At the recently concluded Ugandan North American Association (UNAA) convention in Washington D.C, Patrick Ayota, the managing director of the National Social Security Fund (NSSF), made a good presentation on the Ugandan economy at the Investment Forum.

Ugandans in North America meet every year during the US Labour Weekend. During this year's meeting, Ayota made a case for Uganda being an investment destination based on the stability of the Ugandan currency and the returns on investment, if one invests in government securities.

On the stability of the currency which, among others, depends on political stability, and management of the economy, especially inflation, he compared the Ugandan currency against the US dollar in the last five years with the currencies of Kenya, South Africa, Nigeria, and Tanzania.

In 2019, the Ugandan shilling traded at 3,690 against the US dollar, and by the end of August 2024, it was trading at sh3,715 (BOU rates).

In these five years, (2019-2024), the Ugandan shilling had lost only 0.7% of its 2019 value. This makes it predictable for investment. In the same period, the Kenyan shilling lost 24.5% of its value, the South African Rand lost 16.5% of its value, the Nigerian Naira lost 338.3% of its value and the Tanzanian shilling lost 18% of its value to the US dollar. Therefore, a relatively stable currency is an indicator of good economic policies, especially monetary policy; economic growth, and stable inflation.

Ayota pointed out that if in the same period (2019-2024), one invested $10,000 in 2019, in a five-year US treasury bond, at the going interest rate of 2.62%, by 2024, five years later, one would have earned an interest of $1,310, hence, going home with a total of $11,310. In the case of Uganda, if one had $10,000 (for those in the diaspora) and converted it in Uganda shillings at sh3,689 to a dollar, one would get sh36,890,000.

If this amount was invested in the five-year Uganda Government Bond at the interest rate of 17.127% annually, at the end of the five years, the investment would have earned sh31,590,751 in interest. Thus, the take-home would be the initial investment of sh36,890,000 plus the interest of sh31,590,751, which is sh68,480,751 in August 2024.

At an exchange rate of sh3,715 to a US dollar, this translates into $18,433. Therefore, an investment of $10,000 in a Treasury bond in the five years (2019-2024) would earn $1,310, while when the same amount of money invested in Uganda Treasury bill in the same period would earn $8,433.

The above investments in Treasury bonds is what NSSF has been investing in mostly. This shows better returns in Uganda than in many other economies and that is why when Bank of Uganda advertises Treasury bonds, there are a lot of applicants from offshore who show interest in buying the bonds.

We also need to focus on investment in manufacturing where the return on investment is about 17% in Uganda. This is much higher than investment in fixed deposits in commercial banks, which is around 10% per annum. I encourage NSSF shortly to also invest in manufacturing, and mineral beatification, and as we get closer to a refinery, we will need investments in the petrol-chemical manufacturing sector.

In the medicine sector, Uganda spent $536m on the importation of medicines, vaccines, and lab reagents. This opens this sector for import substitution as the market is already here. This is why the Government bailed out Mathias Magoola who invested in the medicine manufacturing sector. The Government is also helping researchers in the knowledge economy and soon, NARO, with government investment, will start manufacturing an anti-tick vaccine. These are some of the areas NSSF and other investors should look at. In the mineral sector, we have seen exports of refined gold grow from $1b in 2021 to $1.8b in 2023. Some of the gold is coming in from Ghana, Mozambique, Burkina Faso, and Zimbabwe for refining in Uganda and ends up exported as Uganda's gold after value addition. In 2023, semi-processed gold coming into Uganda for refining was worth $831m. Uganda is now attracting investors in manufacturing and the export of manufactured goods is increasing.

In 2022, we exported $1.88b of manufactured goods. This grew to $2.5b in 2023. By June 2024, our exports of manufactured goods earned $1b.

This shows a good trend, if only we can further reduce on the cost of doing business by say, availing cheap electricity to the manufacturers. President Yoweri Museveni has over the years promised the manufacturers a 5 US cents cost per unit of electricity. The Electricity Regulatory Authority says if we finalize the Umeme buyout this financial year and invest in infrastructure after the Umeme takeover, then it will be possible to bring down the cost of a unit to 5 US cents for the manufacturers of all categories.

According to the Secretary to the Treasury, the Umeme buyout will be handled this financial year. Therefore, we are moving towards reducing the cost of electricity for the manufacturing sector. The other area needed to be handled in reducing the cost of doing business is the investment in the Standard Gauge Railway (SGR). It costs an average of $2,500 to transport a 20ft container from China to Mombasa, while from Mombasa to Kampala the same container is charged about $3,500 by road. Uganda Railways Corporation (URC), using the Meter Gauge Railway, charges $1,305 for the same container.

URC does not have enough wagons for all the cargo to and from Mombasa. So, investment in the SGR will solve the transport cost to and from the coast. This will make exports and imports cheaper, especially for raw materials needed in manufacturing.

The other area we need to look at is what the President emphasized in his State of the Nation Address when he stressed the need for East African Community (EAC) member countries to implement the policy on free

movement of goods and services among member countries.

Uganda has never denied goods coming in from any EAC member country, but some of

our neighbors restrict Ugandan goods such as sugar, milk, and maize entering their markets. Nevertheless, Uganda has over the years exported more to the EAC than it has imported from the EAC. In 2023 alone, we exported to Kenya goods worth $1.55b, while we imported from Kenya goods worth $879m, hence the trade between us and Kenya was in favour of Uganda notwithstanding some of the barriers imposed by Kenya.

Our exports to the EAC will increase when we reduce the cost of electricity and other investments like the SGR. Investors need affordable credit.

Uganda has over the years capitalized Uganda Development Bank (UDB) with sh1.4 trillion. This money is meant for manufacturers, and investors in tourism, and during COVID-19 time, the Government added on educational institutions.

According to the UDB CEO, the bank has lent out sh1.5 trillion in this period. Apart from UDB capitalization, the bank has used its other sources of funding to finance investments. For the rural and urban poor, the Government put in place the Parish Development Model (PDM) and Emyooga. Some districts have performed badly in absorbing PDM funds. I wonder why the chief administrative officers in these districts have allowed those officers to continue holding those public offices and why the MPs from those districts are not doing their oversight role in pointing out this poor performance. What we need to provide for is funding the SMES both in processing and agricultural production for those above PDM.

In some countries like Brazil and India that produce sugar like we do and coffee for Brazil, fertilizers to farmers are subsidized. This makes yields go high per acre and reduces the cost of production for both the farmer and the processor of say sugar in India and Brazil.

One Indian trader who sold me fertilizer for sh150,000 a bag told me that the same bag would cost the equivalent of sh50,000 in India.

 

MOSES BYARUHANGA

Senior Presidential Adviser/Political Affairs, the State House