Job creation: Can the Chamber help?

US President Harry Truman asked to be sent a “one-armed economist” when exasperated by economists constantly proclaiming “on the one hand” and “on the other hand”.
Fortunately, such equivocation does not exist in the statistics on youth unemployment in Uganda. According to the Uganda Bureau of Statistics, the share of youth unemployment in Uganda (18 to 30 years) among the total unemployed is more than 64 per cent. The African Development Bank puts its estimate higher at 83 per cent.

Uganda also has the highest number of young (under 30 years) in the world - 78 per cent of the population. Each year, more than 400,000 young people enter the job market to compete for approximately 9,000 available jobs.
How would a business association such as the Uganda National Chamber of Commerce and Industry (The Chamber) solve youth unemployment?
One, the Chamber can provide reliable practical data that can better inform government policy and execution. In many instances, government makes well-meaning but misguided policy interventions because of poor quality data. Implementation is also compromised by bureaucrats with little business sense and experience.

Two, the Chamber can strengthen communication channels between business and government. This avails trade and investment opportunities with technical depth and implementation support. Business etiquette and speed of execution is also a critical ingredient in successful investment outcomes.
Investments happen when the following questions are answered: What is the business regulatory climate like, the tax and incentive regimes, law and order and dispute resolution mechanisms? What is the structure of land ownership, the quality of labour and technology absorption and the degree to which a market exists both domestically and abroad?
Three, mentoring. The best way for young mentees to ‘learn the ropes’ is by hearing it from those who have walked the journey - fallen and risen up.

Causes of unemployment
To appreciate the opportunities for business associations in tackling unemployment, we should remember the causes of youth joblessness.
There are three key factors that contribute to our high youth unemployment.

Inadequate investment and supply of jobs
Countries such as China, Japan and South Korea have a huge policy and investment capacity to reduce national poverty levels and generate significant employment outcomes.
Between 1978 and 2014, China for example, lifted 700 million rural residents out of poverty. The poverty rate in the countryside, or the proportion of poor people in the total population, dropped to 7.2 per cent in 2014, down from 97.5 per cent in 1978. This is stunning!
China is the modern economic expression of massive public sector investments in private sector activities as the engine for massive job and wealth creation.

How does this happen in Uganda?
First, create conditions for small-scale farmers to thrive by reforming land ownership and developing rural infrastructure. Economist Hernando de Soto, in his book The Mystery of Capital estimates that Africa has land assets worth $5 trillion (Shs16,735 trillion) which aren’t brought into full productive use because ownership rights aren’t well-established; therefore, the asset is dead and unable to generate capital.

When producers own their productive assets, and they can process and deliver their produce to markets, then crop yields rise, leading to agricultural surpluses. Farming suddenly becomes lucrative and attractive for the many young people who flock to towns to engage in riding boda boda’s as a business.
Second, the proceeds from agricultural surpluses can be used to build a manufacturing base geared towards the export market. This needs knowledge-based interventions and not just a policy commitment to local value addition.
Product branding, positioning and promotion are more critical these days to attaining market share than where a particular product is manufactured. Ask Apple: their phones are designed in California but made in China. Intellectual property not bricks and mortar is the product equity of today and the future.

Third, nurturing both small-scale farming and export-oriented manufacturing with venture capital, like China and the developed world does, turns Uganda into an ‘entrepreneurial state.’ This unleashes private sector opportunities by protecting infant industries and culling those that remain inefficient even after support.
In Uganda, government has tried to generate jobs by focusing on Foreign Direct Investment (FDI) using the Uganda Investment Authority (UIA) as the institutional agency. Other initiatives include the Youth Venture Capital Fund (YVCF) and the Youth Livelihood Programme (YLP).

