Uganda ticks the right boxes, economy picks up
Manufacturing, oil and gas sectors spurring FDI flows though political tension could dent economic outlook
The value of foreign direct investment in Uganda increased by about 21 per cent last year to $700 million in spite of difficult economic conditions, with notable gains in the manufacturing, oil and gas sectors.
But the investment outlook could come under pressure from latest political tensions, analysts warn.
While Chinese-owned factories are engaged in production of building materials and beverages, new factories in eastern Uganda are focused on processing limestone, phosphates and iron ore.
Investments in the cement industry are largely motivated by a considerable backlog in housing estimated at more than 500,000 units, projects such as the expansion and upgrade of Entebbe Airport, the planned 77km Kampala-jinja Expressway and high demand for construction materials in markets like South Sudan.
The cement plants in eastern Uganda include the Simba Cement factory, a subsidiary of National Cement Kenya with production capacity of one million tonnes per year, valued at $55 million.
A new Hima cement plant in the same area has a production capacity of 800,000 tonnes per year and is valued at $40 million. This plant belongs to Lafarge Holcim, a global cement supplier and parent company to Bamburi Cement of Kenya.
Renewed interest in Uganda’s oil and gas sector last year stimulated fresh investments in this industry as some old players returned to the country and new oil field services firms joined the sector.
Delays in approving field development plans submitted by Tullow Oil Uganda, Total E&P Uganda and the China National Offshore Oil Corporation slowed commercial activity four years ago, leading to exit of some foreign players, signalling distress in the affected local firms and reduced tax payments. However, major policy decisions taken last year have inspired fresh optimism despite a longer than expected preparatory period for commercial oil production.
The governments of Uganda and Tanzania signed a pipeline construction deal with Total E&P in 2017 for the Hoima-tanga route, valued at around Ush16 trillion ($423 million) while Stanbic Bank Group was appointed one of the transaction advisors for this project by the Uganda government.
The Albertine Graben consortium that includes General Electric Company of the US and some European firms was awarded a contract to build Uganda’s oil refinery earlier this year. The consortium was allocated a 60 per cent share in the refinery and the remaining 40 per cent to be distributed among East African Community member states.
Growing political tensions might still affect this investment momentum. Violent confrontations between the military and opposition supporters during the Arua municipality parliamentary by-elections could affect investor sentiment, similar to latest troubles affecting the tourism sector.
Tours and travel companies have reported a rise in trip cancellations and postponed arrivals since last month and this has translated into millions of shillings in lost revenues for the tourism industry value chain which includes airlines, hotels, car hire companies, gift shops and game parks.
Construction of the Entebbe-kampala express highway continues, but some of the completed sections are already in use.