Kampala: Sometime in 2014, Uganda’s Ministry of Trade, Industry and Cooperatives came up with a novel policy. Buy Uganda Build Uganda. It was christened with a catchy acronym, BUBU. The trade policy charges government with responsibility to create an enabling environment for the private sector to grow. In October 2014, Amelia Kyambadde, the landlocked East African country’s Trade, Industry and Cooperatives minister at the time (now senior presidential advisor on industry) noted in a statement that BUBU policy is premised on existing government policies that support and encourage the consumption of locally produced goods and services. The new policy would give guidance to policy makers to ensure that promotion of the consumption of locally produced goods is integrated into their policies and procedures.
The policy, Kyambadde said, “also aims at giving prominence to locally produced goods. This policy will be beneficial to the economy and it illustrates the income that can accrue to different sectors,” adding, “It is anticipated that the policy will improve the local business environment.”
Effectively, the government committed that deliberate interventions will be made in areas such as public procurement preference schemes, promoting the use and conformity to standards, enhancing the capacity of Small and Medium Enterprises (SMEs) in meeting supermarket supply-chain requirements and assisting the private sector in the development of the “Proudly Uganda” brand.
On paper, the policy reads and sounds brilliant in a country often described by President Yoweri Kaguta Museveni, in power since 1986, as “the super market of the world” given its high import bill. The Uganda Bureau of Statistics (UBOS) in its January 2021 Monthly Merchandise Trade Statistics Bulletin which presents International Merchandise trade statistics (exports and imports flows) between Uganda and the rest of the world as compiled from Customs and Non-Customs data sources noted that Malaba, Entebbe Airport, Elegu and Mutukula were the main entry border stations accounting for US$ 657.6 million of Uganda’s imports in January 2021, representing 99.7 percent of imports entering the country.
Uganda’s trade deficit decreased to US$ 288.5 million in January 2021 compared to a deficit of US$ 483.8 million recorded in December 2020. Closing the import gap has been the Ugandan government’s headache since 1962 when the country attained self-rule from Britain. It remains a thorn in the flesh of many developing economies in Africa where value addition remains a pipe dream across many sectors. To fix this, BUBU was the magic bullet, at least in the mind’s eye of the government in power. It sounded as simple as; use taxation to make importation unsustainable for importers, shower local producers or industrialists with incentives such as public land, tax holidays, exemptions from specified taxes, and more from the menu just to be comfortable enough to build Uganda by getting Ugandans to buy locally manufactured products. Happily ever after, everyone would be.
How though, does a developing country like Uganda implement BUBU without falling into the moral hazard trap? The ideal here, is to give Ugandan enterprises as much protection by and from the state as is humanly possible. In so doing, their capacity to produce for both the local and international market is enhanced by insulating them from stiff competition from mainly Asian and European companies whose competitive advantage is higher. In an economy dominated by multinational capital with the cost of credit from commercial banks as high as 23% per annum and just around 10% from the government’s development bank, it is apparent that only a handful of indigenous entrepreneurs would truly benefit from an import substitution strategy requiring significant investment for manufacturing.
The country, Vox Populi can report authoritatively, is however, grappling with the moral hazard of BUBU as Chinese companies are taking advantage of the policy. That has created a host of challenges for Ugandan business people.
A case study, purely for the purpose of this article, is the ceramic tiles industry. To appreciate the BUBU dilemma as seen through the experience of the ceramic tiles sector, we shall use a specimen called Goodwill (Uganda) Ceramic Co. Ltd. It is, for all intents and purposes, a Chinese company. It spotted a golden opportunity to penetrate the Ugandan market, talked to the right people who connected the dots in the political decision-making architecture, registered in Uganda and therefore qualified for BUBU, winning the lottery. Today, the company enjoys significant trade protection which has discomforted Ugandans who have technically been locked out of business in their own country. Job losses galore.
The annual return of the company made up to the 31st day of December 2021at the Uganda Registration Services Bureau (URSB) shows that Wenzhou Yirong Construction Materials Co. Limited and Yang Zhen are the shareholders while another Chinese national, Lin Zhonghe is the company secretary.
Traders in Kampala now decry the diminishing market for ceramic tiles as Goodwill’s cheaper and not exactly superior quality tiles, dominate the market to the detriment of importers who have been delivered a knock out punch through a hike in taxes for imported tiles from Asia and Europe.
In May 2019, the online publication Chimp Reports reported that the Uganda Revenue Authority (URA) had increased the import tax for marble, granite and clay tiles to 35% from 25% in a move aimed at, “promoting Goodwill tiles manufactured in Uganda.” Similarly, the tax body increased tax for imported television sets from 25% to 35% to protect companies manufacturing the same in Namanve, an upcoming industrial hub in Mukono district, 13 kilometers from the capital city. Importers of honey would pay import duty of up to 60% from 25% in a bid to protect and promote local content.
