How Uganda can profit from China rise

East African Business Week - - FRONT PAGE -

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.

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