Previous Quarterly Editions
Expropriation Risk: 61 59 60 59 ▼Political Violence Risk:60 60 60 60 ► Terrorism Risk:40 40 38 36 ▼Exchange Transfer and Trade Sanction Risk: 64 55 55 63 ▲Sovereign Default Risk:66 66 66 74 ▲
TREND ▲
Geopolitical alignmentEast 1 2 3 4 5 West
Alignment five years agoEast 1 2 3 4 5 West
Degree of contestationSettled 1 2 3 Contested
President Yoweri Museveni continues to have a deeply paradoxical relationship with Western counties. On the one hand, he remains reliant on Western aid. On the other, growing frustration over what he perceived to be the unfair conditionalities of this donor support has resulted in his rhetoric becoming increasingly praiseworthy of Eastern countries, especially China but also Russia.
For example, the Museveni regime’s most effective domestic programmes continue to be largely underwritten by Western donor funding. This was the case, for example, with his much-praised COVID-19 emergency response plan, which was largely paid for by two emergency loans from the International Monetary Fund (IMF) and World Bank of USD491.5 million in May 2020, and USD300 million in June 2020, respectively, and which spared Uganda from the worst effects of the pandemic.
However, in the face of growing criticism over his failure to hold free and fair elections, in recent months, Museveni’s rhetoric has become increasingly anti-Western,
and pro-China, recently praising that latter for its “much better” approach of not interfering in other countries’ domestic affairs.
Similarly, Museveni’s sophisticated domestic security apparatus, and its regionally competitive armed forces, have been developed largely through ongoing military aid it has received from the U.S. and Europe for Uganda’s commitment to the African Union’s Mission in Somalia (AMISOM, to which Uganda has provided the bulk of the troops). However, following a series of scandals over allegations of human rights abuses by his security services, Museveni has criticised the West’s security stance the Russia/Ukraine crisis. He also
abstained from voting on a UN resolution that condemned the invasion. Russia’s foreign minister, Sergei Lavrov, then visited Uganda in July, as part of his African tour.
The key question is whether Museveni’s increasingly anti-Western, and pro-Eastern, rhetoric will translate into a more substantial policy realignment. Certainly, bilateral ties have been greatly strengthened in recent years by China’s investment in major infrastructure projects in Uganda, including in the USD500 million Entebbe-Kampala Expressway. However, bilateral tensions have also stemmed from these projects, most notably in late
2021, when Uganda struggled to service a USD207 million Chinese loan to rebuild its main Entebbe International Airport.
China has sought to extend its influence in Uganda through major media investments, and through providing 99 scholarships for Ugandan students to study at Chinese universities. In recent months, China has signalled it wants to rebalance its economic relations with African countries by supporting a vast expansion of African exports to China. However, it will take some years for this to occur.
TREND ▼
Museveni is keen to regrow foreign direct investment (FDI) as part of Uganda’s post-pandemic recovery. Even before the pandemic, the government was seeking to boost FDI, and in 2019 passed a new Investment Code Act, which contains various provisions on protection from expropriation. The code ended restrictions on foreign investment in certain sectors, especially crop and livestock production, and monetary thresholds for investors to qualify for incentives.
Following the COVID-19-related slump, the imperative to boost FDI has become even more compelling. Pre-pandemic, FDI in Uganda was concentrated in the extractives sector which in 2008-17 accounted for 55% of all FDI. This in turn accelerated the slump during COVID-19, such that in 2019-20 FDI fell by approximately 35%.
The government’s current focus is upon rapidly increasing FDI into the country’s gold mining sector. Recent years have seen a boom in bullion refining and exporting, with gold now Uganda’s leading export, accounting for 40% 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 the 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.
Given this situation, and in a context of increasing competition for FDI from Uganda’s regional neighbours, the government is keen to make the country as attractive for investors as possible. Although the screening processes for new companies entering the country remain burdensome, the expropriation risk is diminished.
TREND ►
Uganda’s security situation has improved in recent years, following resolution of several major armed insurgencies. However, a number of armed groups remain active across the border in the eastern DRC, and they retain the ability to launch strikes into Uganda. Over the past year, a group called Cooperative for the Development of Congo continued attacks in Uganda’s border zone with the DRC, and have led occasional raids into northwest Uganda.
Meanwhile, as Museveni continues to maintain power through a creeping authoritarianism, there remains a risk 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, who isbetter known as the Afrobeat superstar Bobi Wine, and 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, 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 United States, Israel, and Russia. This reduces the chances of successful attacks.
In 2021, the U.S. 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 Kampala’s slum areas, it has been based in the eastern DRC, although conducting occasional attacks inside Uganda. The U.S. designation seems to have precipitated a shift in the ADF’s tactics. Late 2021 saw a significant uptick in the group’s use of suicide bombings and improvised explosive devices in the DRC and in Uganda, and in November, a series of such attacks killed at least four people in Kampala.
However, following those attacks, the Ugandan army undertook a major counter-insurgency operation against the ADF inside the DRC, with special forces also raiding a series of alleged ADF strongholds across Kampala. This dual-pronged crackdown appears to have significantly reduced the group’s capabilities.
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 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 that sanctions would be imposed against the Museveni regime.
Uganda’s economic recovery has continued apace throughout 2022, reflecting the Bank of Uganda’s initial aggressive intervention to stave off the COVID-19 downturn. The bank vastly increased liquidity and engaged in broad credit-relief measures for the banking sector. In combination, these actions helped to overcome vulnerabilities, and to keep the economy afloat.
Domestic demand and trade continue to rebound, and despite global inflationary pressures, the services sector, which accounts for around 51% of GDP, continues to drive growth, led by construction and education. Growth is predicted to be 4.8% in 2022, and to climb to 6.2% in 2023. This is against a predicted global average of just 1.7%.
Uganda’s medium-term prospects will be increasingly dependent open the development of the country’s oil industry. Following years of production delays caused by regulatory hold-ups, production is due to begin in 2025. The likelihood of this target being met increased last year when the Uganda and Tanzania governments, and French oil company Total, announced they had agreed the building of a USD3.5 billion 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.
However, the development of this East African Crude Oil Pipeline (EACOP) has been seriously set back in recent years by the emergence of a global movement of civil society organisations opposed to the pipeline on a range of economic, social, and in particular, environmental grounds. The #StopEACOP campaign is primarily targeting the project’s potential financiers, including global banks and insurance companies, in an attempt to dissuade them from investing in the works. In this regard, it has been incredibly successful. To date, 33 of the 57 banks and insurers identified as potential backers of EACOP have publicly committed to boycotting it.
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