By Mulengera Reporters
In 2014, President Museveni got cabinet to pass the Buy Uganda Build Uganda (BuBu) policy and went ahead to become one of the policy’s most eloquent spokespersons popularizing it at every opportunity. His argument was there was no way the Ugandan private sector would make it without government (major spender) having an institutional framework to support it.
Along the way, Museveni got a few equally interested disciples like Daudi Migereko as the likes of Trade Minister Amelia Kyambadde gradually bought in. So outspoken on the matter was Daudi Migereko that Cabinet colleagues reached a point of christening him “Mr. Local Content” during cabinet meetings.
That gradually is how unanimity was generated resulting into the grand launching ceremony in March 2017 in Kampala where Premier Rugunda presided over. Not one to be demoralized by inertia by some floppy Ministers, Museveni went on to push Finance Minister Matia Kasaijja to come up with regulations and guidelines which enabled PPDA to issue Preference & Reservation Schemes making it mandatory for government entities (PDEs) to procure certain goods and services exclusively from local providers.
HOW IT WORKS
The schemes stipulated thresholds guiding PDEs on how to increase input/use of local labor, goods & services whenever procuring public sector goods/works within Uganda. The schemes specifically stipulated that any road works contract below Shs45bn had to be reserved for local contractors, something UNRA ED Allen Kagina implemented with enthusiasm (to great outcomes) as we shall later show in this special story.
Yet that wasn’t all. Any other public procurement below Shs10bn had to be reserved for local providers as was any consultancy service contract below Shs1bn. All none consultancy services (like cleaning services) below Shs200m equally had to be reserved for local providers and that is how firms like A & M Executive Cleaning Services have continued having a field day on cleaning deals.
The reservation schemes also provided for mandatory subcontracting of 30% of every large contract (exceeding Shs45bn) and therefore awardable to foreign contractors.
TARGETING ARMED FORCES
The other lucrative deals Museveni ensured are reserved for local firms included those relating to purchase of uniforms & other related clothing for armed forces-basically Police, Prisons and UPDF. Government MDAs equally became obliged to prioritize local suppliers when procuring electric cables, conductors and pharmaceuticals.
To ensure realization of the President’s directive, PPDA (the regulator overseeing implementation) put in place a joint committee with reps from Uganda Police, Prisons, Defense Ministry, NMS, KCCA, UNRA, UEDCL, UETCL and NWSC. UMA is also a member because most of the manufacturers meant to benefit are its members. This committee has been overseeing the piloting of the reservation schemes and implementation guidelines-including ensuring whenever an MDA is procuring, bidding documents go as far as specifying purchases that are subject to Preference & Reservation schemes.
KAGINA LEADS THE WAY
Investigations done by Mulengera News show PDEs in the road works sector have been the most compliant. For instance on scrutinizing the FY2017/18 alone, we established that of the Shs3.7trn Allen Kagina-led UNRA was allocated, Shs450.8bn (12%) was reserved for national providers (to total exclusion of foreign firms). Yet that wasn’t all. Another Shs423bn or 11% (off UNRA’s Shs3.7trn) went to local firms/providers through mandatory subcontracting provisions compelling foreign firms to employ local firms to do 30% of whatever job that is contracted to them.
Under UNRA alone, the total value of contracts awarded to local providers equaled to 24% of the Shs3.7trn the entity was allocated in the FY2017/18 to do road works. And the breakdown is as follows; Shs370.9bn for works whose threshold is under Shs45bn; Shs423bn through the 30% mandatory subcontracting and Shs11.3bn for consultancy services provided by Uganda local consultants.
The same UNRA further implemented the President’s local content policy by spending Shs68.5bn on supplies and non-consultancy services. None- consultancy services comprises of things like cleaning services etc.
Originally, the local content policy applied strictly to businesses and service providers whose owners are Ugandans but the Finance Ministry (which supervises PPDA) intervened demanding relaxation. This was after foreign firms cried out saying their exclusion was diminishing Uganda’s attractiveness as an investment destination. “Why attract us to invest in your country and then deny us business yet government is the biggest spender?” the foreign firm executives often asked Finance Ministry technocrats.
