Economic Diversification and Growth

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Chapter 1 Box 1.4: A Short-term Export Diversification Strategy Overall Strategy: Diversify first into those potential manufactured exports (including processed raw materials) that Uganda is capable of exporting (high capabilities). This may not lead to the most sophisticated exports in the short term, but it will nurture industrial/manufacturing skills that are a prerequisite for accelerated diversification into more sophisticated products. This strategy will lay the foundations for the large-scale development of skills necessary for a larger manufacturing sector. An important part of a similar process in Asia involved skills development through learning by exporting factory-produced products. This pattern of diversification was the stepping stone to Asia’s competitive edge in manufacturing today and has helped several Asian countries attain middleincome status in record time (for example, Malaysia, China, Vietnam, Sri Lanka) Product Focus: • Three new light manufacturing industries; garments, leather and wood products - are flagged by the PS approach as opportunities for Uganda. Evidence from Asia and sub-Saharan Africa (Lesotho, Ethiopia) shows that even landlocked countries can have competitive light manufacturing industries that use imported inputs when domestic ones are unavailable. Uganda has local raw materials - hides and skins, and wood - for the leather and wood related manufactured exports listed in these industries. • Several agriculture-related processing industries including cereals, dairy products, more types of cooking oils, and new sugar products could be strengthened. Some similar ones are already being exported in small amounts. Most potential ones are distinct from Uganda’s current new exports because they involve some degree of manufacturing, have reasonably high levels of sophistication, and Uganda’s high capabilities in these industries can be instrumental in diversifying in them. • A few chemicals and metal product industries which have sophistication levels that are lower than many current exports but for which Uganda’s capabilities are higher could, be fostered. They could be promising stepping stones to more sophisticated diversification in the longer term. Plantation workers harvesting tea in Fort Portal 22 Uganda Country Economic Memorandum: Economic Diversification and Growth in the Era of Oil and Volatility
1.39. Uganda’s current presence in the PS is on the periphery, which suggests that its current products are far away from potential new products at the center of the PS which have a high complexity (see Figure 1.20). The majority of manufactured products require inputs that are quite different from those used in Uganda’s current exports. The closest product to coffee, for example, is gold with a proximity index of 0.398 followed by leather of hides and skins with an index of 0.385. Fresh fish exports offer more scope for diversification as the proximity to frozen fish is 0.61, to salted fish 0.58, and fish fillet 0.47. One potential avenue to accelerate Uganda’s move towards the core of the PS are metal products which Uganda has started to export. For example proximity of metal products to simple, non-electrical vehicles is 0.62, to furniture parts 0.57 and to aluminum products 0.56. 1.40. The key challenge for Uganda is therefore to identify those products that can take it closer to the core in the PS despite the currently limited productive capabilities. In the universe of about 800 products that comprise the PS, there are around 740 that Uganda does not yet export. Policy makers should therefore strategically decide which of these 740 products it should nurture through the targeted provision of the necessary public goods. For example, public inputs for the leather industry (land for cattle breeding and tanneries, veterinary services, skills training) are different from those needed for petrochemicals (mining/drilling vertically related through input-output connections in the value chain. In the product space, even if two products are closely connected in the value chain, they could easily belong to two distinct communities because they require different productive knowledge and can be readily transported and stored. For example, while textiles are part of the garments value chain, the capabilities required to competitively make textiles are quite distinct from those required to make garments, and thus they form two distinct communities. Box 1.5: A long-term Export Diversification Strategy Overall Strategy: The most critical factor for Uganda’s longer term diversification in sophisticated and complex manufactures (machinery, auto parts) is a sufficiently large pool of industrial skills/capabilities that can graduate it from a farm-to-firm- produced exporter. Unlike other inputs, manufacturing skills for any type of sophisticated industry can neither be imported nor developed in a short period of time. The proposed short term strategy can generate a pool of industrial skills/capabilities that are an essential input/foundation for the production of more complex manufacturing skills necessary for any country to graduate from agricultural and light manufactured exports to sophisticated manufactured and services exports (beyond tourism). Product Focus: • Focus on dairy and footwear products. However, this assumes that Uganda’s capabilities in exporting leather as per the short term strategy will enhance its skills to levels suitable for footwear production in the longer term. Experience in exporting leather from local skins and hides could help develop a local supply chain that sources milk for sophisticated dairy product exports, meat for local consumption, and skins and hides for leather, and in the longer term leather for footwear exports. • In spite of a large stock of live animals, processed meat is identified as a potential export. In contrast to a conventional approach, mechanical value addition as a path of diversification, that is, from live animals to meat, then skins, and then leather and so on, is not a trait of PS analytics which is based on global trade patterns. Global trade flows show that meat, a technologically sophisticated product, is exported by only a small number of high income countries which have stronger capabilities in them. • Sophisticated wood and metal product exports are promising potential export products for the longer term. Like footwear, the feasibility of these potential export industries hinges on the manufacturing skills developed in the short term. Thus, from the small step Uganda recently took by exporting simple metal products, the country could branch - in the longer term - into more sophisticated wood and metal products for use in homes, construction and other industries for domestic and export markets. • The production lines of chemical products could be strengthened. Uganda already exports a small number of chemical products. The local availability of more minerals and unprocessed chemicals opens possibilities for diversification in a variety of heavy chemical industries including those related with petrochemicals. All are sophisticated products and Uganda’s currently low capabilities suggest that these heavy industries are better candidates for the longer term. Global experience shows that if the other inputs, especially heavy industry infrastructure is in place, chemicals and petrochemicals-based industries do not require large pools of industrial skills. To a large extent, they are similar to enclave industries that can thrive with foreign technical and managerial professionals and a relatively small pool of locally available industrial skills. They typically do not create large-scale industrial jobs but they are the backbone of an industrial economy. 23
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Report No: 97146-UG Economic Divers
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Contents Contents List of Acronyms.
