Partnership between Uganda Manufacturers Association and the Yield Uganda Investment Fund Uganda delivers US$ 2.5 Million investment in Uganda’s pioneer Cassava Processing Facility.

 

Partnership between Uganda Manufacturers Association and the Yield Uganda Investment Fund Uganda delivers US$ 2.5 Million investment in Uganda’s pioneer Cassava Processing Facility.

With limited access to affordable and long-term credit continuing to hinder greenfield investments in agro-processing in Uganda, collaboration among the agro-processing ecosystem players is key to unlocking new funding mechanisms.

This is even more important as the Uganda Manufacturers Association (UMA) reports an up to 60% reduction in production by her members occasioned by the COVID-19 pandemic with a need to focus on initiatives that fast-track recovery.

The Yield Uganda Investment Fund (Yield Fund), managed by Pearl Capital Partners (PCP) provides one such avenue for access to credit for companies in the agro-processing value chain, struggling from the devastating effects of the pandemic having an opportunity to access affordable and innovative financial products to enable them to build back better. 

This week saw the conclusion of months of behind-the-scenes work involving UMA, PCP, and Pura Organic Agro Tech Ltd that resulted in the approval of an investment worth US$ 2.5 Million in Pura Organic Agro Tech Ltd, an agro-processing company focused on the cassava value chain; structured in both straight equity and patient debt investment. This investment, the eighth by the Yield Fund into the Uganda agriculture sector, marks the first substantial value addition investment into the cassava value chain in Uganda and presents a great opportunity for the development of a myriad of products for both the domestic and export markets. To put this into perspective, the global cassava starch market size was valued at USD 40.53 Billion in 2018 and is projected to reach USD 66.84 Billion by 2026, exhibiting a CAGR of 6.50% during the forecast period and Uganda now stands poised to play a key role in this market.

Welcoming the new investment, Mr. Daniel Birungi, the Executive Director of UMA, applauded the efficiency of the Yield Fund’s internal processes that have seen the investment approved in only three months from initial introduction and noted that this was a step in the right direction to foster sustainable agro-industrialisation through supporting companies in the agri-business sub-sector. “Working with the Pearl Capital Partners, we intend to hand-walk more of our members towards affordable and patient financing options as we have done in this case. The COVID-19 pandemic has made the need for such a service even more urgent and we are keen to build on this success.” He added.

Mr. Wanjohi Ndagu, the Partner at Pearl Capital Partners also expressed his confidence that this investment in Pura would not only be a success to the Fund but also a great contributor to Uganda’s socio-economic transformation. “We are honoured to work with Pura to boost cassava value addition and achieve Uganda’s import substitution industrialization strategy.

Mr. Ramesh Babu, the proprietor of Pura said that the investment by Yield Fund was a timely relief for Pura which will support the company to establish this cassava processing unit, which is a valuable addition to the farmers. “Pura will buy cassava from out-growers and support them to get value for their produce. Also, the farmers will get cassava cuttings from Pura’s farm or supply the cuttings from out-growers who intend to produce cassava roots since they have a buy-back confirmation.

European Union Ambassador to Uganda, H.E Attilio Pacifici said the investment is part of a broad partnership between Uganda and the EU to promote sustainable investments especially in the agriculture sector. “This long-standing partnership has been bringing concrete results over the years and this investment is one of them. One of the key objectives of this intervention is to support the agro-industrialisation of the country while ensuring the full engagement of smallholder farmers and promoting food quality and security,” he said.

Lakshmi Moola, the IFAD Country Director for Uganda added “Pura’s addition to Yield Fund’s portfolio enhances the diversity of the Fund, as the company focuses on a staple, food secure and nutritious crop – cassava. The domino effect of this investment for rural smallholders will be tremendous and through the BDS facility, IFAD will support Pura in achieving a smallholder inclusive business model.

 

The Yield Fund is an innovative social impact investment fund targeting the missing middle in the investment space - agricultural small and medium sized enterprises (SMEs) and producer groups in Uganda. It offers patient, risk capital products, such as equity, quasi-equity and debt funding and its partners include: the European Union (EU), through the International Fund for Agricultural Development (IFAD) and the National Social Security Fund (NSSF), with follow-on investments from the Open Society Foundation (OSF) and FCA Investments  in June 2019.

