PERFORMANCE AND CHALLENGES FACING UGANDA INVESTMENT

AUTHORITY IN ENHANCING ECONOMIC GROWTH THROUGH

PROMOTING FOREIGN DIRECT INVESTMENTS.

BY

NAME : RUHENI CYRUS

REG NO : 04/K/3924/EVE

STUDENT NO: 204002428

Dissertation submitted in partial fulfillment of the requirement for

the award of the degree of Bachelor of Arts in Economics of
Makerere University.

1
 DECLARATION
I, RUHENI CYRUS declare that this piece of work is original and has never been
submitted to any university or other learning institution for any academic award or
elsewhere for publication.

Signature: ………………….
RUHENI CYRUS
Date: ……………………….

Signature: ………………….
Dr ADAM MUGUME (Supervisor)
Date: ………………………

2
 DEDICATION
This piece of work is dedicated to my beloved mum Miss Jane Wairimu Ruheni.
Thanks for the many sacrifices you made to get me this far. May God bless you
abundantly. I also dedicate this piece to the late and family Aunt Eunice, Uncle Dan,
and Cucu.

3
 TABLE OF CONTENT

Declaration……………………………………………………………………………………………………..………..…2
Dedication………………………………………………………………………………………..........................3
Table of content………………………………………………………………………………………………………….4
List of Tables ………………………………………………………………………………………………………………6
Acknowledgement……………………………………………………………………………………………………...7
Acronyms /Abbreviations…..……………………………………………………………………………………….8
Abstract………………………………………………………………………………………...…........................9
CHAPTER ONE
i.Background of the study……………………………………………………………………………………………..….10
1.1 Statement of the problem…………………………………………………………………………….…….15
1.2 Purpose of the study……………………………………………………………………………………….….15
1.3 Specific objective………………………………………………………………………………………………..15
1.4 Significance of the study…………………………………………………………………………………..16
1.5 Scope of the study……………………………………………………………………………………………..16
1.6 Limitations…………………………………………………………………………………………………….…….16
CHAPTER TWO
ii.Literature
Review……………………………………………………………………………………………………………………....17
2.1 Motives of Foreign Direct Investments…………………….........................................18
2.2 Benefits of attracting Foreign Direct Investments……………………………………………...19
CHAPTER THREE
iii.Methodology……………………………………………………………………………………………………………………22
3.1 Introduction………………………………………………………………………………………………………………22
3.1.1 Research design…………………………………………..……………................................22
3.1.2 Study area……………………………………………………………………………………..……………..22
3.1.3 Population and sample size……………………………………...................................22
3.1.4 Sampling…………………………………………………………………...................................22
3.2 Data collection…………………………………………………………..…………………………………………..…23
3.2.1 Questionnaire method……………………………………………....................................23
3.2.2 Personal interviewing…………………………………..…………………………………………….….23

4
 3.3 Data collection instruments…………………………………….………………………………...23
3.3.1Question guide………………………………………………………................................23
3.3.2 Interview guide…………………………………………………….................................24
3.3.3 Content analysis………………….……………..…….………..................................24
3.4 Quality control…………………………….………………………..…………………………………….24
3.5 Data analysis and presentation……………………………..………………………………….25
3.5.1 Editing…………………………………………………………………..................................25
3.5.2 Coding…………………………………………………………………..................................25
3.5.3 Tabulation…………………………………………………………………………………………………26
3.6 Ethical issues…………………………………………………………..………………………………….26
3.7 Research procedure…………………………………………..……………………………………….26
3.8 Research variable…………………………………….………………………………………………….27
3.8.1 Measurement……………………………………………………….................................28
3.8.2 Data analysis and presentation…………………………………….………………..............27
CHAPTER FOUR
iv.Data Presentation and interpretation…………………….……………………………………..………………30
4.1 Other findings…………………………………………………..………………………….…………………………36
CHAPTER FIVE
v.Recommendation……………………………………………..………………………………………………………………38
5.1 Conclusion…………………………………………………….………………………………………..………………..40
QUESTIONNARE…………………………………………………………..............................................41
REFERENCE……………………………………………………………………………………………………………………..44

5
 LIST OF TABLES
Table 1: Annual summary of totals for licensed projects per year.
Graph1: Foreign Direct Investments trends for Uganda
Table 2: Country of Origin
Table 3: Sector of Business
Table 4: Means of Company Registration

6
 ACKNOLEDGEMENT
The successful completion of this work leaves me indebted to many whose
generous assistance, guidance and cooperation facilitated its realization. I wish to
recognize the significant role played by Dr. James Muwanga and my supervisor Dr.
Adam Mugume for assistance, guidance and supervising my piece of work to its
completion. To my friends John, Kevin and George, I humbly thank you for your
invaluable suggestions and inspiring support.

7
 ACRONYMS/ ABBREVIATONS

BAT-British American Tobacco.

COMESA- Common Market for East and South African States.
EAC-East African Community
FDI- Foreign Direct Investment.
GDP-Gross Domestic Product
IPA- Investment Promotion Agencies.
KIA- Kenya Investment Authority.
MNC- Multinational Corporations.
R&D- Research and Development.
UIA- Uganda Investment Authority.

8
 ABSTRACT
This paper examines the performance and challenges that face Uganda investment
authority (UIA) in enhancing economic growth through attracting Foreign Direct
Investments (FDI’s). The poor record of FDI’s in Africa is attributed to Factors such
as macroeconomic instability, low growth, weak infrastructure, poor governance,
inhospitable regulatory and ill-conceived investment promotion strategies. The
study looks into these factors among others that limit the flow of foreign
investments in Uganda.

This report stresses the need for an effective policy framework that embraces
foreign investments. It also argues on the need to pay more attention on the
infrastructure, energy, and improvement of relations with existing investors and
offer them incentives to assist in marketing domestic investment opportunities to
potential foreign investors.

