Wednesday, February 29, 2012

Why ‘Made in China’ is a problem for Uganda

Over the last festive holidays I strolled through my home town of Mbarara and was astonished at the number of Chinese immigrants in retail outlets selling commodities such as Chinese mobile phones in outfits which in Kampala-speak would be called emidaala.

I know it is not unusual in today’s Uganda to find Chinese immigrants in retail businesses as we have seen in Kikuubo in Kampala and I occasionally shop at a Chinese-run supermarket in the suburb of Wandegeya. But Mbarara was new for me.

Now, this is no homophobic treatise but I was struck me by what these developments say about the changing character of Ugandan commerce and how Chinese industry in Uganda has truly come full circle by completing the supply chain.

Products are made in China, imported by Chinese traders in Uganda, through an efficient export machine and are now directly sold in Uganda by Chinese retailers.

If you have shopped at any local supermarket in any town in Uganda, you will be forgiven for thinking that everything is ‘made in China’ these days. Chinese products have an irresistible lure. They are cheap.

They typically cost less than any other similar product (including Ugandan- made ones). But there is a catch.

Chinese industry has made many products seem cheap and affordable and many Ugandans have bought their first TV set or electric fan because of cheap Chinese products but this may come at the expense of the local manufacturing sector.

It now seems few Ugandan manufacturers can produce goods locally at prices that rival Chinese products. And this is why.

The cost of doing business in Uganda is not terribly competitive. Commercial bank loans interest rates in Uganda are as high as 30%. The cost of energy is prohibitive and recently, a 40% hike in electricity tariffs was announced. Many businesses have to do with expensive thermal generators during regular and prolonged power cuts. Uganda can’t even compete with China on labour cost.

Chinese engineers and construction companies typically bid lower than Ugandan construction forms for civil works and deliver that project faster than Ugandan contractors.

But there are some exogenous variables working in favour of Chinese businesses in Uganda and elsewhere.

The Chinese government subsidizes Chinese businesses in Africa and in many cases offers very low interest loans to businesses willing to set up shop in Africa. You have heard the Americans perennially complain that the value of Chinese currency is kept artificially low, making Chinese products seem cheap to importers.

Then Senator Barack Obama while visiting Kenya in 2007 pitted Kenyans for thinking that they would compete with Chinese industry saying even the Europeans and Americans had given up. When ever I return from Europe, I am amazed at how many souvenirs and Items I bring in from ‘Europe’ that are actually ‘made in China’.

Statistics show that in 2008, Ugandan exports to China that include cotton, coffee, leather and fish amounted to $20m while imports such as mechanical and electrical appliances stood at $202m.

Uganda’s trade deficit with China has more profound effects on the economy. Besides turning Uganda into a net importer of Chinese products and rendering local manufacturing uncompetitive with losses in manufacturing jobs, the repercussions extend to the value of the Ugandan shilling and imported inflation from China, among many ills.

An economic report shows that Chinese textile imports have caused 80% of Nigerian factories to shut down, resulting in 250,000 workers losing their jobs.

In response to these challenges, South Africa has introduced a quota system for Chinese textiles that limits entry of Chinese textiles. Joint ventures between Chinese and Ugandan entrepreneurs is another alternative middle round.

But the Chinese have built us a football stadium, a city hospital, a twin-tower president’s office and our foreign affairs ministry office block. Should we then be surprised at their benevolence?

And I am typing this on a lap top made in China, while wearing my made in China slippers, drinking coffee out of a mug made from China.


Anonymous said...

Just a typo correction - would that be 'xenophobic treatise' iso 'homophobic treatise'?

Anonymous said...

You are spot on! It's certainly xenophobic. Thought Editor would nip that one but... Thanks!