VZCZCXRO7206
RR RUEHROV
DE RUEHKM #1391/01 2901353
ZNR UUUUU ZZH
R 161353Z OCT 08
FM AMEMBASSY KAMPALA
TO RUEHC/SECSTATE WASHDC 0795
INFO RUCNIAD/IGAD COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 06 KAMPALA 001391 
 
STATE FOR AF/E AND AF/EPS J. POTASH AND T. DAVIDSON STATE ALSO FOR 
EBB/TPP M. LURIE AD DRL K. GILBRIDE 
STATE PASS TO USTR FOR C. HAMILTON AND W. JACKSON 
ALSO PASS TO USAID AFR/EA 
TREASURY FOR VIRGINIA BRANDON 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: AGOA ETRD PGOV KCOR EINV ECON UG
SUBJECT: UGANDA: 2008 AGOA ELIGIBILITY REVIEW 
 
REF:  A) STATE 85086 
 
¶1. Country:  Uganda 
 
¶2. Current AGOA Status:  Eligible 
 
¶3.  Country Background Summary:  After two decades of broad-based 
economic growth and political stability, Uganda is now confronting a 
range of economic and governance challenges as it tries to sustain 
and deepen economic growth and development.  The Government of 
Uganda (GOU) has supported the passage and implementation of laws 
and regulations to create greater government accountability, open 
markets, expand infrastructure, and build a more attractive 
environment for foreign investment.  Uganda's judiciary remains 
largely independent, though corruption continues to be a major 
problem.  Political parties function, but government restricts both 
the press and grassroots political activity.  Four labor reform 
bills passed by Parliament in 2006 significantly improved labor 
rights but have not yet been implemented.  Uganda has not engaged in 
activities that undermine U.S. foreign policy interests or national 
security and Uganda continues to actively support U.S. 
counter-terrorism goals in East Africa. 
 
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COMMENTS ON ELIGIBILITY REQUIREMENTS 
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¶I. MARKET-BASED ECONOMY 
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¶A. Major strengths identified: 
 
--  The Government of Uganda (GOU) is making commendable economic 
progress, with sound macroeconomic policies emphasizing low 
inflation, steady growth, and low debt levels. 
 
--  The country maintains a liberal trade and foreign exchange 
regime, and largely adheres to IMF/World Bank programs to fight 
poverty, maintain macroeconomic stability and restructure the 
economy. 
 
--  External debt levels, at roughly 20% of GDP, are low by 
international standards.  Inflation has remained in the single 
digits for most of the last decade, though a spike to 15.9% in 
August 2008, three times the Government's estimate, is cause for 
concern. 
 
--  The GOU continues to make progress increasing the role of the 
private sector in the economy.  It has privatized most of its public 
enterprises over the past few years, including entities in the 
banking, telecommunications, and energy industries.  About 30 firms 
remain in GOU hands. 
 
--  There are no foreign exchange controls affecting legitimate 
trade and investment, and Ugandan law allows 100% foreign ownership 
of domestic enterprises.  The capital markets sector is steadily 
improving with more listed companies expected in 2009 
 
--  The Heritage Foundation's Index of Economic Freedom listed 
Uganda's economy as the fifth freest economy in sub-Saharan Africa 
in 2007, based on factors such as the ease of doing business, 
openness to trade, property rights, and fiscal and monetary policy. 
 
 
--  Important sectors are seeing strong growth as a result of 
private investment.  The fastest growing sectors of the economy are 
services (especially financial services), construction and 
manufacturing, though the transport (road, rail and air) and 
telecommunications sectors are also experiencing strong growth. 
 
--  Uganda's banking sector is seeing strong development as a result 
of the approval of new licenses by the Bank of Uganda.  The number 
of licensed banks in Uganda rose to 20 from 15 in 2008.  Several 
other banks are expected to apply for approval and begin operations 
in 2008 or early 2009.  With an increase in the number of banks is a 
rise in competition and the number of products offered to customers. 
 Five new bank branches opened recently in Gulu, in northern Uganda, 
demonstrating that area's development after years of conflict. 
 
