Manufacturing in Mbarara Uganda

Development Planning Unit
Manufacturing in Mbarara, Uganda

Potential for poverty reduction and structural transformation
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
FINAL REPORT 08 Jun 2010
Table of Contents
Introduction ............................................................................................................................................ 4 Acknowledgements................................................................................................................................. 5 About Us ................................................................................................................................................. 8 Glossary ................................................................................................................................................. 10 Maps ..................................................................................................................................................... 12 PART ONE INCEPTION REPORT ................................................................................................................... 14 1. a. b. 2. 3. a. b. c. d. 4. a. b. c. 5. a. b. 6. a. b. General Background...................................................................................................................... 15 The National Context ................................................................................................................ 15 The Policy Context .................................................................................................................... 20 Institutional Landscape ................................................................................................................. 25 Role of Manufacturing in Poverty Reduction and Structural Transformation.............................. 29 Manufacturing and Poverty Reduction ..................................................................................... 29 Manufacturing and Structural Transformation......................................................................... 29 Key Conflict Between Poverty Reduction and Structural Transformation ............................... 30 Features of Pro-Poor Manufacturing Industries ....................................................................... 31 Mission Scope and Objectives....................................................................................................... 33 Mission Scope ........................................................................................................................... 33 Mission Objectives .................................................................................................................... 34 Research Questions .................................................................................................................. 35 Analytical Framework ................................................................................................................... 36 Potential Industries ................................................................................................................... 36 Enabling Environment ............................................................................................................... 38 Methodology................................................................................................................................. 42 Research Questions .................................................................................................................. 42 Research Strategy ..................................................................................................................... 42
PART TWO RECOMMENDATIONS ............................................................................................................... 47 1. 2. a. b. 3. Introduction .................................................................................................................................. 48 Research Question 1: Findings and Recommendations ............................................................... 50 Potential Industries ................................................................................................................... 50 Agro-Processing: Specific Opportunities................................................................................... 54 Research Question 2: Findings and Recommendations ............................................................... 57
UCL Development Planning Unit DA4/UE3 Uganda Field Trip Report 2010
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a. b. c. 4. 5.
Findings Across All Manufacturers............................................................................................ 57 Findings Specific To Fruit and Dairy Processors ........................................................................ 61 Recommendations .................................................................................................................... 62 Limitations and Further Research ................................................................................................. 65 Conclusion ..................................................................................................................................... 66
References ............................................................................................................................................ 68 Appendices............................................................................................................................................ 72 a. b. c. Appendix A: Quantitative Questionnaire .................................................................................. 72 Appendix B : Full List of Interviewees ....................................................................................... 73 Appendix C : Full List of Recommendations.............................................................................. 75
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Introduction
As part of the Masters programme at the Development Planning Unit of the University College London, the seven-member team was commissioned to conducted research in Mbarara, Uganda. The research team analysed the potential of the manufacturing sector for poverty reduction and structural transformation. Over the past few decades, Uganda has made significant progress in poverty reduction and has experienced sustained economic growth.
Despite development successes at the national level, the economy remains dominated by agricultural production and various problems persist. Particularly the manufacturing sector is lagging behind the overall economic growth of the country. The research team utilised available secondary sources as well as primary research conducted in Mbarara to investigate the role of the manufacturing sector in poverty reduction as well as structural transformation.
Through interviews with a range of stakeholders in Kampala and Mbarara, the contribution of manufacturing to poverty reduction and structural transformation are explored and the industries with the greatest potential for growth are identified. On the basis of the findings, the research team devised recommendations for both the manufacturing sector as a whole and the specific highpotential industries identified. Ugandas rich natural resources and strategic geographic position within East Africa provide the nation with large potential and opportunities, however, various challenges and constraints hamper its economic development.
This report is divided into two parts:
The Inception Report is subdivided into six sections. Firstly, the General Background of Uganda is established in regards to both the national and policy context. Secondly, the Institutional Landscape is described and key stakeholder groups identified. The Role of Manufacturing for Poverty Reduction and Structural Transformation is then theoretically discussed. The Mission Scope and Objectives of this research are outlined and the research questions identified. Fifthly, the Analytical Framework used to guide the research and analyse the findings is described. Lastly, the Methodology used to conduct the research is explained.
The Recommendations Report presents the findings and recommendations of the primary research conducted. It is sub-divided according to the research questions and utilises the analytical framework described in the Inception Report. The recommendations are split between general recommendations for the entire manufacturing sector and specific recommendations for the highpotential industries identified. Finally, the limitations of the research are highlighted and further areas of research are identified.
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Acknowledgements
This section is dedicated to expressing our sincere gratitude for all those who supported our research from both London and Uganda. Without the assistance and support of all those mentioned within this section, this research project would have not been made possible.
Whilst in London, we were fortunate enough to harness the insights of with two Uganda experts, namely Dr. Michael Twaddle from the Institute of Commonwealth Studies (London), who gave us great insight into the political history of Uganda, and DPUs Prof. James Oporia-Ekwaro who without his local account for Ugandas geopolitical situation, intimate knowledge of key players and access to his black-book of contacts, our report would not be as thorough as it has become. A special thank you to Ambassador Oporia-Ekwaro.
It is important to mention that actual on-the-ground research is not only crucial to any research activity, but in the case of Uganda, we as a team found it to be both enlightening and humbling. Therefore, the largest portion of our acknowledgement is directed at all the local experts and organisers who made the in-field research possible.
We would like to recognise the generous contributions made by all our Uganda contacts, most important of all Mrs Tumuhimbise. With absolute certainty, this report and the data we collected from Mbarara would not have been possible without the guidance, commitment and patience of Mrs Tumuhimbise. We sincerely thank you.
To ensure our safe travel whilst in Uganda, we must acknowledge our local fieldtrip coordinators Mr Leonard Bufumbo (Kampala) and Mr Moses Tukwasiibwe (Mbarara). We are sure that without you coordinated efforts we would have never made a meeting on time.
During our time in Kampala, DPU arranged for us to meet with important organisations that laid a strong foundation for our research efforts in Uganda. Our team would like to acknowledge the key individuals who gave up their time and shared their views with us. To Prof Emmanuel Tumusiime Mutebille, Governor of Bank of Uganda, we would like to thank you for making the time and effort to speak with us (twice). Not only have you provided us with an insiders view of the National Development Plan, but also showed us extreme generosity and hospitality. We thank you and your staff for hosting us.
We found the Ugandan government officials very accommodating and knowledgeable on our research topic. We would like to acknowledge that not only were our discussions quite open and comfortable, we were often provided with various government publications to help us better understand the national perspective on potential economic growth areas. We thank Eng. Samuel Ssenkungu, Commissioner, Industry and Technology of the Ministry of Tourism, Trade and Industry;
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Ms Rosetti Nabbumba, Ministry of Finance; and Mr Tom Buringuriza, Deputy Executive Director of the Uganda Investment Authority. Without their guidance we would not have been so confident in the validity of our findings.
Central to our research was the recently released National Development Plan and we were very fortunate to meet and speak with the Deputy Chair of the National Planning Authority, Dr Abel Rwendeire. Thank you Dr. Rwendeire for providing greater insight into Ugandas development objectives.
Also in Kampala the team was privileged to meet with industry associations. We would like to acknowledge the time and discussions provided by Mr Andrew Luzze Kaggwa (Policy Officer for the Uganda Manufacturers Association, Mr James Kawooya (Programme Manager for the Uganda Small Scale Industries Association), Executive Director Mr Gideon Badagawa and Trade Policy Analyst Mr Joseph Mawejje of the Private Sector Foundation Uganda. We thank you for your invaluable contribution towards this report.
As the team strived to obtain a more holistic view on Ugandas poverty situation related to the market and manufacturing, we had the great opportunity of meeting with Mr Peter Christopher Werikhe (Secretary General) and Mr Yazid Baligasima (Programme Assistant) of the National Organisation of Trade Unions; Mr Kyoratungye Karemente who spoke on behalf of the United Nations Industrial Development Organization; Ms Kate Wedgwood (Deputy Head Programmes) and Ms Jo Bosworth (Social Development Adviser) of United Kingdoms Department for International Development; and Ms Catherine Nimusiima, ACTogether Uganda. We would like to thank you for your time and contributions towards this report.
Also within the international aid agency arena, we would like to acknowledge Mr Kasper Dalsten, the Special Assistant to the Country Manager, Partnerships & Aid Effectiveness, from the World Bank for providing a very informative and comprehensive presentation on Ugandas interactions with the World Bank.
Of the research institutions we visited and had discussions with, we would like to acknowledge and thank Dr Peter Atekyereza, Senior Lecturer and Head of the Sociology Department at Makerere University and the Centre for Basic Research; and Mr. Simon P. Rutabajuuka, Director at the Centre for Basic Research for providing an academic view on Ugandas poverty and development issues.
