Letters of credit (L/Cs) feature in an ongoing financial controversy in Uganda.

The scandal centres on Tri-Star Apparels, Uganda's flagship company exporting garments to the US market under the African Growth and Opportunities Act (AGOA).

Subsidies

The multimillion US dollar garments factory has received several bail outs from Uganda's government, which established the firm in 2002 to take advantage of the opportunities perceived in the AGOA.

The act offers tangible incentives for African countries to open their economies and build free markets, and makes it easier for African exporters to sell into US markets by waiving customs and tariffs.

Falsified records

But Tri-Star has struggled financially and on several occasions it has gone to the government and persuaded it to provide millions of US dollars to bail it out.

Some reports say that senior management falsified export records and falsely claimed to have received L/C proceeds of about US$600,000 to obtain more funding.

Museveni unrepentant

Tri-Star, which also managed to obtain an L/C facility of US$1.5 million, was forced to close earlier this year but is apparently now trading again - and Uganda's President Yoweri Museveni is unrepentant about the government's attempts to kick-start the enterprise with state funds.

He says it had helped Uganda enter markets, purchase machinery and develop skilled workers. "We sold three million pieces of garment. I am proud of having been involved in this project. If you call it a scandal, I am here beaming," Museveni said recently.

US support

The US House of Representativeson 8 December extended the third-country fabric provision of the AGOA until 2013, allowing eligible African countries to export apparel to the US even if the fabric came from another country.

The provision was set to expire in 2007, but House of Representatives and Senate leaders forged an agreement on the extension earlier last week. The Senate has yet to pass the bill, but there is some anticipation that it will do so before the end of the year.

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