High flying India can help scale up local SMEs

by Business Times writer
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Of late, the Indians are feeling ‘highly’. While China’s economy has been slowing down, India’s GDP growth rate between April and June was a speedy 7.8%. The ultimate goal, says Prime Minister Narendra Modi, is in shortest possible time, to rise from fifth to the third largest economy in the world.

At the end of August, the Indians landed a probe near the Moon’s South Pole; the first country to do so. Then a week later, Modi hosted the G-20 Summit and persuaded his colleagues to admit the African Union, as a permanent member. In doing so, it cemented Modi’s profile as good friend to Africa.

All this speaks to a stated ambition to be noticed and acknowledge that India is indeed a big-hitter on the global stage. Considering Uganda’s long historical links with the country, there are several opportunities here that should not be overlooked. Specifically in leveraging Indian knowhow, capital, and technology to help lift Uganda’s small scale industrial (SSI) sector. The Indians have been down this road before and can offer valuable insights that can be applied locally.

Five years ago, Modi chose Uganda to clarify India’s engagement with Africa as spelt out in the 10 ‘Kampala Principles’. Principle 2 states: ‘Our development partnership will be guided by your priorities. It will be on terms that will be comfortable for you, that will liberate your potential and not constrain your future. We will rely on African talent and skills. We will build as much local capacity and create as many local opportunities as possible’.

When someone lays out the welcome mat for you, it would be foolish not to partake of their hospitality, particularly when you are in need of urgent help.

During the leaner years of Uganda’s economy, in the late 1970s and early 1980s, there was one item that fitted the difficult circumstances to a ‘T’. Made in India, (but based on German engineering), the Tata 1210 truck was a reliable workhorse, tough, fuel efficient and relatively cheap to maintain. Obviously, choice was severely limited at the time, but the point here is about adaptability.

The Tata truck was developed when the Indian economy was closed to most imports and heavily regulated by the successive governments of the day. However Indian industry adapted and expanded. When the economy was liberalized at beginning of the 1990s Indian industrialists had evolved into a globally competitive force.

Two famous British vehicle marques, Land Rover and Jaguar are now owned by the Tata Group while Mittal Steel is one of the largest steel producers in the world. It was also India’s CIPLA Limited who fiercely fought and won approval from the reluctant pharma giants to begin manufacturing generic antiretroviral (ARV) drugs.

Significant credit for India’s $3.5 trillion economy and global competitiveness goes to its bustling SSI sector. The enterprises range from chemicals, glass and ceramics, right through engineering components, motor vehicle and motor cycle parts and spares, television sets and other electronics, rubber and plastic products. India’s SSI contribution to the economy is annually given special recognition on August 30th, which is the National Small Industry Day.

Given President Yoweri Museveni’s crusade for more domestic value-addition, it’s notable that half of the products shipped outside India are from small-scale and mid-scale industries. The country’s SSI sector accounts for 95% of industrial units, 40% of manufacturing output and employs nearly 20 million people.

The integration of Uganda’s economy with backward and forward linkages was once a popular catchphrase. Although still very much on the wish list, local small industries are failing to live up to the role of directly supporting larger industries by supplying them with appropriate intermediate goods, except perhaps in the agriculture value-chain.

It is no secret that many of Uganda’s big manufacturing and industrial factories are owned by the Indians and Chinese. Big factories get all the attention and publicity. However, if Uganda is to make faster headway into the production of capital goods (machinery and machine tools), we need small industries to produce components that can then be used for the manufacturer of higher value finished products by the larger industries. This is the vital missing link and why exploring the Indian model may not be such a bad idea.

Fortunately two things have happened or will happen that make an Indian focus timely. First, earlier this year, the Reserve Bank of India, published a list of 18 countries whose importers can pay for Indian goods in rupees as an alternative to the US dollar. Uganda is on this list. Secondly, in October, Uganda Airlines will launch scheduled flights to Mumbai, India’s financial capital and a major industrial hub.

For reasons mainly due to the availability of support infrastructure, much of Uganda’s manufacturing and industrial output is located in the Kampala Metropolitan Area or upcountry urban centres. By implementing the Parish Development Model (PDM), the government sees this strategy as one way in balancing out the prevailing regional economic and employment disparities.

PDM seeks to improve incomes and the quality of life for the 39% of the households stuck in the subsistence economy. According to government figures, this percentage translates to three million households and 16 million people.

The Indians have all manner of relatively cheap and lightweight processing equipment that can be easily adapted to local conditions and used to add value to whatever is at hand within a given parish. It merely requires doing some research to evaluate what makes the best fit for the relevant community. For instance, India’s cotton weaving industry is a good case study for Eastern and Northern Uganda.

In the name of business, and for years now, Ugandans have been shuttling to Dubai and Guangzhou then coming back with finished goods (which they tag on ridiculous mark ups) then sit back and wait for customers in our downtown malls and plazas.

This model is not sustainable if the economy is to see faster rates of GDP and cater for a rapidly growing population. With the push for more domestic value-addition, these traders will certainly feel the pressure to change this mindset.

Various studies have shown that small-scale industries have the potential to spread economic development beyond urban areas and reduce regional differences. This is because opportunities are created in rural and remote areas, which in turn promotes balanced economic development. Increasing grid electricity is an added incentive.

Currently, there are numerous public and private sector-led skilling schemes aimed at young people across Uganda. The next major step is putting these skills into practical use by availing them with the appropriate machinery and equipment which India has in plenty.

It’s true, that for many Ugandans, India does not inspire the same glamour and excitement they associate with a visit to United Arab Emirates or China. After all, India has 400 million people still living in poverty while the Chinese managed over 40 years to lift nearly 800 million people out impoverishment.

Nevertheless, Uganda has pressing economic problems and India has solutions. Certainly not for everything, but Uganda’s entrepreneurial capacity can only improve once we have a better idea of what they can offer. Studies tours would be an ideal first step now that Uganda Airlines has direct flights.

That said, it’s time to start practicing bringing your palms together in front of your heart, then bowing your head and say: ‘Namaste’.

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