Infrastructural constraints and performance of Uganda's manufacturing

Abstract

The period 2005/06 witnessed an unprecedented deterioration of important infrastructure (mainly manifested in unreliable electric power supply) that is of crucial importance to almost all productive activity. Indeed, power load shedding became so severe, so much so that by April 2006, most residential and industrial establishments in Uganda had to be load shed for 24 in every 48 hours. This can potentially cripple productive performance. With specific reference to the manufacturing sector, unreliable electricity supply can cripple performance by creating excess capacity and increasing costs of production, ultimately reducing competitiveness. This study sought to provide insights into the effects infrastructural constraints have had on the manufacturing sector. The study employed a standard Cobb-Douglas production function with modifications to take into account the effect of these constraints. It also employed data that were collected in the second half of 2006 by UMA. The UMA survey covered a total of 150 businesses employing 10 or more persons and engaged in manufacturing in 21 districts that represent the country's industrial belt. The main findings suggest that the sector depicted decreasing returns to scale over the 2005/06 period. Electric power shortages were found to have a negative effect on performance of the manufacturing sector which may partly explain the decreasing returns to scale in the sector. Efforts to generate enough electricity should be tackled as a matter of priority. This should result in a more reliable electricity power supply and at reasonably low tariffs. In the short run though, issues related to the cost of alternative energy sources such as tax exemptions on generators used by large manufacturers and slightly lower taxes on diesel to run them (the generators) should be considered.