Concerted efforts are also needed at the national, regional, and international levels
to attract significant investment inflows to Uganda and improve the prospects for
sustained economic growth and development. This will also put Uganda on the map
given the current wave of globalization through the world intensifying the
competition for FDI’s among developing countries.

9
 CHAPTER ONE

1.0 BACKGROUND OF THE STUDY.

Performance of Foreign Direct Investment in Uganda can be examined under three
regimes namely post independence up to 1970 to 1985 and 1986 to date. The
initial period witnessed increasing FDI the second declining and near death of FDI
and the third the resurrection of FDI.

In the 1960s the Uganda government’s policy was supportive of industrial

development and the Uganda industrial Act of 1963 promoted both local and foreign
investment (promotion) Act of 1964 provided legal protection for Foreign Direct
Investment (FDI) against compulsory acquisition by the state and guaranteed rights
to repatriate capital, interest and dividends.

In 1970 the government displaced the British and Asian control of the commercial
and industrial sectors, increased its own shares from 51-60% in the major
manufacturing companies .In 1971, Idi Amin overthrew the civilian government
.The Britons and Asians were expelled from the country and foreign assets and
businesses were expropriated .In 1977 the military government tried to revive the
FDI inflow through the 1977 investment decree that exempted foreigners from
paying import duty and sales taxes on plant and machinery for approved
enterprises. However these were not retroactive exemptions and did not apply to
investments under US$ 571,000. Although the military government was overthrown
in 1979 there was little FDI in Uganda 1980-85.

The government elected in 1986 took over an economy that had been reduced to
ruins because of prolonged periods of economic mismanagement, political and
social instability .GDP had declined by 40% from 1971-86 representing an annual
decline of 10% per annum.

10
Government had also a strong hand in trade and commerce through parastatals.
Annual revenues collections were only 4% of GDP compared to 15% of government
expenditure.

This represents an 11% fiscal deficit. The economic recovery programme of 1987
aimed at correcting the macro-economic imbalances, elimination of inefficiencies in
production and distribution of goods and services, reviving the role of the private
sector in economic growth and attracting Foreign Direct Investments. The
government under took further macro economic reforms in 1990 and 1991 the
investment code replaced other decrees and laws leading to the establishment of
Uganda Investment Authority (UIA).

11
UGANDA INVESTMENT AUTHORITY: ANNUAL SUMMARY OF TOTALS FOR
LICENCED PROJECTS.

Year No. of Projects Planned Inv(USD) Planned

Employment
1991 6 10,483,500 0,446

1992 108 270,523,618 9,045

1993 187 392,004,605 17,263

1994 232 302,057,804 21,259

1995 279 508,493,526 20,140

1996 226 561,063,719 20,107

1997 183 460,170,168 13,561

1998 102 313,040,591 7,188

1999 66 188,350,292 4,293

2000 89 297,084,364 8,490

2001 117 187,170,130 14,302

2002 151 830,187,713 13,392

2003 160 349,607,199 19,180

2004 189 429,114,400 17,046

2005 293 931,787,131 29,608

2006 428 1,669,965,613 48,654

2007 196 982,174,500 23,217

Planned Investment from 3028 listed projects (us$):8,683,278,603

Total Planned Employment: 287,191
Source UIA.

12
Since UIA’s inception there has been a variation in the flow of foreign Direct
Investments as depicted in the graph below.
FDI TRENDS

450
428

400

350
NO. OF LICENSED PROJECTS

300
293
279

250
232 Series1
226
Series2
200 196
187 189
183
160
150 151

117
108 102
100
89
66
50

6
1
0
1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
YEARS

Between 1991 and 1995 the number of projects increased steadily at an annual
average of 33%. After 1995 there has been a downward trend in the number of
projects licensed. Reasons for these trends in the number of licensed projects are;
 The upward trend during the early years was due to
o The aggressive image building by UIA resulting in new projects.
o Rush by potential investors for virgin sectors (where existing
investment was then minimal)
o Relative stability (economic, political or otherwise) in comparison to
other regional member states.
o Rush by speculative (footloose) investors whose main motive was to
reap from the tax holiday regime and
o Liberalized economy without serous competition from neighbors.
Uganda was always ahead of her neighbors in liberalizing

13
 b) The number of projects licensed per year started declining especially 1996-
1999 subsequently after the peak due to;
 Economic reforms by regional states creating competition
 Abolition of tax holidays causing some investors to implement projects
without UIA’s license.
 New cases of unrest in the great in the great lakes region.
 Reduced enthusiasm in joining established players in different sectors (fear
of competition)
 International economic recess especially in Asia (previously high targeted
source of investments.
 Insufficient utilities e.g. power, telecommunications and infrastructure that
cannot sustain new investments.
 El-nino effects which adversely affected the little infrastructure (mainly
roads) that there was thus affecting supply arrangements for investors and
the initial upward trend of actual investments was largely due to expansions
(on existing projects) in an environment quite familiar for investors. Later
however there was a decline mainly due to the gestation period of projects
and the unpredictable investment climate.

C. later projects licensed per year were on an upward trend though at a slow pace
between 2000- 2003 however 2004 -2006 there was a rapid increase in the
number licensed projects. This attributed to a number of factors mainly attributed
to
 Investment incentives
 Prospects of regional integration that attracted foreign investors in the intent
of benefiting from a large market.
 Adoption of a privatization of government owned enterprises such as Uganda
commercial bank, New Vision Printing and Publishing Company.
 Political stability
 Increase in UIA’s funding by government especially

14
 D) The number of licensed projects declined at an alarming rate in 2006/2007.
This was a result of
1. Power crisis that hindered production.
2. High fuel costs
3. Increase in fees on work permits for foreign employees from Ugshs
135,000/= to US$ 1000.
4. High domestic debts by government that discouraged FDIs’ due to high
cost of borrowing.
5. High production costs

1.1 STATEMENT OF THE PROBLEM

Uganda has maintained an exemplary trend in attracting FDI within Africa and this
has been mainly attributed to among other factors UIA’s aggressive marketing
campaign abroad, design and implementation of policies aimed at attracting FDI.
Despite these UIA still faces major challenges at competing globally for foreign
investments. Even with already existing incentives such as tax holidays a lot still
needs to be done if UIA is to remain competitive as far as attracting foreign
investment is concerned.

