TRALAC - Trade Law Centre

AGOA dollars elude Uganda

Sunday, 11 April 2010

Source: New Vision (Uganda)

When Kumar Dewapura, a renowned textile guru and the chairman of the Sri Lanka-based Tri-Star Group, landed in Uganda in 2002, two years after the US government unveiled the AGOA initiative, he was given the nation’s dream of exporting its first textile products to the mighty US market but most importantly, he was expected to help the country benefit from a fully-integrated textile industrial model.

Dewapura traversed the country with the hope of buying into the existing textile factories of Lira Spinning Mill or the Mbale-based African Textile Mill, but no deal materialised.

The Government then identified the giant hitherto idle former premises of the Coffee Marketing Board in Bugolobi, near Kampala.

Dewapura was tasked to start off with the project. He and his local partner, Veluppilai Kananathan, registered TriStar Apparels as the company that would showcase Uganda’s existence on the international market.

With the use of a few expatriates and the 2,000 “AGOA Girls” recruited across the country, the duo started off with the importation of raw materials from Sri Lanka, cutting and stitching them into garments for export to the US market with the “Made in Uganda” labels.

In January 2003, President Yoweri Museveni flagged off the first ever garment exports from Uganda to the world’s most powerful market.

Dewapura promised similar projects across the country using his largely successful model in Sri Lanka to eradicate poverty. That was the last the country heard of Dewapura, catapulting Kananathan into the main stage.

The dream of “Made in Uganda” in the American market was remarkably achieved, but the biggest dream of a back-and-forth linkage integrated textile industry eluded the country.

“Our biggest challenges were limited capital and logistical problems. But we tried our best under the circumstances,” Kananathan explained.

Experts argue that part of the problem is that the publicity surrounding AGOA “created an unjustifiable expectation, given that we did not have the capacity to benefit from it.”

Expectations remain high that when Ugandan textile mills start to produce quality fabric, the AGOA dollars will be real.

Enter LAP Mauritius

Mauritius is arguably the biggest beneficiary of AGOA on the African continent. It is the major reason they got the deal.

However, more than 24 months after taking over from the most demonised TriStar, the country is yet to benefit from a fully-integrated textile industrial production. But LAP officials insist they are not to blame.

So who is at fault?

“Our plan from the beginning was to create employment. This has been achieved even without any orders. You cannot export unless you have orders.

“That is the business model; get orders, source raw materials from the Far East and execute the order,” Sivaharan Rajasundaram, the LAP Textiles commercial manager, said of the 250 workforce still deriving their livelihood from the establishment.

“We came in during the global recession. It put us a couple of months back. The promised incentives have also not come in time. We have also lost valuable commercial chances for the export market.”

“Since Uganda is a landlocked country, we cannot compete with other garment producers like Kenya, Tanzania, Mauritius and Asian countries such as India, Bangladesh, Thailand and China without incentives,” he argued.

Rajasundaram also pointed out the importation of raw materials, which takes four months before the products are ready for export, as one of the biggest challenges. “No buyer can wait for four months before delivery,” he said.

He added that the double cost of transportation, fuel price fluctuations and high power rates, were hitting them hard. Uganda charges 15 cents/KWH, while it is five cents in Bangladesh.

“It makes buyers prefer dealing with firms from Bangladesh or Mauritius.” He said LAP is discussing a deal with Dollar General, the giant US retail chain.

“But our FOB cost of $6 per piece makes us uncompetitive because Asian factories charge $4 per piece.” The company is currently producing denim jeans for the export market and requires 100 trained machine operators to increase the number of production lines.

Spinning and weaving

“Efforts have been made to start with the domestic market as we embark on the export platform. That’s why we have 250 workers. But as orders increase, the workforce will also rise,” Rajasundaram argued.

National Textile Policy

The new policy seeks to create a vibrant and strong textile and clothing industry with sustainable capacity utilisation and enhanced investment through the textile value chain.

What about the spinning and weaving mill? “Efforts have been made to start with the domestic market as we embark on the export platform. That’s why we have 250 workers. But as orders increase, the workforce will also rise,” Rajasundaram argued.

And the National Textile Policy

The new policy seeks to create a vibrant and strong textile and clothing industry with sustainable capacity utilisation and enhanced investment through the textile value chain.

