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III. FOREIGN DIRECT INVESTMENT AND TRADE
(1) Investment Policies
1. Foreign direct investment (FDI) inUganda haslongbeendiscouraged byrestrictive government
regulation, compounded byepisodes ofexpropriation during the1970s. Afirstattempt toregain foreign
investors 'confidence wasmade withtheenactment oftheExpropriated Properties Actin1983under
thesecond Obote régime. Further andmore substantial changes came withastructural adjustment
programme in1987 andanewInvestment Code inJanuary 1991, which finally broke withprevious
anti-FDI policies. TheCode introduced ageneral setofinvestment incentives, guaranteed profit
repatriation andprovided protection against expropriation ofassets.1ItalsogavebirthtotheUganda
Investment Authority (UIA), a"onestopshop" toprocess investment proposals andofferassistance
andadvice topotential investors.2TheDeparted Asians 'Property Custodian Board (DAPCB) hasbeen
mandated since 1983toreturn properties expropriated fromUganda Asians totheiroriginal owners.3
2. TheauthoritiesconsiderforeigninvestmentasakeytobroadenthefinancialbasisoftheUgandan
economy,whichhasremainedheavilydependentonofficialtransfers,andtoeasetheconstraintsimposed
bylowdomestic savings.4Investment inflows arealsoexpected tocontribute toindustrial andtechnical
adjustment, facilitate structural diversification, andimprove themarket andexport performance of
emerging newindustrial andservices activities. Implementation oftheUruguay Round Agreement
onTrade-RelatedInvestmentMeasures(TRIMs)mayfurtherimprovethecountry'sattractionforforeign
investors.
3. Under theCOMESA Treaty (Chapter II(5)(ii)(a)), Uganda iscommitted topromoting and
protecting foreign investment. Likeother members, ithasundertaken, interalia,toextend "fairand
equitabletreatmenttoprivateinvestors",create"apredictable,transparentandsecureinvestmentclimate"
andremove "administrative, fiscal andlegal restrictions tointra-Common Market investment"
(Article 158to162). Subject toapublic interest clause, COMESA members areprohibited from
nationalizing orexpropriating private investment. Rather, theyareexpected toguarantee therepatriation
ofreturns (e.g.dividends andinterest) androyalties, repayment ofloans, andtransfer ofanyproceeds
fromliquidation. TheTreaty further provides fornegotiations ondouble taxation agreements between
itsmembers andfortheiraccession tomultilateral investment agreements, including theInternational
ConventiononSettlementofInvestmentDisputes(ICSID)andtheConventionestablishingtheMultilateral
Investment Guarantee Agency (MIGA). While Uganda hassigned bothConventions, itsonlycurrent
1GATT document MTN.GNG/MA/W/23, 2December 1993; Dun&Bradstreet (1994).
2TheUIAisheaded byaBoard comprising representatives ofvarious Government Departments (including
Finance, Planning, Industry, Commerce, andInternal Affairs), theBank ofUganda, theUganda Chamber of
Commerce andIndustry, andtheUganda Manufacturers 'Association (Section 4oftheInvestment Code). The
Authority 'sstatutory functions include: promotion andfacilitation ofinvestment; issuance ofinvestment licences
andcertificates ofincentives; determination oftheterms andconditions imposed oninvestment; andmaking
recommendations totheGovernment onnational policies towards investment (Section 7).TheUIAactswithin
thepurview oftheMinistry ofFinance andEconomic Planning.
3Among 7,000 properties expropriated byprevious régimes, over1,700 have been returned totheirformer
owners todate(MFEP (1993b)).
4MFEP (1993b).Uganda WT/TPR/S/4
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double-taxation agreement iswiththeUnited Kingdom. Negotiations withothercountries are,however,
under way.
4. Uganda 'spolicies towards outward investment hasremained cautious; allcapital transfers
aresubject toindividual exchange control approval (Annex I.1).5According totheauthorities, however,
there arenosetcriteria andapproval isnormally granted.
