Foreign Direct Investment (FDI) can be simply understood as a method of business expansion. It can include partnerships, takeovers, developments, etc but focused on the controlling position. The management systems are governed by the investor company and the investment must be in another country. 

So, what does FDI do to a country’s economy? FDI not only brings foreign money but also creates jobs, transfers technology, boosts economic growth, causes infrastructure development, and the government receives taxes to invest in public services.

FDI creates ample opportunities for the people of the native country. Whenever a company, organization, or investment group invests in any of the sectors in a country, it requires a lot of manpower to keep pushing productivity. Thus, job markets witness massive growth, creating potential and skilled workforces.

• Africa in 2024 is going to be the second fastest-growing economic region in the world, with a 4% average growth rate. Uganda possesses a high potential to draw foreign investments.
• Foreign Direct Investment (FDI) is increasing significantly in Uganda, but the country has miles to go to ensure a habitable environment for the investors.
• The investments are mostly focused on mining, transportation, manufacturing, and technology sectors, but agriculture is a rising field.
• FDI creates job opportunities, technological transfers, economic growth, infrastructure development, etc.

The total value of FDI in Uganda set a record by reaching $1.2 billion in 2023 which was only $850 million in 2019. The investment created over six thousand jobs. Uganda is in the top position in receiving FDI among the East African countries. But the fact is, most of it centered on mining, transportation, manufacturing, and technology sectors.

According to a report by the World Bank, Uganda reached $1266m in 2019 from FDI which is 3.6% of GDP. While the sub-Saharan average is at 1.8%, Uganda is drawing more and more each year. According to UNCTAD’s World Investment Report 2023, the Netherlands leads the investment with 38% of the total FDI in Uganda, followed by other countries such as France, China, the UK, etc.

Sources of FDI to Africa, 2023

If we just look at the livestock sector in Uganda and narrow down the focus to the dairy value chain only, the growth spotted there is huge. In the last decade, a significant uprising has been going through the country, 1.4 to 2.2 billion liters annually. The production witnessed a 50% rise in this period. Not only this, FDI brought about rapid modernization in the sector as well. While Uganda used to import dairy products a decade ago, the country is now exporting them. More surprisingly, dairy products ranked among the top three most important export products in 2018. The lack of recent data cannot fathom the current market but it’s no wonder that the value increased a lot more.

Uganda has a significant untapped potential in receiving FDI. There are a few factors that can drive the investments. Though the opportunities are yet to be capitalized, let’s take a look at the driving factors that help Uganda to receive foreign investment.

Young Population

The fun fact is, that Uganda has the youngest population in the world. Almost 70% of the living people in the country are aged under 24 years. And among them, 63% are employed in agriculture. The population in Uganda is expected to reach 104 million by 2060 and 70% of the people will be working age.

The young workforce in Uganda is, undoubtedly, going to receive more attention from investors than any other country in Africa. FDI organizations will see the massive labor force and consumer market ready to learn skills more quickly than older people and that will bring them into the country’s market to pour big amounts.

Good Market size

Uganda has an untapped market in agriculture. Even if the FDI is now concentrated on other sectors, the return is higher in agriculture and the focused sectors are directly connected to agriculture. The country has 80% arable land and 70% of the population is employed in agriculture, marking the cornerstone that agriculture holds the strongest grab in the economy. 

The market size and potential of it can create a difference in both attracting and receiving foreign investments. Uganda just needs to give a bit of extra care to it.

Other Factors

The other factors to attract FDI include trade through regional arrangements, political stability, and macroeconomic stability. African Continental Free Trade Area (AfCFTA) is signed by 55 countries and expects to reach a potential GDP of $3.4 trillion by using 1.3 billion people. AfCFTA will reach its full operationalization by 2035.

Uganda was one of the first countries to ratify the AfCFTA. The country understood the opportunity that AfCFTA will bring and adopted it on the first glimpse. And, as the country is looking to grab a large amount of FDI, this ratification will be a game changer for both Uganda and Africa’s economy as well as the job sector. It will not only open gates to economic sustainability but also ensure removing poverty.

Uganda faced a slow economy after being hit by the COVID-19 pandemic. The local farmers suffered a lot and the pandemic affected other sectors as well. Employment sectors were greatly affected, with almost 50% fall. Foreign Direct Investment (FDI), however, now filling the gaps in the economy. But there is other side of the coin. Uganda’s FDI framework needs a reshape. Without a proper guideline, investors can fall into the uncertainty of procedures not specified before. This could lead them to look elsewhere.

Keeping the infrastructure ready and the flow of the domestic economy smooth is another challenge. If not from the investors, the government needs to train the youths, upgrade the infrastructure, etc. 

Besides, investors expect full support from the government. But Uganda’s current framework is not providing the same. Moreover, regional competition is rising at full pace and Uganda has to go through it. 

The difficulties include other factors like a higher duty rate by the Uganda Revenue Authority (URA), poor infrastructure, corruption, absence of rule of law, etc. Adding up all these, the country needs to step up to shaping its FDI framework. Otherwise, it may lose potential overseas investments.

The African market is dominated by some countries that hold the potential to emerge as the next economic hubs in the continent. Uganda, being one of the few forces of this club, has the market, the people, the potential economy, and every other related factor to bring in Foreign Direct Investment (FDI). The country is continuously bringing the highest FDI already, ranging between $250m – $300m. In 2024, the target is even higher. Following Asia, Africa is going to be the second fastest-growing economic region in the world, with a 4% average growth rate.

But the competition is on the rise so the country needs to reshape its potential sectors along with the existing ones to drive more investment. A successful completion of these can place Uganda in the highest position in Africa. The Pearl of Africa can be the shining star both in Africa’s economy and job sector if it can manage to receive home and overseas investment properly.