Uganda: Risk Assessment

Country Rating¹

Rating: C

Business Climate Rating¹

Rating: C

Risk Assessment²

Growth underpinned by a diversified economy
In 2010, economic growth accelerated sharply, driven by both industry and services. This year, economic activity will be spurred by the rebound in mining and construction, the on-going investments in energy infrastructure, and the oil exploration activities in western Uganda. Similarly, the transport, telecommunications and financial services sectors are expected to remain dynamic thanks especially to the link with the East African undersea Internet cable. The performance of the farm sector, whose contribution to growth has been in decline but which nevertheless continues to employ over 70% of the population, remains particularly vulnerable to weather conditions. Sales abroad of fish products (7% of exports) will continue to suffer from the depletion of fish stocks in Lake Victoria.

Investment spending financed by international aid and FDI
Public-sector accounts have been out of balance with the tax base undermined by an inordinately large informal sector, dominated by subsistence farming. In 2011, the government is expected to make a substantial increase in its spending on infrastructure under the National Development Plan (2010-2015). The investments will be focused in priority on transportation (Northern Transport Corridor) and energy, with the start of construction of a refinery and an oil distribution network. But the actual extraction of oil (objective: 150,000 barrels per day) will not begin, however, until 2012. In this context, the current account balance will remain in deficit amid the continuing high volume of imports of capital goods and fuel. Although FDI in the oil sector will continue to grow in 2011, international aid will remain crucial. Uganda is one of the main African beneficiaries of public development aid. In 2003, it became the first country to benefit from debt relief under the HIPC and MDRI programs. Its foreign debt, 80% of which is held by multilateral institutions, will remain at sustainable levels. The authorities will be likely, however, to heed IMF recommendations and take on non-concessional debt in 2011 to be in a position to invest and remediate infrastructure deficiencies.

Precarious security situation
The trend in the political and security situation in Uganda has been marked by recurring tensions, with northern regions continuing to suffer from instability in South Sudan and the DRC and the South affected by the sporadic eruptions of violence in Kenya. South-eastern Uganda has also continued to suffer from the consequences of the Rwanda conflict. Despite the joint intervention of Uganda, DRC, and the semiautonomous government of South Sudan against the Lord's Resistance Army (LRA), insecurity will persist in 2011 in northern Uganda. Furthermore, despite the efforts to modernize the country undertaken since 1986 by President Yoweri Museveni, the latent discontent of the people is palpable, particularly in the cities where the youth population suffers from difficulties in penetrating the job market. The exacerbation of ethnic fracture lines and the strengthening of the secessionist movement by the Buganda Kingdom in central Uganda have heightened the risks of instability in the run-up to the presidential and parliamentary elections scheduled for 16 February 2011. The incumbent president will nonetheless be likely to win against his historic opponent, Kizza Besigye.

Strengths

• Diversified economy (agriculture, fishing, minerals)
• Largely under-exploited tourism potential
• From 2011 Uganda could become the 5th biggest oil producer of sub-Saharan Africa
• International support for infrastructure projects (transport, education and energy)
• Encouraging progress in education

Weaknesses

• Important infrastructural deficiencies, particularly concerning energy, which constrain the development of manufacturing
• Informal economy that evades the tax system
• Persistent ethnic tensions.
• Entanglement with the issues of the Great Lakes region
• Territorial dispute with Kenya over Mingigo Island on Lake Victoria
• Precarious political and security environment (Sudan, Somalia, DRC, Rwanda)