(2) Legal Framework andProcedures
(i) Approval process
5. Allforeign investment must belicensed bytheUganda Investment Authority (UIA).6The
Authority islegally required toprepare areport oneachapplication within 30daysandmake itsdecision
within another 14days. According toUIAofficials, however, decisions arenormally made within
twotothree daysfrom thefiling ofanapplication.
6. Under theInvestment Code, investments mustbeapproved, iftheapplication isinaccordance
withtheCode andtheenvisaged activity is"notunlawful orcontrary totheinterests ofUganda"
(Section 15). Approval maybemade subject tocertain undertakings bytheinvestor:
(a) tocommit aspecified minimum amount, whether incashorthrough theprovision of
machinery, buildings orother assets;
(b) toemploy andtraincitizens ofUganda withaviewtoenabling themtoreplace foreign
personnel assoonaspracticable;
(c) topurchase goods orservices produced oravailable inUganda if,interms ofprice,
quality oravailability, these are"competitive" withsimilar imports7;or
(d) toensure thatthebusiness operations arenotecologically oreconomically harmful
(Section 19).
Inorder foranapplication tobeprocessed andcleared, theUIAapplies aminimum threshold of
US$100,000 perproject.
7. Between July1991 andJuly1994, 1,046 applications werefiledand839projects approved.
According totheauthorities, thenational interest clause (Section 15)hasnotbeenusedtodate; there
5IMF (1994b).
6Under theInvestment Code, "investment" isdefined asthecreation ofnewbusiness assets ortheexpansion,
re-structuring orrehabilitation ofanexisting enterprise (Section 2oftheCode). "Foreign investors" areeither
non-Ugandan nationals orcompanies which aremajority owned bysuch persons (Section 10).
7The Uruguay Round Agreement onTrade-Related Investment Measures (TRIMs) considers as
GATT-inconsistent allTRIMs "which require thepurchase orusebyanenterprise ofproducts ofdomestic origin
orfromanydomestic source" (Article 2andAnnex). Least-developed countries aregranted anadjustment period
ofseven years formeasures notified asnotbeing inconformity withtheTRIMs Agreement; thenotification
must bemade within 90days from entry intoforce oftheWTO (Article 5).TheAgreement alsoprovides a
temporary derogation fordeveloping country Members facing Balance-of-Payments problems (Article 4).WT/TPR/S/4
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havebeennorejections. Theprocedures arecurrently under consideration withaview tofurther
promoting Uganda 'sattraction forforeign investors.
8. Once licensed, allinvestors areeligible fordutyandtaxexemptions onplant, machinery,
equipmentandspecializedvehiclesnotavailableinUgandaandnotmorethanfiveyearsold(Section22).
Alicensed investor mayobtain credit from domestic financial institutions, uptoalimitestablished
bytheBank ofUganda inconsultation withtheUIA. Alllicensed investors areassured under the
Investment Code thattheirenterprises willnotbeexpropriated, except inaccordance withtheprovisions
oftheConstitution ofUganda. Inthecaseofcompulsory acquisition, compensation atafairmarket
value istobepaidwithin 12months (Section 29).8TheUIAmayassist licensed investors inobtaining
thenecessary secondary operating licences, work permits, andcommercial orindustrial plots
(Section 16(2)).
9. According totheauthorities, theGovernment revenue losses resulting from fiscal advantages
between July1994 andFebruary 1995 amounted tomore thanUSh14billion, or3percentoftotal
government revenue in1994/95. Ofthis,more thanhalfresulted formtheexemption ofsalestaxes.
10. Domestic investments arenotinprinciple subject toUIAapproval. Without licence, however,
theywould notqualify foranyofthebenefits specified under theInvestment Code.
