Why we need to care about the African Continental Free Trade Area (ACFTA)

Understanding how and where  Uganda stands to benefit in the African Continental Free Trade Area.      
                
The recent proliferation of Regional Trade Agreements (RTAs) among african countries  has generated debate on the future of the African economies  that seem relatively less industrialized. It has raised empirical questions on whether these trade agreements  will really  stimulate the much needed growth and investment, shift comparative advantage toward high value activities and induce political stability. Nonetheless, this has raised key concerns on its impact on the infant industries in most developing countries

 The latest of these Trade agreements  is the African Continental Free Trade Area (AfCFTA),envisaged to be the world’s largest free trade area.It is  expected to cover a market of 1.2 billion people across the 55 member States of the African Union,and  also estimated to boost intra-African trade by 52.3 per cent by eliminating import duties amongest these economies

Richardo,among the many Scholars who  have attempted to explain the sources and possible scenarios that underpin this proliferation, argued that trade raises a country’s potential income (welfare) compared to autarky through specialization according to comparative advantage. He elaborated that countries will shift resources to production of goods where they efficiently produce and import goods where they are less efficient. This was his  argument  in his classical trade theory. He further raised concern that the existence of tariff and non-tariff barriers distort the final consumer price.Other studies however have painted a rather pessimistic picture of these regional trade agreements  especially in developing countries.This is on the basis of the frequent failure by these countries to implement fully the terms of their regional integration agreement as characterised by the previous trade agreements made.


The Economic Commission for Africa in 2015 noted that Over 75 per cent of Africa’s exports outside the continent were extractives with low value addition, thus no significant impact on the  development of local industries.This seems to pose  a big opportunity for the AfCFTA to pivot African economies away from extractive exports, with hope to secure more sustainable and inclusive trade including among others creating more jobs for Africa’s bulging youth population. This is on premise that the extractive exports on which Africa’s trade is currently based, are less labour-intensive than the manufactures and agricultural goods that are more labour-intensive 




Is it the Industrialists or agriculturalists?
While African countries that are relatively more industrialized seem well placed to take advantage of the opportunities for manufactured goods,the biggest concern is how the  less-industrialized countries can benefit from this seemingly well intended innitiative. Ideas around linking into regional value chains have already been shared with the argument that regional value chains involve larger industries which may need to source their supplies from smaller industries across borders.  Agricultural countries such as Uganda hence are seen to gain from satisfying Africa’s growing food security requirements, given that the  perishable nature of many agricultural food products means that they are particularly responsive to improvements in customs clearance times and logistics. Much as the Less-industrialized countries still stand to benefit from the implementation of the programme for the Accelerated Industrial Development of Africa. It is vital that AfCFTA is supported with accompanying measures and policies.


What about the youth ?
Liberalisation of Uganda’s economy, despite its associated challenges managed to spark an entrepreneurial spirit. This resulted into more participation and private ownership of business, despite their associated high failure rates. The last 30 years have also seen Africa change from an economically backward continent to being the world’s most exciting economic frontier with over 200 million youth between 15 and 24 yrs expected to  join the working world. This is likely to come with creation of vibrant small and medium sized enterprises as the youth seek to create jobs and gain economic prosperity.

Studies have  also shown that these small but growing businesses usually create around 80 per cent of the region’s employment, with formal small and medium sized enterprises contributing a significant percentage to employment in emerging economies. In Uganda, the Micro, Small, Medium, Enterprises (MSMEs) have been the engine of growth for the economic development, innovation and wealth creation,well spread across all sectors with 49 per cent in the service sector, 33 per cent in the commerce and trade, 10 per cent in manufacturing (UBOS).The sector accounts for approximately 90 per cent of the entire private sector, providing more than 2.5 million jobs and contributing 20 per cent of the gross domestic product (GDP).None the less  One of the biggest Challanges  affecting these small, medium enterprises in doing business has been lack of knowledge of opportunities in foreign markets and the different regulations in trading with our neighbouring countries.


Ugandan Government , Business community and the youth entreprises thus need to leverage this greatest opportunity the AfCFTA provides to grow the SME`s through eased supply of inputs to larger regional companies, which will  then export. These businesses which usually struggle to penetrate to more advanced overseas markets, are well positioned to tap into regional export destination.The question then remains if  we will use these regional markets as stepping stones for expanding into overseas markets at a later point.

