It has been common knowledge that industrialisation is the clearest path to development.
That’s to say, developing countries have two options – either to pursue industrialisation or remain trapped in economic stagnation. This is also the case that this year’s Nobel Prize in Economic Sciences emphasised when Joel Mokyr made a clear case for creative destruction.
This process of creative destruction that leads to a culture of growth and ultimately development is only possible through industrialisation. Thus, whereas I disagree with President Museveni on many things, there’s one thing he’s got right: the emphasis on industrialisation, and why Uganda has no other option but to pursue this route.
Uganda has no other viable route to genuine transformation. Yet, in reading Uganda’s industrial strategy and listening to the conversations in the milieu about industrialisation, I conclude that we have a flawed understanding of the two concepts – industry and industrialisation.
A factory is not an industry
First, a factory is not an industry. And although an industry is a collection of factories, it’s not necessarily true that a collection of factories will give rise to an industry. An industry is a self-sustaining ecosystem of factories that feed from/into each other, mutually reinforce each other and continuously achieve high levels of integration with each other.
Thus, it’s possible, for example, to have dairy factories without having a dairy industry. Industrialisation, on the other hand, is the rigorous application/combination of human capital and technology to shift inputs/products from one plane of value to the next plane of value and to set up a momentum to successively and continuously climb to new planes of value.
Thus again, it goes without saying that although industrialisation is value addition, not all value addition amounts to industrialisation. The nature of industrialisation involves continuous leaps.
Successful industrialisation usually also results in financialization. Why? Because as factories begin to feed into/from each other, they will utilise new creative forms of financing to guarantee successful production, to hedge against supply chain distortions, thus new forms of financing will result, such as cross-shareholding, and derivatives.
How do you build an industry?
It is for this reason that industrialisation is not possible without a strong industrial policy. Because industries do not emerge as a chance activity, they’re deliberate actions. Let’s take an example of Uganda’s agriculture.
Assuming this was to be developed into an industry. We start with the fundamentals. To have agro factories, you must have backward linkages of productive farms. Productive farms imply that you have the right seeds and you can guarantee the right soil conditions.
At this point, one is thinking of the human capital to select and develop the right seeds. We are also speaking about fertiliser factories. Now here’s where the beauty of industry also starts to develop.
If you have a fertiliser factory that’s giving you ammonium nitrate, that same factory will soon also feed into your construction industry. You need ammonium nitrate in stone quarries for you to blast the stones.
If stone quarries can deliver cheaper stone to construction, this brings down the cost of road construction, and these roads can then open your farms. We can then also talk about the cold rooms to guarantee that produce once harvested has a longer shelf-life.
But you need affordable electricity to sustain cold rooms. You also need assembly plants for agro machinery. Now imagine that this same process must be replicated for every industry you set out to develop.
That’s why, for most countries, it always started with import substitution. Why? Because with import substitution, one is certain that demand already exists at home. And as you fill up that home demand with homemade products, the shift is always to export promotion.
Because soon, assuming Uganda is producing more fertiliser than it needs, there’s no option but to look for a market among its neighbours. Uganda thus suffers from one problem – an incoherent industrial strategy and a weak or absent industrial policy.
Some heuristics
I have illustrated the process of industrialisation for the agricultural industry. It goes without saying that if you were to also develop the automotive industry, the same would have to happen, a deliberate exercise of building this ecosystem of automotive players at the different levels of the value chain.
But there are also some indicators as to whether a nation is ready for industrialisation. For example, if a country doesn’t have an installed generation capacity of 10,000MW and above, that country is not yet serious about industrialisation.
If a country doesn’t have at least 1000km of well-maintained railway with a connection to a seaport, we also don’t talk about industrialisation. There are infrastructural fundamentals – the electricity, and the transport/logistics.
We also talk about the human capital that powers this exercise, which goes from the policy makers, industrial policy experts, those in research and development, the engineers, the technicians, the operators, and, of course, the managerial class.
Above all, we talk about the policy, the regulation, and the financial stream that fuels this industrialisation exercise. Here, we are also talking about the ability to cushion failure, to eat pain (since some factories will fail, others will work), and this must be endured over a long period of time, picking learnings from one failure to build success into the next endeavour.
Unfortunately, this is not how we talk about industrialisation in this country; we have a loose grasp of the concept, with many mistaking it for factories and some value-addition exercise. And by doing this, we are getting it wrong about industrialisation, all of us, including President Museveni.
The author is a Ugandan engineer
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