Uganda’s investment climate presents both important opportunities and major challenges for U.S. investors. With a market economy, ideal climate, ample arable land, a young and largely English-speaking population, and development underway of fields containing at least 1.4 billion barrels of recoverable oil, Uganda offers numerous opportunities for investors. Despite the negative effects of COVID-19 related countermeasures on the economy, including a 40-day July-August 2021 national lockdown, according to the Bank of Uganda (BOU), the economy grew by 6.5% in 2021, recovering from 1.5% contraction in 2020. On a fiscal year basis, the economy grew by 3.3% in FY 2020/21 (July 1, 2020-June 30, 2021) compared to 3% in FY 2019/20. Foreign direct investment (FDI) is still yet to recover from pre-pandemic levels, with receipts dropping by 35% to $847 million in FY 2020/21 compared to $1.3 billion in FY 2019/20. The International Monetary Fund (IMF) expects FDI to rebound due to oil-related investments projected at $10 billion over the next five years and the IMF also projects Uganda’s economy to return to pre-pandemic growth that averaged 5.3% from 2014 to 2019. Oil-related investments were spurred by the February 1, 2022 announcement by Uganda and its partners – Tanzania, TotalEnergies, China National Offshore Oil Corporation (CNOOC), and the state-owned Uganda National Oil Company (UNOC) – of final investment decision (FID) on upstream oil production, with first oil expected in 2025.
Uganda maintains a liberal trade and foreign exchange regime. In 2021, the IMF approved a $1 billion Extended Credit Facility (ECF) to the government to enable the country to deal with the COVID-19 crisis and spur economic recovery. Uganda received the first tranche of $258 million in June 2021 and the second tranche of $125 million in March 2022. As the economy begins to recover, Uganda’s power, agricultural, construction, infrastructure, technology, and healthcare sectors present attractive potential opportunities for U.S. business and investment.
President Yoweri Museveni and government officials vocally welcome foreign investment in Uganda. However, the government’s actions sometimes do not support its rhetoric. The closing of political and democratic space, poor economic management, endemic corruption, growing sovereign debt, weak rule of law, growing calls for protectionism from some senior policymakers, and the government’s failure to invest adequately in the health and education sectors all create risks for investors. U.S. firms often find themselves competing with third-country firms that cut costs and win contracts by disregarding environmental regulations and labor rights, dodging taxes, and bribing officials. Shortages of skilled labor, a complicated land tenure system, and increased local content requirements, also impede the growth of businesses and serve as disincentives to investment.
An uncertain mid-to-long-range political environment also increases risk to foreign businesses and investors. President Museveni was declared the winner in the widely disputed and discredited January 2021 general elections and started a five-year term in May 2021 after 35 years already in power. Domestic political tensions increased following election-related violence and threats to democratic institutions. Many of Uganda’s youth, a demographic that comprises 77% of the population, openly clamor for change. However, the 77-year-old President has not provided any indication that he or his government are planning reforms to promote more inclusive, transparent, and representative governance.
On the legislative front, Uganda’s parliament passed a Mining and Minerals Bill on February 17, 2022, aimed at reforming the mining sector and attracting larger mining companies to exploit Uganda’s cobalt, copper, nickel, rare earth, and other mineral deposits. However, the private sector has noted that the bill could limit potential international investment since it contains high tax and free carried interest provisions and insufficient legal protections for mining firms.
