Uganda's manufacturers seek Government action to reduce production costs

The dissemination workshop, held at Serena Hotel in Kampala, brought together stakeholders from the private sector, public sector, academia, and development partners to discuss the study's findings and propose solutions.

Ms. Sarah Kagingo, Vice Chairperson of the PSFU Board of Directors, emphasized the importance of collaboration in tackling these issues. The studies, which surveyed over 215 manufacturing companies across Uganda, highlighted two main areas of concern: low capacity utilization and high production costs.

Underutilized Potential

The study found that Ugandan manufacturing firms are only operating at 54.4% of their capacity. This indicates significant underutilization of resources and lost production potential. The primary reason cited for this underutilization was a lack of effective demand for manufactured goods.

Manufacturers face stiff competition from imported products, often due to their own high production costs. Additionally, high taxes and macroeconomic factors were also identified as contributing factors.

The Cost Challenge

The high cost of raw materials emerged as a major driver of production costs. Many manufacturers rely on imports due to the poor quality, limited availability, and inconsistency of domestically produced raw materials. This dependence on imports is further exacerbated by high import duties and other associated costs.

Ugandan manufacturers grapple with frequent power outages, especially during peak production hours pulse uganda

Another significant cost factor is electricity. Ugandan manufacturers grapple with frequent power outages, especially during peak production hours. This not only disrupts production but also forces some firms to resort to expensive generators, further increasing costs. The high cost of electricity tariffs also plays a role in making Ugandan manufacturers less competitive.

Logistics pose another hurdle. The Ugandan transport and logistics sector suffers from inefficiencies, leading to high transportation costs. The fragmented nature of logistics services, with different actors providing separate services like transport, storage, and handling, adds to the problem. Additionally, Ugandan logistics companies are less competitive compared to their Kenyan counterparts due to higher taxes, user fees, and road transport inefficiencies.

Recommendations for Action

The PSFU and the Uganda Manufacturers Association (UMA) have developed a series of recommendations aimed at addressing these challenges. These include:

Stimulating demand: Establishing an independent Competition Commission to enforce fair competition, fast-tracking the issuance of Local Content regulations, and strengthening dispute resolution mechanisms within the East African Community (EAC) to counter unfair trade practices.
Reducing the cost of raw materials: Encouraging investment in improving the quality, quantity, and consistency of domestically produced raw materials to reduce reliance on imports.
Addressing electricity issues: Investing in upgrading transmission and distribution infrastructure to ensure a stable and reliable power supply, implementing the bulk power purchase option for manufacturers, and exploring renewable energy sources.
Enhancing logistics: Streamlining the logistics sector by promoting a multimodal transport system that utilizes water (Lake Victoria), rail, and air transport in addition to roads. Additionally, improving road infrastructure, especially in areas with high concentrations of manufacturing activity, is crucial.
Facilitating access to finance: Implementing a tiered financing system that caters to the specific needs of large, medium, and small-scale manufacturers.