Kampala is not just Uganda’s capital city, but also the heart of its economy. It produces a third of the country’s gross domestic product and hosts close to a half of its formal employment, with just 10% of its population. It’s also the centre of Ugandan manufacturing.
But the city faces several challenges that could hold back its potential to transform from a market town to a production centre at the forefront of Uganda’s structural transformation, according to a report from the World Bank. Close to a quarter of its population is underemployed, while more than half (57%) is employed in the informal sector.
Kampala’s growth challenge, according to the report, is upgrading its economy by improving the productivity of its population, businesses, and industries. It must create “the right kind of jobs” in “sectors which will encourage industrialization and economies of scale”. These sectors should “produce goods and services tradable outside the local market (such as manufacturing)”.
The report is part of a World Bank project on the economic performance of African cities, and is intended to offer technical assistance to the Kampala Capital City Authority and the Ministry of Kampala and Metropolitan Affairs. It was produced to assist KCCA and other government departments to develop a city economic development strategy providing a “framework for sustained economic growth driven by an efficient infrastructure network”.
But the framework is not limited to Kampala only. It focusses on the Greater Kampala Metropolitan area which includes Kampala city as well as Mukono, Wakiso and Mpigi districts. Since parts of those districts are intertwined with Kampala, the government decided to develop an integrated framework for the development of the metropolis.
Some streamlining would be a good thing
One of the recommendations of the World Bank is more collaboration between KCCA and Greater Kampala’s other local governments to coordinate investments across the metropolis. “The multiplicity of agencies and lack of coordinated framework for development within the GKMA, compounded by weak coordination between these agencies have resulted in confusion and lack of clear cut leadership for the development of the GKMA,” the report says.
“A more coordinated and collaborative decision-making approach that results in jointly planned and implemented infrastructure projects across Greater Kampala has the potential to address some of the key challenges facing the city – like congestion,” said Martin Onyach-Olaa, World Bank senior urban specialist.
“It could also help city governments better promote the potentials of the city, such as tourism and industry,” he added.
Informal firms hold little promise
One of the major issues authorities must contend with is formal job creation, which has fallen behind population increases in the GKMA. This is particularly important because the informal sector, which accounts for 57% of the city’s employment, does not have the capacity to transform the metropolis’ fortunes.
Only 18% of the informal firms in Kampala have the potential to grow, expand and create jobs, the study found. In any case, 45% of informal firms reported increased competition, a lack of customers, and low profitability. The study argues that if formal employment is not created at a similar rate as population growth, competition in the informal sector is likely to intensify as more unemployed people join the sector.
Worryingly, employment is some sub-sectors of Greater Kampala’s formal economy has been declining. These include manufacturing in structural and fabricated metal products, manufacturing in basic iron and steel, and manufacturing in plastics. Additionally, a decline in employment growth has been registered in large and medium firms. Large firms in the tradable sector, in particular, lost five thousand jobs between 2001 and 2011, which is four times more than in the non-tradable sector.
“This is a cause for concern given that medium and large firms are not fulfilling their potential for creating higher value-added jobs and the majority of people seem to be forced to engage in survival activities, whether or not there is a market for them,” the report said. “The city’s ability to gradually develop alternative subsectors of specialization will be important to avoid a worsening in unemployment and informality levels.”
From tax collector and regulator to facilitator of private sector growth
The biggest constraints to the growth of formal firms and their ability to create new jobs identified by the study are a disconnected built environment which is costly for business, internal and external threats to the businesses of firms, and the lack of an institutional and financing mechanism for coordinated investment across Greater Kampala.
“This calls for a deliberate policy transition of the role of subnational government, from merely being a regulator of businesses to a facilitator of private sector growth and job creation,” according to the report. The central government, too, should play a greater role in facilitating private sector success.
In addition to enabling crucial institutional mechanisms to coordinate investments across the Kampala metropolitan area, the World Bank recommends that the local governments of Greater Kampala and the central government invest in coordinated transport and economic infrastructure together with land use management and empower domestic firms to improve productivity.
Greater Kampala’s built environment – the man-made structures, features, and facilities in which people live and work – is disconnected and costly for business, as Kampala’s physical layout and design discourages concentration of economic, while poor infrastructure makes production activities expensive.
Inadequate investment in better roads and the lack of systematic and reliable public transport has contributed to the cost of motorised transport in Kampala and road congestion, which is expensive for both firms and the public. This could be improved by investment in roads, improving public transport, and regulation, the report said.
Additionally, local governments should partner with relevant government institutions to improve land management in the city and facilitate better access to land for investment. Firms in the city surveyed in the study complained about the high price of land and the complex land tenure regime. KCCA could also work in collaboration with landowning institutions to pilot a high density affordable housing scheme in one of the slums to free up land for productive investments.
The report adds that KCCA and other local governments in the GKMA would do well to create a conducive environment to support enterprise growth by helping to alleviate the constraints faced by domestic firms. These include access to finance, labour skills, business skills, and tax administration. The authorities could provide or partner with business associations to provide support services to local firms – such as tax education, business plan development and e-governance.
At the national level, addressing the complex land tenure system, lowering the cost of finance, and reducing the cost of electricity and frequent power outages and surges will improve the productivity of firms in the GKMA and raise growth.
The economic performance of competitive cities across the world did not improve by accident, the report said. In most cases, it involved “a strategic vision and critical action from both national as well as local governments”. The study, in addition to government documents like the Uganda Vision 2040 and KCCA’s strategic plan for 2014/15-2018/19 provide the vision: it’s time the relevant authorities acted.