R 160529Z JAN 09
FM AMEMBASSY KAMPALA
TO SECSTATE WASHDC 1047
INFO IGAD COLLECTIVE
DEPT OF TREASURY WASHDC
DEPT OF COMMERCE WASHINGTON DC
CIMS NTDB WASHDC

UNCLAS KAMPALA 000077 
 
 
DEPARTMENT FOR EB/IFD/OIA, USTR 
 
E.O. 12958: N/A 
TAGS: EINV EFIN ETRD ELAB KTDB OPIC USTR UG
SUBJECT: SUBJECT:  2009 INVESTMENT CLIMATE STATEMENT - 
UGANDA 
 
REF: 08 STATE 158802 
 
 
Following is the Investment Climate Statement for Uganda as 
requested in reftel.  This information will also be 
transmitted to EB/IFD/OIA via e-mail and included in Chapter 
6 of the Country Commercial Guide for Uganda. 
 
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2009 UGANDA INVESTMENT CLIMATE STATEMENT 
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Strong economic growth, open markets, and abundant natural 
resources provide good opportunities for knowledgeable 
investors in Uganda, though significant challenges exist. 
The Government of Uganda (GOU) has won acclaim for its 
macroeconomic management in recent years, and is currently 
revising a range of laws and regulations to create greater 
government accountability, open markets, develop 
infrastructure, and build a more attractive environment for 
foreign investment.  The GOU has also been working to attract 
investors through increased budget allocations for 
infrastructure development.  Budgetary spending on roads in 
doubled, to some $680 million, in the 2008/2009 fiscal year. 
The budget law also scrapped taxes on a range of goods, 
including schools, hotels, hospitals, agro-processors, and 
heavy truck transporters. 
 
This strategy has reaped rewards.  Foreign direct investment 
(FDI) flows to Uganda stood at $368 million in 2007, lower 
than in both 2005 and 2006, but up drastically from 2001, 
when investment was $150 million, according to the World 
Investment Report for 2008.  The overall economy, meanwhile, 
continues to expand, growing 9.8% in the 2007/2008 Ugandan 
fiscal year and by at least 7% in 2008/2009. 
 
Business analysts believe Uganda has the potential for larger 
amounts of FDI, but they emphasize the GOU must address 
challenges related to the country's weak infrastructure, 
largely uneducated workforce, political interference, and 
high levels of corruption.  Though Ugandan mobile telephone 
services have improved greatly due to strong private 
investment, electricity and road networks urgently need 
renovation and expansion.  With an installed total capacity 
of just 300 megawatts (MW), Uganda's electricity network 
reaches only 20% of the population, and load shedding all 
over the country is common.  The dilapidated road 
infrastructure, meanwhile, increases transportation costs and 
leaves the entire country, which is landlocked, vulnerable to 
bottlenecks and disruptions.  A major business challenge 
stems from the fact that a two-lane highway from Kenya 
remains the primary route for 80% of Uganda's trade. 
Uganda's dependence on this route was ably demonstrated in 
late 2007 and early 2008 when election-related violence in 
Kenya virtually halted trade into Uganda for more than two 
months, causing a spike in prices of all commodities. 
 
In this context, new infrastructure developments as a result 
of budgetary allocations and private sector investment are 
all welcome.  As noted above, the GOU is now renovating roads 
along key trade corridors, including the northern trade route 
from Kenya.  Private sector investors are also laying a new 
fiber-optic cable for Internet services along the eastern 
coast of Africa which is due to reach Uganda by the end of 
¶2009.  A 250 MW hydroelectric dam currently being constructed 
at Bujagali falls will come on line in January 2011. 
 
Beyond infrastructure, investors note that Uganda's social 
services systems and infrastructure are lagging behind the 
demand generated by economic expansion and population growth, 
perhaps Uganda's greatest challenge of all.  At 3.2% per 
year, Uganda's population growth rate is one of the highest 
in the world.  At this rate, Uganda's current population of 
29.6 million is expected to rise by 263%, to 78 million, by 
¶2050.  While creating potential markets for producers of 
child care, health, and education products, the explosion 
will likely also create a large disaffected underclass of 
young people seeking in vain for education and employment 
opportunities.  Uganda's growing population is already 
putting an increasing strain on social services, 
infrastructure and land resources.  Corruption, meanwhile, is 
a serious problem and the GOU's political will to fight it 
remains highly questionable. 
 
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Openness to Foreign Investment 
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In general, Uganda has an open climate for foreign 
investment, creating a level playing field for foreign and 
domestic firms and providing attractive incentives for medium 
and long-term foreign investors.  The Heritage Foundation's 
2009 Index of Economic Freedom listed Uganda's economy at 
number 63 of 165 countries, and as the fourth freest economy 
of 46 countries in sub-Saharan Africa, based on factors such 
as the ease of doing business, openness to trade, property 
rights, and fiscal and monetary policy. 
 
After decades of violent internal strife, President Yoweri 
Museveni has established 23 years of relative political 
stability and economic growth in Uganda.  He encourages 
foreign businesses to set up operations in Uganda, 
particularly in value-added manufacturing and 
agro-processing.  Toward this end, the GOU created the Uganda 
Investment Authority (UIA) in 2001 as the lead government 
agency assisting foreign and domestic investors.  A revised 
Investment Code, scheduled for passage in 2009, will allow 
UIA to become a more effective one-stop shop for investors by 
granting it new powers to obtain secondary permits for 
investor operations, to allocate government resources for 
investment, and to provide government incentives for rural 
investment. 
 
