Commentary

Resource constraints shouldn’t be an excuse for underdevelopment

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By James Karama

Posted  Monday, May 19  2014 at  01:00
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The deluge of stories and reports highlighting Uganda’s economic struggles can sometimes be paralysing. On some days, you wish you could miraculously wake up in a brand new economically developed country. However, in the real world, economic miracles are hard to come by.

A few weeks ago, it was reported that the tourism sector will need at least $5 million to market Uganda across the globe. In another report, it was noted that Uganda is losing Shs300 billion annually to illegal fishing. It was also reported that Uganda has launched a new national coffee sector policy, where Shs24 billion has been earmarked for planting some 100 million coffee trees every year until 2016. However, coffee promoters say the funding for coffee growing is still too little, especially given that coffee contributes about 20 per cent of Uganda’s total export earnings. Another report argued that lack of sufficient maintenance has reduced the value of Uganda’s road network by $1.1 billion.

The country’s economic planners have to deal with the challenges of matching a limited resource envelop (that is financial, human and natural resources) against an unlimited list of needs. Uganda’s economic strategists focus on three core areas; 1) Ensuring that Uganda maintains its growth trajectory – e.g. investment in infrastructure ,
2) Ensure that the country is able to respond to unexpected changes in the operating environment for example, macroeconomic volatility, cross border insecurity, natural disasters, etc.

3) Incentivising resource leverage and economic innovation.
According to two experts on the dynamics of the global market place, Professors Gary Hamel and C.K. Prahalad, resource constraints are not necessarily an impediment to the achievement of global leadership, nor are abundant resources a guarantee of continued leadership. They introduce the concept of ‘resource leverage’ and argue that if a firm has not learned to do more with less, then it cannot be strategic.

Resource leverage can be achieved in five fundamental ways: by effectively concentrating resources on key strategic goals, by accumulating resources more efficiently, by complementing resources of one type with those of another to create higher-order value, by conserving resources wherever possible, and by rapidly recovering resources by minimising the time between expenditure and payback.

The two professors are convinced that resource constraints cannot be an excuse for underdevelopment. Uganda also boasts of numerous examples of resource leverage, where a combination of fiscal policies and commercial investments have been meshed together to transform the economy. One such example is the use of epurpur sorghum for beer-making. The government charges a lower excise tax on beers made from locally sourced sorghum, while the brewers have invested in technology and plant to make excellent beer from sorghum. The above combination has brought thousands of farmers into the value chains of these brewers.

Economic innovation also requires a very high appetite for experimentation, because success only comes after a lot of trials and errors. For example, the huge effort to plug Uganda’s textile industry into the AGOA value chain suffered a few setbacks that discouraged our economic planners. Yet, the best approach would have been a return to the drawing board to establish newer and better strategies to deliver the above objective.

To transform our economy we must put more emphasis on resource leverage and economic innovation in large multi-sector projects that will alleviate poverty and increase employment.

Mr Karama is the Sector Head for Oil & Gas at Stanbic Bank. masabae@stanbic.com