Relaxation led to introduction of categories like resident and national providers. Resident refers to a firm that might be based and having operations elsewhere but the Ugandan operation is domiciled and incorporated here. Such companies had to qualify because (investors argued and finance agreed that) they pay taxes and employ our people besides facilitating skills transfer. National providers simply refers to firms whose owners are Ugandan-and both categories have been qualifying to cash in on big government procurement deals under Local Content/BuBu policy.
Much as the Finance Ministry and the President politically became happy with that consensus, for PPDA which is the implementing agency it remains work in progress because UMA & UNABCEC (which unites building & civil engineers) have never stopped protesting the revision of the local content regulations to accommodate foreigners benefiting under the resident provider category.
ROOFINGS’ LALAN EATS BIG
Manufacturers of cement, iron sheets, iron bars and suppliers of things like sand have greatly benefited and are thankful to the President for his intervention to ring-fence for them business under BuBu. Categorized as construction inputs, their products have gained increased market access and big volumes have been sold on major government projects where reservations schemes have been used to compel foreign contractors to consume/input their products.
For our investigations purposes, we benchmarked on two players namely Roofings Rolling Mills Ltd and Roofings Ltd. In between them, is a combined installed production capacity of 538,000 metric tons and of this capacity, 75% is currently being utilized up from 2017’s 49%. This 49-75% growth has resulted from the PPDA reservation schemes which created more market for their products on the major government projects like Karuma, Isimba etc. These are sister companies belonging to Sikander Lalan.
Mulengera News has established that booking orders for their products have rapidly increased because of the expanded market resulting from the BuBu/Local Content intervention. It’s now mandatory for all contractors (local and foreign) to use locally made inputs and there is optimism that soon manufacturers will be able to use up to 100% of their installed production capacity.
Available information shows the production of steel and plastics for Roofings Rolling Mills Ltd has evolved as follows since 2017; 216,500MTs in 2018 compared to 2017’s 185,300 and 2016’s 183,600. For Roofings Ltd it has been 51,817MTs in 2018, 78,628 in 2017 and 70,695 in 2016.
REVENUES BOOSTED TOO
The Local Content guidelines by PPDA have also impacted on the two companies’ revenue streams and a reflection on the past three years’ performance drives the point home. In 2018, Roofings Rolling Mills Ltd made over Shs100bn in steel and plastics sales compared to 2016’s mere Shs10bn. In the first year (2017) of local content implementation, the revenue sales jumped from mere Shs10bn to Shs149bn. This stabilized Mzee Lalan’s business that was beginning to be threatened with unrelenting pressure from creditors like commercial banks. For Roofings Ltd, it was Shs12bn in 2018; Shs18bn in 2017, a clear improvement from 2016’s mere Shs7bn.
Growing demand for their products has prompted the two companies to invest more and expand their operations to be able to sustainably meet growing demand from the numerous government infrastructure projects.
Consequently electricity consumption at their plants has proportionately increased. This, as Museveni has been arguing, takes care of widespread fears that additional electricity MWs from Karuma and Isimba would go to wastage without any consumption. Management at the two plants is confident their demand for electricity can only increase to cater for planned expansion.
We shall briefly illustrate the two Roofings companies’ growing electricity consumption. We have their monthly consumption data for 36 months covering 2016, 2017 and 2018 but we shall share just the totals. For Roofings Rolling Mills Ltd, the growing expenditure on electricity consumption is illustrated as follows: Shs2,372,750,373 in 2018 up from 2017’s Shs1,746,666,667 and 2016’s Shs1,474,333,333. For Roofings Ltd, we shall sample just one month of August through the 3 years-2018, 2017 and 2016. In 2018, in the month of August alone, Roofings Ltd spent 306.5m compared to August 2017’s Shs294m. In August 2016, it had been much less.
