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April 14, 2009

Uganda floriculture industry grows,...but worried about effects of global financial crisis

by Dorothy Tuma

Over the last several years, Uganda’s flower sector has grown at a steady annual pace of 14 per cent underscoring its increasing rank as a major nontraditional foreign exchange earner.

Last year, Uganda’s flower exports were valued at just under Shs73 billion ($35 million) and the industry employed over 6,000 direct employees, while supporting an additional 30,000.

The Uganda Flower Exporters Association (UFEA) believes that these gains as well as the other gains can be multiplied by facilitating the expansion of the amount of land devoted to flower production beyond the current 202 hectares which in turn would increase production volumes.

Flowers and flower cuttings are Uganda’s second leading non-traditional export after fish. Overall, flower exports are Uganda’s seventh most important foreign exchange earner making an annual revenue growth rate of 14 per cent.

Mr Mahmood Huuda of Mairye Estates, a 27 hectare rose farm was one of Uganda’s earliest flower sector investors. He recalls that in the early 90s, the ministry of Finance’s Export Promotion and Development Unit (EPADU) in conjunction with Kawanda Research Station and the United States Agency for International Development (USAID) conducted a series of flower trials to identify the flower varieties that would do well in Uganda and made the results available to interested investors.

This information, combined with an offer from the World Bank to fund the preparation of investor feasibility studies under its African Product Development Facility as well as the subsequent creation of an Export Refinance Scheme to provide pre-shipment financing at zero interest served to draw investors who opened flower farms in 1993.

It has not been smooth sailing for the local flower industry. The value of it’s cut flower exports ranks fourth in Africa, after Kenya, South Africa and Tanzania. Of the original 20 farms began by local investors in 1993, only six (all rose farms) are still run by the original investor. Their longevity in the business and subsequent contributions to the economy can be traced to among other things, their access to affordable funds either privately, or through the Flower Distress Fund, a soft loan facility made available by Bank of Uganda.

Of today’s 18 flower exporting firms, eight are 100 per cent foreign owned, seven are 100 per cent Ugandan owned and three are joint ventures between Ugandans and foreign investors. Three of the eight foreign owned companies are subsidiaries of Dutch multinationals.

It is noteworthy that although chrysanthemum cuttings accounted for only 15 per cent of the acreage of Uganda’s exporting flower farms in 2008, they were responsible for 40 per cent of Uganda’s earnings from flower exports.

UFEA records show current total investment in the flower sector to be just over $50 million. This is in the form of structures (e.g. buildings, greenhouses etc.), equipment (e.g. irrigation systems) and machinery on the flower farms as well as investments in the training of farm workers and management.

In addition to the above, each year, the flower sector ploughs no less than $20 million back into the economy in the form of wages, transport fees, packaging, purchasing of inputs, taxes road development and maintenance as well as improving the welfare of the workers.

The flower sector is a source of employment in the rural and semi-urban communities where the farms are located, primarily along the shores of Lake Victoria in Wakiso and Mpigi districts.
The industry employs over 6,000 people directly. Industry estimates indicate that each direct job created leads to the creation of 1.5 to 2 indirect jobs in related industries i.e. in activities and businesses that support the sector.

Examples of related businesses include Fresh Handling Services Ltd, employing over 60 workers in the provision of cold storage and handling services, as well as Balton (U) Ltd which employs over 100 people at any given time, in the construction of greenhouses, installation of irrigation systems and the supply of fertilisers.

Additional projections estimate that each directly employed individual supports five additional persons, implying that the flower sector supports over 30,000 people; a number that will increase as more hectares of flowers are planted. The majority of employees tend to be women as farm owners indicate that they have found their women employees to be much less likely to leave the farm and look for new opportunities.

The establishment of flower farms in rural and semi-urban areas has had a significant positive impact on the lives of the surrounding population. Given that the farms tend to employ more women than men however, and the tendency of women to spend their earnings on improving conditions at home as well as the welfare of their children, it can be inferred that the flower farms have contributed to improving the standard of living in the homes of their workers.

This translates into numerous benefits around the home including but not limited to improved food security, improved nutrition, lower incidence of disease and an improved sense of well-being.

Additional benefits that accrue to the communities surrounding many of the flower farms are the provision of electricity which is a requirement on the flower farms as well as the provision of improved road networks to ensure easy movement of inputs and outputs to and from the farms.

