On Uganda’s Textile Sector

This is from The Economist:

Uganda’s main advantages, for the moment, are cheap cotton and labour, and preferential access to American and European markets. When exporting to the rich world “Africa has an 18-35% duty advantage over any other continent”, says Nick Earlham, a shareholder in WUCC and in Fine Spinners. “It’s very competitive.”Screen Shot 2017-05-04 at 1.13.26 PM

Textile workers in Kampala earn about $85 a month, compared with $150 in Kenya and $108 in Vietnam, never mind up to $700 in China. But these savings are offset by problems in almost every other sphere. Power cuts keep plunging the factory into darkness, and an erratic supply of steam to the dyeing machines makes it hard to ensure that each batch of fabric looks alike.

Textiles appear to be a low hanging fruit as far as creating mass employment in African states is concerned. And, at least for now, they will remain immune from the threat of mechanization:

Robots are not yet much good at fiddly sewing jobs on floppy fabric; less than 0.1% of the world’s industrial robots are in the clothing trade.

More on this here.

Lastly, while production levels have not increased significantly over the last decade, FAO data (see below) do suggest a non-trivial increase in productivity (yield/ha) in Uganda’s cotton sector. This outcome could be a result of a myriad causes, but it is in line with recent research by Bates and Block (2013) showing increased agricultural productivity in African states that experienced real exposure to competitive electoral politics.

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Kenya’s super rich are betting on future stability, and that is a good thing

One of the historical features of “Kenyan exceptionalism” in Africa – outlined by Bob Bates and others – has been its elites’ reliance on immovable assets, mostly agricultural land. This is in contrast to most other African countries where insecure property rights, lack of good investment opportunities, and outright kleptocracy have over the years bled national economies dry of capital. A study of 33 countries in Sub-Saharan Africa showed that between 1970-2010 about 0.814 trillion dollars left the region (in constant 2010 dollars). That was more than the total aid ($659 billion), and more than two and a half times the FDI ($306 billion) received over the same period.

The study shows Kenya to have lost $4.9 billion in capital, ranking it 21st on the list. This despite having been among the region’s top five economies and its largest non-mineral economy over the same period. Kenyan politicians and their associates were by no means less venal than their regional counterparts. They definitely stole, too. A lot. The difference is that they invested a good chunk of the stolen money in land (agriculture) and other assets within the country.

The same Kenyan trend appears to continue, even in an era of relatively liberalized financial flows. A recent report on Kenya’s top 8,300 wealthiest high net worth individuals – who also control wealth the equivalent of about two thirds ($31 billion) of the country’s annual output – shows that they have put more than a quarter (26%) of their wealth in real estate, a most immovable asset. 18% of this wealth is in equities, with only 12% in liquid cash [Just to be clear, $31.4b is 62% of Kenya’s GDP, not its total wealth. The latter figure includes the total accumulated net value of all wealth in Kenya, including both public and private household wealth].

The Business Daily reports that:

This level of wealth multiplication has caught the attention of Kenya’s super-rich making them invest 19.5 per cent of their total assets in residential property, 5.4 per cent in commercial property and 1.3 per cent in foreign property in 2013.

Obviously the wealth disparities outlined in the report should concern Kenyan politicians and the super-wealthy elite alike. 8,300 people make up 0.0002075% of Kenya’s 40 odd million people. This is total insanity. But the investment choices of the country’s wealthiest are an implicit endorsement of the country’s property rights laws and a sign that the super rich are betting on the continued stability of the country and its economy.

Now the challenge for chaps at State House, the Treasury and the Ministry of Industrialization and Enterprise Development (of course with some help from Parliament) should be how to incentivize investments in sectors that will generate mass employment. This is a drum that I have been beating for a while now (see also here). It is also the point that David Ndii neatly summarized in his recent critique of the government’s apparent blind belief in mega-projects as the panacea to Kenya’s endemic poverty problem. Dr. Ndii’s argument was that mega infrastructure projects only target the middle class and up, forgetting the rural poor who need investments in agricultural productivity. While I wouldn’t go as far as outrightly dismissing the utility of new major roads and railways, I think that the government should be a bit more proactive in ending rural poverty – a task that will necessarily require getting people off the land and providing alternative livelihoods in wage paying jobs.