THE ARMED FORCES
The compliance exhibited by the leadership of Uganda Police Force, Prisons and Defense Ministry is the reason the top executives at Southern Range Nyanza Ltd (SRNL aka NYTIL or PICFARE) are smiling all the way to the bank. They are no longer stressed with unpaid creditors anymore. Whereas 3 companies were cleared by UMA to benefit from the reservation scheme for the supply of uniforms to the armed forces, it’s NYTIL that has had a lion’s share. The other two are Fine Spiners Uganda Ltd & Sigma Knitting Industries which makes simply sweaters and socks. Fine Spiners manufactures mostly Polo shirts & T-shirts majorly for the export market. A recent publication by PPDA shows that the other two haven’t started benefiting by supplying the armed forces, like NYTIL is doing, because they haven’t yet built the required capacity to manufacture fabric for the army.
Even when Police and UPDF have stitching facilities on which the officers’ spouses are employed to manufacture khakis, traffic uniforms, madowadowa and prisons wear/the yellow uniform, the respective leaderships have ensured the Local Content policy is complied with to the fullest specifically to ensure NYTIL has adequate market for its fabric products. The only area NTYIL continues to be faulted relates to its inability to manufacture ceremonial uniforms and related accessories like berets, peeps, shoes and uniform for the Special Forces.
THE CONSTRUCTION UNITS
There is also another level at which UPDF, UPF and Uganda Prisons have supported the Local Content policy more than any other institution in this country. They each have an own construction unit for which all the required inputs are purchased from local companies many of which are now operating more profitably resulting into more Ugandans being employed that before.
We now briefly illustrate what the Local Content policy has meant for NYTIL. In 2018, the Defense Ministry alone gave them a contract of Shs2.5bn; Shs1.4bn in 2017 and Shs1.2bn in 2016. This growing trend has motivated management to invest in expansion and contract credit to undertake many other related investment projects as will shortly be disclosed. In the same period, Uganda Prisons purchased from NTYIL as follows: Shs1bn in 2018; Shs600m in 2017 and Shs400m in 2016. And the Uganda Police did as follows: Shs800m in 2018; Shs650m in 2017 and Shs500m in 2016.
Renowned for perfectly and loyally implementing government directives whenever called upon, NMS General Manager Moses Kamabare has implemented the President’s Local Content vision by purchasing health sector uniform requirements (it’s the NMS mandate) worth Shs3.2bn from NYTIL in just 2018 alone. We weren’t readily able to establish how much was spent in the previous two years preceding 2018.
Uganda Wildlife Authority (UWA) has also been very supportive to NYTIL in compliance with the Local Content policy spending Shs500m (on uniforms) in 2018 and Shs200m the previous year. Further quantification of the impact the local content policy has had for NYTIL can be seen in the number of people being employed by the company. Today it has 2,520 employees compared to 2016’s 2,350. This reflects 7% growth in jobs created.
NYTIL is also now using more cotton to be able to satisfy the vast orders from Defense, Prisons, Police, NMS and UWA. Available PPDA data shows their annual consumption of cotton lint has grown to 2,500 bales compared to 2,250 of before BuBu.
Industrial manufacturing capacity utilization too has increased from 55% to 60% as a result of the PPDA reservation schemes and management says it can only get better. To ensure adequate quality for the armed forces continues to be realized, NTYIL has invested in expansion of their processing house which has cost $6.5m. Production too has been diversified to include medical sundries (e.g. gauze, cotton etc) because of the assured NMS market and this diversification has cost $2.5m. Yet that isn’t all. Management is planning a new spinning project for 25,000 spindles whose feasibility study was completed and the relevant machinery purchase is underway.
The company turn over too has increased from Shs74.6bn as of 2016 to current Shs83.85bn, representing 10% growth. There is optimism that performance of the entire cotton lint sub sector will keep growing leading to transformation of even farmers in cotton growing areas. Today Uganda’s total annual cotton production is 150,000 bales and once the required capacity processing grows to being able to process the whole of it into garments, more jobs will be created and much more forex earned from exportation.
THE ELECTRICITY SUB SECTOR
Here private entities involved in the manufacture of electric cables and conductors have cashed in like never before. Government entities like UEDCL have made this possible by purchasing from them. Before the issuance of PPDA guidelines on reservation schemes, 90% of electric cables for the construction of UEDCL power lines was being imported from China and India. Currently its 100% Ugandan firms supplying.
