Last week, Kenyan President William Ruto called for elimination of all barriers to importation of Ugandan milk.
Ugandan milk production companies have been unfairly targeted in recent years, understandably because they posed a potent threat to market leader Brookside Dairy Ltd.
The company is partly owned by the Kenyatta family.
Ruto’s argument was a simple one. Ugandans produce milk cheaper, Kenyan dairy industry should focus on adding value to their own milk and export it, then consume the Ugandan milk locally.
Competitive advantage
Kenya’s President recognises that Uganda has a competitive advantage in milk production, noting that the cost of production in Uganda is a fraction of that in Kenya, and instead of resisting the inevitable, should cede ground and look for other markets.
The naysayers of course will argue that without a local foothold in Kenya, expanding to foreign markets will not be easy.
This column has argued now for more than a decade that one of the best things to come out of the common market is that competitive advantages will be sharpened. For example, Uganda can easily produce food for the region that should be recognised and should be reflected in our development policies and actions.
Kenyans have their own competitive advantages that they can exploit and so do other members of the community.
Trying to duplicate ourselves is inefficient, raises unnecessary confrontation and is unsustainable in the long run.
The challenge of course is that many times interest groups ossify around these inefficiencies and fight tooth and nail to give them up, at great cost to the population and economy, because the energies expended to perpetuate the fallacy would be better employed in developing industries where we have a better chance of success.
Exploring other products
Imagine if farmers in western Uganda got it into their heads that they are going to go into simsim production and compete with those from northern Uganda.
Or the farmers of northern Uganda decided they are going into matooke production to compete with those of central and western Uganda.
They would soon realise that they could not compete.
Then they would come together and ban the importation of matooke by the north and simsim by the west to support their farmers.
A real waste of time. This does not happen because of the free movement of goods through the country. The people of the west do not bother with simsim because if they want it, they can buy and the people of the north do not bother with matooke because if they want it, they can order for it.
As result, the simsim and matooke production expand in their respective areas to cater for the expanded market.
Economies of scale come into play and specialisation means the quality of the respective crop improve.
That is what will happen with the actualisation of the East African free market.
As mentioned above, it will be fought by entrenched interest groups, looking to safeguard their interests at the expense of the consumer and national interest. For the above reasons, I always cringe when I hear people talking about import substitution, it only serves to build up a small group of connected people, while making us endure substandard products.
The success of the south-eastern Asia economies comes mainly from refusing to be seduced by this import substitution argument. They recognised early on that to lift their people out of poverty and develop their economies, they needed to aim for bigger external markets.
Following this thinking, the governments biased resources towards businessmen with export ambitions over those with import substitution as the main driver of their business.
Of course, in an effort to target foreign markets, the local market is used as a stepping stone, but that is all it is, a stepping stone. They also did not try to do it themselves through state enterprises.
The rest is history. Of course, for Ruto, now he has to sit down with the existing dairy industry and see how his government can support them increase their production capacity — they are welcome to use Ugandan milk if they want, improve quality standards and help them break into foreign markets.
Uganda, too, has export ambitions for its milk and they will do well to see how the Kenyans do it, before they launch their own effort.
Compiled by Paul Busharizi
