Understanding Chinese Contribution to BUBU

by Admin (Posted on March 11, 2024)

By Nnanda Kizito Sseruwagi

It is easy to assume that the imbalance of trade between Uganda and China translates into an unfair play in the long-term development relationship shared by the two friendly states. It’s an understandable misunderstanding. This is despite the marked improvement in the balance of trade between us over the years. By balance of trade, I mean the difference between the monetary value of Uganda’s exports versus imports to China.

However, let us not mistake the “imbalance” in our balance of trade with China to be inherently a bad thing. Whereas Uganda suffers pressure on our external payments to China due to this trade imbalance, we can neither wish away nor miss the benefit of ensuring the availability of Chinese goods such as Construction vehicles which topped our imports from China last year. These are primary tools in driving our industrialisation.

The Observatory of Economic Complexity (OEC), analysed the dynamics of economic activities between Uganda and China in the last 28 years and established that the exports of Uganda to China have increased at an annualised rate of 25.6%, from $115k in 1995 to $54M in 2022. Additionally, in December 2023, China exported $116M and imported $5.75M from Uganda, making a positive trade balance of $110M. This gradual increase in our exports to China over time is the first promise of a better trade relationship between us, but there is more.

The idea behind the Buy Uganda Build Uganda (BUBU) policy is a brilliant one. Responding to the Private Sector’s appeal to make policy decisions that promote and encourage practices of consuming locally-produced products, the Government of Uganda unveiled the BUBU policy in 2014. It aimed to spur economic growth by giving prominence to domestically manufactured goods.

The number and weight of reasons for encouraging domestic consumption as a means to bolster economic growth are endless. China is an instructive example of this. In 2023, the government of China issued measures to boost domestic consumption which included subsidizing Chinese consumers to buy electric cars, expanding access to social housing and putting more spending cash into Chinese pockets. This is an essential step in stimulating economic growth.

Whereas countries develop through participating in international trade, they need to first anchor themselves in high domestic consumption of their own manufactured goods. How could you sell to foreigners what you can’t consume yourself anyway? We must first excel at BUBU before succeeding in international trade. In fact, although the term now sounds like a local cliché, I think it is our gateway to going international.

International trade is important primarily because it opens for us access to larger markets beyond our narrow borders. This provides opportunities for Ugandan businesses and industries to expand their customer base hence leading to economic growth and development. This is the only way we can guarantee increased productivity and competitiveness for our local industries.

BUBU should be a nursery bed for growing more industries like Mukwano Industries Limited, which has a deep penetration of its products in almost every Ugandan household. This domestic success explains why it’s one of the few Ugandan companies that have penetrated the regional and international market, exporting products to over 20 countries in East and Central Africa.

However, there remains a fear and suspicion amongst some Ugandans that foreign capital might be simply camouflaging to partake of Uganda’s efforts at promoting domestic products while excluding the intended local beneficiaries.

One of the firms criticized for this is Goodwill (Uganda) Ceramic Co. Ltd, whose shareholders are majorly Chinese. The profound question to ask, however, is what is the definition of a “local” or “domestic” or “Ugandan” company which BUBU intends to promote?

Legally understood, a “Ugandan company” is one originally incorporated in Uganda notwithstanding having majority of shareholders being foreigners. This makes Goodwill a Ugandan firm. It is even better to understand the “domesticness” of a company based on the location of its most valuable operations.

What primarily determines the origin of a business, economically speaking, is the domicile where the most central part of the highest value in the production chain of its goods falls. That is why the iPhone remains understood as an American product yet it is manufactured in China. The highest value of the iPhone is its design and marketing, which happens in California, making its highest value return to the United States.

For a country lacking fundamentally in financing, we cannot do away with foreign capital. However, our hook is in domesticating that capital. By incorporating companies locally, transferring their production systems to Uganda, employing/training Ugandans to work in all levels of manufacturing, and selling the products from Uganda as exports, we do not lose much even if the owners of the business are non-Ugandan nationals. Local ownership should not be narrowly understood as exclusive ownership by Ugandan nationals. That will limit our access to development capital.

The Chinese are investing so much money in Uganda, co-owning firms with Ugandans, employing Ugandan labourers, training them, transferring technology to Uganda and doing a lot to support Uganda in ultimately supporting herself. They are not importing Chinese experts and labourers to establish colonies here to feed China. This is a relationship that supports BUBU.  It’s a relationship we can exploit to grow our economy.

The writer is a Senior Research Fellow at the Development Watch Centre.

 

 

 

 

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