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Country Commercial Guides for FY 2000: Uganda Report prepared by U.S. Embassy Kampala, released July 1999   Note*

VII. INVESTMENT CLIMATE

Openness to Foreign Investment

Uganda's policy and attitude toward foreign direct investment are positive. Nonetheless, GOU follow-through with investors is often lacking. Foreign investors may form 100% foreign-owned companies and majority or minority joint ventures with local investors with no restrictions. However, 100 percent foreign owned companies may not trade on Uganda's stock exchange (which has been inactive). Acquisition, takeovers and greenfield investments are permitted. However, work permits can be difficult to obtain, and the Uganda Revenue Authority often over-zealously targets foreign firms for payment of taxes.

Right to Private Ownership and Establishment

Domestic private entities have the right to own property and other businesses and may dispose of them at will. Foreign private entities share these rights, except that they cannot own land. Ugandan law also stipulates that foreigners may not lease land for agricultural purposes. This law is currently under review. Most investors in agricultural production erect a plant to process goods, but use out-growers.

Protection of Property Rights

The President and other senior government officials have repeatedly and publicly reaffirmed that private property will never again be arbitrarily expropriated. The GOU is currently returning land expropriated in the past under the Return of Asian Properties Act.

Adequacy of Laws and Regulations Governing Commercial Transactions

Generally, Ugandan commercial laws, e.g., company and partnership law, were inherited from the British. Therefore, the rights and obligations of Ugandan partnerships are similar to those defined in the original English colonial statutes. Efforts are being made to update regulations and laws governing banking and financial institutions, the stock market, and the buying and selling of securities.

To encourage competition, the big marketing boards that dominated the agricultural landscape have been replaced by authorities and commissions with the power to write regulations.

Uganda lacks the legal infrastructure to adequately redress commercial grievances. However, the Government of Uganda, in cooperation with the USAID-PRESTO Project, has opened the Centre of Arbitration for Dispute Resolution (CADER).

Foreign Trade Zones/Free Ports

There are no free ports or foreign trade zones in Uganda at this time. A free trade zone is planned for Entebbe Airport.

Major Taxation Issues Affecting U.S. Businesses

In July 1996, Uganda began collection of a VAT at 17% for all businesses with an annual turnover of USH 50 million (roughly equivalent to $35,000) or more. Employers must make monthly deductions of employee income taxes under the pay-as-you-earn (PAYE) system. PAYE rates are graduated and begin with an annual income of 1,560,000 USH for residents. There is no tax-free threshold for non-residents. Also, the GOU collects withholding taxes on dividends, interest, royalties, and other payments. This tax ranges from 4% to 15% for residents and 15% to 20% for non-residents. Corporate taxes stand at 30% for resident companies and 35% for non-resident companies.

Performance Requirements/Incentives

There are no performance requirements once the investment has been made. Tax holidays for certain foreign investments were eliminated in the 1997 GOU budget and replaced with accelerated depreciation incentives which are considered less attractive.

Transparency of the Regulatory System

The regulatory system is not always transparent and varies substantially by regulatory body.

Corruption

Corruption in Uganda has penetrated all levels of society. Public intolerance of corruption is growing, fueled by press reporting and parliamentary investigations. President Museveni has pledged that GOU institutions will root out corruption; some progress has been made.

While there has been no systematic study of the breadth and impact of corruption in Uganda, business people believe that Uganda fares poorly when measured on an international standard. A 1996 Transparency International survey of business people's perceptions of the level of corruption in 54 nations of the world placed Uganda as the 12th most corrupt country. However, business people consider Uganda to be less corrupt that three of the four other African countries included in the survey.

International donors expressed their strong collective concern about corruption in Uganda at the December 1998 Consultative Group. Nearly every delegation cited corruption as a serious impediment to economic development.

Labor

Education and skill levels are low in Uganda. Private sector businesspeople report that they prefer to train unskilled and semi-skilled workers on the job. Monthly salaries in 1998 generally ranged from $60 to $140 for unskilled labor, $160 to $270 for skilled labor, and $3SO to $670 for a junior manager. Labor unrest is sporadic in Uganda, and labor unions are not strong. Employers must contribute an amount equal to 10% of the employee's gross salary to the National Social Security Fund (NSSF). Labor laws also specify procedures for termination of employment and termination payments. Foreign nationals cannot work in Uganda without a work permit.

Efficiency of Capital Markets and Portfolio Investment

Uganda's stock exchange was inaugurated on 6 June 1997. The license to operate the exchange is held by the Uganda Securities Exchange (USE) Ltd., a company formed by eight licensed broker/dealers and investment advisers. Nonetheless, securities markets are virtually dormant in Uganda - the first stock issue is scheduled for initial public offering in September 1999. Businesses are averse to listing themselves on the stock exchange because the disclosure requirements could expose them to greater tax liability. Foreign owned companies are prohibited from trading on the Securities Exchange.

Conversion and Transfer Policies

The Investment Code guarantees that investors who have invested $500,000 can repatriate their investment and dividends and receive foreign exchange to pay debts incurred in the business. Investors have no difficulties obtaining foreign exchange. However, few investors have reached the point where they wish to repatriate profits; most are reinvesting profits in their businesses in Uganda.

Expropriation and Compensation

Uganda law allows expropriation for public purposes through a transparent process. Investors are guaranteed fair market value compensation within 12 months of the expropriation. Uganda is a member of the Multilateral Investment Guaranty Agency (MIGA) and the International Centre for the Settlement of Investment Disputes (ICSID). The GOU is actively divesting and returning property confiscated in the past. The GOU has shown a willingness to consider debt/equity swaps in which government ownership in companies is being transferred to private sector minority shareholders on mutually acceptable terms.

Dispute Settlement

Uganda opened its first commercial court in August 1996. The main objective of the court is to deliver to the commercial community an efficient, expeditious and cost effective mode of adjudicating disputes. However, a shortage of judges, lack of funds, and minimal space have hampered its operations. The majority of business people settle disputes out of court to save time and money. The newly opened Centre of Arbitration for Dispute Resolution (CADER) should be able to assist in commercial disputes.

Political Violence

Political violence recently increased in Kampala with the 1998 and 1999 bombings of several popular restaurants nightclubs, and other public places. Eight foreign tourists, including two Americans, were murdered by an Interehamwe guerilla group in Bwindi National Forest in March 1999. There has been rebel activity in the northern and western sections of Uganda. Although security concerns seem to be abating, American citizens considering travel and employment/investment in these areas should contact the U.S. Embassy for current security information.

Bilateral Investment Agreements

Uganda has signed few bilateral investment agreements. However, in March 1998, Uganda signed an OPIC (Overseas Private Investment Corporation) agreement, allowing OPIC to broaden the scope of its activities here.

OPIC and Other Investment Insurance Programs

Uganda is a signatory to the Multilateral Investment Guarantee Agency (MIGA) of the World Bank and is a member of the International Center for the settlement of Investment Disputes (ICSID). Uganda has also signed an agreement with OPIC.

Capital Outflow Policy

Capital flows freely in and out of Uganda.

Major Foreign Investors

Most investors in Uganda are people who have experience with the country. This includes British and Indian firms, as well as large numbers of Kenyan and South African firms. U.S. firms active in Uganda include: Pepsi, Coca-Cola, Caltex, Sheraton, StarCom, CitiBank, Rank Xerox, Cargill, AES, Colgate Palmolive, Swift Global, and a number of others. Companies which have representatives in Uganda through authorized dealers or partnerships include IBM, Hewlett-Packard, GM, Ford, Ernst & Young, PriceWaterhouseCoopers, Deloitte & Touche, and Caterpillar.