The contract between the mysterious Italian businesswoman, Enrica Pinetti’s Uganda Vinci Coffee Company Limited (UVCC) and the government of Uganda was thought to be dead just a few weeks ago after the Sectoral Committee on Trade, Tourism, and Industry in Parliament unanimously voted for its termination, saying that it contravened the Constitution and other tax laws.
Now, however, the Attorney General, Kiryowa Kiwanuka, has come to its defence saying it has broken no laws.
I have been informed by my lawyers in the Attorney General’s Chambers that legal due diligence was conducted prior to clearance of the deed and it was determined that the company was validly existing, incorporated under the laws of Uganda, had its returns up to date and the parties to the Agreement were authorized and had the capacity to execute the agreement on behalf of the parties’Kiryowa Kiwanuka, Attorney General
The suspiciously favourable coffee contract awarded to UVCC in 2015 saw the Uganda government supply the land, and pay for the building of infrastructure to support the development of a coffee processing plant, funded by UVCC.
In addition to having the taxpayer cover a large part of the start-up costs with the provision of land, road infrastructure and utilities, the Uganda government used laws designed to attract foreign investment to throw everything it could into the deal. Government officials tirelessly identified every possible tax the company might need to pay, and diligently wrote them off to clear a path for the deal. No import duties, for example, nor VAT. Excise duties were scrapped, as was stamp duty, and UVCC needn’t worry about inconvenient Corporation tax, because that was swept aside as well.
While the benefits to UVCC stack up, what the company will provide to Uganda is less clear.
In fact, eliminating cost obligations to the state was only part of the offer the government made to the company. The contract also ensured UVCC has priority over purchasing Uganda coffee. The wording around this has been debated, and it’s unclear if this means, as was originally interpreted, that farmers would be obliged to offer their crop to UVCC for the right of first refusal, or as officials now claim, it meant something else. The ‘something’ has yet to be defined.
It seems to me, on the face of what we know, that the intention was to give UVCC purchasing power in the market which would allow them to influence or even set, prices for farmers. This could have been devastating for many, especially those who were producing higher quality coffee, who may have been forced to accept a lower price than they could otherwise get on free export market.
The Attorney General Says It’s Legal, but Does That Mean It’s a Good Deal for Uganda?
Kiryowa Kiwanuka, said that all the conditions were offered legally under the Investment Code Act of 2019. The trouble is that this Act gives a lot of flexibility to the Authority awarding the grants. I read PwC’s summary evaluation of the Act which you can find here.
Investment Code Act 2019
Powers of the Minister to set the minimum investment capital
Section 15 of the Act gives the Minister of Finance powers to issue a statutory instrument to determine the minimum investment capital proposed for both domestic and foreign investors in order to qualify for issue of an investment license. This means that the Minister can vary the minimum investment capital for investors by issuing a statutory instrument (emphasis mine)
Minimum Investment to Qualify
The Act requires the Authority to set a minimum investment capital for the investment required in any other Acts of Parliament. Was this amount set? I cannot find the details of the conditions attached to the awarding of the investment certificate.
Requirements to Make an Application
- A certificate of registration of the business;
- A business plan which must include: the name of the investment and detailed information on the type of investment; the action plan; the date of commencement of operations; detailed information on raw materials sourced in the country or in the locality where the investment is to operate; detailed information on any financing and assets to be sourced from outside Uganda, including the timeframe in which these finances and assets shall be invested; land requirement for the investment; the location of the investment; utilities required for the investment; a market survey; details of the projected technology and knowledge transfer;
- An environmental impact assessment certificate issued in accordance with the relevant laws;
- The projected number of employees; and
- A license granted by the business sector in which the investor intends to operate.
What The President of Uganda Says about the Deal
Presidnet Yoweveri Museveni has come out in Pinetti’s defence. “She knew nothing about coffee. For her, she was in her hospitals. Therefore, those attacking her are supporting the perpetual bleeding of Africa. I am ready to sit down with all these coffee people. If you want to add value, I will support you. If you want to be a slave, I will not support you. Instead of attacking the saviour, if you are genuine, join the liberation effort. Now, you have seen the ‘Kibalo’ (sic) mathematics.”
Except we haven’t seen the mathematics, the business plan, or the requirements for all the incentives awarded. Perhaps if those could be forthcoming, it would explain why the Ugandan government is so keen to do a deal that on the face of it, makes no sense.
The use of emotive language to persuade the public is political trickery. When the President says “anyone who doesn’t like this deal is supporting slavery”, it weakens Uganda by implying they have no control over their own destiny. Are they truly in a fight against colonial imperialism? In which case, why are they giving the contract to a western company and undermining their own domestic production, run by Ugandans?
Museveni justifies the deal by saying that Pinetti has a wide network of contacts. In that case, her role surely should be in doing distribution deals? The Investment Act 2019 caters for domestic investors, so why not approach an existing working processing plant, offer them the tax incentives, and offer Pinetti incentives to find export partners if that’s her skill.
Museveni admits that Pinetti has no knowledge of coffee, and the Hospital she is supposedly building has yet to even have the foundations laid. It is hard to believe that the coffee farmers themselves are pleased with the deal that their representative government officials are doing without, it appears, significant industry representation or a credible consultation process. The case is set to be heard on 18 August, 2022.
Longer-term, if coffee farming becomes less profitable because of the short-term interests of a few, then production will drop as farmers switch to other crops, or leave the industry. That would be a blow to the Ugandan economy, and I wonder, who will the government blame then.