FDI and Economic Diversification, 1946–1962

The colonial government was largely preoccupied with extracting raw materials from Uganda, especially cotton, which was under high demand in England. As Uganda was a Protectorate, the British Government never wanted to commit huge financial resources to administration or development in Uganda (Obwona 1996). IBEAC received small grants for administration. The colonial administration was concerned with the need to create markets for manufactured consumer goods in London. European investors would provide foreign exchange and pay taxes on exports from Uganda, and in turn bolster the small grants from the British Government. As long as exports and imports raised tax revenue so that the Protectorate could be self-sufficient, the British Government remained satisfied.

However, after the Second World War, the British Treasury dollar and gold reserves were nearly depleted, due to huge expenses (Gershenberg 1972). To revamp the British economy, the British Government adopted two interrelated approaches based on an export-led strategy: first, increase production in the industrial and primary commodities, and export to hard

currency economies; second, earn and save each dollar so as to rebuild the dry treasury. To operationalise the ‘earn-save-a-dollar approach’, the British Government looked to colonies with abundant mineral and industrial resources, such as Uganda. To colonies such as Uganda, this was the dawn for the economic diversification which was implemented by establishing the Uganda Development Corporation (UDC).

Before establishing UDC, Governor Hall appointed Dr E. B. Worthington in 1946 to review the 1941 Uganda Development Plan (Gershenberg, 1972). As a result, the Worthington Development Plan (WDP) was completed and launched in December 1946 covering ten years for the period 1947-1957. The plan was first, aimed at increasing economic government expenditure and public investments in sectors including industry, mining, as well as public works and agricultural extension. Secondly, following the WDP, the Uganda Development Corporation Act was enacted in 1952, which paved the way for the colonial government to establish the UDC. The purpose of UDC was primarily economic development from two perspectives. Firstly, UDC served as a one-stop centre for foreign investors and through research, advice investors on profitable ventures in the country. Secondly, the corporation acted as a funding basket that would provide investment funding into lucrative colonial projects.

Through the initiative, the Treasury reserved £120 million to invest in colonies, as a means of increasing exports. To achieve this, the GOU provided £5 million initial capital, comprising 51% as shareholding. The immediate focus of UDC was energy, mining and quarrying, industrial development, agriculture development and hospitality. This was the birth of Uganda’s economic diversification.

3.3.2.1Mining and Quarrying

Mining in Uganda was expected to begin as early as 1902, soon after the establishment of the Uganda Mining Regulations. However, due to the heavy finance capital required for mining, it was not until after the end of the Second World War that mining started in Uganda. After the War and following the WDP, the Owen Falls Dam was completed in 1954, to supply power to heavy industries. Through the WDP, the UDC became a funding basket. As a result, copper mining at Kilembe Mines commenced in 1946 (O'Connor 1965). Other minerals also attracted foreign investment, including limestone, wolfram, beryl, tin and phosphates. Limestone was important because of the high demand for cement in physical infrastructure

and housing construction. Phosphates were also important because the colonial government expected fertilisers to increase agriculture output and productivity.

3.3.2.2Import Substitution Manufacturing

Import substitution manufacturing was established for three primary purposes (Obwona, M & Egesa 2004). First, import substitution was intended to produce local consumer goods that were in high demand, such as sugar, soap and textiles. Second, the policy was also intended to reduce transport costs for bulk products such as bricks, which make imports uncompetitive. Finally, it was intended to improve the balance of payments and TOT for Uganda, and ease pressure on the overburdened British pound in the long-run. With direct funding provided by the UDC, either in partnership or as a single undertaking, by 1962, Uganda’s industrial sector had started to take shape. Within just 10 years, a number of import substitution industries had been established, covering the production of commodities such as sugar, cement, textiles, soap, oils and beverages (Stoutjesdijk 1967).

3.3.2.3Agriculture Product Processing and Value Addition

The processing of agricultural raw materials was necessary because some agricultural products were perishable and bulky, requiring weight reduction (Stoutjesdijk 1967). Exports would increase through agro-processing value addition, while imports would reduce. First, Robusta coffee was hulled and Arabica coffee decaffeinated and loaded into bags, then exported through Mombasa to overseas markets. Second, cotton ginneries were established and covered nearly all cotton-growing parts of the country, to increase cotton lint exports. During ginning, the bulk of seeds were preserved for planting, oil processing and making cattle seed cake for European farmers’ dairy farms. Third, tea and tobacco were perishable agricultural products, so factories were established close to estates to increase exports. Other value addition agricultural products through agro-processing that were considered by the colonial government included food and wood products.

To support the growing agro-processing and manufacturing, the colonial government undertook other initiatives by training Ugandans in various skills. They hoped that these new skills would promote smallholder peasantry, agricultural productivity and quality (Hall 1952). As a result, schools and colleges were opened at various levels across the country. Support industries, such as motor and plant repairing centres (in form of garages) were also

established. As agriculture covered the entire nation, agro-processing industries were numerous20 _{and scattered in the rural areas, close to major producing centres.}