Identifier
Created
Classification
Origin
09KAMPALA77
2009-01-16 05:29:00
UNCLASSIFIED
Embassy Kampala
Cable title:  

SUBJECT: 2009 INVESTMENT CLIMATE STATEMENT -

Tags:  EINV EFIN ETRD ELAB KTDB OPIC USTR UG 
pdf how-to read a cable
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.

- - - - - - - - - - - - - - - - - - - - -
2009 UGANDA INVESTMENT CLIMATE STATEMENT
- - - - - - - - - - - - - - - - - - - - -

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.

- - - - - - - - - - - - - - - -
Openness to Foreign Investment
- - - - - - - - - - - - - - - -

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.

- - - - - - - - - - - - - - - - -
Conversion and Transfer Policies
- - - - - - - - - - - - - - - - -

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.

- - - - - - - - - - - - - - - -
Expropriation and Compensation
- - - - - - - - - - - - - - - -

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).

- - - - - - - - - -
Dispute Settlement
- - - - - - - - - -

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.


- - - - - - - - - - - - - - - - - - - -
Performance Requirements and Incentives
- - - - - - - - - - - - - - - - - - - -

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.

- - - - - - - - - - - - - - - - - - - - - - -
Right to Private Ownership and Establishment
- - - - - - - - - - - - - - - - - - - - - - -

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.

- - - - - - - - - - - - - - -
Protection of Property Rights
- - - - - - - - - - - - - - -

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.

- - - - - - - - - - - - - - - - -
Transparency of Regulatory System
- - - - - - - - - - - - - - - - -

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.

- - - - - - - - - - - - - - - - - - - - - - - - - -
Efficient Capital Markets and Portfolio Investment
- - - - - - - - - - - - - - - - - - - - - - - - - -

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