UGANDA CONTINUES TO SLIP IN GLOBAL COMPETITIVENESS INDEX

UNCLAS SECTION 01 OF 02 KAMPALA 000754

SENSITIVE
SIPDIS

E.O. 12958: N/A
TAGS: ECON ETRD EFIN EINV PREL UG
SUBJECT: UGANDA CONTINUES TO SLIP IN GLOBAL COMPETITIVENESS INDEX

REF: KAMPALA 627


1. (SBU) Summary: The World Economic Forum, the World Bank, and
the African Development Bank recently ranked Uganda as one of the
worst places in the world to do business in their annual Global
Competitiveness Index. This slide continues a downward trend in
Uganda's ranking since 2004. However, despite the low overall
score, Uganda scored relatively well in the areas of macroeconomic
stability and labor market efficiency. Local business leaders agree
with the poor ranking, but feel that the business climate is
improving and presents opportunity for meaningful investment. End
Summary.

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Uganda Slides In Rankings...
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2. (U) The World Economic Forum, the World Bank, and the African
Development Bank recently ranked Uganda 128 out of 134 on its annual
Global Competitiveness Index. The Index analyzes the business
climate in 134 countries around the world based on both hard data
and a survey of top business executives in each country. Uganda
scored particularly low on infrastructure and education and was
ranked second to last on health and primary education. Uganda's low
score continues a downward trend in the score for the past five
years. In 2004, Uganda scored a 3.5 average score (one is the
worst, seven is the best),while the average score for 2009 was down
to 3.3. In comparison, Kenya averages a 3.8, Tanzania averages a
3.5, and Sub-Saharan Africa as a whole averages a 3.7.

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...But There's Still Hope
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3. (U) Despite the low overall ranking, Uganda performed relatively
well in two key sectors. In the area of macroeconomic stability,
Uganda was ranked close to the middle of the index. The Government
of Uganda (GOU) has promoted a stable market economy for the last
twenty years and until recently at least, was sharply limiting its
external debt burden. Further, Uganda ranked in the top quarter of
the list in labor market efficiency. This category represents an
area that Uganda could continue to leverage into economic growth.
Joseph Were, business writer for "The Independent" weekly magazine
noted that "a country like Uganda which depends on unskilled labor
and natural resources should be perfecting its competitiveness based
on these basic requirements (stability and labor)."

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Business and Government Leaders Respond
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4. (U) The perception of the business climate within the business
community confirms the index score but contradicts its direction.
Alex Wanjohi, Managing Director of AIG Uganda agreed with the
ranking but noted that the overall climate is improving.
Corruption, fraud, and weak compliance and enforcement are serious
impediments to business in Uganda, he explained. Mantrac Managing
Director and American Chamber of Commerce President Vincent Balogun
called corruption a "difficult challenge" for American companies,
especially given their need to comply with the U.S. Foreign Corrupt
Practices Act. He noted, however, that Uganda's developing economy
remains a great market for American products, particularly those
needed for economic and infrastructure development.


5. (U) Stephen Kaboyo, Deputy Director of Financial Markets at the
Bank of Uganda, acknowledged the need to invest in infrastructure
and human capital, calling them "essential" to increasing Uganda's
competitiveness and strengthening regional economic integration.
Kaboyo's comments track with a continual increase in annual GOU
expenditures on roads. In 2004/2005, the GOU spent $91 million on
roads. Road spending has increased each year and the GOU spent $250
million for 2008/2009. Over the same period, health expenditures
also rose from $17 million to $28 million. However, these budget
increases have not translated into effective spending. In the first
half of 2008/2009, the Ministry of Works and Transport absorbed just
53% of its first-half development budget and the Ministry of Health
spent only 76%. This inability to effectively spend continues to
hamper infrastructure and economic development.

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Comment
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6. (SBU) The Global Competitiveness Index accurately describes the
difficulties inherent in doing business in Uganda. However, Uganda
remains a tantalizing opportunity for many businesses, as there
remains a strong market for the goods and services inherent to
economic development (e.g. power, telecommunications, roads). Even
during the current global economic downturn, Uganda expects 6%
growth in 2009, higher than the expected average for Sub-saharan

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Africa. This growth should make Uganda attractive to U.S. and other
foreign investors, but unfortunately, foreign direct investment is
expected to fall this year as overseas investors pull back generally
due to the impact of the global financial crisis and ensuing
recession. Those foreign investors that do look at Uganda will also
need to be aware of the risks and costs associated with corruption
and poor infrastructure in Uganda. It does indeed remain a
difficult place to do business.
HOOVER