The Uganda Investment Authority (UIA) has predicted a significant decline in both foreign direct investment (FDI) and domestic direct investment (DDI), particularly in tourism, transport and construction sectors, due to the economic crisis induced by the COVID-19 pandemic and shutdown.
Industry Investment

Uganda Investment Authority predicts a decline in investments

The Uganda Investment Authority (UIA) has predicted a significant decline in both foreign direct investment (FDI) and domestic direct investment (DDI), particularly in tourism, transport and construction sectors, due to the economic crisis induced by the COVID-19 pandemic and shutdown.

According to the  “UIA Policy Paper on Boosting Investments during and post-COVID-19 Period” that was released over the weekend, the value of planned FDI projects in 2019/20 financial year was USD 1,184 million with projected growth of 28 per cent but now investment is projected to decrease in 2019/20 and 2020/21 financial years, starting to rebound in 2021/22 financial year.

The report, an outcome of the quick survey UIA conducted on the impact of the COVID-19 lock-down on investments, attributes the projected decline in FDI on the negative impact of COVID-19 pandemic on the economies of FDI source countries such as China, India, and the European Union like a disruption in supply chains, slow economic activity, reduced foreign remittances and slow investment decisions.

The report states that DDI, which declined to US$328.7 million in 2018/19 financial year from US$441.1 million the previous year, is forecast to decline by 50 per cent in this ending 2019/20 financial year, rising gradually through 2020/21financial and rebounding between 25 per cent to 30 per cent in 2021/22 financial year.

Foreign remittances into Uganda, states the report, are projected to decline to impact negatively on especially the real estate sector.

According to the Bank of Uganda, foreign remittances are projected to decline to US$238.8 million in 2020/21 financial year down from US$955.6 million in 2019/20 financial year, attributed to a fall in wages and decline in employment of Ugandan Diaspora.

The results of the quick survey on the impact of COVID-19 on investments showed that the workforce has been adversely affected, with the biggest number of companies, 23.8 per cent, reporting that they had asked workers to stay home, but supported them with some minimal allowances, while 21.8 per cent of the companies said they had decreased the number of working hours.

On the impact on business continuity measures, the report states that 56 per cent of the respondents had temporarily closed business or production.

The report adds that the topmost concern for most businesses (145) during and after the COVID-19 pandemic is uncertainty, accounting for 22.4 per cent of all businesses that responded to the survey.

Other top concerns are loss of revenue, reduced productivity and/or demand for services, business closure, cash flow issues, inability to pay taxes, staff wages, utility, rent and internet costs, and inability to service debt or loans, amongst others.

The policy paper, which has been presented to the Executive and Parliament, calls for policies and interventions formulated on the basis of evidence generated in order to mitigate the negative impact of the pandemic on private investments in Uganda.

At an organizational level, Uganda Investment Authority is doing the following in the medium term, amongst others:

  • Developing bankable projects to ease the setup of investment projects and access to affordable investment finance;
  • Establishing regional One Stop Centres to take Government service delivery closer to the business communities all over the country which will further lower the cost of business for the investors and enable faster investment uptake away from the urban areas, which will hasten the creation and sustainability of the upcoming cities;
  • In tandem with the One-Stop Centres, create Business Development Centres to enable potential and existing investors to have access to relevant and up to date investment information as well as business advisory services in order to facilitate faster and informed investment decisions and service companies looking to diversify, seek partnership or funding to stabilize/expand operations;
  • Setting up of Incubation Centres and WorkSpaces for SMEs in the industrial parks. The centres will be used to support SMEs to enhance their business skills, connect them to markets and introduce them to ICT4Business, as well as incubate Youth Apprenticeships (Graduates drawn from the relevant institutions of higher learning) by allocating them to the SMEs incubated;
  • In line with the requirement for maintaining social distance, leverage use of ICT in its operations by harnessing the use of information technologies like teleconferencing, remote working, analytics and digitization, virtual reality solutions, SME online platform and call centres;
  • Enhancing image building campaigns to market Uganda as the preferred investment destination through documentaries and upgrading of UIA online news and information platforms, amongst others;
  • Establishing four Science, Technology and Innovation Parks (STIPs) in Kyankwanzi (for Buganda), Kamuli (for Busoga sub-region), Pakwach/Nebbi (for West Nile sub-region) and Rubirizi (for Ankole sub-region); and
  • Developing five new industrial and business parks under the Forum for China-Africa Cooperation (FOCAC) arrangement namely Koboko–Oraba (180 acres), Nwoya (500 acres), Kaweweta (640 acres), Kabarole (500 acres) and Kasese (219 acres). The infrastructure in the industrial parks will include tarmac roads, industrial power and water supply, central sewerage treatment plants, solid waste management systems and security systems, amongst others.

The report states that UIA, working with the private sector under the aegis of the Presidential Investor Roundtable (PIRT), which it facilitates, has made a raft of policy and intervention proposals to the Government.

These include funding for the agriculture sector, particularly having a specific horticulture fund with Uganda Development Bank amounting to US$25 million to be accessed for existing operations only, reduction of the VAT rate to 14 per cent from 18 per cent for 2020/21 financial year to reduce the cost of production, drop in electricity prices by 30 per cent from April 2020 to September 2020 for lodges, Agri processors and all manufacturing factories, reduction in corporate tax to 20 per cent from 30 per cent for the next two years )2020/21 and 2021/22).

Other proposals in the report are increased financing for SMEs, boosting domestic direct investment in a labour-intensive industry like Agri sector for export and import substitution, creation of development funding for domestic direct investment and remodelling of the Youth Livelihood Fund and Women Enterprise Fund by linking SMEs with UIA to boost domestic direct investment throughout Uganda.