Changing agro-business in Uganda

The Ugandan government has made agriculture one of its major priorities in the bid to rid the country of the biting poverty. President Yoweri Museveni has taken this to another level by preaching the “Prosperity for All” gospel, through best production practices with the aim of realizing better and increased output from the agricultural sector.

On a three-acre piece of land situated at Bwebajja, 16 kilometers on the Kampala-Entebbe road, Mr. James Ssemwanga has built a state-of-the-art structure where farm produce is brought, sorted according to grade, cleaned, sold and stored. He has massively invested in huge freezing and chilling rooms, each of which can store up to five containers of produce. Kampala Dispatch talked to Ssemwanga.

KD: How did you come up with this idea?

We first started out as consultants with our clients being mostly Non- Governmental Organizations and other organizations that were interested in the welfare of the farming community because we knew something about organizing farms, farmers and markets.

This was first of all to get food security in the country sorted out and then get commercial production and value addition organized. When we saw the phase of food security was ending, we decided to position ourselves in the next phase which was to export. So we worked on being in this position of adding value to farm produce which we are doing right now. We add value by aggregating it. When produce comes in here, it is not sorted, not graded and it is in small quantities. When we get it here, we sort it, grade it and bulk it making it more economically viable for a buyer to find it. We are simply offering a linkage to the owners of the produce by cleaning it up and making sure that is up to standard. We also organize producers in large numbers of a single commodity. We inform them that, say on Thursday we will be marketing hot pepper, so all of them marketing hot pepper should bring it. We then inform those interested in buying hot pepper that on Thursday there is hot pepper. This they can do twice or thrice a week depending on their interest.

KD: What are the major challenges this institution has faced since inception?

To begin with, the organization of the procurement process is complicated. Production units are small and they are scattered. However, we continue to procure for our customers produce from scattered production units. Because of that, the cost of procurement is extremely high just to get it together. There is the cost of transporting it from wherever you have got it to here. To get a truck load of pineapples from Kamwenge for example, we need to go on a particular day to scout and see where they are located. After that, we go back after they have been harvested and we try to put them in small collection centers. The roads out there are poor because they are feeder roads and many of them are small roads so you can find that the trucks get problems as well as damaging the produce. We have addressed the issue of perishability of the produce by constructing these cold rooms, so that when the pineapples arrive here we are not in a panic to sell off. The trouble is that the market is not yet set up to utilize the cold chain fully but we hope that attitude will change with time.

KD: What are some of the challenges on the export market?

The challenge is that our exporters are very small and they are so because in Europe they are selling to the spot market rather than sell to a market where they have a contract. Because they are selling to a spot market, they will not know the exact quantities they are going to export to until the last 48 hours.

KD: How has government helped this sector?

Government has helped us very little because it avoids getting involved with fresh produce. That is why they do not have a program on fresh produce. They have a department in the Ministry of Agriculture that deals with horticulture but it is very understaffed and you can see that it is not priority to them.

KD: How is taxation in relation to the export business?

Well there is confusion with the Uganda Revenue Authority on issues of taxation. We are a food company and should not be paying VAT. But they told us to register for VAT which we did then after a few months they recognized that we were not adding any value to the food. You cannot charge VAT on food. Then they advised us to de-register ourselves yet they are the ones supposed to deregister us. Then they went ahead and asked us to register for e-returns which we do. But recently we were surprised when we got an invoice from them indicating that in one month we failed to file a return and therefore we were liable for tax worth 43 million shillings, which we later found out to be an error on their side. This cost us a lot of time and resources.

KD: What is your relationship with the Ministry of Finance in regards to tax holidays?

The tax holidays are given to a company to develop a business. So far what we have is an investment license which we got some years ago. I think it is assumed that you are going to have two million dollars and invest it like that whereas for most of us indigenous investors, you may invest two million dollars but you start with $50,000. Very few indigenous investors have the capacity to invest big amounts of money at a go. When the tax holiday period expires, we shall have to notify the Uganda Investment Authority that we are still in the stage of attaining our initial goal of investment. They can come and check our progress.

KD: What is the major source of your funding?

We use a combination of strategies. We borrow but also work as consultants and get some income and invest here.

KD: As a local investor, are you treated fairly in comparison to foreign investors who are given many incentives?

I think the whole idea of not working through institutions and foreign investors coming here and they want to see the president and the minister is wrong. It means that problems do not get solved using the institution framework that is established but rather on a case by case basis which means the institutions will not grow.

I think that institutions need to be left to do their work entirely. For land as an investor, one does not have to go to the president. If the free market is complicated for a foreign investor, URA has a department that handles that. If you have squatters on your land, do not go to the president but go where we all go when we have squatters on our land which is court. Some of the achievements that foreign investors have made cannot be made by a local investor because he is too small. But the principal should be the same. The land law should be interpreted in the same way whether you are foreign investor or not. Some of the messages we hear sometimes are not helping the local investors.

I remember one time hearing the president saying while commissioning a plant in Tororo that, “if he had 12 investors like Tororo Cement, he would be very happy and would not need small-time investors.” But for me such a statement sends a wrong signal to the small investors. It rings a bell that I am being tolerated because Tororo cement is not big enough and that the day I get enough investors in my sector in the caliber of Tororo Cement, I will be ignored. That is wrong in principal because the local investor is the best barometer for a foreign investor to have confidence to come in. You can have the most glamorous institution to attract foreign investors as long as they do not see that the local investors have confidence and risking their own capital, they will wonder why?

On the other hand if they come and they see me here, they get confidence and can gauge the temperature on the local ground. Local investors have a purpose of attracting foreign investors which is not recognized or rewarded either. You as a local investor when your business takes off, you will have the greatest multiplier effect in terms of poverty eradication as you will reinvest here unlike a foreign investor that repatriates his capital. I think there is need for affirmative action to upgrade the capacity of the local investor so that they can compete with the foreign investor.

KD: What is your last appeal?

I want to recommend that food standards be enforced. When they are enforced it forces the value chain to reconfigure itself. I think it should be made illegal for somebody to vend food on a mat on the ground especially fresh food. You can vend things in shells that are going to be cracked later but tomatoes, onions, paw paws, to lay them on a mat down is not acceptable. It is too dangerous to people’s lives.