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Cablegate: Uganda: February Economic Review

VZCZCXRO7496
RR RUEHGI RUEHRN RUEHROV
DE RUEHKM #0317/01 0570704
ZNR UUUUU ZZH
R 260704Z FEB 07 ZDK
FM AMEMBASSY KAMPALA
TO RUEHC/SECSTATE WASHDC 8296
RUCNIAD/IGAD COLLECTIVE
RUEHXR/RWANDA COLLECTIVE

UNCLAS SECTION 01 OF 02 KAMPALA 000317

SIPDIS

DEPARTMENT PASS TO USTR FOR BILL JACKSON

SIPDIS

E.O. 12958: N/A
TAGS: ECON EFIN ETRD KTDB PGOV UG

SUBJECT: UGANDA: FEBRUARY ECONOMIC REVIEW

REF: KAMPALA 000160

KAMPALA 00000317 001.2 OF 002


1. Summary: Phenix textiles shipped its first consignment
of 100 percent Ugandan made organic cotton t-shirts to the
United States. Uganda has been designated to lead African
countries in the next round of World Trade Organization
(WTO) negotiations. The Gates Foundation is providing
over USD 15 million to establish microfinance banks in
five African countries, including Uganda. Energy Minister
Migereko is seeking investors to develop 48 small hydro
power projects across Uganda to diversify its power
generation base. The Energy Ministry is also distributing
800,000 free energy efficient bulbs in an effort to save
30 megawatts of power. The IMF reports that Uganda's
transportation infrastructure is among the worst in Africa
and hinders future economic growth. New legislation containing
whistleblower protections have been drafted and will soon
be before Parliament in an effort to combat corruption.
The Millennium Challenge Corporation (MCC) has approved
funding for a GOU program to fight corruption over the
next two years. End Summary.

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Trade/AGOA
----------

2. Phenix Logistics, a textile firm, exported to the United
States its first consignment of 50,000 organic cotton t-shirts.
The company held a celebration on February 23 attended by
President Museveni and the U.S. Ambassador. The clothing
is the first that is 100 percent Ugandan made to be sold in
the U.S. market benefiting under the African Growth and
Opportunity Act (AGOA). Phenix is anticipating additional
orders from the purchaser Edun, a socially conscious clothing
brand owned by U2 rock band lead singer Bono.

3. Uganda was chosen to lead the African countries in the
next round of World Trade Organization (WTO) negotiations.
The WTO Director General, Pascal Lammy, announced on February
3 that Uganda was selected because of political and economic
stability and its open policy on trade policy. Uganda will
be responsible for organizing all African positions in the
WTO and seeking consensus between African members and the
WTO for the next round of talks. The talks are likely to
focus on removal of domestic farm subsidies and export
subsidies by developed countries as well as increased access
to their markets for developing countries.

-------------------------------
Business Development/Investment
-------------------------------

4. The Gates Foundation has awarded USD 15.4 million to
Opportunity International to establish commercial microfinance
banks in Africa. The five-year program in the Democratic
Republic of Congo, Kenya, Rwanda, and Uganda will also expand
on existing operations in Ghana. The Opportunity bank in
Uganda hopes to open before the end of 2007.

---------------------
Energy/Infrastructure
---------------------

5. The Ministry of Energy, Daudi Migereko, has announced a
tender to develop 48 small hydropower projects around Uganda
to improve rural electrification. Some sites already have
adequate feasibility studies completed and are available for
competitive bidding. Hydropower plants with a capacity below
10 megawatts can be owned by investors in perpetuity.
The Ministry will work with investors to develop a Purchasing
Power Agreement and the necessary licenses after water permits
and environmental assessment studies have been completed.
Less than 8 percent of Uganda is on the national grid.
The poor quality of transmission lines causes a significant
amount of power to be lost. Power bleeds off from lines that
are too small. Also lines are frequently vandalized by
thieves stealing cable for resale. Uganda is seeking to develop
smaller regional power generation projects (hydro and thermal
generators) that would support the surrounding community.

6. In an effort to reduce power demand in peak hours, the
Ministry of Energy is distributing 800,000 free energy efficient
bulbs. The ministry hopes the move will save 30 megawatts of
power. According to State Minister for Energy, Simon D'Ujanga,
the power distribution entity Umeme will be responsible for
allocating the bulbs. Umeme will trade its customers three of
the energy efficient bulbs for three of their regular
incandescent bulbs. The incandescent bulbs will then be destroyed.
In addition, the GOU removed a 25 percent import duty and an

KAMPALA 00000317 002.2 OF 002


18 percent value added tax on energy saving bulbs of 20 watts
and below. The GOU anticipates lower priced energy efficient
bulbs will increase their use by consumers.

7. The International Monetary Fund has released a 2007 report
taking stock of the Ugandan economy. The report stated that
Uganda's roads, railroads and other infrastructure are "among
the worst in Africa" and were insufficient to support future
economic growth. The report also states that Uganda needs to
strengthen its policies to combat corruption as well the
"government's willingness to take on difficult (corruption) cases."

8. Tower Resources, based in the U.K., has secured a license
to explore for oil just north of the parcels that yielded oil
discoveries for Tullow Oil (U.K.) on the shores of Lake Albert.
Tower recently merged with Neptune Petroleum (U.K.), which holds
several licenses for oil exploration in Uganda, but has yet to
make a discovery. Tower also owns two exploration projects in
Namibia and hopes to begin drilling in Uganda in 2008.

--------------------------------------------- ----------
Anti-Corruption/Intellectual Rights Property Protection
--------------------------------------------- ----------

9. The Ugandan Cabinet has approved a new draft legislation
which would provide whistleblower protection to individuals
who report instances of fraud and corruption. The legislation
still has to be approved by the Parliament to become law.
Uganda will also need to take steps to ensure the law is
implemented.

10. The Millennium Challenge Corporation (MCC) has approved
funding for a GOU program to fight corruption. The USD 10.4
million Threshold Country Program (TCP) will provide technical
assistance, training, and equipment to GOU anti-corruption
agencies and civil society organizations over two years.
The United States Agency for International Development will
oversee implementation of Uganda's Threshold Program on
behalf of the MCC.
BROWNING

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