Emmanuel Nambaale Is a 
young Economist with
Economic Hub Uganda-EHU
P.O Box 1337, Kampala- Uganda | Tel +256779373114/+256703744999
Email:economichubuganda@gmail.com|enambaale@gmail.com; 
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Why social intolerance: Bleeding the leech to fatten a heifer

There has been a public outburst following the new wave of #people power by populist parliamentarian Mr. Wine who represents or claims to represent the plight of the desperate majority-unemployed youth. His stardom has been received with both skepticism and mixed feelings especially among the highly opinionated  "self-appointed" elite of this country. Their claim is that he comes from the members of the "bewildered herd" and not the "specialized class"; he has no economic strategy for the very problems he fights against and therefore unfit to lead. They have accused him and the youth of "social intolerance and extremism". They have named many opposition members as radicals and therefore a threat that should be eliminated. At any cost. But before we delve into whether this new wave is the way to go or not, we need to investigate why this hurricane has come in the first place. 

Popular Kenyan Pan Africanist Prof.P.L.O Lumumba has time and again asked whether African leaders are doing what is in the best interest of the people they lead. In his opinion Africa is still standing at the diner table with the whole world as a waiter and not as a diner. 

Global Zambian Economist Dambisa Moyo asserts that until we can ween Africa off of Aid, African leaders will continue to be corrupt, and do only what can keep in them in power as they wait for Aid from donors every year. In other-words, they have no reason to care. 

Today in Uganda, we have more poeple slipping back into poverty (from 19% to 27% below in the poverty line according to the Household survey report 2017, UBOS) increasing graduate unemployment rate 11.8% and a shrinking middle class-if at all. Meanwhile more shopping malls and apartments crop up, new cars rover the streets everyday with windshields up high for fear of goons while bars keep full in upscale Kololo and other exotic places. So yes, the gap between the haves and have-nots is clear and widening. Will the strategies being taken by government solve the problem? Obviously not! Is people power the answer? Probably not!! Are people aware of this? Absolutely! And yet majority of the youth and probably older Ugandans are willing to rally behind any one or anything that is willing to change the government. Its despair and its created by governments which fail to create Inclusive institutions that distribute wealth among the many. Instead they create extractive institutions that: fail to guarantee property and land rights (or grant these to a minority elite like the case in South Africa), hire public servants depending on political parties, tribal affiliations and family relations. Like Acemoglu and Robinson theorize, a small group of individuals do their best to exploit the rest of the population. Milking the starved population with new taxes and poor service delivery, investing more money in creating more political positions on top of a big government (investing in white elephants); carrying sacks of money to hungry masses as the economic strategy....one can go on and on. This is the reason why people become socially intolerant. It becomes worse when the governments resort to extreme measures to exterminate their own subjects and become unwilling to sit and talk. Instead, they resort to using clubs and progressively bullets indiscriminately.  Who then becomes the extremist in this regard?

has been a public outburst following the new wave of #people power by populist parliamentarian Mr. Wine who represents or claims to represent the plight of the desperate majority-unemployed youth. His stardom has been received with both skepticism and mixed feelings especially among the highly opinionated  "self-appointed" elite of this country. Their claim is that he comes from the members of the "bewildered herd" and not the "specialized class"; he has no economic strategy for the very problems he fights against and therefore unfit to lead. They have accused him and the youth of "social intolerance and extremism". They have named many opposition members as radicals and therefore a threat that should be eliminated. At any cost. But before we delve into whether this new wave is the way to go or not, we need to investigate why this hurricane has come in the first place. 

Popular Kenyan Pan Africanist Prof.P.L.O Lumumba has time and again asked whether African leaders are doing what is in the best interest of the people they lead. In his opinion Africa is still standing at the diner table with the whole world as a waiter and not as a diner. 

Global Zambian Economist Dambisa Moyo asserts that until we can ween Africa off of Aid, African leaders will continue to be corrupt, and do only what can keep in them in power as they wait for Aid from donors every year. In other-words, they have no reason to care. 