Furthermore, we would like to extend our gratitude to the Mbarara University of Science and Technology. Without the support, hospitality and expertise of their staff our report would have been incomplete. We would like to thank and acknowledge Mr Emmanuel Kyagaba, Dean of Students; Mr Bernard Kakuhikire, Head of Department from the Faculty of Development Studies; and Mr Charles Tushabomwe-Kazooba, Lecturer for Faculty of Development Studies.
In addition to our academic support from Mbarara, the team would like to acknowledge the generosity received from Mr Gregory Tweheyo, the Statistician for the Mbarara District Local Government, for providing us with the latest Mbarara statistics, giving us a more up-to-date dataset to work from.
As the majority of our research involved operating manufacturers within Mbarara, an acknowledgement of the willingness and openness we received from our interviewees from across the sector must be mentioned. This will undoubtedly form a solid basis for our report recommendations and truly help contribute to understanding the relationship between Mbararas manufacturing sector and poverty reduction and structural transformation. We would like to thank: Mr. Joseph Tugume (Director of La Vie (U) Ltd) Mr. George Kiberu (Manager of Production of Paramount Dairies) Ms. Eunice Wekesa (Director of Wes Knit & Chair of Uganda Gatsby Trust, Mbarara Branch) Mr. Eric Bugume (Director of Brown Furniture Showroom) Ms. Monica Kiiza (Owner of Ahimbisibwe Truth Honest Furniture Workshop) Mr. Dennis Lule (Owner of Hope Furniture) Mr. Ainebyoona Ronald (Employee of Kambad Metal Works) Mr. Kisaame William (Production Manager of Super Quality Millers) Mr. Tukamuhabwa Rashid (Chief Employee of Bekiza's Workshop) Ms. Rosemarie Bangirana (Owner of Mariaba Country Wine Food) Mr. Godwin Tumwebaze (Director of Production, Mbarara of GBK Dairy Products (U) Ltd) Mr. Robert Matsiko (Managing Director of Numa Feeds) Mr. Ibrahim Kakaire (Quality Assurance Coordinator of Century Bottling Company Ltd) Ms. Kiberu Sarah Kizza (Sales Analyst of Century Bottling Company Ltd)
We would like to sincerely thank you for your contributions and wish you the best in your future endeavours.
Last but not least, we would like to acknowledge the staff from the Development Planning Unit of the University College London: Dr. Julio Davila, Mr. Michael Walls, and Dr. Le-Yin Zhang. We thank them for their continued support, guidance and expertise throughout the project to help stretch our thinking and refine our findings and recommendations. Also within the faculty, we would be lost, hungry and confused without the help of Ms. Yukiko Fujimoto and Ms. Virginia Stephens, thank you for making sure we were fed and sheltered throughout our time in Kampala and Mbarara.
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About Us
Ms. Yuki Lo, Project Manager Current Study Program: Masters of Science in Development Administration and Planning from the University College London, United Kingdom. Country of Origin: Hong Kong, China. Undergraduate Study: Bachelor of Business and Information Technology at the University of Technology, Sydney, Australia. Experience: Formerly a consultant to the banking sector across Asia-Pacific.
Ms. Asma Ahli Current Study Program: Masters of Science in Development Administration and Planning from the University College London, United Kingdom. Country of Origin: United Arab Emirates. Undergraduate Study: Bachelor of Architecture at the American University of Sharjah, United Arab Emirates. Experience: Previously worked for a leading real estate firm in Dubai, United Arab Emirates.
Mr. Timo Falkenberg Current Study Program: Masters of Science in Development Administration and Planning from the University College London, United Kingdom. Country of Origin: Germany. Undergraduate Study: Bachelor of Science in Public Health at the University of East London, United Kingdom. Experience: Conducted health sector research for a non governmental organisation based in London, United Kingdom.
Mr. Tevita Lesuma Current Study Program: Masters of Science in Development Administration and Planning from the University College London, United Kingdom. Country of Origin: Republic of the Fiji Islands. Undergraduate Study: Bachelor of Business with majors in International Business and E-Business from the Queensland University of Technology, Australia. Experience: Formerly a manager from the education sector in Australia and United Kingdom, with research experience from various projects in Fiji.
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Ms. Kerry-Jo Lyn Current Study Program: Masters of Science in Development Administration and Planning from the University College London, United Kingdom. Country of Origin: Jamaica. Undergraduate Study: Bachelor of Science (Honours) with majors in International Relations and Psychology from the University of the West Indies, Jamaica. Experience: Formerly a Project Manager on a USAID Community Empowerment Project in Jamaica.
Mr. Ashwin Prabhu Current Study Program: Masters of Science in Urban Economic Development from the University College London, United Kingdom. Country of Origin: India. Undergraduate Study: Bachelor of Science in Applied Mathematics and Economics from Columbia University, United States. Experience: Formerly a researcher for Columbia University (United States) and the Centre for Sustainable Transport (India).
Mr. Daniel Xavier Current Study Program: Masters of Science in Urban Economic Development from the University College London, United Kingdom. Country of Origin: Brazil. Undergraduate Study: Bachelor of Economics from the Universidade Presbiteriana Mackenzie, Brazil. Experience: Formerly a credit and risk analyst for the banking sector in Brazil.
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Glossary
AGOA B2B BOU CBR CIA CICS COMESA DfiD DPU EAC ERP FDI GBK GCI GCR GDP GOU IMF ISO LDC MDG MFI MoFPED MoWT MTCS MTN MTTI MUST NDP NGO NIP NPA NRM NTP OECD PEAP PIBID PSFU SIP SME SMS ST UBOS UCL African Growth Opportunity Act Business-to-Business Bank of Uganda Centre for Basic Research Central Intelligence Agency Competitiveness and Investment Climate Common Market for Eastern and Southern Africa Department for International Development Development Planning Unit East African Community Economic Recovery Programme Foreign Direct Investment GBK Dairy Products (U) Limited Global Corruption Index Global Competitiveness Report Gross Domestic Product Government of Uganda International Monetary Fund International Standards Organisation Least Developed Countries Millennium Development Goals Micro Finance Institution Ministry of Finance, Planning and Economic Development Ministry of Works and Transport Medium Term Competitiveness Strategy MTN Uganda Limited Ministry of Tourism, Trade and Industry Mbarara University of Science and Technology National Development Plan Non-Governmental Organisation National Industrial Policy National Planning Authority National Resistance Movement National Textile Policy Organisation for Economic Co-operation and Development Poverty Eradication Action Plan Presidential Initiative on Banana Industrial Development Private Sector Foundation Uganda Special Import Programme Small and Medium Sized Enterprises Short Message Service Structural Transformation Uganda Bureau of Statistics University College London
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UGX UIA UMA UNBS UNCTAD UNDP UNESCO UNIDO UPE USA USD USSIA WB WDI WEF
Ugandan Shilling Uganda Investment Authority Uganda Manufacturers Association Uganda National Bureau of Standards United Nations Conference on Trade and Development United Nations Development Programme United Nations Educational, Scientific and Cultural Organisation United Nations Industrial Development Organisation Universal Primary Education United States of America United States Dollar Uganda Small Scale Industries Association World Bank World Development Indicators World Economic Forum
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Maps
Districts of Uganda
Source: UBOS, 2009
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Municipality of Mbarara
Source: DPU, 2010
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PART ONE
INCEPTION REPORT
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1. General Background
a. The National Context by Kerry-Jo Lyn
Uganda in Context Since its 1962 independence, the Republic of Uganda experienced two decades of political strife and violence. Comprised of an ethnically diverse society, Uganda has historically been divided along lines of region, tribe and religion. Most recently, the discovery of an estimated 2 billion barrels of oil reserves in the country has sparked discussions and debates about how best to apportion the benefits (and costs) of this development.
Over the past 25 years, East Africas third largest economy has had a stable government led by President Yoweri Museveni. With an average annual economic growth of 7% since 2000, Uganda has become one of sub-Saharan Africas fastest growing economies (DfID, 2009).
The year 2010 is an auspicious one as it has seen several significant events, which will inevitably help shape the next decade of the countrys development. Notably is the launch of the new National Development Plan as well as the establishment of the East African Community (EAC), along with Kenya, Tanzania, Rwanda and Burundi. Even though it has been considered by many to be a success story for poverty reduction, poverty still remains an issue of great concern to Uganda.
Demographics Uganda currently has an estimated population of 30.7 million persons (UBOS, 2009) with 56% being children under the age of 18 years (Ibid). The countrys population growth of 3.24% is one of the highest in the world (UNCTAD, 2008) and by year 2050, Ugandas population is projected to be 106 million. Figure 1 - Census Population Estimate
35 30 25
Million
30.7 24.2 16.7 9.5 12.6
20 15 10 5 0 1969 1980
1991
2002
mid-2009
Source: UBOS, 2009
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Average life expectancy at birth for both sexes has steadily increased over the last decade and is currently at 50.4 years, with males registering a lower average life expectancy than females. Between 1991 and 2002, there was a gain of 2.3 years for each sex (UBOS, 2009). With an increasingly younger population, the levels and quality of education have become even more significant. The governments introduction of the Universal Primary Education (UPE) Programme in 1997 has facilitated an increase in primary enrolment from 3.1 million in 1996 to 7.4 million in 2008. Yet, 1.3 million (16%) children of primary school age have never enrolled in school (UNDP, 2009).
According to the UNESCO 2007 statistics, only 51% of children completed a full course of primary education, although on average 97% and 94% of girls and boys respectively are enrolled in primary school. The data on secondary enrolment is telling as only 18% of girls and 20% of boys are in secondary school. One third of the population (approximately 10 million) and almost half the women is unable to read and write, as is illustrated below in Table 1.
Liberalization of the education system has led to an increase in private higher learning institutions and introduction of more courses. In 2006, 67% of tertiary enrolment was to universities with 58% being male (UBOS, 2009).
Table 1 - Uganda Comparison with selected neighbouring states Population (millions) 38.7 30.7 Population growth (%) 2.6 3.3 Literacy Rate (%) 86.5 74.6 GDP (USD billions) 30.3 14.3 GDP per capita (USD) 783 453 Poverty Headcount Ratio* (%) 46.6 31.1 35.7
COUNTRY Kenya Uganda
Tanzania 42.4 2.9 72.6 20.4 496 Source: UNCTAD 2008, World Bank Indicators 2008 & 2009 [* at national poverty line]
Poverty & Politics The population living below the poverty line was estimated to be 56% in 1992. In 1997 when Uganda became the first African country to adopt a Poverty Eradication Action Plan (PEAP) as their central policy framework, poverty levels were at 44% and then continued to decrease to 31% in 2007 with further decreases projected. Regional differences in poverty are quite large with the highest level in the north of Uganda, being around twice the national average.
The strong GDP growth performance has significantly contributed to the reduction in poverty levels of the country. Other factors attributed to the reduction include liberalization and stabilization of the economy (World Bank, 2004).
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While the PEAP was originally focused on social sectors, over time the focus shifted to production and competitiveness as key drivers of growth and poverty eradication. In April 2010, as a result of the Governments commitment to revision of the PEAP, the National Development Plan (NDP) for 2010/11 2014/15 was launched (Government of Uganda, 2010). Policies and reforms relevant to the manufacturing sector will be discussed in greater detail in the following sections.
GDP & Labour During the period of the PEAP, between 1997 and 2002, the average rate of GDP growth was 7.2% per annum. Due to the global recession, GDP growth declined slightly to 6.2% in 2008/2009 but the government has projected this to increase slightly to 6.4% in 2009/2010 (NDP, 2010).
Only 20% of the working age population (14-64 years of age representing 47.9% of the population) is reported as having a formal job. In 2005/2006, the agricultural industry employed 73% of the working population. The share of the labour force employed in manufacturing decreased from 6.8% to 4.2% in 2008 despite rising GDP shares of this sector (UBOS, 2009).
With respect to wages, the industrial sector recorded the highest average employee earnings when compared to the agriculture and service sectors. The Employment and Earnings Survey (UBOS, 2009) in the 2006 Uganda Business Register shows that the median earning across all industries was UGX 140,000. As shown in Figure 2, employees in the manufacturing sector earn a higher average wage relative to most other sectors.
Figure 2 - Median Earnings Per Month (UGX)

