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18 March, 2021updated 29 Oct 2021 17:46

The state of play: FDI in Uganda

A lack of political stability renders Uganda a risky destination when it comes to FDI, although the opportunities in the country are wide.

By Marina Leiva

Yoweri-Museveni-Uganda

Yoweri Museveni was again elected president of Uganda in January 2021, but the country’s political landscape is unstable. (Photo by Yasuyoshi Chiba/AFP via Getty Images)

With all sectors of the economy open to foreign investors and a recently revamped national investment promotion agency (IPA), foreign direct investment (FDI) in Uganda seems like a safe bet, but political uncertainties are still an obstacle in the minds of many investors.

There are, however, a wide range of sectors that still attract foreign investors. The Uganda Investment Authority, the country’s IPA, highlights agriculture value addition, mineral value addition, tourism and ICT as the priority sectors for FDI in Uganda. Furthermore, electronics, edible oil production, pharmaceuticals and infrastructure are also listed as sectors that offer opportunities for foreign investors.

Even though the country’s political environment is unstable, FDI into Uganda hit a record high in 2019, with an increase of $211m in inflows, up to $1.3bn, according to the UN Conference on Trade and Development (UNCTAD).

Is Uganda all talk on welcoming FDI?

However, an Investment Climate Statement on Uganda by the US Department of State underlines that despite a lot of pro-business noise made by the government, which includes the strengthening in 2019 of the Uganda Investment Authority as a one-stop-shop for investment in the country, the actions taken “do not support its rhetoric”.

The Department of State points to a series of risks to investors, such as poor economic management, growing sovereign debt and a failure to “invest adequately in the health and education sectors”.

On top of that, the report highlights concerns around competing against “third-country firms that cut costs and win contracts by disregarding environmental regulations and labour rights, dodging taxes and bribing officials”, which along with a low-skilled workforce and the fact that foreigners cannot own land directly, make the climate for FDI in Uganda less appealing.

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The country has since 1986 been ruled by president Yoweri Museveni, who won the presidential elections in January 2021, although talks about electoral fraud are widespread and protests have followed, with opposition leader Bobi Wine arrested for a brief period in March 2021 after joining a protest in capital city Kampala.

This political turmoil is likely to affect FDI in Uganda, but the strengthening of the IPA and the level of FDI flows seen pre-pandemic are good signs for investment in the country. However, until these political issues are resolved, Uganda will struggle to reach its full FDI potential.

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