The GOU has recently begun to move away from a 
much-criticized emphasis upon ad hoc, venture-specific 
incentives for potential investors in favor of an approach 
aimed at leveling the playing field for all investors.  In 
line with this approach, Uganda now offers investment 
incentives and has begun implementing reforms to ease 
business transactions.  Ugandan officials often speak of 
using their location in the heart of east Africa to become a 
trade and logistics hub, and recent GOU's investments in the 
road infrastructure play into this. 
 
The UIA is also currently implementing a plan to construct 
industrial parks in the country's largest population centers. 
 The government is financing the project with a   $27 million 
World Bank loan and $10 million budget allocation.  The first 
park is currently being constructed eight miles east of 
Kampala in Namanve, with electricity, sewerage, roads, and 
telecommunications infrastructure funded by the project and 
the government.  Others parks will soon be built in Kampala, 
Mbarara, Mbale, Gulu, and Soroti.  The UIA says that land in 
these sites is available and that the government will 
subsidize investor costs, based upon a formula including the 
amount to be invested and other factors such as the number of 
workers to be employed by the venture.  UIA is in discussion 
with the Interior Ministry regarding the Kampala site, in the 
Luzira neighborhood, which would require moving the Luzira 
Prison to a different location.  For more information on 
incentives for investment, see the section below entitled 
"Performance Requirements and Incentives."  Investors can 
also find information on the UIA website, at 
www.ugandainvest.com. 
 
According to UIA, Uganda has had most success recently in 
attracting investors from the Middle East and Asia.  Firms 
from Singapore, the United Arab Emirates, India, Pakistan, 
and China all obtained licenses for cumulative investments 
worth hundreds of millions of dollars in 2008, though firms 
from traditional investors countries such as Kenya, South 
Africa and the UK also obtained licenses.  Firms invested 
primarily in the telecommunications, manufacturing, finance 
and energy sectors.  In total, UIA granted licenses to 349 
projects worth $2.4 billion in 2008, and UIA expects 
commitments of roughly $3 billion in 2009  (Note: Actual 
investments are typically lower than commitments.  As noted 
above, total Uganda FDI in 2008 was $368 million.). 
 
Uganda's success in attracting investors from the Middle East 
and Asia has prompted the UIA to focus further on attracting 
investors from these locations and to claim that U.S. and 
European investors unfairly deem Uganda too distant and 
politically risky.  President Museveni emphasizes that he 
wishes to counter Africa's poor image as a place to do 
business, and he often speaks of developing Uganda's 
infrastructure, cutting red tape and removing other 
impediments to investment.  Infrastructure development and 
the passage of new legislation has not proceeded quickly, 
however.  The President also downplays other serious 
challenges that discourage foreign investment, such as 
widespread government corruption and the urgent need to 
create a more highly educated workforce. 
 
U.S. foreign investment in Uganda remains relatively small. 
As of December 2008, U.S. investors had 67 projects in 
Uganda, valued at $302 million.  According to the Uganda 
Investment Authority, the United States normally ranks as the 
fifth or sixth largest investor in Uganda, roughly even with 
China, and behind the United Kingdom, Kenya, India, the 
United Arab Emirates, and South Africa. 
 
Ugandan policies, laws, and regulations are generally 
favorable towards foreign investors, though the GOU is badly 
delayed in revising urgently needed legislation.  The GOU is 
revising more than 20 commercial and bankruptcy laws, some of 
which date back to the colonial era, in order to cut down 
administrative delays and reduce the cost of doing business. 
This legislation includes terms to revise the Companies Law, 
modernize and speed up bankruptcy procedures, strengthen 
intellectual property rights protections, expand and clarify 
provisions on mortgages, update commercial contract law, and 
modernize provisions for e-commerce and electronic 
signatures. 
 
Government officials state that most of these bills should be 
passed in early 2009, but private sector representatives are 
skeptical, citing previous GOU promises that went 
unfulfilled.  Parliament is currently overwhelmed with other 
important legislation, they note.  Furthermore, they point 
out, if not passed in the first half of 2009, may be delayed 
until after the national elections in 2011 as political 
jockeying begins in late 2009. 
 
The Companies Act, a revision of which is due to be passed by 
Parliament in 2009, is the legal basis for the regulation of 
companies in Uganda.  Some key provisions will remain the 
same:  foreign investors may form 100% foreign-owned limited 
or unlimited liability companies and majority or minority 
joint ventures with Ugandan partners without restrictions. 
Licensing from UIA does require a commitment to invest over 
$100,000 over three years.  (See Performance Requirements and 
Incentives," below.)  Most foreign investors establish 
themselves as limited liability companies.  Ugandan law also 
permits foreign investors to acquire domestic enterprises or 
establish greenfield ventures.  The new Companies Act will 
allow for the creation of one-man companies, permit the 
registration of companies incorporated outside of Uganda, and 
provide new provisions for share capital allotments and 
transfers.  For a full description of the type of companies 
that firms are allowed to establish, readers are encouraged 
to visit the UIA website at www.ugandainvest.com or see the 
Business in Development Network guide to Uganda, available at 
www.bidnetwork.org. 
 
Ugandan courts generally uphold the sanctity of contracts, 
though judicial corruption and procedural delays caused by 
well-connected defendants are a serious challenge.  At times, 
GOU agencies have proven reluctant to honor judicial remedies 
issued by the courts.  Courts apply the principles of English 
common law.  Regarding debt collection, under current laws, 
creditors can prove their debts to a court-appointed receiver 
for payment.  Secured debtors receive payment priority. 
 