--  Recently, GOU initiatives have focused on infrastructure 
investment, the promotion of foreign investment, value-added 
manufacturing and increased international trade.  This strategy has 
 
KAMPALA 00001391  002 OF 006 
 
 
reaped rewards, with growth at 9.1% in the 2007/2008 Ugandan fiscal 
year and estimated at 8.1% for 2008/2009. (Note:  The Ugandan 
Government has recently revised its methodology for measuring 
economic growth, resulting in growth figures roughly two percentage 
points higher than those used previously.  End Note.) 
 
--  President Museveni continues to speak out in favor of open trade 
with his mantra that "trade, not aid" will fuel Uganda's economic 
development and reduce poverty.  The country has recently seen 
success, with exports rising 40% to $1.34 billion in 2007 on the 
back of high commodity prices and higher exports to regional 
markets. 
 
--  Shifting away from its traditional European markets, Uganda saw 
regional exports explode in 2007.  Exports to the Democratic 
Republic of Congo rose by 127% to $100 million last year, and to 
Sudan by 72% to $157 million.  Uganda also saw 78% export growth to 
the countries that make up the Common Market for Eastern and 
Southern Africa (COMESA). 
 
--  The 2008/2009 budget aims to improve the country's 
infrastructure, increasing funding for roads to $687 million from 
$390 million and providing some $70 million to build a hydropower 
dam at Karuma Falls on the Nile. 
 
--  Uganda is aggressively trying to diversify its energy sector to 
reduce the amount of current load shedding, planning 1,045 MW of new 
capacity in the next five years.  The largest generation project is 
a 250 MW hydropower dam at Bujagali Falls on the Nile river.  It is 
expected to be completed in mid-2011. 
 
--  The discovery of modest oil reserves near Lake Albert in western 
Uganda should eventually help alleviate Uganda's power shortage. 
Oil production should begin in late 2009, with initial production of 
5,000 barrels per day.  GOU sources say their plan is to refine this 
oil into heavy fuel oil and build an 80 MW power generation plant. 
 
 
--  The East African Customs Union agreement between Uganda, Kenya, 
and Tanzania continues to harmonize duties, standards and practices, 
which should decrease costs and time associated with exports within 
the region. 
 
--  Tax revenue collections by the Ugandan Revenue Authority (URA) 
continue to increase. 
 
--  Uganda continues to improve its physical and regulatory 
structure; including draft legislation to upgrade Ugandan 
intellectual property protections. 
 
¶B. Major issues/problems identified: 
 
--  Limited access to affordable credit remains a challenge for 
business.  Credit for commercial loans remains difficult, with the 
Ugandan schilling rate for prime corporate borrowers ranging from 17 
to 19%. 
 
--  Uganda's drought has largely ended, benefiting hydropower 
generation plants.  Analysts say new power demand is increasing at 
8% per annum, however, outstripping the power created by new 
generation projects.  Electricity shortages and transportation 
bottlenecks hinder economic growth and trade in every sector. 
 
--  Corruption and lack of transparency have caused difficulties for 
some U.S. investors, and senior GOU officials do not always respond 
adequately to Embassy advocacy for a level playing field for all 
market participants.  Major public tenders in the past year have 
resulted in multiple investigations for fraud, mismanagement, and 
abuse. 
 
--  Critics assert that the benefits of privatization went 
overwhelmingly to insiders, and not all privatizations have proved 
successful.  The privatization of the former Kenya-Uganda Railway to 
a South African firm for $288 million, as reported in the 2007 AGOA 
report, has resulted in no visible investment to date and railway 
cargo to and from Kenya remains at a trickle. 
 
--  A key GOU challenge will be managing and investing oil resources 
in a fair and transparent way.  Uganda is not expected at this time 
to export oil, though no final decision has been made. 
 
--  The recent global financial crisis could make raising foreign 
capital more challenging. 
 
KAMPALA 00001391  003 OF 006 
 
 
 
--  Uganda needs to combat counterfeit goods much more aggressively 
in order to protect local manufacturers and trading partners.  A 
long-standing case involving counterfeit Kiwi shoe polish, owned by 
Sara Lee, remains languishing in court. 
 
