The evolution of the political settlement and its drivers help one to understand the limitations of the state in Uganda as a promoter of manufacturing. A key feature of this evolution is the abandonment of the once consensus-driven “no-party” political system and the return to multi-party competition based on a winner-takes-all principle. Party politics has not strengthened political parties as mechanisms for holding the government to account. In fact, has created an environment in which winning elections and retaining power is arguably the highest priority for the NRM government. This has had implications for policy formulation and implementation and explains to a large extent why so many good policies suffer implementation failure.
The government recognizes the importance of manufacturing to economic growth because of its potential for value addition and because manufacturing has been a key factor in the development and transformation of once-backward societies. Manufacturing, therefore, is at the centre of the government’s ambitions for economic and social transformation. There are also political reasons for seeking to promote manufacturing: 78 percent of the population is below the age of 30, the majority are unemployed and, therefore, a potential source of political destabilization given the high levels of poverty. It is hoped that manufacturing will come in handy as a tool for fighting unemployment.
In recent years, manufacturing has contributed only between 23 and 27 percent to GDP. Many factories produce below scale. SMEs dominate the sector, accounting for over 90 percent of all establishments. Altogether, the sector is still small and produces mainly low-value-added products. Heavy investments are mainly by foreign companies, especially in textiles, steel, cement and food processing. There is very little capital goods manufacturing, and manufacturers are high-cost producers. However, within the EAC, Uganda performs relatively well.