In recent years, the Uganda Revenue Authority (URA) has 
improved its efficiency, boosted transparency, and increased 
tax compliance.  Part of this success is due to an internal 
restructuring, though the URA has also grown more aggressive 
in collection, targeting large, often foreign-owned 
businesses, due to the relative ease of enforcing compliance. 
 Government revenue comprised more than 65% of the national 
budget in fiscal year 2008-2009, up from 50% four years ago. 
The URA has set up offices throughout the country to provide 
local points of contact to address taxpayer concerns and 
dozens of URA staff were fired.  Individuals are taxed at 
rates between zero and 30%.  Business entities are taxed at 
30%, though mining companies are taxed a rates between 25% 
and 45%. 
 
The Investment Code allows foreign participation in any 
industrial sector except those compromising national security 
or requiring the ownership of land.  The Investment Code also 
allows licensing authorities to impose performance 
obligations on foreign investors to which nationals are not 
subject.  While the code does not specify these obligations, 
UIA imposes requirements as to size of investment, staff 
training, local employment, local procurement and 
environmental protection.  (See section below, "Performance 
Requirements and Incentives.) 
 
The World Bank has recognized the challenges of operating in 
Uganda's business environment and provided a $70 million 
credit in 2006 for the Private Sector Competitiveness 
Project.  This program will help Uganda improve its basic 
infrastructure for business development.  The funds are 
distributed through the Private Sector Foundation (PSF), a 
private business advocacy group founded with funds from the 
United States Agency for International Development (USAID) 
and that are being used to revamp the entire land registry 
system.  Due for completion in 2012, the project also aims to 
modernize Uganda's business registration service, and support 
the Uganda Law Reform Commission in the revision of the 
commercial legislation.  Other aspects of the project focus 
on developing private sector capacity and skills; boosting 
private sector productivity; and raising the quality, 
standards, and reliability of micro, small, and medium-sized 
enterprises. 
 
The GOU began a privatization program in 2001 that has 
resulted in the sale of 122 firms, with 36 remaining in state 
hands.  The program has attracted foreign investors primarily 
in the agri-business, hotel, and banking sectors.  The GOU 
has shown a willingness to consider debt/equity swaps in 
which government ownership in companies is transferred to 
private sector minority shareholders on mutually acceptable 
terms.  Though generally deemed successful, some observers 
question the transparency of certain transactions carried out 
in the name of privatization, arguing that the benefits of 
the most lucrative sales went to insiders. 
 
Foreign investors in Uganda should be aware that projects 
that could impact the environment require an Environmental 
Impact Assessment (EIA), carried out by the National 
Environment Management Authority (NEMA).  The requirement for 
EIAs applies to both local and foreign investors.  In 2007, 
President Museveni withdrew plans to allocate a protected 
forest reserve to investors for the expansion of sugar cane 
and palm oil plantations after violent domestic protests and 
international criticism from environmental groups.  Likewise, 
environmental groups raised serious concerns over the 250 
megawatt (MW) Bujagali hydroelectric dam, delaying the 
project and causing some potential partners to pull out of 
the project.  The dam is being funded privately, with a loan 
guarantee from the World Bank's International Finance 
Corporation. 
 
Uganda's lack of an adequate electricity supply and poor road 
infrastructure are a major impediment for investors, as road 
blockages, load shedding, and unexpected power outages 
generate unexpected costs for all businesses.  Uganda 
currently has just 300 MW of operational electricity 
capacity, leaving some 95% of Ugandans with no access to 
electricity at all.  Completion of the Bujagali dam in 2011 
will relieve some pressure.  The GOU is seeking investors for 
the construction of an additional 1,045 megawatts of 
electricity generating capacity in the next five years, 
though demand is expected to continue to outstrip supply due 
to Uganda's economic and population growth.  As mentioned 
earlier, the GOU increased its spending on roads in the 
2008/2009 budget to $680 million, double the previous year. 
The telecoms picture is brighter, as the lifting of a 
moratorium on new mobile telephone operator licenses has 
brought new competition, lowering prices, expanding coverage, 
and greatly increasing telephone penetration among the 
population and throughout the country. 
 
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Conversion and Transfer Policies 
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Uganda keeps open capital accounts, and Ugandan law imposes 
no restrictions on capital transfers in and out of Uganda. 
Investors can obtain foreign exchange and make transfers at 
commercial banks without approval from the Bank of Uganda 
(BOU, the central bank) in order to repatriate profits, 
dividends, and make payments for imports and services.  The 
BOU prefers that investors make large transfers through the 
central bank itself in order to maintain the stability of the 
shilling, though this is not a requirement.  Investors have 
reported no problems with their ability to perform currency 
transactions. 
 
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Expropriation and Compensation 
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There have been no cases of expropriation since the 
restoration of democracy in Uganda in 1986.  Ugandan law 
states that the interests of a licensed investor may only be 
expropriated when, according to paragraph 26 of Uganda's 
Constitution, it "is necessary for public use or in the 
interest of defense, public safety, public order, public 
morality or public health..."  The Constitution also 
guarantees "prompt payment of fair and adequate compensation, 
prior to the taking of possession or acquisition of the 
property."  The Constitution guarantees any person who has an 
interest or right over expropriated property access to a 
court of law.  Uganda is a member of the Multilateral 
Investment Guaranty Agency (MIGA) and the International 
Center for the Settlement of Investment Disputes (ICSID). 
 
