The Africa Risk-Reward Index for this year, compiled by Oxford Economics Africa, has ranked Uganda as East Africa’s most rewarding economy to invest in after posting one of the biggest positive movements in their overall risk-reward scores between last year and this one. Uganda’s stellar performance does not stop at the regional level. The country also emerged third most rewarding economy in the broader African context. Now in its eighth edition, the Africa Risk-Reward Index evaluates factors such as political stability, economic prospects, regulatory environments, and other critical aspects impacting the risk-reward balance across different African markets.
The report aims to provide a comprehensive assessment of the risks and rewards associated with investing and doing business in various African countries. It seeks to help businesses and investors make informed decisions about opportunities and challenges in the region.
What the ranking means
Bernard Wabukala, an economics lecturer at Makerere Business School (MUBS), explained the factors contributing to the improved reward-risk score for this year, in relation to the previous year. He attributed this positive trend to three key factors: macroeconomic stability, enhanced political stability and infrastructure development. Wabukala noted that Uganda experienced greater macroeconomic stability this year. The stability, he said, was characterised by moderate inflation rates and a relatively stable exchange rate of the Uganda shilling against the US dollar.
These factors have created a favourable environment for investors, allowing them to better anticipate and manage their business risks, particularly in the wake of post-COVID-19 economic recovery efforts. He noted that while isolated incidents of internal insecurity occurred, the overall political climate has been more stable. This increased political stability has boosted investor confidence, creating a conducive atmosphere for business activities.
Wabukala also emphasized Government’s deliberate focus on infrastructure development, particularly in the expansion of electricity generation capacity. The Government’s investment in infrastructure has not only attracted foreign businesses, but also improved prospects for local manufacturing.
Despite these positive developments, Wabukala underscored the importance of maintaining this positive trend, given that the risk score (6.22) remains higher than the reward score (5.53). He stressed the need for continued efforts to minimize risks, especially as the country manages potential external shocks. To achieve this, he recommended policy actions and economic choices that prioritise resilience in the face of external challenges and encourage improved international relations with the global economy.
Govt’s deliberate efforts
Ramathan Ggoobi, the secretary to the treasury, underscored Uganda’s status as a land teeming with opportunities. He elaborated on the Government’s deliberate efforts to position Uganda as the foremost investment destination within the region.
“Uganda is a land of opportunities and, as Government, we are deliberately making Uganda the number one investment destination in the region. Our strategy is simple; enable investors, both domestic and foreign, earn a high return on investment so that they set in motion a multiplier effect for the benefit of wider economy,” Ggoobi said.
The top ranking reflects Uganda’s growing potential as an attractive destination for investors and businesses seeking opportunities in the region, according to Robert Mukiza, the director general at Uganda Investment Authority.
Mukiza noted that the country’s strategic location, progressive policies, and commitment to reforms have been key drivers in attracting investments. “Investors look at the temperature of a country right from the top. One of the major reasons is our investment in security of person and their property. President Museveni has made sure that all our border points are secure. That is very critical for investors and their investment,” he said.
“Our legal infrastructure is also secure for investors. You have seen cases where investors have taken Government to court and they actually win cases. So, the legal system that the Government has put in place is secure,” Mukiza said.
In addition, he stated that the President’s idea of integration of Africa has also been vital. “When an investor comes to Uganda, they know that they can base here and still be able to access African markets quota and tariff-free,” he said.
Key development
Foreign investors are increasingly looking to Uganda as a prime destination for capital deployment. The country’s diverse sectors, including agriculture, energy, technology and manufacturing offer a wide range of opportunities for businesses seeking growth.
Uganda’s commitment to implementing further reforms, such as streamlining regulations, enhancing transparency and boosting the ease of doing business, is expected to cement its position as a top investment destination in Africa. Although Foreign Direct Investment (FDI) reduced sharply from $1.2b (sh4.8 trillion) in 2019 to $874m (sh3.2 trillion) in 2020 due to Covid, last year, the FDI hit a record level of $1.5b (sh5.7 trillion), according to data from ministry of finance.
FDI refers to ownership of a stake in a company or project made by an investor, company or government from another country. The increase made Uganda one of the 10 top African countries in FDI inflows for calendar year 2022 and the number one in East Africa due to growth in the minerals sector, and oil and gas which recorded increased activity after the Final Investment Decision (FID) in February last year.
Exports increased significantly, growing by 42% from $3,838m (about sh14 trillion) in the 2021/22 financial year to $5,467m (about sh20 trillion) in 2022/23, driven by gold exports.
Other stakeholders’ take
Prof. Sulait Tumwine, a finance lecturer at Makerere University, emphasised that while Uganda’s positive international image is an asset for attracting foreign investment, the country still faces significant challenges on the microeconomic front.
Despite the overall security of the country, the majority of its citizens experience low purchasing power. While security is a crucial factor for investors, they also seek markets where they can sell their products and generate returns.
Uganda’s vast population offers potential, but the limited purchasing capacity of its citizens remains a concern. To address this issue, Tumwine highlighted the importance of implementing strategies to enhance citizens’ purchasing power. One such strategy involves improving the quality of healthcare services in government hospitals, which would reduce the financial burden on the population.
He noted that tackling factors that contribute to the high cost of living is essential to ensuring that citizens have more disposable income.
Political stability
According to Prof. Venansius Baryamureeba, an academic and former presidential candidate, a higher risk-reward ratio signifies the potential for more significant profits relative to potential losses in a given investment or project, making it a preferred choice for investors.
Baryamureeba highlighted concerns regarding the ease of doing business in Uganda, noting that improvements in this area are crucial. The same applies to Uganda’s standing in the corruption perception index, which needs some attention.
