Is Uganda truly a prime destination for investors?

In an attempt to entice high-value foreign investors; countries worldwide have gone to untold lengths to put together packages to wheel in high-net-worth businessmen to invest in their economies.

The USA has got the $1 million [Shs 3.8 billion] green card issued under the EB-5 program. In this scheme, wealthy foreign nationals willing to invest $800,000 [Shs 3 billion] to $1 million in an approved project that promises to create jobs for Americans, are set on a path to legal residency in the USA.

The UK up until February 2022 ran the Tier 1 investor visa commonly known as the golden visa which could lead to citizenship in 5-6 years and permanent residency in 2-5 years to individuals with access to a minimum of £2 million [Shs 9.4 billion]. This project was shut down because the UK was leery of dirty money from Russian investors.

In comes Uganda, which provides free land, safe passage for repatriation of profits for investors, a tax holiday of up to 15 years on a corporation’s profits: if an investor is going to invest $10 million [Shs 38 billion], and access to cheap electricity. This was reaffirmed by the state minister for Investment and Privatisation Evelyn Anite at a State House function hosted for Sudanese president Omar Bashir and his envoy in 2017, and in a video making rounds on social media by the minister.

“We give you land for free; we can give up to fifteen years tax holiday … and that’s corporation tax by the way; if you invest $10 million worth in our economy, and then we’ll make sure you get access to electricity at only five cents …” Evelyn Anite says in the video. Her pronunciation highlights key flaws in policy which have cost the country dearly.

First, is the tax expenditure concern which is the cost the government foregoes when it awards tax exemptions to businesses. The IMF country report No. 2024/077 estimates that for the financial year [FY] 2022/23, one per cent of Uganda’s GDP is foregone in tax exemptions,

“while an even larger part of tax exemptions is administered outside the Uganda Revenue Authority [URA] domain”, the report asserts. Tax expenditure is real money that goes out of Uganda’s treasury.

The parliamentary budget committee report for FY 2023/24 places the figure of tax exemptions at 2.478 trillion shillings [$655.1 million] which is 1.56 per cent of GDP. The report continues to state that government has no clear criteria, or guidelines for selecting tax expenditure beneficiaries. What’s more, the government has never made a tax expenditure monitoring and evaluation report.

Inherently, tax exemptions favour big investors, and even bigger employees who rank high in organisations’ structures while paying the majority of workers poorly, denying them benefits like housing, and health. In Uganda, an inclusion of a tax exemption policy to favour nationals is still out of reach for many local investors who have to invest $300,000 [UGX 1.1 billion] in manufacturing in one of the industrial parks situated across the country to qualify for a ten-year tax holiday.

This calls into question the merits of this policy to the economy as after enjoying this benefit, [foreign] businesses can pack up, and leave with all their profits as guaranteed by the government.

In the past, government’s issuance of tax exemptions to particular investors has bordered on fanaticism as it was ferreted out by the parliament’s accounts committee in 2014 that Bidco, an oil palm-growing company, was enjoying an unheard of 25-year tax holiday.

In the same breadth, it came to light that government was eating out of the palm of now bankrupt investors — AYA group, which is run by Sudanese born businessman Mohammed Hamid by footing all the group’s tax obligations according to the Auditor General’s report of 2015/16.

The effectiveness of the tax holidays given to the two firms — AYA and Bidco to the economy is questionable as AYA has since gone bankrupt, and Bidco was rocked by a workers’ strike due to poor working conditions. This suggests that the revenue the government forewent from these two investors was misplaced, and will not be recovered in any way, shape or form.

The fact that Uganda is able and willing to give anyone sporting an investor cap long tax holidays may indicate desperacy, and that the economy isn’t vibrant enough to appeal to serious investors hence the unrestrained sign-on perks.

In a report issued by the IMF on Uganda in March 2024, the international lender advises government to conduct a cost-benefit analysis of tax incentives to determine their impact, and also strengthen controls for their administration to limit leakages.

On the authority of Uganda Bureau of Statistics [UBOS] in a 2022 report, the poverty head count ratio in Uganda is estimated at 42.1 percent.  The report: UBOS Multidimensional Poverty Index claims that 15 percent of the population in Uganda is poor.

Another report released by African Development Bank [AfDB] — The Middle of the Pyramid: Dynamics of the Middle Class in Africa, states that Uganda has a middle-class of 8.1 per cent in the total population.

This means that Uganda’s middle-class is smaller than that of Kenya at 16.8 per cent, Togo at 8.8 per cent, Djibouti at 14.8 per cent; but is bigger than that of Tanzania which is at 2.9 per cent, Rwanda at 2.6 per cent, and Burundi at 2.9 per cent. All being percentages representing the middle-class in the total population.

The AfDB classifies the middle-class as individuals with an annual income exceeding $39,000 [UGX 147.5 million], loosely translated as UGX 12.2 million monthly income. At the same time, the report points out that a larger proportion of Uganda’s middle-class falls in the category of the floating middle-class which spends between $2 [UGX 7,500] to $4 [UGX 15,000] a day, and is at risk of relapsing into poverty.

Overall, the middle-class inclusive of the floating middle-class makes up 18.7 per cent in the population. This group [floating middle-class] struggles to pay rent, school fees, doesn’t have access to good health care, and is afraid to have children for fear of not being in position to provide for them.

The middle-class is the backbone of any economy because of its purchasing, and investment power which stimulates economic growth. A small and incoherent middle-class can be interpreted as a slow growth, even regressing economy.

When that is added to 51.53 percent of the population living on less than $1.25 [UGX  4,700] a day, which is more than the number of people living below the international poverty line in Kenya — 19.72 per cent, Ethiopia 39.04 per cent, and Togo 38.68 percent; this puts into perspective the purchasing power within Uganda’s economy. Further, it explains the exodus of several multinational corporations: British airways, ShopRite, Game Stores, Etihad Airlines, Vodacom and Africell Telecommunications, Barclays bank; and many more out of the Ugandan market.

Other concerns of extreme importance to a bonafide investor looking to pitch camp in Uganda are: a lack of market depth, the Absa financial markets index 2023 gives Uganda a 46 out of 100 score in this category. The capacity of local investors which is conspicuously low with a 14 out of 100 score in the Absa financial markets index 2023.

When foreign investors come into the market, they will need to work with local investors as suppliers, agents; but because the local investors are beggared, it raises the cost of doing business in Uganda.

The violent political atmosphere, bureaucratic red tape, corruption, and flagrant human rights record make Uganda a less desirable economy to do business in.

When I reached out to the state minister for Investment and Privatisation Evelyn Anite for comment via text, and on phone regarding this matter, she didn’t respond.  Izama Angelo, board member Uganda Investment Authority, was on call; and editorialized Uganda’s open policy: that investors would carry their profits back home is what sets Uganda apart as a suitable investment destination.

He showed optimism towards the availability of an educated workforce consisting of graduates produced annually. On countries like Djibouti having a bigger middle-class than Uganda Mr. Izama said, “the economy of Djibouti is fully dependent on foreign military bases stationed there with only a small section of the ruling family living affluently in the countryside”.

This isn’t typically the case for Uganda which has a diversified economy depending on agriculture, mining, energy, and manufacturing sectors.

Not all is doom and gloom in Uganda since the population is one of the youngest in the world, and many sectors are only starting to take form, which creates investment opportunities and advantages for early investors. Also, savvy [foreign] investors can easily exploit loopholes in the system.

Nevertheless, the government has got to find an equilibrium to benefit the indigenous investors through policy and capacity building with the same vigour they award foreign investors.

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