Enhancing Competitiveness of Micro Small and Medium Enterprises for National Export Development

Speech by Hon. Amelia Kyambadde, Minister of Trade, Industry and Cooperatives

I welcome you to this 9th Annual Sector Review Conference of the Trade, Industry and Cooperatives Sector under the theme; “Enhancing Competitiveness of Micro Small and Medium Enterprises for National Export Development”.

The theme emphasizes the contribution of Micro, Small and Medium Enterprises (MSMEs) towards reducing the balance of payment deficit in Uganda.

At this Conference; we will highlight the achievements of the Sector for the previous Financial Year 2017/18, the challenges in implementation of policies and programs in the Sector and the planned key interventions for FY 2019/20. Actionable resolutions to inform policy formulation and implementation are expected to be made at the end of this conference.

Achievements of the Sector

In the Financial Year under review, the sector received UGX 77.302 billion. The received funds enabled the undertaking of the following activities;

Trade development

Exports in the Financial Year of 2017/18 increased by 7.23%, to US$2,890.86 million from the previous Financial Year of US$2,696.00 million; as compared to imports that increased by 16.42%, to US$ 5,489.97 million from the previous Financial Year of US$4,715.51 million; in the same period. The individual countries with which Uganda had high trade deficits in 2017/18 were: China amounting to US$ 854.82 million (representing 32.89% of the deficit); India for US$ 596.96 million (22.97%); Saudi Arabia for US$384.07 million (14.78%); United Arab Emirates for US$277.74 million (10.69%) and Japan for US$247.83 million (9.54%), out of a total deficit of US$2,599.10 million in that year. Therefore, the above five countries were responsible for approximately 80% of Uganda’s trade deficit.

The COMESA trading bloc remained the main destination for Uganda’s formal exports with the share in total export earnings of 51.32% (US$ 1,483.72 million) in 2017/18, showing an increase of 17.48% from US$1,262.94 million in 2016/17; of which Kenya and South Sudan constituted 63.34% (US$939.81 million) of the Uganda-COMESA export earnings. The EU market ranked the second main destination for Uganda’s goods and services with 19.68% (US$568.96 million) of total formal exports in 2017/18, posting a 12.26% increase from 2016/17 value of US$ 506.83 million. The Middle East bloc followed accounting for 14.32% (US$414.06 million) of the total market share in 2017/18, as compared to 18.72% (US$504.71 million) the previous year; and of which United Arab Emirates contributed 92.37% (US$382.46 million) of the Uganda-Middle East exports in 2017/1018. Asia; Rest of Africa; Rest of Europe; The Americas, group categories followed in that respective order.

For the first time in history, Uganda had a surplus/favorable balance of trade with Kenya in the Financial Year 2017/18 of US$122.78 million (exports of US$628.47 million against imports of US$505.70 million) and also registered a record highest trade balance in the EAC region of US$413.86 million (exports of US$1,220.63 million against imports of US$806.77 million), in the same period. That is credited to the good integration and multilateral efforts spearheaded by the Ministry of Trade, Industry and Cooperatives in the region. However also deficit with Tanzania has increased in the recent years which is a policy concern.

Overall, coffee remained the main merchandise foreign exchange earner of the country. In the recent period, its share to total formal exports slightly reduced from 18.19% in 2016/17 to 17.04% in 2017/18. It was followed by gold and gold compounds whose earnings highly increased in the recent periods, then fish & its products, among others. However, the country’s merchandise exports are still dominated by unprocessed and or primary products.

The export to import ratio in the Financial Year 2017/18 was 52.66%! In other words, today Uganda is spending US$100 on imports when it has earned an income of only US$52.66 from exports. In that effect, the country is living on borrowings. It is vitally important to halt this escalation by making reduction of the trade deficit a top national priority and galvanizing all efforts by key MDAs to expand exports on a sustainable basis.

