Uganda takes a dice on AGOA initiative

Kampala.

The story of the African Growth and Opportunity Act (AGOA) in Uganda is a sad one.
African Growth and Opportunity Act (AGOA) is a United States Trade Act which allows market access to the US from selected Sub-Saharan African (SSA) countries, with Uganda being one of them.

According to the private sector leadership and a section of economic analysts, AGOA programme has since become another example of a lost opportunity, a claim the government is not shy to refute.

There is a consensus across the board that the country just dived into the deep end of the pool before learning how to swim, let alone securing a life jacket to keep it afloat when it entered the agreement with the US over a decade ago.

Just last month, more than 150 employees of Phoenix Logistics Limited were rendered unemployed after it emerged that the textile firm could not keep afloat anymore due to excessive debts.
The loss-making firm was charged with processing of textile products for the American market under the AGOA deal, but it failed, summing up the story of the lucrative market.

Before that, there was Tri-Star Apparel firm from Sri Lanka. It employed more than 1,400 women, mostly from rural villages. It was established here solely to take advantage of the Agoa initiative.
It was not long before cases of mistreatment, working in deplorable conditions and issues of poor pay emerged, leading to protest. Each woman earned just $40 (Shs120,000) a month. As a result of their protest, roughly 300 women were fired.

Then the familiar story line reared its ugly head as the firm could not sustain its operation despite exporting to the lucrative US market.

Despite huge subsidies, including tax waivers and loan guarantees to boost its production, Tri-Star Apparel closed shop in 2006.
These are some of the stories that tell the AGOA fairy tale in Uganda.

Wanting performance
According to the Ministry of Trade, Industry and Cooperatives data, Uganda’s performance in AGOA has remained wanting with exports under AGOA dropping from $3.31 million (about Shs11 billion) in 2010 to $1.15 million (about Shs3.9 billion) in 2014.

The poor performance, according to the ministry, is partly due to the limited list of eligible products under AGOA which leaves out many products where Uganda has the potential for comparative and competitive advantage.

In a meeting last week with the US Ambassador to Uganda, Ms Deborah Malac, to discuss the progress of the African Growth and Opportunity Act (AGOA) programme in Uganda, the trade, Industry and Co-operatives minister, Ms Amelia Kyambadde, made a case for expansion of the list of eligible products under the AGOA to include products such as sugar, peanuts, dairy, and tobacco.

Uganda has also poorly performed due to the strict rules of origin documents used in international trade attesting that goods in a particular export shipment are wholly obtained, produced, manufactured or processed under AGOA.

The current arrangement is that a value addition level of 35 per cent must be attained on products whose inputs are imported from non-AGOA countries in order to export them under the AGOA. The threshold of 35 per cent on value addition is very high for a least developed country like Uganda. These rules of origin need to be simplified.

AGOA review due
Currently, there are attempts under AGOA (secretariat) to keep the flame burning. However, the government through the ministry of trade is considering drastic review.

According to the statement from the aforementioned ministry, Uganda is due for an annual review of its performance in AGOA. The review is conducted by the U.S to assess the performance of programmes in all countries around the world. This review goes to inform on how investments and sanctions can be administered generally.

Ms Kyambadde called upon US investors to shift from trading to value addition especially in the areas of leather, textiles and developing the storage infrastructure. She said there are some under-tapped and virgin sectors in Uganda which had great potential for investment and could be beneficial to both countries.

She said Uganda is committed to improving business environment by enhancing product standardisation, developing infrastructure and eliminating non-tariff barriers (NTBs) to support local trade and export to the global market.

Ambassador Malac in her response, said US is committed to supporting trade and encouraging more U.S investments to Uganda, within or outside AGOA.

She encouraged continuous dialogue to expand on more avenues and opportunities for investment and support by the United States to Uganda.

Amb. Malac said the U.S has specific criteria in place that serve to advise governments on ways and procedures to ensure continued involvement in AGOA and gainful benefits and profiting from the programmes and projects under AGOA.

She added that US embassy, in conjunction with the EA Trade and Investment Hub, was doing an assessment to find new businesses and new value addition sectors that could be supported under AGOA.

