Foreign Direct Investment (FDI) has become a key agent of development in most economies. Technological progress which allows firms to split various stages of the production process, declines in transport and communication costs, increasing openness of countries to foreign capital, and international trade have increased the attractiveness of spreading the production chain across various geographic locations. This phenomenon has led to a spectacular increase in global FDI flows thus giving more countries an opportunity to become part of the global production chains (Torfinn Harding and Beata Javorcik, 2007). There are thus various motives that influence the investment decisions of Trans National Corporations (TNCs) who are the purveyor of FDI. Of these, the four main ones are market, efficiency, resource (all of which are asset exploiting strategies) and created-asset-seeking (an asset-augmenting strategy).
Surveys undertaken by United Nations Conference on Trade and Development (UNCTAD) and partner organizations on outward investing firms from developing countries confirm that, of these motives, the most important one for developing country TNCs is market-seeking FDI, which primarily results in intraregional and intra-developing country FDI. Within this, there are differences in patterns of FDI, depending on the activity of the TNC. For example, FDI in consumer goods and services tends to be regional and South-South orientated; that in electronic components is usually regionally focused because of the location of companies to which they supply their output. In Information Technology (IT) services it is often regional and orientated towards developed countries where key customers are located; and FDI by oil and gas TNCs targets regional markets as well as some developed countries which remain the largest markets for energy (UN, 2006:xxvii). Efficiency-seeking FDI is the second most important motive, and is conducted primarily by TNCs from the relatively more advanced developing countries hence higher labor costs. It tends to be concentrated in a few industries such as electrical and electronics and garments and textiles. Most FDI based on this motive target developing countries; that in the electrical/ electronics industry is strongly regionally focused, while FDI in the garments industry is geographically more widely dispersed. Not unexpectedly, most resource seeking FDI are in developing countries and much created-asset-seeking FDI are in developed countries.
Apart from the above-stated motives, another common motive for TNCs from some countries is that of strategic objectives assigned to State-owned TNCs by their home governments. Some governments have encouraged TNCs to secure vital inputs, such as raw materials for the home economy. For example, both Chinese and Indian TNCs are investing in resource-rich countries, especially in oil and gas to expand supplies, in contrast to targeting customers as does market-seeking FDI in this industry. In the case of Chinese TNCs, the quest to secure supplies of a wide range of raw materials is complemented by parallel and sustained Chinese diplomatic efforts in Africa, Central Asia, Latin America and the Caribbean, and West Asia. In terms of location of FDI, the net result of the relevant drivers, advantages and motives is that most investments are in other developing countries because of similarities in consumer markets, technological prowess or institutions or within their region thus neighboring countries with which they are familiar (UN, 2006:xxvii).
The greatest asset of Uganda, and the East African Community (EAC) region as whole, is the abundant natural resources in the region. East Africa presents the best competitive advantage in fisheries, tourism, hydro-power and agriculture. Yet, as President Jakaya Kikwete of Tanzania said, the EAC region has only 0.9% of Foreign Direct Investments (FDI) in developing countries. “These numbers paint a gloomy picture of EAC region but East Africa is not hopeless. EAC is well endowed with natural resources and people who are capable of doing more and better,” he said. Kikwete was optimistic that the EAC Common Market Protocol that was to come into force in July 2010 would advance the EAC cooperation, integration agenda, and development (The New Vision Newspaper, Monday, 10th May, 2010).
With a combined population of over 130 million people and a total Gross Domestic Product (GDP) of about $70b, the EAC is in a good position to attract investors. Investors can expect to benefit from a regional market that has an emerging middle class and a single tariff structure across the five member states of Burundi, Kenya, Rwanda, Tanzania and Uganda. Countries like China, India, Japan, the US and EU bloc have been trying to position themselves in the East African market that promises favorable returns.
In Uganda, enormous investment opportunities exist in agribusiness, fisheries, forestry, manufacturing, mining, infrastructure, financial services, tourism, printing and publishing, education, information and communication technology (ICT) and the newly found oil. However, some sectors have been classified as priority sectors, and they include Agriculture, ICT, Energy, Health, Education, Mining and Services such as tourism and finance.