Trade Bulletin April 2006

Economic situation:

The Annual Headline Inflation rate for the year ending April 2006 dropped to 5,9 % from 7.9% that was recorded for the year ended March 2006. Although the annual rate went down, the prices for staple foods, fruits, vegetables, fish, cereals, sugar, and dry cells were higher in April compared to March 2006. Higher prices were due to sharp increases in  production costs caused by shortage of power supply.

The energy crisis has led to the adjustment  of the GDP growth rate in 05/06 from 6.2% to 4,9%. The necessity to acquire alternative sources of energy has increased operating costs across the board, though the impact varies across industry. Power shortage is of particular concern to the fish industry, which requires a cold-chain production to maintain quality.

In January 06 there was a surge in the demand for maize, mainly from Kenya and Tanzania, that saw up to 100MT traded daily at Portbell, some of it below the regional standard. Domestic maize stocks have declined during the month of March, partly due to the beginning of the planting season. However, Uganda has relatively fair priced surplus maize for the market estimated at over 100,000MT. In Kampala, wholesale maize has been stable at USD 193/MT. At Busia border of Kenya and Uganda maize was selling at an average price of USD 175/MT while in the maize production districts of Lira, Iganga and Kasese, prices have been on average USD 150/MT.

According to the 2005/2006 Global Competitiveness Survey of the World Economic Forum Uganda’s global growth competitveness rank dropped from 79 in 2004 to 87 in 2005. Uganda’s biggest undoing is in areas like pay and productivity where it is ranked second last, costly telecommunication, a high level of market dominance and limited electricity supply.

Political situation:

The first multi-party elections for president and parliament in Uganda in twenty years took place on 23 February. Yoweri Kaguta Museveni was officially elected for the third time as President of the Republic of Uganda. President Museveni defeated his opponent D. Kizza Besigye, in the first round of elections with 59% votes against 37% for Dr. Besigye. As in 2001, the result of the presidential elections were contested. Lawyers of Dr. Besigye filed a petition to the Supreme Court challenging the re-election of President Museveni. In 2001, a similar petition filed by Dr. Besigye did not lead to further action. Again in 2006, though it concluded that there were major problems in the electoral process, the Supreme Court ruled that it could not be proven that this affected the results in such a way that re-election was justified. Now that the elections are over, many in the business community do not consider the political situation as a great risk anymore.

Trade:

Total export proceeds in the month of January 2006 were estimated at about US$83.8 million; an improvement of about 13.5 percent compared to the export earnings of US$73.8 million recorded in the preceding month. Coffee exports amounted to 228,794(60-kilogram) bags worth US$19.6 million in January, representing an increase in both volume and price per kilo from December 05. The total value of non-coffee exports for January 2006 was estimated at US$61.1m. Earnings from cotton, hides and skins, simsim, cobalt, flowers and gold increased by 146.6%, 74.0%, 50.8%, 33.3%, 11.8%and 6.7% respectively. There was a decline in earnings from electricity (by US$0.02 million), tea (US$0.30 million), tobacco (US$0.17 million), maize (US$0.46 million), beans (US$0.25 million), and fish and its products both regional and international (by US$ 1.3 million) compared to December 05.

The total import bill for the month of January 2006 was estimated at US$165.3 million, of which private sector imports accounted for US$155.3 million. Oil imports amounted to US$24.3 million – US$0.4 million more than the oil import bill of December 2005. Government imports were recorded at US$10.0 million in January 2006, compared to the US$4.0 million in the previous month. The Government import bill in January 2006 accounted for approximately 6.0 percent of the total import bill.

(Source: Bank of Uganda (BoU) Monthly Economic Review March 2006)

Trade between Uganda and the Netherlands increased in 2005. Total Dutch exports to Uganda from January-December 2005 amounted to EUR 24,1 million as compared to EUR 14,1 million for the year 2004. Total imports from Uganda to the Netherlands from January-December 2005 amounted to EUR 63 million as compared to EUR 60,4 million in 2004.

(Source: Centraal Bureau voor de Statistieken (CBS))

The East African Chamber of Commerce, Industry and Agriculture (EACCIA) has recently launched a website: www.eastafricanchamber.com. The website contains amongst others country information, a roadmap for investment, tariff rates for the community, agricultural commodity prices, weekly currency rates, investment opportunties and major investments.

Investment:

During the period September-December 2005, 98 projects were licensed by the Uganda Investment Authority (UIA) with a total estimated investment of US$ 176.5 million, representing an overall increase from the previous quarter. Manufacturing, agriculture, forestry and fisheries accounted for 56% of the Projects and 38% of total investments.

(Source: UIA)

A new legal regime to support the mining industry in Uganda was introduced in March following renewed interest by international mining companies. Interest and investment in mining in Uganda has declined since the 1950s, when the industry contributed one-third of the country’s foreign exchange. The new legal regime includes a liberalised licensing regime, a single licensing authority,  increasing the area and tenure period of licenses and the provision of an appeal mechanism for companies with complaints.