Today in Uganda, we have more poeple slipping back into poverty (from 19% to 27% below in the poverty line according to the Household survey report 2017, UBOS) increasing graduate unemployment rate 11.8% and a shrinking middle class-if at all. Meanwhile more shopping malls and apartments crop up, new cars rover the streets everyday with windshields up high for fear of goons while bars keep full in upscale Kololo and other exotic places. So yes, the gap between the haves and have-nots is clear and widening. Will the strategies being taken by government solve the problem? Obviously not! Is people power the answer? Probably not!! Are people aware of this? Absolutely! And yet majority of the youth and probably older Ugandans are willing to rally behind any one or anything that is willing to change the government. Its despair and its created by governments which fail to create Inclusive institutions that distribute wealth among the many. Instead they create extractive institutions that: fail to guarantee property and land rights (or grant these to a minority elite like the case in South Africa), hire public servants depending on political parties, tribal affiliations and family relations. Like Acemoglu and Robinson theorize, a small group of individuals do their best to exploit the rest of the population. Milking the starved population with new taxes and poor service delivery, investing more money in creating more political positions on top of a big government (investing in white elephants); carrying sacks of money to hungry masses as the economic strategy....one can go on and on. This is the reason why people become socially intolerant. It becomes worse when the governments resort to extreme measures to exterminate their own subjects and become unwilling to sit and talk. Instead, they resort to using clubs and progressively bullets indiscriminately.  Who then becomes the extremist in this regard?

Enock jumba SsentongoEconomic Hub Uganda ltd
P.O Box 1337, Kampala- Uganda | Tel +256779373114/+256703744999 |
Email:economichubuganda@gmail.com|

Rethinking the employment question: Understanding the role of education in the employment equation

“That education is one the few sure roads to economic progress is a contemporary creed. But there are too few facts with which to support this faith and stated in the usual way it is far too vague.” It is public secret that the contribution of our education to the employment world is quite questionable. Public dialogue across the country has suggested skill mismatch (possession of jobs that are not compatible with the available jobs) as one of the lead factors for youth unemployment predicament. The question is, are the highly prized Universities prescribing the right doze for tens of thousands churned out every year? 

Youth unemployment in Uganda is an old song despite the various initiatives intended to alleviate it and almost all stakeholders seem to be in chorus agreement that there’s need for an overhaul of the education system to suit the needs of the labor market. Now the real cause of the job mismatch that perpetuates employment problems among youth graduates is that those who qualify to join (TVET) vocational training also qualify to attend Universities and obviously prefer the latter because of better wages and status. What is more dramatic is the paradox that the surplus of highly qualified professionals (whose skills are by the way seldom used effectively) is what causes the shortage of persons with critical skills that are badly needed in Uganda like all other developing worlds. A medical specialist for example may not be comfortable doing the most routine medical check-ups that a nurse would very easily do notwithstanding that we may need more community health workers. We graduate more MBAs and social workers and force them into entrepreneurship that is more necessity driven(to make some money) than opportunity driven (identifying a gap); which explains why many of our start-ups don’t live to celebrate their second anniversary. 

Statistics seem to suggest that the population of the Ugandan youth is bulging (with more than 70% below 30 years) and so employment is largely a supply problem. However this seems to be a misdiagnosis of the actual challenge; the Asian tigers like china for instance have leveraged their population to succeed economically. I don’t mean to discount the need to harness a demographic dividend, but how we increase the productivity of this enormously growing labor force is the whole point. 

Policy makers assert that what we need is a systemic transformation of education from training professional clerks, teachers and lawyers to skilling more sub-professional (through vocational training &apprenticeship) personnel like draughtsman, technicians and nurses. This path should however be walked cautiously; such vocational training should be focused on those particular sectors that will spur production and increase jobs. Such sectors as the ones with high value chain and inherently labor intensive. This is at least what the commonly referenced Singapore and Malysia have done; evidence shows that it works. And so the idea in this piece is to initiate debate on how to make the education system conformist and not rely solely on benchmarking from alien economies.The education system is not bad in itself but it is not tailored to meet the needs of the economy.

