Previous Quarterly Editions
Expropriation Risk: 60 59 60 60 ►Political Violence Risk:60 60 59 58 ► Terrorism Risk:40 38 36 38 ▼Exchange Transfer and Trade Sanction Risk: 55 63 64 63 ►Sovereign Default Risk:66 74 74 82 ▲
TREND ▲
Protest intensity in 2022 and Q1 2023* 2022 Q1 2023Cost of living : Low LowAll protest: Low Low
Cost-of-living protest risk in 2023*Wage protest: MediumFood/fuel policy protests: Medium
*Note: Protest intensity is calculated based on ACLED. Risk levels are calculated by WTW. Where data are missing no risk level will be displayed. For details of calculations, see the introductory essay.
President Yoweri Museveni continues to face a challenging economic environment. However, his clear and direct messaging regarding both the nature of the challenges and the strategies his government is pursuing to address these, combined with a more favourable medium-term outlook, suggests voters are unlikely to deliver a broad-based ‘punishment vote’ at the next general election in 2026. Nevertheless, the adverse economic situation may cause an uptick in incidents of civil unrest.
As with other African countries, the period since Russia’s invasion of Ukraine in February 2022 has seen inflation accelerate in Uganda. In 2022, inflation rose to 7.2%, up from 2.2% in 2021, driven especially by higher food and energy prices. The annual inflation rate has eased throughout early 2023, but the cost of certain key food imports continues to rise. For example, annual inflation of maize flour, which is Uganda’s largest food import, was 53.3% in February (albeit down from 90.8% the month before).
Uganda faces growing external debt liabilities. In 2022, these amounted to 1.5% of GDP, although for 2023 and 2024 they are forecast to rise to 2% of GDP. The IMF now classifies Uganda as being at “high risk of debt distress,” while the global credit ratings agency Fitch has recently downgraded the country’s outlook to “negative.”
However, from the outset of the crisis, the Museveni government has clearly communicated to voters the external causes of these challenges, and their insistence upon maintaining strong fiscal discipline in order to navigate through them. Over the past twelve
months, both the President and his Finance minister, Matia Kasaija, have repeatedly insisted that they will not subsidise any food imports, nor suspend any taxes on fuel, in order to protect the country’s approximately USD4.5 billion of foreign currency reserves. So too, the Bank of Uganda has aggressively raised interest rates – in 2022 by 350 basis points, to 10% – and has restructured some government bonds, with higher coupons but longer maturities, in order to maintain public spending.
The public acknowledgement of the difficulties being faced, combined with displays of fiscal prudence, appear to have so far played well with a majority of the Ugandan electorate. Indeed, they
may be said to have strengthened Museveni’s platform, which has long been based on a rhetoric of ‘being straight’ with Ugandans, and a claim to the ruling National Resistance Movement being the country’s most competent managers.
Nevertheless, rising food prices may still lead to outbreaks of civil unrest, especially among traders at Kampala’s major food markets. Following a series of food riots in neighbouring Kenya, in March, the Uganda Police warned opposition groups not to carry out any demonstrations over the cost-of-living crisis, while also holding drills to prepare for any protests that might emerge.
TREND ►
Uganda’s medium-term economic outlook remains good, shaped by the start of production from the Lake Albert oilfields. The fields have estimated recoverable oil reserves of at least 1.4 billion barrels, production from which is estimated to start in 2025. Museveni has long acknowledged that foreign direct investment (FDI) will be crucial for developing the oilfields successfully, and so has made significant steps to improve investor confidence.
In 2019, the government passed a new Investment Code Act including provisions on protection from expropriation. The code ended restrictions on foreign investment in certain sectors including energy as well as crop and livestock production, and monetary thresholds for investors to qualify for incentives. Although the screening processes for new companies entering the country remain burdensome, the expropriation risk is diminished.
There are signs these moves are already producing improved investor confidence. For example, the Bank of Uganda has reported FDI rose to USD474.8 million in Q4 2022, a jump of more than 35%, driven in part by new investment in the oil sector.