1.2 PURPOSE OF THE STUDY

The main purpose of the study is to find out the challenges faced by UIA in
enhancing economic growth through promotion of foreign direct investments. It
also seeks to find out if UIA has exploited to the maximum all available
opportunities and if not why is it the case.

15
1.3 SPECIFIC OBJECTIVE
1) To find out ways in which to improve performance and address challenges
facing UIA.
2) To assess the impact of UIA’s Investment Promotion Strategy.
3) To propose strategies that will enable UIA achieve the objective of enhancing
increased economic growth.

1.4 SIGNIFICANCE OF THE STUDY

The study is meant to enlighten academic institutions and policy makers among
other stakeholders on the performance and factors that limit UIA’s efforts in
attracting foreign investments. It is also expected to come up with suitable policy
recommendations that will make UIA competitive as well as achieve its vision of
making Uganda a world class investment destination.

1.5 SCOPE OF THE STUDY

The study will cover the period of 1996-2006; it will mainly focus on the
performance and constraints that face UIA in promoting FDI. Emphasis will be
placed on UIA as well some of the (UIA) licensed foreign investors. Reference will at
some point be made on other investment promotion agencies regionally that
compete for similar foreign direct investments opportunities with Uganda such as
Kenya Investment authority

1.6 LIMITATIONS OF THE STUDY

The researcher faced the following problems while carrying out the study.
i. Some respondents did not return the questionnaires.
ii. High financial costs mainly transport, and printing.
iii. Some of the respondents were uncooperative.
iv. Failure to access relevant information due to bureaucratic procedures.

16
 CHAPTER TWO

2.0 LITERATURE REVIEW

This chapter looks at an over view of foreign direct investments and their motives
as well as impacts to the host and home economies, the participation of investment
promotion agencies in attracting and promoting foreign investments in their
respective countries basing on existing literature.

FDI plays a central role in the process of economic development. In contrast the
traditional growth framework where technological change was left as unexplained
dependence of growth rates on the state of technology relative to the rest of the
world, thus growth rates in developing countries are in part explained by the “catch
up” process in the level of technology. In a typical model of technology diffusion the
rate of growth of developing country depends on the extent of adoption and
implementation of new technologies that are already in use in leading countries.

E.Borensztein purports that FDI can take place through a variety of channels that
involve transmission of ideas and new technologies. Imports of high technology
products and adoption foreign technology and acquisition of foreign human capital
are important conduits for diffusion of technology. Besides these channels FDI by
Multinational Corporations (MNCs) is considered to be a major channel for the
access to advanced technologies by developing countries.

Some recent work on economic growth has highlighted the role foreign direct
investment in the technological progress of developing countries. Findlay (1978)
postulates that foreign direct investment increases the rate of technological
progress. In the host country through a “contagion effect” from the more advanced
technology, management practices among others used by foreign firms.
Bo Sodersten views that although such investments may be made by
individuals/partnerships, most FDI is undertaken by enterprises and the longer part
of that by Multinational Enterprises.

17
2.1 MOTIVES OF FOREIGN DIRECT INVESTMENTS
The main motive is to earn high returns abroad (possibly resulting from high growth
rates Abroad) more favorable tax treatment or greater availability of infrastructure)
and to diversify risks. Research has found out that with strong orientations, either
through exports or through production and or sales facilities are more profitable
and have much smaller variability in profits than purely domestic firms.

The big question is why nations can’t borrow from other nations or at home make
real investments in their own nation rather than accept direct investments from
abroad. After all residents of a nation are familiar with local condition and thus at a
competing advantage with respect to foreign investors. Several explanations to this
exist and they include: Most important large corporation (usually in monopolistic
and oligopolistic markets) often have some unique production knowledge or
managerial skill that can easily and profitably be utilized abroad. Over which
corporations wish to retain direct control, hence firms’ make direct investments
abroad. This involves horizontal integration or the production of differentiated
products that is also produced at home e.g. IBM which has a particular technology
which it wants to retain direct control but which it can easily duplicate abroad to
secure foreign markets better (by adoption to local conditions)than through exports
IBM in this case may want to license foreign producers simply because it wants to
retain complete control over its trade secrets and patents to ensure consistent
quality and service. Even if IBM was willing to license it would not be feasible in the
view of rapid rate of technological innovation in the field. The situation is basically
the same for General Motors, Toyota etc.

The other reason for FDI is to obtain control of a needed raw material and hence
ensure uninterrupted supply at the lowest possible cost. This is referred to as
vertical integration and was the form of most direct investments in developing
nations for instance British American Tobacco (BAT) and some mineral rich
countries.

18
 Vertical integration involving MNC’s can also go forward into ownership of sales
distribution networks abroad as is the case in most auto mobile producers .There is
also the need to avoid tariffs and other restrictions other nations impose on imports
or take advantage of various government subsidies to encourage FDI.

Also to enter foreign oligopolistic markets so as to share in the profits to purchase a

promising foreign firm to avoid its future competition and the possible loss of export
market or because only a large foreign multinational corporation can obtain the
necessary financing to enter the market.
Regional distribution of FDI around the world also seems to depend on geographical
proximity or established trade relations.