My proposition is to incentivize TVET (Technical and Vocational training) to attract the brilliant minds that flow into universities to vocational schools.  In Germany for instance, students attend a dual education system enabling them to receive high quality vocational training and entering the job market at a young age and with the right skill. Unfortunately, there has been inadequate dialogue about the  existing group of graduates who are already out of training institutions as well as those past the age of entering leaning halls. What is the plan for them?  

The bottom-line is that we need to restructure the old colonial system. Fifty years back we needed it to fill gaps in administration and sectors left by our departing colonizers. Right now we a more robust system that fosters innovation and enterprise; the only challenge is to specify the right sectors and training needed. Like Gerald Meier says, it’s a “Jigsaw puzzle the only problem being that the old puzzle has to been torn down and the new puzzle has not been constructed”. Until we take serious strides about this kind of transformation, we shall continue to struggle with the symptoms of unemployment- urban crime, political violence name it. And all efforts adopted will not yield, we shall only be chasing after a white elephant.

Enock jjumba Ssentongo
Economic Hub Uganda
P.O Box 1337, Kampala- Uganda | Tel +256779373114/+256703744999 |
 Email:economichubuganda@gmail.com; 

“bad” trade and industrial policies

“BAD” TRADE AND INDUSTRIAL POLICIES THAT LED TO THE DEVELOPMENT OF THE USA AND BRITAIN. ARCHAIC IN SOOTH “GOOD” FOR THE DEVELOPING COUNTRIES

Part of the conviction in free trade that the proponents of globalization processes comes from the belief that economic theory has irrefutably established the superiority of free trade, even though there are some formal models which show free trade may not be the best.  However, even the builders of those models, such as Paul Krugman, argue that free trade is still the best policy because interventionist trade policies are almost certain to be politically abused. Looking closely at the history of capitalism, you realize there is a very different story. History shows that virtually all of today’s developed countries did not practice free trade as they often preach. They did promote their national industries through tariffs, subsidies, and other measures.

Notable to this cause is Britain and USA, conventionally these are believed to have reached the summit of the world’s economic ladder by clinging onto free trade when other countries were immovable with mercantilist trade policies. The hiatus between the “bona fide” and “envisaged” histories of trade policy is inordinate in relation to Britain and the United States. These two countries were, in fact, often the trailblazer and frequently the most ardent users of interventionist trade and industrial policy measures in their early stages of development. These two countries exposed the hollowness of free trade and this brings about re-thinking some key stereotyped wisdom in the debate on trade policy, and more broadly on globalization.

Only Britain can claim to have practiced total free trade at one point in time. However the most important event in Britain’s industrial development was in 1721 when Robert Walpole (1st Prime minister) introduced policies that deliberately aimed at promoting manufacturing industries. The interventionist policies that were used to promote industrialization were read in the 1721 legislation and these included Import duties on raw materials used by manufacturers being reduced, export duties on most manufactured goods abolished, duties on imported foreign manufactured goods were raised, export subsidies (bounties) extended to new export items like silk products and gun powder while the existing ones were increased. Controlled the quality of manufactured products especially silk products.

The same policies were adopted by United States of America, German, France, Switzerland and other recently industrialized economies like Japan. Because of this switch to protectionism, the Swedish economy performed extremely well in the following decades. In the economic successes of Japan and other East Asian countries (except Hong Kong), interventionist trade and industrial policies played a crucial role. Notable are the similarities between their policies and those used by other NDCs before them, including, above all, eighteenth –century Britain and nineteenth-century United States. For obvious reasons, it is difficult to establish the exact importance of the above-mentioned infant industry promotion policies. However, without them, it would have been very difficult for Britain to make this initial success in industrialization, without which its Industrial Revolution may have been next to impossible. It is a very common clever device that when anyone has attained the summit of greatness, he kicks away the ladder by which he has climbed up, in order to deprive others of the means of climbing up after him. (Chang, 2003)

Almost all NDC’s used some forum of infant industry promotion strategy when they were catching up. It must be noted that tariff protection was in many countries a key point of this strategy, it was not necessarily the most important strategy, and they are now trying to kick away the ladder by spreading the message of free trade. Those few neoliberal economists who are aware of the rewards of protectionism in LDC’s try to avoid the obvious conclusion. Namely that it can be very useful for economic development. The World Bank argues that although industrial countries did benefit from higher natural protection before transport costs declined, the average tariff for twelve industrial countries ranged from 11 to 32% from 1820 to 1980. . . . In contrast, the average tariff on manufactures in developing countries is 34%”. (Chang, 2003)

The historical picture is clear. When they were trying to catch up with the frontier economies, the NDCs used interventionist trade and industrial policies in order to promote their infant industries. The forms of these policies and the emphases among them may have been different across countries, but there is no denying that they actively used such policies.

