Ugandan President Yoweri Museveni, in his State of the Nation address this past week, announced that he will will focus on an import substitution policy to grow the country’s manufacturing sector, stem a growing trade deficit, and strengthen the shilling.

President Museveni said the country’s failure to attain middle income status was because of the depreciation of the shilling. He recalled that in 1986, the country’s GDP stood at Ush6 trillion ($4 billion), compared with 2014, when it was Ush74 trillion ( $27 billion).

“The shilling depreciates because we import too much and export little and mainly, goods of low value,” he said.

In 1986, the exchange rate was Ush1,500 to the dollar, today it is Ush3,360, a depreciation of more than 100 per cent over the past 30 years.

The president blamed the shilling’s depreciation on Uganda’s large appetite for buying things from abroad, pointing out that the country is spending $875 million on Chinese imports, yet the export value of the country’s goods to China is just $54 million.

India exports goods worth $1.2 billion to Uganda, and imports just $24 million worth of goods.

Donating jobs

According to the president, importing finished products after exporting raw materials or semi-processed goods means that Uganda’s jobs are being donated to net export countries.

“By importing so much from outside, we are creating jobs for the children of the Chinese, the Indians, the Japanese, the Europeans, the Americans and the Middle Easterners and forgetting about our own children,” he told parliament.

The high import bill and low export receipts from countries and trade blocs have translated into an increasing trade deficit. In the 2014/15 financial year, Uganda’s trade deficit increased to $4.7 billion, from $3.5 billion the previous year.

To solve the problem of the growing deficit in the balance of trade, President Museveni directed that all government institutions must within the next one year buy locally made products provided these goods are of good quality.

“That should not, however, be an excuse for continuing to import what can be made here. If the quality is not yet perfect, discuss with the manufacturers how that can be improved,” he said.

The announcement included a directive that the police, prisons, and medical services purchase their uniforms from Uganda. The test for the president will be whether the politicians and technocrats actually implement the policy.

Ministers' German designer jackets

As the president was telling Ugandans to curb their appetite for imports and announcing measures to facilitate this process at the Serena Conference Centre on Tuesday, his ministers were wearing uniform jackets that the NRM chief whip said were bought from a German designer at $300 each.

Santa Anzo, a Ugandan fashion designer who has showcased her wares all over the world, said the $300 jackets were a slap in the face for her and Uganda’s young, vibrant and hungry fashion and garments industry.

The Public Procurement and Disposal of Public Assets Authority Act as amended in 2014 requires that at least 15 per cent of all government purchases of goods and services be sourced locally, but government entities have consistently failed to comply.

Gideon Badagawa, executive director of the Private Sector Foundation, said the guidelines asked accounting officers for implementation plans that have not been pre-passed.

Mr Badagawa said that without implementing measures such as closing Uganda’s borders to imported goods from outside Africa, local manufacturing has been suffering. Expensive capital that banks provide at interest rates above 20 per cent, and high electricity and transport costs are forcing some manufacturers to leave the country.

President Museveni said the challenges were “bottlenecks to the transformation” of Uganda to a “self-sustaining integrated economy” — bottlenecks that he said still stand in the way of private sector investment. He said the challenges of power, expensive capital due to high interest rates, poor road and rail infrastructure will be solved soon.

Uganda Development Bank

On electricity, President Museveni said the cost of Bujagali hydropower would come down soon, from the $0.11 per Kwh charged to $0.05 per Kwh with power from Karuma and Isimba hydropower dams; the dams have been delayed by procurement irregularities and poor workmanship.

The president promised to recapitalise the Uganda Development Bank to provide cheap capital for manufacturing and agriculture. He said that even when the inflation rate is 5 per cent, banks are currently lending at 23.5 per cent.

But Mr Badagawa said the problem of high interest rates has been created by the president’s need for a huge government.

“The government is still borrowing from the domestic markets to finance its expanding numbers,” he said.

President Museveni announced the easing of transport, at a time when several roads had been blocked to allow the passage of the visiting South Korean President Park Geun-hye and Turkish President Recep Tayyip Erdogan.

The blocking of roads, especially Entebbe Road, the only major access to Entebbe International Airport, and several other roads in the city, has led to complaints from the public that the inconvenience is a disincentive to investment. The government argues the road closures are necessary for security reasons.