The Monitor

Roses wither as financial crisis hits Uganda flower industry

by Dorothy Nakaweesi

Flower exporters have asked the government to provide them with a guarantee fund to enable them sail through the global financial meltdown, which has seen export volumes dwindle.

The meltdown has seen many consumers tightening their spending and flowers have been scrapped off many shopping lists.

The Executive Director Uganda Flower Exporters Association (UFEA) Ms Juliet Musoke said; “The way things are moving, banks fear to lend us money because they are not sure when they will be able to recover the loans. This is why we are pleading to government, to provide a fund guarantee which will enable us to cope, as we wait for the situation to stabilise globally.”

Flower sales have dropped as demand has gone down. The UK has the biggest drop in demand for flowers, which means the prices on the flower auction went down drastically. So the return on the sales has dropped badly.
Currently the price ranges between 2-3 cents of a euro down from 4-6 cents of euro. This means those exporting, are selling below the production cost, thus making losses.

At the moment, several flower companies have halted exports because of the low prices. Some firms which had embarked on expanding their yields have put these programmes on hold.
Experts say, this situation is not only shrinking export revenue from this sector, which has been one of Uganda’s promising source of income, but also hundreds of jobs are at risk.

Last year, the sector saw export volume rise by 200 tonnes. The country earned $34 million (Shs68 billion) out of 6,799 exported tonnes up from $32 million (Shs64 billion) from the 6,559 tonnes exported the previous year.

However, Mr Musoke said; “The good price was as a result of an increase in the strength of the euro against the dollar which was then below Shs1,500”.
“The orders are gradually going done and others cancelled. There is one exporter whose buyer has been taking 1.5 million stems but this has since gone down to 500,000 stems,” Mr Musoke said.

Mr Jacques Schrier, managing director Royal Van Zaten flower firm specialised in Chrysanthums (cuttings) said; “The crisis is affecting us, because our clients in Europe are going bankrupt and our sales are going down”.
He said the company experienced their biggest loss in sales, last year in October and November, although this has since then kind of stabilised.

“We are not sure of the future now. Only last week another client in Europe went bankrupt. It looks like this year the economy in Europe will not improve, which means that in Uganda a few farms will not survive these hard times,” Mr Schrier said.
Mr Musoke adds that they want government to provide subsidies on the freight especially on the surcharge and security. Currently the firms are charged $2.44 (Shs4, 880) per kilogramme.

The investors still have hope, if government implements this request, it will not be the first time. In 2003-4, flower growers which had bank loans, pleaded with President Yoweri Museveni, to stop banks from selling off their businesses.
Following President Museveni’s intervention, the Bank of Uganda (BOU) appointed consultants from Nairobi to study the sector and make appropriate recommendations.

The consultants identified the main sector problems as: high interest rates in US Dollar currency; short repayment periods; unviable small sizes of projects.
Government set up a “Distressed flowers projects refinancing rescue fund” which would assist growers with problems to convert their loans from US Dollars to Uganda Shillings at lower interest rates starting with new and longer repayment periods plus additional loans for expansion to achieve economies of scale.

At least 8 farms were that needed to access the refinancing fund were identified.
However, this comes at the when the promised ten tax holiday that investors asked government to implement in order to attract new players in the sector, is still pending.

In 2007/8 budget speech former finance minister, Dr Ezra Suruma announced new investment incentives among which was a 10-year tax holiday to companies engaged in value added exports, withholding tax exemptions, stamp duty exemption in share capital and mortgages. The other tax is duty and tax exemption is on raw materials, plant and machinery.

In its plan, dubbed the Uganda National Floriculture Industry Strategy, UFEA embarked on a campaign to double production from present 200-hectare to at least 400 by 2010.
This was to translate into an annual export earning in excess of $50 million (Shs87.5 billion) up from about $30 million (Shs52.5 billion) recorded at the close of 2006.

Ms Musoke we anticipated that after expansion, over 10,000 jobs were to be created up the current 6,000.
The association is currently having a membership of 20 companies who export over 7,500 metric tones of roses and chrysanthemum cuttings.
However, a small light in the dark is the fact that in Ethiopia, which is one of Uganda’s biggest competitors has already had 8 farms declared bankrupt and 12 farms are under administration.

Mr Schrier said; “This means supply of roses into Europe will go down a bit and hopefully the prices on the auction will go up a bit. But this is just a speculation”.
Flower experts say, the effects of the crisis will all depend strongly on how long it’s going to take to recover in the ‘western world’. Every month added to the crisis will increase the negative effects here in Uganda.

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