Uganda has ambitions to fast-track socio-economic development especially through targeted export-oriented growth strategies to create a strong foundation for trade growth and increased economic opportunities.
According to data from the ministry of Finance, the value of agricultural commodities more than tripled between 2010 and 2021. The average annual export values were highest for coffee; fish and its products, sugar, tea, and maize respectively. However, the unit values of agriculture exports have not improved as Uganda largely exports raw materials, hence growth in export values is as a result of increased volumes.
In order to grow export earnings, it is vital that Uganda identifies valuable trading partners and grows bilateral trade relations for mutual benefit. South Africa is one such partner. During various deliberations at the recently held Uganda-South Africa Trade and Investment Summit, it became abundantly clear that the opportunity to optimize opportunities for trade in agriculture and agro-processing has significant benefits.
The key question arising is, how can Uganda improve the balance of trade and take advantage of opportunities arising from improved bilateral trade relations between the two nations?
I believe the answer lies in a strategic focus on specific agricultural commodities which would benefit from value addition to enhance global competitiveness. At Absa, we believe the opportunity to optimize opportunities for trade in agriculture and agro-processing has significant benefits.
We also believe banks have an important role to play in the growth of intra-African trade. Absa in particular has the right expertise and local insights into the South African market to offer an added advantage to companies with ambitions to grow their product reach.
Enhanced trade in coffee is one avenue that can be explored. Uganda's coffee has received global recognition and coffee production has grown significantly, becoming the country's number two export according to the Uganda Bureau of Statistics on External Trade. According to the Uganda Coffee Development Authority, approximately 1.8 million households grow coffee.
Important to note is that in recent years, Uganda has been steadily closing the gap in quality and notoriety between its coffee and other more popular coffee origins. According to the Uganda Coffee Development Authority, Ugandan coffee has been ranked third best in the world behind Ethiopia and Kenya by professional coffee tasters in a survey of the top 16 coffee-growing countries in the world.
Increased value addition to Uganda's coffee would not only increase the volumes of coffee exported, but also significantly increase earnings from those exports. By attracting foreign direct investment targeted at value addition to coffee as a key agricultural commodity and addressing overarching issues, the country would harness benefits such as inclusive growth to support growth of even small-scale farmers across the value chain, uplifting household incomes and above all improve the quality of life of the population.
Value creation can be explored through processing, increased sustainability practices i.e., for both farmers and the land and differentiation.
In addition, compliance of our exports to phytosanitary conditions set by trade partners is a key obstacle. According to the South African Department of Agriculture, Land Reform and Rural Development, all commodities must meet established phytosanitary import conditions.
It was reassuring to hear government's commitment to improve food traceability, safety and compliance to phytosanitary standards. Additionally, whilst we focus on growing trade with South Africa, it is also important to note that global demand for high quality specialty coffee is on the rise, providing a huge opportunity to us to ensure coffee exports meet the required sanitary and phytosanitary regimes in place.
Another concern raised by entrepreneurs was financing for agriculture and the perception that banks do not finance the sector. As at June 2023, data from the Bank of Uganda, agriculture takes up 20.4% of total private sector credit. From an Absa perspective, our total lending to the agriculture sector currently stands at 10% of our loan book and growing.
Lending to small scale farmers remains a challenge however we have embraced this challenge and are exploring risk sharing guarantees with different Development Finance Institutions covering both business development and credit extension to help close the gap.
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Other available options for financing include export financing, trade finance services such as letters of credit, to mention but a few. We continue to encourage our customers to utilize our expertise and financial advisory to identify financing options that they can explore.
The relationship between banks and inter-country trade is multifaceted, encompassing various financial services and instruments that facilitate the movement of goods, services, and capital across borders. This is through providing essential financial services, managing risks, facilitating payments, and offering
In a nutshell, the Uganda-South Africa Investment and Trade Summit presents a transformative moment for Uganda to steer its economic fortunes in the right direction for both Uganda and South Africa.
Uganda can leverage its abundant agricultural resources and build a resilient economy with sustainable prosperity. It is time for us as Uganda to rise to the occasion and unlock our true potential on the global stage.
The author is the managing director of Absa Bank Uganda.
