TRALAC - Trade Law Centre

Uganda: Subsidies to Textile Firms come under the Spotlight

Tuesday, 06 March 2007

Source: The East African

Financial support offered by the Uganda government to prop up textile firms, especially those exporting to the US under Agoa, is once again in the spotlight — with more questions being asked about the legality of these funds.

This issue returns to haunt the government barely four months after the collapse of Apparel Tri-star, which left the Ugandan government with nearly $20 million in losses from loan guarantees and other subsidies offered to the company to enable it to export garments to the US under Agoa.

The EastAfrican has learnt that, in the wake of Tri-star’s collapse in October last year, President Yoweri Museveni met Phenix Logistics managing director Yuichi Kashawada on October 12 and offered to support the firm with funds to help it gain the capacity to export to the US.

But, on the back of the collapse of Tri-star, analysts have been questioning the wisdom of the government sinking state funds into private enterprises, which sometimes end up collapsing.

Uganda’s presidential adviser on Agoa, Suzan Muhwezi, declined to reveal how much money the government had given to Phenix Logistics. She said the government had offered the company backing that “helped them cut out the bureaucratic tape and learn how to access the American market.”

Mrs Muhwezi defended financial support extended by the government to such firms, saying, “I think most businesses that are slowly starting out need government intervention and I see nothing wrong when the government can intervene by giving them loans and other subsidies.”

President Museveni, who flagged off Phenix’s first consignment of 50,000 units worth $250,000 destined for the US, had echoed these sentiments in his speech, arguing that the government needed to do all it could to attract investors whose factories will provide Ugandans with job opportunities and the country with export revenue.

“The government is supposed to facilitate and not impede the work of investors.

When you are running a country, you should be like a hotel manager; when a guest comes you ask him; ‘What should we do for you?’ You are not supposed to order him ‘Do this, do that,” President Museveniargued.

Phenix Logistics’ textile exports to the US are manufactured from locally grown organic cotton. It means the company’s exports under Agoa will not be affected by the expiry of the third country fabric provision.

According to Phenix Logistics marketing manager Paul Kagumire, the company — which plans to invest at least $5.5m this year in modernising its equipment — expects to earn at least $4 million annually from exports to the US.

For the Uganda government, Phenix Logistics’ latest feat also represents a success for the privatisation programme.

Phenix rose from the ashes of the Uganda Garments Industry, which the current proprietors bought from the government in 2001.



“ Latest AGOA Trade Data currently available on AGOA.info


Click here to view a sector profile of Uganda’s bilateral trade with the United States, disaggregated by total exports and imports, AGOA exports and GSP exports.


Other regularly updated trade statistics on AGOA.info include: (click each link to view)

  • AGOA-Beneficiary Countries’ AGOA and GSP Trade Aggregates

  • AGOA Trade by Industry Sector

  • Apparel Trade under AGOA’s Wearing Apparel Provisions

  • Latest Apparel Quotas under AGOA

  • Bilateral Trade Data for all AGOA-eligible countries individually.