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Contents Figures Figure 1: Export D
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Contents Tables Table 1: Summary of
Page 10 and 11: List of Acronyms ACD AFCE AFMUG AFR
Page 12 and 13: Contents Preface For about ten year
Page 14 and 15: Contents Acknowledgments The World
Page 16 and 17: Acknowledgements Credits Regional V
Page 18 and 19: Exuecutive Executive Summary Figure
Page 20 and 21: Uganda’s Executive Economy Summar
Page 22 and 23: Executive Summary longer term as it
Page 24 and 25: Executive Summary Contractors handl
Page 26 and 27: Executive Summary was mentioned bef
Page 28 and 29: Executive Summary 48. Excessive bor
Page 30 and 31: Executive Summary be met by 2020, w
Page 32 and 33: Executive Summary Value addition to
Page 34 and 35: Executive Summary going through the
Page 36 and 37: Executive Summary Table 1: Summary
Page 39: Part I An Economic Development and
Page 42 and 43: Chapter One 1 Key Messages and Conc
Page 44 and 45: Chapter One 1 Table 1.1: Poverty Tr
Page 46 and 47: Chapter 1 is viewed as a promising
Page 48 and 49: Chapter One 1 also claim 15-17 perc
Page 50 and 51: Chapter 1 Table 1.6: Savings-Invest
Page 52 and 53: Chapter 1 significantly by other se
Page 54 and 55: Chapter 1 Box 1.2: Country Experien
Page 56 and 57: Chapter 1 Table 1.8: Diversific tio
Page 58 and 59: Chapter 1 Box 1.3: Product Complexi
Page 62 and 63: Chapter 1 Figure 1.20: Uganda’s P
Page 65 and 66: Chapter 2 Development of Oil and Ot
Page 67 and 68: Box 2.1: Three exploration areas in
Page 69 and 70: the oil price will recover in the m
Page 71 and 72: Figure 2.7: Uganda’s Real GDP Gro
Page 73 and 74: Much of Uganda’s oil deposits are
Page 75 and 76: 2.18. The overall impact of the eme
Page 77 and 78: IV. The Macroeconomic, and Fiscal I
Page 79 and 80: Containers loaded with crude oil re
Page 81 and 82: and other financial institutions to
Page 83: poor performance of state-owned ent
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Page 88 and 89: Chapter 3 Key Messages and Conclusi
Page 90 and 91: Chapter 3 can have a negative impac
Page 92 and 93: Chapter 3 Box 3.2: Financing of Oil
Page 94 and 95: Chapter 3 are required to notify su
Page 96 and 97: Chapter 3 Table 3.1: Mapping of Con
Page 98 and 99: Chapter 3 Figure 3.2: Horizontal Di
Page 100 and 101: Chapter 3 Table 3.2: Addressing Hor
Page 103 and 104: Chapter 4 Strategic Implications of
Page 105 and 106: Figure 4.1: Average Adjusted Saving
Page 107 and 108: Box 4.2: Angola Case Study When fou
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Figure 4.3: Uganda’s Infrastructu
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Figure 4.7: Cumulative Spending on
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Figure 4.11: Overall Fiscal Deficit
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The efficiency of methods of tax co
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nue will need to be accompanied by
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84
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Chapter 5 Key Messages and Conclusi
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Chapter 5 i. Highly skilled technic
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Chapter 5 Table 5.1: Summary Instit
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Chapter 5 Table 5.2: Governance Ind
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Chapter 5 PFM also creates addition
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Chapter 5 not published, creating a
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Chapter 6 Implementation of the Str
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consistent with local needs and org
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earth moving equipment and bitumen.
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Steel wire Seamless iron tubes M
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6.31. The government and Total are
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6.36. Several policy interventions-
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Chapter 7 Implementation of the Str
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Figure 7.2: Share of Intra-EAC Expo
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Table 7.1: Decomposition of Uganda
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Figure 7.8: Transit Traffic t ough
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sures aimed at reducing the time an
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to the Port of Lamu in Kenya. 4 The
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Table 7.7: Labor Migration Policies
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References: 1. Acemoglu, D., S. Joh
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September 2010, 28 (5), 553-571. Wa
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Annexes: Annex 1: Non-hydrocarbon G
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(3) • Consumption basket: composi
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(12) • International commodity pr
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Annex 3: Key Features of the Uganda
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Rural Activities: Exportable and Se
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Level of Prices • General Level:
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Total Expenditures: • Primary: NG
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Annex 4: Key Features of the Uganda
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Recursive dynamics o Following prev
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o where: is total consumption in ad
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Human Capital Formation • Schooli
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• Assuming again full depreciatio
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• Thus, an increase in the saving
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Annex 6: Econometric Results of Fir
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Table A6.3: Probit Estimates of Exp
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Economic Diversification and Growth

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