--  While the GOU steadfastly supports AGOA and promotes its 
benefits, it has experienced significant difficulties realizing its 
full potential.  Uganda receives similar benefits for its exports 
from nearly all developed markets, including the European Union, its 
largest trade partner.  Uganda's 2007 exports under AGOA and the 
General System of Preferences were valued at $1.7 million and 
included apparel, tungsten concentrates, cut flowers, wooden 
ornaments, and jewelry. 
 
--  Apparel exports, a previous focus of Uganda's AGOA strategy, 
have faced challenges under AGOA.  Tri-Star Apparel and Pheonix 
Logistics had exported to the United States, but both operations 
have since gone bankrupt, with significant losses to the GOU, which 
had invested in the enterprises.  This led critics to blast 
President Museveni for an ad hoc approach to AGOA that favored a few 
firms and individuals instead of taking a strategic approach that 
invested in critical export sectors. 
 
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II. POLITICAL REFORMS, RULE OF LAW, ANTI-CORRUPTION 
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¶A. Major Strengths Identified: 
 
--  Uganda's judiciary is independent, especially at the highest 
levels, but understaffed and under-funded.  The judiciary has on 
several recent occasions ruled against the Government on major 
issues, though the Executive has not complied with some court 
decisions. 
 
--  The GOU has taken steps to increase the number of judicial 
officers, and hired 12 new justices in March 2008.  The GOU 
continues its efforts to improve judicial efficiency and promote 
alternative methods of dispute resolution.  Special courts to 
resolve commercial disputes are now functioning.  Due process rights 
are generally respected in civil and criminal cases. 
 
--  "Multi-partyism" was reintroduced in 2006 after President 
Museveni had banned parties for nearly two decades.  The ruling 
National Resistance Movement (NRM) party of President Museveni 
dominates the parliament, but opposition parties and independent 
representatives are in charge of key oversight committees. 
 
--  The new multi-party parliament has in place oversight mechanisms 
that have helped combat corruption.  All oversight committees are 
headed by members of the small but vocal, opposition parties.  For 
instance, Parliament's Local Government Accounts Committee has 
pursued local officials over financial issues raised in government 
audits.  Corruption cases, when brought to court, are generally 
decided on a transparent basis. 
 
--  Uganda signed a $10 million Millennium Challenge Corporation 
Threshold Country Plan (MCC TCP) in 2007 and began implementation in 
¶2008.  The plan is aimed at tackling corruption in government 
procurement.  The GOU has committed $2.2 million toward this 
project, $1 million of which was allocated in the 2008/2009 budget. 
 
¶B. Major issues/problems identified: 
 
--  Despite transparency at the higher levels of the judiciary, 
there are still significant inefficiencies including occasional 
incompetence and/or corruption at lower levels of the court system, 
in particular at the magistrate level. 
 
--  There were several politically charged court cases in 2008 where 
the GOU failed to charge individuals in court within the 
Constitutionally-mandated 48-hour period. 
 
--  Significant judicial backlogs continue to cause long delays in 
the justice system, particularly in northern Uganda, which is 
transitioning back to a civilian law and order regime after decades 
of insurgency. 
 
--  The press has been under fire, in part because it has become an 
outlet for internal dissent within the ruling party.  Government 
actions against the media included harassment of journalists, 
monitoring of independent newspapers and radio programs, charging 
 
KAMPALA 00001391  004 OF 006 
 
 
journalists with various media code violations, the temporary 
closure of an independent television station for political reasons, 
and the curbing of the primary opposition newspaper's content. 
 
--  Government security forces arrested three officials from the 
Buganda Kingdom in July 2008.  After they were released, the GOU 
negotiated with Buganda Kingdom officials to tone down the CBS radio 
station's criticism of the Government's proposed land bill 
amendments.  Critics saw the Government's pressure upon CBS as an 
infringement upon the freedoms of speech and expression, guaranteed 
in Uganda's Constitution. 
 
--  Corruption is a serious problem in Uganda and the Government's 
political will to fight corruption remains questionable.  Uganda 
fell 15 places, to 126 from 111 Transparency International's 2008 
country corruption rankings. 
 
--  The Inspector General of Government (IGG) has an independent 
mandate and broad powers of investigation and prosecution.  However, 
the media and observers have criticized the IGG for being under the 
President's influence and for refusing to cooperate with other 
anti-corruption agencies.  Parliament, to whom she is 
constitutionally mandated to report, has called into question the 
effectiveness of the institution as currently constituted. 
 
