Organic Cotton: Uganda's Competitive Advantage

Having been introduced to Uganda in 1903 as a cash crop, cotton has long played an important role in the economy. Ideal growing conditions mean the country produces some of the best cotton in the world—much of it grown organically.

However, while cotton is the country's third biggest export after coffee and fish, comparatively little of it is converted into textiles within the country, so Uganda is missing out on all the added value that a sizable apparel and cloth manufacturing industry can provide.

Indeed, the extent to which the contribution of a sector that has made great strides over the last decade is being restricted. It is underlined by figures showing that over 90 per cent of Uganda's cotton exports go in the form of raw cotton (lint), rather than in processed yarn or textiles.

Now the focus is on putting this right, as local firms seek to develop a business area open to private investment and with a number of potentially huge markets—notably the United States, given Uganda's special status under Washington's African Growth and Opportunity Act (AGOA).

One example of what can be achieved in this new environment is the prospering local firm Phenix Logistics, which rose from the ashes of the State-owned Uganda Garment Industry Ltd (UGIL), after the cotton sector crashed during the 1980s. The company now specializes in the manufacture of high quality textile garments from knitted fabric made with locally produced organic cotton. Its brands include Yamato—a name synonymous locally with white shirts—Zenbury, Phenix, and Crocodile.

The company already has an international flavour, as it is owned by a consortium of Ugandan, Singaporean and Japanese investors. It is run by Japanese managing director Yuichi Kashiwada, who brings with him nearly 40 years' experience in the textiles business. The company is now seeking to expand its customer base to international clients interested in high-quality products.

Eyeing Chinese market

China presents a particularly interesting prospect for the company, according to Kashiwada. In fact there are already strong links, as he has a partner running a chain of 2,000 shops in China selling the Crocodile menswear brand, which was partly developed by Kashiwada. So the potential to ship Ugandan-made Crocodile products—or indeed any of the company's other brands—to China is clearly already there.

However, Phenix and other Ugandan textiles manufacturers have yet to make a big impact as exporters are hindered in part by the country's landlocked location and still fragile transport infrastructure, but mostly by capacity issues.

Kashiwada says he was approached at the recent World Convention on Organic Cotton in Turkey by three big US companies including Nike, seeking to place orders. "We asked them how much they wanted and they said millions," he recalls. With Phenix's capacity for producing T-shirts, polo shirts and dress shirts totaling less than 10,000 items per month at present, the vast quantities needed by the global players are currently beyond it—and other Ugandan producers—without further expansion and an overhaul of the cotton supply chain. But with such potential demand evident, Uganda's garments market is looking increasingly attractive to investors.

There is certainly nothing wrong with the management of companies like Phenix. A US-based team reporting on Uganda's relationship with the United States under AGOA in 2005 described the company's business plan as "excellent."

Kashiwada also says the Ugandan cotton sector needs educating about just how highly prized its organic products are in other parts of the world. "We have enquires from many countries, like Sweden, Denmark and Germany. Everyone wants to use our organic products. People here don't realize how much organic is appreciated outside Uganda," he says.

Revamping production

Meanwhile, the government is working hard to attract investment to the yarn and apparel sectors, mindful of the part a healthy cotton industry can play in stimulating agriculture as well as manufacturing. Its direct impact on alleviating rural poverty is another consideration.

The sector was booming until the 1970s, producing around 86,000 metric tons at its peak and contributing around 40 per cent of foreign exchange earnings. However the next two decades of periodic unrest in the country dramatically reduced cotton's contribution to economic growth, foreign exchange earnings and rural incomes.

The Cotton Development Organization (CDO) was created via the Cotton Development Act of 1994 with a mandate to regulate, promote, co-ordinate, and represent the industry in all its aspects under a much more liberalized regime. This has prompted changes such as increased private sector participation, improved farm gate prices, a rise in ginning capacity, improved cotton quality and improved average seed cotton yield.