265,000
200,000 120,685
120,000
100,000
Agriculture
Manufacturing
Construction
Education
Hotels
Source: UBOS, 2009 As illustrated below in Figure 3, the contribution of the agricultural sector to GDP has been declining while the industry (for which manufacturing has been disaggregated) and service sectors have shown steady increase over the same period.
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Figure 3 - GDP % by Sector 1990 - 2006

52.8 46.5
1990
1995
2000
2006 46.4 43.0 34.7 27.5
36.9 32.2 21.4 20.1 16.0 12.5
9.3 9.0 6.4 7.9
Agriculture
Total Industry
Manufacturing
Services
Note: Manufacturing figures are disaggregated from Total Industry percentages

Source: UNCTAD, 2008
Manufacturing Sector The manufacturing sector, including both formal and informal, represented 7.2% of GDP in 2008 (at current prices). The Ugandan manufacturing sector is relatively small, dominated by small to medium scale enterprises that make up around 90% of the sector (PSFU, 2010).
In the period between 2001 and 2006, the number of manufacturing businesses employing 5 or more persons increased by 32%. In 2006, the GDP share of the formal manufacturing sector (as distinct from informal) was 6.1% (UBOS, 2007).
Despite its small scale the sector involves various industries, including agro-processing, such as fish processing, sugar, tea, cooking oil, dairy processing, and soft drinks. There are also factories for textiles, paper products, furniture making and tobacco processing. Between the years of 1997/98 and 2005/06, manufacturing experienced an annual growth of 1.3% (Ishengoma & Kappel, 2008), which is significantly lower than the average 7% national GDP growth rate. Most industries are judged to be performing at less than 50% of capacity (NDP, 2010).
In 2008, while the number of employees in manufacturing firms decreased the same period saw the monthly average earnings increase by 18% as shown in Figure 4.
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Figure 4 - Average Earnings For Manufacturing Establishments1 (UGX per month)

373,341 316,029 274,291 237,542
245,679
3.4%
11.6%
15.2%
18.1%
2004
2005
2006
2007
2008
Source: UBOS 2009, PSFU 2010 The disaggregated composition of the manufacturing sector (Figure 5) illustrates that agroprocessing comprises 43% and other types of manufacturing industries account for the remaining 57% (PSFU, 2010). Figure 5 - Composition of Manufacturing Sector (2007 data)
Furniture & Other 22% Grain Milling 18%
Metal Works 15% Saw Milling, Print & Publishing 12% Plastics 5% Chemical & Products 3%
Other 57%
Agro-processing 43%
Textiles & Leather 7% Bakeries & Other Food Items 6% Coffee 6% Beef, Dairy & Fish 3% Beverages & Tobacco 2% Tea 1%
Source: PSFU, 2010 Changes and Challenges A few of the challenges identified in the new NDP include slow or no growth in the agriculture and industrial sectors; recognition that sectors are not effectively absorbing a growing (and younger) labour force, dominance of primary commodities over industrial products, as well as the slow accumulation of core production infrastructure (energy, transport) (NDP, 2010).
The growth potential of small and medium scale manufacturing businesses are restricted by: limited access to financial and business services (including private investment, internal and external finance),
Note: A total of 123 manufacturing firms were selected for the UBOS statistical report on the basis of reliability and consistency of data relating to number of employees and labour costs for the period.
high taxes, limited access to varying markets, poor infrastructure, lack of technical capacity, discouraging tax systems, a strict regulatory system, expensive transport and transaction costs, corruption, low educational levels and vocational training, intermittent and expensive power supply, weak institutional support and significant reliance on regionally imported raw materials, equipment and products. (Ishengoma & Kappel, 2008). Furthermore, international standards require adherence to strict quality measures for all exports thereby enhancing constraints to Ugandas export prospects.
These factors as well as shifts in domestic as well as donor policy, ambitious plans for the oil industry and the multiplicity of already existing obstacles within the political climate all combine to present a complex web of challenges for the people and government of Uganda. If the countrys solid performance through this recent global recession gives any indication, a closer look at its policies and plans are indeed necessary to further understand how poverty reduction may continue to be achieved.
b.
The Policy Context

