Dutch investors intensify rivalry for Uganda resources

Although Ugandans continue to be the leading investors in the country, the Netherlands tops the list of Foreign Direct investment. There are about 15 fully Dutch-owned companies in Uganda with about six partly Dutch-owned investments in Uganda. Two Dutch firms are planning to invest $60 million (Shs136 billion) in the manufacturing sector. Walter Wafula writes.

Dutch firms are gradually acquiring a taste for Uganda as the scramble for the East African economy among European, Asian and the Middle East investors hots up. Between July and September this year, the Netherlands emerged as the top source of Foreign Direct Investment (FDI) for the economy, the latest investment report from the Uganda Investment Authority (UIA) shows. Two Dutch firms plan to invest $60 million (Shs136 billion) in the manufacturing sector. The capital accounts for about 18 per cent of the $340 million (Shs771 billion) inflows, which are expected to create up to 15,307 jobs among several sectors in Uganda.

This is the first time in two decades that the Netherlands was rising to the apex overtaking traditional externals source of FDI like; the United Kingdom, Kenya, South Africa. However, Ugandans continued to be the top investors in their country during the quarter with 40 planned projects worth $178 million (Shs404 billion) and 11,338 planned jobs. During the period, India and China - the world’s fastest growing emerging markets followed the Netherlands in the second and third place respectively.

The rise of Netherlands (Holland) comes at a time when firms from other countries are positioning their subsidiaries in Uganda to tap into opportunities in the oil and gas industry and related industries. Uganda has at least 2 billion barrels of oil lying underneath and is expected to generate at least $2 billion or Shs4.5 trillion per annum from the sale of its oil to external markets. But the Uganda-Netherlands relationship can be traced 30 years back when fuel vendor Royal Dutch Shell set up Shell Uganda, its domestic subsidiary. Other key players from the country include; KLM Royal Dutch Airlines and Unilever Uganda – an Anglo-Dutch home and personal care products company.

Equally active has been the entrepreneurial development bank of the Netherlands commonly called FMO. The bank holds portfolio investments in seven companies in Uganda; including; Bank of Africa Uganda, DFCU Bank, Bujagali Energy Limited, Celtel Uganda, East African Development Bank, EcoPower Uganda and SAEMs hydropower projects.

In most of these companies, the bank has invested through loans and equity in the range of between $3.5 and $10 million to the firms. In total, the bank has invested close to $82 million (Shs257 billion) in Uganda projects, according to Ms Marieke Janssen, the economic and fellowships officer, at the Netherlands embassy in Kampala.

Large Dutch firms that have gone it alone to make substantial investments in Uganda have had an affinity affair with the flower industry. Key among these has been Wagagai Limited, the largest domestic exporter of chrysanthemum cutting to Holland and a biggest employer in the horticulture industry. The company has invested up to about $15 million (Shs34 billion) in the industry since it was set up in 1996.

Wagagai exports up to 450 million plant cuttings to Europe and mainly Netherlands, with its total exports topping 750 tonnes per year. In terms of revenue, from its exports, it earns about $9 million (Shs20.4 billion). “We employ over 1,500 workers and pay around Shs800-900 million in taxes like Pay As You Earn and National Social Security Fund, annually,” Mr Olav Boenders, the managing director Wagagai Limited, told Business Power last week.

Other players
Other major players in the sector from Netherlands are Fiduga Uganda Limited - a subsidiary of Fides BV Group Holland and Xclusive Cuttings Uganda. Like Wagagai, Fiduga and Xclusive export chrysanthemum flowers. Fiduga started its operations in 1996 with only $100,000. To-date, it has invested more than $8 million (over Shs18 billion) (creating jobs for 472 workers in the industry according to Jacques Schrier - the managing director and the UIA.

The flower firms mainly export their products to the European Union using Netherlands/Holland as the entry point. According to the Uganda Flowers Exporters Association, Uganda produces 60 per cent of the chrysanthemum cuttings exported to the Netherlands. With the supply, six of every bunch of 10 chrysanthemums bought in Holland are imported from Uganda.

