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Will early retirement solve Uganda’s unemployment problems?

One of the objectives for Uganda’s early retirement programme is to create employment for the educated youth.

Uganda’s civil service currently employs around 260,000 people. Let us for simplicity assume that they are evenly distributed between 21 and 65 ages, i.e. 6,500 people per age. If the average pension is Shs 20 million, then the annual pension budget has been Shs 130 billion. The budgetary requirements for early retirement implementation will be 10 times the current level – i.e. Shs 1.3 trillion ($578 million).

Has this money been budgeted for? If not, it must come from somewhere. If it comes from somewhere, then certain crucial services could be compromised. If services can’t be compromised, then the retirees might spend most of their retirement time chasing what they are entitled to!

Currently the 6,500 retirees create 6,500 vacancies annually. In the year of implementation, 65,000 vacancies will be created. After that, there will be only 6,500 retirees turning 56 years annually – exactly the same as the current level.

Evidently, the employment impact of the early retirement programme is a static one-off additional 58,500 (65,000 – 6,500) vacancies at implementation. Will these vacancies solve Uganda’s unemployment problem?

Someone wrote about how the pensioners will turn entrepreneurs overnight and invest their money in employment generating projects! What evidence is there to support this argument?

Only entrepreneur-oriented retirees can take the risk to invest their pension into employment generating projects. But, because they are entrepreneurs, they already have these projects! So, yes, entrepreneur retirees will use their pension to expand their projects. Unfortunately, entrepreneurs form a small percentage of the retirees.

Many pensioners may prefer to invest in what they wrongly believe are less risky projects – e.g. cottage industries including poultry and pig farming, zero grazing, buying and selling produce, maize/rice/jaggery mills, boda boda, matatu, kiosks, etc. Others could invest in ‘politics’. Besides mostly employing extended family members, such projects don’t offer the type of jobs the ‘educated’ seek.

But, these projects may not come to fruition because there is a serious contender for the pension money. Many retirees are family people who have been living from hand to mouth. They don’t have a ‘family house’. Building a family house will be priority!

Family houses don’t create new jobs. They save existing jobs, which could have been lost had the building industry lost sustainable investment.

Small groups of professionals might form ‘briefcase’ businesses – teachers may coach, engineers might practice, doctors could open clinics, etc. These businesses will be designed for themselves, will generate mostly clerical jobs for the extended family, but will hardly employ other professionals in the job market!

How then can Uganda salvage its escalating unemployment problem? The answer lies in private investment driven by a partnership between international and indigenous investors, and facilitated by the government and the Uganda Investment Authority (UIA).

The starting point is for the government to provide the ingredients of an attractive investment environment – liberalisation of the investment regime, political stability, macroeconomic stability, foreign exchange stability, infrastructural development, an export-conducive environment, human capital development, infrastructural development, etc. This shopping list is a topic in itself, which can be discussed another time. Many of these ingredients are part of Uganda’s development strategy.

The above ingredients will then facilitate the UIA’s work, which includes:

  • Image-building – creating the perception of Uganda as an attractive investment location.
  • Information centre – gathering/distributing information that prospective investors need to evaluate  Uganda’s attractiveness as an investment location.
  • Investor facilitation – assisting investors in analysing investment decisions, establishing businesses, and maintaining them in good standing.

However, the UIA should go a step further and engage in two additional development oriented strategies – investment generation and linkage creation.

Investment generation involves identifying a few priority competitive sectors/industries:

  • in which Ugandais best placed to attract investment.
  • whose benefits support Uganda’s development objectives.
  • that have shown resilient growth and market share in the recent past.

 The above matrix should enable the UIA to match Uganda’s comparative advantages and policy priorities with potential investors’ interests, then target specific investors and persuade them to choose Uganda as an investment location.

Unemployment is one of the many problems Uganda needs to address. Therefore, focus should be on labour-intensive industries for which Uganda currently holds a comparative advantage.

One example is a ‘Call Centre’. English is Uganda’s official national language. Many of Uganda’s graduates are unemployed. They can become internationally competitive in the industry if their poor oral English communication skills are ‘fine tuned’. The UIA can co-ordinate the fine tuning training. Alternatively, it can negotiate with the investors to organise in-house training.

Most call centres operate 24 hour services – three 8 hour shifts. So a call centre with 1000 call stations potentially employs 3,000 graduates. Electricity generators can be used to solve the power problems. Have handfuls of Call Centres and they will absorb tens of thousands of graduates.

Linkage creation encourages greater integration of foreign business with local businesses into the economy through forward and backward linkages.

Indigenous Small and Medium Sized Enterprises (SMEs) are the future backbone of Uganda’s employment and economic output. Once established, they will neutraliseUganda’s long-term vulnerability of relying on foreign investment.

SMEs currently face many bottlenecks. The government should develop a clear strategy for supporting them. They require a comprehensive package of development assistance programmes such as low investment loans for equipment, and programmes that help them expand and upgrade.

The government needs to create an organisation (if it hasn’t) responsible for SMEs – examining their problems and needs, and developing programmes that help them to evolve into efficient, well managed, technically competent and professionally operated enterprises.

The organisation should work in partnership with the UIA to establish a direct link between the public sector and both local and international investors. This will place both international investors and SMEs into Uganda’s industrial policy-making process.

Its main strategy should be to establish linkages between SMEs and international investors:

  • facilitating SMEs’ integration into the value chain of international investors by enabling them to supply inputs or to provide support services.
  • creating conditions that promote subcontracting and technology alliances between domestic and foreign firms.
  • using international investors as conduits to access the often hard to penetrate international markets.
  • enhancing SMEs’ management skills and product quality.

Government support and linkage development should in the long-run enable the SMEs to evolve into efficient, well managed, technically competent and professionally operated enterprises capable of penetrating international export markets on their own. Some should evolve into large enterprises capable of offering growing SMEs the much needed forward- and backward linkages. This combination is in itself an ingredient for sustaining Uganda’s employment and output growth.

 

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