By James Karuhanga
Senior Researcher, GLCSS
According to the 2006 World Investment Report (WIR), Uganda leads its East African partners in attracting Foreign Direct Investment (FDI). In 2005, Uganda’s FDI rose by 16 percent up from 14.7 percent in 2004.
According to the Uganda Investment Authority (UIA), most FDI comes from the United Kingdom, United States of America, Kenya, South Africa, Canada, Egypt, Norway, Mauritius and China. In 2005, UIA registered 284 projects – valued at US$ 878.6 million in planned investment – that created 28,698 planned jobs.
‘’The FDI is improving apart from energy as the major challenge and we are working on easier legislation,’’ said the UIA Executive Director Dr. Maggie Kigozi.  She added that in her view the sky is the limit, explaining that Uganda has many more unexploited investment opportunities.
Commercial farming is one of the business sectors attracting foreign investments. Two Indian firms will early next year set up multi-million dollar investments in Uganda’s fish industries.
The government has already identified land where the investors will set up their factories. One of the investors will spend US $8 million to set up a commercial prawn fish farm and the other will set up a US $ 4 million aquaculture enterprise.
The investors in fisheries apart from producing their own fish and sea food will boost Uganda’s economy by buying fish from smaller commercial farmers and processing it to add value for higher export earnings. The government has also set aside Shs.1billion through a Fisheries Development Project to assist medium scale farmers and Shs.500 million towards smaller fish farmers to help improve their capacity.
On 24 October, TATA, an Indian multinational firm, signed an agreement with the government to process coffee for the first time in the country. Uganda has provided 50 acres of land, tax incentives and other utilities for its first instant coffee processing plant, and this is a big step in adding value to the country’s exports.
“For the first time Uganda will export instant coffee,” said Dr. Ezra Suruma, Uganda’s Minister of Finance, Planning and Economic Development, “this is an important development.”
Uganda, a major organic coffee producer, will benefit from value addition to its coffee exports and the investment will also create employment opportunities. It is clear that even small-scale farmers will benefit from regional markets if supported with quality production brought in by such investments.
However, it will take more substantial investments in soluble coffee processing to significantly improve coffee farmers’ incomes given the country’s large total annual output. TATA will buy and process up to 10,000 tons of raw coffee but it will be a mere five percent of Uganda’s total annual output hence the need for more factories to widen the impact.
Uganda is also trying to reduce bureaucratic red tape through Streamlining Government Machinery.
“There is a lot of improvement and we are much better than we used to be,’’ Kigozi emphasized, ‘’look at the investment climate, we are doing well in the justice system and we have very effective commercial courts.’’
Kigozi explained that Uganda has tax appeal tribunals, a center of arbitration and dispute resolution which combined with the fully liberalized economy also contribute to making ‘investors feel comfortable.’  She also pointed to a well regulated financial sector – with laws in place, a capital markets authority, and Uganda’s central location in the region. ‘’Uganda is also a very resource rich country with fertile soils and many minerals,’’ she said.
According to Kigozi, most foreign investments have gone into manufacturing over the last six years.  In the last two years, tourism has increased.  Agriculture has always done well but now has been overtaken by the construction sector. GLCSS believes Uganda still has more investment opportunities to be tapped given its vast resource base.
Kigozi mentioned MTN at $180 million as the largest project; Madhvani Group of companies with a turn-over of $220 million; and Mukwano another group of companies at about $120 million. Kenya’s BIDCO, involved in palm oil growing and processing with $165million and is now bringing in $135million in bio-diesel energy. An additional $30 million is expected to be invested soon.
One of the most active investors in Uganda, Madhvani Group, has diversified interests in manufacturing, agriculture, tourism and service sectors. It employs over 10,000 people and apart from contributing much to the country’s revenues, it is also trying to help alleviate Uganda’s energy crisis by feeding electricity into the national grid using bagasse (a sugar by-product).
There are many more investment opportunities in the diverse economy: textiles, coffee, minerals, fruit processing, meat processing, power generation, floriculture, wood, fisheries and information technology industries and oil exploration.
Placing Uganda in context, however, it is worth noting that the persistent drought in the region will continue to severely affect the economy. The long drought is responsible for the country’s current energy crisis that is felt in all sectors of the economy.
Also affecting Uganda’s economic revival is the security situation in some parts of the country, especially the northern and northeastern regions. The Lord’s Resistance Army (LRA) insurgency in the north has been substantially controlled but the Karimojong warriors in the northeast are increasingly wrecking havoc and hindering investments to the drought ridden but mineral rich and fertile region.
Most of the war affected northern region has very fertile soils which if put into use will substantially impact on the country’s self-sufficiency in food. Peace and security in the north will also open up the cross border trade with South Sudan, further strengthening the economy. Apart from the above, GLCSS also believes that most of the expenditure wasted in the war effort could be used in economic developmental issues with much benefit to Uganda’s economy.
 
William Church is director of the Great Lakes Centre for Strategic Studies, a London-based think tank with offices in Central and East Africa. You may contact James Karuhanga at james@glcss.org. GLCSS trains African journalists, offers an on-site internship to foreign African studies students, and manages an exchange program with journalists from the United Kingdom, the United States and Europe.

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