The Yield Fund also has a Business Development Support (BDS) matching grant facility provided by the EU and managed by IFAD to support the investee company’s operations and technical needs. Learn more

For further information on Yield Fund Uganda, contact Mr. Wanjohi Ndagu, Partner; Tel:+254 727 405 984, +256 393 264 983/4. Email: or visit: www.pearlcapital.net

  


 

UMA calls for immediate rescission of the Excise duty imposed on plastic granules

 

Uganda Manufacturers Association (UMA), through a letter to the Ministry of Finance, Planning and Economic Development, has called for immediate recission of the Excise Duty of 2.5% of $70 whichever is higher that was imposed on the plastic granules. “With the benefit of understudying the rest of Africa on the treatment of the same materials, Uganda should rescind part 1 of Schedule 2, Section (e), of the Excise Duty (Amendment) Act, 2021 that substitutes item 11 by imposed Excise Duty on plastic products and plastic granules at a rate of 2.5% or $70 per ton whichever is higher” it read in part.

According to UMA, the plastic granules are still vital to support production in the plastics sub - sector in Uganda, the recension should be effective from the 1st July, 2021 and to ensure that there are no stock-out situations for in-puts.

The UMA expressed their disappointment with the tax levy that was imposed on raw materials used by the plastics sub-sector, yet these are cannot be sourced locally. According to UMA, this will have “far-reaching consequences capable of eluding the gains so far attained in the sector, giving advantage to the importers and foreign competition as illustrated below;

 

  1. Distortion of the existing inter industry dependency and supply chain. The plastic subsector meets plastic packaging need of over 13,000 production units in services, manufacturing, construction and agriculture directly. This is supply of up to 70% of the entire economy especially the SMEs, who have over 95% of their packaging material being plastic. Any tax increment will mean a rise in the cost of packaging and ultimately a rise in prices of the final product. With the ever-declining disposable income and purchasing power, aggravated by the numerous lock downs and measures put forth to mitigate the spread of the covid-19 pandemic, a tax measure such as this only works to reduce our competitiveness.

 

  1. Distortion of the export promotion and import substitution efforts. A charge of 2.5% or $70 on the cost on raw material, coupled with the 15% or $3,500 cost of freight from Mombasa to factory would mean that Ugandan manufactured products using plastic packaging or plastic components will become 5% - 7% more expensive than their regional competitors both locally and in the export markets. This will start the destructive chain to destroy manufacturing in the Country, while eluding the benefits that would accrue to export earnings from manufactured products.

 

  1. Decline in consumer welfare. Plastic is a major household item among the mainstream Ugandan populace especially the low earning majority. Everything made of plastics and everything packaged in plastic containers made in Uganda will become 5% - 7% more expensive to the final consumers in Uganda. This will therefore serve to overburden an already struggling populace.

 

  1. Double taxation. The user of plastic packaging in the beverage sector already has excise duty on bottled drinks, an excise extended to them through price on packaging materials would be compounded excise while prices cannot be raised on the final product. Therefore, this only works to escalate the already dire position they are experiencing which affects their competitiveness against imported beverages.

 

  1. Burden on government parastatals. The UMEME, National water and sewerage corporation, the Ministry of water and environment as well as projects that promote water and sanitation, access to clean water and power extension will be adversely affected by the hike in cost which will be shifted onto the government.

 

  1. Effects on covid-19 treatment. The cost of PPEs and related items has been identified as a cost pusher on the efforts to manage the pandemic. PPEs are largely plastic materials which require granules for their production. An attempt to increase cost to such will be undermining government efforts to reduce the cost of covid treatment.

 

  1. Threat to regional integration. The policy would most likely cause retaliation from the EAC region against Ugandan products as URA would not have the capacity to segregate imported plastics and packaged items in plastic containers made from recycled plastics from other made from granules which the policy targets. URA to this moment has not demonstrated ability to track all the finished products packaged in plastic containers imported into the country mentioned in the nomenclature of plastics and those made from recycled plastics entering the country and thereby be able to make the assessments in a fair and levelled manner in line with good tax administration practice.

 

  1. Disastrous signals to investment in Plastic production. UMA also seeks to inform you, that one of the biggest challenges faced in the investment climate (especially since unemployment is considered a national security problem currently) is the intermittent policy reversals which scares away potential investor in the industrial sector. Since manufacturing is usually considered a long-term investment sector, mid – term policy changes affect planning and has adverse effects on cashflows and production.

 

  1. Uptake of recycled material. There are many Plastics Recycling companies in Uganda, whilst a number of plastic producers also have parallel recycling plants alongside their main plants. The current uptake of recycled material stands at 150,000 MT annually. This notwithstanding, quite a number of items especially for food grade and medical plastics cannot be produced from recycled plastic materials, needing the use of virgin granules. There is a system already under which 12,000 MT per month is purchased from recyclers for use in some non-food plastic items (flower pots, basins, etc).

