By Johan Burger
The Government of Uganda is the latest to join a string of countries that have recently banned the export of unprocessed raw materials. The country mostly exports agricultural products which account to nearly 80% of total exports. The country’s most important exports include, coffee, tea, cotton, tobacco copper, oil and fish. This move is seen as a step to encourage the growth of value chains. According to the state minister for Trade, Ms Harriet Ntabazi, 69% of raw materials in Uganda are exported, causing revenue loss. Statistics show that while raw material exports are sold at a low price, finished products are imported at three times the price. To support traders to add value, the Ministry obtained a US$28m loan from development partners and provided another US$28m to the Uganda Development Bank. The Ministry believes this money will help traders embrace value addition, and subsequently turn all traders into industrialists to boost manufacturing.
Uganda is not the first in Africa to take such an action. African countries are mostly dependent on raw material exports but this dependence leaves them vulnerable to price shocks. It also means they end up paying a higher price for processed imported good resulting in trade imbalance. Take for example, Nigeria, which exported raw materials worth US$33.5b in 2020, consisting mainly of crude oil, gas, and cocoa, the volatility and vulnerability of commodity prices have brought about a 41.5% depreciation of the Naira against the US$ since 2016.
The manufacturing sector is critical to economic transformation of Africa. Adding value to agricultural products and minerals is a major driver of economic growth. Within regional value chains, production systems start from conception and design and progress to the supply of raw materials, processing, transport, storage, marketing, and sales. Exports of unprocessed commodities results in Africa missing out on the advantages of spill-over. But merely banning raw material exports alone is not enough. Manufacturing needs supporting hard and soft infrastructure to flourish. This includes a network of roads, bridges, rail and access to markets. In South Africa, the decision was taken to produce sheet steel instead of just exporting raw iron ore. Unfortunately, due to a number of factors, the initiative failed after about two decades as it was unable to compete successfully against steel manufacturers from Asia.
Angurini, T.B. 2021. Govt bans export of raw materials. Daily Monitor. 6 September 2021. Available at https://www.monitor.co.ug/uganda/news/national/govt-bans-export-of-raw-materials-3539528. Accessed 22 October 2021.
Bello, O. 2021. Osinbajo wants African industries to develop regional value chains. Leadership. August 2021. Available at https://leadership.ng/osinbajo-wants-african-industries-to-develop-regional-value-chains/. Accessed 22 October 2021.
Jeremiah, K. 2021. Dependence in commodities export spikes vulnerability in Nigeria, others. The Guardian. 10 September 2021. Available at https://guardian.ng/business-services/dependence-on-commodities-export-spikes-vulnerability-in-nigeria-others/. Accessed 22 October 2021.