Industrialisation: Uganda can take tips from Turkey
Posted Sunday, January 26 2014 at 02:00
Turkey has experienced rapid transformation from import substitution to outward orientation through industrialisation.
While the rest of Europe is still reeling from the effects of the global economic crisis, Turkey shrugged them off quickly. The country is a good case study of how a peasant economy can be transformed into an industrialised one. Industry lies at the heart of Istanbul, a city employing 17 per cent of Turkey’s 75 million people while Uganda is still trying to find its rightful place.
Established 28 years ago, the Gebze-created industrial zone in the heart of Istanbul has thrived without credit. Seated on 537 hectares, with modern machine parks, its companies produce merchandise of international standards.
Accommodating more than 125 domestic and foreign companies, the industrial zone attracts foreign capital to Turkey. The $17 trillion economy, also an emerging global investor, has a capital export base of more than $25 billion.
Employing more than 20,000 people, with an average labour force age of 28, it is clear Turkey’s economy is still growing stronger. Some of the services offered at the industrial zone include techno park, industrial vocational school, waste water treatment plant, electricity distribution services, national gas distribution services and cleaning services.
Mandated to provide the economy with the highest added value in form of production, export and employment, the Gebze industrial zone is now considered the door of opening Turkey to the rest of the world.
Turkey’s journey to industrialisation
The country owes her success largely to the ability to attract new businesses. While the $17 trillion economy concentrated on industrialization that led to export-led growth, its manufacturing sector has produced more for the domestic market than the international market.
“More than 75 per cent of what is produced in Turkey is locally consumed, the rest is exported,” said Mr Nazim Yavuz, vice chairman of the Turkish-Uganda business council. According to Mr Yavuz, access to credit for beginners has been simplified too. “Credit is accessible depending on one’s project. For starting out, there are many banks in the economy that are willing to lend money,” he said.
This is a stark contrast to the situation in Uganda where interest rates average at 20 per cent, which is a disincentive to acquire loans for business. Turkey is one of the growing countries in Europe, which has been registering growth between 5 and 6 per cent. With inflation below 10 per cent, investments in Turkey are now more stable than before. Turkey, now dubbed the ‘China of Europe’, is Europe’s top cement exporter.
Lessons from Turkey
Uganda can pick lessons from Turkey’s success story as a country manufacturing a wide range of industrial products and exporting to more than 200 countries.
Mr Yavuz says investing in one’s country is the first step. “For the start, you need about 500,000 square metres per year. We talked to partners in 2003. Then we launched a product in the market and in 2007, we built a factory,” Mr Yavuz says. He says the factory brought in expertise from Germany.
In 2010, the factory’s processing capacity doubled and is expected to triple in 2014.
“The first machines had a capacity of 600 km per hour, now they are 1,400 km per hour and we are going to buy machines for 2,400 km per hour. First, we imported the products, now we are selling them to the same people we bought the machines from,” said Mr Yavuz.
The country first bought second-hand machines and built its capacity. Now, it exports to the countries it once bought from. Uganda, whose trade deficit has been shooting up should therefore find ways of reducing what it imports and focus on producing the same items for both the local and export markets.
Uganda’s troubled industrialisation journey
The journey to industrialisation in Uganda has been troubled with challenges that have restricted the process to a mere dream. Vision 2040 aims at turning Uganda into an industrialised economy but the high trade deficit as a result of growing capital imports only pulls the country backwards. Bank of Uganda records show that Uganda’s current account deficit has gone up to Shs1.4 trillion in 2012/13, up from Shs2.5 billion in 2011/12 and Shs2.4 billion in 2010/11. This robs the country of the revenue to finance its industrialisation mission.
An economic advisor in the Ministry of Finance, Planning and Economic Development, Fred Muhumuza, says Uganda needs good infrastructure, a ready market, an enabling financial environment and skilled human resources to become an industrialised economy. “You cannot compete with someone who gets a loan at an interest rate of 8 per cent with the one borrowing at between 20 and 25 per cent,” Mr Muhumuza said.
Uganda has also scored poorly on skills development, a vital ingredient in the industrialisation process.
The way forward for uganda
Uganda Manufacturers Association (UMA) executive director Sebaggala Kigozi says government should revamp the collapsed factories to make Uganda self-reliant. “Those years, Busitema, Namulonge, Serere were industrial hubs that trained Ugandans on how to employ themselves,” said Mr Sebaggala.
Power: Address electricity shortage because industries are run on power.
Access to credit: “You will never raise capital to start a factory without a loan,” says Mr Ssebagala.
Agro-industry: Focus on agro-industry where Uganda has a competitive advantage.