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Dispute Settlement 
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With donor assistance, the GOU has reformed the commercial 
justice system, which now includes a mandatory mediation 
session for all commercial disputes.  Uganda opened its first 
commercial court in 1999 and now boasts four commercial court 
judges and one deputy registrar.  Also, in 2007, a new law 
allowed for Chief Magistrates and Grade One Magistrates to 
adjudicate more commercial disputes, easing the burden on the 
commercial court judges.  The court strives to deliver to the 
commercial community an efficient, expeditious, and 
cost-effective mode of adjudicating disputes.  Despite a lack 
of funds and space, the commercial courts dispose of disputes 
within about seven months, as opposed to the several years it 
used to take litigation to wind through the Ugandan 
judiciary.  However, commercial court judges estimate that 
80% of disputes are settled out of court to save time and 
money.  In the past, foreign businesses have complained that 
some judges delay ruling on disputes involving politically 
well-connected parties.  The Center of Arbitration for 
Dispute Resolution (CADER) can assist in commercial disputes. 
 
Uganda is a party to the New York Convention of 1958 on the 
Recognition and Enforcement of Foreign Arbitral Awards. 
Pursuant to the Reciprocal Enforcement of Judgment Act, 
judgments of foreign courts are accepted and enforced by 
Ugandan courts where those foreign courts accept and enforce 
the judgments of Ugandan courts.  Monetary judgments are 
generally made in local currency.  Ugandan penalties may not 
be a sufficient deterrent since the penalties have not 
increased to account for currency depreciation.  Pursuant to 
Section 73 of the Arbitration and Conciliation Act, the GOU 
accepts binding arbitration with foreign investors.  The act, 
which incorporates the 1958 New York Convention, also 
authorizes binding arbitration between private parties. 
 
 
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Performance Requirements and Incentives 
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As noted above, there are no mandatory performance 
requirements in the Investment Code, but licensing 
authorities may impose obligations on a foreign investor as a 
licensing condition.  The most basic licensing condition is 
that investors creating 100% foreign-owned enterprises should 
commit in their proposals to invest a minimum of $100,000 to 
their projects over a course of three years.  This amount can 
include pre-investment activities and the cost of land, 
equipment, buildings, machinery, and construction. 
Foreign-owned banks and insurance companies are also subject 
to higher paid-up capital requirements than are domestic 
firms.  Some foreign companies have also encountered 
difficulty in obtaining land due to complex land laws and a 
non-transparent land registry.  (For more information on land 
ownership, see "Right to Private Ownership and 
Establishment," below.) 
 
The GOU's fiscal incentive package for both domestic and 
foreign investors provides generous capital recovery terms, 
particularly for medium and long-term investors whose 
projects entail significant plant and machinery costs and 
involve significant training.  In Kampala, 50% of allowances 
for plants and machinery and 100% of training costs are 
deductible on a one-time basis from a company's income.  A 
range of annual deductible and depreciation allowances also 
exist, resulting in investors normally paying substantially 
less than the 30% corporate tax rate in the early years of 
their investment.  In order to promote export-oriented 
manufacturing investment, the GOU included several tax 
incentives in the 2008/2009 budget.  These included a removal 
of the import duty on plant and machinery imports, as well as 
for schools, hotels, hospitals, agro-processors, and heavy 
truck transporters.  The GOU also provides a 10-year tax 
holiday for investors engaged in export-oriented production 
and, if the investment is located more than 25 kilometers 
away from Kampala, for agro-processing investors. 
 
The Law Reform Commission, which prepared draft bills for the 
GOU, has proposed new legislation on investment incentives, 
but further steps have not been approved by other GOU 
stakeholders.  The new legislation would include an exemption 
on withholding tax on interest on external loans, 
repatriation of dividends to provide relief from double 
taxation, exemptions from duty on raw materials, and a waiver 
of export tax.  Foreign investors should consult UIA and 
carefully evaluate depreciation allowances by region and 
sub-sector prior to investing.  The GOU will often work with 
foreign investors to provide additional incentives, including 
further tax reductions, government subsidies, or the 
provision of land. 
 
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Right to Private Ownership and Establishment 
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The Land Act of 1998 codified many of the complex land laws 
in Uganda.  Foreign companies or individuals may not own 
land, but they may hold it under long-term lease.  Currently, 
foreigners must seek cabinet approval through the UIA for 
land to be used for agricultural or animal production 
purposes, but UIA states this provision is due to be repealed 
because it contradicts Uganda's Constitution and the Land Act 
of 1998.  The GOU has not initiated any changes to allow 
foreign investors to purchase freehold property, however. 
 
Businesses generally deem acquisition of land with a clean 
title as one of their biggest challenges.   According to the 
International Finance Corporation's 2009 Doing Business 
Survey, Uganda's property registration process ranked near 
the bottom, at 167 out of 181 countries surveyed, down two 
places from a year before.  It is estimated that there are 
more than 8,000 fake land titles in Uganda.  As noted 
earlier, the Private Sector Foundation, with credit from the 
World Bank, is in the process of creating a new land registry 
system by 2012.  The PSF is also in the process of 
establishing five land offices throughout the country. 
 
The issue of land and title in Uganda is complicated by its 
four different types of land tenure systems: customary, 
"mailoland," freehold, and leasehold.  "Customary" land 
refers to generally rural land governed by the unwritten, 
customary laws of a Ugandan tribe in a specific area.  Such 
land is typically easy to obtain but difficult to use, as no 
titles or surveys of such land exist and contracts are 
difficult to enforce in courts of law.  Further, banks do not 
accept customary land as collateral.  "Mailoland" is land 
granted to tribal groups prior to Uganda's statehood in 1961, 
when Uganda was administered as a British protectorate.  Such 
land cannot be owned by foreigners and the use of such land 
is subject to the agreement of "bonafide" or "lawful" 
occupants, who do not own the land but have the right to 
reside there.  Such land is also generally problematic for 
foreign investors seeking secure, court enforceable, use of 
land.  Freehold land is the system in which registered land 
is owned permanently.  It is only available to Ugandan 
citizens, though it can be leased to foreigners.  It can be 
also used as collateral for bank loans.  Leasehold land is 
land leased by freeholders and is most commonly used by 
foreign investors.  Foreigners may obtain contracts for 
leases of up to 99 years of such land.  It can be used as 
collateral on loans, depending on the length of the lease. 
 
