Distinguished Participants, I want to stand on the earlier well-articulated Protocol in the interest of time for content sharing optimization.
I greet you and most sincerely welcome you to this Dialogue that is hugely informed by the need to deepen Policy Engagements with key stakeholders in the manufacturing ecosystem in Uganda to better inform the formulation of the National Budget for 2024/25, hence, its timing.
It would be an act of ingratitude if at this stage, I do not acknowledge with utmost gratitude the special partnership with NCB Bank Uganda, The Insurance Association of Uganda, Government of Uganda and you all, our stakeholders for supporting the dialogue.
I will now delve into FIVE KEY cross-cutting issues meriting engagement with key stakeholders, especially Government, as follows:
- Resilience of Manufacturing even during the COVID 19 meltdown and beyond:
- Revenue contribution: the manufacturing sector’s contribution towards the national coffers has been growing posting a tax contribution of UGX 3.5 trillion in FY 2019/22 or 20.4%. In FY 2020/2021 it grew to 4.5 trillion which was 22.68%, and 5 trillion in FY2021/2022, representing 22.62% of the total revenue collected.
- Power consumption: the manufacturing sector in Uganda is the highest consumer of power at 67% of the total generated electricity in the country. In 2022, the sector consumed over 2.6 billion kW of power which was up from 2.4 billion kWh in 2021.
(c)Employment: The manufacturing sector has been able to by and large maintain its level of direct employment in the region of 2 million Ugandans (all categories of workers). This is reflected in sustained PAYE leadership in terms of tax head contribution to tax revenue.
(d). SME sector worst hit by COVID 19 and itscousin, the Ukraine and Russian war. The SME sector that constitutes 70% of UMA membership, standing close to 2000 of the Uganda Investment Authority recorded, over 5000 industrialists. This Group require serious interventions to support its recovery. There is a struggle to even be able to afford the little financial commitments attached to membership. How do we synergize to unlock SME recovery using the SME Recovery Funds that remain undisbursed with Banks yet this Kit is key for the recovery of the SMEs to create value and jobs in the economy? What structural changes/reforms on the access protocols can we deal with to ensure sustainable access to the funds?
- Rethinking Local, Regional, Continental and International Market Access.
It is imperative for Uganda to appreciate that she has since become a surplus producer of agro commodities and manufactured goods meriting steady market establishment, great opportunities not withstanding as follows:
- Local Market -Government of Uganda alone presents a market of 60% of the value of the National Budget now at UGX 52 trillion translating into a market size of over UGX 30 trillion. Not even 10% has been exploited owing to lack of Local Content Regulation that enforces BUBU effectively. This remain unresolved since 2018 when PPDA issued Guidelines that were meant to be transformed into a Regulation.
- EAC market size is in the region of USD 163 Billion, with a population of close to 200 million people. Despite incessant market access challenges at EAC, there are very significant success stories like the USD 1.0 Billion trade surplus with EAC as at April 2023 while DRC alone is now established as an export market destination for about 0.5 billion Dollars annually.
- The AfCFTA presents a market size of 1.3 billion people with a USD 33.4 Trillion GDP.
For the EAC market access, unilateralism by Partner States remains a key challenge to market access as well as the unwillingness of Uganda to adopt retaliatory measures to counter ill treatment of Uganda. At the Continental level, several enablers are yet to be institutionalized to facilitate optimal continental trading like No Export Insurance Guarantees, No efficient Air Cargo Transport Mechanism, No Credible Market Information System, No institutionalized aggregation mechanism for export volume generation, No seamless Value transfer mechanism independent of the Dollar to address the plague of dollar liquidity challenges in many markets, No institutionalized Export Credit Schemes and serious product standardization challenges.
3.0 Strategic Financing of Manufacturing in the face of Global Competition to meaningfully widen tax base:
(a) In Uganda over 90% of credit into manufacturing is by commercial banks. No wonder, the current model of financing is short to medium term (maximum average is 5-7 years) which explains why heavy industries like Iron Ore Smelting, Cement Manufacturing based on lime stone crushing, Vertical Textile Production and Vertical Leather and Leather Products production plus vertical coffee processing into instant coffees are not taking -off yet these are the crucial primary industries for Uganda, being agrarian.
(b) Global best practice informs us that countries that have industrialized have close to 100% credit availed by Development Banks that have patient capital alongside Pension Funds like NSSF.
(c ). Kampala Stock Exchange remain too inactive to optimally attract local investment into companies listed at the Exchange. The interaction with the Exchange indicates that Uganda must rethink the entire legal, regulatory and taxation architecture for the sector to entice the largely Family-owned Businesses to List at the Exchange so as to lower cost of capital in addition to presenting alternate value storing value proposition beyond real estate.
(d). Rethinking and re-tweaking of the PPP Unit under Ministry of Finance to spur investments in strategic sectors where there has been total market failure to attract the desired investments. PPP Unit is too dormant for Uganda to be able to take-off in manufacturing with the current fiscal space challenge arising from heavy debt on Uganda’s budget.
4. Prudent Market Regulation and long-term Policy horizon to support manufacturing/productive sectors growth in Uganda
(a) Uganda has been consistent in running EAC’s most liberal economy. Dividends have been huge and challenges in equal measure where Government Regulatory functions are evaluated in the areas of: Environmental Protection and Management, Standards Development and Enforcement, Trade Regulation with the view to avoiding monopolies creation, Tax Administration and Management, Management of the Electricity Sector seamlessly post UMEME
(b) There is very good progress across board in terms of endeavoring to automate processes so as to spur efficiency.
(c) The key cross cutting challenge for especially the Environment Management and Standards Sector is that, lead agencies are yet to appreciate the strategic importance of using their statutory mandates to facilitate trade, investing and export growth. Examples: Fees chargeable for services/penalties are increasingly becoming deterrent for access to services relative to competition in the Region. There is urgent need to reverse this trend.
(d) For the Tax Management and Administration Agency, UMA is grateful for the demonstrated good listening approach. However, the key issue is how we must relate to enhance tax compliance, broaden tax base and cause the massive reforms in tax administration and management that should support real economic growth. Examples, noting that EAC is our leading export market, to be followed by rest of Africa shortly; it becomes important to strategically engage on aspects like review of Rules of Origin, Exemption Regimes, Audits and many others.
(e) The Competition Bill has been processed by Parliament. UMA would like to see real tangible progress for its implementation by Ministry of Trade Industry and Cooperatives;
(f)From Electricity Regulatory Authority, noting that Uganda has competitively priced power at EAC /COMESA level, this must be leveraged for growth. We need assurances that the post UMEME era will be seamless and
(g) From Ministry of Finance, Planning and Economic Development [Ministry of Finance]/National Planning Authority, UMA’s expectation is having to galvanize a Tax Policy Regime that is aligned to say NDP3 or NDP 4 for the future for predictability.
5. The human capacity development agenda and youth employability.
(a) Uganda is grappling with massive youth unemployment driven by skills deficit among young people.
(b) Uganda has rolled-out a good Curriculum that is skills -based and largely vocationalized that shall be able to answer the training needs for the country in the long run.
(c ) There is a strategic need for Uganda to leverage the South To South Cooperation at the International Level to benefit from the hugely vocationalized training regimes in much of English speaking Asia so that we do not have to re-invent the will. At the moment, skilled labor imports in manufacturing are endemic and require a durable solution.
We thus look forward to valuable in-puts to provide answers to the above and other challenges so that Government can take on the in-puts to inform budgeting and NDP4 formulation. Thank you for the attention.