by Asma Ahli
Uganda went through decades of political turmoil that affected its' economic growth. By the 1990s, a period of political stability and a comprehensive plan by Musevenis government to create a business friendly environment revived the economy. The liberalization process, supported by the IMF/World Bank, prompted an economic environment with scaling back of government intervention. Despite overall economic growth in the past three decades, the manufacturing sector lags behind the overall rate of growth. High interest rates as a result of the IMF conditionality on loans and funds hindered the growth of many local businesses (Rasiah & Tamale, 2004). Table 2, summarises the three stages of economic reform. Table 2 - The Three Stages of Economic Reform (Robinson, 2006) The first stage (1986-1991) Path to recovery The National Resistance Movement (NRM) government was characterised as severely interventionist; adopting policies of complete control over foreign exchange rates and prices of imports. The impact of these policies proved to be catastrophic, as inflation soared to almost 300% within the first year. By 1987, the declining conditions elicited conversations with the World Bank and IMF for financial support and to plan a comprehensive Economic Recovery Programme (ERP). Designed to promote long-term economic growth and macroeconomic stabilization through foreign investment in physical assets and infrastructure. The ERP included policies for structural and institutional adjustment reforms such as currency reform and liberalizing foreign exchange allocation and exchange rate. The reform process reduced inflation rates and stimulated growth rates back to positive figures.
The second stage (1992-1998) Government ownership and deepening reform
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The third stage (1999-2004) Reform consolidation: Poverty reduction and public services
PEAP was established in 1997 as recognition that the reform policies may not positively impact the poor. PEAP was the platform under which poverty declined from 56% in 1992 to 35% 2000. It addressed causes and dimensions of poverty, and underlined 4 goals; rapid and sustainable economic growth, good governance, income increase for the poor and improved quality of life (Ntale & McClean, 2004). PEAP involved plans to modernise the agriculture sector, promote universal primary education and healthcare. Despite economic growth and the governments continued commitment, chronic poverty has persisted.
Policy reforms for the private sector Since the 1980s, the government adopted several policy reforms, including the ERP in 1987, the PEAP in 1997, the Medium Term Competitiveness Strategy (MTCS) in 2000 and the Competitiveness and Investment Climate Strategy (CICS) in 2006 (MOFPED, 2008). The ERP was to promote the private sector and export-led growth and investment. Policies included investment in infrastructure, trade liberalization, privatization of public institutions, liberalization of interest rates and foreign exchange. Since the ERP, the private sector has led the majority of investments and financing. Following the ERP, steps were taken towards further market and price deregulation, in addition to macroeconomic stabilisation. The ERP launched several other policies, including the Special Import Programme (SIP) in 1989. PEAP aimed to reduce poverty and promote economic growth through good governance, security, human development, competitiveness and economic management. CICS aimed to improve the competitiveness of the productive sector by making it easier to do business in Uganda.
The establishment of the Common Market for Eastern and Southern Africa (COMESA) (1981) instigated a new stage for economic integration and consolidation by implementing policies for sustainable growth and development. Policies include abolishing all non-tariff barriers to trade, facilitating transit trade within the common market, eliminating rigidities in production and manufacturing, coordinating policies in agricultural research, extension, and regional food sufficiency, and adopting common standards of quality (COMESA, 2008). The treaty encourages free trade of goods, services, capital and labour and promote regional integration and foster macroeconomic policies.
More recently, the East African Community (EAC), comprising the five east African countries Kenya, Uganda, Tanzania, Rwanda and Burundi, will form a common market to enable the free movement of people, capital, goods and services across borders. The treaty, expected to come into effect in July 2010, is a step towards intra-regional trade. However, many fear that the opening up of borders may result in Kenya dominating the manufacturing sector for its advanced industries. Kenya is currently the most industrially advanced country in East Africa, with industries in food processing, consumer and household goods, and clothing.
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Policy reforms for the manufacturing sector The National Industrial policy of 2008 attributed the stagnant growth of the manufacturing sector to unstable power supply and high electricity costs, and emphasised the importance of transforming Uganda into a modern, competitive and industrial country (MTTI, 2008). Policies focused on utilizing natural resources, promoting agro-processing, and knowledge based industries to achieve a business friendly environment and improve the productivity and quality of products. In addition, it aims to invest in infrastructure, promote innovation and technology, attract Foreign Direct Investment (FDI), support the development of skilled labour, create jobs, and promote sustainable small and medium enterprises.
By the end of 2009, in response to the United States African Growth and Opportunity Act (AGOA) the Ugandan government introduced the National Textile Policy to promote textile exports. The strategy aims to revive the textile sector that has been experiencing declining rates since the 1970s. A total of USD 250 million was allocated to re-establish the textile and clothing industry. With China however controlling over one third of the worlds textile market, the sector proved to be challenging to infiltrate (Olanyo, 2010). Therefore the government is now refocusing to develop its domestic and regional markets.
In addition to AGOA, the European initiative Everything but Arms, where all imports (excluding armaments) from least developing countries (LDC) are duty free, was initiated to promote the development of LDC and encourage trade. Despite the two global initiatives, the Ugandan manufacturing sector still finds it difficult to penetrate the global market due to strict quality controls and standards.
The government formulated several plans and policies to support the growth of the manufacturing sector. Table 3 summarises a few action plans for these challenges: Table 3 -Key Policy Consideration to promote the manufacturing sector Challenge 1. 2. Poor Infrastructure Private investment (Internal and external) 3. Lack of technical skill and capacity Intermittent and Policy Reform In 2009, the government allocated an estimated UGX 1.1 trillion, 18% of its total budget, to upgrade and extend the road network. The establishment of Uganda Investment Authority (UIA) to promote and facilitate investment projects, provide serviced land and advocate for a competitive business environment. It also aims to attract foreign investment that brings technology, skills and jobs to Uganda (UIA, 2010). Under the National Planning Policy 2008, the Government reoriented its education curriculum from academic to vocational training to produce skilled industrial labour. The construction of additional dams (eg: the Bujagali dam),
4.
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expensive power supply 5. Quality control
hydroelectric plants and transmission lines. The establishment of the Uganda National Bureau of Standards (UNBS), encouraging investment in new technologies, strengthening existing codes and standards, raising awareness on quality controls and participating in international codes and standards settings (MTTI,2008)
The National Development Plan (2010/11-2014/15) The NDP released in April of 2010 introduced a new vision: To transform Uganda from a peasant to a modern and prosperous country through growth, employment, socio-economic transformation for prosperity (The Republic of Uganda 2010, p.1). It seeks to increase household incomes, employment, investment in infrastructure, access to social services, promotion of technology, research and innovation, human capital, and good governance.
The NDP devised an overall strategy to revive the manufacturing sector, which includes four objectives (The Republic of Uganda 2010, p.122) : 1. To promote development of value added industries by enhancing value addition to primary products and building capacity in specific skills. 2. To increase competitiveness of local industries by strengthening industrial development and the promotion of small and medium enterprises. 3. To enhance the development of productivity of the informal manufacturing sub-sector. This is achieved by developing the skills of non-formal manufacturing sector. 4. To promote and improve applied research and technology development by strengthening research and technology developments in industrial application.
The NDP projects the growth of the manufacturing sector share in GDP from 6.7% in 2009 to 25% by 2015, and a 30% contribution of manufactured exports to total exports.
Even though good policies are devised and well founded, there are challenges for implementation and enforcement. Many responded to the new NDP with skepticism and its ability to achieve its targets. For one, a predominant portion of the manufacturing sector is informal. The ability to implement these policies on the informal sector remains disputed. In addition, despite efforts to implement policies, institutions such as the UNBS remains understaffed and underfunded. Furthermore, corruption remains a crucial impediment to growth. Figure 6 illustrates Ugandas position on the Global Corruption Index (Transparency International, 2009). Tackling issues of corruption and bureaucracy is therefore essential to promoting the growth of private industries.
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Figure 6 - Corruption Perceptions Index Score 2009

1. New Zealand
19. United States 55. South Africa 79. China 4.7 7.5
9.4
3.6
2.6 2.5 2.2
126. Tanzania
130. Uganda 146. Kenya
180. Somalia
1.1
Source: Transparency International, 2009
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2. Institutional Landscape
by Tevita Lesuma
This section details key stakeholder groups identified within Ugandas manufacturing sector, specifically Mbarara, as having a major role in influencing both poverty reduction and structural transformation. The basis of identifying these key stakeholders has been derived from a close analysis of Ugandas recently released National Development Plan (2010) and various Ugandan publications specific to national manufacturing.
Although the list of key stakeholders have been identified and targeted for interviews, it is important to state that the level of importance they play in providing solid recommendations towards the research questions will only be determined during and on completion of the field work and made available as part of the findings sections of this report.
Specification of key stakeholders The research team plans to interview a large number of key stakeholders identified from the London based desk research that covers a large cross-section of Ugandas manufacturing sector (time permitting). The interviewees will be clustered into nine different stakeholder groups: Ugandan Manufacturing Firms; Industry/Trade Associations; Workers Unions; Government Ministries and Departments; Bi/Multilateral Agencies; Non-Government Organisations; Financial Institutions; Research Institutions; and Media Firms.
Ugandan Manufacturing Firms This stakeholder group has been identified as influential in determining the potential for reducing poverty and promoting structural transformation. The objective of meeting with this group is to determine the current level of engagement with the poor within the sector. It is desirable that the team engage with firms from rural and urban areas, of various firm sizes ranging from small to large, and also incorporating formal and informal operators. As manufacturing is central to the research questions, direct contact with the actual actors is fundamental to providing accurate recommendations.
Industry/Trade Associations Industry representatives within Ugandas manufacturing sector tend to have a clearer understanding of the challenges affecting the sector. They also have closer dialogue with manufacturing firms than other organisations may. This stakeholder group is also targeted as it promotes and develops innovative manufacturing processes to their members, whilst also lobbying the government to provide better conditions for manufacturing prosperity.
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Workers Unions As the literature on poverty suggests, increasing employment opportunities to the poor is an essential step in reducing poverty (Khan, 2002). Workers Unions are seen as having first-hand insight regarding the labour conditions within the manufacturing sector as well as constraints around creating more employment opportunities for the poor.
Government Ministries and Departments The government has significant influence on the growth of the manufacturing sector. As mentioned previously, the NDP highlights the extent to which the government is committed to generating prosperity for the nation through the support of the manufacturing industry. It is through government that both regulations and policies are designed to protect, promote, and enhance Ugandas economic growth. Therefore, it is imperative that the team establish discussions with Ugandas key ministries.
Bi/Multilateral Agencies Uganda is a donor recipient nation (Atingi-Ego, 2005) and therefore it is pertinent to this research that dialogue is sought with bilateral/multilateral donors. The significance of these actors lies in their ability to provide research and funding to help strengthen the manufacturing sector. These stakeholders also work with government ministries and influence relevant policy decisions. Vital assistance is additionally provided through technical and logistical support.
Non-Government Organisations (NGOs) NGOs have traditionally been regarded as advocacy agents for civil society. The NGOs are often influential in lobbying government, and to an extent the private sector, on creating a pro-poor manufacturing environment. They will also supply this report with relevant information in order to better link increased manufacturing efficiency and employment with poverty reduction and structural transformation. Based on the low proportion of female workers in the sector, it is therefore important to meet with womens groups to understand what barriers hinder their employment opportunities.
Financial Institutions Lack of access to credit has been identified as a major barrier to a higher performing manufacturing sector (NDP 2010, p.120). Therefore, it is important to gauge the perspectives of Ugandas financial institutions, both micro-finance firms and commercial banks.
Research Institutions There are a number of research bodies in Uganda with expertise on the manufacturing sector. They will be included as part of our research to augment any findings, as local expertise would provide the
team with particular insight and well-documented research. This group is predominantly comprised of universities and think-tanks.
Media Firms Through discussions with a London-based Uganda expert, media firms were selected as an alternate source of information. Media firms have the potential to provide a more apolitical and uncensored account of the nations economic journey and its influences.
Potential Interviewees From the nine specific stakeholder groups, the team has identified over thirty potential interviewees. This is detailed below in Table 4. The final list of interviewees will be detailed in Appendix B.
Table 4 -Key Policy Consideration to promote the manufacturing sector Key Stakeholder Group Ugandan Manufacturing Firms Identified Organisations Urban, Peri-Urban and Rural Micro, Small, Medium & Large Sized Firms Different industries: furniture, grain milling, coffee/tea, textile, metal etc. Uganda Manufacturers Association (UMA); Uganda Small Scale Industries Association (USSIA); Private Sector Foundation Uganda (PSFU); Uganda Gatsby Trust Uganda Beverages, Tobacco, And Allied Workers Union; Uganda Textiles, Garments, Leather And Allied Workers Union; National Organisation of Trade Unions Ministry of Agriculture, Animal Industry and Fisheries; Ministry of Finance, Planning and Economic Development (MoFPED); Ministry of Gender, Labour and Social Development; Ministry of Tourism, Trade and Industry(MTTI); Uganda Investment Authority (UIA); Bank of Uganda (BOU); National Planning Authority (NPA); Mbarara District Local Government UNIDO Uganda; DfID Uganda; World Bank
Industry/Trade Associations
Workers Unions
Government Ministries and Departments
Bi/Multilateral Agencies NGOs
Uganda Womens Network; Action Aid; Womens Movement Commercial and Microfinance Institutions
Financial
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Institutions Research Institutions Makerere University; Mbarara University of Science and Technology; Centre for Basic Research The Independent magazine
Media firms
Institutional Context In researching Ugandas manufacturing sector, it is evident that government plays a major role in devising national policies to encourage economic stimuli. In the previous section, various types of national policies which link to the promotion of the manufacturing sector have been discussed. Below, Table 5 summarises the key policies related to the sector and the stakeholders involved.
Table 5 - Mapping of Key Policies to Stakeholders Manufacturing-related Policies Economic Recovery Plan (ERP) Poverty Eradication Action Plan (PEAP) Medium Term Competitiveness Strategy Competitiveness and Investment Climate Strategy National Industrial Policy National Textile Policy National Development Plan Year 1992 1997 2000 2006 2008 2009 2010 Key Stakeholder MoFPED MoFPED MoFPED MoFPED MTTI MTTI NPA Stakeholder Type Government Ministries and Departments
Table 5 shows that the government has demonstrated continued commitment to the manufacturing sector. Although Ugandas government has been considered stable, with the same party and president for 25 years, a parliamentary and presidential election scheduled for early 2011 may have an impact on shaping Ugandas economic future.
While the institutional context is discussed above, it is best described through the International Institute for Environment and Developments stakeholder power analysis as devised by James Mayers (2005). This analysis will be provided on completion of the in-field research.
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3. Role of Manufacturing in Poverty Reduction and Structural Transformation