Expert view
Uganda Export Promotion Board executive director Mr Elly Twineyo while sharing his view last week on Uganda’s quest for AGOA renegotiation, said: “AGOA is an important market that if renegotiated will not only be one of the best news but benefits accrued from it will be immense.”

He said: “We need to negotiate directly. Government giving a market entry is not a direct ticket that you can penetrate such markets. We need to do business with actual companies; we need to help Ugandan companies to sign up businesses directly,” Mr Twineyo said.
He added: “We must know what quantities and qualities they want and focus on that. It should be about commitment and actual match making.”
According to Mr Twineyo, it should not just stop with the market access but market entry as that is the real deal.

In an earlier commentary published by the Daily Monitor, Mr Alex Ijjo, a senior research Fellow at the Economic Policy Research Centre, Makerere University, said: Fifteen years on, however, there is very little to show that Uganda has benefitted from AGOA. The country’s inability to exploit AGOA and other preferential trade opportunities are evident that the problem is home-grown.”

Uganda is one of 38 African countries eligible for tariff free and quota free access into the US market for over 6,000 products, under the Africa Growth and Opportunity Act (Agoa).

He said lack of clear strategy on AGOA despite government setting up the Export-Led Growth Strategy Unit (ELGSU) to expedite export related issues, is another reason haunting the initiative. For example, there is conflicting mandate and reporting structure between the unit and relevant Ministries, Departments and Agencies (MDAs).

The ELGSU apparently reports directly to the President. While such an arrangement could expedite the process, there are several questionable implications, including the stifling of institutional development, courting of political interference, policy inconsistencies and dubious accountability. Institutional development is essential for sustainability.

“Uganda lacks focus and market specific strategies to take advantage of the preferential market opportunities. There is need for a tailored, evidence-driven strategy for Agoa and other trade opportunities available to Uganda,” he argued.

He said Uganda’s Investment Code (1991) identified priority sectors for promotion but implementation has fallen short of expectation.
There is urgent need for Uganda to review the policies relating to this. As pointed out earlier, an FDI strategy in the framework of special economic zones, particularly geared into strategic tradable sectors, could revive the fledgling fortunes of an extended AGOA and similar trade opportunities.

Weighing in on the matter, Mr Gideon Badagawa, the executive director of Private Sector Foundation Uganda, said: “Uganda has had a raw deal on AGOA.” He continued: “I am happy government appreciates this. What we need to do is essentially to support enterprise capacities to produce and check standards for these markets.”

He argues that as long as Uganda does not prepare the exporters well enough to compete in these markets, there will be no impact no matter what kind of deal is struck—it will not be helpful.

This initiative started way back in 2000 but to date, Uganda’s benefits from this market have been increasingly declining.
“What a shame! And what is our import bill from USA? ,” Badagawa pondered.

He mentioned countries like Nigeria, Angola and Kenya which are benefiting immensely from this opportunity- not because they have special access rights but because they have prepared their exporters to seize this market.

He said: “Having oil or any other product for that matter in whatever quantities does not give any country automatic entry into such a market but how that country strategises and prepares itself to enter that market.”

When you look at the apparels for instance, Kenya and Ethiopia recorded in excess $500 million (Shs1.7 trillion) each year from this market but Uganda has not taken advantage.

Badagawa advises that Uganda must have organised production through farmers organisations and cooperatives, study the value chains while teaching the people what the market expectations are on the other side.

Uganda’s Agoa Exports

Uganda is one of the beneficiaries of AGOA, which was first authorised in 2000 providing for duty-free treatment for about 6,500 goods from eligible sub-Saharan African countries imported into the U.S. The programme aims at promoting regional integration, encouraging adoption of World Trade Organisation agreements (including the Trade Facilitation agreement) and strengthening Congressional Oversight through additional notification and reporting mechanisms.
Uganda’s exports to the USA under AGOA include agricultural products, forest products, textiles and apparel, footwear, crafts, minerals and metals.

About Agoa

The Agoa window, introduced by the Clinton administration 15 years ago, allows Uganda and other African countries to export about 6,000 kinds of goods to the US without paying taxes.