Here is, however, the catch. Who exactly are these ‘local content’ manufacturers that BUBU aims to protect and promote? How Ugandan are they? What does it mean to be a Ugandan business, anyway? Does it matter if a company benefiting from BUBU is purely owned by Ugandans or does it not matter? Is it possible that Asian firms, especially from China and India are taking advantage of this policy to the disadvantage of Ugandan nationals who, ordinarily it is meant to protect? Questions abound on profit repatriation too.
In a mini-survey done by this newspaper over the last two months, 17 of 23 people interviewed for this story shared that they have since either dropped out of business or are now counting losses due to the increment in the tax for tiles imported into Uganda.
Of the 17 dissatisfied traders, two of them are dealers in big containers who get the product offshore in Mombasa to Nakawa in Kampala, 10 own shops while four are brokers between the big container dealers and local retailers.
The remaining six of the 23 interviewed are traders who have stuck to what they deal in or have now concentrated on the Goodwill products for fear of making losses by sticking to pricier tiles from Spain and elsewhere.
Officials at GoodWill who did not want to be named in this story so that they can express themselves freely said they are taking advantage of the government’s incentives and the freedom they have to set prices for the product.
According to sources in the Chinese-owned company, they have a contract with the government of Uganda to, “operate for a number of years without disruption from another competitive company until they stabilize.” The directors of the company declined a request for an interview to respond to our queries.
Sources also claim the Chinese firm has been given a tax holiday for a number of years to operate in the market as an initiative to encourage the Buy Uganda Build Uganda policy. To qualify for these perks however, is no walk in the park; matter of fact, very few Ugandan companies actually pull it off due to the cost of “oiling the system” as one businesswoman puts it, to make ones company go through. Chinese companies, infamous for, generally speaking, sprinkling government officials’ hands with the green buck, would stand a greater chance of securing the insulation that BUBU comes with. In the end, some argue, “foreign capital is only re-inventing itself to partake of poor countries’ efforts at promoting local content to the exclusion of the very nationals that such policies intend to protect.”
Michael Kiyaga who imports tiles from Tanzania said in an interview, “Some of us have taken a break for now and deal in other things. In frustrating the importation of some products, the government has doubled the taxes for the affected goods which makes it hard for us who cannot manufacture locally. Sometimes if you can get the money for taxes, frustration is at the delivery point. Goods can spend more than a month held at the Uganda Revenue Authority (URA) even without a clear explanation.”
In its aggressive move to protect the Ugandan market from a floodgate of imports, the Ugandan trader is paying the ultimate price (there is, in all fairness, always a price to pay for any development policy, there are always losers and winners) but as an economist from the Ministry of Finance, Planning and Economic Development, on a request of anonymity, interviewed for this story argued, “the issue here is that Chinese and Indians are now using BUBU as a backdoor to achieve unfair trade practices. There is also elite capture of this BUBU policy where politically-connected actors become commission agents of Chinese firms, help them to get trade protection and technically knock out Ugandans from business. In the end, we are buying Uganda to build China and India because these people fly the returns back home although they may help create some jobs for our young people and pay taxes here and there. That paradox needs serious reflection by the state if we are to build a real indigenous entrepreneurial class.”
Before the emergence of Goodwill, one tile measuring one square meter went for Uganda Shillings 45, 000 (US$12) but now goes for as high as Shs.70, 000 (US$19) especially those from Thailand and China while the ones made locally at the company cost anywhere between Shs.23, 000 (US$6) and Shs.25, 000 (US$6). The implication of this is that Ugandan importers who were eking a living from importation of tiles are tactically locked out of trade in a country where demand for imported tiles is elastic considering fairly low disposable income levels. As Ugandan traders count losses, Chinese business entities are smiling to the bank, thanks in part, to BUBU.
Asked what the government proposes to be done to address the issue of “elite capture” of the BUBU policy where politically-connected actors become commission agents of Chinese firms, help them to get trade protection and technically knock out Ugandans from business, an official who asked not to be quoted since he is not allowed to speak to the press said, “There are no easy answers because there is a limit to what we can do as government in light of the fact that we are a free-market economy so the highest bidder carries the day, both literally and figuratively but what is key is that these Asian firms are helping close our import-export gap and that is good for the economy.”
This story was sourced and published with generous financial support from the Africa-China Reporting Project, University of the Witwatersrand, Johannesburg, Centre for Journalism.
