Foreign direct investment (FDI) in Uganda

FDI in Figures

Uganda is one of the countries attracting the most FDI in East Africa. According to UNCTAD'S World Investment Report 2023, FDI increased by 39% to USD 1.5 billion in 2022. TotalEnergies from France announced two significant greenfield projects: the development of the Lake Albert oil field in collaboration with China National Offshore Oil Corporation and Uganda National Oil Company for USD 6.5 billion, and the construction of the 1,440-kilometre East African Crude Oil Pipeline in a USD 3.5 billion joint venture involving Uganda National Oil Company, Petroleum Development Corporation from the United Republic of Tanzania, and China National Offshore Oil Corporation. In 2022, the Netherlands remained the primary source of foreign direct investment (FDI) inflows, accounting for 38% of the total, closely followed by the United Kingdom, which contributed 37%. Other significant source countries included Mauritius (7%), Kenya (5%), and Switzerland (3% - data Bank of Uganda). At the end of 2022, the total stock of FDI was estimated at USD 18 billion, around 37% of the country’s GDP. FDI is concentrated in the mining, transportation, finance, manufacturing, and ICT sectors.

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 privatization 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. Widespread corruption, a fragile rule of law, and challenges to open and unrestricted internet access—illustrated by an enduring three-year ban on Facebook—are among the factors that contribute to a difficult business landscape in Uganda. Furthermore, an increasingly assertive tax collection regime by the Uganda Revenue Authority (URA) further exacerbates these challenges. Overall, Uganda ranks 121st among the 132 economies on the Global Innovation Index 2023 and 140th out of 184 countries on the latest Index of Economic Freedom.

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.