Analyzing is not always easy, though it is important, almost essential for an aproppriate action plan, this is ours for the Global Value Chains in Kenya and Uganda (GVC)
Kenya has a range of value chains in floriculture, textiles, leather, automotive production, intermediate and final manufacturing, music industry and tourism. It is evident that the country is generally at the low end of the value chain, given that a large component of Kenya’s exports is in raw materials (e.g. coffee, tea, animal products) which have low foreign value added content. For example, though Kenya has been integrated in the global leather value chain, this has not been done in a manner that is beneficial to the country and the local industry players. There is little value addition and about 70% of the exports from Kenya are raw hides and skins. Analysis also shows an industry that has been neglected after liberalization, one that suffers from poor regulation and weak policy support. The production of processed leather has actually declined and installed capacity utilization is below 50% in all tanneries. The competitiveness of the sector is weak compared to Asian countries.
Regional and international barriers include tariffs and quotas, technological barriers, currency fluctuations, political risks and market failures, among others. Though Kenya has surplus and fairly well trained manpower, some industries have not been able to find ready and appropriately skilled personnel due to mismatches between the training provided by Kenyan institutions and labour market requirements. However, as part of Kenya’s long-term plans contained in the Kenya Vision 2030 and occasional curriculum updating, a number of policy reviews are being made to ensure schools equip graduates with market demanded skills.
In promoting growth, trade, jobs and development, Kenya has sought to increase domestic value added from GVC participation, through such policies as import substitution, subsidies, tax holidays, export processing zoning, export promotion, export compensation, and industrial property legislation. Many of these policies have had implementation and/or outcome challenges; for example the import substitution policy failed to build international competitiveness, but instead created a scenario where Kenyans paid higher prices than they would have otherwise while the country’s ability to export diminished, leading to skyrocketing and enduring balance of payments deficits, before it was finally abandoned.
The EPZs, through such programmes as AGOA (where Kenyan-based firms primarily make and export apparel to the USA), have led to significant increase in exports and employment, though the expected technology and skill transfers as well as backward linkages have not been realized, which suggests a low chance of sustainability once the AGOA arrangement comes to an end. The tax holidays ended up benefiting foreign investors at the expense of Kenyans, as most of them tended to relocate at the end of their respective grace periods.
Global value chain (GVC) development is receiving increasing attention in Uganda. The National Development Plan (NDP) 2010/11-2014/15, for instance, includes as a key intervention “supporting and strengthening key product value chains to access high value markets and penetrate global value chains through Public Private Partnerships and inter-government sectoral collaboration”. The NDP document goes further and identifies key products that should be the focus of these efforts. These include: dairy products and poultry, beef, fish products, coffee, floricultural and horticultural products, maize, beans, cassava, processed bananas and processed mineral products.
Value chain development in the Ugandan context, however, is largely seen through the lens of domestic value chain development; i.e. as a strategy for strengthening production integration within the Ugandan economy and increasing value added generation at the sector level, with the aim of capturing domestic and, to a lesser extent, regional markets for selected products. It is not, in this sense, seen as a strategy for deepening Uganda’s integration in the world economy through the participation in selected segments of key global value chains. Similarly, value chain development is largely seen as a means for developing production capacities and enhancing value added generation in primary sectors, not as a strategy for industrialization, as can be seen by the list of products identified for value chain support in the NDP.
The lack of adequate data for GVC analysis makes it difficult to assess the extent to which Ugandan producers are integrated in global value chains. The most recent available input-output table for Uganda dates back to 1991 and it is reasonable to assume that the structure of the Ugandan economy has changed significantly since then.
The apparel industry has traditionally been chosen by many developing countries to accelerate the process of industrialization and structural transformation. In the African context, the US African Growth and Opportunity Act (AGOA) of 2002 presented LDCs in the region with a unique opportunity to enter this value chain, an opportunity, which some countries, such as Lesotho or Madagascar, successfully seized. Uganda has been eligible to benefit from AGOA provisions for apparel and textiles since October 2003. However, despite policy pronouncements to the effect, it has never managed to establish an apparel industry on the back of AGOA.
Uganda has been more successful in entering the floricultural global value chain. This industry started in Uganda in 1993, with a focus on exporting to the EU market. Initially, exports of roses and cut flowers experienced a sharp increase, from 1.150 metric tonnes in 1995 to a peak of 7 500 tonnes in 2005, employing around 6.000 workers on 15-20 farms on the shores of Lake Victoria and indirectly providing livelihoods to 30.000 people. However, exports volumes have gradually declined since then, down to only 3.436 tons in 2011 (UBOS,2014). Some of the reasons cited for this decline are the increasingly unfavourable climatic conditions that exist in flower producing areas in Uganda, due to the effects of climate change and the resulting increase in disease. However, weak government support, high production costs, including high energy and air freight costs, and the competition from other East African countries have also played an important role in undercutting Ugandan flower producers’ market share in the EU and other advanced economies.
The fish and fish products industry, heavily concentrated around Nile perch fishing in Lake Victoria and mainly focused on the EU market, has experienced a similar fate.
Altogether, the review of these three case studies and those for other key value chains in Uganda (e.g. coffee, horticulture), point to a number of common constraints hindering Uganda’s insertion in GVC and the maximization of its benefits. These include high production costs, including transport and energy costs. Also, weak policy frameworks that provide for adequate support to the development of specific value chains, in the form of improved sector-specific business environment conditions, training and business development support services, etc.