Charles Kazooba
23 August 2008
Nairobi — Kampala contracted a non-existent Libyan firm to export garments to the US under the US sponsored Africa Growth and Opportunity Act, The East African has learnt.
While the Uganda government purported to have entered into an agreement with LAP Textiles Ltd, a subsidiary of the Libya Africa Investment Portfolio -- LAP Mauritius, to take over the AGOA textiles business, the Public Accounts Committee has been told that the firm did not legally exist at the time a Memorandum of Understanding was signed between the two parties.
The Uganda government claims that on June 25, 2007, it contracted the Libyan firm to produce and supply garments to the US under the AGOA arrangement. Kampala also signed off its stake in a textiles factory to the latter.
According to the MoU between the two parties, LAP was described as a private limited liability company incorporated under the laws of Uganda set up to carry out the business of textile manufacture, spinning and weaving among others.
The agreement shows that the Libyan firm acquired a 60 per cent stake in a textiles facility previously managed by Apparel Tri-Star (Uganda) whose services had been terminated over mismanagement.
The other shares were distributed between the Uganda government (35 per cent) and one Kananathan Veluppillai (five per cent). Mr Veluppillai was the managing director of the defunct Tri-Star.
But an inquiry from the Registrar General through Katuntu and Company Advocates, which the PAC engaged to investigate the deal, has established that the Libyan firm had no legal base in Uganda at the time it was engaged.
"I have searched our records and established that M/s Libya Investment Portfolio-Lap Mauritius does not exist on our company register," Darius Ruta observed in a letter dated March 26, 2008 addressed to Katuntu and Company Advocates, which he signed on behalf of the Registrar General.
Instead, Mr Ruta noted that another firm, M/s Lap Textiles Ltd, was incorporated on February 26, 2008 and issued certificate number 96255.
It remains unclear whether the Lap Textiles Ltd that was incorporated in 2008 under the Company's Act is the same one that signed the MoU with the government in mid 2007. It was also not clear if the commitments made in the MoU are binding on the parties.
"We believe they signed with a company that didn't exist," Nandala Mafabi, a member of Parliament and chairman of the Public Accounts Committee of parliament told The East African. "Ugandans are being taken for a ride. The Libyan company didn't legally exist here."
It is on that basis that the MPs are suspicious of the entire agreement since the said Libyan firm also entered into an agreement with Uganda on June 25, 2007 yet the other firm with a similar identity, Lap Textiles, was registered as a legal entity on February 26, 2008, eight months after an agreement with Kampala was signed.
On August 15 when the MPs put the Finance Ministry to task -- to explain the anomaly, the Under Secretary, Betty Kasimbazi, feigned ignorance.
"It is the Minister of Investment and the Uganda Investment Authority that knew the company," she told the committee even though the agreement was signed by her senior, Finance Minister Dr Ezra Suruma.
"We are not sure whether a Memorandum of Understanding is tantamount to a procurement and therefore a contract," Ms Kasimbazi argued.
The Executive Director of Uganda Investment Authority Dr Maggie Kigozi claims LAP was sourced through the Privatisation Unit.
"It is a registered company," she said, adding that MoUs are only made in a public-private partnership.
PAC has summoned more senior officials in the Finance Ministry and the Uganda Investment Authority to clear the air.
This is not the first time the Uganda government has been duped in such contracts. Since last year, parliament -- through a special committee -- has been investigating the mismanagement of the AGOA textile factory at Bugolobi in the outskirts of Kampala.
The MPs on the committee were informed by various witnesses that the managing company, Apparel Tri-Star (U), was actually not a subsidiary of Apparel Tri-Star of Malaysia as the government believed.
On November 9, 2007 the Public Accounts Committee wrote to the Minister of Finance seeking clarification whether LAP Textiles Ltd was in Libya or Mauritius and their shareholding. But to date, the ministry's response has not been satisfactory.
"The Committee is concerned that this is another transaction in which decisions are taken to spend public resources without due regard to the interest of the government," MP Mafabi, the chairman, noted.
The Uganda government believes that under the new AGOA initiative, there will be improved market opportunities for the country's textiles exports that are made from organic cotton in the US.
Most garment manufacturing companies in the country only service the domestic market of which the largest percentage of output is for school, military and work uniforms usually sewn from Ugandan cotton fabric. The companies are usually faced with the problem of competing with cheaper imported textiles and second-hand clothing.
Despite the opening into the US market Uganda's garment exports have recently reportedly declined at an alarming rate.
Tri-star exported goods worth $300,000 in 2002, $2.8 million in 2003, $3.8 million in 2004, $4.8 million in 2005, and $0.6 million in 2006. The company, however, made losses of Ush7 billion ($3.5 million) in its first two years of operations alone, according to an audit report prepared at the end of 2003. This is despite Kampala investing over $25m in Tri-Star.
The Government claims it set up Tri-Star factory as a pilot project from which other similar factories would be set up in different parts of the country to feed the American and other international markets.
The senior presidential advisor on AGOA and Trade, Dr. Onegi Obel has in the past said government anticipated setting up at least 10 such factories after the US extended AGOA to 2015.
Under AGOA, the US government opened up its $11 trillion market to duty-free and quota-free access for more than 4,500 products from 48 sub-Saharan African countries five years ago.
Uganda's performance has deteriorated by 33 per cent since the peak period of 2003, when the country earned $32.8 million from AGOA. Even worse, Uganda was the only country in East Africa that did not record improved total export returns last year -- instead witnessing a 20 per cent slump in export earnings, from the $25.9 million achieved in 2005 to $21.8 million in 2006.
In Uganda, cotton-the source of the AGOA pride-used to be one of the major sources for foreign exchange contributing about 40 per cent earned by the country in the 1960s and early 1970s.
However, during the period from 1974 to 1963, external and internal political and economic turmoil drastically reduced cotton's contribution to economic growth, foreign exchange earnings, and rural incomes.
Currently, the amount of cotton export is estimated about $22m, which accounts for about 5.5 per cent of the country's foreign earnings, and the export of raw cotton is estimated to contribute to incomes of about 10 per cent of the population.
The world market for cotton products is estimated at 20 million metric tons a year, approximately half of the total textile fiber produced worldwide.
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