(ii) Investment incentives
11. Although subject toseparate application procedures, investment licensing normally goeshand
inhandwiththegranting ofacertificate ofincentives. While therearevariations, holders ofacertificate
arenormally entitled to:
(a) exemption from profit taxation (i.e.corporation tax,withholding taxandtaxon
dividends) forthree tosixyears, depending ontheamounts committed9;
(b) drawback ofanyduties andsalestaxes levied ontheinputs usedforexport production
(Section 26oftheInvestment Code); and
(c) unrestricted repayment offoreign loans andinterests; transfer ofdividends, royalties
orfees; payment ofemoluments andother benefits toforeign personnel; andtransfer
ofprofits orproceeds ondisposal ofassets (Section 33).
Further extension oftheincentives, including theintroduction oftaxholidays foruptotenyears, is
currently under consideration.
8Article 13ofthe1967Constitution allows forcompulsory acquisition ifconsidered "necessary intheinterest
ofdefence,publicsafety,publicorder,publicmorality,publichealth,townandcountryplanningorthedevelopment
orutilization ofanyproperty insuch manner astopromote thepublic benefit".
9Exemption isforthree years forinvestments between US$50,000 andUS$300,000, andfiveyears for
investments above US$300,000 (Section 25oftheInvestment Code). Anadditional yearisaccorded ifthe
investment ismade inanyofthepriority areas listed intheSecond Schedule oftheCode (seebelow).Uganda WT/TPR/S/4
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12. Certificates ofincentives areissued bytheUIAifavariety ofprescribed conditions aremet.10
Apart fromcertain value thresholds -US$50,000 forUgandan andUS$500,000 forforeign investors
(reduced inpractice toUS$300,000) -theproposed investment mustcontribute toatleastthree ofthe
following objectives specified intheInvestment Code (Sections 13and23):
(i) foreignexchangeearningsorsavingsthroughexports,resource-basedimportsubstitution
orservices activities (export performance requirement);
(ii) utilization oflocalmaterials, supplies andservices (local content requirement)11;
(iii) creation ofemployment opportunities inUganda;
(iv) introduction ofadvanced technology orupgrading ofexisting technology;
(v) contribution tolocally orregionally balanced socio-economic development; or
(vi) anyother objectives theUIAmayconsider relevant forachieving theobjectives of
theInvestment Code.
13. With regard toforeign investment, theCode distinguishes between regulated, non-priority,
andpriorityareas.Foreigninvestmentisgenerallynotpermittedintheregulatedareas:cropproduction,
animal production, andacquisition orrental oflandforthepurpose ofsuchproduction (Section 11(2)).
Exemptions maybegranted, subject toapproval bytheUgandan Government andthemunicipal
authorities concerned, ifindustrial processing activities areinvolved (e.g. tomato growing forthe
production oftomato ketchup). While foreign investments innon-priority sectors arenoteligible for
taxholidays, dutydrawbacks andthefreetransfer offunds, investments inthepriority areas qualify
forallincentives plusaone-year extension ofthetaxholidays (Table III.1). TheGovernment iscurrently
reviewing thisclassification withaview toexpanding thescope ofthepriority areas and,more
fundamentally, replacing thecurrent positive listbyanegative list.
14. According totheauthorities, there arenoindustries inwhich foreign ownership islimited by
law. Concurrently, many oftheparastatals thathavebeenprivatized inrecent years arenowpartly
orwholly owned byforeign companies ornationals. However, some services sectors, including water,
electricity, railtransport andtelecommunications, remain dominated byState-owned enterprises which,
except fortheUganda Posts andTelecommunications Corporation, arenotscheduled forprivatization
(Chapter IV(4)(i)).
15. UndertherulesoforiginofthePTAAgreement,theextensionoftariffpreferenceswasrestricted
togoods produced byfirms majority owned andmanaged bynationals ofmember States
(Chapter IV(2)(xv)). Thisprovision, regarded asaserious impediment totradeandinvestment inthe
area,wasabolished inJanuary 1992. Theorigin rulesunder theCOMESA Treaty donotcontain any
nationality criteria.
