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).
This is a preferential trade legislation enacted by the US government in 2000, expiring in September 2015. As a unilateral initiative, the US government reserves the right to renew or not to renew Agoa.
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 is evidence that the problem is homegrown. Some of the reasons believed to underpin the poor performance are:
Lack of competitiveness and unsupportive environment: Uganda?s production is characterised by the use of basic technologies, little control over production conditions, high costs of electricity, high cost of finance and infrastructural deficiencies – especially of road, rail, irrigation, electrical power, storage and refrigeration, which are critical in trade competitiveness. These constraints undermine the ability of firms to fully control production conditions to ensure consistency and reliability in export supplies.
Capacity deficiencies for quality assurance: In general, the framework for standards and their enforcement in Uganda remains weak. As a result, domestic exporters tend to be either unaware of international quality standards or unable to meet the required standards.
This is due to use of poor quality raw materials, unhygienic production conditions, adulteration of inputs and inaccurate scales ? issues Uganda National Bureau of Standards frequently grapples with. This is part of the bigger challenge of developing standards for regulating product quality in the country.
Lack of standards and poor enforcement in turn undermine mutual recognition of standards and quality by regional and global trading partners, leading to lost trade opportunity.
Lack of clear strategy on Agoa. Although government set up the Export-Led Growth Strategy Unit (ELGSU) to expedite export related issues, a number of challenges continue to haunt the initiative.
The first 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.
Secondly, Uganda lacks focused 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.
One strategic policy option is for Uganda to leverage Special Economic Zones (SEZ) and foreign direct investment (FDI as means to exploit the available export market opportunities.
The SEZ approach will give Uganda the policy space to provide critical support and incentives to export firms while an FDI strategy will attract foreign capital inflow to supplement domestic investments in the export sector.
Inappropriate and inadequate public support: To fully exploit the trade opportunities offered by Agoa and similar arrangements, there is need for targeted support for clearly identified niche sectors and sub-sections. Uganda has a number of potentially viable niche sectors, including agriculture, agro-processing, logistics and distribution, education services, tourism, textiles, minerals, leather and leather products, and petroleum products. Particularly critical is support for sectors and activities that are labour intensive. Uganda?s choice of textile industry for promotion itself is consistent with sound economic rationality. However, the problem with the failed Tri-Star Apparels experiment seems to have arisen mainly from the way government support was extended to the firm, mismanagement of the enterprise, lack of accountability and failure to develop backward linkages with the local cotton sub-sector. For example, the company?s decision to import, rather than locally source cotton undermined local content and inclusiveness.
Low inward investment in tradable sectors: The US government linked the Agoa facility with policy reform in the beneficiary countries. In particular, Agoa eligibility required reforms toward market openness, rule of law, political pluralism and improvement in investment conditions, among others.
It is necessary, however, for the country to incorporate strategies that will strengthen domestic and foreign investments in the export sector.
Uganda’s Investment Code (1991) identified priority sectors for promotion but implementation has clearly 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 be instrumental in reviving the fledgling fortunes of an extended Agoa and similar trade opportunities.
