VZCZCXRO3837
RR RUEHROV
DE RUEHKM #0841/01 2160309
ZNR UUUUU ZZH
R 040309Z AUG 09
FM AMEMBASSY KAMPALA
TO RUEHC/SECSTATE WASHDC 1645
INFO RUCNIAD/IGAD COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 02 KAMPALA 000841 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: AGOA ETRD EFIS EIND EINV ECON UG
SUBJECT: UGANDA: AGOA EXPORTS DECLINING 
 
¶1.   Summary:  After peaking in 2004, AGOA exports from Uganda to 
the U.S. have steadily declined.  Despite strong government and 
private sector investment in apparel, fish, and cut flowers, these 
exports have not made significant penetration into the U.S. market. 
Meanwhile, overall Ugandan exports to the U.S. have remained 
stagnant for the last five years.  Companies exporting under AGOA 
have been hampered by domestic and regional challenges, limiting 
their competitiveness in the U.S. market.  The Government of Uganda 
(GOU) remains optimistic about AGOA, but would like to see the 
program made permanent.  AGOA will only work in Uganda when the 
country is able to overcome the infrastructure and other challenges 
that render its products uncompetitive before they even leave the 
continent for export.  End Summary. 
 
--------------------------------------------- ---------- 
AGOA Exports Declining, General Exports Remain Stagnant 
--------------------------------------------- ---------- 
 
¶2.  In 2008, total AGOA exports from Uganda added up to an 
unimpressive amount of just over $1 million.  This represents the 
second lowest value of exports under AGOA since the GOU became 
eligible for the program in 2001.  It follows four straight years of 
declining AGOA exports from a peak of $5.1 million in 2004.  During 
this same time period, total annual exports to the U.S. have 
remained stagnant in the mid-$20 million range.  Coffee is Uganda's 
biggest export to the U.S., earning $10 million in 2008.  It is not 
AGOA eligible, but currently enters the U.S. duty free and quota 
free. 
 
--------------------------------- 
The Apparel Story:  A Flawed Plan 
--------------------------------- 
 
¶3.  Apparel exports, the primary focus of the GOU's AGOA strategy, 
failed to gain traction under AGOA.  T-shirts made up the largest 
value under AGOA in 2008, representing $400,000 in exports to the 
U.S.  However, this was less than half of the total from the year 
before.  In 2005, Uganda exported $4.1 million worth of men's and 
boy's suits.  By 2008, no men's or boy's suits were exported. 
Tri-Star Apparel, the primary exporter of these suits, has since 
gone bankrupt.  Phenix Logistics still exports organic cotton shirts 
and undergarments to the U.S., but has seen exports decline and has 
lost over $3 million in the last three years.  Both of these 
ventures have resulted in significant losses to the GOU, which had 
invested heavily in the enterprises. 
 
¶4.  Several internal and external factors contributed to the failure 
of these apparel and textile ventures.  First, the two major firms, 
Tri-Star and Phenix, were financially and logistically propped up by 
the government.  Government-backed loans provided both companies 
with their start-up capital, and the GOU provided facilities and 
training for Tri-Star and its personnel.  Despite this support, 
Tri-Star was never able to make a profit as its business model 
required the importation of textiles to produce the finished 
product.  High transportation costs resulting from poor 
infrastructure in and around the port of Mombasa, Kenya, coupled 
with poor business management, made this venture unprofitable. 
 
¶5.  While Tri-Star relied on imported fabric, Phenix has built its 
business around locally produced organic cotton.  However, the high 
cost of imported organic dyes and bleaches, coupled with 
transportation and supply disruptions, led to setbacks in both 
production and export. The latter was a direct result of Kenya's 
post-election violence in 2008.  Further, territorial and 
contractual disputes between the two main distributors of organic 
cotton in Uganda (Dunavant, an American company and BoWeevil, a 
Dutch company) resulted in higher cotton prices for Phenix.  Yuichi 
Kashiwadda, Managing Director of Phenix Logistics, informed Econoff 
that these disruptions are "directly responsible" for the drop in 
organic cotton exports to the U.S.  Phenix began exports of organic 
cotton products to the U.S. in 2007 with $1.1 million in exports. 
In 2008, that number dropped to $235,000, and 2009 exports will 
remain at this low level. 
 
------------------------------- 
More Industries, More Struggles 
------------------------------- 
 
¶6.  Other industries have faced similar problems in taking advantage 
of AGOA.  Exports of fish (tilapia and Nile perch) rose between 2004 
and 2006.  However, this trend proved unsustainable, as it was based 
on overfishing in Lake Victoria.  Further, representatives from two 
major fish exporters, Greenfield (U) and Byansi Fisheries Ltd. 
informed Econoff that the benefits of AGOA did not compensate for 
the extra freight costs of exporting to the U.S. as opposed to their 
more traditional markets in Europe and East Africa.   Byansi 
Fisheries also complained about stricter packaging requirements in 
the U.S. versus those in Europe, further increasing their costs. 
Total fish exports to the U.S. (mostly non-AGOA) reached around $7 
million in 2004.  By 2008, this number dropped to around $1.6 
million.  Flowers and plants have had increasing success, recording 
 
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a high of around $280,000 in exports to the U.S. under AGOA in 2008. 
 However, this total volume remains small (Note:  flowers and plants 
were the second largest AGOA export in 2008). 
 
---------------------- 
Government Perspective 
---------------------- 
 
¶7.  In spite of these difficulties, the Government of Uganda remains 
optimistic about AGOA.  President Yoweri Museveni refers to AGOA as 
the "first friendship act of the West towards Africa."  However, 
this optimism has been tempered by some realities facing Uganda. 
Susan Muhwezi, Special Assistant to the President for AGOA, informed 
EconOff that Uganda's geographical location and land-locked status 
create roadblocks to increased exports to the U.S.  As Uganda is 
only served by the port of Mombasa, Kenya, exporting out of the East 
Africa region is consistently difficult.  Muhwezi also cited the 
global financial crisis as having a strong negative impact on 
exports to the United States.  When asked about potential 
improvements to AGOA, Muhwezi informed EconOff that "making AGOA 
permanent would help attract long-term investment in key industries 
in Uganda." 
 
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Comment 
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¶8.  Although AGOA served as a useful tool for generating goodwill in 
Uganda towards the United States when it first rolled out, the fact 
of the matter is that it has not had a significant economic impact, 
and what impact it did have is diminishing.  Indeed, the recent 
demise of the apparel sector, which was linked to AGOA by the GOU, 
has in some ways given the program a bad name among the Ugandan 
public.  The good news is that Uganda's overall trade has grown in 
recent years thanks to increases in regional trade and exports to 
Europe.  But any discussion about the future of AGOA in Uganda will 
need to take Uganda's indigenous limitations, namely in 
infrastructure and transportation, into account. 
HOOVER