Investment Opportunities in Uganda
A number of opportunities exist in the entire economy. However, the government targets some as priority sectors. These include Agriculture, Energy, Health, Education, Mining and Services such as tourism, finance and ICT. It also targets countries, such as UK, USA, Kenya (EAC), South Africa, India, China, UAE and Singapore as good sources of foreign direct investment into Uganda (Interview with a source at UIA, October 2011).
Kibikyo (2008) and Ajaegbu (2011) identified the contradiction in the fact that despite agriculture contributing 40% to GDP in 2003, the Investment Code Act, 1991, which governs investments in Uganda, discouraged FDI investing in the sector. Foreign investors were refused engagement in agricultural production except for provision of materials or other assistance to the local farmers; leasing a piece of land for manufacturing and for ensuring a regular supply of raw materials with permission from the Finance Minister upon the recommendation from the Uganda Investment Authority (UIA) through a statutory instrument.
Determinants of FDI Inflow into Uganda
The chief determinants of FDI inflow into Uganda have been the economic considerations of the expanding market size, abundant natural resources, and the stable and deregulated economic policies of the government. The Ugandan population has been rapidly growing, and is currently estimated at well over 30 million. The country is also a member of the East African Community (EAC), an economic bloc of five countries, namely Uganda, Kenya, Rwanda, Tanzania, and Burundi, with an estimated population of about 130 million. Also, the country is blessed with so many mineral resources such as gold, tin, cobalt, iron-ore, gypsum, etc; with the newly-discovered oil deposits in the Lake Albert region of Western Uganda heightening the interest. Further, the country has, since the late 1980s, maintained a regime of stable economic policies anchored on deregulation and privatization; including the operation of open current and capital accounts that allow foreign investors to bring in capital into the country and to repatriate same at will. These have combined to encourage the inflow of FDI into Uganda.
Obwona and Egesa (2006) examine the destination of FDI among the sectors of Ugandan economy and show that a host of factors such as economic, political and others explain the attraction of FDI to Uganda. Privatization and the return of previously confiscated properties of expelled Asians have led to considerable FDI, which cuts across various sectors; and in addition, a string of policies has been implemented in recent times to achieve macroeconomic stability. They identify important factors in attracting FDI into Uganda to include a predictable and consistent policy and macroeconomic environment; successful implementation of privatization; efforts at regional integration, which is important in attracting market-seeking investments; aggressive investment promotion; amongst others, which have all contributed significantly to FDI attraction; and concluded that no one factor has single handedly affected the flows of FDI into Uganda.
On the opposite side, certain factors continue to act as draw-backs to the inflow of FDI into Uganda. These are mainly non-economic factors, and include such political and social issues such as the fragile nature of the country’s democracy, and the prevalence of corruption in government. Obwona and Egesa (2006) thus argue that the various positive steps taken to attract FDI notwithstanding, there still remain liabilities especially in the areas of infrastructure, level of corruption and improvement of institutional support. Consequently, there is need to continue to enhance the business environment and improve the risk coverage schemes on both bilateral and multilateral basis.
Gateways for FDI into Uganda
As earlier stated, FDI can take the form of either “greenfield” investment (“mortar and brick” investment) or merger and acquisition (M&A), depending on whether the investment involves mainly newly created assets or just a transfer from local to foreign firms. Also, most investments have taken the form of acquisition of existing assets rather than investment in new assets, which raises particular concerns for developing countries, such as the extent to which they bring new resources to the economy, the denationalization of domestic firms, employment reduction, loss of technological assets, and increased market concentration with implications for the restriction of competition (Ntwala Mwilima, 2003).
However, and luckily too, the experience of Uganda in this respect has been different. Most of the FDI into the key sectors of Ugandan economy have been “greenfield”. This is the experience in the banking industry where most of the entrants since the ban on licensing of new banks was lifted in 2005 have come in through the establishment of fresh operations in the country. Also, in the Oil sector, the major players such as Heritage Oil, Turlow, and others were “greenfield” investments.