By y4p_admin on July 7, 2016

The Next Economic Crisis Isn’t Coming – It Has Arrived


Economists have a thing they call the “demographic dividend,” a fancy term to mean a rapidly growing youth population which can be an opportunity for economic boom especially when the bulk of its young people are of a working age in comparison to dependents. This is now being made in reference to Africa. Before you read any further, it might help to start with a little bit of blunt honesty; a rapidly growing youth population is not an opportunity of any kind especially if you have no jobs to absorb all the young people eligible to work as is the case in Uganda and many African countries today.

The World Bank places Uganda’s youth unemployment rate at 80% but the Uganda government says it is 62%, whichever statistic you choose to look at – it doesn’t look good. Despite Africa’s continued economic progress and it’s growing Africa Rising narrative (that many of us and especially myself like to champion) the truth is that today the continent has more unemployed young people than at any other time in our history with many of them living in urban centers thereby increasing the likelihood of them slipping into crime or becoming homeless.

If you live in Uganda, you have probably heard most politicians, technocrats, bureaucrats, economists, academics, social and political commentators talk about the youth unemployment and every time dropping rhetoric, platitudes and statistics (like I just did a few moments ago) so I will spare you the statistics except for this single one; according to a combined report by DFID, UKAID and the Youth Working Group, to solve Uganda’s current youth unemployment crisis, the country would need 600,000 new jobs every year for the next 12 years. With the exception of public sector employers such as the military and general public service, Uganda’s biggest employer is the Madhvani Group, a multi-sector conglomerate that has been around for over 102 years.

With interests in energy, consumer goods, financial services, construction, sugar, tea, communication, horticulture, software, hotels and resorts, the group employs about 10,000 people. To put this into perspective, Uganda would need 60 companies the size of the Mahdvani Group every year for the next 12 years. On a global scale, global brands such as Toyota employ over 300,000 people across the world, again, this would mean that for Uganda to address the youth unemployment crisis, it would need two companies the size of Toyota setting up within Uganda every year for the next 12 years and employing strictly Ugandans.

Given this information, it’s fair to assert that Uganda’s youth unemployment crisis has become so colossal and may probably not be resolved within my lifetime. The next economic crisis isn’t coming; it is already here. Business Owners Do Not Create Jobs One of the biggest misconceptions about job creation is that jobs are created by business owners, yet in reality most business owners will confess that creating a job is a thing they do as a measure of last resort when they are unable to supply a product or meet its demand on their own.

For example, a man sets up a shop and he gets 10 walk-in customers every hour, at the start he is doing fine by himself and able to adequately attend to all his 10 customers every hour. At this point he has absolutely no reason to hire an extra person because he can manage all the work by himself. However, after the business starts to grow, demand for his product increases, he now gets 50 customers every hour and is unable to attend to all of them at ago by himself.

So he does the next logical thing, he hires an extra person or two to work in the shop thereby assisting him with meeting the demand from his customers and eventually proving the point that – business owners do not create jobs out of the kindness of their hearts, but rather because an increased demand compels them to employ extra people if they cannot supply the product with the workforce presently available to them. In many ways, this also proves; the consumers that create demand for a product are the actual job creators because they are essentially compelling business owners to hire more labor that contributes to producing more of the products or services that are already in demand. So anybody that attempts to create jobs in any sector must clearly think through how to increase consumer demand in that sector.

To create jobs in the local manufacturing sector one must first create demand for locally manufactured products, the same principle applies for all other sectors. Also, to create jobs in the local textile industry, one must first create demand for local textile products because it’s the increased demand that compels business owners to hire extra labor. Enter Protectionism All governments have the power to instantly create demand for locally produced goods and services however hard this always is. The most practical and immediate way to increase demand for local goods is to enforce selective protectionism on goods making them expensive to import thereby creating a state of urgency within the country, forcing the existing business community of traders and importers to forge a structure of cottage industries and eventually major manufacturing houses that will create jobs.

However, for protectionism to work, government has to make a number of considerations, these include; developing a careful selection of the goods that will be covered under the protectionism policy – in some cases raising the import taxes of those imported goods to 20% or even higher to discourage imports and in some cases simply abolishing all importation of some goods. The selected goods must be products that can be easily produce within Uganda using minimal machinery such as packaged agricultural products, door handles, soft drinks, candles, tailored clothes (not textile rolls), wooden furniture etc.

As an extension of protectionism, bans may be placed on the importation of specific electronic appliances but not their parts such as a ban on the importation of flat irons or air conditioners but not their assembling parts. Some air conditioning companies already offer this service to importers as a measure for tax burden reduction that would allow the importation of non-taxable air conditioning parts that are later easily assembled when they arrive in the country of destination. However, here is why it’s easier written about than done; protectionism by its very nature creates scarcity of specific goods, which may cause inflation, so the government that enforces protectionism has to be ready for some backlash from the public.

Because of the initial public resistance against protectionism policies, it’s critical that any government that implements it does so in the early years of a presidency, the public backlash from scarcity of goods and inflation may become so much that it will shake the political capital and popularity of any government forcing it to go back on its protectionism policy in the years approaching an election year, especially if the protectionism has been unable to create enough jobs to guarantee public support towards government. Outside the country, free trade activists are likely to attack the policy as being anti-free trade and a hindrance to the 21st century globalization.

Despite this, it’s important to consider that countries across the world still practice protectionism to some level; they have just become good at dressing it with different names and pretending they are not doing it. In China, the state television network CCTV does not broadcast animations made out of China for the sole reason of creating jobs for the animation industry in China.

In 2012 when Brazil (the world’s fourth largest market for imported vehicles) wanted to create demand for the locally manufactured car industry, the country raised taxes on imported vehicles by 30%. The end result was that importing a vehicle became so expensive. In the first six months, Chinese vehicle exports to Brazil fell by almost 90 percent year-on-year, taking Brazil out of the top 10 export destinations for Chinese automobiles but also prompting Chinese manufacturers to set up an assembly plant in Brazil to create jobs for Brazilians.

Many times Heads of State and government policy makers constantly have to choose amongst a number of lesser evils. As an overall philosophy, the protectionism policy will always face resistance from free trade activists as well as the World Trade Organization (WTO) and that’s why it must be presented as high taxes on imports under the pretext of the pursuit for increased government revenue but with its end game being to create demand for local products and eventually creating jobs for Ugandans. Maybe then will Uganda’s youth unemployment crisis be resolved within our lifetime.

Eshban Kwesiga is the Programmes Officer at Parliament Watch Uganda.

What's your perspective?