Accelerate domestic investment to lessen Uganda’s deficit

Uganda competed remarkably well against the continental heavyweights like Egypt, Nigeria and South Africa attracting a substantial $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 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 percent compared to the National Development Plan target of 3.176 percent.

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. 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, decentralisation of access to land for investments through regional industrial parks and increased digitisation, which has significantly reduced the turnaround time for investment processes. 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, in spite of the resilience of African economies, Africa’s growth declined to an estimated 3.8 percent in 2022, from 4.8 percent 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 percent of global FDI in 2021, up from 4.1 percent in 2020. This is a paltry percentage for Africa. The recent move by some developed countries led by the USA to suspend trade and aid to Uganda due to the passing of the Anti-Homosexuality Act, 2023, further illuminates the dangers of reliance on FDI as the major driver of investment.

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 an agro-processing plant called PeLa Commodities Ltd,  at Soroti Industrial Park with technical support from UIA. The plant is now boosting the agricultural market in Teso.

We can also promote domestic investment is through harnessing the ever-growing financial flows through remittances from Ugandans working in the diaspora. In Uganda, total remittances from migrant workers accounted for more than $1.3b out of which $700m came from those in Gulf countries in 2022. 

However, there is a challenge on the cost of doing business. For example , why should a smallholder farmer in Kasese who wants  to formalise the business pay betweeen Shs90,000 to Shs120,000 to Uganda Registration Services Bureau for a mandatory digital postal address he might never use? Such a fee may be a revenue stream for the government but it limits domestic investment.

Stuart Oramire is a lawyer and the executive director of Uganda Association of External Recruitment Agencies.