Digital tax stamps will increase cost of business for manufacturers

In the case of machinery, access to international specialised expertise to assist in installation/repair was also affected given the travel restrictions in different parts of the world and the ongoing disruption restrictions on passenger plane access to Uganda.

The Covid-19 mitigation measures combined with the general uncertainty within the populace have resulted in a reduction in consumer demand. Inevitably, the above challenges to the manufacturing sector resulted in a significant decline in cash flow for several manufacturing firms.

What Covid-19 occupational safety and health workplace measures has UMA put in place to protect its members?
UMA worked with the Ministry of Health to develop the Standard Operating Procedures for factory level mitigation of the Covid-19 pandemic. These measures have since been passed and are a key component of the factory level readiness for resumption of full-scale operations.

We developed a Covid-19 Occupational Safety and Health Workplace Readiness Assessment which is undertaken by a multidisciplinary team composed of both the Ministry of Health and the UMA. The team is also tasked with carrying out workplace readiness training to ensure the safety of members.

The Secretariat is transferring our operations from physical to online and providing support and training for our members on the use of online tools to limit physical interactions to reduce the pandemic spreading.
The supply and demand disruptions brought about by transport restrictions imposed to limit the spread of Covid-19 has highlighted the urgent need to embark on the improvement railway and water transport systems as cheap alternatives. What is UMA’s position in this regard?

UMA is firmly pro-water and railway transport as long as the cost of utilising the same does not exceed the current costs incurred through usage of road transport. We are also on record in calling for developing our latent capacities in these two areas and in demanding that the utilisation of any new measures introduced to enable access to such platforms be optional to the individual manufacturer. This will then ensure that cost (price and efficiency) competitiveness is maintained as a key driver for switching rather than coercion.

UMA has cautioned that the price of goods produced by its members will spike in market costs over the coming months should the Covid-19 pandemic persist. Are you seeing the cost of production variables increasing so far?
Yes, we are seeing an increase.

The 78-day long lockdown has seen many of the companies face challenges in their operations caused by supply chain disruptions, limited access to materials, payment on loans with no production, shifting production patterns due to disruption of set timetables for factory work, cost of transporting staff and safety measures undertaken by staff, and above all these, a reduction in the addressable market for manufactured products.

With the above in play, an increment in the final product prices is only to be expected although we are working with our members to address the cost drivers resulting into this uptick in prices.

Our position has been and remains that of discouraging any new tax and administrative measures which could further worsen the situation. It is the time for measures aimed at stimulating production through significant reduction in the cost of factors of production.

What is UMA’s position on your members operating on bank loans in this low production period?
Manufacturing is by nature a highly capital-intensive endeavour often financed by bank loans given the limited individual liquidity in Uganda. Recognising this and the long term nature of the required financing for manufacturing, UMA recognizes the importance of loans as a key source of capital for the sector.

To mitigate the current low productivity period, we have lobbied the Government to institute measures to assist the manufacturing by lowering the Central Bank Rate (CBR) by at least 3 per cent to stimulate private sector credit growth, and provision of affordable credit to facilitate a quick economic recovery.

Has the government come up with the conditions of applying for the planned stimulus package for the industries facing financial constraints in Uganda?

We are aware that a stimulus package that includes providing funding to the Uganda Development Bank for access by manufacturing – among other sectors, has been put forward by government.

The other measures of the package such as the deferral of payment of statutory dues are already in the implementation phase and our members have been engaging with the relevant institutions to take advantage of these. The challenge, however, still remains in the duration of the deferrals with members indicating that the 90-day period is too short and not alive to the significant challenges faced by the sector during the 78 days of lockdown.

The fact that sector players will also be required to comply with their obligations effective July 1, 2020 is also at odds with the reality on the ground given that – as earlier indicated – recovery is expected to be slow.

What has UMA done about the persistent power cuts affecting manufacturers?
We have come a long way from 2011 when power cuts were the order of the day across the country. Currently, there are indeed intermittent disruptions of supply but not to the levels previously present. We believe many of the current challenges will be resolved once Karuma comes on board.

We have been lobbying for the affordable financing of Electricity Supply Industry (ESI) investments to ensure that we are not saddled with unfavourable payoff amounts and periods. It is this lobby that resulted into the refinancing of the Bujagali project debt that has since seen a continuous reduction in cost of energy for the manufacturing sector.

While quality of supply continues to be a key challenge and one on which we are actively engaging the Electricity Supply Industry, the bigger challenge is the cost of energy which forms a key component of the manufacturing process. Key measures in this regard have included continuous engagement with the ESI to implement measures geared at reducing the cost of energy for the manufacturing sector.

The delineation of special category tariff for industrial power consumers has been a key step in driving down individual power costs and we are complementing this with discussions on reductions in the cost of power generation with the idea that these will trickle down into the final tariff our members pay.

What major lessons has UMA learnt from this pandemic in regard to Uganda’s industrialisation policies?
We need to develop our local capacity and import replacement. UMA has been at the forefront of campaigning for a policy on import replacement to ensure our economy is resilient against shocks.

The pandemic has shown the importance of fast-tracking discussions on measures such as the four bands Common External Tariff that will ensure protection of domestic industry.

The importance of the development of whole value chains has also been made abundantly clear with Government having a clear role of investing in primary industries that the private sector may not have the financial muscle to invest within.

The pandemic has also taught us that policy should not be rigid to the extent of locking out new investments. It would rather be dynamic and able to adjust to emerging circumstances. The organic growth in capacity to produce PPEs in Uganda, coupled with the speed of conclusion of key processes for the setup of the requisite investments is testament that when we put our minds to.

Government should foot the bill for the Digital Tax Stamps
For the first year, yes. But no certainty is available on what happens once the first year is over. This certainty is vital especially as we mobilise manufacturing to dust off the impact of the Covid-19 pandemic given the adverse impact of the pandemic on their businesses.

These reduced the industry’s production capacity by at least 40 per cent and their sales’ revenues by between 50 per cent and 65 per cent depending on the different business’ distribution capabilities.
This will result in additional costs on the already financially distressed sector players with a potential to result in job cuts and closures.