KAMPALA: Foreign Direct Investments (FDI) to Uganda are projected to fall by 5% this year in what experts say is a big blow to job creation for Ugandan workers and economic growth prospects. The dip is being attributed to delays in oil production, weak domestic and regional markets, and a slowdown in the global economy.
Latest data from Bank of Uganda (BoU) shows that FDIs are projected to reach $995.6 million, down from $1,051.6 million recorded in 2014. This is the fourth year in arrow that Uganda is registering a decline in FDI’s since 2011.
Adam Mugume, the director of research at the BoU, told The Independent that the declining trend in FDIs is attributed to the subdued global economic growth and commodity prices especially in the oil sector, which have been the major pulling factor for foreign investors in the country.
World Bank has downgraded its outlook for global economic growth to 2.8% this year, 0.2 percentage points slower than in January.
“The oil sector has in addition been affected by the delays in oil production licencing,” Mugume says, adding that weak domestic and regional demand that have traditionally pulled FDIs into Uganda also contributed to the sharp decline. The decline in FDIs in the country has been reflected in the deterioration of the balance of payment and consequently the exchange rate depreciation.
Uganda’s export earnings are expected to drop by $200 million this year, attributed to a decline in global trade. BoU estimates that the total export earnings are projected at $2.4 billion while the import bill is likely to be $6 billion. In 2013/14, Uganda’s total earnings from exports were $2.697 billion but declined to $2.644 billion the following year, while the total import bill in 2013/14 stood at $6.037 billion and $6.059 billion in 2014/15, according to Uganda Bureau of Statistics (UBOS).
Uganda was an attractive FDI destination in the mid 2000s when FDI grew from $644.3 million in 2005 to $812.7million in 2008 mainly because of the positive prospects in the development of oil and gas sector. However, the positive trend was reversed by the global financial crisis, which saw the country’s FDI register a 37.7 % decline the cancellation of investments destined to the country took its toll.
In 2010, the country witnessed initial recovery of FDI peaking at $1,159.1 million in the subsequent year, in the anticipation of the oil developments, but even this vibrancy was cut short by the decline in the global oil prices and the delays in issuing of production licences. The government has far awarded only one conditional production licence to China’s CNOOC.
Last September, Ernest Rubondo, the head of the petroleum directorate in the energy ministry, revealed that the government plans to issue several production licences later this year to France’s Total E&P and UK’s Tullow PLC. The production licences, however, are yet to be issued.
In addition, the oil companies and the governments in the region are yet to agree on the route of the oil pipeline to the coast for export. The oil companies are yet to agree on whether the oil pipeline from the oil rich areas of the albertine region should pass via Kenya or Tanzania for export.
Over the years, the allure of foreign investors in the country has been slow, say for a few, interested in financial services, energy, and manufacturing sectors.
George Mulindwa, the portfolio manager at Stanlib, told The Independent that Uganda has to do more to attract FDI like its regional counterparts.
“Kenya and Tanzania have a more diversified FDI opportunities suite. The tourism sector, for instance, in these two countries is better placed to attract FDI in resorts, hotel chains, with the latter especially having a larger middle class, generating more consumer demand-which is a key consideration for long term investment like supermarket chains and shopping malls,” he says. He adds that the unreliable power and very poor infrastructure does not bode well for Uganda as an FDI destination.
Mayur Madhvani, the managing director of the Madhvani Group of Companies, says although Africa is the next investment frontier, the slow progress in attraction of FDI is also attributed to insecurity fears and Ebola.
“Foreigners look at Africa as one country…which makes them a little bit afraid,” Mayur told the Independent. Mayur said there’s also need for the local entrepreneurs to up themselves and invest in various sectors of the economy instead of relying on foreign investors.
Mulindwa, however, says the future of FDI’s in the country remains positive with the stability on both the political and economic fronts playing significantly on this outlook. “The global economic outlook concerning energy will also continue to play a role in the viability of further FDI in Uganda,” he says, adding that the price of a barrel of oil currently averaging $45 doesn’t bode well for further FDI in the oil sector.
