How Uganda can profit from China rise
KAMPALA, UGANDA- When historians look back at this period they will identify one of the most important events as China’s emergence as one of the largest economies in the world.
Since the mid-1970s the Chinese economy has been transformed through export-led industrialization and its growth has had a profound effect across the globe. In particular, China’s demand for raw materials has supported an economic boom, through higher commodity prices, in many developing countries, including Africa. Although Uganda does not export many the primary commodities, such as oil and steel, directly to China, the overall growth in Africa has meant that there were numerous positive spill-over effects for the Ugandan economy as well. However, China’s growth model is now changing. It has built excess capacity in its capital stock and it will take some time to work through this. This has meant that their private investment has slowed down significantly. Although China’s consumption levels are still high, these are mostly focused on services and no longer will result in the high demand for energy, metals and other commodities. This investment slow-down has meant that China has become an important capital exporter. Additionally, the changing demographics have resulted in a smaller working population and rising wages. The result of this is that value chains, especially those that are labour intensive are starting to migrate out of China. To date, African economies have relatively little involvement in global value chains. Therefore, this is now a prime opportunity to benefit from this shift to try and attract some of these value chains and bring jobs to Ugandans. Given that China’s demand for natural resource is declining, it is likely that the growth in their investments in Africa will be largely through small and medium enterprises. A further trend has been the increase in external financing for infrastructure, such as the Karuma Dam or the Kampala-entebbe Expressway. In taking on more of this financing, there is a need for the government to enforce quality control and safeguard mechanisms to ensure that the infrastructure built is of high standards; only this way can they ensure that it will contribute to growth and thus not affect its debt sustainability. Further to this, there are bestpractice examples that can be taken directly from the Chinese experience, which as they build their own infrastructure, priced it very rationally such that it was able to generate revenue. For example, this has resulted in China having the highest number of toll roads in the world. Additionally, it will be important to ensure that investments in Uganda, through the Chinese and others, can generate jobs and ensure skillstransfers for Ugandans. China is already having a significant effect on Africa and the bottom line is that this is positive. It will continue to be a principal development partner for countries across the continent. Uganda needs to harness this opportunity and attract investments, such as ensuring that it has a conducive investment environment. This will be key to guiding the economic rise of China to support Uganda’s structural transformation. However, there are also challenges and these will require the Government of Uganda to manage this relationship accordingly. Governor’s Lecture Series – Dr David Dollar Bank of Uganda and International Growth Centre
Although Uganda does not export many the primary commodities, such as oil and steel, directly to China, the overall growth in Africa has meant that there were numerous positive spill-over effects for the Ugandan economy as well.
Dr David Dollar (l) and Bank of Uganda Governor Emmanuel Tumusiime Mutebile during the Governor’s lecture series.