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
“The Success and Failure of Poverty Reduction in Uganda: A Focus on Trade, with Special Reference to Small Businesses in Mbarara Town and District and their Link to Poverty Reduction” by Stefan Feuerstein, Jonathan Howells, Chukwudum Muoneke, Arese Ogiemwonyi, Vasilis Stouraitis, Michael Ugwu
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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
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About Us ................................................................................................................................................. 8
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
UCL Development Planning Unit – DA4/UE3 Uganda Field Trip Report 2010 Page 31 of 76
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).
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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.
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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
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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.
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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?
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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.
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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
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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.
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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.
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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
The in-field research will employ both qualitative and quantitative methods as outlined in Table 12
below.
Table 12 – Research Methods Employed
Type Primary/Secondary Method Data Source
Qualitative Primary research Conduct semi-structured interviews with Ugandan organisations
Government Ministries / Regulators, Industry Associations, Multilateral / Bilateral Donor Organisations, Universities / Think-tanks,
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Table 12 – Research Methods Employed
Type Primary/Secondary Method Data Source
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
Qualitative Semi-Structured Interview:
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
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Table 13 – Proposed Interview Questions
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
Qualitative Semi-Structured Interview:
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
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?
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
Qualitative Semi-Structured Interview:
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?
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
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Table 13 – Proposed Interview Questions
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.
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PART TWO
RECOMMENDATIONS
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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.
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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%
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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
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Table 15 – Findings Related to Mbarara’s FURNITURE MAKING Industry
Factor Positive Aspects Negative Aspects Grade
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
Labour Conditions Availability of cheap labour
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 Positive Aspects Negative Aspects Grade
Factor Conditions Scrap metal easily available
High price of non-scrap metal
Labour Conditions Availability of cheap labour
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
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Table 16 – Findings Related to Mbarara’s METAL FABRICATION Industry
Factor Positive Aspects Negative Aspects Grade
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 Positive Aspects Negative Aspects Grade
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
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Table 17 – Findings Related to Mbarara’s AGRO-PROCESSING Industry
Factor Positive Aspects Negative Aspects Grade
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
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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
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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.
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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)
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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
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Positive Aspects Negative Aspects
at least two firm interviewed. manufacturers (especially in factory expansion and equipment purchase).
Table 21 – Key Findings Related to Institutions
Positive Aspects Negative Aspects
– 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
Positive Aspects Negative Aspects
– 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.
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Table 23– Key Findings Related to Market Size
Positive Aspects Negative Aspects
– 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
Positive Aspects Negative Aspects
– 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
Positive Aspects Negative Aspects
– 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.
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Table 26– Key Findings Related to Technological Readiness
Positive Aspects Negative Aspects
– 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
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
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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
Positive Aspects Negative Aspects
– 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
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Table 29 – Key Findings Related to Institutions
Positive Aspects Negative Aspects
– 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
Positive Aspects Negative Aspects
– 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
Positive Aspects Negative Aspects
– 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
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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.
This report recommends that:
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
Timeframe: Short 1 – 5 years
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
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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.
This report recommends that:
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
Timeframe: Short 1 – 5 years
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.
This report recommends that:
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.
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2. Introduce More Advanced Processes and Technology
Stakeholders: Mbarara District Local Government, UNIDO, Industry Board (see next
recommendation)
Timeframe: Short 1 – 5 years
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.
This report recommends that:
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
Timeframe: Short 1 – 5 years
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.
This report recommends that:
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
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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.
UCL Development Planning Unit – DA4/UE3 Uganda Field Trip Report 2010 Page 67 of 76
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.
UCL Development Planning Unit – DA4/UE3 Uganda Field Trip Report 2010 Page 68 of 76
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UCL Development Planning Unit – DA4/UE3 Uganda Field Trip Report 2010 Page 72 of 76
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
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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
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)
UCL Development Planning Unit – DA4/UE3 Uganda Field Trip Report 2010 Page 74 of 76
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)
UCL Development Planning Unit – DA4/UE3 Uganda Field Trip Report 2010 Page 75 of 76
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
Recommended Next Steps Priority Timeline Stakeholders
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
Recommended Next Steps Priority Timeline Stakeholders
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
Recommended Next Steps Priority Timeline Stakeholders
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
UCL Development Planning Unit – DA4/UE3 Uganda Field Trip Report 2010 Page 76 of 76
5. Higher education and training
Recommended Next Steps Priority Timeline Stakeholders
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
Recommended Next Steps Priority Timeline Stakeholders
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
Recommended Next Steps Priority Timeline Stakeholders
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