The National Industrial Policy (NIP) 2008 which emphasizes the need to develop domestic resource based industries and promotion of competitive industries that use raw materials. The policy encourages existing industries and new investors to utilize the services of local technologies and consultants as a means of developing national technological capabilities.

Ministry of trade also launched the National Textile Policy (NTP) 2009 which policy interventions to harness the use of local resources for industrialization and employment creation. The Policy sought to improve the local business environment through forward and backward linkages to exploit local resources for export promotion. Among other policies introduced was The National Sugar Policy (NSP) 2010 which proposed marketing of sugarcane to the benefit of farmers, millers and consumers. Accordingly, the Government aimed at regulating importation of sugar through appropriate tariff regimes and also promote use of locally produced sugar as a raw material by beverage and confectionary industries.

Although about 30 percent of the NIP is reported to have been achieved, none of the set targets has been met. The targets are 25 percent contribution of manufacturing to total GDP (current performance is 7 percent); 30 percent contribution of manufacturing to total exports (current is about 4.2 percent); 30 percent value added in industry (current is 20 percent); and 4.0 score in competitiveness index (current is 3.44).43 Similar studies have found that the NIP has had no tangible impact.44 There is also no evidence that implementing agencies were ready and equipped to kick-start implementation.

Similar to these industrial and trade policies is Kenya National Industrial policy which was implemented in 2012 to transform Kenya into a globally competitive regional industrial hub together with other policies across the region.

Every government throughout East Africa has been practicing some form of industrial policy, public policies aimed at stimulating industrial growth and, ultimately, the transformation of the economy from low-productivity agriculture to high-productivity manufacturing and services. Midway July 2016, Rwanda and the rest of the East African states did hike tariffs on imported second hand clothes in defense that these cheap clothes from the US were being imminent to their domestic manufacturing industries which you can compare to what Britain and the US were doing before they industrialized. They were practicing some form domestic industrial protection which the US is preventing African economies from doing. In other words it is trying to kick away the ladder with which it used to climb the summit of economic development.

The historical picture is clear. When they were trying to catch up with the frontier economies, the USA and Britain used interventionist trade and industrial policies in order to promote their infant industries and they would not like LDC’s to develop their industries by advocating for free trade. If this is the case, the current orthodoxy advocating free trade and laissez-faire industrial policies seems at odds with historical experience, and the developed countries that propagate such a view seem to be indeed “kicking away the ladder” that they used in order to climb up to where they are.

Historically, colonial development was oriented to producing the raw material exports required by the factories of Europe, and importing the manufactured goods those factories produced. Colonial government expenditures were devoted to building the infrastructure railroads, roads, ports required to facilitate the export of raw materials. Colonial policies discouraged local manufacturing to preserve African markets for goods produced in European factories. (Seidman, 1977)

So, if you are a neoliberal economist, you are faced with a paradox. The developing countries grew much faster when they used “bad” trade and industrial policies during 1960–1980 than when they used “good” (at least “better”) policies during the following two decades. The obvious solution to this paradox is to accept that the supposedly good

policies are actually not good for the developing countries but that the “bad” policies are actually good for them. This gets further confirmation from the fact that these “bad” policies are also the ones that the NDCs had pursued when they were developing countries themselves. (Chang, 2003) Uganda and other East African countries need to develop industrial and trade policies which are practical and applicable and they should not succumb to pressure from the industrial powers as trade and industrial policies is the way to go.

Igadube ezekiel 
Economic Hub Uganda
P.O Box 1337, Kampala- Uganda | Tel +256779373114/+256703744999 |
 Email:economichubuganda@gmail.com|ezekieligadube@gmail.com