The floriculture industry is one of Uganda’s top 10 foreign exchange earners contributing close to $30 million in export revenue, the UIA says. The sector has grown from a single two hectares farm in 1992 to 20 farms covering 192.1 hectares in 2009. Total investment in the sector exceeds $54 million with over 6,000 employees. The industry produces over 40 varieties of flowers with roses and chrysanthemum cuttings accounting for 70 per cent and 25 per cent respectively of the exports.

In Uganda, flowers are largely grown around the Lake Victoria Basin in Mpigi, Mukono and Wakiso districts. “The escalating growth trends in flower exports have positioned Uganda among the top five largest exporters of cut flowers in Africa,” a report by UIA says.

Wagagai’s Boenders told Business Power that the main reason why the company decided to invest in Uganda was the country’s good climate, stable political situation, safety, availability of water and grants at the time. Uganda’s hot and humid temperatures around the Lake Victoria basin are said to be ideal for the growth of short stem roses, chrysanthemum cutting. This cuts out the cost of heating green houses unlike in the Netherlands. Mr Schrier added that the ideal climate conditions guarantee all year round production of flowers naturally. “In Holland, a shortage of flowers occurs during the cold season (winter). Because of low production, flower imports from Uganda were meant to fill in this gap,” he explained.

Besides the above factors, the government recently eliminated import duty green house units and offered a 10 tax holiday for flower exports giving the flower sector a boost. Another investor Robert–Jan Nieuwpoort, the managing director of SecondLife Uganda, an information and technology (IT) service company also identified Uganda’s competitive labour market as a pull factor for Dutch investments to the economy.

In Uganda, salaries and wages vary between $35 and $1,300 per month for unskilled, semi-skilled and skilled manpower, depending on the company and one’s job description and bargaining power. In comparison, in Netherlands where there is a defined minimum wages, companies have to pay workers at least $64.4 (Shs203,000) per day or Shs6 million per month. The good pay enables workers to cope with the high standards of living in the EU.

Mr Nieuwpoort is set to establish a $1.5 million (Shs3.4 billion) e-waste plant in Namanve Industrial Park to set up East Africa’s largest computer recycling facility. SecondLife currently distributes refurbished computers in Uganda, provides IT maintenance and servicing to companies. With the increasing use of computers in the region, the company intends to exploit Uganda’s strategic position to collect and recycle used computers from Kenya, Tanzania, Rwanda and Burundi.

The project is partly aimed at helping the region to have an acceptable way of disposing of unwanted used electronics instead of burning them or burying them underground as of today.
Despite the diverse business opportunities and favourable climate that Uganda offers, Dutch investments in Uganda are undermined by some challenges. The core bottlenecks remain the persistent corruption, high transportation and energy costs, and difficulty in acquiring property. “The investment process here is very difficult compared to Netherlands. Over there, acquiring land is very easy and there no crooks when it comes to getting land titles,” Mr Nieuwpoort said in an interview last week.

For the flower investors, Mr Boenders said, airfreight costs have been a major problem over the last year although the conditions are getting better. “On airfreight and handling at the airport we need all the support we can get from government,” he told Business Power.

Over the last two years, the Uganda government has attempted to fix its poor transport infrastructure by allocating one trillion shillings to repair and construct new roads and alternative transport systems. While progress has been made on roads, there’s little to celebrate about most air and water transport infrastructure across the country.

Notwithstanding the current bottlenecks, the Dutch investors like the Chinese, are determined to continue investing in the country to reap from the fast growing economy and the fortunes that the oil and gas sector is expected to bring. While the Dutch are keen on investing, the discovery of commercially viable oil has sparked off interest from Chinese, French, American, Indian and British firms among others.

Between July 2009 and June 2010, China was the number one source of FDI in Uganda with planned investments worth $245 million (Shs556 billion) to creating 5,568 jobs, according to UIA. Besides the construction, wholesale and manufacturing sectors, the Chinese are keen on partnering with British firm Tullow Oil Plc, to invest at least $4.6 billion in Uganda’s first oil refinery.

China’s aggressiveness could see them retain the top FDI spot in the coming years. Their investment drive is also expected to be bolstered by the recent Shangai Expo in China where Uganda as an exhibitor attracted over one million visitors.