Import substitution push produces mixed results
The fallout from the ongoing conflict between Russia and Ukraine will continue to amplify the already high cost of consumer products as well as some key raw materials, as the country recovers from pandemic-induced shocks.
The latest United Nations (UN) task force report warns that Russia’s war on Ukraine threatens to devastate the economies of many developing countries like Uganda.
He further notes that these economies face even higher food and energy costs and increasingly difficult financial conditions.
UN Secretary General Antonio Guterres launched the report last week.
He pointed out that the war is fueling a food, fuel and financial crisis in the poorest countries that continue to be rocked by the pandemic, climate change and lack of access to adequate financing for their economic recovery.
The Russian-Ukrainian conflict has since disrupted the supply of oil and grains such as wheat, corn and sunflower oil. Also due to the conflict, data from the Uganda Bureau of Statistics (Ubos) indicates that cooking oil and laundry soap have seen the biggest price increases. A bar of soap at one time reached Shs 10,000 between Shs 3,500 and 4,000.
Government technocrats and economic sector players argue that the most practical solution to the evil of imported inflation lies in discounting the import substitution program.
The said program has been a buzzword for the past two years after the pandemic disrupted supply chains. Import substitution involves replacing foreign imports with domestic production.
Uganda’s Bubu (Buy Uganda, Build Uganda) policy, launched in 2014, was essentially meant to drastically reduce foreign dependency. So where are the returns after years of massive investment in sunflower, vegetable and palm oil projects?
“Why are we still importing cooking oil? Why do BIDCO and other companies still import raw materials for cooking oil? Does this mean that the sums, some of which are borrowed, are not allocated where the real problem lies? Fred Muhumuza, an economist, policy analyst and researcher, asked rhetorically in an interview with Sunday Monitor.
He continued, “These were import substitution projects to solve the import of sunflower-based cooking oil. We are now paying the price because Ukraine and Russia are the biggest exporters of sunflowers and as we all know they are now in a conflict situation, but we could have grown sunflowers here in the north of Uganda.
Dr Muhumuza adds that if these projects had succeeded, the problem of raw materials – certainly that of cooking oil and soap, two products whose prices have skyrocketed lately – would never have arisen in the first place. .
Mr. Patrick Ocailap, the Under-Secretary of the Treasury, says, however, that the import substitution program is akin to a marathon race; not the 100 meter sprint. He said, “The import substitution policy is continuous, as is its implementation. We know that import substitution promotes domestic employment, creates added value and has a multiplier effect on the economy. ”
He continued, “Slowly but surely we will realize our import substitution intention. This is important because it will allow us to save the money we put into importing and reinvest it to grow the economy.
Meanwhile, the Ministry of Finance says there is no joint import substitution program within the East African Community. Individual member states should therefore consider reducing their import bills by any means necessary, some of which may disrupt regional trade, particularly in the form of non-tariff barriers (NTBs).
President Museveni has repeatedly said that Uganda’s annual import bill of $7 billion (Shs. 25 trillion) is unacceptable. Mr. Museveni believes that many of the imports can be made locally and has thus given the import substitution strategy a ringing endorsement.
Some of the imported items include medicines, textiles, leather products, industrial sugar used by coca-cola, industrial starch used by pharmaceutical industries, paper, packaging materials, glass products , automobiles, bicycles, among others.
Already, an initiative to replace wheat with banana flour is supported by Mr. Museveni. Support for Dr. Florence Muranga’s banana project – if successful – will be a perfect substitute, if not a better alternative, for the world’s demand for wheat worth $43.6 billion (about Shs. 154 trillion). ) and the national demand of $300 million (approximately Shs. 1 trillion), according to State House records.
Banana flour can make better and safer bread than wheat flour which contains gluten. This compelled President Museveni to fund the banana project, including patenting the formula.
Before the pandemic hit, the Ugandan economy was producing and exporting more according to data from the Uganda Export Board Promotion Board (UEPB). For example, in the last five years before the pandemic hit (specifically from fiscal year 2014/15 to fiscal year 2018/2019), Ugandan exports fell from $2.7 billion to $3.9 billion. billions of dollars.
Despite all this, Uganda remains a net importer (imports more than it exports). The individual countries with which Uganda had high trade deficits (higher imports) are China (amounting to over $855 million or over 30% of the deficit); India (at $596 million or representing 22%); and Saudi Arabia (amounting to $384 million or representing approximately 15%).
The others are the United Arab Emirates (representing $277 million or representing 10%) and Japan (representing $247.83 million or representing approximately 10%).
The five countries were responsible for around 80% of Uganda’s trade deficit, according to data from the Ministry of Commerce (MTIC).
The good news is that the Common Market for Eastern and Southern Africa (Comesa) trading bloc, like the EAC, remained Uganda’s top formal export destination, with a share of export earnings of 51 % over the last two or three years. The European Union market ranked second, with the Middle East bloc taking the third position.