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Protection of Property Rights 
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Domestic private entities have the right to own property and 
businesses and may dispose of them at will.  The mass 
expropriation of Asian properties under the Idi Amin regime 
in the 1970s was the largest violation of this right in 
Uganda's history.  Over the past decade, the GOU has actively 
returned or provided compensation for confiscated property to 
those who lost it.  The Departed Asians' Property Custodian 
Board reviews the claims for property lost during this period. 
 
The Uganda Law Commission has drafted new Intellectual 
Property Rights (IPR) laws regarding counterfeit goods, but 
the law is awaiting Cabinet approval and passage in 
Parliament.  The new IPR laws will impose criminal penalties 
of fines and up to two years in jail for patent infringement 
and for selling counterfeit trademarked or copyright goods. 
Still, business people who have reviewed the draft complain 
that some gaps in protection remain, specifically the law's 
heavy reliance on the under-funded Uganda Bureau of Standards 
for enforcement.  The Uganda Revenue Authority, Ugandan 
Customs and the Ugandan National Board of Standards currently 
share enforcement roles in the existing counterfeit laws. 
These groups admit they lack the funding and resources to 
carry out the job adequately. 
 
Many counterfeit goods are manufactured in China, and 
producers there are becoming increasingly sophisticated. 
Bootlegged CDs, DVDs, and computer software are openly sold 
in Uganda's market places.  American manufacturers of 
consumer goods, particularly of shoe polish, batteries, 
feminine hygiene products, and ink pens, complain 
counterfeiters are badly damaging their markets.  They argue 
fake goods serve as a deterrent to future foreign direct 
investment and damage their brand names.  The GOU is also 
losing hundreds of thousands of dollars in tax revenue every 
year due to understated custom duties from those transacting 
in counterfeit goods. 
 
Ugandan customs, police, and prosecutors have initiated 
criminal proceedings against some recipients of illegal 
goods, but these cases have languished in court for several 
years without result.  Under Section 32 of the Patents 
Statute of 1991, the Registrar of Patents awards patents for 
an initial period of 15 years, with a possible five-year 
extension if a request is made one month before expiration of 
the original term.  Ugandan laws provide similar protections 
for copyright and trademark holders.  Uganda signed the World 
Intellectual Property Organization's Patent Law Treaty in 
June 2002, but has not yet ratified it. 
 
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Transparency of Regulatory System 
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Ugandan laws and regulations are published in the Government 
Gazette, but the regulatory system lacks internal 
transparency and varies substantially by regulatory body. 
Government agencies often have hearings, both public and 
private, where interested parties have an opportunity to 
comment on draft legislation and regulations.  Agencies do 
not always observe all legal provisions, however, failing to 
hold hearings, ignoring the requirement for public tenders, 
ignoring regulatory violations, or providing other types of 
assistance to well-connected local businessmen.  The UIA 
provides assistance to potential investors in navigating the 
regulatory process. 
 
Many Ugandan agencies require potential and current investors 
to cut through substantial amounts of red tape for normal 
business transactions.  The International Finance 
Corporation's 2009 Doing Business report found, for example, 
ranked Uganda 111 of 181 countries for ease of doing 
business, down six places from a year earlier.  The study 
found that it takes 25 days (and 18 separate procedures) on 
average to open a business in Uganda.  Starting a business in 
certain sectors, such as mining, may take substantially 
longer.  General infrastructure hindrances such as poor 
telecommunications and increasing amounts of traffic in 
Kampala slow down certain processes.  Some government 
officials require that firms interested in government 
procurement contracts provide under-the-table, cash payments 
in person at local agency offices.  Regulatory inefficiencies 
and corruption do not specifically harm foreign investors 
more than domestic firms. 
 
The Bank of Uganda is reasonably transparent, but the legal 
system is less so.  Courts, particularly at the upper levels, 
have made independent judgments in the past.  However, some 
parties to legal proceedings take advantage of the legal 
system's inherent delays and incoherence, to manipulate 
judicial outcomes. 
 
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Efficient Capital Markets and Portfolio Investment 
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Capital markets are open to foreign investors.  The GOU 
imposes a 15% withholding tax on interest and dividends. 
Credit is allocated on market terms, but lending to the 
private sector is relatively limited, and rates are high. 
This could change, as at least four new banks from Kenya and 
Nigeria are opening in Uganda following the lifting of the 
moratorium on new banks in 2007.  Many banks have holdings of 
GOU Treasury bills and bonds that are often larger than their 
commercial loan portfolios.  Rates of return on 
government-issued bills and bonds have declined over the past 
three to five years, causing banks to begin shifting their 
focus to commercial lending, however.  During the 2007/2008 
fiscal year, commercial bank lending to the private sector 
grew by 56.7%, according to the BOU.  Rates prime borrowers 
for domestic debt stand at around 25 percent. 
 
The Capital Markets Authority Statute of 1996 and subsidiary 
regulations address the licensing of broker/dealers and of 
stock exchanges, and established the Capital Markets 
Authority (CMA) as the securities regulator in Uganda.  The 
Uganda,s Securities Exchange (USE) was inaugurated in June 
1997, and is now trading the stock of 10 companies. 
 
