African Investors Should Take Over Tri-Star Uganda

Published on 2nd January 2007

Recently, Ugandans cried foul when there was considerable evidence that Uganda’s flagship Tri-star Apparels, established under the AGOA had closed down and sent workers home. The factory, which was launched 5 years ago, received high government support and was viewed as an opportunity for Uganda to exploit USA’s tariff and quota free market. Ugandans were made to believe the establishment would not only nurture a rich and stable market for Uganda’s struggling cotton farmers, but also become a reliable source of employment.

Upon commencement, the government waived all taxes on the company’s equipment importation and provided free premises for operations. Over 1,000 girls from the country were gathered, brought to the factory and trained on textile craft. The government also contributed a substantial subsidy towards training and guaranteed a loan of $2.5b from Uganda Development Bank to increase production and expansion.

It is sad for an investment that has received such overwhelming support and intensified bailouts to drown at the initial stages of operation. Reports from the factory indicate that it is facing logistic hurdles, especially in importation of raw materials but if clearly analyzed, the problems of tri-star Uganda are more than meets the eye.

When President, Yoweri Museveni confessed to harboring sleeping ministers in his cabinet months ago, Ugandans thought he was bluffing. But how can one explain the fact that Tri-star’s troubles began way back yet presidential advisers on AGOA were seated high and mighty in government watching the country enter a blind alley? Why did they stand and watch the government lavish huge amounts of taxpayer’s money into a “bottomless pit?”

Since its inception, the factory has neither bought a single bail of Uganda’s local cotton nor exported a stitch from locally produced fabric. Worse still, it has promoted nearly zero growth in terms of employment and the development of the cotton sector. In any case, the factory is famous for worker maltreatment, which lingered even after the management fired hundreds of workers and promised to improve conditions.

AGOA’s stipulated rules require that the production chain benefits a country. Initially, manufacturers were allowed to source for fabric from third world countries, but that deadline is fast expiring. This year, African countries will have to use their own cotton output to produce yarn and complete the production line within the home country. Up to date, there is no sign of the government’s commitment to engage investors in local cotton value addition in Uganda. Instead, huge portions of government land and forests are being sold out to foreign investors, only to plant more sugar cane and construct as many hotels and shopping malls as possible.

Over 90 percent of Ugandans live in the rural areas and heavily rely on agriculture. In the developed world, poor and unprofitable farmers are subsidized but in Uganda undeserving investors are given the privilege to toy with the country’s resources, while home grown entrepreneurs in farming and agro-processing are neglected. These poor farmers still face difficulty even in accessing support services, credit and other inputs. Besides, price is another challenge the farmers have to reckon with. The issue of profitability is just but a dream. A cotton farmer in western Ugandan injects a whooping Ugsh.300,000 into a hectare of cotton, only to reap three quarters of his initial capital.  If traced, there is a huge variation in prices received by cotton farmers, the ginners and E.U countries, which is the final destination of over 50 percent of lint exports from Uganda.

Even with the above limitations faced by the local farmers, Uganda still produces huge quantities of high quality cotton. All the country needs is to engage investors in local spinning and weaving instead of exporting raw cotton. The poor infrastructure and power black outs also make matters worse. Like Mr. Paul Kagumiire, the Marketing Manager Phenix Logistics Uganda Limited, exporters of organic cotton yarn and textile apparels puts it; “the issue of importing expensive fabric from other countries is a huge bottleneck to production in the textiles and apparels sector. Any effort by the government to add value to the local cotton would be a huge boost, reducing the cost of production and encouraging more exports from the sector.”

African countries should adopt a smarter strategy while dealing with foreign investors. It’s unreasonable to waive taxes from some investors while others are weighed down, operating without tax holidays and rebates. The idea is to ensure foreign investors operate in partnership with African investors who have a lot of stake locally. If Uganda is to make good out of AGOA, it should allow local investors to team up with the foreign investors. This can help the state get rid of broke charlatans and briefcase operators, who appear in the name of foreign investors only to run down the economy.

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