Ugandan Banks to bolster exports and post-Covid recovery with sh1 trillion export growth fund

Uganda’s financial institutions under their umbrella body, Uganda Bankers’ Association (UBA) have unveiled a special Regional Export Facility (REF) to support Uganda’s exports and post Covid economic recovery. The move will also spur inflow of hard currency to support the shilling.

The initial amount of Uganda shillings one trillion has been pledged as a financial package to support exporters from Uganda, to regenerate and grow export volumes to the regional markets including South Sudan, DRC, Rwanda, Burundi, Kenya, Tanzania and Others.

Relatedly, the Absa financial markets index report for 2022 pointed out that survey participants mentioned that disruption to supply chains, weaker global growth and elevated commodity prices as headwinds to their economies. Hitherto, it was noted that Uganda’s export markets were shrinking year-on-year.

Speaking at the ceremony, UBA Chairperson, Sarah Arapta, said that the REF initiative had been developed as a special industry intervention to support economic recovery given the post-covid effects that saw global, regional and local markets locked down for at least 2 years, leading to loss of markets and attendant cashflows and yet Uganda has comparative advantage in the supply & production of many products needed within our regional neighborhood.

The UBA Chair added that: “Uganda has a strong manufacturing and trading hub capable of serving the regional markets which if well leveraged could be a key engine of growth.”

She pointed out that goods manufactured in Uganda for export to the region include construction products like cement, steel bars, iron sheets, and paint. Arapta also said that fast moving consumer goods include scholastic materials, personal care products like cosmetics, textiles, and foam products could benefit from the initiative.

She said that Uganda’s manufacturing sector also has a huge agro-processing component including many food & agricultural products like grain/cereals, vegetables, oil products animal & poultry products, both alcoholic & non-alcoholic drinks including water that can permeate their way into the regional markets via structured and un-structured export financing arrangements.

“As they harness this value chain, Ugandan manufacturers, service providers and traders deliver economic benefits beyond their commercial profit objectives which include employment, foreign exchange, taxes and plenty of backward & forward linkages across several sectors in the economy,” Arapta said.

“As financial sector, we would like to join hands with the Private Sector Foundation of Uganda that includes manufacturers, exporters & other traders to bring alive the regional export drive being championed by the Government. Our objective is to fill up the missing link which is structured financing,” she added.

Ms. Arapta noted that the initiative was intended to address the concerns of manufacturers discussed during the annual banker’s conference held in July this year which include among others, shortage of term finance, favorable pricing and flexibility in structuring of financing facilities.

Presenting the details of the Regional Export Facility, Mr. Wilbrod Owor, the Executive Director Uganda Bankers’ Association said the facility was a specialized financing regime supported by a payment and settlement mechanism that will be availed at a maximum interest rate of 12%p.a for shillings and 6% p.a in dollars with a tenure of between three (3) months to five (5) years depending on purpose and structure of facility.

The facility is intended for use as Direct working capital support in form of loans and overdrafts to fulfill an export order, support for receivables management mainly through discounting as well as indirect support through letters of credit, and guarantees.

The facility shall also be used for short to medium term CAPEX investment to boost manufacturing and value-add capacity for Export. He added that the Regional Export Facility is open to Ugandan manufacturers/ traders legally operating business in Uganda who export to the region and need to revamp internal production and trading capacities and recover lost regional markets.

These could be individual exporters, SME exporters, Local Corporate exporters and Multinational Corporate exporters, he said.

Mr. Owor added that the facility available effective 1st  November 2022, will be accessed through participating financial institutions, which include the Commercial Banks, Licensed Credit Institutions and Micro-Finance Deposit-taking institutions regulated by the Bank of Uganda.” The borrowers should have evidence of orders/buyers/off-takers and receivables coming into Uganda from regional sales with their loan accounts with their respective bankers technically performing.

Mr. Owor said that the participating financial institutions are responsible for assessing potential borrowers in line with their credit policies, processes, and the facility’s guidelines and the total facility size could be reviewed upwards & expanded beyond the Ugx one trillion if the uptake turns out to be higher.

In his remarks, the Chief Executive Officer, Private Sector Foundation Uganda (PSFU), Mr. Stephen Asiimwe said: “This is very good news for the private sector; this facility is a timely intervention which will support, finance and promote regional trade for our business community and private sector,

“PSFU has broadened its scope in service delivery to intentionally promote and access markets for Ugandan goods and services. Therefore, with such a facility in place, Ugandan traders will be able to do more business across the region and beyond since the financing gap will now be closed.”

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