UGANDA: AUGUST ECONOMIC REVIEW

UNCLAS SECTION 01 OF 02 KAMPALA 001370

SIPDIS

DEPARTMENT PASS TO USTR FOR BILL JACKSON

SIPDIS

SENSITIVE

E.O. 12958: N/A
TAGS: ECON EFIN ETRD KTDB PGOV UG

SUBJECT: UGANDA: AUGUST ECONOMIC REVIEW

REF: A) KAMPALA 0160 B) KAMPALA 0406

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Summary
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1. (SBU) Uganda breaks ground on USD 800 hydroelectric dam which
when completed will represent the largest U.S. direct investment in
the country. The GOU is reporting a recent uranium discovery by a
Canadian firm. The Ministry of Finance is promising tax breaks for
foreign investors which is raising concerns in the banking sector
that Uganda will not have adequate revenue collection for GOU
services. A new report asserts the GOU lost more than USD 87
million to corruption during the last fiscal year. The GOU has
announced it will create a separate corruption court as part of its
efforts to reduce corruption in the country. The coffee market is
making a significant comeback with export earnings nearly doubling
for this year's crop. End Summary.

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Energy
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2. (SBU) Construction on the 250 megawatt Bujagali dam began on
Wednesday August 22nd. The ground breaking was attended by
President Museveni and the Aga Khan whose foundation is providing
significant financial support. Both assert that the dam is the key
to affordable and accessible electricity in Uganda. U.S. firm Sithe
Global, part of the private equity firm Blackstone, will finance
close to half of the USD 799 million project. The project is the
larges U.S. direct investment in Uganda and is scheduled for
completion in 2011.


3. (SBU) In an August 14th article, the New Vision newspaper
reported the presence of uranium in Uganda. Adam Cegielski, chief
executive officer of Canadian based Uranium Hunter Corporation
stated that an aerial survey of both Tanzania and Uganda produced
positive results. The USD 42 million investigation which began in
January is being sponsored by the GOU, World Bank, African
Development Fund, and the Nordic Development Fund. Uranium Hunter
and NPK Resources have a joint initiative in the Kibaale project
which consists of the Kagadi and Nkoko properties. Both hope to
pursue the initial phases of uranium exploration in the upcoming
months. The Ministry of Energy and Mineral Development Daudi
Migereko confirmed the uranium find to Econoff.

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Capital Markets and Banking
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4. (SBU) The GOU will offer foreign investors tax incentives and
exemptions ranging from a 10 year tax holiday on VAT to a reduction
in VAT on the sale of residential properties. In its July report
Standard Chartered Bank recognized the positive performance of the
Uganda Revenue Authority (URA) in increased revenue collection, but
criticized the move towards increased tax exemptions. On August 14,
the Daily Monitor newspaper quoted Razia Khan, the head of Standard
Chartered as stating, "It is not clear how Uganda will compensate
for the revenue forgone as a result of these measures." The
situation is further complicated by Uganda's lackluster performance
in generating revenue. The Standard Chartered report suggested that
the GOU could lessen the negative effects of the concessions through
an issuance of high yield T-bills and a reduction in its reliance on
donors for financing the budget.

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Anti-Corruption / Intellectual Rights
Property Protection
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5.(SBU) On August 25th the Daily Monitor reported on the release of
the National Public Procurement Integrity Survey documenting
corruption in the procurement sector. The report reveals that the
GOU lost at least USD 87.3 million in the last fiscal year as a
result of mismanagement by various government agencies, districts,
and municipalities. The report cites high levels of corruption
within the Office of the Prime Minister, the Electoral Commission,
and the Solicitor General's Office. The report asserts that
corruption pervades all aspects of Ugandan society from citizens
paying bribes to receive basic healthcare to bribery in public
tenders, suggesting that corruption is part of the local culture.
Okoth Ochola, head of the Criminal Investigations Directorate
asserts that corruption can be decreased by better judicial
management of corruption cases and the ratification of the
Prevention of Corruption Act.


6. (SBU) The Daily Monitor reported on August 14, that the GOU was

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creating an anti-corruption court. The proposal is the result of a
broad based program to end corruption. Information Minister Kirunda
Kivejinja stated that, by establishing the court, the GOU will be
silencing critics and reinforcing its stance against corruption.
The court will still require an act of Parliament to be created,
which could take months. The proposed court legislation will be
supplemented by a proposed whistleblower law which will fill in the
gaps of the IGG (Inspector General of Government) Act of 2002 and
the Leadership Code Act of 2002.

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Agriculture
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7. (SBU) According to an August 14th report by the New Vision
newspaper, Uganda's coffee industry is flourishing. In the last year
export earnings have almost doubled and production is steadily
rising. The Uganda Coffee Development Authority reports that the
boom in business is due to the renewal of GOU replanting programs,
favorable weather, and good prices. Uganda is the leading exporter
of coffee in Africa, after Ethiopia, and the European Union remains
its largest purchaser.
BROWNING