TRALAC - Trade Law Centre

Uganda: Cotton Sector Tempts Investors Globally

Monday, 14 August 2006

Source: Yarns&Fibres

Ugandans cotton sector is attracting substantial private investment since its liberalization and with rejuvenation continuing rapidly again in one of the nation's most important industries, investors from across the world, including China, are now re-evaluating their options in view of the sector's much-improved prospects for manufacturing in Uganda to export directly to Asia.

A doubling of ginning capacity between 1993 and 2001 reflects the renewed confidence in cotton production, while liberalization of the sector provided extra incentives for growers, who can now keep over 60% of the market value of their cotton compared to as little as 12% back in 1983 under the nationalized system.

The Cotton Development Organization (CDO) set up in 1994 to promote and regulate the cotton industry in Uganda has been overseeing the progress of the sector over the last decade.

Uganda exports over 90% of cotton as raw lint, one of the CDO's main aims is to encourage the value-added elements of the sector, such as spinning, integrated fabric manufacturing and investment in organic cotton. The CDO also promotes investment in seed oil and animal feeds and investment in cotton production on a commercial basis using irrigation.

According to CDO, cotton can be grown across two-third of Uganda with fertile soils, a suitable climate, favorable policies and a solid marketing structure will leave ample scope for increased production and Uganda's farmers can rely on cotton as a way to pull themselves out of poverty, as well as contributing to wider economic benefits for the country.

Uganda is the only country in the world that grows one variety of cotton, the long-stapled Bukalasa Pedigree Albar (BPA). This focus on one type ensures uniformity and easier quality control measures in producing lint and yarn. Meanwhile Uganda is now well known internationally as a producer of high-quality organic cotton, which can be sold at a premium. One reason this is possible is the country's ability to produce large tonnage of organic cotton using natural predators and locally available botanical agents.

Importantly, Uganda's policy environment is among the most sophisticated in the region. This allows private investors to reap the benefits of their investments and to carry out external trade without cumbersome restrictions.

The government has also outlined a series of areas where investment opportunities are opening up and where a range of incentives are available. For example, there is cotton production, which is dominated by small holders and where 70% of the available arable land is under utilized. Further down the chain there are investment possibilities in processing cotton to yarn or textiles before export, as well as processing cotton seed for oil and animal feed.

The availability of a large low cost labor force is a big plus for the clothing sub sector. Meanwhile, the organic sector provides specialized opportunities for production and marketing in a niche market.

Another key element for investors assessing Uganda's potential as a cotton producer is its political stability and the considerable respect the country has garnered for its economic reforms and growth. This helps ensure continued growth in the country's links with global markets. Uganda has also re-established its links with respected international organizations such as the International Cotton Advisory Committee, the Bremen Cotton Exchange and the International Cotton Association.

Most of Uganda's cotton is exported to Western Europe still today, but potential markets are developing elsewhere too. The US market is an obvious possibility for growth, given Uganda's eligibility for benefits under the US African Growth and Opportunity Act (AGOA), which provides improved access to the US market.

AGOA legislates for duty-free and quota-free access to the US market, for apparel made in eligible sub-Saharan countries from US fabric, yarn and thread. It also provides for substantial growth of duty-free and quota-free apparel exports to the US made from fabric produced in beneficiary countries in sub-Saharan Africa, including Uganda.

As well as pushing to position itself as a global exporter, Uganda also has advantage of its strategic location among the growing regional markets, including Rwanda, Tanzania, Sudan and Kenya.