by Timo Falkenberg
In order to assess to what extent the growth of the manufacturing sector contributes to poverty reduction and structural transformation it is necessary to establish the theoretical linkages between both manufacturing and poverty reduction and manufacturing and structural transformation. Some key conflicts between the competing objectives are discussed and ultimately the features of manufacturing industries to achieve both structural transformation and poverty reduction identified.
a.
Manufacturing and Poverty Reduction
Economic growth induced by a growing manufacturing sector provides potential for poverty reduction through the mechanism of the trickle-down effect. Accordingly, the economic benefits created by economic growth trickle down to the poor through increased wages and decreased prices of necessities (Islam, 2004). However, the automatic link between economic growth and poverty reduction and particularly the trickle-down effect have been put into question by empirical evidence (Khan, 2002). Therefore, it is important to identify the mechanisms through which manufacturing can reduce poverty.
The basic reason for poverty considered is the lack of an adequately high income and access to employment for the poor (Khan, 2002). As the wage level in the manufacturing sector is higher than in traditional sectors, the role of the manufacturing sector in poverty reduction lies in the creation of jobs that are accessible to the poor. Therefore, labour-intensive growth is of particular importance (Ernst & Berg, 2009) as such creates a high demand for labour and thus creates many employment opportunities. Labour-intensive manufacturing requires relatively low-skilled labour, which increases the accessibility for the poor (Sderborn & Teal, 2003). The manufacturing sector has high potential for productivity increases through skills training and technological progress (Gries & Naude, 2010). This also increases the wage level of workers, providing further potential for poverty reduction. Additionally, transferable skills obtained enable individuals to find other, better-paying jobs in the longer term.
b.
Manufacturing and Structural Transformation
Structural transformation is an essential aspect of economic development (Cownie, 1974). In order to transform the economy from a traditional to a modern one, it is necessary to make large numbers of workers more productive (ibid). This structural transformation is primarily characterised by the movement of labour from traditional agricultural activities and other primary sectors to modern industry (Rodrik 2006, p.1) and tertiary activities. The key to initiate structural transformation lies in productivity gains in the agricultural sector, as this provides food and frees up labour for urban economic activity (Timmer & Akkus, 2008). However, agricultural modernization merely forms one
aspect of structural transformation, the manufacturing sector also has a crucial role to play in this process.
The role of the manufacturing sector for structural transformation is three-fold: 1. Through the creation of jobs manufacturing industries absorb surplus labour from the traditional sector (Gries & Naude, 2010). 2. Growth of the manufacturing sector increases the productivity of both the modern and traditional sectors (ibid). The highly progressive nature of the manufacturing sector enables productivity increases through technological progress and increases in worker skill level (Singh, 2004). The higher wages paid in the manufacturing sector (relative to the agricultural sector) as well as higher employment and livelihood opportunities in urban compared to rural areas pulls agricultural labour into the cities. The reduction of the agricultural labour force in itself increases the productivity of the traditional sector. The higher demand of skilled labour and the higher wage of these higher skilled jobs increase investment into human capital, thus raising the overall level of human capital (Gries & Naude, 2010). This provides further potential for productivity increases. The growing manufacturing sector can also raise the productivity of the agricultural sector through the manufacturing of agricultural inputs, such as fertilisers and machinery. The increasing employment share in the manufacturing sector creates increases in demand for agricultural products creating incentives for agricultural producers to invest in productivity-enhancing methods and machinery (Cownie, 1974).
3. The backward and forward linkages of the manufacturing sector create demand for additional manufacturing firms, particularly for the production of inputs and intermediate goods, as well as increasing the demand for the service sector (Sderborn & Teal, 2003). Therefore, growth of the manufacturing sector fuels further growth of the sector itself while promoting growth of the service sector. As the size and number of manufacturing firms increase the demand for services such as transport, accounting, logistics, and legal services increases, driving structural transformation forward even further.
c.
Key Conflict Between Poverty Reduction and Structural Transformation
In the long term the objectives of structural transformation and poverty reduction are the same, both aim to increase the average income and living standards of the population. In the short term, however, structural transformation is likely to increase inequality and increase poverty. Highly productive manufacturing - essential for successful structural transformation - requires high-skilled 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
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 (Sderborn & 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 (Sderborn & 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).
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 (Sderborn & 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 followsObjective 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 Porters 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 The size, relevant skills and experience of the available labour force The size of the market, existing and potential, for the product manufactured The presence and scale of firms and industries that support the production process 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
2. Labour Conditions 3. Market Conditions
4. Related Firms and Industries 5. Government Policy
Factor Conditions
Labour Conditions
Determinants of Advantage
Market Conditions
Related Firms and Industries
Government Policy
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
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 Factor Conditions Poor Materials and inputs not available locally and/or very expensive Fair Materials and inputs generally available consistently and at affordable prices but with occasional problems in supply Some problems with labour force skills and wages, but with potential for improvement Large domestic market, but limited scope to develop regional and/or international market Some related firms and industries, but with limited networks and links Good 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 Small or limited domestic market, with no scope to develop regional and/or international market Lack, or small number of, related firms and industry
Labour force with formal training, relevant skills and experience
Market Conditions
Large domestic market and good potential to develop regional and/or international market Large number of related firms and industries, extensive links and networks, and competition between related firms Government policies, plans and programmes to support industry are comprehensive, up to date and display significant levels of commitment
Related Firms and Industries
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
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 regions 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 1. Institutions Description 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. Extensive and effective transport, electricity and communications infrastructure is an essential determinant of competitiveness. Stability of the macroeconomic environment is a key factor for competitiveness. Although macroeconomic stability alone cannot increase productivity, macroeconomic instability can harm growth. 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. 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. 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. 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. An efficient financial sectors allocates the resources within an economy as well as those coming in from outside to their most efficient uses. Quick and ready absorption of both existing and new technologies can help boost an economys productivity and promote growth.
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2. Infrastructure 3. Macroeconomic Stability 4. Health and Primary Education 5. Higher Education and Training 6. Goods Market Efficiency
7. Labour Market Efficiency
8. Financial Market Sophistication 9. Technological Readiness
Table 8 - Description of the 12 Pillars of Competitiveness (WEF, 2010) Pillar 10. Market Size Description 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. 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. 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.
11. Business Sophistication 12. Innovation
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 Compete based on increasingly efficient production processes Economies Produce goods of increasing quality Innovation Driven Compete based on innovative and new products and processes Economies 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 Ugandan context institutions, infrastructure, market size, higher education and training, financial market sophistication, business sophistication and technological readiness generated the greatest barriers to growth in the manufacturing sector (Ishengoma & Kappel 2008; Obwona 2001; OECD 2008; Rasiah 2009; World Bank 2006).
As a result, the 12 Pillars of Competitiveness framework was adapted to suit the needs of this assignment. Figure 8 below indicates the seven pillars considered most influential in affecting the growth of manufacturing in Mbarara.
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Figure 8 - Proposed Framework
Institutions
5
Market size
4 3 2 1 0
Infrastructure
Business sophistication
Higher education and training Financial market sophistication
Technological readiness
Applying the Framework The research team will be conducting semi-structured interviews with a wide range of manufacturing firms. A part of each interview will be dedicated to recording each firms perspectives on the effects of each of the seven pillars on their business. The firms will be asked to rate the impact of each of the seven pillars on a scale of 1-5, with 5 being the most positive. The scale is described in further detail in the Table 10 below. Based on these responses, an average score will be established for each pillar. Pillars with low scores will be identified as those requiring interventions.
Table 10 - Explanation For Ratings Rating 1 2 3 4 5 Description A major barrier that occasionally disrupts revenue generation A minor barrier that significantly increases cost of business Not a driver of or hindrance to growth Helps the firm successfully compete against existing competitors Firm is a leader in this field compared to existing competitors
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6. Methodology
by Yuki Lo
a. 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?
b.
Research Strategy
Phase 1. Phase 2. Phase 3. Desk Research: to be completed in London by 11th May 2010 In-field Research: to be completed in Uganda by 23rd May 2010 Data Analysis: to be completed by 8th June 2010
The research will be divided into three phases, with approximate timeline scheduled as:
The desk research (phase 1) will attempt to establish a series of preliminary hypotheses to address the two research questions, derived from secondary qualitative and quantitative data from Uganda, the African continent and other developing countries with comparable characteristics (eg, South East Asia). The desk research will also help establish the size and composition of the manufacturing industry in Uganda and identify the type of firms and industries that should be interviewed during the in-field research. The background information will be used to guide the design of the interviews and surveys in phase 2.
The desk research will employ both qualitative and quantitative methods outlined in Table 11 below.
Table 11 Research Methods Employed