UIA has not been very successful in generating jobs apart from some in banking and telecoms as evidenced by their job conversion of licensed projects to actual jobs which is just one-third and most of these are low-skilled and casual jobs.
UIA’s failure to spur significant job creation is premised on two things: one, the structure of Uganda’s economy is largely agricultural yet agricultural investment is relatively low and offers low productivity jobs. UIA is also urban biased and lacks a strategy beyond FDI.
When you look at the numbers and destination of FDI, you can see the challenge. According to the World Investment Report produced by UNCTAD (2015), FDI to Africa in 2014 stood at $54 billion (Shs180.9 trillion), similar to 2013.

The largest recipients were South Africa at $5.7 billion, Congo Republic $5.5 billion (Shs18.4 trillion), Mozambique $4.9 billion (Shs16.4 trillion) (more than EAC combined), EAC $4.2 billion, of which Tanzania got $2.1 billion (Shs7 trillion), Egypt received $4.8 billion (Shs16.1 trillion)and Nigeria $4.7 billion (Shs15.7 trillion).
The picture is clear: most FDI targets the extractive industries which are not job intensive or job creating sectors.
Regarding the Youth initiatives, the YVCF and YLP started out with a combined capital base of $110 million and targeted the youth directly focusing on enterprise development, job creation and business skills training.

According to an in-depth analysis carried out by the Economic Policy Research Centre (EPRC) at Makerere University (2015), both programmes have failed to drive large scale job creation due to their urban and retail sector bias. Over half of the recipients were involved in retail trade - a sector that creates few jobs.
EPRC (2015) figures show that 61 per cent of youth recipients came from Kampala and the Central Region whereas more than 75 per cent of the youth reside in the rural areas. Also, whilst some gains have been made in enterprise development through organisations such as Enterprise Uganda, in-depth business skills training, enterprise incubation and mentoring programmes that lead to successful enterprise development are still lacking.

Lack of employable skills
The second cause of unemployment is lack of employable skills. Our education system still produces graduates without the skills that match what the market wants. While 76 per cent of our youth are literate, this does not guarantee them a job nor a life of dignity. Also, the more educated you are, the more likely you are to be unemployed given that there are very many graduates chasing few jobs.
Government has made efforts to reform the education sector by encouraging science courses and other more market-relevant courses leading to innovations such as the Kira Car and a local bus prototype.
However, scaling these efforts to levels of efficiency and profitability will require significant and intensive capital investments that are not readily available.
A strong Chamber can structure partnerships with government to make targeted investments in vocational training centres and mentoring and business incubation centres to strengthen the market relevance of the next generation of job seekers and job creators.

Weak private sector institutional support
The poor business environment also causes unemployment. The operating environment in Uganda is a mixed bag of a few incentives and numerous disincentives for the business community.
Significant market failures exist. In the capital markets, for instance, only about 10 per cent of credit flows go to the agricultural sector yet over three-quarters of the population work on the land.
The fiscal burden of sterilisation by the Central Bank (mopping up of excess liquidity by issuing TBs and bonds) crowds out private sector credit and is a key market distortion.
High transport and energy costs have also led to under capacity utilisation of many industrial firms in Uganda, meaning job growth from existing businesses is constrained. We also don’t have an apprentice and graduate training policy to incentivise absorption of young graduates.

The environment is further distorted by different categories of businesses all operating in the same environment. Small businesses, for example, compete with big multinationals despite huge irregulaities in their endowments, making competition unfair and stifling sector growth given that SMEs are the real drivers of job creation.
Business people are problem solvers; they see opportunities where others see challenges. The Chamber’s contribution can only be made if it is institutionally organised, well led, well-funded and sincere about stepping up to its responsibility.

Ranking
In 2014, Uganda was number 132 out of 189 countries in the global index for ease of doing business; yet the country was recognised in 2015 as the most entrepreneurial country in the world. Established in 1933, the Uganda National Chamber of Commerce and Industry was mandated to address challenges facing the private sector by working with government to bring innovative ideas and policy suggestions to the fore. But the Chamber is not fulfilling its mandate.

The writer is the chairman, Good African Coffee Ltd.