2.2 BENEFITS OF ATTRACTING FOREIGN DIRECT INVESTMENTS

The benefits of attracting inward investment into a country or region are both well
known and significant. They include:
I.Job creation
By providing additional capital to host country, FDI can create new employment
opportunities resulting in higher growth .It can also increase employment indirectly
through increased linkages with domestic firms. More specifically the location of
foreign firm in a host country generally leads to the establishment of domestic firms
that provide an input to it thereby increasing the demand for labor. Aaron (1999)
provides evidence on the positive impact of FDI on employment in developing
countries.

II.Technology transfer.
Foreign firms make significant investments in R&D consequently they tend to have
superior technology relative to firms in developing countries. FDI gives developing
countries cheap access to new technologies and skills thereby enhancing local
technological capabilities and their ability to compete on world markets. Blomstorm
and Kokko (1998) provide a survey on the literature on FDI and technological
transfer.

19
III.The generation of increased exports.
This is through integration into the global economy hence openness to FDI
enhances international trade thereby contributing to integration into the host
country into the world economy (Morrsset, 2000).

IV.Raising skills of local manpower.

Through training of workers and learning by doing ,FDI raises the skills of local
manpower thereby increasing technological .The idea enhances productivity of the
labor force is supported by empirical evidence suggesting that workers in foreign
owned enterprises are more productive than those in domestic owned enterprises(
Harrison 1996)

V.Source of capital formation.

FDI is seen as an important source of capital formation particularly when the capital
base is low. Capital inflow is seen as a way of creating a surplus in the capital
account of the balance of payments or to make up for the deficit on the current
account. Consumer Unity and Trust Society (CUTS) points out that there have been
cases where FDI have not led to capital formation but rather crowded out domestic
investment

VI.Improved competitiveness of domestic firms.

Because inward investment offers significant benefits to an Economy, nations and
regions compete intensely to attract it. Over the last two decades the process of
attracting inward investment has changed fundamentally. As the full benefits of
inward investment have been realized and the global environment has altered to
foreign investment easier, countries and regions have adopted more competitive
strategies to attract investment. As a consequence, countries/regions have been
marketing themselves as bundles of tangible and intangible benefits.

20
Typical tangible offerings by nations include locational benefits such as rent-free
factory accommodation, and access to sophisticated infrastructures. On the other
hand, intangible benefits include the brand image of the country (including the
quality of life for residents), and the nature and depth of pre and post investment
services offered to the potential investor.

As attracting inward investment has become more competitive, the nature and
intensity of prospecting has changed dramatically. For example, the number of
regional and national Investment Prospecting Agencies (IPA’s) has increased
considerably. There are approximately 2500 national/regional/sub-regional IPA’s

Obtaining hard data on the effectiveness of IPA’s is difficult because of their

competitive nature. However, Wells and Wint (1990) estimated that the net present
value of proactive investment prospecting was $4 for every $1 expended an
attractive return on investment. These authors also determined some broad
requirements for successful investment prospecting, including:

i.The provision of pertinent information that permits MNE’s to compare

and contrast international locations
ii.Promotional activity aimed at achieving product differentiation of the
host country
iii.Using industry, company knowledge to present a value proposition to
prospective and, perhaps, reluctant investors

21
 CHAPTER THREE

3.0 METHODOLOGY
3.1 Introduction
This chapter presents survey methodology that was used in carrying the study .It
covered the proposed research design, study area, population and sample, data
collection procedures and instruments, data analysis quality control and ethical
issues involved in data collection and processing.
3.1.1 Research Design
The study was conducted through cross sectional survey design using both
quantitative and qualitative methods. The combination of the two enabled the
researcher to obtain better findings.
3.1.2 Study Area
The study area was mainly in Uganda Investment Authority in Kampala Uganda,
located along Kampala road in the city centre. It also involved Foreign Direct
enterprises located in Kampala
3.1.3 Population and Sample size
The study population comprised of foreign investors licensed by UIA and the top
management of Uganda Investment Authority .The researcher used a size of 30
respondents due to resource and time constraints .The enterprise list of the foreign
investors was drawn from UIA.
3.1.4 Sampling
The study employed stratified sampling to select the sample. “The stratified
sampling technique refers to identifying sub-groups in the population and their
proportions, and then selecting them randomly from each sub-group to form a
sample. The purpose was to ensure equitable representation of the population in
the sample” says (Enon, 1998:14).

22
3.2 Data collection methods
In order to get quality information, various data collection methods were used.
These methods included the following:

3.2.1 Questionnaire method

The researcher used open-ended questions to which respondents answered directly
by filling in or ticking where appropriate. The questionnaires were both structured
and unstructured. This method was used because; it gave freedom to the
respondents to decide on the aspects like; form, detail and length of the answer.
The questionnaires were personally administered to the respondents.

3.2.2 Personal interviewing

The main method of data collection was personal interviewing; the researcher
located the respondents in their places of work, and set appointments to meet
them. The researcher visited UIA thus enabling him to have the opportunity to have
a face-to-face conversation to probe, prompt and exchange opinions with the
management. It also enabled the researcher to collect first-hand information.
Answers to questions asked during the interview were recorded through writing.
This method is considered appropriate for the study as it answers most questions
that the researcher cannot easily find answers to when alternative methods are
used.

3.3 Data collection instruments

The researcher used the following research instruments.
3.3.1 Questionnaire guide
This entailed a series of direct closed and open ended questions designed purposely
to get answers from the respondents. This instrument was intended to give the
respondents an opportunity to choose the most appropriate answer. Since the
respondents were mainly I top management of the various foreign direct
enterprises, the questionnaire sought information on:

23
 1. Registration and licensing process of foreign investments and the challenges
faced.
2. Competitiveness and effectiveness of UIA.
3. Challenges investors face in Uganda
3. Investors recommendations
This method is significant in that it catered for varying views and experiences from
different respondents. It was also preferred because it provided a quick means of
obtaining data, and eased analysis of responses statistically and also provided wide
coverage.
3.3.2 Interview guide
The researcher interviewed members of management who are not in the position
to fill questionnaires. This provided answers directly to the researcher in response
to the questions asked.
The researcher’s aim was to come up with a clear picture of the situation from the
management of UIA, unlike the questionnaire, which limits the respondent to the
formulated questions.

