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Last Updated: Sunday, 4 July, 2004, 08:31 GMT 09:31 UK
Ugandan firms struggle despite US deal
By Orla Ryan
in Kampala, Uganda

The Tri-Star apparel factory in the Kampala suburb of Bugolobi is bright and clean. Large motivational signs urge staff to build the nation. Banners on the wall read "Made in Uganda, sold in USA".

Tri-Star factory
Tri-Star supplies clothes to a range of US companies.
There are more than 2,000 workers at the site, stitching clothes to sell to American companies such as Wal-Mart, JC Penney and Target.

Uganda's government often hails Tri-Star as a successful beneficiary of the African Growth and Opportunity Act (Agoa), which allows African companies to export textiles to the US duty free.

American lawmakers have just renewed the Agoa legislation until 2015. Companies that import fabric from outside of Africa can continue to export duty free until 2008.

But critics say the only reason why Tri-Star appears to be successful is because it is receiving plenty of support from the government.

Profit from Agoa?

Some of the world's fastest developing countries have built their growth on the textile sector, where rising sales can boost both the small cotton farmer as well as big business. If Africa can benefit from preferential trade access under Agoa, some of the inequity created by cotton subsidies in other parts of the world could also be eliminated.

Tri-Star worker
Asian cloth is made into clothing.
But some of Uganda's textile makers question their own ability to profit from the legislation.

The country's flagship Agoa exporter Tri-Star has benefited greatly from government subsidies and Presidential enthusiasm, souring talk of trade with allegations of political favouritism.

The company sacked one quarter of its then 1,000 strong workforce earlier this year, citing indiscipline. The action cast further shadows on its public image. It prompted calls for the government to take an equity stake in the heavily-indebted company.

The company's managing director Vellipillai Kananathan dismisses criticism of the company as unpatriotic and is optimistic it will make a profit this year. Already, he forecasts sales of $10m (5.5m) for 2004.

Buying from China to sell in US

But until the local textile industry can produce the right quality fabric, Tri-Star will have to import its basic raw material from the Far East.

There is no profit to be made from doing this, textile maker Southern Range Nyanza's legal officer Richard Mubiru argues. Unless, that is, you have benefited from the kind of government help that Tri-Star has.

Tri-Star factory
The government hails Tri-Star as a success story.
Uganda's textile industry is full of sharp businessmen, he laughs, and if there was money to be made in importing fabric from the Far East to landlocked Uganda, stitching it into garments and exporting it to America, they would be doing it.

The local textile sector needs to be revamped to enable it to benefit from Agoa, Mr Mubiru says. Tri-Star's Mr Kananathan has said the company wants to use local fabric and may even set up its own textile mill.

Upgrading textile mills to produce Western standard fabric is not cheap. Southern Range Nyanza operates a textile mill in Jinja, eastern Uganda. By the end of this year, the company will have spent a total of $10.5m on upgrading the plant.

Go organic

Yuichi Kashiwada of textile maker Phenix Logistics is similarly sceptical.

Tri-Star factory
The local textile sector needs fresh investment.
The concessions offered under Agoa are substantial, but American buyers want to buy cheap and in bulk from flexible suppliers says Mr Kashiwada, who is also the chairman of the Uganda Textile and Manufacturers' Association.

Ugandan sellers cannot be flexible when it takes them two months to import their raw materials from China, he says.

Ultimately, Mr Kashiwada believes that once his staff and factory are fully equipped to produce the right quality fabric, he will make more money selling to Europe and Japan under their preferential trade agreements.

European and Japanese buyers favour smaller quantities and will pay a premium for organic cotton, a premium which will justify the expense of shipping product from central Africa.

It should also result in a higher price for the farmer.

Last year a cotton farmer got 350 Ugandan shillings (0.09; $0.17) for a kilo of cotton lint. If that cotton lint had been organic, the farmer could have got 20% more.

Expensive cash

Even the most vocal advocates of Agoa say that progress has been slow. High interest rates and immature financial markets have held business back, Geoffrey Onegi Obel, the presidential adviser on Agoa says.

South Africa, Swaziland and Botswana have all benefited from fiscal incentives as well as competitive and varied financing. In turn, they have seen their Agoa exports rise, Mr Obel says.

Tri-Star factory
Tri-Star has high hopes of making profits this year.
Part of the problem, says Hillary Obonyo, chairman of the Uganda Manufacturers' Association, is that the publicity surrounding Agoa "created an unjustifiable expectation, given that we did not have the capacity to benefit from it".

Expectations remain high and the hope remains that when Ugandan textile mills start to produce fabric of a high enough quality, then the Agoa dollars will be real.

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