--  The GOU has proposed constitutional changes to limit the IGG's 
power, but these have not yet been considered or adopted by 
parliament. 
 
--  Under ethics legislation, a wide range of public officials, 
including the President, are required to declare their wealth and 
there is a provision that allows for the dismissal of politicians 
for failure to declare their full wealth.  In practice, this power 
has been exercised only selectively, however. 
 
--  In September 2005, the Global Fund for HIV/AIDS (GF) suspended 
its five grants worth over $201 million to Uganda after evidence 
emerged of serious mismanagement of $45 million that had been 
expended.  A Judiciary Commission of Inquiry released a 400-page 
report in 2006 placing primary blame on the former Health Minister, 
the former State Minister for Health, and the former Minister of 
State for Primary Health Care for fraud and mismanagement of the 
funds.  In April 2007, however, the Cabinet issued a white paper 
exonerating these former ministers, which in the minds of many 
critics called into question the government's commitment to 
combating corruption.  In a second major scandal, high-level 
government insiders allegedly diverted funds for the Global Alliance 
for Vaccines and Immunizations in order to assist their political 
campaigns.  The case is currently in court. 
 
--  In the second half of 2008, Parliament began investigations into 
another high-level corruption case involving the National Social 
Security Fund (NSSF), the state-run pension system, over the 
latter's purchase of allegedly over-priced land from a company owned 
by the Minister of Security.  The NSSF Chairman testified that the 
Ministers of Security and Finance pressured him into buying land, 
much of which was determined to be wetland, for a low-cost housing 
project.  The Committee's report will likely include a 
recommendation that the Finance and Security Ministers resign on the 
grounds of influence peddling and conflict of interest and pay back 
the funds from the dubious land deal. 
 
--  Several senior Government and military officials accused of 
corruption have not been prosecuted.  The GOU has also failed to 
follow up on plausible UN reports indicating high-level involvement 
in the illegal exploitation of natural resources in the Democratic 
Republic of Congo, illegal defense procurement arrangements, and 
other corrupt practices. 
 
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III. Economic Policies to Reduce Poverty 
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¶A. Major Strengths Identified: 
 
--  The GOU continues to allocate resources to fight poverty. 
Uganda's 2008/2009 budget addresses the issue of poverty and 
increases spending 28% overall. 
 
--  Among other initiatives, the budget nearly doubles spending on 
roads and other infrastructure, which will assist the poor and 
overall economic development.  It also represents a decline in aid 
dependence, with 32% of the budget coming as direct support from 
 
KAMPALA 00001391  005 OF 006 
 
 
foreign donors, down from just under 50% only two years ago.  (Note: 
 These figures do not include U.S. assistance and other donor 
support that is provided off-budget.  The U.S. provides only 
off-budget support.  End Note.) 
 
--  Recent statistics show that the poverty rate has declined from 
38% in 2004 to 31% in 2006, the most recent figure available. 
 
--  The Poverty Eradication Action Plan (PEAP), launched in 1997 and 
revised every four years, continues to focus the GOU's poverty 
reduction activities, specifically by improving health and 
sanitation, access to clean water, universal primary education, the 
transport system, and growth in the agricultural sector.  The goal 
is to reduce poverty to 10% by 2017.  A fourth PEAP will be launched 
in 2009 to focus the GOU's poverty reduction activities. 
 
--  Another program, the Peace, Recovery, and Development Plan 
(PRDP), focuses on development and poverty alleviation in northern 
Uganda.  The new budget increased its allocation for PRDP by 20% to 
$195 million. 
 
--  Economic conditions and trade in northern Uganda have improved 
significantly in the past year as a result of increased security. 
There have been no attacks in northern Uganda since August 2006. 
The majority of the 1.8 million internally-displaced persons in 
northern Uganda have returned to or near their homes. 
 
--  Trade between northern Uganda and southern Sudan is booming as a 
result of improved security in southern Sudan and northern Uganda. 
 
--  USAID is currently implementing a $35 million poverty reduction 
program aimed at improving rural livelihoods, particularly in the 
north. 
 