The increase in imports would be desirable and sustainable if most of the imports were used as inputs/capital into the production process. However, most of our imports are consumables rather than industrial/production inputs. Uganda’s imports have been mainly fuelled by; the construction boom (imported inputs such as cement, plumbing materials, interior décor and furnishings, etc.); exploration for and development of minerals notably oil and gas; and growing incomes that demand consumer and other investment goods that the local economy is unable to fully supply.

The major formal imports were Machinery equipment, Vehicles & Accessories with an import bill of US$1,081.48 million in 2017/18 representing 23.02% of imported goods composition, which was an increase of 20.08% compared to 2016/17 import bill of US$900.61 million representing 22.83% of imported goods in that year; Petroleum products closely followed at US$911.04 million (19.39%) in 2017/18, for which it was an increase of 31.31% from US$693.80 million (17.59%) in 2016/17; followed by Chemical & Related Products; Vegetable Products, Animal, Beverages, Fats & Oil; Base Metals & their Products; among others in the respective order.

The Asian Continent was the main origin of Uganda’s imports throughout the period depicted below (2005/06 – 2017/18), but its market share in Uganda’s import bill slightly declined by 6.14% from 45.01% in 2016/17 to 42.25% in 2017/18.

China is the leading source of Ugandan imports from Asia in the Financial Year 2017/18, accounting for 38.31% of imports from the region. The import value from China was US$888.44 million (equivalent to 16.18% of Uganda’s total imports) in the same year, which is an increase of 18.22% from US$751.53 million (35.41% of Asian import bill) in 2016/17. It was followed by India, which also contributed largely (equivalent to 11.66% of total imports) to the country’s import expenditures. India’s bill totaled to US$640.18 million (27.60% of Asian imports) in 2017/18 up from US$ 607.87 million (28.64% of Asian imports) paid in 2017/18, which was a 5.31% increase. Japan (US$262.75 million), Indonesia (US$175.15 million), followed in that order among others in 2017.18.

Interventions to address the deficit

The Sector is employing several strategies to ensure increased value of exports while reducing import values. These include:

1. Implementation of the National Export Development Strategy (NEDS)

The Strategy was approved by Cabinet on 25/08/2017. The main objective of NEDS is to increase the value of Uganda’s exports of the specified products and services to the targeted markets over the next five years. It intends to narrow the trade deficit as a percentage of total exports from the current annual average of negative 96% to at most negative 35% over the next five years. The NEDS also intends

1. To increase the value of priority products exported to the negotiated preferential markets by an average of 25%, for the regional markets (EAC & COMESA) and 40% for the EU annually over the next five years

2. Increase the value of priority products exported to the selected unilateral preferential markets (US, India and China) by an average of 40% annually over the next five years

3. Increase the value of priority products exported to the selected non preferential markets (Singapore, UAE and Hong Kong) by an average of 35% annually over the next five years

4. Provide a two-way communication mechanism between the productive sectors and export markets with a view to fostering export oriented investment and production

2. Restructuring of the Inter Institutional Trade Committee (IITC)

Section 11 of the External Trade Act requires the Ministry to restructure the IITC in order to create a new and stronger framework for cooperation to strengthen consultation between the Ministry and the relevant stakeholders in the Trade Sector. The restructured committee will be given a new name – the National Trade Sector Advisory Council (NTSAC).This council shall consist of five, carefully selected eminent persons from both public and private sector.

Functions of the NTSAC

1. Review and advice on key National Trade Policy implementation priorities,

2. Operate as a national consultative body for developing the country’s negotiating positions for regional and multilateral trade arrangements,

3. Provide guidance on the commissioning of studies and consultations relating to implementation of the National, Regional and international Trade Policy.

4. The NTSAC shall advice on the other trade supporting aspects, which are critical in the growth and development of the trade sector.

3. Promotion of Trade in Services

A National Policy on Services Trade was approved by Cabinet on 19/07/2017 which is aimed at boosting trade in services and cause a reduction in the trade deficit. Successful implementation of the policy is expected to contribute significantly towards incremental growth of export values by US$500 million, annually over the next five years. The growth is expected to be realized through the implementation of the policy in the following priority sectors: tourism, transport/distribution, education, business services, construction and related engineering services, insurance, among others.

