Revitalising Uganda’s economy: Effective industrial policy for sustainable growth
As industrial policy regains global focus, low-income countries like Uganda need smart, context-specific interventions such as effective public procurement and targeted tax incentives to avoid economic distortions and ensure long-term growth.
Industrial policy has recently experienced a global resurgence. It is now designed to achieve economic objectives (such as industry-specific development), as well as non-economic objectives (for instance, security-motivated export bans on certain technologies). It is being viewed as a pivotal tool in reshaping and directing economies, with many countries adopting frameworks that attempt to shift resources towards high-potential industries, sectors, and technologies – amidst the looming threat of climate change.
Industrial policy, however, can also do more harm than good, misallocate viable resources, and put unnecessary burdens on public budgets. Low-income countries, like Uganda, in their early phases of industrial development will need to design the right public interventions for effective and efficient support for their respective aspired development paths.
The 8th Economic Growth Forum (EGF) co-hosted by Uganda’s Ministry of Finance, Planning and Economic Development (MOFPED) and the IGC, provided a perspective of the historical development of industrial policy in Africa and presented and discussed how Uganda is shaping its economic development through conventional and unconventional interventions.
Not all industrial policies are created equal
Bad economic policies—those often focused on picking winners or unjustified import substitution—can distort markets, leading to inefficiencies and a stunted economic trajectory. When governments favour certain industries without addressing underlying market failures or protect inefficiency through prolonged trade barriers, the economy can suffer from reduced competition and innovation. In contrast, good industrial policies target these very market failures. They encourage competition, innovation, and entrepreneurship by addressing issues like externalities, insufficient access to finance, or missing infrastructure. IGC’s Research Director, Tim Dobermann highlighted this in his opening remarks at the EGF. His speech underscored the importance of using industrial policies to support nascent industries in a way that fosters long-term productivity growth rather than short-term protectionism.
A history of economic development and industrial policy in Africa
To understand how these broader narratives fit into the African context, Marios Obwona, from Uganda’s National Planning Authority, presented reflections on the continent's historic growth trajectory. Africa, despite its rich natural resources, has long faced the paradox of low development. Industrialisation in sub-Saharan Africa, according to Obwona, has been stifled by historical exploitation, institutional weaknesses, and bad policy choices, such as the import substitution policies of the 1970s and 80s. These policies, designed to shield local industries, often resulted in protected firms failing to develop the capacity to compete in international markets. Obwona highlighted how Africa’s manufacturing value-added relative to other regions has stagnated while the global manufacturing sector itself has been in decline. For Uganda, this means that while the country has potential in sectors like agro-processing and ICT, it must avoid past mistakes, particularly those involving inefficient protectionist measures.
Unconventional industrial policy in Uganda
In contrast to conventional approaches, Bernard Hoekman, professor and director of Global Economics at the Robert Schuman Centre for Advanced Studies based at the European University Institute, presented examples of unconventional industrial policies applied in Uganda’s development strategy. Hoekman drew attention to the role of public procurement (PP) and targeted Rules of Origin (RoO) in the context of Preferential Trade Agreements (PTAs) as tools to support private sector development.
Public procurement can be designed to promote local content and innovation while helping firms overcome market failures, such as limited access to credit. However, Hoekman stressed that the design of these policies is crucial. For example, his analysis of Ugandan firms participating in government procurement showed that while they saw growth in sales and employment, there was no corresponding increase in labour productivity. Moreover, delayed payments by the government discouraged some firms from expanding capacity, highlighting the need for more efficient policy implementation.
Hoekman further presented recent findings that showcased a disparity between negotiated RoOs in PTAs and the current local content in Uganda’s exports falling short of local content requirements. His findings emphasised the role of improved data-driven analysis by government agencies to shed light on the nuances of economic development and towards better-positioned international trade negotiations and the design of context-dependent industrial policies.
Uganda’s tax Incentives to foster industries
A key form of more conventional industrial policy in Uganda has been the country’s approach to attracting investment through tax incentives, as discussed by Pamela Natamba, partner and tax lead at PWC Uganda. Uganda offers a range of incentives, such as tax exemptions, capital deductions, and special economic zones, particularly aimed at high-potential sectors like agro-processing and ICT. Natamba’s analysis revealed that while these incentives have played a role in supporting growth in emerging sectors, there is a need for a more holistic approach that addresses challenges across the entire value chain, from infrastructure to financing. Her call for better stakeholder engagement before making changes to tax laws also pointed to the importance of consistency and transparency in policy implementation.
The need for constant evaluation and targeting
Uganda is embarking on its ten-fold economic growth plan. The country must carefully navigate between the lessons of past failures and the opportunities presented by modern, unconventional policy tools – particularly in times of tightening fiscal pressure. The insights shared at the 2024 EGF—ranging from addressing market failures to the role of effective public procurement and targeted tax incentives—highlight examples for the country to foster a more competitive, productive, and sustainable economy. By focusing on innovation, enhancing competition, and creating the right conditions for private sector growth, Uganda can actively promote industrial transformation and support long-term development in the context of its ten-fold growth plan.