Investment and Incentives: Uganda's Transformative Journey
By Jonah Ruhima
For a long time, our country has been grappling with an unfavourable balance of trade position. Uganda spends about USD7 billion a year on imports. As a country we import a lot more than we produce locally. This means the country is losing money, jobs and also market for our local products that could have been used as raw materials for the goods we import if they were produced here.
Starting from 1989 with the creation of Uganda Manufacturers Association and through good policies, national budget allocations, and several other efforts by Government through different MDAs clearly government is trying to pursue an import substitute strategy but this needs a strong Manufacturing base.
Industrialisation has always been the President's main focus and message. One of the stimuli for faster economic growth and industrialisation is the low cost of doing business. The government has invested heavily in infrastructure development projects like roads, electricity dams, and hospitals to provide an enabling environment for both local and foreign investors to do business easily in Uganda at a low cost.
The budget for roads now stands at 4.786 billion per annum and 2.7 trillion per annum for electricity. As a consequence, we now have tarmac to almost all corners of Uganda and electricity at all district headquarters. Our electricity generation capacity has increased from 60 megawatts to 2216 megawatts as a result of these concerted efforts, and 6,027 kilometers of the road network have been tarmacked.
Many of these projects have been done using government money (taxes). 58% of the road projects have been financed by government money. For manufacturers, the electricity tariffs have been reduced from 11 cents to 5 cents. Through its agencies like the Uganda Investment Authority, the government of Uganda has provided several incentives to investors, with special consideration given to Ugandans.
For example, in the Kampala industrial and business park, where land is in high demand, the government allocated more than 60% of the land to domestic investors. The government has also invested more than UGX 1,040.5 billion in the Uganda Development Bank (UDB), which is supposed to lend money to Ugandan manufacturers at no more than a 12% interest rate.
Truthfully, these government policies have been the most favourable to domestic investors in the history of our country, and we compete favourably with our neighbours. For example;
1. An investor who invests in agro processing, manufacturing of medical appliances, etc., and employs 70% of Ugandans receives a 10-year tax exemption on their income. However, a foreign investor must have a minimum of USD 10 million, whereas local investors only need $300,000 or $150,000 if the Local investor is setting up his investment upcountry.
2. The minimum capital requirement for a foreign investor to get an investment licence and an investment certificate and qualify for incentives, he or she must deliver a capital investment of USD 250,000. For a local investor, the minimum capital requirement is USD 50,000.
3. There is a 10-year tax exemption on income derived from renting or leasing facilities established in industrial parks or free zones. To qualify for this incentive, the minimum capital investment for foreign investors is USD50 million and for local investors it is USD10 million.
4. Local Investors involved in agro-processing qualify for a one-year income tax exemption. Import duty on plant and machinery for agro-processing is also exempt. All inputs for manufacturing in agro processing are duty free (zero-rated).
5. Domestic investors qualify for 100% deductible allowances on cost of training Ugandans and cost of research into new technologies. i.e. when paying taxes (filing returns), this cost is deducted.
6. Raw materials not available in Uganda for input into manufacturing are duty free.
With these correct incentives and policies on private sector and other deliberate efforts by Government in other sectors like security and stability we now have over 5200 factories, 8200 services companies. These employ 600,000 and 1.2 million Ugandans respectively and bring in the country over USD2.09 Billions.
This has supported economic growth with industry growing at 6.2 percent, service at 7.3 percent, ICT at 7.9 percent. A lot of local investors have benefited from these government incentives, good policies, and the will to support local investors.
Currently, the government runs a campaign called BUBU (Buy Uganda, Build Uganda), which was started to promote locally manufactured goods and services. In FY 2017/2018, UNRA (Uganda National Roads Authority) awarded contracts worth UGX 3.3 trillion, but out of this, 450 billion were reserved for local companies. In addition, 423 billion were awarded to local providers through mandatory subcontracting.
In the same financial year, Uganda Medical Stores procured various medical supplies from local producers like Quality Chemicals worth over 156 billion. The Uganda Electricity Distribution Company is currently buying much of the equipment like transformers from here. If the government had not made a deliberate effort to support commercial palm oil growing in Kalangala, we would currently be buying a bar of soap at UGX 30,000.
The intention of promoting palm oil growing in Kalangala was to increase domestic production of vegetable oils and reduce Uganda’s heavy reliance on vegetable oil imports and to alleviate poverty. Initially, palm oil in particular used to account for 90% of oil imports.
Through a People Public Private Partnership (4PPP), where a private investor partner was sought to inject funding along with the public and the people (smallholder farmers), the government started on the road to commercializing palm oil growing in Kalangala.
The aim was to find an investor with skills and knowledge in the field of palm oil growing who was willing to work with the community to pass on the skills. In Kalangala, where the project was first implemented, smallholder farmers supply an average of 6.9 million kilos of fresh fruit bunches every month, earning a gross income of UGX 6 billion. Smallholder farmers also earn from oil palm leaves once pruned, which they sell as brooms used in urban areas such as Kampala.
It is estimated that an ordinary farmer can earn as much as Shs. 800,000 from an acre of oil palm trees. The growth of palm oil in Kalanga has transformed households from subsistence farming to commercial agriculture. The project has also created thousands of jobs directly, with many people working in the plantations owned by Oil Palm Uganda Limited (OPUL) and the outgrowers.
In FY 2019–20, Quality Chemicals Industries made sales worth over UGX 284.5 billion, with sales of over 42.9 billion to the government of Zambia. Quality Chemicals currently sells ARVs to the whole region and this is one of the local investors who have received several incentives from government.
With all this success, it's unfortunate that we have pessimistic and selfish people who are always trying to undermine such initiatives. They mislead the public into believing such incentives don't exist. Many go on to fight and frustrate efforts made by Government to attract more investors. Uninformed and biased comments concerning the government's coffee deal with Vinci Coffee Company have recently dominated the media. These people's arguments are even illogical at times.
Uganda currently produces more than 300,000 tons of coffee per year. Therefore, for a person to have a monopoly on the processing of this coffee will need a processor capable of processing over 800 tonnes per day. This is impossible.
It's also illogical to think a government that has made deliberate efforts to improve coffee production in this country can turn around and destroy what it has built for years. What I saw in this bill is that our usual hypocritical and greedy technocrats were ignored in this deal, and they're the ones fighting the deal with claims "they didn't consult us."
Why are we debating whether you were consulted or not, aside from the benefits of this agreement to Ugandans and Uganda? Similar criticism and arguments have been raised about Lubowa Specialised Hospital, a project being done by the same investor. First, this was started by a false alarming headline by our local newspapers.
The media houses were reporting that the investor needed EXTRA money, which wasn't true. Actually, this money was already in the 2021–2022 budget. The parliament's finance committee knew we needed to honor our terms of our agreement. The Lubowa Hospital deal was set up in the form of a Build-Operate-Transfer.
The investor was to spend 2 years constructing the hospital, run it for 6 years, and then transfer it to the government. This is a very good deal, and the government is planning to do many projects in similar arrangements. Kampala-Jinja expressway, Busega-Mpigi expressway, Bwaise-Bombo But overall, all these are good deals, just like the Kalangala Palm oil growing project that is earning farmers in that area over UGX6 billion, and this government has made deliberate efforts to support local investors and the growth of industrialization for our economic growth.
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