Import substitution policy excites local economy

Ministry of Health (MoH) is set to procure about 46,000 beds from local manufacturers. The ministry has also been purchasing face masks and sanitisers from local companies.

Mr Emmanuel Ainebyoona, the Ministry of Health spokesperson, says there are a number of products that the country no longer needs to import, especially front-line medical supplies.

“A number of software we are using are locally developed; contact tracing, surveillance are all locally developed. There is an effort to employ import substitution across the whole distribution of medical logistics,” he says.

At the onset of Covid-19, government spent Shs30 billion to import 143 Intensive Care Unit (ICU) beds for distribution to health centres.

Each bed cost an average of Shs210m from Shs180m prior to the pandemic. The increase in price was attributed to heightened global demand on account of the widespread Covid-19. 

In a recent interview with NTV, Engineer George Otim, the commissioner health infrastructure MoH, revealed that 54 more ICU beds need to be procured to equip Mulago and other regional referral hospitals.

However, the government’s plan is to have these beds locally manufactured partly because of the sharp rise in the international price.

“We are embarking on the design to make our ICU beds locally here in our country. We have identified two companies and they are already doing good,” he said.

Fabrication Systems was one of the chosen local manufacturers that is expected to make 2,000 beds and benefit from the ministry of Heath procurement.

Otamani Agency Limited in Namanve, Mukono District will reportedly produce 26,000 beds.

Government since the emergence of Covid-19 which prompted closure of international borders thus hindering importation has advocated for import substitution.

The renewed drive by government has excited many local manufacturers who are now making products that were once unbankable.

According to Mr Daniel Birungi, the executive director Uganda Manufacturers Association (UMA), people are now noticing that government’s intent on enhancing investment in import substitution.

“The government policy on import substitution has stimulated investment into areas that were previously not prioritised for investment or unavailable and we see this in the number of new investments coming up, for instance, the expansion of some of our beverage companies, investment in an aflatoxin removal entity to solve the challenge of aflatoxins, investment in growing capacity of some of our steel sector manufacturers and this is all testament to the fact that import substitution has been put forward as a policy for Uganda. We also have significant investment coming up in starch production for pharmaceuticals and food grade items,” he explains.

He also attributed the growing investment to the amended investment code act which he says has become an enabler through recognising and providing key incentives for local investment.

As the global village slowly closes up due to travel restrictions and closed borders, could import substitution be the answer to restoring Uganda’s economy to a growth rate of 6 per cent?

The ripple effects are immense. Jobs, taxes, skills acquisition and a vibrant economy.

URA 2020/21 revenue collections indicate that the tax man collected Shs12.1 trillion in domestic taxes compared to Shs7.5 trillion from international taxes.

The manufacturing sector was the second highest contributor to the taxes registering  Shs4.4 trillion.

During a visit by Uganda Investment Authority (UIA) recently, Fabrication systems revealed that it was employing about 300 Ugandans, all of whom are attaining skills in fabrication and contributing to taxes.

“I think the local part of employing our people is very huge. But also they are getting most of their input from Ugandan Industries like Roofings or Steel and Tube among others. The local content here is very clear and I think we should encourage such companies to work in Uganda,” Mr Robert Mukiza, Director General UIA said recently.

However, manufacturers still believe that there are more gaps to be plugged before the country can boast of a successful import substitution policy.

Mr Birungi says whereas the import substitution policy is good, there are other underlying bottlenecks that need to be addressed in order to boost local manufacturers.

These are especially centred on increasing competitiveness of the local products through policy advocacy.

“Policy level support in regards to cost of power, credit for instance in iron ore value addition to increase capacity, the aspect of dumping should also be addressed, there should also be a sanction against that,” Mr Birungi advised adding that government procurement is also a critical driver of success of the import substitution policy.

He explained: “We are doing ourselves a disservice if we do not make concerted efforts to ring-fence procurement of government ministries, departments and agencies for local manufacturers because 60 per cent  or more of the government budget is on procurement.”

He further suggested sanctioning those that fail to adhere to the law especially if quality and capacity of local manufacturers are available.

Mr Benson Turamye, the executive director Public Procurement and Disposal Authority (PPDA) says the procurement law exists and gives priority to local businesses and certain products such as textiles, medicine, cables and electrical activities.

“The PPDA Act provides for reservation and preference schemes which is in line with the local content policy of government. The schemes reserve products like medicine and medical supplies that are manufactured locally,” he says.

The law he says is meant to drive investment into the country and expansion of existing industries.

However, Mr Turamye also believes that the procurement law alone isn’t the silver bullet to the challenges of local content.

He says there is need to create an enabling environment for businesses in Uganda by reducing the cost of doing business.

In addition, he noted that there is need to inculcate a culture of loving and appreciating locally made products amongst the local population.

Import substitution still remains an uphill task according to Bank of Uganda statistics as imports even during the global lockdown rose to $6.5 billion in 2020 from $6.1 billion in 2019.

SUPPLEMENTARY BUDGET

In its quarter one expenditure, government prioritised a supplementary budget of Shs67.5b which should cater for procurement of hospital beds and related items.