4. Implementation of Buy Uganda Build Uganda Policy

Impact of Implementing BUBU

• On July 12, 2017, Hima Cement signed an MoU with China Communication Construction Company (CCCC) to supply 120,000 tonnes of cement for three major projects: expansion of Entebbe Airport, MubendeKakumiro-Kagadi road project and Soroti-Moroto highway

• Standard Gauge Railway (SGR) Project has apportioned USD 750 Million to local producers and manufacturers. Hima Cement will supply 830,000 tonnes of cement towards SGR and 3 steel companies (Steel & Tube, Madhvani and Roofings) which will supply 850,000 tonnes of steel. MTIC is to work with the project to ensure that other local companies form consortiums to take advantage of the offer

• Sinohydro Corporation Ltd which is undertaking the construction of Karuma Hydro Power Project is now procuring all cement and iron bars from local producers

• MDAs have commenced procuring office furniture from Uganda Prisons

• Picfare signed a contract with National Medical Stores to supply uniforms to all Government hospitals

• The Shoprite Supermarket launched a week-long sales promotion of local products. The campaign will run monthly

5. Strengthening Commercial Extension Services in the Local Governments

The Ministry has continued to support District Commercial Officers (DCOs) through the Commercial Services Conditional Grantto facilitate commercial extension services at the Local Governments. In FY 2017/18, a total of UGX 2.3 billion was released as conditional non-wage grant to all districts and municipalities countrywide. The Ministry has continued to undertake trainings for DCOs to enhance their capacity to deliver commercial services.

6. Market Expansion through Regional and International Trade Agreements

The COMESA trading bloc has been the main destination for Uganda’s formal exports for the last decade, with the share in total export earnings increasing on average throughout the years from 26.58% in 2005/06 to 51.32% in 2017/18. Among the COMESA member states that contributed significantly to export earnings in 2017/18 were Kenya, South Sudan, Rwanda and D.R. Congo accounting for US$628.47 million, US$311.34 million, US$197.44 million and US$196.87 million respectively (90% composition of Uganda-COMESA trade).

Other Regional Trade Arrangements

Uganda is a signatory to a number of trade and trade-related agreements through which market opportunities have been achieved;

The Africa Continental Free Trade Area (AfCFTA)

On 21st March 2018, during the 10th Extraordinary Session of the Assembly of AfCFTA in Kigali, Rwanda, Uganda signed the agreement establishing the African Continental Free Trade Area. The AfCFTA involves the 55 Member States of Africa, and the world’s largest free-trade area, by number of countries. It establishes a single market of 1.2 billion people, with a combined Gross Domestic Product $3.4 trillion. How Uganda stands to benefit from the AfCFTA

• It provides expanded markets for our growing economic operations;

• attracts cross-border investment;

• creates employment opportunities for our young populations domestically through expansion in production of goods and services that will be demanded by the expanded markets;

• improves the interstate infrastructure interconnectivity to enable us harness our productive capacities; and

• Enhances peace and security in the continent through engaging people in gainful economic activities. Within the CFTA, the regional markets of EAC and COMESA will remain Uganda’s flagship market.

Chairmanship of the Continental FTA negotiations

During the 6th meeting of the African Union Ministers of Trade that took place in Dakar, Senegal from 3rd to 4th June 2018, Uganda was unanimously elected to chair the African Continental Free Trade Area (AfCFTA) Forum for African Ministers of Trade. Uganda is expected to champion the AfCFTA for a period of one year commencing in June 2018. The election is in recognition of Uganda’s active participation in the Continental Free Trade Area negotiations that started in 2016 with the aim of creating an African single market.