Type Quantitative Primary/Secondary Secondary desk research Secondary desk research Secondary desk research Method Examine available statistics of manufacturers in Uganda Examine available case studies of manufacturers in Uganda and the East African region Case study of pro-poor manufacturers in developing countries (eg, Latin America, South East Asia) Data Source Bureau of Statistics, industry association annual reports, policy documents Policy documents, academic studies, industry association annual reports, media articles Academic studies, policy documents, industry association annual reports
Qualitative
Qualitative
The expected output from this phase is a list of people and organisations to be interviewed in phase 2, as well as a quantitative survey designed to capture the key data points for testing and validating the hypothesis developed. The in-field research (phase 2) aims to validate the hypothesis developed in phase 1 through interviews with representatives who influence policies as well as groups who are impacted by these policies. The perspectives and insights of local manufacturers are integral to this research and
therefore the team will dedicate more than 50% of its time to meet with employers and employees of private manufacturing firms.
Based on the research from phase 1, it has been decided that the in-field research must include the following types of firms: Small, medium and large enterprises as defined by UBOS (2002). More than 50% of the interviewed firms with nine employees or less to reflect the typical composition of local firms. Formal and informal businesses, as a significant number of firms in Uganda are not registered with the local authority but nevertheless contribute towards the manufacturing sector. For the purpose of this research, a formal business is defined as one that is legally registered and pays tax. Include at least the following type of industries: furniture making, grain milling, metal works, beverages (dairy and fruit based) and textile. These industries have been selected as they are typical of the firms that exist in western Uganda, or have high growth potential.
In addition to manufacturers, the research team will also meet with other groups who help to influence policy related to the manufacturing sector. Based on desk research, the following groups have been identified: 1. Government Ministries and Departments. Eg, Ministry of Tourism, Trade and Industry, National Planning Authority, Uganda Investment Authority, Bank of Uganda, Mbarara District Local Government. 2. Industry/Trade Associations. Eg, Uganda Manufacturers Association, Uganda Small Scale Industries Association, Private Sector Foundation Uganda, Uganda Gatsby Trust. 3. Bi/Multilateral Agencies. Eg, World Bank, Department for International Development, United Nations Industrial Development Organization. 4. Research Institutions. Eg, Centre for Basic Research, Makerere University, Mbarara University of Science and Technology. 5. Workers Unions. Eg, National Organisation of Trade Unions, Uganda Womens Network. 6. Non-Government Organisations. Eg, Uganda Womens Network, Action Aid. 7. Financial Institutions. Eg, Stanbic Bank. 8. Media Firms. Eg, The Independent. The in-field research will employ both qualitative and quantitative methods as outlined in Table 12 below. Table 12 Research Methods Employed
Type Qualitative Primary/Secondary Primary research Method Conduct semi-structured interviews with Ugandan organisations Data Source 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 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)
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. Category
Ugandan Manufacturing Firms
Table 13 Proposed Interview Questions Types of information/data to be collected

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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Category

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 the issues? Qualitative Semi-Structured Interview: 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.?
Bi/Multilateral Agencies
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?
Workers Unions
Qualitative Semi-Structured Interview: 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? Qualitative Semi-Structured Interview: 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
Financial Institutions
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Category

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 Ugandas 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 nonfirm 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

69%
54%
31%
31% 15%
Formal
31%
Informal
Small
Medium
Large
15%
15%
15% 8% 8% 8%
Furniture
Milk Processing
Grain Processing
Beverages
Chemical
Textile
Metal
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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 agroprocessing. 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 teams findings and analysis: Grade Key:
Poor Fair Good Table 14 Findings Related to Mbararas TEXTILE Industry Factor Positive Aspects Negative Aspects Lack of locally available resources Cloth and yarn mostly imported from Kenya, Europe and USA at high prices Labour force unskilled in textile activities especially in more sophisticated processes (e.g. weaving) Lack of formal training for unskilled labour Textile market hard to break into due to high competition from cheap imports from Kenya, India and China Very small number of existing textile firms in Mbarara Low-degree of specialization With the formation of East African common market, textile production in Uganda likely to face further intense competition from Kenya Grade
Factor Conditions

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Labour Conditions
Availability of cheap labour
Market Size High demand in local market for readymade clothes
Related Firms
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
Table 15 Findings Related to Mbararas FURNITURE MAKING Industry Factor Factor Conditions Positive Aspects Raw material (timber) usually readily available at affordable prices Negative Aspects 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 force generally unskilled due to high cost of vocational programs 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 Grade
Labour Conditions
Market Size
Availability of cheap labour Vocational programs are available Mostly made to order goods resulting in high profit margins
Related Firms
Large number of existing firms with an established production cluster (Makhan Singh Street) Existing networks for information and common input sharing No existing policies Furniture making seen as unattractive sector by policymakers
Government Policy
Table 16 Findings Related to Mbararas METAL FABRICATION Industry Factor Factor Conditions Labour Conditions Market Size Positive Aspects Scrap metal easily available Availability of cheap labour Vocational programs exist locally Most products custommade in small numbers, Negative Aspects High price of non-scrap metal Labour force unskilled in metal fabrication Limited uptake of vocational programs due to high cost Lack of standardized items reduces factor efficiencies Grade

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Table 16 Findings Related to Mbararas METAL FABRICATION Industry Factor Positive Aspects resulting in high profit margins Negative Aspects and limits growth potential High price and low quality compared to other regions in Uganda (such as Kampala) less suitable for export Cluster ranges over a small portion of value chain, limited benefits from clustering No existing policies Metal fabrication seen as unattractive by policy makers Grade
Related Firms
Existing small cluster of firms Existing networks for information and common input sharing
Government Policy
Table 17 Findings Related to Mbararas AGRO-PROCESSING Industry Factor Factor Conditions Positive Aspects Cheap and plentiful raw material Fertile land Many varieties of crops grown, though most in very small quantities Availability of cheap labour force Labour force well experienced in handling raw agricultural produce Region is already large exporter of raw agroproducts Low competition from regional competitors Large number of existing agro-processing firms Many upstream and downstream firms with experience in handling agro-products (esp. distribution) Policymakers have begun to view agro-processing Negative Aspects Currently, crop production dominated by matooke Grade
Limited experience in processing. Most agroproducts exported raw
Labour Conditions
Market Size
Related Firms
Currently, agro-processing firms dispersed over wide region