The government’s current focus is to rapidly increasing FDI into the country’s gold mining sector. Recent years have seen a boom in bullion refining and exporting; gold is now Uganda’s leading export (accounting for 59.1% of export revenues). However, much of the raw gold for this nascent industry is almost certainly coming from illegal imports from neighbouring countries, especially the Democratic Republic of Congo (DRC). Following the completion of a nationwide aeromagnetic survey which has found major new gold deposits, Kampala wants to grow its own production rapidly, to rebalance its gold exports.
Uganda’s security situation has improved in recent years, following resolution of several major armed insurgencies. However, a number of armed groups remain active in the border zone between Uganda and the eastern DRC, and they retain the ability to launch strikes into Uganda. In late March, a group called the Cooperative for the Development of Congo executed 17 civilians in a village close to northwest Uganda.
Meanwhile, as Museveni continues to maintain power through a creeping authoritarianism, there remains a risk that small-scale violent street protests could re-emerge. While Museveni remains in power, given his control over the security services, any such protests could escalate into broader civil violence.
The risk here will almost certainly grow in the run-up to the next presidential elections, which are due to take place in 2026, especially if, as anticipated, Museveni’s son, Muhoozi Kainerugaba, makes a run for State House. This move would pit Muhoozi against the main opposition challenger Robert Kyagulanyi Ssentamu (better known as the Afrobeat superstar Bobi Wine) who remains enormously popular, especially with Uganda’s growing youth demographic.
Uganda has been occasionally targeted by terrorist attacks. As the largest contributor to AMISOM (the African Union Mission to Somalia), Uganda remains a prime target for al-Shabaab attacks. However, the Ugandan military and intelligence services have extended their counterterrorism surveillance, including with major technological upgrades provided by the U.S., Israel, and Russia. This reduces the chances of successful attacks.
In 2019, the Allied Democratic Forces (ADF) pledged allegiance to the Islamic State (IS), and in 2021 the U.S. State Department reclassified the group as a designated Foreign Terrorist Organisation. Although the ADF originated in Uganda, and initially recruited primarily from Kampala’s slum areas, it has been based in the eastern DRC, although conducting occasional attacks inside Uganda. However, the allegiance to IS, and the U.S. response, seem to have precipitated a shift in the ADF’s tactics.
Buoyed by access to regional jihadist networks and funding sources, recent months have seen an uptick in the group’s use of suicide bombings, improvised explosive devices, and other kinds of terror attacks, in the DRC and in Uganda. In early March, the group carried out an attack on a village in North Kivu Province that left at least 36 civilians dead.
However, the Ugandan army is continuing a major counter-insurgency operation against the ADF inside the DRC, and special forces have also raided a series of alleged ADF strongholds across Kampala. This, combined with a vastly expanded surveillance operation appears to have significantly reduced the chances of the ADF carrying our further successful attacks inside Uganda.
Uganda does not have restrictions on capital transfers into or out of the country. However, if a foreign investor has benefitted from tax incentives on an original investment, they are required to get a certificate of approval from the authorities to ‘externalize’ those funds. There are no restrictions on the currencies that investments can be converted into, as the Uganda shilling floats on global currency markets.
Following the 2021 contested elections, both the U.S. and European Union have sharpened their criticism of the government’s increasingly autocratic rule. However, as the U.S.’ main security ally in the region, it is highly unlikely sanctions would be imposed against the Museveni regime.
Although Uganda’s external debt burden is high, the risk of sovereign debt default should diminish over the medium term, as the country’s nascent oil industry grows. Following years of production delays caused by regulatory hold-ups, in January, the China National Offshore Oil Corporation (CNOOC) finally began drilling on one of its concessions in the Lake Albert oilfields, and full production is now on track to start in 2025.
Also in January, Uganda’s Ministry of Energy and Mineral Development confirmed work had begun on the CNOOC and TotalEnergies-led East African Oil Pipeline (EACOP). The USD3.5 billion heated pipeline will export Uganda’s oil 1443 kilometres from the Lake Albert region to the Tanzanian port of Tanga for export. The building of EACOP had been set back by the emergence of a global movement of civil society organizations that are opposed to the pipeline on a range of economic, social, and especially environmental grounds.
However, following the decision by a French court in early March to dismiss a challenge lodged by six French and Ugandan environmental organizations, both the Ugandan and Tanzanian governments have approved work to begin.
Return to contents Next Chapter
