Uganda offers investors numerous opportunities, given its youthful, English-speaking population, open markets, and abundant resources, Uganda’s economy expanded six percent per year over the past decade, due to rapid growth in the energy, construction, infrastructure, telecommunications and financial services sectors. While Uganda maintains a liberal trade and foreign exchange regime, and largely adheres to IMF/World Bank programs to fight poverty, continuing reports of endemic corruption, financial mismanagement, and increasing political repression raise questions about the government’s commitment to fostering an investor-friendly environment. National elections held on February 18, 2016 fell short of international standards, according to most international and domestic election observer missions. Projects managed by the Government of Uganda are hampered by a sluggish bureaucracy with a non-transparent decision-making process.
Poor infrastructure, high energy and production costs, and a number of macro-economic challenges, most notably a large trade deficit, inflation, and high interest rates, dampened growth in 2015, but growth is expected to rebound to five percent in 2016, and 5.5 percent in 2017. With a trade deficit exceeding $2 billion, the Ugandan shilling remains under pressure. Uganda’s Central Bank, the Bank of Uganda (BOU), is widely credited with pursuing sound monetary policy that helped arrest the shilling’s rapid depreciation which totaled 30 percent in the first three quarters of 2015. The BOU targeted inflation, raising the central bank rate (CBR) to 17 percent in September 2015. The BOU recently dropped the CBR to 16 percent in a sign that it believes inflation is under control at 6.2 percent, just above the BOU’s target of five percent.
Agriculture plays a dominant role in Uganda’s economy, employing 72 percent of Uganda’s workforce. In 2014 agriculture contributed 24.7 percent of GDP. Uganda’s top agriculture exports include: coffee, tea, tobacco and cotton. Uganda is Africa’s largest exporter of coffee, producing about 3.8 million bags of coffee in 2014. Other significant agricultural exports include fish, flowers and horticultural produce. Agricultural inputs such as seeds, fertilizers, herbicides, and agricultural processing equipment remain in short supply for Ugandan farmers, impeding growth in the sector.
Uganda’s natural resources are plentiful, including significant oil reserves - an estimated 6.5 billion barrels, including 1.4 billion which are recoverable. With only 40 percent of the oil-rich areas explored, additional discoveries could boost Uganda’s oil reserves and the Ministry of Energy plans to award additional exploration licenses in 2016. In February 2015, the Ministry of Energy also provisionally awarded a multi-billion dollar contract to construct a refinery to Russian firm RT Global, subject to final negotiations. In spite of these developments, two of the three oil companies active in Uganda are downsizing their operations as delays in issuing production licenses mount. Moreover, details of an export pipeline from western Uganda to the Indian Ocean through Kenya or Tanzania are still being negotiated. Based on current projections, it is unlikely that any production could realistically begin before 2020 at the earliest.
Inadequate and unreliable power supply remains one of the largest obstacles to private sector investment, and Uganda’s electricity network urgently needs renovation and expansion. Access to electricity countrywide is a meager 20 percent and falls to 10 percent in rural areas. The Government formally broke ground on the 600-megawatt Karuma hydropower project in 2013, but the project continues to be dogged by delays, and the first 100 megawatt turbine is not expected to be operational until 2018 at the earliest. In the meantime, Uganda is working to expand its power supply by constructing a number of micro-hydro projects along the Nile River and is promoting the development of other sources of renewable energy, such as off-grid solar power systems. The government continues to explore options to develop its geothermal reserves in western Uganda.
High transportation costs are another constraint on Uganda's economy. Uganda’s dilapidated road and bridge infrastructure needs considerable investment, its railway system is in disrepair, and air freight charges are among the highest in the region A two-lane highway from Kenya remains the primary route for 80 percent of Uganda's imports, making transportation slow, costly and susceptible to disruption. Another problem is Uganda’s reliance on imports from Kenya’s Mombasa seaport. While Uganda and Kenya have worked to remove non-tariff barriers, resulting in quicker transit times, chronic congestion at Mombasa results in costly delays. Uganda also hopes to shift more cargo transit from trucking to rail but extensive and expensive rehabilitation of existing rail lines is required before freight trains can service Uganda. In March 2015, the government signed a contract with China Harbor Engineering Company Ltd to build a USD 3.2 billion standard gauge railway project to improve rail infrastructure through the east-African region; it is projected for completion in December 2017. Passenger traffic through Uganda's Entebbe International Airport grew 7 percent in 2015. The government pulled privately-owned Air Uganda’s license in 2014; however, the government is looking to revive another carrier as a public-private partnership.
At 3.0 percent per year, Uganda's population growth rate is one of the fastest in the world, and its current total population of 34.9 million is expected to rise to 54 million by 2025. While creating potential markets for products, the country's population growth is also increasing the strain on social services, underfunded schools and hospitals, infrastructure, forests, water, and land resources. The high level of HIV/AIDS infection in the country is also taxing social services. Uganda developed a model program to combat HIV/AIDS, and prevalence rates decreased from close to 20 percent in the 1990s to 6.4 percent in 2006. However, the current published national HIV/AIDS prevalence rate is 7.3 percent according to the 2011 AIDS Indicator Survey.
