VZCZCXRO6955
RR RUEHROV
DE RUEHKM #1272/01 3070852
ZNR UUUUU ZZH
R 030852Z NOV 09
FM AMEMBASSY KAMPALA
TO RUEHC/SECSTATE WASHDC 1916
INFO RUCNIAD/IGAD COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 02 KAMPALA 001272 
 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: PGOV AGOA ETRD EAGR EIND ECON UG
SUBJECT: UGANDA'S CUT FLOWER INDUSTRY IS WILTING 
 
¶1.  Summary: Uganda's cut flower industry, once seen as a potential 
engine of economic growth, is suffering a major downturn due to the 
global financial crisis and domestic challenges.  Industry experts 
are calling for government intervention to revive Uganda's flower 
industry, as the domestic ripple effect of decreased flower exports 
to Europe and the U.S. (under AGOA) is expected to negatively impact 
the growth of the Ugandan economy.  End Summary. 
 
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Early Blooming 
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¶2.  Uganda's flower industry was established in 1993.  It occupies 
205 hectares of land and employs about 6,500 people.  Uganda is the 
5th largest African exporter of cut flowers and has an advantage 
over other flower growing locations because Uganda's climate allows 
for year round growing.  Export earnings from the cut flower 
industry average about $30 million annually and are an important 
source of foreign exchange for the Ugandan economy.  Flower 
production and earnings peaked in 2005 at 7,500 tons worth $35 
million.  This strong growth had a broad impact on the economy.  In 
Uganda it is estimated that one wage earner takes care of ten 
people, greatly magnifying the impact of 6,500 jobs.  Further, the 
growth in this industry spurred growth in agricultural suppliers and 
other related sectors. 
 
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Starting to Wilt 
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¶3.  Uganda's cut flower industry took a hit in 2006 when two major 
farms were damaged by hail storms, and two others closed due to 
financial difficulties.  Power outages also worsened in 2006 due to 
low rainfall, and a specific rose variety grown in Uganda was 
blacklisted on the world market.   This resulted in only 6,800 tons 
of production worth $27 million.  While earnings rose again in 2008, 
production remained stagnant.  In 2009, production and earnings are 
expected to decline again as the main destination of flower exports 
is the European Union, where the financial crisis has decreased 
demand and reduced world prices by 30-50%.  As a result, most flower 
growers in Uganda have scaled down both production and staff. 
 
¶4.  Other local developments have also hurt the Ugandan flower 
industry.  Financing is difficult due to high interest rates and 
short repayment terms for bank loans.  Electricity supplied from the 
grid has become increasingly expensive and unreliable as increasing 
demands outpace power production.  Due to rolling black-outs, 
farmers are resorting to diesel powered generators - pushing 
production costs even higher.  Exporters also complain of high 
freight charges.  Relatively few cargo planes come into Uganda due 
to the generally low volume of exports, resulting in higher 
transport costs compared to other flower exporting countries in the 
region such as Kenya. 
 
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No Fertilizer From the Government 
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¶5.  Some industry insiders feel government support is necessary for 
the industry to thrive.  Five years ago, the Uganda Flower Exporters 
Association (UFEA) forecast that sales could double in three years 
with government support.  They asked the government for land and 
infrastructure, exemption from double taxation of profits, improved 
cold storage facilities, subsidized airfreight charges and access to 
long-term financing.   According to Juliet Musoke, Executive 
Director of the Association, these elements were part of an industry 
strategic plan to build investor confidence and expand the 
production area to 350 hectares and increase earnings to $44 million 
per year.  In response, the government gave growers some tax breaks. 
 However, the key issues of land, infrastructure, financing, 
airfreight subsidies and improvement of cold storage facilities 
remain unaddressed.   Due to the harsh investment climate in the 
sector, no new investments have been made in the last six years and 
no new investors are expected in the near future. 
 
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Comment 
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¶6.  Since 1993 cut flowers have earned Uganda an average of $30 
million annually.  While the bulk of these exports are to the 
European Union, Uganda also exports cut flowers to the U.S. under 
AGOA.  This downturn illustrates some of the challenges to exports 
inherent in many less-developed countries.  Cut flowers, an industry 
in which Uganda should have a comparative advantage, is rendered 
uncompetitive due to poor infrastructure, inadequate access to 
capital, and transport costs.  These are challenges that even a 
preferential trade regime such as AGOA probably cannot overcome. 
With over 80% of the Uganda population making their living from 
agriculture, a slump in cut flowers will have a ripple effect in 
other agricultural sectors. 
 
KAMPALA 00001272  002 OF 002 
 
 
 
LANIER