Attracting Foreign Direct Investment In Uganda: Determinants And Policies

This thesis compares FDI in Uganda and China and what lessons Uganda can learn from China’s experience.For both and China,the study looked at FDI trends,sectoral distribution,sources of FDI,regional distribution of FDI,impacts of FDI and policies to attract FDI and determinants of FDI.For Uganda,barriers to FDI were also analyzed.Regression analysis was used to indentify factors that determine FDI in Uganda,while the determinants for FDI in China were arrived at from review of previous studies.The results show that FDI has been increasing steadily in both Uganda and China.For the year 2015,the manufacturing sector received the highest FDI in both Uganda and China.However,for China,the services sectors combined received more FDI than manufacturing.The regional distribution of FDI in both countries is uneven with central and eastern regions receiving the highest FDI in Uganda and China,respectively.The regression analysis results showed that market size,human capital and trade openness are the determinants of FDI in Uganda.Studies show that cheap labor,market size,infrastructure,political stability,exchange rate are major determinants of FDI in China.Corruption,insufficient and high cost of electricity,inadequate transport infrastructure,lack of land,unclear tax policies and inefficient governments services are barriers to FDI in Uganda.Both Uganda and China have attractive investment policies.However,FDI policies have not been very effective in Uganda.As a lesson from China therefore,Uganda can achieve sustainable FDI inflows is by granting a competitive and friendly investment environment combined with efficient public services and infrastructure,good quality and quantity of human capital and labor costs matched to productivity.A politically stable system along with a balanced macro economy is also necessary.A gradual strategy like the one adopted by China could certainly be of help to Uganda since it suffers from poor institutional settings.Uganda should decentralize its FDI policy and should offer incentives and lower for investing in marginalized regions.Uganda should target specific sectors like agriculture and manufacturing for promotion so as make use of their comparative advantages.Uganda should court Uganda’s in the Diaspora to come and invest in Uganda.