The Ministry of Finance, Planning and Economic Development (MoFPED) notes that Foreign Direct Investment (FDI) inflows into Uganda grew from $1.36billion in April 2022 to $1.5 billion for the year ending April 2023. FDI contributes over 4% of Uganda’s gross domestic product (GDP), according to the World Bank. This is still below the averages of 5.4% and 5.5% for low-income countries and the Sub-Saharan Africa respectively.
FDI refers to ownership of a stake in a company or project made by an investor, company, or government from another country. FDI has the potential to spur economic growth through facilitating technology transfer, employment creation, skills and knowledge development, and foster capital formation and these collectively contribute to the country’s development.
In the past two decades, Uganda has increased effort to attract FDI. The Government established the Uganda Investment Authority (UIA) under the Investment Code 1991 (later revised in 2019) as a semi-autonomous oversight body mandated to boost both local and foreign investments and advise Government on appropriate policies conducive for investment promotion and growth. In 2004, Uganda Registration Service Bureau (URSB) started to facilitate business registration and ensuring intellectual property rights in Uganda.
The UIA is the primary Investment Promotion Agency (IPA) at the center of Uganda’s institutional framework. According to the World Bank (2021), governments use IPAs attract, retain, and expand FDI in their countries. UIA provides a physical one-stop-center for investors to access all services necessary for starting a business (NIP, 2018).
The National Investment Plan (NIP, 2018) outlines the government approach for the management of investment in the country and identifies institutional arrangements, a set of rules or agreements governing the activities of a specific group of people pursuing a certain objective (Eaton et. al., 2008), as one of the conditions for the proper implementation of the plan.
Other strategies to create a conducive environment include stable electricity, piped water, good transport infrastructure, and internet connectivity, incentives such as tax holidays, identification of priority sectors for investment, regional integration, and participation in investment promotion campaigns. Despite all these efforts by the government, institutional related challenges continue to hinder the inflow of FDI.
For instance, despite Uganda’s legal and regulatory systems being generally transparent and non-discriminatory on paper, bureaucratic hurdles and corruption continue to discourage foreign investors. [i] Bribery, bureaucratic tendencies, and inconsistent law enforcement makes it burdensome and expensive to obtain the work permits and licenses.
Strengthening institutions is crucial to address the investment challenges and create an enabling environment that attracts and retains FDIs. It provides investors with assurance that their investments will be protected and that they would have redress in case something goes wrong.
Furthermore, strong investment-supporting institutional mechanisms ensure efficient and transparent bureaucratic processes that minimise corruption and time costs, encourage enforcement of a robust legal and regulatory framework that protects the rights and interests of investors. In addition, it contributes to the establishment of essential infrastructure necessary for attracting FDI through coordinated efforts between different government institutions and agencies.
Therefore, this article recommends the following action points to strengthen institutional arrangements to attract FDI.
- The Government should eliminate prolonged processes, say the time it takes to connect electricity to one’s premises. Bureaucratic tendencies create unnecessary red tape to ensure efficiency, transparency, and accountability of institutions charged with creating an investment-friendly environment. There should be reduced Bureaucratic tendencies especially at URSB because it delays registration of investors’ businesses which in turn chases away investors since they fear the long procedures of registration and also asking them for money to fasten the process.
- In addition, through the UIA and URSB the Government should develop and strengthen a centralized platform for promoting Uganda as an investment destination.
- Leverage Uganda’s membership in regional economic communities, such as the East African Community (EAC) and the Common Market for Eastern, Southern Africa (COMESA) and Africa Continental Free Trade Agreement to expand market access and attract regional FDI flows on promise of a wider market access.
- In addition, the government can ensure the existence of robust legal frameworks that protect investments, enforce contracts, and provide effective dispute-resolution mechanisms to instill confidence in foreign investors.
- The government can also enhance the quality and availability of skilled labour through education and vocational training programs to provide investors with a competent workforce.
- Lastly, establishment mechanisms to monitor and evaluate the effectiveness of institutional arrangements and policies to identify areas of improvement and refine strategies to maximize FDI’s impact on Uganda’s economic development.
In conclusion, by addressing the institutional challenges and being intentional to ensure an attractive investment climate, Uganda will be assured to attract substantial FDI inflows. This means enhanced job creation, technological transfer, and drive sustained economic growth.
REFERENCE
Eaton, D., G. Meijerink, J. Bijman. 2008. Understanding institutional arrangements: Fresh Fruits and Vegetable value chains in East Africa. Markets, Chains and Sustainable Development Strategy and Policy. http://www.boci.wur.nl/UK/Publications/
The World Bank (2021). Uganda’s Investment Reform Map: Preliminary Analysis and Findings. Accessed from: https://www.ldpg.or.ug/?smd_process_download=1&download_id=4157
Ministry of Financial Planning and Economic Development (2018). National Investment Policy (NIP). Accessed via the link https://finance.go.ug/sites/default/files/Publications/Draft%20National%20Investment%20Policy%202018.pdf
Uganda Investment Authority (2021). A practical guide to doing business in Uganda. Accessed from: https://www.ugandainvest.go.ug/wp-content/uploads/2019/11/A-practical-guide-to-doing-business-in-Uganda.pdf
Uganda Investment Authority Strategic Plan (2020/21-2024/25). Link: https://www.coursehero.com/file/166096858/UIA-STRATEGIC-PLAN-2020-2025-compressed-FINAL-VERSIONpdf/
[i] 2021 Investment Climate Statements: Uganda. U.S. Department of State.