Uganda has emerged as a favourite destination for foreign investors in the East African region ahead of traditional rival, Kenya, according to a new report by the United Nations.
The World Investment Report 2013 written by the United Nations Conference on Trade and Development—UNCTAD, shows that Uganda received the most Foreign Direct Investment (FDI) in 2012 particularly in the oil, gas, and mining sectors.
Established in 1964 as a principal organ of the United Nations General Assembly dealing with trade, investment, and development issues, UNCTAD helps assist developing countries in their efforts to integrate into the world economy on an equitable basis.
The latest report shows that Uganda’s FDI inflows increased by 92 percent from US$ 894 million in 2011 to US$ 1.721 billion, a rise believed to have been boosted by the recent discoveries of oil in the country. At the same time, FDI in Kenya reportedly dropped by 27 percent from US$ 355 million in 2011 to US$ 259 million.
Supachai Panitchpakdi, the UNCTAD Secretary-General, mentioned Democratic Republic of the Congo, Mauritania and Mozambique as the other African counties that registered Foreign Direct Investment inflows driven by oil, gas and mining.
However, while Uganda led the region in attracting Foreign Direct Investment, Kenya led in regional investments. The report shows that even though Kenya lost its position as top destination for FDI in East Africa, it remains the main investor in other EAC countries especially in the services sector. It says that Kenya’s investments in the rest of East Africa rose by 77 percent from US$ 9 million in 2011 to US$ 16 million in 2012.
The report says that financial and banking institutions led the regional investment drive, with Kenya Commercial Bank (KCB) emerging the largest local investor on UNCTAD’s list of least developed countries. The bank announced a total of US$300 million in investments over 2005 – 2012, with 31 projects in five African countries.
Diamond Trust Bank, Commercial Bank of Africa, Bank of Africa, African Banking Corporation, Fina, Equity, I&M, NIC, Co-operative Bank, CfC Stanbic and Imperial Bank also have substantial investments in Uganda, Tanzania, Rwanda, Burundi and South Sudan. Kenya Airways and four lenders raised a combined US$301.1 million through five rights issues last year. The funds will be allocated to various investments in the region from 2013.
Greenfield projects by Kenya more than doubled and the value of investments rose to US$700 million in 2012 from US$200 million in 2011, led by two projects in air transport valued at US$168 million each in Uganda and Tanzania.
The report noted challenges such as red tape, corruption and a restrictive labour market as the main obstacles in the region. Meanwhile, Uganda’s Ministry of Finance has observed that the volatile nature of foreign investment requires Bank of Uganda to build up its stock foreign exchange reserves to avoid extreme negative swing.