 

  1. Regional precedence. Much as there is a regional policy on waste management and reduction in production and use of plastic carrier bags, there has not been any move that seeks to blanketly impose tax on raw material for production of plastics; instead, incentives have been offered to promote reuse and recycling as the case is for Kenya and Rwanda. UMA and the plastic companies are looking at alternatives to support the efforts of collection and ask for incentives for recycle companies and pledge to promote joint sensitisation on plastic disposal as well as collection centres.

 

 


Uganda Manufacturers Association (UMA) in partnership with the Capital Markets Authority organized a Business Networking Event, held on 25th March 2021 under the theme; Financing Options for Manufacturing starting in the UMA Multipurpose Hall.

Financing Options for Manufacturing was premised on the need to avail alternative sources of finance to industrialists who have suffered from devastating shocks occasioned by the restrictions imposed to curtail the spread of the novel coronavirus.

This event was an activation of the MOU that was signed between the Uganda Manufacturers Association (UMA) and the Capital Markets Authority (CMA) on the 17th February 2021.

The aim of the MoU, among others is to create awareness through education; clinics for our members to walk them through the processes required to access financing through the capital markets; to have discussions with the Ministry of Finance around the statutory hindrances to accessing financing such as withholding on local capital and related taxes; if removed could enable manufacturers to access more financing.

The Chief Guest, Hon. Matia Kasaija, the Minister of Finance, Planning and Economic Development thanked the CMA and UMA for organizing the luncheon that aimed at among other objectives, reach out to UMA members; educate them on alternative non-bank financing sources such as private equity, private debt, public equity, and public debt.

The Minister, in his speech, recognized the importance of the manufacturing sector which is also underscored in Vision 2040 to facilitate an export-led and internationally competitive economy, which can spur growth and provide employment opportunities to Ugandans. 

Barbara Mulwana, the UMA chairman, in her speech, thanked the CMA for their awareness of long-term non-bank financing options which is ideal for family businesses that are set up for long-term generational wealth.

The UMA Chairman also called upon Government to halt the heavy taxes imposed on the manufacturers who are faced with a slowdown in business due to the Covid-19 pandemic. She also called upon The Minister of Finance to allocate more resources to the CMA to educate more traders to join manufacturing to widen the import substitution drive.

Daniel Birungi, the Executive Director of UMA called upon the Government to resolve market access challenges faced by Uganda's manufacturers when accessing Kenya and Rwanda. He noted that mobilizing capital for production is a waste in absence of a market for these products.

Capital Markets Authority’s CEO, Keith Kalyegira said that his Authority is cognizant of the fact that most businesses in Uganda are family-owned and are hesitant to bring on outsiders in their businesses. He added that the UMA business networking event offered a platform to address some of the fears and challenges faced by business owners to increase their uptake of non-bank financing or market-based financing options while retaining control of their businesses.

The event hosted five (5) panelists who engaged in an informative discussion around;

  1. Available Non-traditional-finance options:
  2. Preparations Ugandan companies need to take up financing under the capital markets
  3. Funding for startups / small businesses under the Capital Markets
  4. Challenges faced when dealing with Ugandan firms:
  5. The requirements to take on financing under the capital markets
  6. Valuations, mergers, and acquisitions to grow your businesses
  7. Examples of businesses that have benefited from Financing Options under the Capital Markets;

Available Non-traditional-finance options

Available Non-traditional-finance options by Ms. Gladys Makumi – Deloitte.

Private equity investors: These come as financial investors but with the addon of working with the businesses to improve their efficiency and profitability and work for 5 to 7 years. Some of the private equity funders provide some kind of debt and technical assistance where required and they also try to work with the company around strategy; enhance their personnel, systems, and route to market.

Mezzanine financers: This is usually used as a stop-gap measure especially where a business does not want to cede control of its ownership in the business. This is ideal for family businesses that do not want to give up any form of shareholding to third parties within their businesses.

They provide some form of funding that is debt-like in nature where it will have a certain interest rate but usually structured around a bullet structure where you may pay it back after the term of the loan. For instance; you take up the loan to either expand or make certain operations within the business and after some time and the business is stable, then you repay the loan.

Corporate Bonds: This is where a company has a good track record and has been able to raise funding through the capital markets in form of a corporate bond in the market.

 

 

 

 

Sector Statistics

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Members

UMA has over 1221 Members in all Categories
Industry Contribution To GDP21%

Power

Electricity Consumption 66%

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