Second tender for PSOM applications to close on August 15th 2006: Foreign companies who want to set up a small-scale pilot investment in Uganda can apply for financial support for 60% of the project costs. The projects can be set up as a joint venture consisting of at least one foreign company (a company based in the Netherlands or a company based in a developing country) and one Ugandan company. Every year, EVD invites two tenders for Uganda, for which Dutch companies or a company based in a developing country can submit proposals together with a Ugandan company. The second tender for 2006 will close on August 15th 2006. For the latest information:  www.evd.nl/psom.

Avian influenza: The government of Uganda has partially lifted the ban on importation of poultry from the Netherlands, Belgium and Great Britain. There is no more ban on importation of parent stock. The ban on importation of commercial poultry remains. The Dutch government communicated to the goverment of Uganda that highly pathogenic Avian influenza has not been detected up until now in the Netherlands, neither in commercial farms nor in migratory birds. Hence, that there is no risk, either to animal health or to public health, of importing live poultry and poultry products from the Netherlands into Uganda For more information see the international website of the Netherlands Ministry of Agriculture, which is continuously updated: www.minlnv.nl.

EU Standards: With effect from 1st January 2006, countries exporting to the EU will be required to comply with the new food and feed regulation 882/04. Enforcement of this regulation will be only after the EU Food and Veterinary Office (FVO) has audited national food systems of exporting countries. The main changes from a regulatory point of view are: a) the requirement for “1+/- “traceability, b) the responsibility placed on competent authorities to guarantee compliance, c) the requirement for equivalence of systems between the EU and 3rd countries.

A 2004  impact assessment study of the new regulation in ACP countries showed limited negative impact in the short term. In the medium to long term, the main areas of concern include:

1. Deficit of information on the regulation in both the public and private sector
2. Poor co-ordination and dialogue between the public and private sector
3. Limited capacity of the competent authorities in terms of crisis management plans, obsolete procedures, confidentiality of reports, etc
4. Laws that are not compatible to the new requirements, which has left the regulatory environment fragmented with no single food safety agency.

EUR 30 million have been ear marked for an All-ACP Programme to address challenges associated with the new regulation. Uganda was one of 2 case studies for a feasibility assessment carried out in February 2006. The final report is due by June 2006 and the programme is expected to commence in 2007.

(Source: Trade Bulletin March 2006 from EC Delegation to Uganda)

Taxation:

Following continued lobbying by the Uganda Flower Exporters Association (UFEA) there is now a fast track system for VAT refund recovery in place for the flower growers at the Uganda Revenue Authority (URA). This has significantly improved growers’cash flows. URA is now also holding regular Tax Clinics with the growers to improve both the URA’s understanding of the flower industry and the growers’ understanding how to correctly make tax claims.

(Source: UFEA report April 2006)

Government has agreed to waive taxes on diesel used in generators of 100KVA by manufacturers and on imported hotel building materials needed for the many hotels in construction to host the Commonwealth Heads of Government Meeting in 2007.

Legislation:

In March the Ugandan parliament passed four labour laws: the Employment Bill, the Occupation Health and Safety Act, the Labour Unions Acts and the Labour Disputes Act. Harmonisation of the labour laws in Uganda has been long overdue. Although Uganda is signatory to a number of ILO conventions, until recently it has been using former Ugandan president Idi Amin’s 1970’s decress for its labour policies. The President still has to assent to the laws. The new laws are more comprehensive for both employees and employers. Small employers might find these new laws hard to apply.

As compared to the old laws the major changes are as follows:

-          the Employment Bill:

• 48 hours working week.
• Maternity leave for a period of 60 working days instead of 8 weeks.
• Provision for dismissal.
• Provision for a disciplinary court.

-          the Occupation Health and Safety Act:

• Applicable to all workplaces. Used to be only applicable to industries.
• If an employer has more than 20 workers he/she needs to create a safety committee.

-          the Labour Unions Acts:

• To form a labour union 20 members are needed in stead of 1000.

-          the Labour Disputes Act:

• Right to collective bargaining in court.

These laws do not arrange for a minimum wage. No minimum wage is yet in force in Uganda.

Infrastructure:

Uganda’s energy crisis has deepened. The effects of the power shortage, as manifested in severe power cuts, some lasting 24 hours or more, are forcing companies to cut on their employee numbers and increase the consumer prices. MTN Uganda, the largest mobile telecommunications, has increased its tariff by 6%. Uganda Telecom Ltd (UTL) has followed with a 5% increase. The power crisis is coupled with a rise in energy tariffs and fuel prices. New energy tariffs are likely to be announced in May, up from the current USH 212,50 (9 Euro cent) per kilowatt hour for domestic consumption and Ush 240 (10 Euro cent) per kilowatt hour for commercial consumers, in effect since October 2005. Over the last four years the rate for domestic users has risen by 14,2%. Commercial tariffs are up by 9,7% from 2001.

For more information on all trade related topics see the monthly trade press review compiled by the Ministry of Tourism, Trade and Industry (MTTI) on  www.mtti.go.ug/pressreview.php.