Obligation

During this tenure, Uganda will lead the conclusion of the AfCFTA negotiations. The outstanding work relates to the following;

• Liberalization of trade in goods and services

• Opening negotiations on competition

• Investment and intellectual property rights

Other Agreements

• East African Community Customs Union;

• The African, Caribbean and Pacific European Union (ACP/EU) Partnership Agreement (Cotonou Agreement);

• World Trade Organization (WTO);

• African Union (AU);

• Uganda is also a beneficiary of non-reciprocal unilateral trade preferences such as Everything-But-Arms (EBA) by the European Union;

• EAC-SADC-COMESA Tripartite Agreement;

• The African Growth and Opportunity Act (AGOA) of the United States and offers by Canada, Japan and China under the Generalized System of Preferences (GSP); and

• The ongoing EAC-EU Economic Partnership Agreement (EPA) negotiations among others.

7. Promotion of Cross Border Export Zones

The informal cross-border export earnings in the Financial Year 2017/18 were estimated at US$595.51 million, representing 17.08% of Uganda’s exports. The main informal commodities included beans, maize, sugar, other grains, bananas, fish, among others. DR Congo was the main informal partner of the country with total informal export trade amounting to US$291.48 million in 2017/18. It was followed by Kenya at US$149.94 million; Rwanda at US$54.41 million; South Sudan at US$54.17 million and Tanzania at US$ 45.52 million, in the same period.

8. Electronic Single Window System (ESWS)

This is a trade facilitation initiative aimed at reducing the time it takes to clear goods. With support from the Danish International Development Assistance (DANIDA) through TradeMark East Africa, we are working to rollout the system to the following MDAs;

• MoFA – For clearance of diplomatic cargo and registration and certification of diplomats

• Ministry of Finance, Planning and Economic Development – For issuance of tax exemptions

• NITA (U) – For single sign-on and fully integrated egovernments systems

• Atomic Energy Council of Uganda – For licensing and certification services

• Posta (U) – For postal services and clearances

• Chamber of Commerce – For issuance of nonpreferential Rules of Origin certificates

• Uganda Registration Services Bureau – For e-SW system integration with One Stop Shop

• UIA – For e-SW system integration with the One Stop Centre system

• Ministry of water and Sanitation – For licensing of timber and timber products (regulated product in the EAC)

• CAA – For issuance of cargo manifest

• Department of Immigration – For immigration clearances

9. The Trade Information Portal

Government with support from TMEA is set to launch a one stop portal for export, import and transit information in Uganda, expected to be launched in 2018/19.

• It is an online platform where all the information regarding export, import and transit of goods, in Uganda will be availed to traders, government agencies and all interested parties.

• While the Electronic Single Window allows traders to clear their goods online, the Trade Information Portal will provide the traders with all the necessary information to enable them undertake the transaction on E-Single Window. The two platforms are therefore complementary.

• Establishing the trade information portal is provided for within the WTO Agreement on Trade Facilitation, which Uganda ratified and came into force on 22 February 2017.

10. Development of One Stop Border Posts(OSBPs)

• With Support from TradeMark East Africa, construction of three OSBPs was completed; these include; Mutukula OSBP with Tanzania, Busia OSBP with Kenya, and Mirama Hills OSBP with Rwanda. All the border posts are operating under one stop control which means that a transporter or travelling clears only once, on one side of the border.

• Construction of OSBPs coupled with other trade facilitation programs like customs modernisation has reduced the clearance time from 8 days in 2010 to 2 hours in 2018.

• Construction of Elegu border post with South Sudan is underway.

11. NTB Reporting System

• My Ministry has continued to implement a web based Non-Tariff Barrier Reporting System that has helped in easing and enabling the reporting and resolution of NTBs among trade facilitating institutions. This, in turn has reduced on the delays and costs of moving goods in and outside of Uganda across trading member states.

• 86% resolution of all NTBs reported through the system reducing movement of goods from Mombasa to Kampala from 21 days in 2011 to 4 days in 2018

• To report by mobile phone, the user dials USSD Code *201# and follows instructions to select the appropriate NTB to report, and then submits a complaint. The system can be accessed using any type of telephone handset on any network registered in Uganda from anywhere in the world on roaming facility.

