What Uganda’s investment climate means to local, foreign investors

by Agaba Michael
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Since President Yoweri Museveni lifted the second Covid-19 lockdown over two months ago, Uganda government officials have been in overdrive marketing the country as the best investment destination.

From Dubai to London and Beijing, senior government officials have been holding trade expos where they have been showcasing information on Uganda’s investment environment, trade policies, key products and tourism to potential foreign investors as well as forge new business partnerships and joint ventures.

President Museveni also joined the drive, rallying investors from the United Arab Emirates (UAE) at the Dubai Expo 2020 to take advantage of Uganda’s resources and invest here.

 President Museveni assured the would-be investors of an abundance of raw materials such as minerals and agriculture produce, as well as a market beyond the country’s borders.

 “Uganda is the right place because it happens to have all these three. When you come to invest in Uganda, you can produce so many goods and so many services, the spectrum is so big, and it is really unimaginable. There is nothing you cannot produce in Uganda,” he said.

But is Uganda a favorable country for foreign investment?

Uganda has been ranked East Africa’s most attractive country for foreign investment, according to the fifth edition of Absa Africa Financial Markets Index (AAFMI) 2021.

The Absa Africa Financial Markets Index evaluates financial market development in 23 countries, and highlights economies with the most supportive environment for effective markets.

 According to the 2021 index, Uganda, which ranked 10th on the continent, moved five places to overtake Kenya, as the best destination for foreign investment in East Africa.

The index assessed countries according to six pillars: market depth; access to foreign exchange; market transparency, tax and regulatory environment; capacity of local investors; macro-economic opportunity and enforceability of financial contracts.

But is this the reality on the ground? Critics say the exit of many foreign-owned firms from Uganda, the recent being Africell and Shoprite Supermarkets, points to a poor investment climate in the country.

Ms Susan Khainza, a chartered financial analyst, says, whereas Uganda generally does not have restrictions on international trade and flow of capital or tax, investors are sensitive to such things because they expose them to corruption and abuse of their innovations.

“Investors want a strong legal regime and a stable political environment to guarantee the security of their investments and innovations,” she explains.

Khainza says there are many investment funds willing to invest in Uganda in form of venture capital, however, the challenge is, it is difficult to find businesses that are able to adequately absorb large capital investments.

“And for those that are willing to invest smaller amounts such as $100,000, they find the informal set up lacking in terms of corporate governance and the inability to keep proper audited books,” she noted.

However, experts say despite the problems the country has faced and the Coronavirus pandemic, Uganda is still a preferred destination for foreign investors.

“The real estate sector has registered new entrants into the market in 2020 with Carrefour growing its presence in Uganda at Metroplex Mall store and Shoprite set up to expand its store to number six with an anticipated opening of the Arena Mall at Nsambya traffic rights in March 2022 and LC Waikiki, a Turkish-based international fashion chain opening its 2000 Africa flagship store at Acacia Mall in December 2020.”

Marc Du Toit, the head of retail at Knight Frank Uganda, said in February. LC Waikiki extended its wings to Uganda as the second country in East Africa to host their shops.

“Uganda has historically been seen as a safe destination regardless of the current situation. What attracts people to Uganda are the demographics unlike other neighboring countries. For example, Rwanda is a small fraction of the economy of Uganda. When investors look for the market, they look for the future and can’t put infrastructure in the consumer spending and the size of the economy,” Du Toit told journalists.

In January last year, Carrefour, one of the largest hypermarket and supermarket chains in the world officially launched its operations in Uganda marking the company’s entry into the Sub-Saharan African country.

Mr. Julius Peter Moto, the High Commissioner for Uganda in London, says even with lockdown effects and other inherent issues like poverty, inadequate infrastructures and inequitable distribution of utilities, industrial power and financial services, a lot of Foreign Direct Investors (FDIs) have been attracted to Uganda.

“Uganda is endowed with natural resources. I encourage all investors to come to this gifted country,” he says.

He adds that Uganda’s location in the heart of sub-Saharan Africa gives it a strategic base as a regional hub of tourism, trade and investment.

“It is mainly through trade and investment that nations rise to wealth and prosperity,” he says.

Experts observe that the approval of the US$ 3.5bn East African crude oil pipeline project, which will lead to the construction of a 1,400km pipeline from Uganda to Tanga seaport in Tanzania, bodies well for investment in Uganda.

The government of Uganda has created a One-Stop-Centre (OSC) for business registration and licensing at the Uganda Investment Authority (UIA) in Kampala.

The authority assists in tax advice and registration, immigration and work permit issues, land acquisition and verification and environmental compliance and approvals. These services save investors both time and money by enabling them to get licenses quickly to kick-start their operations.

 But the Deputy Governor Bank of Uganda, Dr Michael Ating-Ego says foreign direct investment must not only be promoted at the expense of local investor.

“To drive inclusive and job-rich economic growth, efforts must be focused on the low-income segment of the population to promote shared prosperity,” he notes.

“Hence, implementing the following building blocks should be considered: sustaining the current macro-economic stability; investing in human capital and physical infrastructure; creating an enabling environment for competition and trade; promoting financial inclusion to provide savings and credit access to the bottom of the pyramid population,” he adds.

Mr. Hassan Kitenda, an equity and fixed income analyst, observes that the Ugandan economy is characterized by the large presence of family-run micro, Small and Medium Enterprises (MSMEs), which operate in fragmented markets with poor access to financing.

“The possibility of funding these firms would allow equity investors to offer more than just funds. By injecting risk capital, they become partners in a firm’s growth. Therefore, private equity is a perfect fit for developing Uganda’s economy,” he explains.


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