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Cablegate: Uganda: Parliament Investigates Agoa Issues

VZCZCXRO3846
RR RUEHGI RUEHRN RUEHROV
DE RUEHKM #1691/01 3040842
ZNR UUUUU ZZH
R 310842Z OCT 07
FM AMEMBASSY KAMPALA
TO RUEHC/SECSTATE WASHDC 9571
INFO RUCNIAD/IGAD COLLECTIVE
RUEHXR/RWANDA COLLECTIVE

UNCLAS SECTION 01 OF 02 KAMPALA 001691

SIPDIS

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN ETRD KTDB PGOV UG
SUBJECT: UGANDA: PARLIAMENT INVESTIGATES AGOA ISSUES

REF: KAMPALA 0039

1. (SBU) SUMMARY: Parliament's Committee on Finance, Planning, and
Economic Development met October 18 to begin an inquiry into the
status of companies exporting under the Africa Growth and
Opportunity Act (AGOA) and the implications of renewing production
at Tri-Star Apparels. The inquiry comes on the heels of the Auditor
General's report that identified the failure of
government-subsidized Tri-Star exporting under AGOA. The Ugandan
Government requested that Parliament write off Tri-Star's debt and
infuse government money into another company, Phenix Logistics.
Questions about payment and tax breaks for U.S. lobbyists to promote
AGOA also are under investigation. END SUMMARY.

2. (SBU) Parliament's Committee on Finance, Planning, and Economic
Development launched an investigation into the demise of Tri-Star
Apparels, a heavily subsidized company exporting under the Africa
Growth and Opportunities Act (AGOA). Earlier in the year, Libyan
Africa Portfolio Textiles (LAP) acquired 60 percent of Tri-Star,
after the Ugandan government pumped USD 11 million into the failing
company (reftel). The influx of funds looked like a promising
short-term fix, but over the long-term the picture looks grim,
according to Hassim Wasswa, an economist at the Ugandan Export Led
Growth Strategy and AGOA Country Response Office.

3. (SBU) In a meeting with Econoff on October 30, Wasswa argued
that LAP would do little if anything for Tri-Star. He stated that
the GOU met jointly with LAP and Managing Director of Tri-Star,
Veluppillai Kananthan. Wasswa described the meetings as lackluster
and that neither party was willing to take an active stance in
reviving Tri-Star. He suggested that this might be the result of
both parties reevaluating the factors which limit profitability,
such as high transportation costs from land-locked Uganda. Wasswa
said that although the President may not continue subsidizing
Tri-Star, he wanted to pump money into the textile industry.

4. (SBU) The Parliamentary committee was specifically interested in
examining Tri-star's financing. Moreover, it will interview
Tri-Star's management, including Gerald Ssendawula, the former
Minister of Finance, Planning, and Economic Development, and other
officials from the ministries of finance, tourism, agriculture, and
internal affairs, and the Bank of Uganda (the Central Bank). The
committee established a 45-day timeframe for the investigation.

5. (SBU) The Auditor General's report released on October 16, found
that the Bank of Uganda gave out bad loans worth USD 941,000 to four
companies including Tri-Star. The GOU had guaranteed a loan of USD
5 million, with an additional guarantee of USD 7.5 million from the
Bank of Uganda. In 2003, the GOU guaranteed the company, USD 3.5
million with a USD 4 million Bank of Uganda guarantee. In September
2007, President Museveni directed USD 3 million be given to Phenix
Logistics to boost Uganda's exports to AGOA markets. Parliament's
public accounts committee wrote a letter to the Treasury Secretary
protesting the planned write-offs for Tri-Star and Phenix Logistics.
Committee Chairman, Naadala Mafabi, told a press conference that,
"officials in the Ministry of Finance should be ashamed. We are
talking about half our national budget illegally given to
individuals and now they want to write off this money. The
taxpayers' money must be recovered as a matter of urgency."

6. (SBU) Parliament also investigated another government subsidy for
Phenix Logistics, which exported USD 50,000 in organic cotton
T-shirts to the U.S. earlier this year. Mike Mukula, the National
Resistance Movement's (NRM) eastern party chairman and several
ruling party members of Parliament (MPs), reported that the
President "strong-armed" the party's MPs into approving a USD 5
million subsidy for Phenix Logistics during a ruling party caucus
meeting on September 23. Rebel parliamentarian, Henry Banyenzaki,
complained to the press.

7. (SBU) In addition, the committee is looking into the role of the
Whitaker Group, a U.S. lobby firm which the GOU granted tax-free
status on a USD 1 million per year contract. Elijah Okupa, one of
the committee members, told P/E chief on October 15 that negative
press reports about governmental tax breaks offered to the Whitaker
Group to promote AGOA were being investigated. Furthermore, the
services the Whitaker Group has provided would be examined in
relatio to its USD 1 million contract.

- - - - - - - - - -
OTHER AGOA MATTERS
- - - - - - - - - -

8. (SBU) Officials of Dunavant Cotton, a USAID implementing partner
in northern Uganda, report that an arrangement has been reached with
the Government regarding areas where competing cotton companies can
invest. The Government, which supports Boweevil, another cotton
investor, told Dunavant that Boweevil will have exclusive buying
rights in Lira District to supply cotton to Phenix Logistics.
Dunavant was told it could buy from Acholiland.

KAMPALA 00001691 002 OF 002

- - - -
COMMENT
- - - -

9. (SBU) President Museveni's commitment to AGOA is unwavering.
Parliamentarians are not anti-AGOA, but instead disagree with
government subsidies being used to prop up non-viable businesses or
support expensive lobbyists at taxpayers' expense. Parliament wants
to better understand Uganda's returns on its investment in AGOA
companies.
CHRITTON

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