|TI Corruption Perceptions Index||2021||144 of 180||https://www.transparency.org/en/cpi/2021/index/uga|
|Global Innovation Index||2021||119 of 132||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, historical stock positions)||2020||$50||https://apps.bea.gov/international/factsheet/factsheet.html#446|
|World Bank GNI per capita||2020||$800||https://data.worldbank.org/indicator/NY.GNP.PCAP.CD?locations=UG|
1. Openness To, and Restrictions Upon, Foreign Investment
3. Legal Regime
4. Industrial Policies
5. Protection of Property Rights
6. Financial Sector
7. State-Owned Enterprises
Uganda has thirty State Owned Enterprises (SOEs). However, the Ugandan government does not publish a list of its SOEs, and the public is unable to access detailed information on SOE ownership, total assets, total net income, or number of people employed. The government has not established any new SOEs in 2021 but has ramped up expenditure for car manufacturer Kiira Motors Corporation. While there is insufficient information to assess the SOEs’ adherence to the OECD Guidelines of Corporate Governance, the Ugandan government’s 2021 Office of Auditor General report noted corporate governance issues in seven SOEs. In February 2021, the Ugandan government embarked on a plan to merge some of the SOEs to reduce duplication of roles and costs of administration. This process is still ongoing. SOEs do not get special financing terms and are subject to hard budget constraints. According to the Ugandan Revenue Authority Act, they have the same tax burden as the private sector. According to the Land Act, private enterprises have the same access to land as SOEs. One notable exception is the Uganda National Oil Company (UNOC), which receives proprietary exploration data on new oil discoveries in Uganda. UNOC can then sell this information to the highest bidder in the private sector to generate income for its operations.
8. Responsible Business Conduct
Awareness of responsible business conduct varies greatly among corporate actors in Uganda. No organizations formally monitor compliance with Corporate Social Responsibility (CSR) standards. CSR is not a requirement for an investor to obtain an investment license and CSR programs are voluntary. While government officials make statements encouraging CSR, there is no formal government program to monitor, require, or encourage CSR. In practice, endemic corruption often enables companies to engage in harmful or illegal practices with impunity. Regulations on human and labor rights, and consumer and environmental protection, are seldom and inconsistently enforced.
Uganda’s capacity and political will to regulate the mineral trade across its borders remain weak. On March 17, 2022, the U.S. Department of the Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Belgian national Alain Goetz, his company the African Gold Refinery in Uganda, and a network of companies involved in the illicit movement of gold valued at hundreds of millions of dollars per year from the Democratic Republic of the Congo (DRC). Uganda’s gold refining sector, which includes at least two other refineries in addition to African Gold Refinery (AGR), relies on conflict minerals illicitly imported from neighboring countries, especially from eastern DRC. While Uganda has no significant gold reserves, in FY 2020/21, gold remained the country’s largest export for the third FY in a row, totaling $2.2 billion.
Due to Uganda’s rampant corruption, the Ugandan government does not adequately enforce domestic laws related to human rights, labor rights, consumer protection, environmental protections, or other laws intended to protect individuals from adverse business impacts. According to the UN Panel of Experts reports, AGR, Uganda’s largest gold refinery, does not adhere to OECD Due Diligence Guidance for Responsible Supply Chains of Minerals from Conflict-Afflicted and High-Risk Areas, and there is no indication the Ugandan government is urging it to do so. Uganda joined the Extractive Industry Transparency Initiative in August 2020. As part of the process, Uganda formed a multi-stakeholder group (MSG) composed of government, industry, and civil society. As Uganda looks to develop its oil and gas sector, the MSG will monitor transparency and accountability in the sector, including environmental impact and land rights issues. Uganda has not formally adopted the Voluntary Principles on Security and Human Rights.
Uganda has generally adequate laws to combat corruption, and an interlocking web of anti-corruption institutions. The Public Procurement and Disposal of Public Assets Authority Act’s Code of Ethical Standards (Code) requires bidders and contractors to disclose any possible conflict of interest when applying for government contracts. However, endemic corruption remains a serious problem and a major obstacle to investment. Transparency International ranked Uganda 144 out of 180 countries in its 2021 Corruption Perceptions Index, dropping two places from 2020. While anti-corruption laws extend to family members of officials and political parties, in practice many well-connected individuals enjoy de facto immunity for corrupt acts and are rarely prosecuted in court.
The government does not require companies to adopt specific internal procedures to detect and prevent bribery of government officials. Larger private companies implement internal control policies; however, with 80% of the workforce in the informal sector, much of the private sector operates without such systems. While Uganda has signed and ratified the UN Anticorruption Convention, it is not yet party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions and does not protect non–governmental organizations investigating corruption. Some corruption watchdog organizations allege government harassment.