3.3.3 Content analysis

Documentary sources were used to gather data. The method provided the
researcher with sufficient information. Old and new journals were utilized to assess
UIA’s performance and find out the challenges facing UIA in enhancing economic
growth trough promotion of FDIs’. The information materials and or documents of
UIA were consulted in order to obtain some information to supplement information
gathered through other sources.
3.4 Quality control:
The researcher endeavored to avoid bias in the study. In this regard structured
questionnaires were designed and pre-tested. The researcher utilized the following
tactics.
i. Triangulation of the research methods
The researcher used more than one method in data collection.

24
These included interviewing and questionnaire methods.
ii. Triangulation of respondents
Various respondents were also included in the study. These included the
management of UIA. The study was purely academic and aimed at providing
academic knowledge in the field of investments in Uganda.
iii. Pre-testing
Pre-testing the instrument was carried out so as to ensure that questions in the
instrument are clear to ensure that the questionnaire and interview guide held the
same meaning to all respondents. Also during pre-testing the researcher was able
to identify sensitive, provocative, unclear or biased questions that were corrected or
omitted.
3.5 Data analysis and presentation.
Qualitative data obtained from the study was coded and grouped into themes that
emerge and matched according to the objectives of the study. Ideas, opinions and
recommendations by individuals were also summarized in tabular form and figures.
Comparisons of the objectives and ideas lead to findings and interpretation of
findings of the study.
3.5.1 Editing
Mugenda (1999:120) refers editing as the process of checking for errors and
omissions in the data collected in order to ensure accuracy, uniformity and
completeness. This will ensure that the research instruments bear clear, logical and
comprehensive responses. The researcher will begin by looking over each
completed questionnaire by searching for incomplete questions and answers where
the questions were misunderstood.
3.5.2 CODING
This is the process of classifying responses to questions into meaningful categories
in order to bring out their most essential pattern. It involves the development of
coding frame, which will be the full set of all answer categories into which all the
survey data will be classified. The answers will be got from the open ended and
closed questionnaires. (Enon, 1998:92)

25
3.5.3 Tabulation
Tabulation stage follows editing and coding in data processing. It entails counting
and adding all answers to particular questions in the whole research sample. It is
guided by the coding frame. The tabulation involves the process of allocating
responses using tally marks manually and then computing the frequency
distribution of the codes followed by calculating the number of elements in each
code which will be done by adding tallies together, and calculating their
percentages.
Finally, the researcher will compile statistical tables from the coded answers by
taking the number of respondents for each code and their percentages out of the
total sample.

3.6 Ethical issues

This study was carried out under inter-institutional collaboration arrangements
between Makerere University, Kampala and Uganda Investment Authority.
Respondents were protected by keeping the information obtained confidential and
their consent will be sought before revealing any information. Anonymity of
respondents was through use of numbers or pseudo names. The information
collected was utilized strictly for learning purposes.

3.7 Research procedure.

Permission to conduct the research was obtained from relevant authorities’
concerned that is a letter of authorization from the dean of the Faculty of
Economics and Management to introduce the researcher to Uganda Investment
Authority. Questionnaires were distributed to selected respondents and the purpose
of the study was to explain the areas to be visited. Appointments by those to be
interviewed were made and interviews carried out and responses subsequently
recorded. The researcher then analyzed the data using descriptive methods of
narration

26
3.8 Research variables
Economic Growth = ƒ (Investment)
Where; I is Foreign Direct Investment
The dependant variable is economic growth and Foreign Direct Investment (I) the
independent variable.
Whereas
I= ƒ(S,Y,L,Рs,Inf,G,M,N,B,P,Π)
The independent variables are;
i. Savings (S),
ii. Income (Y),
iii. Productivity of labor (L),
iv. Political stability (Ps),
v. Infrastructure (Inf),
vi. Administration bureaucracy (G),
vii. Global market competition (M),
viii. Markets which are in their nascent stages (N)
ix. Investor perceptions (P)
x. Inflation (Π).

3.8.1 Measurement of research variables

Economic growth is the dependant variable of investment. In this study more
emphasis was on foreign direct investments. So as to encourage FDI inflows the
government needs to create and promote a conducive environment for investments
by ensuring that the above variables hold a positive relationship.

3.8.2 Data analysis

Foreign Direct Investment (I) is assumed to be a function of the variables that
include, savings(S), income (Y), productivity of labor (Ps), infrastructure (Inf),
administrative bureaucracy (G), global market competition (M) ,

27
Markets of which are in their nascent stages (N) , credibility of the bilateral
relations with foreign states, investor perceptions (P),inflation (Π). These factors
influence foreign direct investments positively or negatively.

The savings level (S) will be assumed to influence FDI either positively or
negatively. When the savings level is high this leads to increased foreign direct
investments due to the availability of credit implying a positive relationship. On the
other hand when the savings level is low in a given economy FDI’s tend to shy
away from such economies.

Income (Y) will be assumed to influence FDI’s either positively or negatively. In this
case when income levels are high in a given economy this will translate into high
purchasing power amongst households thereby attracting foreign direct
investments .Whereas when the income levels are low income level will relate
negatively to FDI. Infrastructure is expected to have a positive or negative
relationship with FDI’s. Many respondents considered the state of physical
infrastructure as not conducive for competitive business they mainly emphasized
road on poor road network, power shortages that led to increased costs and
reduced production this implies that poor infrastructure is negatively related to
Foreign Direct Investments.

Complex administrative bureaucracy (G) is expected to have a negative relationship

with foreign direct investments. It is assumed that high administrative bureaucracy
slows down decision making process, encourages corruption thereby hindering the
inflow of FDI’s hence there exists a negative relationship between FDI and
bureaucracy.

