Unemployment in Cities: Focus on Small Entrepreneurial firms is the solution

Recently, the government of Uganda upgraded seven municipalities into cities. Some received this status because they really deserved it while others because demands from certain tribes and regions had to be satisfied. Nevertheless, Cities grow by attracting people. And People are only attracted to cities if the amenities in cities make life conducive for people to live. In Uganda, the biggest need is employment and people don’t usually move to cities because the built environment is conducive for life but they will move in search of job opportunities because the nation’s unemployment level is really high. Therefore, if the new cities in Uganda are to become successful, they must create jobs which then will allow the real estate business and other businesses to thrive and further lead to the development of neighbouring districts that will form a powerful metro area like the way Kampala has affected its neighbours Wakiso, Mukono and Mpigi. In this article, using works from Ed. Gleasor and William Kerr, I propose the need to support small firms rather than big foreign investors in these new cities as the best way to grow; I will start by introducing the history of two of the new cities: Jinja and Mbale. From the onset, Jinja was an industrial city because of the presence of the Nile and then Uganda’s first Hydro Energy Project Owen Falls Dam. This made this town have many industries including Steel Rolling Mil (Steel), Nytil (Textiles), Leather turners, Sugar Works, Breweries etc which created a lot of employment making the Jinja Economy compete with Kampala the capital city before and the early years after independence. The trend changed due to political unrest after independence and by the time Uganda became stable after 1986, Jinja has remained a ghost town with a small population—probably still having these pre-colonial firms in addition to a few. Many of its industries have even moved to Kampala. Mbale however, started off as a trade point for Eastern Uganda and the main town for the Bamasaba. Its growth was highly attributed to its location as the main supply route for food for the Northern part of the country. Its main industries were food processing mainly coffee from the mountain collected by Bugisu cooperative Union and food to neighbouring places and tourism from Mt. Elgon. Also after political unrest, it fell but later quickly picked up that there is more business taking place in Mbale than Jinja ever since Uganda became stable under President Museveni.

These two were among the municipalities upgraded to cities in 2019, and are now competing for growth as the biggest cities in the eastern part of Uganda. Both have pushed for the setting up of industrial parks as a way of increasing employment and attracting more people through offering incentives to big foreign investors. However, the overarching question is: Do industrial parks offer enough jobs to enhance city growth? According to research done by Ed. Gleasor and William Kerr in the US cities (Edward L. Gleasor, 2010), found that regional economic growth is highly correlated by the presence of many small entrepreneurial employers and not a few large ones. They actually found that cities whose number of “firms per worker” was 10% higher than the average in 1977 experienced 9% faster employment in 1977 and 2000. They actually had to take it against many variables because data could be misleading which would be reasonable to wonder whether industry structure, tax policy or some special circumstance skewed the results. Their answer to this was no: Even after adjustment for such variables, the relationship between small firms and job-growth rate stands. They also worked on a project with Gioncomo Ponzentto, where they analyzed “city-industry clusters” which allowed them to adjust for the effect of each city’s and industry’s overall growth rate, among other things. They found that industries with smaller firms and more start-ups enjoyed faster employment growth than other industries in the same city and then the same industry in the same city (Gleasor, 2009). Politicians and city authorities have no idea about this and enjoy announcing the arrival of the next big company which they think produces more jobs.

However, this is a wrong guess because in the rapidly evolving economy; of which Uganda has become—you can’t really tell what the next major economic sector will be. Politicians in Uganda and the Uganda Investment Authority have already guessed wrong because they have already gazetted an industrial park in each of these new cities to attract these large industries with tax breaks and free land while neglecting the small firms that are employing the majority of Ugandans. In Uganda, our leaders need to look at the classic example of Jinja, a highly industrious yet has few jobs. They should understand that Kampala’s biggest job market is not in the many industrial parks because these industries will produce very few jobs even though they are doing well, but rather the small businesses in downtown Kampala; it’s actually the same for Mbale, Mbarara, Arua etc which are having a significant level of rapid growth. The Investment authority needs to rethink its model of growth and include a clause that supports the struggling smaller firms because it’s where the jobs are. They need to actually document these jobs, protect the workers in these jobs; a reality that can be accomplished if a certain share of the investment authorities and cities’ budgets is focused on them. Rather than cities buying jobs by giving the large scale investors a free get in card to their business parks, they should reduce costs for start-up companies and businesses.

Edward L. Gleasor, W. K. (2010, July 2010). The Secret to Job Growth: Think Small. Harvard Business
Gleasor, E. e. (2009). Clusters of Entrepreneurship. Cambridge, MA: NBER Working Paper Series.