Previous Quarterly Editions
Expropriation Risk: 57 57 61 61 ► Political Violence Risk: 59 60 60 60 ► Terrorism Risk: 40 40 40 40 ► Exchange Transfer and Trade Sanction Risk: 55 55 55 55 ► Sovereign Default Risk: 66 66 66 66 ►
TREND ►
The recent period has been dominated by a major second COVID-19 wave, which emerged in late May, and resulted in President Yoweri Museveni calling a strict 42-day lockdown in June-July. At its peak, Uganda was recording over 1,500 new cases per day. However, given the general lack of testing capacity, the true infection rate was undoubtedly higher.
As with the previous national lockdowns in 2020, the restrictions placed huge pressure on household incomes and food security -- most of the urban population rely on petty trading to meet their daily expenses. Following the reopening in recent weeks, this situation is improving. To date, Uganda has received only 2 million doses of the AstraZeneca vaccine, and 300,000 doses of Sinovac. Therefore, the country’s target of providing double vaccination to half of population (approximately 22 million people) looks distant. The World Health Organization is currently warning of a potentially even more deadly third COVID-19 wave in coming months.
The lockdown did at least reduce the political temperature, which had been tense ever since the highly controversial general election in January, in which the incumbent won his sixth elected term. Opposition leader Robert Kyagulanyi, better known as the Afro-beat pop superstar Bobi Wine, and his supporters had contested the election result, on the grounds of voter fraud and the security services’ heavy-handed tactics during the campaigns. These tensions continued into the post-election period, although not beyond the onset of the pandemic-related restrictions.
However, this is not to suggest the government has changed course: its increasingly autocratic tendencies continue to be evident, and it continues to restrict the civic space. In the latest example, in late-August, the Ministry of Internal Affairs closed 54 Non-Governmental Organisations (NGOs), including the human rights group Chapter Four.
Museveni continues to foster a business-friendly environment, including welcoming foreign direct investment. In 2019, the government passed a new Investment Code Act, which contains a range of new provisions on protection from expropriation. The code does away with previous restrictions on foreign investment in certain sectors, especially crop and livestock production, and removes monetary thresholds for investors to qualify for incentives.
However, the code also makes it mandatory for all foreign companies to register with the Uganda Investment Authority or risk imprisonment. While the code has been generally welcomed by foreign investors, there remains some frustration over how bureaucratic Uganda’s business environment has become, and over high levels of corruption. Additionally, although the code opens the investment environment, other recent government moves have sought to impose new restrictions on some sectors. For example, in late 2019, parliament passed a new communications licencing framework which imposes a 20% stock listing requirement on mobile telephone providers, to limit repatriation of profits.
Uganda’s security situation has improved dramatically in recent years, following the resolution of several major armed insurgencies and especially that of Joseph Kony’s Lord’s Resistance Army. However, a number of armed groups remain highly active across the border in the eastern Democratic Republic of Congo, and they retain the ability to launch strikes into Uganda. In July, a group called Cooperative for the Development of Congo mounted an attack into Uganda’s Zombo District before being repelled by the Ugandan Army. The clashes left six rebels, and one soldier dead.
Meanwhile, as Museveni continues to maintain his grip on power through a creeping authoritarianism, there remains a risk that small-scale violent street protests could re-emerge. Although the period since the latest lockdown has been relatively calm, it might take only a small trigger incident for further violent protests to erupt.
While Museveni remains in power, given his control over the security services any such protests could escalate into broader civil violence. In recent weeks, the president has tried further to de-escalate tensions, by publicly admonishing security services agents who have allegedly committed human rights abuses and stating that any such allegations would be investigated.
However, this more conciliatory rhetoric stands in contrast to some of his government’s recent actions, which have included closing NGOs and the arrest of an opposition blogger, Fred Kajjubi (Lumbuye) in Turkey, in an operation that included Uganda’s external security organisation.
Uganda has been occasionally targeted by terrorist attacks over recent decades. As the largest contributor to the African Union Mission in Somalia (AMISOM), Uganda remains a prime target for future al-Shabaab attacks. However, the Uganda military and intelligence services have extended their counterterrorism surveillance (including with major technological upgrades provided by the United States, Israel and Russia). This reduces the chances that attacks will be successful.
In early March, the US State Department reclassified the Allied Democratic Forces (ADF) as a designated Foreign Terrorist Organisation. Although the ADF originated in Uganda, and initially recruited primarily from slum areas of Kampala, it has been based in the eastern Democratic Republic of Congo for the past decade and has posed little security threat inside Uganda since 2013 (when its occasional cross-border attacks largely ceased). However, Uganda’s government accuses the group of still carrying out targeted killings in Kampala.
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 ‘externalise’ those funds. There are no restrictions on the currencies that investments can be converted into, as the Uganda Shilling (UGX) floats on global currency markets.
Following the recent contested elections, both the United States and European Union have sharpened their criticism of the government’s increasingly autocratic rule. However, as the United States’ main security ally in the region, it is highly unlikely that sanctions would be imposed against the Museveni regime.
Uganda’s economy remained relatively stable throughout 2020, following prompt action by the Bank of Uganda (BoU) to stave off COVID-19’s worst effects. The BoU vastly increased liquidity and engaged in broad credit-relief measures for the banking sector. In combination, these actions helped to overcome foreseeable vulnerabilities, and to keep the economy afloat. Yet with the credit-relief measures due to end in September, underlying stresses may re-emerge.
Additionally, this greater-than-expected economic stability cannot mask the economy’s growing external economic vulnerabilities. Uganda rapidly expanded its external debt with COVID-19’s onset last year and this has continued to climb into 2021. Initially, most of this new debt came from the International Monetary Fund (IMF), which provided emergency grants, but more recently has been acquired from a diversity of lenders.
In July, Minister of Finance Matia Kasaija expressed his concern that Uganda’s debt levels are becoming unsustainable; they are forecast to rise to 51.9% of gross domestic product in the 2021/22 financial year, with around two-thirds being owed to external creditors. Uganda’s total debt stock now stands at around USD18bn, up from USD13.3bn in 2019.
Both the BoU and IMF agree that the country’s debt is still within an acceptable ceiling, such that debt distress is unlikely in the near term. Nevertheless, this could change quickly, especially if Uganda experiences a major shock. However, against this, the government and BoU remain optimistic about the overall outlook.
Both parties remain optimistic about the prospects for Uganda’s nascent oil industry to generate rapid economic growth. Following years of production delays caused by regulatory hold-ups, production is now due to begin in 2025. The likelihood of this target being met increased in August when the Uganda and Tanzania governments, and the French oil company Total, announced that they had agreed the building of a USD3.5bn heated pipeline to export Uganda’s estimated 2.2 billion barrels of recoverable oil from its source in the Lake Albert basin to the Tanzanian port of Tanga.
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