Network measure of bottlenecks in Ugandan firms markets
In Uganda, several supply-chains are characterised by a structure of a few very large firms and a large fringe of small firms (Spray and Wolf, 2017). These large firms anchor the economy together by providing a focal point for supply-chains to operate around. Without these anchor firms, output would drop substantially. On the other hand, these firms could exploit their market position to charge higher prices and make large amounts of profit.
In this project, we develop a novel strategy for identifying the largest Ugandan anchor firms. We identify around 50 firms in areas including light manufacturing, agro-industry, utilities providers, and mass service inputs.
We then show that these firms are extremely large, profitable and employ a large number of Ugandans making them essential to the economy directly, and indirectly because of their connectedness to other firms. These firms are also located in sectors which have very few new entrants and they charge high mark-ups consistent with having a high degree of market power.
The project concludes by arguing for three policy interventions:
- Government should remove barriers to entry into sectors populated by anchor firms through providing subsidies to credit or reducing regulation, and by encouraging foreign direct investment.
- Empower an existing ministry (e.g. finance or trade) to create a unit in charge of investigating competition in key anchor firm sectors.
- Reduce the cost of making new linkages to anchor firms through a supplier development programme.