High global market competition (M) tends to have a negative relationship with FDI’s
for instance the cost of production is high due to a number of factors such as poor
infrastructure, low labour productivity high cost of inputs among other factors thus
FDI’S fear taking the risk of investing in Uganda given the stiff competition from
other global markets that face low production costs such as china and India.

28
Narrow markets will relate negatively whereas wide markets will relate positively
with FDI’s .Foreign investors seek high returns on their investments within the
shortest time possible. This means that narrow markets cannot guarantee such
returns given the investment. This is evident from the regional trade blocks that
Uganda has joined that have attracted FDI’s into Uganda so as to benefit from the
wide East African Community (EAC), Common Market for East and Southern Africa
(COMESA).

Bilateral relations (B) are expected to have a positive and negative relationship with
Foreign Direct Investments. An economy that enjoys good bilateral relations with
foreign states will in most cases have an upper hand when it comes to FDI inflows.
On the contrary where bilateral relations are not cordial or non existent this leads
to a negative relationship.

Investor perception (P) will be assumed to influence FDI either positively or

negatively. In this regard when foreign investors perceive a given country or region
as not conducive for investment due to past history among other factors the n there
will be little or no FDI inflows into such economies or regions.

Inflation (Π) will have a negative relationship with Foreign Direct Investments. An
economy with high inflation levels say double digit inflation will tend to limit a
country’s ability to attract Foreign Direct Investments. Recent trends based on
African data suggest that countries with high inflation level attract less FDI’s.
(Onyeiwa and Shrestha 2004)

29
 CHAPTER FOUR

4.0 DATA PRESENTATION, ANALYSIS AND INTERPRETATION

This chapter, findings are presented analyzed and discussed .The chapter is divided
into three parts namely: general information (section A), licensing and registration
(section B) and performance and competitiveness (section C).
A total of 30 questionnaires were administered, 20(66.7%) questionnaires were
returned while 10(33.3%) were non response.

4.1 GENERAL INFORMATION

In this chapter, findings on the country of origin of investment, business sector and
scale of production were discussed.

Table 2 Country of origin of business.

Country of origin of Number of companies percentage
Business
Kenya 10 50%
South Africa 1 5%
Tanzania 2 10%
Britain 1 5%
Burundi 1 5%
India 5 25%
20 100%
Source: Research findings

Out of the 20 enterprises that responded 10(50%) were from Kenya (25%) from
India (10%) from Tanzania and 1(5%) from South Africa, Britain, and Burundi
respectively. Kenya recorded the highest percentage of enterprises/investments in
Uganda this could be attributed to positive prospects in the formation of the East
African community by most investors.

30
 Table 2 Sector of business
Business sector Number of enterprises percentage
Hospitality 4 20%
Manufacturing 8 40%
Transport 4 20%
Media 2 10%
Supplies and retail 2 10%
Source: Research findings

The results show that manufacturing was the primary activity around Kampala
amongst most foreign investments accounting for 40 %( 8 enterprises) while
hospitality and the transport sector accounted for 20 %( 4 enterprises)
respectively, while media and the retail sectors accounted for only 10 %( 2
enterprises) respectively. Media and the retail sector were the least attractive
sectors in terms of foreign investments.

On the scale of production it was found that 65% (13 foreign enterprises) operate
on a large scale whereas 35 %( 7 foreign enterprises) operate on a small scale.

4.2 REGISTRATION AND LICENSING

When respondents were asked if they had any knowledge of the existence of UIA
85% (17 respondents) said they had knowledge about its existence while 15% (3
respondents) did not have any knowledge about it. However most foreign investors
were aware of UIA, this shows it has made a mark as far as marketing Uganda is
concerned.

Enterprises were also required to indicate how they had their companies registered
and licensed.
The results showed that 50 %( 10 enterprises) were registered and licensed
through UIA’s assistance. It’s also worth noting that enterprises registered through
UIA’s assistance accounted for the highest percentage.

31
On the other hand 20 %( 4 enterprises) took the burden of registering their own
enterprises with the registrar of companies and some were facilitated by their
advocates. Investors who bought already existing companies accounted for 5%.

Table 3. Means of Company Registration

Registration Number of companies percentage
UIA 10 50%
Registrar of companies 4 20%
Advocate 2 10%
Mergers and Acquisitions 4 20%
Source: Research Findings

When asked to state the difficulties that were faced during registration and
licensing process 50% of those who registered through UIA said the process was
smooth and satisfactory, 15% of those who registered through the registrar of
companies claimed not to have encountered any problems while on the other hand
10% said they were faced by a number of problems such as complex bureaucratic
procedures, harsh officials and unnecessary delays.

Those whose registration and licensing process was handled by advocates

accounted for 20% of the total number. Problems encountered in this category
mainly include;
i) High fees charged by their advocates for their services
ii) Unnecessary delays due to the long periods taken during registration.
Respondents were also interviewed about the effectiveness of UIA and the results
obtained indicated that 65% felt UIA was effective, 25% ineffective while 30% had
no idea about its effectiveness. Reasons for these were as follows;

32
Respondents attributed UIA’s effectiveness to the following factors

Good management.
UIA is credited with a competent management team which has successfully steered
the institutions activities. This has also seen Uganda ranked as an “above potential”
foreign investment destination.

Aggressive marketing campaigns.

This is through the inward missions organized by UIA and the foreign ones that UIA
officials attend to show case what Uganda has to offer. These are also
complemented by the various conferences held by other agencies abroad where UIA
briefs other stake holders and prospective investors about the any progress made
In making Uganda the preferred investment destination

Attractive Investment incentives.

Incentives are preferred by many IPA’s in their value proposition. Incentives tend to
cover the entire range of business activities and this has to a large extent
contributed to the effectiveness of UIA in as far as FDI’s are concerned.