Foreign owned companies are allowed to trade on the stock 
exchange, subject to some share issuance requirements, and 
the Kampala exchange contains cross listings of four Kenyan 
companies ) Kenya Airways, East African Breweries, Jubilee 
Holdings Ltd., and Kenyan Commercial Bank.  The East African 
Development Bank also lists bonds on the USE.  The CMA 
expects the delayed listing of the National Insurance 
Corporation in 2009.  The USE index fell more than 40% in 
2008, mainly because non-resident citizens have withdrawn 
funds from Uganda, analysts say. 
 
The growth of the USE in 2008 was not as large as expected, 
in part due to the current global financial crisis, which has 
negatively impacted investor appetite for emerging market 
assets.  Large local businesses are reluctant to list on the 
stock exchange for fear that the disclosure requirements 
could expose them to greater tax liabilities.  Additionally, 
some of Uganda's largest firms are family-owned operations 
reluctant to open up to outsider control.  Eight companies 
currently provide brokerage services, including two 
American-owned firms, MBEA and Crested Stocks and Securities. 
 The license to operate the exchange is held by the USE, a 
company formed by seven of the eight licensed broker/dealers 
and investment advisers. 
 
In November 2003, the GOU enacted a collective investment law 
to allow investors to pool funds to be invested on the USE 
and in government treasury bills and treasury bonds.  In 
December 2004, CMA licensed African Alliance Uganda to 
operate the first Ugandan collective investment scheme. 
Since 2004, the BOU  successfully issued two-, three-, five-, 
and ten-year government bonds.  The GOU hopes that by 
creating a benchmark yield curve it will encourage private 
companies to access the debt markets.  These longer-term 
government bonds absorb excess liquidity from the market, and 
help bring down short-term interest rates. 
 
Overall, the banking industry is well capitalized and has no 
serious non-performing loan problems.  Tighter BOU 
supervision, including more stringent inspections and higher 
capital requirements, has helped the sector recover from a 
banking crisis in the late 1990s when several bank failures 
led to the closing of several institutions.  Following a 
decade-long moratorium on new bank licenses, the BOU provided 
licenses to seven new institutions in 2007, bringing to 22 
the number of banks in Uganda from just 15 a year before. 
The total size of the commercial banking system has risen to 
$3.8 billion in 2008, more than two times larger than a year 
previously.  Most banks are foreign owned, including major 
international institutions such as Citigroup, Barclays, 
Stanbic, and Standard Chartered.  Ugandan banks remain 
conservative and have been criticized for a lack of 
enthusiasm when it comes to lending to all but the largest 
blue-chip operations.  Interest rates for 12-month corporate 
loans generally run between 19% and 25%. 
 
The BOU remains one of the most respected central banks in 
sub-Saharan Africa for its success in keeping markets open, 
the shilling stable, and inflation relatively low.  Its 
independence, however, has been called into question by 
evidence that the President has pressured the bank governor 
to cover debts incurred by politically connected businessmen. 
 The GOU is urging donors to move their accounts from 
commercial banks to the BOU, claiming it is necessary to 
control levels of cash in circulation for monetary stability 
and inflation control purposes. 
 
- - - - - - - - - - 
Political Violence 
- - - - - - - - - - 
 
The Governments of Uganda, the Democratic Republic of Congo 
(DRC), and southern Sudan began joint military operations 
against the Lord's Resistance Army (LRA), a Ugandan rebel 
group in DRC territory, on December 14, 2008.  The operation 
was launched after LRA leader Joseph Kony failed to sign a 
Final Peace Agreement (FPA) aimed at ending the 23-year-old 
conflict.  The LRA is on the run in eastern DRC and southern 
Sudan.  There have been no confirmed LRA attacks in northern 
Uganda since August 2006.  Improved security in the north has 
allowed the vast majority of the 1.8 million 
internally-displaced persons there to return to or near their 
homes.  In northeastern Uganda, armed cattle rustlers of the 
Karamojong and related ethnic groups continue to raid cattle 
and propagate violence. 
 
The State Department has issued a Worldwide Caution for 
Uganda due to the region's continued threat risk from 
international terrorism along with the recent increase in 
terrorist attacks elsewhere in the world against perceived 
soft targets such as hotels, bars, restaurants, and places of 
worship.  High levels of criminal activity throughout Uganda 
will remain.  Spontaneous demonstrations can sometimes occur 
in Kampala and other cities.  Although infrequent, these 
demonstrations can become violent and should be avoided. 
Northern Uganda continues to undergo a surge in redevelopment 
activities and in the context of a inadequate infrastructure. 
 This may result in poor security services, varying road 
conditions, and a lack of emergency services throughout the 
northern region.  Though security concerns are on the whole 
no greater than in previous years, American citizens 
considering travel, employment, or investment in Uganda 
should read the Country Specific Information available at 
www.travel.state.gov for current security information. 
 
- - - - - - 
Corruption 
- - - - - - 
Widespread corruption damages a business environment that 
would otherwise provide a fairly level playing field for 
foreign investors.  Uganda fell 15 places, to 126 from 111, 
in Transparency International's 2008 country corruption 
rankings.  According to TI, a score lower than 3.0 indicates 
"rampant corruption."  Uganda's score was 2.6.  Uganda shares 
the same score with Honduras, Ethiopia, Guyana, Libya, 
Eritrea, and Mozambique. 
 