U.S. firms consistently identify corruption as a major hurdle to business and investment. Corruption in government procurement processes remains particularly problematic for foreign companies seeking to bid on Ugandan government contracts.
10. Political and Security Environment
There has been an uptick in crime over the past several years – particularly after the start of the pandemic – and Uganda has also experienced periodic political violence associated with elections and other political activities. Security services routinely use excessive force to stop peaceful protests and demonstrations. In 2021, Uganda experienced twin suicide bombings in the capital, Kampala, and another bomb explosion in the city outskirts. In the twin suicide explosions, one targeted the main central police station and the other took place a few dozen meters away from parliament gate. Four victims and the bombers were killed in the twin suicide bombings; ISIS-DRC claimed responsibility for both, as well as the earlier bombing on the outskirts, which killed one. Also in 2021, Minister of Works and Transport Gen. Katumba Wamala was targeted by armed assailants who fired bullets at his car, killing his daughter and driver. He survived with minor injuries. Political tensions increased dramatically prior to, during, and after the January 2021 general elections. Security forces in unmarked cars picked up dozens of opposition supporters and held them in detention long past the constitutionally mandated limit. Cases of torture allegedly perpetrated by elements within the security forces persist.
11. Labor Policies and Practices
Over 70% of Ugandans are engaged in the agriculture sector, and only 20% work in the formal sector. Statistics on the number of foreign/migrant workers are not publicly available; however, given the abundance of cheap domestic labor, there is minimal import of unskilled labor. Conversely, there is an acute shortage of skilled and specialized laborers. Uganda has a large informal sector that is estimated to contribute at least 50% of Uganda’s GDP. The informal sector, however, contributes less direct tax revenue; Uganda’s government is implementing several tax policies to raise revenue. Targeting the informal sector would reduce the pressure to tax foreign businesses. The passing of the Landlord and Tenant Bill in 2022 also sought to formalize the relationship between landlords and, especially, informal tenants.
While there are no explicit provisions requiring the hiring of Ugandan nationals, there are broad standards requiring investors to contribute to the creation of local employment. The Petroleum Exploration, Development, and Production Act of 2013 and the Petroleum Refining, Conversion, Transmission, and Midstream Storage Act of 2013 require investors to contribute to workforce development by providing skills training for workers.
Ugandan labor laws specify procedures for termination of employment and for termination payments. Depending on the employee’s duration of employment, employers are required to notify an employee two weeks to three months prior to the termination date. Employees terminated without notice are entitled to severance wages. Ugandan law only differentiates between termination with notice (or payment in lieu of notice) and summary dismissal (termination without notice). Summary dismissal applies when the employee fundamentally violates his/her terms of employment. Uganda does not provide unemployment insurance or any other social safety net programs for terminated workers. Current law requires employers to contribute 10% of an employee’s gross salary to the National Social Security Fund (NSSF). The Uganda Retirement Benefits Regulatory Authority Act of 2011 provides a framework for the establishment and management of retirement benefits schemes for the public and private sectors and created an enabling environment for liberalization of the pension sector.
The Employment Act of 2006 does not allow waivers of labor laws for foreign investors. Ugandan law allows workers, except members of the armed forces, to form and join independent unions, bargain collectively, and conduct legal strikes. The National Organization of Trade Unions (NOTU) has 20 member unions. Its rival, the Central Organization of Free Trade Unions (COFTU), also has 20 member unions. Union officials estimate that nearly half of employees in the formal sector belong to unions. In 2014, the Government of Uganda created the Industrial Court (IC) to arbitrate labor disputes. Public sector strikes are not uncommon in Uganda; however, there were no strikes during the past year.
Uganda ratified all eight International Labor Organization fundamental conventions enshrining labor and other economic rights, and partially incorporated these conventions into the 1995 Constitution, which stipulates and protects a wide range of economic rights. Despite these legal protections, many Ugandans work in unsafe environments due to poor enforcement and the limited scope of the labor laws. Labor laws do not protect domestic, agricultural, and informal sector workers.
Uganda’s monthly minimum wage remains $1.64.