TRENDS AND IMPACTS OF FOREIGN INVESTMENT IN DEVELOPING COUNTRY AGRICULTURE

companies and fully owned subsidiaries of the
parent companies. Field interviews also show
that these companies were established using
financing from the parent company (as a loan
or equity). Most of the companies interviewed
were unwilling to provide information on
assets and sales. The asset value of foreignowned
companies is not always higher than
for comparable domestic-owned companies
(see example of the coffee and flower sectors).
Nevertheless, foreign-owned companies showed
more efficient asset utilization (about 80 percent
higher), in both sectors; generating more sales
from their assets (and indeed had higher sales
values) in 2007. All the companies interviewed
were export-oriented.
There is no clear information to identify the
proportion of foreign affiliates established by
different types of foreign parents, including
sovereign wealth funds and private equity funds,
for the commercial agriculture sector.
Main competitive advantages, motivations
and strategies
Transnational corporations operating in Uganda
have the following competitive advantages over
their domestic-owned counterparts:
Access to affordable finance: Most of the TNCs
interviewed were established using financing from
the parent company, at affordable interest rates.
For example, Fiduga obtained a loan from its
parent company at an interest rate of 2 percent
per annum, with no deadline for repayment.
Royal Van Zanten (U) Ltd financed 60 percent of
its start-up costs using a loan from the parent
company. On the other hand, Melissa Flowers
Ltd, a domestic-owned company, obtained a
loan from a Ugandan-based bank at start-up, at
an interest rate of 11 percent per annum and a
repayment period of five years.
Access to management and technical expertise:
The Dutch-owned companies obtain material for
propagation from the plant breeding laboratories
owned by their parent companies and have
expatriate management. The TNCs in the coffee
sector can readily source and hire international
expertise in the sector. For example, Kyagalanyi
Coffee Limited employs two specialists in washed
Part 3: Policies for attracting FDI and impacts
on national economic development
coffee production from Colombia. The domesticowned
companies do not always have access in
terms of contacts and financial resources, to hire
similar expertise.
Ready market for commodities: The companies
producing chrysanthemum cuttings directly supply
their parent companies. The TNCs in coffee
processing and export have the option to sell to
their parent company or other buyers, if they are
offering better terms than the parent company.
Conversely, domestic-owned companies depend
solely on international buyers.
High visibility: Uganda, through the UIA, has
made tremendous efforts to attract FDI. A large,
foreign-owned company planning to enter the
market is therefore highly visible and could
use this position to demand (and even receive)
discretionary incentives. This situation has not
occurred in the three sectors. However cases exist
where foreign investors have seemingly received
preferential treatment 16 (Kalema, W., Nsonzi, F.
(2008) .
Motivation for investing in Uganda
Most TNCs chose to invest in Uganda primarily
because of production factors including: ready
availability of raw material (fish and coffee);
excellent climate for production and availability
of water (flowers and cuttings);. Other reasons
included the liberalization of the coffee sector
and availability of a low cost, easily trainable,
English speaking workforce. The reasons provided
for investing in Uganda are provided in Box 5.
16 In 2004, the Government gave a comprehensive package
of incentives, including a 25 –year holiday on income tax
and a 17-year holiday on Value Added Tax, to encourage
an investor, BIDCO (from Kenya) to establish a US$120
million palm oil project. Other edible oil producers
complained, alleging unfair treatment. The BIDCO project
has been very slow in its implementation.
Tri-Star Apparel, an investor in garment manufacturing
targeting the United States market under the Africa
Growth and Opportunity Act (AGOA), received US$15
million in Government guaranteed loans but closed with
huge losses after five years, and failed to repay the loans.
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UGANDA