Stability.
Uganda continues to enjoy social and political stability of this plays a very important
role in determining whether investors will consider investing in the country.
Countries that experience civil unrest and political upheaval are unlikely to be
considered as viable investment destinations.

UIA’S ineffectiveness is attributed to the following factors;

High financial requirements.
The demand for high financial requirements by UIA limits the flow of foreign
investors. This is mainly because investors who fail to raise the required amount
cannot benefit from investment incentives

33
Lack of sufficient funds.
The institution lacks sufficient funds to run its activities smoothly. This means
alternative sources of funds have to be sought for instance from donor countries,
organizations this limits UIA’s effectiveness.

Long registration procedures.

The registration of enterprises in Uganda takes longer compared to other emerging
markets in the region such as Rwanda where registration and licensing takes only a
period of nine days. This factor poses as a threat to the attraction of FDIs’ in
Uganda.

PERFORMANCE AND COMPETITIVEMESS

Respondents had mixed reactions when they were asked to comment about
Uganda’s competitiveness and performance as far as attracting FDI’s is concerned
.in this regard 55%(11respondents)felt that UIA was competitive whereas 45%(9
respondents) did find it competitive. Mainly UIA’s lack of competitiveness was due
to a number of factors that posed as major challenges to investors. These include:

Power crisis.
The power problem has affected the production in most enterprises both domestic
and the foreign ones. This has led to loss of prospective investors to other markets.
its also important to note that the increase in the per unit costs of electricity erodes
away investors profits hence forcing them to increase their product prices this
makes such products uncompetitive given the presence of products from other
cheaper markets such as Kenya.

34
High fuel costs
Despite the continuous increase in world fuel prices, the high taxes on fuel in
Uganda works against the foreign investors tend to shy away from such markets.

Poor infrastructure
Due to the poor condition of the roads and an inactive rail network the access to
domestic and foreign markets are greatly hampered. This means the cost of doing
business in Uganda is too high thereby negatively affecting Uganda’s
competitiveness in terms of attracting foreign investments.

Insecurity in some regions:

Investors will always invest where the risks are lowest and their security as well as
that of their personnel is guaranteed. Contrary to these foreign investors will shy
away from such markets however lucrative they may be. Hence due the northern
region that has had many years of rebel attacks by the LRA, and the recent attacks
along Uganda’s boarder points with Congo deter FDI’s flow in Uganda.

High production costs

This was mainly attributed to the high electricity costs, transport costs, labor
training costs, and financial costs due to the high cost of borrowing. Such factors
tend to deter investors from investing in Uganda hence preferring other regional
markets where they incur cheaper costs of production.

Lack of appropriate skills:

The lack of the needed human resource domestically calls for training the locals
hence this over stretches the investors expenditure on training costs also the use of
expatriates means high costs since the costs of their services are too high. In such
instances investors will always avoid investing in Uganda.

35
Corruption
Weak law enforcement stemming from corruption. The lack of a credible
mechanism for the protection of property rights are major deterrents to FDI’s in
Uganda. Foreign investors prefer to make investments with very good legal and
judicial systems that guarantee security of their investments.

Customs offices in various busy border points work for limited time, due to this
factor raw materials, intermediate and finished goods some of which are on transit
to other markets take long at these boarder points while awaiting clearance than
they should if custom offices were to work 24 hours. This hinders business activities
especially in today’s global economy.

Unfair custom practice

Transport companies especially those ferrying passengers are often penalized high
amounts of money for transporting smuggled goods. When passengers realize that
custom officers have identified their smuggled goods they do not claim ownership
of their goods. As a result such company buses are impounded and only released
after paying heavy fines leaving the burden on the transport company.

4.3 OTHER FINDINGS

Narrow market
Relative to other regions of the world Uganda’s market is quite small accounting for
a mere population of 28 million. This makes it difficult for foreign investors to
exploit the economies of scale and so discourage entry.

Image of a conflict prone region

Most foreign investors perceive Africa as a region that characterized by high
incidence of wars, frequent military intervention in politics, religious and ethnic
conflicts. In a study carried out by Rogoff and Reinhart (2002) computed regional
susceptibility to war indices for the period 1960-2001.

36
They found that wars are likely to occur in Africa than in other regions. The regional
susceptibility to war index is 23.6% for Africa compared to 19.4% and 9.9% for
Asia and the Western Hemisphere respectively.

The lack of legal framework such as legislation and policy on unfair

competition.
Outdated legal framework and laws such as the bankruptcy law, law of contract,
and trade law. This factor was also emphasized by Dr Flora Musonda,
representative of EAC on a presentation about the “Challenges Facing Investment
Promotion” in during a regional meeting on investment promotion in East Africa.

Land problems
The lack of clear land policies on land ownership and land use has over the years
discouraged foreign direct investments in Uganda. Foreign investors mostly require
large tracts of land of which is not readily available leading to the giving away of
forests land, water catchment areas hence resulting to conflicts for instance the
recent Mabira forest give away that led to loss of life.
Communal land ownership has also made projects to take long before
implementation due to the lack of sufficient compensation to the land owners as
well reallocation.

37
 CHAPTER FIVE

5.0 RECOMMENDATIONS AND CONCLUSIONS.

Infrastructure development
UIA should press for the need of initiating and encouraging the need for more
cooperation in infrastructure development for example in energy, rail, civil aviation,
post and telecommunications and the Lake Victoria Basin Development project. This
should not only at the national level but also regionally.
In the case of transport sector in Uganda a policy frame work that embraces private
sector participation should be adopted. For instance leasing out of roads to the
private sector. This will not only eliminate the burden of road maintenance on the
public sector but also revenues allocated to these sectors can be used to stimulate
growth in other sectors.

Increase UIA’s- funding.

Even though commitment of funds to UIA is laudable a lot still needs to be done it
should also be viewed against the commitment made by other agencies. This will
also reduce on the pressure on UIA officials who have to source for funds form
donors among other non-governmental agencies.