Its specific objectives are the conversion of all lint cotton produced in Uganda into good quality yarn for the production of fabrics and creation of a dynamic apparel manufacturing sector to transform fabric clothing and garment accessories of acceptable cost and quality for domestic, regional and international markets.

In the first two years, the policy projects to improve the production, marketing and competitiveness of the existing textile enterprises.

It also intends to reduce the cost of doing business in Uganda by benchmarking against regional and international best practices and enhancing the upgrading and modernisation of equipment.

“It (policy) is ready now. If implemented, it will help us establish an integrated textile complex but not a stand alone garment factory. We will do our best. Plans to build a spinning mill are underway,” Rajasundaram said.

Bottlenecks

The history of the former company (Tri-Star) has not helped in the taking off of LAP Textiles.

“Its (Tri-Star's) negative reputation on the international markets has affected our orders. But we have improved tremendously. Former big importers have come back with inquiries. We expect to create up to 1,000 jobs before the end of the year when we open eight to 10 new lines.”

“We have had discussions with US Aid in Nairobi about a new business relationships between LAP Textiles and American companies and they agreed to market our facility after their visit to our factory last year. In that meeting, we agreed to extend invitations to American buyers to visit our factory in Kampala,” Rajasundaram disclosed.

Shareholders frustrating the venture?

LAP Mauritius is the only partner that has fully paid up sh4b for its 60% stake in the company, while the other partners are yet to honour their obligations.

The Government was supposed to provide land and the premises for its 35% equity.

However, since the deal was sealed in October 2007, the Government only released the land for expansion in September 2008, while part of the land (1.8 hectares) has been chopped off from the main chunk.

“Even the lease title for the remaining part has not come out. This is making us slow in committing our investments. No investor can inject money where he has no title. This is a major encumbrance. If we bring in our billions, how will we be protected?” noted Rajasundaram.

“The President is focussed and wants this sector to success through the use of local cotton and to achieve value addition.”

But Dr. Fred Muhumuza, the economic adviser at the finance ministry and the Government’s representative on the LAP Textiles board, explained that the release of the lease land title was not a binding factor “because we are partners.”

“We are not doubtable partners because the deal is between two governments (Uganda and Libya). So this (title) issue can’t be a binding constraint to smooth running of the business,” Muhumuza argued.

He said the Government was working to reduce the cost of doing business here.

“That to us is the biggest issue. Definitely you can not earn big from textiles without spinning but we have passed the textile policy which caters for that.”

He also pointed out the global market situation as another major problem.

“LAP has 21 lines so even without haggling; there is definitely enough capacity to cater for the export market. But we have decided to first concentrate with the local market.

We begun by getting stitching and cutting contracts from Phenix Logistics. For the record, the LAP facility is the most modern US certified in the region. Lots of other factories come to use it at a fee to access the US market.

You can’t access the US market if your factory is not certified. The Americans need to know the quality of the factory where the products they are buying are coming from.

Much as Tri-Star closed, it left us with a world class facility.” “LAP have been unfair to themselves by using the lease title issue. Since they took over the management of the facility, we (the Government) haven’t injected in any money but they have been operating.

That’s credit to them. They have 250 workers who have no salary claims on the company. Wages, utility bills and NSSF remittances are all in order, which wasn’t the case with Tri-Star.

They (LAP) need to appreciate their own efforts. They have potential orders coming in as the global economy normalises. We are getting better. We should reorganise ourselves and shake off the dust. We have come from far.

As a board, we will sit and look at our entire business plan to see what we want to achieve. But we know there are market and operational constraints like buying raw materials from peer competitors and then supply the same market.

We also deal in seasonal products. They have to be for winter or summer. But because we have poor operational conditions, by the time we get the products to the market, the season is over.

For me what LAP is complaining about (lease title) is a simple issue because there is government commitment. It can be disposed off in a week. But for me just stopping government injections in the facility alone is a success.

For them (LAP) to hold the fort and keep some level of activity on and save the institution from going to the mortuary is commendable. I am very optimistic as the global market turns round and our local market plan takes shape, we will be there.

The US market is very competitive but the uniform market is growing. Schools, police, army, prisons and corporate demand will only double.

So our plan for the textile sector is to take the advantage of the domestic market first until a time we tailor into various available options.

Spinning is a good idea; we are pursuing it but you can’t have it without cotton. Most people are abandoning cotton growing yet spinning is a guzzler of cotton. We need to be prepared.



“ 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.