James Tayebwa Bamwenda. Photo/Courtesy
The Ugandan economy is significantly shaped by Foreign Direct Investment (FDI), raising questions about the role of local businesses and the country’s reliance on foreign capital. Uganda’s Minister of State for Trade, and businessman Sudhir, recently noted that the Indian community, which is a small portion of the population, contributes around 60 per cent of the national GDP.
This highlights a dependency on foreign investments, with sectors like telecom, banking, energy, and manufacturing dominated by FDIs. This prompts critical questions whether; Uganda is fostering a level playing field for its citizens, are small and medium-sized enterprises (SMEs) are competing favorably, and is Buy Uganda Build Uganda (BUBU) policy effectively promoting domestic production?
The private sector in Uganda consists mainly of SMEs making up about 90 percent of businesses, employing over 2.5 million people, contributing approximately 20percent to GDP, and are essential to Uganda’s economic stability. SMEs struggle to compete with foreign companies, which benefit from tax breaks, financing, and infrastructure. Uganda’s Investment Code Act offers foreign investors income, VAT, and import duty exemptions, while Ugandan businesses face a corporate tax rate of around 30percent and VAT on essential goods, limiting their growth potential.
FDIs also have access to industrial parks with reliable government-supported infrastructure, helping reduce costs. Local businesses, on the other hand, face additional expenses due to inconsistent power supply, inadequate transport networks, and limited access to industrial spaces.
As FDIs access loans from international banks at lower interest rates, Ugandan SMEs rely on local banks, where interest rates can exceed 20 percent, creating a significant financing barrier and hindering their ability to scale and compete.
The BUBU policy, launched in 2014, aims to promote Ugandan products in government procurement and encourage citizens to buy locally. Despite this, Ugandan goods struggle against imports, which are perceived as higher quality, and are prioritized in procurement due to bureaucratic inefficiencies and consumer biases.
Ugandan businesses do not receive the same tax breaks and financial support provided to foreign investors, limiting their growth and competitiveness in both domestic and export markets. Implementing BUBU is challenging due to inconsistencies in enforcement, inadequate financial support, and low consumer confidence in local brands, reducing the policy’s impact, leaving Ugandan producers disadvantaged in their home market to compete against foreign products.
The government’s pro-FDI is influenced by ideological alignment with global capitalism, and external pressures from international financial institutions and global principles that prioritize foreign capital inflow, which has boosted GDP in the short term but limited Uganda’s potential to develop local industrial base.
Dependence on foreign capital to sustain economic growth discourages the regulation of FDIs, which benefits from relaxed policies that take precedence over support for local industries. International financial institutions advocate for policies that improve the “ease of doing business” for foreign investors, which pressures Uganda to maintain an investor-friendly environment.
For sustainable sustainable growth, Uganda must balance FDI with support for local enterprises. Equalising tax incentives between foreign and local businesses would help create a level field, like offering tax breaks on essential inputs and exempting SMEs from VAT could stimulate growth in local businesses.
Investing in infrastructure and providing affordable financing options would support SMEs. Expanding resources at the Uganda Development Bank (UDB) for competitive loans and developing industrial parks accessible to Ugandan businesses could lower production costs for local manufacturers. Strengthening BUBU policy enforcement by ensuring government departments prioritize local products in procurement would drive demand for Ugandan goods and encourage domestic production.
A balanced economic approach, where local industries are empowered alongside foreign investments, could transform Uganda into a self-sufficient economy, reducing reliance on FDI and establishing a foundation for sustainable, internally driven growth.