Industrial development

The growth rate of the industrial sector stood at 6.2% in the Financial Year 2017/18 compared to 3.4% registered in 2016/17; and the sector contributed 19.8% of GDP in 2017/18, which was a slight increase from 19.6% registered in 2016/17.

Major industries: sugar, tea, Beverage, cement, steel, cotton textiles production

Potential industries: Oil and gas, Iron & Steel, gold refining, fertilizer and leather.

Manufacturing Composition

In particular, Manufacturing alone contributed 8.2% to GDP with a growth rate of 4.4% in the Financial Year 2017/18, as opposed to 2.2% growth registered in 2016/17. The improved performance is on account of good performance in chemical & pharmaceutical products, drinks, sugar, cement, tobacco and iron & steel. However, there was also decline recorded in the manufacture of leather & foot wear, textile and garments in 2017/18.

Manufacturing value added in the country increased by 2.15% in 2017 as compared to 0.59% registered in 2016; and was valued at US$2,170.94 million in 2017 as compared to US$2,125.28 million in 2016.Manufacturing value added is a key indicator in assessing the manufacturing intensity as it captures net output from the manufacturing sector after adding up all outputs and subtracting intermediate inputs.

Manufactured Exports in Total Exports

Uganda’s share of manufactures exports in merchandise exports has been gradually increasing. In the periods of the NDP II (2015-2017), the ratio averaged 25%. According to the requirement of the National Development Plan, manufactured exports in total exports should be increased by 25% from 2015 to 2020. However, projections based on current growth show a figure of 26.26% by the end of 2020, which will be below the target of 31.45%, in the same period.

Micro, Small and Medium Enterprises (MSMEs)

The MSMEs Policy provides a regulatory and institutional framework for Micro Small and Medium Enterprises development activities with a theme “Sustainable MSMEs for wealth creation and socio-economic transformation” as aligned with the objectives of the National Development Plan II (2015/16 – 2019/20). MSMEs account for 95% of the business establishments in Uganda, with a majority (57%) of these operating in the Trading sector. They also account to 42% of the country’s total employment i.e. over 3.5 million people.

Key planned activities for FY2019/20

The budget for the Financial Year 2019/20 stands at shillings UGX 103.66 billion and the Sector plans to undertake the following key activities for the Financial Year:

1. Enhance value addition and industrialization to support job creation;

2. To revitalize the Cooperative Movement by mobilizing collective resources through cooperatives;

3. Continue to improve the Regulatory Framework for creating an enabling environment for Trade that enhances wealth creation;

4. Ensure implementation of the National Development Export Strategy (NEDS) and;

5. Continue undertaking Technical Guidance, Inspections & Compliance monitoring Field Visits aimed at enhancing implementation of Industrial Development Initiatives.

Sector challenges

The Ministry still has challenges largely due to budget constraints. Other challenges facing the sector are;

1. Lack of enough human resource capacity and physical infrastructure affects development at the Border Export zones.

2. Under capitalization of UDC to be able to embark on a number of strategic projects that would lead to industrial and economic development of the country.

3. UNBS – Low staffing levels which has limited UNBS capacity to decentralize its services to other regions and strengthening standards and quality infrastructure, Low consumer education and public awareness on quality and standards. This affects consumers in making informed choices in order to reject substandard goods and services in the market place.

4. UNBS – Inadequate Laboratory space required to respond to increasing samples submitted for testing and analysis, limited Budget ceiling to fund core quality monitoring operations.

5. Limited storage (warehouse, silos) capacity for effective post-harvest management and structured grain trade that would enable us to address the challenge of the volatility of the prices of agricultural products.

6. High import taxes on the primary packaging material for the locally produced goods which hinders the competitiveness of Ugandan business persons to fully exploit the vast opportunities.

7. MTAC – Lack of adequate funds to meet necessary rehabilitation of the Centre’s infrastructure, settle long-outstanding statutory obligations and develop market outreach.