Solve the power crisis.

There should be a frame work to improve the generation and distribution of power
at a lower cost. This calls for investment in the energy sector so as to eliminate the
incessant power machinery breakdown and low capacity utilization.

Establish liaison offices.

The setting up of effective liaison offices regionally and overseas usually for the
purposes of investment generating should be emphasized either as stand alone or
part of consulate or embassy .Though costly these offices play an effective role in
providing investor information of a given country or region.

38
Fight corruption
There should be advocacy for policies that make it easy to identify and punish
corrupt cases. This not only focus on the public sector only but also the public
sector.

Agency of constraint
Regional integration through the formation of regional groupings can also be used
to reduce the incidence of domestic policy reversals and improve the credibility of
economic policies in the region. In this case when national governments have a
credibility problem the regional groups can provide an external agency of restraint
on domestic policies.

Increase on the scope of national markets.

National markets can be increased through regional integration so as to help attract
investors currently constrained in part by the small size of the domestic markets in
the region. The successful conclusion on the formation of the East African
Community and by the membership of Rwanda and Burundi the EAC will constitute
the second largest market in Africa after Nigeria as well as access to COMESA and
SADC markets ,the EU markets and the USA through the AGOA initiative. Such a
wide market will therefore make Uganda and the EAC attractive as far as FDIs’ are
concerned.

Land Policy Formulation

UIA should advise government on the need of formulating an effective land policy
that will make it easier for investors to acquire land for their ventures hence
increase on investors’ confidence given the magnitude of the problem of acquiring
land for investment in Africa.

39
5.1 CONCLUSIONS.
As UIA aims at becoming the leading investment location in the world an application
of the best practice investment models and streamlined use of investment
procedures is vital. Policy recommendations must also aim at fulfilling a balance
between investment promotion, administrative simplicity and revenue generation.
The key is to filter the intensions of each group concerned and propose a reform
scheme that is based on the limited capacity of government, the desperate need of
optimizing revenue generation and yet fulfilling the goal of increasing FDI inflows
into Uganda. It’s in conformation to these requirements that UIA will attract FDI
inflows and thus facilitating growth of the economy.

40
QUESTIONEER
Dear Respondent,
This questionnaire has been designed with aim of collecting information that is
relevant for the analysis of the challenges and performance of Uganda Investment
Authority in enhancing economic growth through promoting Foreign Direct
Investment. It’s purely for academic purpose and your response will be treated
confidentially. I therefore request you to spare a few minutes of you valuable time
the answer the following as candidly as possible.

A. GENERAL INFORMATON.

Position held………………………………………………………….
Business Sector……………………………………………………
Country of origin of business………………………………
Scale of production………………………………………………

B. PROJECT REGISRATION AND LICENCING

1. Do you know of the existence of Uganda Investment Authority?

Yes No

2. Did UIA facilitate the registration and licensing of your company?

Yes No

41
3. If yes, how was the registration and licensing process? If no, how did you
register your company?
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………...

4. What difficulties did you face during registration and licensing of your company?
a) For companies that registered through UIA.
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………

b) For companies that registered without UIA’s assistance.

…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………

5. Do you think UIA has been effective in marketing Uganda as a desirable

destination for Foreign Direct Investment?
Yes No

a) What reasons do you have for your answer?

…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………..

42
C. PERFORMANCE AND COMPETITIVENESS.

6. In your own view is Uganda competitive in attracting FDI’s?

Yes NO

a) Give reasons for your answer.

…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………

7. What challenges is your company facing as far as investing in Uganda is

concerned.
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………..

8. What recommendations would you suggest UIA to adopt or advise

government on so as to enable it achieve its vision of making Uganda the
leading Foreign Direct Investment destination
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………
…………………………………………………………………………………………………………………………………

43
 REFERENCE:

Aaron C. (1999) The Contribution of Foreign Direct Investments to poverty

alleviation. Washington, DC: Foreign Investment Advisory service.

Report: Private Sector Investment Survey 2003

E-Boreztein: FDI and Growth; A Journal for International Economics 1998

Harrison, A. (1996) Determinants and effects of foreign direct investments in

Coted’ivoire, Morocco and Venezuela. In M. Roberts and J.Tybout (Eds), Industrial
evolution in developing countries, micro patterns turn over, productivity and market
structure.

United Nations: Investment in Africa: Performance and Potential. New York and
Geneva:

Econews. 15 April 2003. Foreign Investment in SADC. USAID/Pretoria

Investment and South Africa: A Comparison of Performance and Policy. India

United Nations Conference on Trade and Development 2002. World

Investment Report: Transnational Corporations and Export Competitiveness. New
York and Geneva: United Nations

UNECA, Economic Report on Africa 2002: Tracking Performance and Progress.

Tandon, Y. 2002. Fallacies about the theory of FDIs: It’s ideological and
methodological pitfalls. Harare, Zimbabwe: SEATINI

Chatterjee, S. 2002. Foreign Direct Investment in developing countries: Some

findings of the investment for development project. Seminar Paper.

Morrisset, P. (2000) Foreign Direct Investment to Africa

44
Report: Regional meeting on investment promotion in East Africa
Overseas Developing Institute 1997. Foreign Direct Investment Flows to Low-
Income Countries: A Review of the Evidence. Briefing paper.

Chantal Dupassquier and Patrick n. Osakwe: foreign Direct Investments in

Africa: Performance, Challenges and Responsibilities.

Fosu A.K 2001: The Global Setting and African Economic Growth. Journal of
African Economies.

Onyeiwa, S and Shrestha H. (2004) Determinants of Foreign Direct Investments

in Africa.Jounal of Developing Economies.

Elbadawi I and Mwega, F (1997): Regional Integration and Foreign Direct

Investments in Sub Saharan Africa

45
46