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Government
Table 17 Findings Related to Mbararas AGRO-PROCESSING Industry Factor Policy Positive Aspects industry as Ugandas best prospect Strategic planning documents such as the NDP and NIP have identified agroprocessing as a sector of focus for investment Negative Aspects Grade
Table 18 below contrasts the research findings across the four industries. Table 18 Comparison of Four Potential Manufacturing Activities Factor Factor Conditions Labour Conditions Market Conditions Related Firms Government Policy Textiles Furniture Metal Fabrication Agro-Processing
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 longterm 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
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

Increase Demand Increase Demand
Agricultural Sector
Agro Processing
Service Sector
Increase Agricultural Yield
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
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.
Table 19 - Current and Potential Products for Fruit and Dairy Processing in Mbarara Short Term (1 5 yrs) Juice/Wine Dried Chips Pasteurized Milk Yogurt Cheese Butter Medium Term (5 10 yrs) Jam/Marmalade/Chutney Frozen Canned Milk Powder Condensed Milk Long Term (10 15 yrs) Beauty Products (eg, soap, cream, face mask) Ice Cream Beauty Products (eg, soap, cream, face mask)
Fruit
Dairy
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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 Forums 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
2. Institutions
5
4. Market size
4 3 2 1 0
3. Infrastructure
6. Business sophistication
5. Higher education and training
7. Technological readiness
1. Financial market sophistication
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 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 Negative Aspects 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 shortterm, first payment can be expected one month after loan disbursement which does not reflect the investment horizon of
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Positive Aspects at least two firm interviewed.
Negative Aspects manufacturers (especially in factory expansion and equipment purchase).
Table 21 Key Findings Related to Institutions Positive 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. Negative Aspects 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 While electricity was available, blackouts Electricity was available to all firms were cited as a problem by 7 out of 11 firms interviewed, although 2 out of 13 firms did who required electricity in their production. not require electricity in their production Inconsistent voltages was also noted as a process. problem by 3 out of 11 firms, notably the 8 out of 13 firms interviewed used transport larger operators with more sophisticated service providers to receive supplies and machineries. deliver goods. The other 5 firms had their Backup generators were used by 4 out of 11 own vehicles. firms requiring electricity, this is significantly A domestic and regional courier service was more expensive than on-grid electricity as provided through the bus network, where generators can cost upwards of UGX 3 million goods can be dropped off in Mbarara and and run on diesel which is a pricey input. picked up in Kampala, or even certain cities in The quality of the road network was noted by Kenya (and vice-versa). Boda-bodas filled the all firms as needing improvement, with some gap by couriering goods from factory door to roads inaccessible during the rainy season. bus depot. This directly reduced revenue generation for For firms that required water in their 3 out of 13 firms. production, quality and quantity was not cited as an issue.
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Table 23 Key Findings Related to Market Size Positive 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. Negative Aspects 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 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-thejob 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. Negative Aspects 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 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. Negative Aspects 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 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. Negative Aspects 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 Top Enabling Factors for the Mbarara Manufacturing Sector 1. Financial market sophistication 2. Institutions 3. Infrastructure National Development Plan Constraints to the Manufacturing Sector 1. Infrastructure 2. Institutions 3. Financial market sophistication Global Competitive Report 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
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
2. Institutions
5
1. Market size
4 3 2 1 0
3. Infrastructure
6. Business sophistication
5. Higher education and training
7. Technological readiness
4. Financial market sophistication
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 All of the four fruit and dairy manufacturers interviewed sold all over Uganda and not only in the Mbarara district. Negative Aspects 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.
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Table 29 Key Findings Related to Institutions Positive Aspects 2 out of 4 manufacturers interviewed have received UNBS accreditation on at least one of their products. Negative Aspects 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 All four manufacturers had access to electricity, roads and water. Negative Aspects 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 3 out of 4 manufacturers had access to company accounts and commercial loans. Negative Aspects 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
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 womens 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.
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.
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References
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paris1.fr/teamperso/DEA/Cursus/M2R/DocM2Rouverturecroissance/Rodrik%202006%20industrial% 20development.pdf [Accessed: 31 May 2010]. Singh, L., 2004. Technological Progress, Structural Change and Productivity Growth in manufacturing Sector of South Korea, World Review of Science, Technology and Sustainable Development, 1(1): pp.37-49. [Online] Available at: http://mpra.ub.uni-muenchen.de/99/ [Accessed: 31 May 2010]. Sderborn, M. & Teal, F., 2003. How can policy towards manufacturing in Africa reduce poverty? A review of the current evidence from cross-country firm studies. UNIDO. Available at: http://www.unido.org/fileadmin/import/11929_policy_manuf_poverty.pdf [Accessed: 5 May 2010]. Syrquin, M., 1988. Patterns of Structural Change. In Chenery, H. & Srinivasan, T.N., eds., Handbook of Development Economics, Vol. 1. Timmer, P.C. & Akkus, S., 2008. The Structural Transformation as a Pathway out of Poverty: Analytics, Empirics and Politics. Centre for Global Development Working Paper Number 150. Available at: http://www.cgdev.org/content/publications/detail/16421 [Accessed: 31 May 2010]. Transparency International, 2009. Corruption Perceptions Index 2009. Transparency International [Online]. Available at: http://www.transparency.org/policy_research/surveys_indices/cpi/2009 [Accessed: 02 Jun 2010] UBOS. 2002. Uganda Business Inquiry. Kampala: Uganda Bureau of Statistics. [Online]. Available at: http://www.ubos.org/ubos/onlinefiles/uploads/ubos/pdf%20documents/UBI%20report.pdf [Accessed: 28 May 2010] UBOS. 2006. Report on the Uganda Business Register 2006/7. Kampala: Uganda Bureau of Statistics. [Online]. Available at: http://www.ubos.org/onlinefiles/uploads/ubos/pdf%20documents/20067UBR%20report.pdf [Accessed: 28 May 2010] UBOS. 2009. GDP by economic activity at current prices. Kampala: Uganda Bureau of Statistics. [Online]. Available at: www.ubos.org/onlinefiles/uploads/ubos/exceldocuments/natacct409.xls [Accessed: 07 Jun 2010] UBOS. 2009. 2009 Statistical Abstract. Kampala: Uganda Bureau of Statistics. [Online]. Available at: http://www.ubos.org/?st=pagerelations2&id=31&p=related%20pages%202:Statisical%20Abstracts [Accessed: 04 May 2010] UIA. 2010. Mission, Vision, Objectives & role of UIA. Kampala: Uganda Investment Authority [Online]. Available at: http://www.ugandainvest.com/uia.php?uhpl=mission&&uhpl1=Mission,Vision,Role [Accessed: 2 Jun 2010] UMA. 2010. About Uganda Manufacturer's Association. Kampala: Uganda Manufacturers Association. [Online] Available at: http://uma.or.ug/index.php/about-uganda-manufacturer-sassociation#1 [Accessed: 17 May 2010] UNCTAD. 2008. Handbook of Statistics 2008. Geneva: United Nations Conference on Trade and Development [Online] Available at: http://www.unctad.org/Templates/webflyer.asp?docid=10193&intItemID=1397&lang=1 [Accessed: 31 May 2010] UNDP. 2009. Human Development Report 2009: Uganda. New York: United Nations Development Programme [Online]. Available at:
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http://hdrstats.undp.org/en/countries/country_fact_sheets/cty_fs_UGA.html [Accessed: 09 May 2010] UNESCO Institute for Statistics, 2007. Education in Uganda. Paris: United Nations Educational, Scientific and Cultural Organisation [Online]. Available at: http://stats.uis.unesco.org/unesco/TableViewer/document.aspx?ReportId=121&IF_Language=eng& BR_Country=8000&BR_Region=40540 [Accessed: 08 May 2010] World Bank, 2006. Enterprise Surveys Country Profile: Uganda. Washington DC: World Bank. [Online] Available at: http://www.enterprisesurveys.org/Documents/EnterpriseSurveys/Reports/Uganda2006.pdf [Accessed: 31 May 2010] World Bank, 2010. World Development Indicators. Washington: World Bank. [Online] Available at: http://data.worldbank.org/data-catalog/world-development-indicators/wdi-2010 [Accessed: 31 May 2010] World Economic Forum (WEF). 2010. The Global Competitiveness Report 2009/2010. Geneva: World Economic Forum. [Online] Available at: http://www.weforum.org/en/initiatives/gcp/Global%20Competitiveness%20Report/index.htm [Accessed: 31 May 2010]
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Appendices
a. Appendix A: Quantitative Questionnaire
Development Planning Unit