In 2009, the U.S. Millennium Challenge Corporation's (MCC) 
scorecard placed Uganda's efforts to control corruption at 
51% in its peer group, or just above average.  Based on a 
similar ranking in 2007, the MCC board determined that Uganda 
qualified for "threshold country" funds to help the country 
improve this rating so that it might qualify for MCC funding. 
 Uganda USAID and the Department of Justice are currently 
implementing the two-year $10.4 million threshold program 
designed to strengthen the capacity of Uganda's 
anti-corruption agencies and enhance prosecutorial efforts. 
The nature of corruption in Uganda is complex.  While 
outright bribe-taking (and requesting) does exist, the 
misappropriation of government funds and assets, graft, 
influence peddling, and the flouting of public procurement 
procedures also occur.  Several high-profile government 
corruption scandals in recent years have resulted in few or 
no sanctions against the officials involved.  Where the GOU 
has initiated criminal proceedings against high-level 
officials, the cases have dragged on it court with no 
resolution. 
 
Foreign businesses are not specifically targeted for bribes 
and payoffs; nor are they immune.  American firms have noted 
some difficulties due to lack of transparency and possible 
collusion between competing business interests and government 
officials in tendering processes.  Reportedly, some foreign 
businesses have been urged to take on prominent local 
partners.  Government procurement, particularly for defense 
items, is not transparent.  In previous years, several 
high-profile government tenders for infrastructure projects 
were suspended following allegations of corruption.  Some 
American firms, which are bound by the U.S. Foreign Corrupt 
Practices Act, suspect they have lost tenders to bidders from 
countries which have not criminalized the paying of bribes to 
foreign officials. 
 
Anti-corruption legislation, regulations, and ethics policies 
do exist in Uganda, but mcuch of it does not meet 
international standards (as established in The United Nations 
Convention Against Corruption and the African Union 
Convention on Preventing and Combating Corruption).  The 
Penal Code Act (Chapter 120, Laws of Uganda) and the 
Prevention of Corruption Act (Chapter 121, Laws of Uganda) 
criminalize the offering or receipt of bribes.  Penalties 
range from fines up to $3,000 and/or up to 10 years in 
prison.  Other legislation, including an anti-counterfeiting 
act, remains before the cabinet and has not yet been 
presented to Parliament.  Anti-money laundering legislation, 
though drafted, has not been disseminated for public review 
or presented to Parliament.  Though some GOU officials expect 
this legislation to pass in 2009, others privately say 
high-level officials are stalling the legislation because it 
could damage private interests who benefit from the status 
quo.  Whistle blower legislation have not been drafted or 
presented to Parliament, despite Uganda,s commitment to do 
so in its MCC Anti-Corruption Threshold Country Plan. 
President Museveni has appointed a cabinet level official and 
an Inspectorate of Government to focus on corruption, but 
meaningful progress remains elusive. 
 
 
- - - - - - - - - - - - - - - - 
Bilateral Investment Agreements 
- - - - - - - - - - - - - - - - 
 
Uganda is a member of the World Trade Organization.  Uganda, 
along with its counterparts in the East African Community 
(EAC) -- Kenya, Tanzania, Rwanda, and Burundi --  signed a 
Trade Investment Framework Agreement (TIFA) with the United 
States in July 2008.  Uganda has also negotiated bilateral 
tax treaties with several nations, including China and South 
Africa.  The EAC also signed an Economic Partnership 
Agreement with the EU in 2007.  Uganda was among 26 countries 
which signed onto an initiative aimed at establishing  an 
African free trade zone stretching from Cairo to Cape Town in 
October 2008.  According to the initiative, the members of 
the EAC, the 20-member Common Market for Eastern and Southern 
Africa (COMESA), and the 14-member Southern African 
Development Community (SADC) will draft a roadmap for 
creating a single trading bloc that would speed economic 
integration and therefore help African economies compete in 
the global economy.  Observers remain skeptical that the 
entire group of countries is truly interested in the 
initiative.  Apart from this new initiative, in 2007, leaders 
of COMESA approved the final steps leading to the launch of a 
customs union by December 2008.  Currently, only thirteen of 
the nineteen COMESA member states are participating in the 
COMESA Free Trade Area (FTA).  Uganda, though a member of 
COMESA, is not a participant. 
 
- - - - - - - - - - - - - - - - - - - - - - - 
OPIC and Other Investment Insurance Programs 
- - - - - - - - - - - - - - - - - - - - - - - 
 
Uganda is a signatory to the Multilateral Investment 
Guarantee Agency (MIGA) of the World Bank and is a member of 
the International Center for the Settlement of Investment 
Disputes (ICSID).  In 1965, the U.S. and Uganda entered into 
an investment incentive agreement.  Both parties signed an 
updated agreement in 1998, but the Ugandan Government has yet 
to ratify the renewed agreement.  In 2003, the Overseas 
Private Investment Corporation (OPIC) signed a master 
guarantee agreement with Citigroup to establish a lending 
risk-sharing facility in Uganda for local loans.  In 2004, 
Export-Import Bank signed a similar master guarantee 
agreement with DFCU Bank.  In 2007, the Export-Import Bank 
upgraded Uganda's financial guarantee availability to 
"long-term," which, at up to twelve years, is the longest 
guarantee available through the Bank. 
 
- - - 
Labor 
- - - 
 
Education and expertise are low in Uganda, though Uganda's 
universal primary education program is improving basic 
skills.  Most urban Ugandans speak English, though many speak 
it only as a language second to one of 33 tribal languages 
spoken in Uganda.  Labor unrest is sporadic in Uganda, and 
labor unions are not strong.  Employers must contribute an 
amount equal to 10% of an employee,s gross salary to the 
National Social Security Fund (NSSF).  Labor laws also 
specify procedures for termination of employment and 
termination payments.  Foreign nationals must have a permit 
to work in Uganda. 
 
Uganda cooperates with the International Labor Organization 
(ILO) and has ratified all eight ILO conventions. 
 
