Foreign direct investment (FDI) in Uganda

FDI in Figures

Uganda is one of the countries attracting the most FDI in East Africa, unfortunately the Covid-19 pandemic has significantly impacted its performance. According to UNCTAD'S 2022 World Investment Report, FDI in Uganda increased by 30.6% from USD 874 million in 2020 to USD 1.1 billion in 2021. The approval of the USD 5 billion East African Crude Oil Pipeline project in early 2023, which will lead to the construction of a 1,400km pipeline from Uganda to the seaport of Tanga in the United Republic of Tanzania, bodes well for investment in both countries. In 2021, the stock of FDI grew to USD 16.6 billion. According to UNCTAD report, some progress has been made in regulatory development in financial services (especially in insurance and capital market) and in privatisation in banking for attracting FDI. On the other hand, Uganda is rich in natural resources. FDI mainly goes to the coffee and mining sectors. Kenya, Germany and Belgium are the country’s main investors.

Uganda is rich in natural resources and its geographic location in the heart of sub-Saharan Africa gives it an ideal strategic base to become a regional hub of trade and investment. In recent years, the country has notably improved monitoring and regulation of power outages. In addition, progress has been made in the development of financial services regulation (particularly in the areas of insurance and capital markets) and in the privatisation of the banking sector. Foreign and domestic investors are generally treated equally by law, but barriers to trade persist. Although foreign investments have been made to improve the country's infrastructure projects, government management of these projects has been quite poor. Significant infrastructure problems persist and 15% of the population does not have access to electricity. The weakness of the education system and the communication network are obstacles to improving the investment climate. In addition, bureaucracy, costly business licensing requirements and a weak and ineffective court system discourage investment. In 2021, the Chinese company National Offshore Oil Corporation (CNOOC) and the French firm TotalEnergies agreed to invest USD 10 billion into an oil pipeline that will connect Ugandan oil fields to the port of Tanga, in Tanzania.

What to consider if you invest in Uganda

Strong Points

Among the reasons to invest in the country there are:

• significant natural resources: fertile land, oil and gas reserves, hydroelectric potential
• important infrastructure projects need to be carried on, with the contribution of international support
• political stability and steady economic growth
• totally liberalised foreign exchange regime
• growing, young population
• debt mostly subject to concessionary conditions
• an ideal climate and fertile soils yielding several crop harvests per year

Weak Points

Uganda’s weak points in terms of FDI attractiveness are:

• high levels of poverty and inequality
• lack of infrastructures (insufficient power transmission and distribution network, with low levels of electrification)
• insecurity in the border regions (DRC and South Sudan)
• corruption problems (Uganda ranked 151 out of 176 countries on Transparency International’s “2017 Corruption Perceptions Index”)

Government Measures to Motivate or Restrict FDI

The Government of Uganda has set incentives for industrial investments, including: a 75% import duty reduction on factory equipment, depreciating start-up costs over four years, and a 100% tax deduction on research and training costs as well as mineral exploration costs. According to the Uganda Investment Code Act, 100% of training costs are also deductible on a one-time basis. Investors engaged in export-oriented production can also enjoy a 10-year tax holiday.
Foreign investors engaging in certain sectors (notably wholesale and retail commerce, personal services, public relations, postal services and professional services, car hire services, bakeries, taxis, confectioneries and food processing for the Ugandan market only) are not eligible for incentives granted to investors in other business activities.