Uganda is emerging as the success story of 2009. Unexpected events such as a bumper food harvest, in combination with the country’s prudent economic reforms have contributed to growth rates predicted to hit 6.3% by the end of 2009. Experts estimate that Uganda may register the highest growth rates in the region following the devastating droughts that hit neighbouring Kenya and Tanzania in 2009. Like other countries in East Africa, Uganda is aware that fortune could change at anytime!
To achieve sustainable growth, the government is banking on benefits from the recently signed East African Common Market Protocol – an agreement between five countries (Burundi, Kenya, Rwanda, Tanzania and Uganda) to implement a common trade policy and eliminate tariff, non-tariff and technical barriers to trade. Many expect the regional bloc of 120 million people to be the conduit to an anticipated explosion in regional trade in the coming decade.
In an interview with ATI’s Resident Underwriter, Allan Mafabi, he discusses opportunities within this emerging economy and the potential role for trade credit risk insurance and political risk insurance to support the country’s growth strategy.
What does the East African Common Market Protocol mean for the Ugandan private sector – has the market responded favourably to this development?
It is difficult to separate any business development initiatives on the continent from the issue of good governance. At a recent conference on this topic held in Tanzania, Mo Ibrahim, the Sudanese governance proponent, delivered a succinct argument when he spoke about the continent’s increased ability to compete globally under a regional integration framework that is backed by a sound governance structure.
The Ugandan market has responded well to the East African Common Market Protocol, which will be rolled out next year. However, one of the challenges that Uganda will face is to create domestic demand for its own products. Without consumers, Uganda will not reap the potential benefits of the Protocol.
To stimulate domestic demand, the chief representative for Uganda’s private sector, Gabriel Hatega, the Executive Director of the Private Sector Foundation (PSFU) recently launched the “Be proud, buy Ugandan” campaign, which mirrors similar campaigns in Nigeria and South Africa that aim to boost support for local manufacturing industries. This initiative will hopefully stimulate Ugandan manufacturers to invest in capacity building and systems to ensure that Ugandan goods can compete favourably with regional and global players.
Do you see any obvious trends in Uganda in terms of sectors that may benefit from this Protocol?
Generally, the whole Economy stands to gain from this development. However, one area that stands to benefit more than most is agriculture. Uganda also referred to as the ‘bread basket’ of East Africa, has been investing in a strategy that will move the industry several steps along the food chain in terms of agri-food processing. The Faculty of Food Science and Technology at Makerere University is leading the charge to develop this capacity.
Another sector that will likely see continued gains is the fast moving consumer goods industry. To maximize growth potential, the lack of adequate energy supply and high power costs need to be contained. In the medium to long term, the much anticipated Bujagali hydro power project, expected to be completed by 2013, should address this issue.
The energy deficit will in the short run mean Ugandan products are likely to cost more than products from other countries in the region. However, Uganda’s central location should help circumvent this challenge with lower transport costs to countries like Burundi the Democratic Republic of Congo, and Rwanda.
Other areas that will also see continued growth include oil refining, energy and infrastructure (such as roads and water projects).
What sectors is ATI targeting and what role does it expect to play in supporting Uganda’s trade and investment expansion?
Since we launched our office in Kampala in May, we have been strategically positioning our products to support inward investments into Uganda, particularly in the key sectors of manufacturing, telecommunications (ICT), energy and infrastructure.
In the past few years, Uganda has been attracting one of the largest shares of FDI in the region estimated at $735 million in 2008/2009. Compounded with developments in oil exploration, a stable macro-economic framework, a stable political environment and a central location, Uganda is in a great position to play a major role as a regional hub for economic growth. To support Uganda’s growth objectives, ATI is currently involved in projects and investments in the service industry, ICT, manufacturing and infrastructure development.
We are also working closely with the Export Promotion Board to ensure that Uganda’s export market is fully protected from the risks of non payment from foreign buyers. This cover will allow companies to focus more on their core business while we do the leg work of investigating buyers and protecting them against non payment whether due to protracted default or insolvency. Combined, these efforts will help attract greater foreign earnings and ultimately help improve Uganda’s balance sheet.
This year, we’ve seen tremendous interest from the telecommunications sector, where we’ve already closed one transaction worth just under $1 million.
The Terrorism & Sabotage insurance cover has also proven to be quite popular and we are currently working on a political violence program to provide added capacity to local insurers to cover risks which have for so long been considered as ” no go” areas for insurers. These are risks related to damage and/or losses arising from political violence, political riots and strikes in addition to terrorism, sabotage and war.
We are in advanced negotiations with insurance companies and by January 2010, we should have a Reinsurance treaty in place
Can you discuss the level of business that you expect to conduct in Uganda in 2010?
ATI currently has upwards of $500 million worth of pipeline deals in energy, infrastructure and ICT. We also plan to support investments in the oil sector, mainly in the oil refineries and related infrastructure that will enable Uganda to maximize the benefits from its new found wealth.
Allan Mafabi is ATI’s Resident Underwriter based in Kampala, Uganda. He can be reached at uganda@ati-aca.org or +256 312 263 850.
