chain related (participate in other chains).<sup>59</sup> With cash crops (and minerals) of the sort exported by Malawi, Uganda and Rwanda e.g. coffee, tobacco, tea, cocoa, sugar, tantalum and uranium, the scope for functional upgrading is narrower because the chains are producer driven with few large foreign buyers calling the shots and much of the specialized processing done overseas. There is more room for upgrading with cut flowers as producers can add value by bunching, making bouquets, wrapping, and sleeving.

The garments industry can also add value when there is scope for backward integration with spinning and weaving mills drawing on local production of cotton as is possible to a limited extent in Tanzania. However, garment value chains tend to be buyer driven and subject to their designs, exacting specifications and schedules. Some buyers such as H&M, encourage innovation and value enhancement by suppliers. Where this is infeasible because of GVC governance, producers can be locked into low value assembly operations with little chance of raising growth prospects. Uganda is arguably the best placed to create an integrated cotton garments sector based on domestically grown cotton – as it was the largest producer of cotton in SSA in the 1960s<sup>60</sup> – but as Tanzania is discovering,<sup>61</sup> scaling up the production of fabrics and garments is a considerable challenge, but it need not be an insurmountable one. Currently much of Uganda’s cotton crop is exported in raw form by ginneries. Processing into yarn, fabrics and the manufacture of garments are on a very limited scale for example by a vertically integrated producer Nytil.<sup>62</sup> This could change with the domestic market as a partial springboard with GVCs providing an increasing outlet for domestic production. But the ups and downs experienced since the introduction of the National Textile Policy in 2008, suggests that it will take a mix of pricing and other policies and several years before the sector can gain traction – if cotton textiles are singled out as a future growth driver.

Malawi, Rwanda and Uganda must continue to explore and exploit opportunities in manufacturing -- the traditional driver of growth and these are examined further in section 5 below. Other lucrative opportunities with longer term potential might lie in the petrochemicals sector for Uganda given its substantial petroleum resources.<sup>63</sup>

> 59 Malawi for example has a degree of export diversification that is about average for a country at its income level however, an increase that raised the income from exports and enhanced the degree of complexity, would be definitely advantageous. Malawi ranked 114<sup>th</sup> out of 130 countries with respect to the complexity of exports in 2016. CID (2017). <u>http://atlas.cid.harvard.edu/rankings?country=malawi</u>

> 60 Baffes (2009) http://www.worldbank.org/afr/wps/WPS_123_Uganda_Cotton_Case_Study.pdf

> 61 See review of Tanzania’s textile industry in _Textile International_ , September 2016.

> 62 <u>http://www.monitor.co.ug/Business/Prosper/Behind-free-fall-Uganda-s-cottonproduction/688616-3145468-aqfojpz/index.html; http://www.textiletribune.com/2015/02/textileindustry-of-uganda-overview.html</u>

63 Reserves are estimated at 6.5 billion barrels. Recoverable oil is in the region of 1.8 billion and 2.2 billion barrels and the field could produce 230,000 bpd (Patey 2015) <u>https://www.oxfordenergy.org/wpcms/wp-content/uploads/2015/10/WPM-601.pdf</u> . Oil production is off to a slow start. Okuku (2015) - <u>https://misr.mak.ac.ug/sites/default/files/events/UGANDA%20OIL LED%20DEVELOPMENT.pdf</u> Tullow Oil, Total Oil and CNOOC are the companies actively engaged in exploration and production - especially in the Lake Albert Rift Basin region http://www.tullowoil.com/operations/east 21