TRALAC - Trade Law Centre

Uganda’s AGOA exports fall

Monday, 11 February 2008

Source: The East African (Kenya)

Ugandan garment exports to the US market under the Africa Growth Opportunity Act have dropped by over $3 million since 2005 despite the government having invested $10 million in the textile sector since 2002.

Statistics from the Agoa secretariat in Kampala show that garment exports fell from $4.7 million in 2005 to $1.2 million in 2007.

Exports to the US market have not grown as expected, says the report. Other exports under Agoa include vanilla, coffee, fish and base metals.

The $10 million was irregularly loaned to private Sri Lankan company Apparel Tri-Star-Uganda at 7 per cent interest —went to waste when the firm closed down.

The Uganda Development Bank had advised the government not to offer the funds at less than 12 per cent interest.

But the government, in an agreement with a new company that has taken over Tri-Star, has decided to write off all debts incurred by the Sri Lankans.

“Apparel Tri-Star Uganda’s indebtedness to the Uganda Development Bank and the Bank of Uganda shall be borne in full by the government. Apparel Tri-Star has not lived up to the expectations of the government and opportunities under Agoa have not been fully exploited,” says an agreement between the Libyan Africa Investment Portfolio (LAP) and Uganda signed in June last year.

According to the agreement, LAP secured 60 per cent shares of Tri-Star, while Veluppillai Kananathan, the former managing director and majority shareholder of Apparel Tri-Star Uganda, retained 5 per cent and the government 35 per cent.

According to Godfrey Onegi Obel, the presidential adviser on Agoa, after President Yoweri Museveni and other African leaders secured the US market for their products under the Agoa arrangement, which provided for duty-free and quota-free access for sub-Saharan Africa, the president immediately asked his officials to draft the country’s response including identifying manufacturers of Agoa compliant products.

Among the firms identified were Southern Range-Nyanza and Phenix Logistics. Apparel Tri-Star, was registered in Uganda in 2002 to take advantage of the company being an established player in the American market with pending orders.

A due diligence was carried out on the Sri Lankan firm by a government team headed by former finance minister Gerald Sendaula. But in a report to parliament by the committee on Finance, Planning and Economic Development in 2004, the MPs established that Apparel Tri-Star Uganda was different from ATS Sri Lanka.

Initially, according to the parliament report, Apparel Tri-Star exported garments to the US market at a rate of $75,000 per week. By September 2003, the weekly exports were worth $1.2 million.

However, the statistics contradicted figures issued by the Finance Ministry, which put the exports at $2 million at the time.

According to a memorandum of understanding between and the government, Apparel Tri-Star got extraordinary incentives, including subsidised railway transport, tax holidays, free premises and training of labour.

Apparel Tri-Star, having failed to secure funding from any of the commercial banks in the country — since it was considered highly leveraged, had no business plan and collateral — appealed to the government, which guaranteed $3.1 million from the Uganda Development Bank on the Trust Fund Account and $2.1 million more through an account opened in Stanbic Bank.

In March 2004, the Bank of Uganda also guaranteed another loan of $4.2 million from the DFCU Bank to Tri-Star, a firm without a board that would have critically supervised the disbursement of public resources. A year earlier, Tri-Star had secured $428,000 with the central bank’s guarantee.

The government also leased premises to Tri-Star at about Ush130 million ($75,000) per month.

However, the two parties — Tri-Star and Uganda Property Holdings, on behalf of the government — did not sign the agreement, which was also not dated.

In the same year, the government had guaranteed $2 million to Phenix Logistics, another firm mandated to manufacture garments for export under Agoa.

However, none of the funds channelled to the textile firms were approved by parliament.

Instead, the funds were drawn from the Consolidated Account through the Uganda Development Bank inform of capitalisation funds. The Auditor General has since queried the transaction.

In correspondence between the Finance Ministry and the Uganda Development Bank, the Deputy Secretary to the Treasury and Permanent Secretary of Finance, Keith Muhakanizi, commenting on the irregular transaction, said, “It is true funds were released on capital development but spent on recurrent expenditure by a board resolution.

“The expenditure was an emergency because Uganda had been given a time frame in which to access the Agoa market and there was stiff competition from other African countries.

“The Agoa girls were already at the site and they had to be catered for with facilities like beds and mattresses.”

Parliament has summoned government officials privy to Tri-Star dealings, but only a few have turned up.

Suzan Muhwezi, the presidential assistant adviser on Agoa, told the Parliamentary Select Committee on Tri-Star that the project was the responsibility of the Finance Ministry.

“It is the appropriate ministry that deals with Agoa,” she said.

However, Mr Sendaula and Mr Obel concur that the project was mismanaged since no particular institution was empowered to oversee the accountability of resources disbursed to the private textile firms.

“I wasn’t satisfied with the AGOA sector. It required policy reversal. But there was resistance to my advice. There was an outstanding presence of loan capital in these companies. Injection of government money in private companies is wrong. If you want to destroy a company give it government money. But if you want to support it channel the funds through proper financial institutions,” Onegi Obel said, distancing himself while appearing before the MPs.



“ 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.