By Stuart Oramire
In the past two years, I have keenly followed Uganda’s investment climate and can, purely from performance metrics, say Uganda has performed well as a hub for investments.
The current figures speak for themselves. Uganda is among the top 10 African countries that attracted the most Foreign Direct Investments (FDI) in 2023 according to the 2024 World Investment Report.
Uganda competed remarkably well against the continental heavyweights like Egypt, Nigeria and South Africa attracting a substantial US$2.886 billion in FDI in 2023.
Yet, a parochial analysis of Uganda’s investment trends based on FDI numbers alone may mask the underlying gaps that the government needs to address if we are to surpass the total investment percentage of our GDP from the current 28.56 percent. Uganda’s FDI alone as a share of GDP reached 2.3% compared to the NDP target of 3.176%.
Uganda’s success is attributable to fairly stable macro-economic policies, a liberalised business environment and being strategically located as a hub for regional trade.
Uganda’s natural endowments and the oil sector-related outlay have further helped enhance Uganda’s attractiveness to FDI.
The role played by a resurgent Uganda Investment Authority (UIA) must be underscored. From the establishment of One-Stop Centre for investment, decentralization of access to land for investments through regional Industrial parks and increased digitization which has significantly reduced the turnaround time for investment processes, UIA has made laudable progress.
Most importantly, the recent move by UIA to create a directorate for domestic investment could, if well facilitated, significantly boost investments to new heights. I will explain why below.
Dependence on FDI is risky due to the volatile global economic conditions. For example, inspite of the resilience of African economies, Africa’s growth declined to an estimated 3.8% in 2022, from 4.8% in 2021.
This was majorly because of the tightening global financial conditions aggravated by the Covid-19 pandemic, disruptions in supply chain exacerbated by Russia’s invasion of Ukraine, among others.
More so, FDI flows to Africa accounted for only 5.2% of global FDI in 2021, up from 4.1% in 2020. This is a paltry percentage for Africa.
The recent move by some developed countries led by USA to suspend trade and aid to Uganda due to the passing of the Anti-Homosexuality Act of 2023 further illuminates the dangers of reliance on FDI as the major driver of investment in the country.
In Countries like Kenya, KenInvest is now deliberately promoting domestic investment by encouraging citizens to pool capital through special purpose vehicles ranging from informal investment clubs, savings groups to more structured public companies.
These entities are helping Kenyans to navigate the bottlenecks of investment especially the lack of access to capital for investment.
In Uganda, we have both informal and formal groupings that pool resources but opt to invest largely in speculative ventures like real estate which locks up capital and yet attracts low returns on investment. These are potential investors who, if guided, can make better investment choices.
There is a classic example of tourism entrepreneur Amos Wekesa who pooled resources with his business associates to build a state-of-the-art agro-processing plant called PeLa commodities in Soroti Industrial Park with technical support from UIA. The plant is now boosting the Agricultural market in Teso.
In developed economies like China, South Korea and Taiwan, small cottage industries are the backbone of the mushrooming economies in these countries.
The other side to promoting domestic investment is through harnessing the ever-growing financial flows through remittances from Ugandans working in the diaspora.
In Uganda, total remittances alone from Migrant workers accounted for over $ 1.3 billion out of which $700 million came from the Gulf countries alone in 2022.
Profiling of Migrant workers, organising pre-departure investment seminars for migrant workers, and conducting SME-specific investment expos in countries with a large presence of Ugandans like the Middle East can significantly boost domestic investment.
Ease the cost of doing business as an enabler of domestic investment.
I will give one simple example to illustrate this challenge. Why should a smallholder farmer in Kasese striving to incorporate a company and formalize his small business pay an extra fee of Shs 90,000 to Shs 120,000 to Uganda Registration Services Bureau for a mandatory digital postal address he will never use?
How can such a cost stimulate the growth of small rural enterprises? Such a fee may be a revenue stream for Government but it also hamstrings domestic investment.
The creation of a one-stop center for Investment can ease the turnaround time for investment processes. However, for this facility to be effective, it must also be empowered as a resource center that integrates all investment-related information with forward and backward linkages to sister agencies like Uganda Export Promotions Board and Uganda Coffee Development Authority among others.
This helps to eliminate unnecessary bureaucracy and make investment processes seamless and attractive to investors.
Domestic investment can be an important stimulus for micro and macro-economic growth but only if we invest as much effort as Government has in promoting foreign investment.
The author is a lawyer and the executive director of Uganda Association of External Recruitment Agencies.
stuartoramire@gmail.com
