TRALAC - Trade Law Centre

Uganda’s AGOA earnings drop by 33%

Monday, 27 August 2007

Source: The East African

While Uganda has been on a downward spiral, Kenya earned $353 million from exports under AGOA in 2006, writes Benon Oluka.

Uganda has failed to exploit the opportunities provided by the Africa Growth and Opportunities Act (Agoa) initiative, according to an internal government assessment.

A confidential report prepared in July for the Minister of Tourism, Trade and Industry, Janat Mukwaya, offers a candid assessment of the country’s export performance under Agoa.

“Exports to the US (Agoa) market have not had such a progressive growth trend like the one that can be seen in Uganda’s general exports,” says the report. “The slowdown in Uganda’s Agoa performance can be attributed to a number of factors, but key among these are the ‘in-border’ issues or otherwise known as supply-side constraints.”

Under Agoa, the US government opened up its $11 trillion market to duty-free and quota-free access for more than 4,500 products from 48 sub-Saharan African countries five years ago.

Uganda’s performance has deteriorated by 33 per cent since the peak period of 2003, when the country earned $32.8 million from Agoa.

Even worse, Uganda was the only country in East Africa that did not record improved total export returns last year — instead witnessing a 20 per cent slump in export earnings, from the $25.9 million achieved in 2005 to $21.8 million in 2006.

The report adds: “Despite this fact however, the US continues to be a potentially significant market for Uganda, especially in terms of future plans for export growth in various sectors. The Agoa market therefore offers an opportunity for expansion for Uganda’s export base, provided the various trade constraints are addressed.”

While Uganda has been on a downward spiral, Kenya earned $353 million from exports under Agoa in 2006 — representing a $5 million improvement on the previous year’s figure. Tanzania’s performance also improved in the same period by $1 million, to $35 million — a reduced but still positive performance after a $10 million increase between 2004 and 2005. Rwanda recorded a $3 million rise in total exports to the US from $6.3 million in 2005 to $8.8 million in 2006.

With four months to go to the end of the year, Uganda’s performance in 2007 is not expected to be any better than the previous year’s, after it was revealed that the country’s sole exporter of organic cotton garments is unlikely to meet its target of shipping garments and apparels worth $4 million by the end of this year.

Over the previous five years, apparel and garments exports have accounted for a fifth of the country’s total exports to the US under Agoa.

As the pioneer exporter of organic cotton products in Africa, Phenix Logistics, which started exporting early this year, was expected to easily meet the target announced by managing director Yuichi Kashiwada when President Yoweri Museveni flagged off the first consignment in March.

And although the government guaranteed a $5.5 million loan from a Japanese bank that the Phenix management said would be used to modernise its equipment, it emerged that the firm was yet to even hit the $1 million mark in earnings from exports under Agoa by August 9 when it exported its latest consignment.

Documents made available to The EastAfrican show that Phenix Logistics has exported nine consignments to the US under Agoa worth Ush1.4 billion ($844,948). Phenix’s failure to meet its target is yet another setback for the Uganda government, which has generously provided financial support to the garments industry and touted it as the country’s flagship export sector to the US under the scheme.

The failure is also an indictment of the policy so far pursued by the government, which sought to merely get exports to the US market at all costs rather than make profit from them.

While Uganda’s garments sector has been the major beneficiary of financial handouts from the government yet, according to a government official speaking on condition of anonymity, there is no policy that gives the government the mandate to offer such financial support to those companies beyond exempting them from paying taxes for their exports.

Before Phenix, the Uganda government offered financial support to Tri-star Apparel but the company collapsed in November last year, leaving the government saddled with nearly $20 million in losses from loan guarantees and other subsidies extended to the company over its six years of existence.

Tri-star exported goods worth $300,000 in 2002, $2.8 million in 2003, $3.8 million in 2004, $4.8 million in 2005, and $0.6 million in 2006. The company, however, made losses of Ush7 billion ($3.5 million) in its first two years of operations alone, according to an audit report prepared by accounting firm KLSA Pannell Kerr Forster at the end of 2003.

In the wake of Tri-star’s collapse, President Museveni offered to support Phenix Logistics to enable it to build the capacity to export to the US. Phenix was subsequently able to get a $5.5 million loan from a Japan-based Bank — with the government as its guarantor — which it used to buy modern equipment.

The Uganda government also recently sold a 60 per cent stake in Tri-star to Libyan Africa Portfolio Investments in an attempt to salvage the company. Uganda took 30 per cent of the shares while the proprietors of the original company led by its former managing director Vellupillai Kananathan retained 10 per cent.

Finance State Minister in charge of Investments Prof Semakula Kiwanuka told the state-owned New Vision newspaper when the deal first came to light early this year that the Libyan company had assessed Tri-star’s prospects and decided to invest $33 million in its spinning and weaving plants to boost the company’s production and competitiveness.

This would imply that the Uganda government, which owns a 30 per cent stake, would also have to inject $16.5 million into the resource pool meant for rejuvenating Tri-star, while Mr Kananathan’s group forks out $5.5 million.

Up until now, however, there are no signs of a revival at the premises that were occupied by Tri-star before it closed shop. A visit by The EastAfrican last week found no activity taking place at the dilapidated factory premises.



“ 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.