--  On the health side, Uganda has developed a model program to 
combat HIV/AIDS, and prevalence rates have decreased from 15% in the 
1990s to 6.4% in 2006.  The United States is a critical partner in 
Uganda's HIV/AIDS efforts, contributing $284 million in FY 2008 to 
HIV/AIDS initiatives through the President's Emergency Plan for AIDS 
Relief (PEPFAR). 
 
¶B. Major issues/problems identified: 
 
--  Population growth of 3.5% annually creates an urgent need for 
sustained and broad-based economic growth.  The GOU will be 
particularly challenged to create jobs, as Uganda's working age 
population will double in 15 years. 
 
--  Corruption and mismanagement of government resources discourages 
investment and decreases the effectiveness of anti-poverty 
programming. 
 
--  Uganda's weak infrastructure, health and education systems have 
a larger-than-average impact upon the poor. 
 
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IV. Worker Rights, Child Labor/Human Rights 
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Major Strengths Identified: 
 
--  Four labor reform bills passed by the Parliament in March 2006 
significantly improved labor rights in Uganda.  The laws have not 
yet been implemented, however. 
 
--  The new laws reduce the minimum number of workers required to 
establish a union from 1,000 to 20, remove the requirement that at 
least 51% of employees join a union before management is required to 
engage in collective bargaining, and set new timeframes for union 
recognition, collective bargaining and strikes. 
 
--  The Industrial Court is now funded directly by the national 
budget (not through the Labor Ministry), and the President of the 
Industrial Court has been elevated to the status of a judge.  The 
Industrial Court has the power to re-instate employees who are 
improperly dismissed, and to impose fines against employers. 
 
--  The National Organization of Trade Unions (NOTU) is the largest 
labor federation, and includes about 15 unions.  Its rival, the 
Central Organization of Free Trade Unions (COFTU), includes five 
unions.  An estimated 855,000 of 2 million persons working in the 
formal sector belong to unions. 
 
 
KAMPALA 00001391  006 OF 006 
 
 
--  Uganda cooperates with the International Labor Organization 
(ILO) and has ratified all eight ILO conventions. 
 
--  In May 2007, the GOU launched its national child labor policy, 
which was passed in Parliament in November 2006.  Comprehensive 
anti-trafficking in persons legislation was introduced into 
Parliament on July 3, 2007, and is now in committee.  The 
legislation will likely pass in November 2008.  There are active 
programs underway, with support from the ILO and the U.S. Department 
of Labor, to combat child labor, but the practice nevertheless 
remains a concern in Uganda, particularly in the informal sector. 
The United States has supported efforts to move the legislation 
forward. 
 
--  Approximately 100 district-based labor officers have 
responsibility for inspecting workplaces and processing worker and 
management complaints.  Though not fully effective, this mechanism 
contributes to the enforcement of labor standards. 
 
¶B. Major Issues/Problems Identified: 
 
--  The Ministry of Gender, Labor and Social Development, which 
oversees national labor policy and helps enforce labor laws, is 
under-staffed and under-funded. 
 
--  Child labor remains common, especially in the informal sector 
and agricultural industries. 
 
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¶V. International Terrorism/U.S. National Security 
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¶A. Major Strengths Identified: 
 
--  Uganda has not engaged in activities that undermine U.S. foreign 
policy interests or national security and in fact Uganda continues 
to actively support the United States on counter-terrorism matters. 
 
--  The GOU's cooperative attitude was demonstrated during the 
Commonwealth Heads of Government Meeting (CHOGM), held in Uganda in 
November 2007, when the GOU worked closely with over 50 foreign 
governments on security matters to host this complex event. 
 
--  In preparation for CHOGM, the GOU initiated additional security 
steps at its ports of entry (specifically the airport).  These 
security steps have resulted in the detention and/or arrests of 
transiting individuals suspected of having links to international 
terrorist organizations. 
 
--  Uganda's provision of around 1,700 military troops in support of 
the African Union Mission to Somalia (AMISOM) since early 2007 
strongly demonstrates its willingness to contribute to regional 
stability. 
 
¶B.  Major Issues/Problems Identified: 
 
--  Uganda's anti-terrorism security capabilities are generally low. 
 
 
--  Uganda's location in East Africa and porous borders make Uganda 
a known terrorist transit point. 
HOOVER