour from scratch.
This was in sharp contrast with my theoretical findings which identified a consistent rise in enrolment at the higher education level, to suggest Uganda’s readiness for industrialisation. This led to a realization that a rise in high education enrolment doesn’t necessarily mean access to the labour with the requisite skills industry needed.
Another issue the spinning factory-raised was the non-existence of a minimum wage in Uganda, which was confirmed with Uganda’s parliamentary article which highlighted that Uganda has now in 2019 passed the minimum wage bill which is yet to set the minimum wage for each sector or industry. So instead of taken advantage of this to pay low wages, they rather in addition to the labour wage, provides their staffs with a one-full balanced meal a day, to reduce the pressure on their disposable income.
Access to cheap loans was another issue raised by the growers’ cooperatives in relations to funding the operations of its ginning and oilseed factories. The cooperative pointed out that these issues increased their cost of production, hence translating into higher prices of the end products which the poor farmers even cannot afford.
Trade agreement breach concerns with Export Partners
The last point which was on how BUBU was affecting the trading relationship with its export partners, was also discussed. The representative of the Ministry of trade as well as the Cotton Development Organisation held that creating a uniform policy for the common markets like COMESA and EAC has been a challenge due to the differences in the development level of each member country.
Secondly, she added that Kenya that has advanced in industrialisation also have the “Buy Kenya Build Kenya”. This confirmed the retaliation effects as even though both Uganda and Kenya are in the same regional trading bloc, they are still fiercely incentivizing local production and consumption.
But in sharp contrast, Th Spinning factory noted that BUBU hasn’t blocked or restricted their full access to the duty-free markets in the United States under Africa’s growth and Opportunities Act (AGOA). However, the Ministry gave some heads up that both regional agreements have already commenced the process of homogenising their trade policies to reduce some of the preventable retaliations which weakness the positive effects of their regional trade agreements.
To conclude, this field trip was an eye-opening experience that emphasized the importance of field research and the dangers of relying on secondary data. Even though the three theoretical factors that were raised were broadly confirmed during the field trip, we discovered different issues that influenced these confirmed theoretical findings. After considering what was discovered on the ground, it can be concluded that BUBU has the highest possibility of succeeding as both government and the farmers are taking on initiatives that help in mitigating some of the risk identified on the ground.
Thde writer is an International Development & Trade Analyst with a deep research interest in issues affecting smallholder cocoa farmers in Ghana. He has over 10 years of work experience within the Global Cocoa, I.C.T and Higher education sectors. Currently, he is the General Secretary, Executive Director and Board Chair at The University of Manchester Students Union, as well as a Governor at the University of Manchester Board of Governors, United Kingdom.
Twitter: @asamoahpeters
LinkedIn: Kwame Asamoah Kwarteng