The National Organization of Trade Unions (NOTU) is the 
largest labor federation, and includes about 15 unions.  Its 
rival, the Central Organization of Free Trade Unions (COFTU), 
includes five unions.  An estimated 855,000 of two million 
persons working in the formal sector belong to unions. 
 
Uganda's Industrial Court is funded directly by the national 
budget (not through the Labor Ministry), and the President of 
the Industrial Court has the status of a judge.  The 
Industrial Court has the power to re-instate employees who 
are improperly dismissed, and to impose fines against 
employers. 
 
Approximately 100 district-based labor officers have 
responsibility for inspecting workplaces and processing 
worker and management complaints.  This mechanism contributes 
to the enforcement of labor standards but its chronic lack of 
staffing and resources hampers its effectiveness. 
 
In May 2007, the GOU launched its national child labor 
policy.  Comprehensive anti-trafficking in persons 
legislation is in the final stage of passage.  The 
legislation will likely pass in February 2009  There are 
active programs underway, with support from the ILO and the 
U.S. Department of Labor, to combat child labor, but the 
practice nevertheless remains a concern in Uganda, 
particularly in the informal sector.  The United States 
continues to support the GOU's entire labor and 
anti-trafficking efforts. 
 
- - - - - - - - - - - - - - - - 
Foreign-Trade Zones/Free Ports 
- - - - - - - - - - - - - - - - 
 
The Free Zones Bill of 2002, which will authorize the 
creation of Free Trade Areas (FTA) within Uganda, is still 
awaiting final Cabinet approval.  Still, with a $24 million 
credit from the World Bank, the GOU is currently in the 
process of creating three FTAs: the Kampala Industrial and 
Business Park, Luzira Industrial Business Park and the 
Bweyogerere Industrial Estate.  Incentives such as duty 
drawbacks, originally included in the pending Free Zones 
Bill, are reflected in the latest Finance Act (i.e., the 
2008/2009 budget). 
 
- - - - - - - - - - - - - - - - - - - 
Foreign Direct Investment Statistics 
- - - - - - - - - - - - - - - - - - - 
 
The values quoted below should not be relied upon for any 
investment decision.  The figures provided by the UIA are 
highly variable and inconsistent, both year-on-year and by 
sector.  According to the UIA, the values tracked are only 
for projects listed.  No investors provide periodic updates 
after the initial registration.  Historically, actual 
investment has trailed planned investment totals by a factor 
of five.   FDI statistics provided by the World Bank 
(revised).  Any discrepancies with previous reports are a 
result of re-evaluations. 
 
 
--------------------------------------------- ---- 
 
Net FDI           FY04     FY05     FY06     FY07 
($ mln) 
Inflows      295.42   379.81   644.26   797.27 
 
Outflows          0        0       0         0 
(Residual) 
 
** Figures provided by the Uganda Investment Authority 
 
--------------------------------------------- --- 
 
Large companies licensed in 2008 include (investments listed 
in U.S. Dollars): 
 
Suretelcom Uganda Ltd (Singapore)           406,500,000 
Orange Uganda Ltd (Belgium)                 375,000,000 
Al Haadi Investments (U) Ltd (Pakistan)     134,000,000 
Uganda Microfinance Ltd (Kenya)              91,400,000 
Amuru Sugar Works Ltd (United Kingdom)       81,700,000 
Satbhanu Metals Recycling (U) Ltd (India)    67,000,000 
Rama Drinks Ltd (Uganda)                     65,157,000 
Smile Communications (U) Ltd (Mauritius)     57,300,000 
Power Pro (U) Ltd (Singapore)                56,000,000 
Equatorial Real Estates Ltd (Finland)        50,400,000 
NMS International (U) Ltd (United Kingdom)   48,000,000 
J.W. Victoria Agro-Industries Ltd (Uganda)   43,100,000 
Basix Construction (U) Limited (Uganda)      40,000,000 
i-Tel Ltd (Uganda)                           32,800,000 
Air Memphis (U) Ltd     (USA)                25,500,000 
Brialliant Shoe (U) Ltd     (China)          25,000,000 
Legacy Development Ltd (Mauritius)           24,000,000 
Pinnacle Projects Ltd (Kenya)                20,300,000 
Sarak Big Five and Recreation Company Ltd (Uganda) 
 
                                             20,000,000 
 
--------------------------------------------- --------- 
Web Resources 
 
Business in Development Network, Investing in SMEs in Uganda 
2008: 
www.bidnetwork.org. 
 
Buuza.com (Uganda Telephone and Email Directory): 
www.buuza.com 
 
Doing Business Uganda 2008, World Bank International Finance 
 
 
Corporation: 
www.doingbusiness.org/ExploreEconomies/?econo myid=193 
 
Enter Uganda: www.enteruganda.com 
 
Heritage Foundation 2009 Index of Economic Freedom 
www.heritage.org/Index/Country/Uganda 
 
Uganda Bureau of Statistics: 
www.ubos.org 
 
Uganda Communications Commission 
www.ucc.co.ug 
 
Ugandan Embassy to the United States, Washington DC: 
www.ugandaembassy.com/trade.html 
 
Uganda's Information Portal: 
www.myuganda.co.ug/economy/investment.php 
 
Uganda Investment Authority: www.ugandainvest.com 
 
Kampala Industrial and Business Park: www.businesspark.co.ug 
 
Uganda Ministry of Finance: www.finance.go.ug 
 
World Bank Multilateral Investment Guarantee Agency: 
http://www.fdi.net/country/sub index.cfm?countrynum=202 
 
World Bank Political Risk Insurance Center: 
http://www.pri-center.com/country/country specific.cfm?pgid=2&country 
num=202 
 
 
BROWNING