Gov’t put on notice as PSFU, Mastercard foundation report reveals the state of manufacturing firms in Uganda

The Private Sector Foundation Uganda (PSFU), the apex body of the private sector in Uganda together with the Mastercard Foundation today released two reports on capacity utilization and cost center analysis of manufacturing firms in the country, at a one-day dissemination workshop, at Kampala Serena Hotel.

According to Sarah Kagingo, Vice Chairperson of the Board of Directors of PSFU, the overall objective for these studies was to generate evidence to influence policy development in the manufacturing sector with specific reference to industrialisation and import replacement policies that Uganda has adopted. Specifically, the studies sought to (i) establish the actual capacity utilisation and investigate their causes for manufacturing firms in Uganda, (ii) establish the main drivers of costs in the production process among manufacturing firms and (iii) identify and suggest key policy interventions which can be implored to address these challenges.

She said the dissemination workshop has given pointers to the Government on measures to reduce cost of doing business.

“It’s my humble plea to the Government to utilize these findings to inform your policy formulation and the development of the National Development Plan IV especially on matters of industrialization. We also hope that our development partners present today, will be able to use this information to inform your interventions in the manufacturing sector in Uganda. We as the manufacturing sector players and our members are ready to engage with you further should you desire to engage us more in the adoption or implementation of these findings,” Kagingo further implored.

The information on how manufacturing firms are utilizing their production capacity was collected from over 215 companies, all members of the Manufacturers Association (UMA) and Uganda Small Scale Industries Association (USSIA). Of these, 35.4% are under UMA & 66.8% under USSIA.

“ PSFU has gone ahead to develop a position paper with proposals on how to stimulate effective demand within the economy and it suggests among others (i) establishment of an independent Competition Commission to implement competition law (ii) fast track the issuance of the Local Content regulations to support the enforcement of the Local Content provisions under the PPDA Act and (iii) strengthen the dispute resolution mechanism for the EAC to counter the unilateral actions that impede exports,” Kagingo observed.

The aim of the assessment is to unlock vital insights that will help shape policies in Uganda’s Industrialization. This will be done through advocating measures to reduce business costs and enhance competitiveness in the manufacturing sector.

The dissemination workshop discussed several areas that need improvement for manufacturers to raise their production. This included the need for work on transmission, upgrading and distribution of electricity to overcome the intermittent supply, and also implement the bulk power purchase option for manufacturers and heavy power consumers since the legal and regulatory environment permits it now.

It was recommended that Uganda fully operationalise the one-stop border policy by improving the infrastructure and harmonising work time among the concerned government agencies.

There was a call for the adoption of an integrated multi-model system to leverage water (Lake Victoria), rail and air in addition to roads. Uganda and her immediate neighbors sharing Lake Victoria should adopt the multi-modal transport system of exploiting the lake for transport.

The study of Uganda’s manufacturing sector however revealed that a majority of firms operate below 60% of their full capacity.

The capacity utilisation of firms is at an average of 54.4%, implying that there is a lot of redundant or unutilised capacity among the manufacturing firms in Uganda where a lot of resources have been invested.

Lack of effective demand for the manufactured products was reported as the main reason explaining this utilization factor (56%), followed by high levels of competition from imported products, high cost of inputs (42%), high taxes (41%).

“Whereas the manufacturing contributes the most significant share to the industrial sector GDP, it has experienced slower growth in comparison to the other sectors,” warned Stephen Asiimwe, CEO of PSFU.

The second study on cost drivers revealed that the cost of raw materials drive costs high because firms must import them due to poor quality, small quantities, and inconsistencies of the locally available ones. Among the conversion costs, labour and electricity costs are the most significant cost drivers accounting for 60% of the total cost of conversion.

The cost of transport and logistics, especially for inputs and distribution of goods contribute to 40% of the cost of production amongst manufacturing firms. This is because the country’s transport and logistics value chain are very weak, a factor that leads to inefficiency.

That this is because the country’s transport and logistics value chain are very weak, a factor that leads to inefficiency. It is noted that these also negatively affect the capacity utilization of the manufacturing firms in Uganda.

“To advise Government, another position paper on measures to reduce cost of doing business and it proposed these recommendations (i) Work on transmission, upgrading and distribution of electricity to overcome the intermittent nature supply, (ii) Implement the bulk power purchase option for manufacturers and heavy power consumers since the legal and regulatory environment permits it now, (iii) Fully operationalise the one-stop border policy by improving the infrastructure and harmonising work time among the concerned government agencies and (iv) adopt an integrated multi-model system to leverage water (lake Victoria), rail and air in addition to road. Uganda and her immediate neighbors sharing Lake Victoria should adopt the multi-modal transport system of exploiting the lake for transport,” Kagingo further explained.

According to Stephen Mpagi Kalibbala, who represented the UMA chairman Deo JB Kayemba , Uganda’s economy has nevertheless expanded to a GDP of USD 50 billion (Shs.185 trillion) as of June 2023, and it is projected to expand further to USD 55 billion by June 2024. Ugandan manufacturers have contributed tremendously to this growth over time, and the industrial sector contributes to 27.6% of GDP, about 33% of tax collection and manufactured value of export of 15.7%. Industries in Uganda consume 67.7% of the electricity produced.