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Opinion | British Airways exit and drying symptom of worsening inflows – Karoli vs British Envoy

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Posted October 20, 2015 by Ugandan Diaspora News Team in Business ~ 4,076 views

     

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Daily Monitor — The world’s largest airline operator owners of British Airways announced their exit from Uganda effective October 3, after a 24-year run operating flights from Entebbe.

This is not a vote of confidence in the economy. The fact that BA exited at a time of foreign exchange turbulence in the region is evidence that this turbulence is having an impact on the economic situation in the country.

In the last two years, BA has been limping on through heavily discounted fares to match the drop in flights uptake. After the BA announcement, a few thoughtful articles picked up a number of important figures.

First was the generally abysmal volume of trade between Uganda and the United Kingdom. Exports to the UK have not really grown to more than $ 90 million or a paltry $ 7.5 million a month in the Europe’s second largest economy. Cargo is an important revenue source for airlines.

Exporters to the EU generally have not been doing well. The financial distress in several sectors; vegetables, fish, cut-flowers, ethnic food have raised flags on Uganda’s export promotion efforts. -Non performing loans have pushed many players out of the market.

One of the major banks now indirectly owns most of the cut flower operations in Uganda. The dairy market just went through a shift in ownership of the largest milk processor in Uganda, the former Dairy Corporation.

This economic uncertainty is not good for the agricultural sector. Wages in the agricultural sector have not picked up because production is concentrated on low value bulk production of important commodity crops like coffee and tea.

The story in cotton or cash intensive operations like tea is not cause for much celebration either. The only people making money in agriculture are those selling inputs through the government. Processors, exporters save for those in high value high margin outputs are hurting.

The deteriorating exchange rate means higher unit costs and uncompetitive prices. The conventional wisdom that a weaker exchange rate promotes exports is a fallacy whose time passed a long time ago as most industries in Uganda have a high imported component in their finished products.
At the current rates, BOU is on track to sell more than Shs2.5 trillion in the short term debt market this financial year. There is more concern that this debt is paying for recurrent expenditure.

Collapse in the exchange rate has brought inflationary pressures to bear increasing wage unrest. Fixing the aviation problem where cargo exporters face very high costs to access markets is one thing.

Second the wisdom of continuing business without a major national air operator starts to sound dubious. Landlocked countries compete on efficient industry and excellent aviation.

The current policy of relying on Kenya Airways which has a domestic market of its own to take care of is not sustainable.

The current situation is straining the entire economy. On the heels of BA, Shoprite has quickly followed. Uchumi, Tuskys have shrunk operations all testifying to falling purchase power.

We have already seen banks report anemic results. The big five reported a rise, but the rest of the players were grasping for fresh air. Some of these banks have run abroad for new money. Orient Bank, Equity Bank have all recapitalised.

In a competitive market, departure of one airline may seem like a minor event, but the reality is that loss of a direct air-link is a major blow.

In government today, there are always two sets of data, data for public consumption, which often competes with reality. The collapse of the exchange rate is a good example of what happens when the real news overtakes the private picture.

BA’s very modest figures must be a cause of alarm for the tourist industry. Tourism has been drumming up a rosy picture even as hotel rooms remain mostly empty.

Chogm hotels built in a rush are crumbling, reasons we should stop banking on PR as a tool to run an economy.
Mr Ssemogerere is an Attorney-at-Law and an Advocate. kssemoge@gmail.com

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In his article titled “British Airways exit and drying symptom of worsening inflows” in Daily Monitor of August 6, Mr Karoli Ssemogerere makes a number of interesting points about the business environment in Uganda. But I would like to challenge his assertion that the decision of British Airways to suspend its London-Entebbe route reflects a lack of UK business confidence in the market.

The recent entry of two prominent UK multinationals, Prudential and Vodafone, testify to the growing interest from British business. UK companies are also at the forefront of a number of other important sectors in Uganda, including oil. The UK government has classed Uganda’s (and East Africa’s) oil sector as one of the top 20 major projects globally as part of the High Value Opportunity (HVO) programme.

The UK remains the largest cumulative investor in Uganda. Our companies have an international reputation for providing quality goods and services and offering long term value for money. British companies are leaders in the field of corporate responsibility, with the highest standards of probity and professionalism. The UK government’s export credit agency has broadened its range of products to ensure UK companies remain competitive and respond to increasing development and infrastructure needs in countries such as Uganda . The current annual country cover for Uganda is £100m and a number of major projects are currently under consideration.

But we are not resting on our laurels. The British High Commission is working hard with the Ugandan government and business communities in both countries to promote two way trade. We organise regular trade missions and facilitate investment fora to promote business opportunities. The UK is also providing technical support to key ministries and is funding a number of pro-business initiatives such as the provision of credit to local SMEs and, through Trademark East Africa, trade facilitation activities such as customs reform and one-stop border posts.

The UK is also a major contributor to EU, World Bank and UN programmes and one of the largest contributors to the WTO Aid for Trade Fund, to which the UK provides £1.5bn per annum. The UK is firmly committed to expanding its trade relationship with Uganda in the coming years, and we are working closely with our Ugandan partners to achieve this.
British High Commissioner to Uganda,
H.E. Alison Blackburne

Source — This articles first appeared in Uganda’s leading independent Daily – The Monitor.


About the Author

Ugandan Diaspora News Team

Ugandan Diaspora News Online is an independent, non political news portal primarily aimed at serving Ugandans who work and reside outside Uganda. Our aim is to be a one stop shop for everything Ugandan and the celebration of our Ugandan heritage.

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