Uganda ranked East Africa’s best destination for foreign investment

Uganda has been ranked East Africa’s most attractive country for foreign investment according to the fifth edition of Absa Africa Financial Markets Index (AAFMI) 2021.

The Absa Africa Financial Markets Index evaluates financial market development in 23 countries, and highlights economies with the most supportive environment for effective markets.

According to the 2021 index, Uganda which ranked 10th on the continent moved five places to overtake Kenya, as the best destination for foreign investment in East Africa.

Kenya slumped to 11th position on the continent while Tanzania and Rwanda both dropped by one position to 13th and 14th respectively.

The index assessed countries according to six pillars: market depth; access to foreign exchange; market transparency, tax and regulatory environment; capacity of local investors; macroeconomic opportunity; and enforceability of financial contracts.

In the first pillar on market depth which evaluates the size and liquidity of domestic capital markets, Uganda ranked 8th on the continent, scoring 45 points out of 100, behind Kenya which ranked 7th with 46 points. Tanzania (9th) and Rwanda (18th) scored 45 and 30 points respectively.

In pillar two which evaluates markets’ accessibility to international investors, Uganda continued to do well ranking 4th position on continent with 61 points while Tanzania (5th) and Kenya (13th) scored 59 and 45 points respectively.

In this pillar however, Uganda dropped two places from second last year impacted by the global financial market turbulence in 2020 which saw Bank of Uganda intervene in the currency market by selling around $200 million in Foreign Exchange (FX) , causing the shilling to appreciate.

“The Bank of Uganda authorised the inclusion of swaps in the monetary policy toolkit to increase access to FX and moderate exchange rate volatility” the survey highlighted.

South Africa maintained its lead in this pillar. An outlier with the most active interbank FX market, South Africa had annual turnover of $3.5 trillion while Egypt ranked 2nd with annual turnover of $55.2 billion.

Meanwhile, Uganda’s regulatory environment for local and foreign investment is on focus again with respondents highlighting the less favourable tax regime in Uganda, where the withholding tax rate on interest and dividends for non-residents is at the higher end at 20% and 15%, respectively according to the index.

Furthermore, the survey highlighted that Uganda’s local investor capacity is still small but with room for improvement.

At the end of 2020, three-quarters of Ugandan pension assets were held in government securities. This pensions market according to the index is small compared to other countries in the index, but says it is taking steps to improve its impact on the local securities market.

“Pension funds have been allowed to invest in real estate investment trusts, and regulators are training trustees to encourage them

to move away from traditional asset classes.”

The Absa Africa Financial Markets Index was produced by Official Monetary and Financial Institutions Forum (OMFIF) in association with Absa Group Limited.

OMFIF conducted extensive research using data from central banks, securities exchanges and international financial institutions. OMFIF surveyed over 50 policy- makers, regulators and executives from financial institutions operating across the 23 countries, including banks, securities exchanges, central banks, regulators, audit and accounting firms, and international financial and development.