CONTENTS | ANB-BIA HOMEPAGE | WEEKLY NEWS
|
Uganda |
ECONOMY
The trials and tribulations of the coffee industry in Uganda
is typified
by a Ugandan businessman, David Mambule,
whose business and fortune now
lies in ruins
Mambule, a middle-aged businessman, ventured into the coffee export trade soon the coffee industry was liberalised in 1992. Banks were happy to loan him Shs. 100m for he had good connections and collateral. Things looked good at first. An impressive office, busy staff and smart cars parked nearby. But suddenly misfortunes struck with rapid succession, and ended up with Mambule entering the world of poverty.
Now Mambule is a shadow of his former self. His greying hair can easily pass-off as unkempt; his threadbare trousers and his constant pounding of Kampala’s streets, his constant talking to himself, makes him appear more an object of pity than anything else.
Mambule’s out of the coffee industry — «burnt out» say some, though he’s not the only one. Even big companies are now leaving the business. Recently Cargill, an imposing American commodity firm that looked like it was doing good business in Uganda, also went under. And the casualty list is mounting in the Uganda Coffee Development Authority (UCDA).
Good times and bad times
In 1992, the UCDA received 200 enthusiastic exporters who began to trade with gusto. But by the end of 1999, only 30 were still active and 10 of these controlled more than 60% of the coffee trade. What’s gone wrong in what was seemingly a very lucrative business?
Coffee accounts for 65% of Uganda’s export revenue. But the liberalisation of the coffee industry has not been smooth. Initially, the coffee export trade was in the hands of a parastatal — the Coffee Marketing Board (CMB) whose many assets included a central processing plant capable of processing 240,000 bags, annually.
The Ugandan government, at the behest of the World Bank and the International Monetary Fund (IMF) sought to open up the industry. The main reason was that coffee farmers felt they were being cheated and getting a raw deal. In those days, a coffee farmer only received 10% of the international market price, and worse still, he was paid with chits. Besides, donors felt that pre-financing less efficient coffee unions by the Bank of Uganda, was not a good thing for Uganda, for it had inflationary elements.
So the government liberalised the business and initially things looked better. A farmer now received a 70% share of the international market price and this percentage remained for several years. Coffee production seemed to be growing. In 1992, bags of coffee amounting to 1.8 million, were exported. In 1998, exports reached 4 million bags. Farmers’ lives improved. Soon iron-roofed houses dotted the rural areas of Uganda in increasing numbers.
Boom times were here! So much so, that Kenyan farmers and farmers from Congo RDC began smuggling coffee into Uganda to re-export it from Uganda. By 1998, Ugandan coffee exports stood at 4 million bags.
But then misfortune struck. Poor prices on the international coffee market and the coffee wilt disease that destroys up to 3% of coffee in the country annually, brought problems to the industry.
These days, coffee exports have continued to sink and may not have gone beyond 2.8 million bags in the year 2000.
Time for soul searching.
The constant reminder is, that there are no cast-iron guarantees for coffee farmers, due partly to a decline in coffee prices on the international market, and the depreciation of the Ugandan shilling. The dollar rate has risen from Shs 1300 to Shs. 1875 to-date. Farmers get an average of Shs. 1900 per kilo.
But it’s the coffee exporters who seem to be getting cold feet, and unless Uganda’s economic situation improves, there is no guarantee that exporters, many of whom are foreign investors, can stand the strain for long and will follow Cargill’s example.
Member of Parliament Okello-Okello says that frequently investors in the coffee industry are driven by profit motives alone, and they can easily remove their profits from the country, which does nothing to help Uganda. He says that the «only genuine investors are Ugandans who plough back their profits into the country in view of further economic growth». His view is, that government polices should be available, to allow local stakeholders to flourish through access to better finance and other important techniques.
The Government has not done much by way of encouraging efficient institutions to help exporters prosper. The Uganda Exports Promotion Board (UEPB) is a parastatal which is supposed to be helping farmers. It has been left languishing without adequate finance.
Another problem is that some of Uganda’s coffee crop destined for export, has failed to measure up to international business standards. According to UCDA records, during the last coffee-producing year, 212,000 bags were rejected by international customers of Uganda’s coffee exports, as being of poor quality.
Ugandan firms were further disadvantaged by lack of adequate capital. Most of Uganda’s businesses, the World Bank says, obtain 70% of their capital requirements from their savings. Mainly because many Ugandan commercial banks are weary of lending out money at the moment. They have found it better to invest in treasury bills than lending out money. Central bank records now show that 80% of loanable funds go to treasury bills.
Uganda is looking to break into other markets over and above its traditional customers. President Museveni has already told the nation that he has been busy convincing the Chinese to start buying Ugandan Coffee. «Traditionally, the Chinese want tea and they initially were reluctant to change their habits...but now they are brightening up to the idea of drinking coffee», Museveni says, and is of the view that consumption of 10 million cups of coffee in China will not be a bad start.
But while Uganda is looking for other markets, it is also looking for ways of becoming less dependent on coffee. A wise move, now that more efficient coffee producers from South East Asia such as Vietnam have entered the market.
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