10While under theInvestment Code acertificate must beissued within 30daysfrom filing anapplication,
according totheauthorities, processing generally takes nomore thantwoweeks.
11Asnoted above, theUruguay Round Agreement onTrade-Related Investment Measures imposes certain
constraints ontheuseoflocal content criteria.WT/TPR/S/4
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Table III.1
Treatment offoreign investment under theInvestment Code
Priority areasa
Agriculture andfoodprocessing Manufacturing industries
Crop processing Steel
Processing offorest products Chemicals
Fishprocessing Textiles andleather
Meat processing Paper production
Oilmilling Glass andplastic products
Ceramics
Services Tools, implements, equipment andmachinery
Construction andbuilding industry Industrial spare parts
Tourism Building materials
Realestate development Packaging
Transportation Pharmaceuticals
Energy conservation High-technology production
Banking
Telecommunications Mining
Non-priority areasb
Wholesale andretail commerce Bakeries, confectioneries andfoodprocessing fortheUganda market
Personal services Postal services
Public relations businesses Professional services
a Listed intheSecond Schedule oftheInvestment Code.
b Listed intheThird Schedule oftheInvestment Code.
Source: Government ofUganda.
(3) Investment Patterns andTrends
16. After years ofvirtual absence, foreign investment started toflowintoUganda in1991, reflecting
bothincreased business confidence inthecountry anditsregained economic momentum. Over
800investment projects, involving commitments ofoverUS$1.4 billion,were filedbetween mid-1991
andmid-1994.12Theyareestimated bytheUIAtogenerate over50,000 localjobsintheformal sector;
however, alargemajority oftheprojects remain tobeimplemented. Actual FDIinflows, US$3 million
in1993, havecontinued tobedwarfed byforeign aid(unrequited transfers) (Chart I.5).13
17. Foreign investment patterns largely reflect Uganda 'sexternal trade patterns. Asshown in
Chart III.1, thebulkofforeign investment between July1991andSeptember 1994came frommember
States oftheEuropean Union (EU), particularly theUnited Kingdom, which alone accounted forone
thirdofthecommitments made. Neighbouring COMESA partners (e.g.Sudan, Kenya andTanzania)
andIndia havealsoinvested considerably inrecent years. Thesectoral pattern ofapproved projects
wasdominatedbythefoodprocessing,construction,insuranceandbusinessservicessectors(TableIII.2).
12Including 410projects, involving US$611 million, proposed bylocal operators (UIA, 1994).
13Given thatinvestment projects carried outbyforeigners maybeco-financed bydomestic banks, the
commitments made areunlikely inanyevent totrigger equivalent inflows offunds.Uganda WT/TPR/S/4
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Table III.2
Investment commitments bysector, July1991 toNovember 1994a
(US$ thousand andpercent)
Number of
projectsCumulative value ofprojects
US$thousand Percent
Agriculture, forestry andfishing 79 90,443 5.5
Mining andquarrying 19 77,748 4.8
Manufacturing 500 662,299 40.5
-Food products, beverages andtobacco 177 288,364 17.6
-Textiles, clothing, leather andfootwear 58 62,047 3.8
-Wood, furniture, paper andprinting 63 45,315 2.8
-Chemicals, petrochemicals, rubber, plastics andglass 120 174,574 10.7
-Iron, steelandnon-ferrous metals 33 45,402 2.8
-Machinery, electrical andtransport equipment 48 46,598 2.9
Services 451 803,379 49.2
-Construction 83 176,333 10.8
-Insurance andbusiness services 83 198,459 12.1
-Personal andsocial services 25 13,247 0.8
-Tourism, casinos andhotels 80 154,615 9.5
-Trade andrestaurants 115 98,176 6.0
-Transport, communications andstorage 65 162,548 9.9
Total 1,049 1,633,868 100.0
a Cumulative value ofinvestment projects proposed byUgandans andforeigners.
Source: WTO Secretariat, based ondatareceived from theUganda Investment Authority.