Economic Diversification and Growth

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.
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