The capacity utilisation of Uganda’s manufacturing sector is 54.4% which speaks to lots of redundant/unutilised capacity, a study has revealed.
The study which was supported by the Mastercard Foundation is a collaboration between the Private Sector Foundation Uganda (PSFU), the Uganda Manufacturers’ Association (UMA) and Uganda Small Scale Industries Association (USSIA).
The findings were released during a breakfast meeting at the Kampala Serena Hotel on Wednesday to unveil and discuss findings from the two studies on “Capacity Utilization” and “Cost drivers” for manufacturing firms in Uganda.
In her speech, Ms. Sarah Kagingo, the Vice Chairperson of the Board of Directors of PSFU said the low utilization capacity is on account of ineffective demand for manufactured products, competition from imported products, high cost of inputs and high taxes.
She also cited the low firm participation in government supply contracts, high conversion costs, inadequate access to affordable finance and use of outdated technology.
“The overall objective for these studies was to generate evidence to influence policy development in the manufacturing sector with specific reference to industrialisation and import replacement policies that Uganda has adopted,” said Kagingo.
According to her, the studies sought to establish the actual capacity utilisation, investigate the causes and establish the main drivers of costs in the production process among manufacturing firms and suggest key policy interventions to address these challenges.
Together with UMA & USSIA, PSFU collected information from over 215 manufacturing companies across the entire country.
“According to the study findings, the capacity utilisation of firms is at 54.4% with 35.4% under UMA and 66.8% under USSIA members. Implying that there is a lot of redundant or unutilised capacity in Uganda’s manufacturing sector, where a lot of resources have been invested.”
She added: “Lack of effective demand for the manufactured products was reported as the main reason explaining this utilization factor (56%), followed by high levels of competition from imported products, high cost of inputs (42%), high taxes (41%), macroeconomic factors, among others.”
According to Kagingo, PSFU has gone ahead to develop a position paper with proposals on how to stimulate effective demand within the economy and it suggests among others; the establishment of an independent Competition Commission to implement the competition law, fast track the issuance of the Local Content regulations to support the enforcement of the Local Content provisions under the PPDA Act, and strengthen the dispute resolution mechanism for the EAC to counter member states’ unilateral actions that impede exports.
The cost of raw materials driving costs high
The second study on cost drivers revealed that the cost of raw materials drives costs high because manufacturers must import them due to poor quality, small quantities, and inconsistencies of the locally available ones.
Among the conversion costs, labour and electricity costs are the most significant cost drivers accounting for 60% of the total cost of conversion. The cost of transport and logistics, especially for inputs and distribution of products contributes to 40% of the cost of production amongst manufacturing firms. This is because the country’s transport and logistics value chain are weak, a factor that leads to inefficiency.
“It is noted that these also negatively affect the capacity utilization of the manufacturing firms in Uganda,” said Kagingo.
She advised the government to address transmission, upgrading and distribution of electricity in order to overcome the intermittent nature supply, implement the bulk power purchase option for manufacturers and heavy power consumers since the legal and regulatory environment now permits it, fully operationalise the one-stop border policy by improving the infrastructure and adopt an integrated multi-model system to leverage water (lake Victoria), rail and air in addition to road.
“Uganda and her immediate neighbors sharing Lake Victoria should adopt the multi-modal transport system of exploiting the lake for transport,” said Kagingo who concluded her remarks by thanking EPRC a research firm for conducting useful research on behalf of the Private sector, and the “brilliant PSFU, UMA and USSIA” teams.
The meeting was attended by representatives of the manufacturing sector and the rest of the private sector, development partners, Trade and Finance government officials, academia, among others.
