Finance PS Ggoobi defends Vinci Coffee Monopoly deal says agreement is good for Uganda

By Ramathan Ggoobi

Dear Ugandans, I am minded to make a few comments about the debate that has ensued over the agreement the Government of Uganda recently signed with an investor to produce instant coffee in Uganda.

On Wednesday, our veteran journalist Charles Obbo shared an article wondering why Ghana, a leading producer of cocoa, gets only 2% out of the $100 billion chocolate market. Check out the article

Ghana is a world leader in cocoa production. So why does it see just 2% of the $100 billion chocolate industry’s profits?

Ghana grows a million tons of cocoa a year. But trapped trading with Europe and unable to make chocolate itself, it doesn’t see the chocolate profits.

The bottom line is that cocoa farmers remain in poverty as chocolate companies make billions. The government of Ghana is exploring ways of getting the cocoa produced in Ghana to be processed into chocolate within the country in order to capture more value.

Last night, I tuned into OntheSpot on NTV Uganda, where a prominent coffee farmer, my friend Robert Kabushenga, MP Abed Bwanika and Jane S. Nalunga were hosted to chew more on the now much-discussed agreement that my Ministry signed with Vinci Uganda Coffee on February 10.

Asked what is his pain, Robert said he feared that the agreement will block him from entering pre-sale deals for coffee beans with buyers in Europe, which in turn could hurt his plan to get financing for his planned coffee processing plant.

The Government has to be sensitive to investors like Robert Kabushenga and so many others who have put their life-long savings into coffee and must listen to them. I spoke with him and my team and I will be looking to engage more with him and other stakeholders going forward.

In our conversations, we should agree that Robert is part of a very small fraction of our coffee farmers who can look to export their own coffee. And even then, he can for now only talk about exporting unprocessed beans to buyers in Europe.

The European buyers may pay Kabushenga a slightly better price than they offer our less advantaged farmers because his coffee is of better quality and he can bargain a bit more. But the bottom line is that we shall continue to export raw, low value coffee.

The question we face is simple: How do we get to export our coffee in its finest, finished form and capture a lot more value from it? It’s the same question Ghana faces with its cocoa. And we have been here for so many decades. The current global market value is $460 billion.

If we can process our coffee to fine, finished products, we can get nine times more monetary value out of it i.e. $5.4bn a year. In addition, we would get more of our people employed in the coffee chain here at home, among other advantages.

The foregoing is the simple economic theory we have regurgitated for decades. The harder part is how to get to actually process our coffee beans into instant coffee to the standards that the most choosy consumers around the world will buy.

On the NTV Uganda show referenced above, MP Bwanika wondered why the Government did not organise enterprising local coffee investors like Kabushenga to do the processing or send out an international call for investors into the sector instead of engaging Uganda Vinci.

Anyone can answer this question any way they want. But Vinci is the investor that came forward with a plan to do what the government wanted to be done. They offered to invest $80m to process coffee here, and then sell it in virgin markets in Europe and elsewhere.

The cost and risk of penetrating those virgin markets are for Vinci to shoulder. All the Government has done is to provide Vinci with a measure of incentives that are available to every strategic investor – in coffee, dairy, iron and steel, name it.

The incentives that have been availed to Vinci, just like it happens for other investors – local or foreign – are for the first 10 years. It is just to help it lay a foundation. Government has done the same to so many other businesses that have played a role in Uganda’s Development.

If we bother ourselves a bit with the question of why we provide incentives, we should remember that virtually every government in the world does the same. It can only be a matter of degree, depending on the circumstances obtaining in a given country.

After Vinci has penetrated the virgin markets and starts making profits, the incentives we are discussing will no longer be available to it, and it will pay all the taxes due to the Government. This is the plan for all investors who get incentives.

On the same show, Robert raised the issue of how we shall guarantee that the value that Vinci will create will accrue to the farmers too.

The Uganda Coffee Development Authority retains the mandate of setting prices, and Vinci shall pay a premium price.

Another important issue raised on the show is on improving the quality of our coffee, so that we can produce more premium coffee. The recent surge in the growing of coffee has gone hand-in-hand with the efforts to improve quality. And this will continue.
The Government, through Operation Wealth Creation has invested heavily in promoting coffee production through among other things providing improved seedlings, and partners like the Buganda Kingdom government have helped a lot.

The stated aim is to push the current annual production of 420,000 tons up to 1.2m tons in the year 2030. We want to produce more coffee, and get the best out of it. We’re targeting $2bn. I’ve seen many tweets underscoring competitiveness of our coffee on the world market.

This is why Kabushenga need not worry. In guaranteeing supply of premium coffee to Uganda Vinci, the Government undertook to take “reasonable” steps. Such steps cannot include blocking an investor like Kabushenga from honouring his agreements.

The win-win solution for everyone is for us to produce more coffee, and ensure that most of it (if not all) is premium.

That is a good challenge to have. Otherwise how can it be that out of the 420,000 tons of coffee we produce today, only 60,000 tons would be premium?

That is why I very much like the idea of continued dialogue on the issue. And while at it, we may get more value out of speaking with one another instead of shouting at one another.

I am open to further engagement on this. Nice Easter weekend.

Leave a Reply

Your email address will not be published. Required fields are marked *