A scandal in the Ugandan coffee sector reached boiling point when earlier this year a contract referred to as The Coffee Agreement was thankfully prevented by a group of honest politicians who saw through the scheme designed to enrich a few at the expense of the industry. The contract in question was between the Uganda government and an Italian private investment company Uganda Vinci Coffee Company Ltd. (UVCC)
The agreement was widely seen as detrimental to the domestic coffee industry (more on that later) and came on the heels of the country’s departure from the ICO with what some, including us here at Bartalks, considered suspiciously coincidental timing.
When Uganda left the ICO in January 2022, it elicited a combination of confusion and frustration, not only at the International level, but also among their own farming community.
Coffee is an important commodity for Uganda as Africa’s second largest exporter by value, they realised revenues circa $515m in foreign currency in 2020 and US $719 Mn in 2021. The sector employs over 1.7m farmers, the majority of which are smallholder farmers. In 2021, Uganda produced 406,000 tons of coffee.
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Shortly after they announced they were leaving the ICO, The Uganda Coffee Development Authority (UCDA) issued a statement listing their issues with the membership, for which the ICO issued a response refuting each point, remarking that Uganda never engaged on the issues which they now raised as so important.
Now, following this, the contentious Coffee Agreement was signed in February between the mysterious organisation called UVCC and the Ugandan government, a month after the country announced their departure from the ICO.
Perversely, the economic reasons given by the UCDA for leaving the ICO would likely have been worsened under this contract, initiated and driven by Uganda themselves.
We need to define who an investor is in this country. Somebody comes here with nothing, we give you land, water, tax holidays, free electricity, contingency liability to go and borrow. Is Uganda the investor or those people?
Hon. Muwanga Kivumbi
The statement issued by the UCDA in January included a reference to “ICO indicator prices which are used by coffee buyers as a benchmark yet their computation may not have sound statistical basis, thereby disadvantaging especially Robusta coffee producers.”
Yet under the Coffee Agreement with UVCC, the private company, with no successful track record, will have rights of first refusal over purchasing of coffee produced in the country, effectively giving them pricing control over the industry, a potentially massive source of profit at the expense of the coffee farmer. Bartalks has seen reports that reference the best coffee from Uganda (Screen 18) which has been fetching close to USD $3 per kg, and it was believed that UVCC would pay only USD $1 per kg.
Highlights of the Deal
- The investor (UVCC) was to design, finance, build, operate and maintain a 60,000 ton per year coffee processing facility with an intial capacity of 27,000 tons and to create 246 jobs.
- In return, UVCC would attract a number of incentives from the government.
- Priority to buy all coffee produced in Uganda; not monopoly as such but has first call.
- Awarded 25 acres of land in Namanve industrial park with a 49 year lease starting 2018.
- Exemption from all taxes (include but not limited to import duty, VAT, income tax, Pay As You Earn, Excise duty, corporate tax, stump duty, local service tax)
- Exempted from work permit fees
- Exempted from corporate income tax for 10 years.
- No remitting NSSF contributions.
- Waivers on power tariffs (price should not exceed USD 5 cents per unit for 10 years) and constant water supply (at least 50-80 cu.mt/hr – 24 hours daily).
- Government will construct an access road linking the factory to the main road.
- Government to connect the facility to the power grid.
However, no investment by UVCC has been made to date, while the Ugandan government has been actively building the infrastructure to support the facility. Parliament noted that as the contract stands, UVCC could take advantage of the infrastructure for other purposes now the coffee contract has failed to pass, and have called on further investment around the facility to cease.
Other Concerns Exist
- The agreement has generated public condemnation; especially from coffee producers and processors under the Uganda Coffee Federation since it violates competition within the coffee industry.
- The role of coffee regular -Uganda Coffee Development Authority (UCDA) – is not clear and was not consulted. Though the Authority’s E.D supports the agreement.
- The Ministry of Agriculture, Animal Industry and Fisheries was also not consulted.
- While most of the tax exemptions are within Uganda’s tax laws, the manner (lack of transparency) in which they are given is concerning. The Government developed and approved a Governance of Tax Expenditure framework (with DP support), but it hasn’t been implemented. The MoF has some confusion regarding the approval process for the Governance of Tax Expenditure framework. A unit in the Ministry is needed to handle this, but one has not been set up.
- Ms. Pinetti, the Chair of UVCC has been involved in a number of dubious deals including the construction of an international hospital in Lubowa, where the government guaranteed $379 million, yet the project has been viewed as a failure.
You might be forgiven for thinking the country’s coffee regulator, the UCDA would come to bat for the coffee farmer, but Emmanuel Iyamulemye, executive director of the UCDA, told the parliamentary trade committee looking into the agreement that it did not contravene the Coffee Act or any other law of the country.
Parliament Prevented the Act
Parliament came together by unanimously calling for the abrogation of the agreement between the Uganda Vinci Coffee Company Limited (UVCCL) and the government which, they say, would have resulted in the company having a monopoly on the coffee sector.
Parliament unanimously called for the termination of the agreement between Uganda Vinci Coffee Company Limited (UVCCL) and the Government, which sought to grant the company monopoly over the coffee sector.
The report by the Committee on Trade, Tourism and Industry on the terms of the agreement between the government and UVCC identified the substance of the contract to be unfair.
Additionally, the committee’s chairperson, Hon. Mwine Mpaka said, during the plenary on 18 May 2022, that the agreement was illegal as it contravened the Constitution and other tax laws.
“Article 8(a) of the Constitution was infringed upon by the agreement when the execution of the agreement was concluded without the input of coffee farmers who are the owners of coffee beans which are being granted to UVCCL by the agreement,”
Subsequently, some ministers distanced themselves from the deal, although others are persevering, under motives that can only be speculated.
Hon. Abed Bwanika (NUP, Kimaanya-Kabonera Division) who was the chief petitioner against the agreement made his point forcefully.
How can government give an individual company to determine the price of coffee and export it against the will of Ugandans. Coffee is a heritage for the people of Uganda. It is God given, a strategic commodity and at the centre of the country even before independence.
Hon. Abed Bwanika (NUP, Kimaanya-Kabonera Division)
It’s not hard to guess why such an obscenely favourable deal was ever considered, but of all those who should have been most opposed, Dr. Emmanuel Iyamulemye Niyibigira, Managing Director of the UCDA instead seems to have endorsed the deal. This must be very worrying for the millions of people working in the industry, who rightly fear the enrichment of a few will be paid for on the backs of their labour.
photo source: Budiey | Flickr
