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Uganda’s Agoa export performance dismal

Saturday August 15 2009
Agoa-trader

An exhibitor at the recent Agoa Conference in Nairobi. Textile firms have suffered from rising costs of production attributed to strong dependence on imported fabric, high energy and transport costs, and low production capacity. Picture: Fredrick Onyango

Uganda’s gains from the Africa Growth and Opportunity Act are likely to remain low despite pleas to transform it into a permanent trade arrangement.

According to private sector players, severe local constraints reflected in exorbitant costs of production and limited output have rendered most of the country’s exports uncompetitive against rival products from China and other Asian countries.

Low production levels, particularly among textile firms, are also blamed for the dismal revenues earned from the Agoa market in the past eight years, according to Phenix Logistics Ltd managing director Yuichi Kashiwada.

The effects of the current global economic recession have also affected demand for Agoa exports, leading to diminished revenues for many African exporters.

The Agoa programme was introduced in 2000 by the US government to boost economic growth in developing countries, particularly in Africa, through provision of duty- free access for selected goods for an initial eight-year period.

It was later extended to 2015 by the US Congress under the administration of George W. Bush on the grounds that the intended beneficiaries had not fully harnessed the benefits of the programme, citing insufficient capacity and poor quota arrangements.

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However, continued failure to maximise potential benefits from the Agoa programme has prompted some private-sector players to advocate a permanent trade arrangement to help participating investors deepen production capacity and recover their investment capital.

Eligible products under the Agoa programme include textiles, fruits, crafts, and primary commodities such as coffee, minerals and petroleum.

High import burdens for vital raw materials and lack of decisive intervention in the local market have curtailed Uganda’s ability to exploit the Agoa window.

“The majority of Agoa exporting countries are importing raw materials from foreign countries and making garments to export to the United States market. So far, our products have been competitive in terms of quality but have failed to compete on price and volume,” said Mr Kashiwada.

Though the Agoa programme was heavily premised on boosting agricultural productivity in selected developing countries, perennial supply side constraints have apparently frustrated its implementation in Uganda, leading to poor returns among participating firms.

Textile firms in particular, have suffered from rising costs of production attributed to strong dependence on imported fabric, high energy and transport costs, and low production capacity. Poor access to credit is also blamed for their woes.

Due to lack of high quality yarn and related fabrics, local textile firms have been forced to import much of their inputs from overseas suppliers based in China and Indonesia, resulting in increased costs of procurement in terms of freight charges and import duties.

Sustained appreciation of the US dollar against the Uganda shilling is reported to have accelerated tax costs for many importers.

According to the Private Sector Foundation Uganda, an umbrella body of local business associations that advocates better business policies and legislation, the Uganda shilling depreciated by 21 per cent against the US dollar between July 2008 and February 2009. This translated into a 23 per cent rise in import taxes during the period in question.

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