Questionnaire for Manufacturers
Date & Time: Interviewers: Name of Firm: Firm Representative: Representative Title: Firm Phone No.: 1. Types of product produced: 2. Years /months in operation: 4. Revenue estimate: Currency used UGX / USD Annual / Monthly / Weekly 2010 2009
UCL
3. No. of workers:
University College London
5. Minimum and average work experience of workers (in yrs): 6. Minimum and average wage of workers: 7. Previous job of workers: UGX / USD weekly / monthly / yearly
8. Technology, tools available or planned: 9. Perceived barriers to growth (rated 1-5): i. Physical Infrastructure - Electricity, Water etc.:
ii.
5 5 5 5 5 5 5
4 4 4 4 4 4 4
3 3 3 3 3 3 3
2 2 2 2 2 2 2
1 1 1 1 1 1 1
Physical Infrastructure Transport:
iii.
Access to Financial Services Loans, Accounts, Payment Systems Etc.:
iv.
Labour quality and quantity:
v.
Technology and Innovation:
vi.
Law and Regulations:
vii.
Supplier / Buyer Relationship:
10. Other Services: what type and how much do they spend on other services to support their business?
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b.
Appendix B : Full List of Interviewees

Representative Mr Kasper Dalsten (Special Assistant to the Country Manager, Partnerships & Aid Effectiveness) Mr Martin Onyach-Olaa (Urban Specialist) 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) Ms Kate Wedgwood (Deputy Head Programmes) Ms Jo Bosworth (Social Development Advisor) Mr Peter Christopher Werikhe (Secretary General) Mr Yazid Baligasima (Programme Assistant) Eng. Samuel Ssenkungu (Commissioner, Industry and Technology) Mr Kyoratungye Karemente (Consultant Director) Mr. Bruno Otto-Tokwiny Dr Abel Rwendeire (Deputy Chair) Mr Andrew Luzze Kaggwa (Policy Officer) Mr James Kawooya (Programme Manager) Mr Gideon Badagawa (Executive Director) Mr Joseph Mawejje (Policy Analyst Trade) Mr Tom Buringuriza (Deputy Executive Director) Prof. Emmanuel Tumusiime Mutebile (Governor and Chairman) Mr Hassan Nyangabyaki Mr Bernard Kakuhikire (Head of Department, Faculty of Development Studies) Eunice Wekesa (Chairwoman, Mbarara Branch) Mr Charles Tushabomwe-Kazooba (Lecturer, Faculty of Development Studies) Mr Gregory Tweheyo (Statistician)
Non-Manufacturers Interviewed Date Organisation 13 May 2010 World Bank
13 May 2010
Centre for Basic Research
13 May 2010 13 May 2010 13 May 2010 13 May 2010 14 May 2010 14 May 2010 14 May 2010 14 May 2010 14 May 2010 15 May 2010
Department for International Development National Organisation of Trade Unions Ministry of Tourism, Trade and Industry United Nations Industrial Development Organization National Planning Authority Uganda Manufacturers Association Uganda Small Scale Industries Association Private Sector Foundation Uganda Uganda Investment Authority Bank of Uganda
17 May 2010 18 May 2010 19 May 2010 19 May 2010
Mbarara University of Science and Technology Uganda Gatsby Trust Mbarara University of Science and Technology Mbarara District Local Government
Manufacturers Interviewed Date Company Name 18 May 2010 La Vie (U) Ltd 18 May 2010 Paramount Dairies
Industry Chemical Milk Processing
Representative Interviewed Joseph Tugume (Director) George Kiberu (Manager of Production)

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Date 18 May 2010 19 May 2010 19 May 2010
19 May 2010 19 May 2010 20 May 2010 20 May 2010 20 May 2010 20 May 2010 20 May 2010 21 May 2010
Company Name Wes Knit Brown Furniture Showroom Ahimbisibwe Truth Honest Furniture Workshop Hope Furniture Kambad Metal Works Super Quality Millers Bekiza's Workshop Mariaba Country Wine Food GBK Numa Feeds Century Bottling Company Ltd
Industry Textile Furniture Furniture
Representative Interviewed Eunice Wekesa (Director) Eric Bugume (Owner) Monica Kiiza (Owner)
Furniture Metal Grain Processing Furniture Beverages Milk Processing Grain Processing Beverages
Dennis Lule (Owner) Ainebyoona Ronald (Worker) Kisaame William (Production Manager) Tukamuhabwa Rashid (Chief Employee) Rosemarie Bangirana (Owner) Godwin Tumwebaze (Director of Production) Robert Matsiko (Managing Director) Ibrahim Kakaire (Quality Assurance Coordinator) Kiberu Sarah Kizza (Sales Analyst)
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c.
Appendix C : Full List of Recommendations
1. Financial market sophistication Recommended Next Steps Speed up integration of the EAC capital market, so that investors and borrowers can lend/borrow beyond borders Priority Low Timeline Stakeholders Long BOU, EAC
2. Institutions Recommended Next Steps Develop a more frequent dialogue between the many industry associations (UMA, USSIA, Uganda Gatsby Trust etc.) and policy-makers to share best practices Focus foreign assistance to the sector on providing skills transfer rather than monetary funding. Encourage more programmes like the UNIDO Master Craftsman Programme Form a more active dialogue with SMEs during the policy making process, strengthen supporting institutions such as the USSIA Priority Medium Timeline Stakeholders Short UMA, USSIA, Uganda Gatsby Trust, MTTI, UIA UNIDO, UNDP, WB
Medium
Short
Medium
Short
MTTI, NDP, USSIA
3. Infrastructure Recommended Next Steps 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 Make road network information available via phone or SMS so that firms can better mitigate against risk 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 Priority High Timeline Stakeholders Short UMA, USSIA, Uganda Gatsby Trust, MTTI, UIA UNIDO, UNDP, WB UIA, Ugandan Gatsby Trust
High Medium
Short Medium
4. Market Size Recommended Next Steps Give preference to local manufacturers in government procurement contracts, aim to have a certain % of goods purchased from local suppliers Priority High Timeline Stakeholders Short Mbarara District Local Government, Local Manufacturers
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5. Higher education and training Recommended Next Steps Increase the number of apprenticeship opportunities offered through secondary schools and tertiary institutions Priority Medium Timeline Stakeholders Short Public and Private Education Providers, Local Manufacturers
6. Business sophistication Recommended Next Steps Establish a business-to-business database for sharing sales and production data, to be managed through industry board Priority Medium Timeline Stakeholders Short Industry Board (see report Part 2 Section C)
7. Technological Readiness Recommended Next Steps Leverage the metal fabrication and mechanical clusters in Mbarara to focus on machine repairs and refurbishment, offer subsidised training to promote a supporting industry Collate a regional business directory for technology/machinery suppliers and form an advisory service through the UMA Priority Medium Timeline Stakeholders Short Private metal fabricator or mechanical firm, UNIDO UMA
Low
Medium
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Manufacturing in Mbarara Uganda

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Development Planning Unit

Manufacturing in Mbarara, Uganda

FINAL REPORT 08 Jun 2010

This report is divided into two parts:

Source: UBOS, 2009

Source: DPU, 2010

30.7 24.2 16.7 9.5 12.6

Source: UBOS, 2009

COUNTRY Kenya Uganda

Figure 2 - Median Earnings Per Month (UGX)

Figure 3 - GDP % by Sector 1990 - 2006

2006 46.4 43.0 34.7 27.5

36.9 32.2 21.4 20.1 16.0 12.5

9.3 9.0 6.4 7.9

Note: Manufacturing figures are disaggregated from Total Industry percentages

Figure 4 - Average Earnings For Manufacturing Establishments1 (UGX per month)

Furniture & Other 22% Grain Milling 18%

The Policy Context

The second stage (1992-1998) Government ownership and deepening reform

expensive power supply 5. Quality control

Figure 6 - Corruption Perceptions Index Score 2009

Source: Transparency International, 2009

Government Ministries and Departments

Bi/Multilateral Agencies NGOs

3. Role of Manufacturing in Poverty Reduction and Structural Transformation

Manufacturing and Poverty Reduction

Manufacturing and Structural Transformation

Key Conflict Between Poverty Reduction and Structural Transformation

Features of Pro-Poor Manufacturing Industries

4. Mission Scope and Objectives

2. Labour Conditions 3. Market Conditions

4. Related Firms and Industries 5. Government Policy

Related Firms and Industries

Labour force with formal training, relevant skills and experience

Related Firms and Industries

Government policies, plans or programmes to support industry do not exist

7. Labour Market Efficiency

8. Financial Market Sophistication 9. Technological Readiness

11. Business Sophistication 12. Innovation

Figure 8 - Proposed Framework

Higher education and training Financial market sophistication

Table 11 Research Methods Employed

Table 12 Research Methods Employed

Table 13 Proposed Interview Questions Types of information/data to be collected

Government Ministries and Departments

Table 13 Proposed Interview Questions Types of information/data to be collected

Table 13 Proposed Interview Questions Types of information/data to be collected

Figure 9 - Profile of manufacturing firms interviewed

2. Research Question 1: Findings and Recommendations

Availability of cheap labour

Market Size High demand in local market for readymade clothes

Limited experience in processing. Most agroproducts exported raw

Currently, agro-processing firms dispersed over wide region

Figure 10 - Linkages Between Agro-Processing and Other Sectors

Increase Agricultural Yield

Agro-Processing: Specific Opportunities

3. Research Question 2: Findings and Recommendations

5. Higher education and training

1. Financial market sophistication

Positive Aspects at least two firm interviewed.

Negative Aspects manufacturers (especially in factory expansion and equipment purchase).

Findings Specific To Fruit and Dairy Processors

5. Higher education and training

4. Financial market sophistication