The major constraint is there aren’t many Ugandan manufacturers for such cables. Being the regulator, PPDA has ensured each time UEDCL runs an advert sourcing for service providers and suppliers, it’s indicated in bidding documents that its only for companies with locally-situated manufacturing facilities. Locally situating manufacturing processes ensures related jobs are created here.
Procurement of generators, transformers, wiring and repairing services for transformers has all been reserved for local providers. The same goes for electric switch gears.
The companies that have benefited so far include ORION Transformers Ltd, Electrics Ltd and Korica Company. In 2017, a joint venture between Electrics Ltd and ORION repaired 32 transformers and UEDCL paid them Shs192m. In the past such deals went to foreign service providers.
In the same year 2017, UEDCL contracted the JV of Electrical Controls & Switch Gear Ltd to supply transformers under to the tune of Shs1.6bn and thereby growing the confidence and capability for the local firms. In the same year, Korica Ltd was awarded the Shs989.9m contract to supply transformers. That wasn’t all for 2017. ORION transformers (Lot I) and Electrics Ltd (Lot II) were collectively paid Shs446.9m to service and repair transformers for the whole year. Transmax Uganda Ltd was paid Shs170.6m for the repair and servicing of faulty transformers.
Cable Corporation of Uganda Ltd (for the Methas) was paid over Shs1.1bn for the supply of conductors, earthwire, stay wire and transformer wiring.
Still in the electricity subsector, UETCL paid out much more supporting local providers. In total they gave out contracts worth Shs11,590,974,000 to national providers under the reservation schemes. Shs1bn went into the purchase of construction materials from Cable Corporation Ltd. The rest went into the supply and installation of automatic standby generators for Mbarara and Lira Service Stations; supply of energy meters and seasoned wood poles. There would be much more but the constraint is that most of the items used in the transmission business aren’t yet locally manufactured. This is why UETCL continues to spend heavily on importation of high voltage items for the grid.
THE KCCA EXPERIENCE
KCCA too has bolstered the local content policy by ring-fencing the provision of cleaning services for the local providers-and specifically low income groups comprising of typical Kampala residents. PPDA guided that priority has to go to financially vulnerable groups namely the elderly, women, youth and the illiterates who stand no chance for formal employment. They are organized into Divisions-based Cooperatives or SACCOs through which KCCA issues out monthly remuneration. KCCA has equally reserved the provision of corporate gifts for local providers.
NMS POWERS PHARMACEUTICALS
The reservation scheme for medicines and pharmaceutical products has seen National Medical Stores (gov’t’s procuring entity) spend billions supporting local manufacturers with Luzira-based CIPLA/Quality Chemicals taking a lion’s share. They operate under Uganda Pharmaceutical Manufacturers Association (UPMA) which is charged with regularly updating NMS on the new medicine items whenever introduced in their product portfolio.
In the last three years, NMS injected billions in UPMA members as illustrated below: Shs12.9bn to Abacus Parental Drugs Ltd; Shs962m to ASTEL Diagnostics Ltd; Shs118,239,339,777 to Emmanuel Katongole’s CIPLA/Quality Chemicals, Shs8.8bn to Kampala Pharmaceutical Industries Ltd; Shs10bn to RENE Industries Ltd; Shs59m to Saraya Manufacturing (U) Ltd; Shs1.093bn to Mutuma Commercial Agencies Ltd; Shs3.3bn to SRNL/NYTIL Ltd for medical workers uniforms; Shs216m to Kwality Afro Asia Ltd and Shs348m to MANS Plastics Ltd.
Mulengera News can reveal that in the FY2018/18, 55% of NMS medicines stock was procured from local providers who are all UPMA members and this 55% amounted to Shs155,056,848,952 in absolute money terms. Desire to cash in on this huge market potential has prompted many world renowned pharmaceutical makers to express interest in setting up processing plants in Uganda. This is very advantageous to our country because it will lead to increased jobs, competition, quality, lower prices, increased export volumes/forex and skills transfer. (For comments on this special report, call, text or whatsapp us on 0703164755 or email us at email@example.com).