UIA, CDO team up to boost import substitution in cotton sector

Uganda Investment Authority (UIA) has started engaging stakeholders in the cotton, textiles and apparel (CTA) sector to boost import substitution through industrial vertical integration and policy interventions.

Paul Kyalimpa, the UIA deputy director-general, said the authority is committed to working with players in the cotton industry to promote private sector investment and strengthen its competitive and comparative edge in the regional/global markets.

COTTON INDUSTRY

Kyalimpa was speaking during a virtual meeting of key cotton industry players recently.

He said UIA wants to ensure increased investments in the cotton industry value chain.

UIA indicated that it is building common ground among players in the cotton sector in order to find best strategies of reducing the import of CTA products and increasing exports.

WHAT STAKEHOLDER SAY

According to one of the players, Richard Nsubuga from Southern Range Nyanza, this is in line with the aims of the Presidential Investor Roundtable (PIRT), an investment policy platform, for which UIA is the secretariat.

Nsubuga said the cotton industry has the potential of generating over US$1b from value-addition in the cotton lint and cotton seed products.

“With 250,000 cotton-producing households, Uganda, on average, produces up to 250,000 bales of cotton lint annually. While cotton seeds constitute two-thirds of cotton production,” Nsubuga explained.

“In terms of domestic value addition, Uganda has two vertically integrated cotton industries namely; Southern Range Nyanza Ltd (formerly Nytil) and Fine Spinners Ltd,” he added.

Ninety percent of the cotton lint is exported, fetching the country about $30m. Both vertically integrated industries consume just 10% of the cotton lint, generating a turnover of US$50m annually, almost double what Uganda earns in the export of raw cotton.

According to Nsubuga, with the two vertically integrated cotton industries having an annual turnover of US$50m, the entry of more industries in the cotton lint side of the industry alone would bring in US$500m per annum. Add investments in the cotton seed side, the total value would be over US$1b.

He further stated that on the import side, Uganda’s spends US$230m annually importing, textiles and apparel, including used clothing. This is mainly on account of the cheaper cost of importation compared to local production.

Although the Government has increased import tariffs on textiles and apparel from 10%-15%, it has had no direct effect on importation.

The cotton industry in the East African Community is hinged on 950,000 households.

According to Nsubuga, Uganda’s cotton industry has a ready market, first internally with over 40 million people, and in the region, emphasising that the country does not need to look far for the ready market for its cotton products.

“The US$230m Uganda spends on importation of yarn, textiles and apparels is adequate to power the local cotton industry,” he explained.

Nsubuga said as long as domestic manufacturers face stiff competition from importers, it would be hard for new players to come in.

Nsubuga also said a single policy intervention, such as having the domestic cotton industries supply at least two pairs of uniforms to twelve million school-going children, each uniform being three metres, would translate into 72 million metres, enough demand that would propel the two industries to double their production capacity.

Jolly Sabune, managing director of the Cotton Development Organisation, said the sector is tilted towards the lint side, yet there are equally great investement opportunities on the seed side.

“Value-addition in cotton seeds would translate into products such as animal feeds, cooking oil, husks for mushroom growing and soaps, among others. The meeting resolved to push for greater involvement of Uganda Development Corporation in the cotton sector, as well as cheaper funding for the sector through Uganda Development Corporation.

Other policy interventions that the stakeholders want are in the areas of production and productivity, indicative pricing, further reduction in power tariffs from the current $5 cent, more funding for research and development, access to local and regional markets and extension services.

The stakeholders have also agreed that as the capacity of domestic cotton industries is strengthened, efforts should be made to increase access to the regional markets, particularly DR Congo and South Sudan.