East Africa’s investment story is not new. As more foreign investors and multinationals enter the region, it continues to gain traction as an investment destination. Certain countries, such as Kenya and Tanzania (and delicately toss in Ethiopia), overshadow their East African peers, with Uganda quietly mushrooming into a prime investment destination, receiving the most foreign direct investment (FDI) in the region in the last three years, according to the United Nations Conference on Trade and Development (UNCTAD) World Investment Report.
Top Sectors For Investment In Uganda:
Home to more than 45.71 million people, Uganda is the sixth largest in population size in sub-Saharan Africa. It is also home to great energy potential. Uganda recently discovered 3.5 billion barrels of oil off Lake Albert, which is on the country’s border with the Democratic Republic of the Congo. Giovanni Pedaci, general manager for Oil of DRCongo, estimates that the Democratic Republic of Congo’s side of Lake Albert may hold up to 2 billion barrels of oil. Uganda’s President Yoweri Museveni also recently agreed to build a pipeline from its oilfields to Kenya’s Lamu port being developed off Kenya’s northern coast. Museveni remains keen to boost Uganda’s refinery capability, at times hyping Uganda’s potential to refine 180,000 barrels/day, but scaling back possible expectations in private to possibly as low as 30,000 barrels/day.
It is this big oil potential that is pushing the country’s FDI inflows to the front of the pack. Yet, despite the inflow of cash, Uganda’s economy remains relatively underdeveloped. Similar to other East African countries, it begs for investment in sectors outside of oil and gas.
The construction sector will benefit greatly from the oil boom in the country. The arrival of oil executives and their accompanying team members requires more hotels. Named as a top tourist destination in 2013 by National Geographic (and top country to travel to by Lonely Planet in 2012), the “Pearl of Africa” is expected to see a significant rise in tourism, a sector that saw growth north of 21% in dollar terms for 2011. Occupancy rates remain relatively moderate for the entire hotel sector but the lack of 4-star and above accommodations and amenities provides an opportunity for investors. The Sheraton Kampala and Kampala Serena hotels currently dominate this end of the market.
The construction boom does not end with hotels. The real estate sector overall still holds potential. Strong growth – north of 6 percent – in the sector in 2012 is expected to continue. A housing deficit ensues in the country and will remain as population growth hovers between 3.2 percent and 3.5 percent. Navigating an increasingly challenging mortgage market and higher default rates can be tricky, but bankers and government officials remain confident that any distress in the short-term will be overshadowed by gains in the long-term.
Transport, particularly road infrastructure, will also boost the construction sector. President Museveni has stated that road transport will be as important as refineries themselves in transforming potential into reality. Such language points towards big infrastructure projects, highlighted by the pipeline to Kenya.
Similar to other countries engaged in oil and/or gas booms, such as Ghana and Mozambique, the demand for quality amenities follows. A lot of the service sector demand will greatly drive the construction. The aforementioned hotel sector is only a part of the services growth. Restaurants and office space will be in great demand.
Uganda’s capital city, Kampala, will not be the sole focus of this growth. For example, Lake Albert on the western border of the country is not close to Kampala, which sits near Lake Victoria on the eastern border of the country. Accordingly, as one investor closely engaged in Uganda and Mozambique characterized it, many believe that the same opportunities that arose and continue to arise in Mozambican cities such as Tete (home to Brazilian-based Vale’s Moatize coal mine) and Pemba (home to recent gas discoveries by US-based Anadarko Petroleum and Italy-based Eni) will come about in Uganda’s cities bordering oil reserves. A similar boom has consumed Takoradi, a coastal city near Ghana’s offshore oil fields.
Services should also include logistics for this discussion. Moving people and goods in Uganda will become considerably easier with improvements in road infrastructure, but more is needed to compliment road infrastructure. To date, the focus has largely been on moving goods in and around Kampala, yet as new cities mushroom into the spotlight, operators in the country will face greater challenges. Oil investors currently in the country already speak to greater difficulties in the long run if they must get food, healthcare and other basic services to expected labour forces in relatively unknown cities such as Butiaba which is located on the eastern shores of Lake Albert.
The agribusiness sector, including fisheries, requires greater investment. Population growth and increased urbanization in the next five years will lean heavily on the country’s current capacity. Grocery stores looking to expand into Uganda struggle to identify partners for sourcing their goods. Some operators speak of similar issues encountered in Angola and Mozambique. Unable to source goods locally, products have to be purchased from South Africa and subsequently require greater end prices to the consumers in Angola and Mozambique because of transport costs and overall loss from product spoilage. Operators in Angola speak to food waste that can surpass 25% in specific locations for vegetables and produce. In Mozambique, retailer Shoprite was shut down for a couple days for repackaging expired food. In Uganda, local production has been stunted by a lack of capacity in skilled human and financial capital.
Food chains, such as American brand KFC, seek greater exposure in Uganda, but the sourcing of potatoes and chicken currently limits the speed of growth. Regional trade pacts allow for imports of certain products from other regional countries, but a local production partner is always the best (and cheapest) option. For example, South Africa is the continent’s most efficient chicken producer but still produces the poultry at a relatively higher price compared to other developed countries. Subsequently, when you throw in transport costs, the local KFC meal is much higher in countries importing chicken and other related inputs.
A long-term opportunity exists in the fishery space, but this sector still depends on the country’s ability to develop its transport as well as the growth in local and foreign demand for fish. Fisheries continue to be risky in East Africa, but Uganda may offer the best opportunity for a success story.
Uganda is home to the source of the River Nile, the longest river in the world and around Jinja. The Nile offers the best white-water rafting experience globally. The country also shares Lake Victoria (2nd largest fresh water lake in the world) with Kenya and Tanzania. Lake Bunyonyi in south western Uganda is the 3rd deepest in the world.
Approximately 50% of the world’s population of mountain gorillas lives in Uganda. No wonder the country is described as the “The Pearl of Africa”.
Potential areas for investment in the tourism sector include:
Establishment of a white sand resort beach
The project offers a complete package of lodging and dinning for tourists/ visitors, and conference hall for different clients for holding meetings and seminars.
Domestic air transport
The objective of this project is to provide efficient and reliable domestic air transport services to Uganda’s major tourist destinations as well as providing reliable and fast air transport services to local travelers.
Establishment of a tourism & hospitality training institute
The objective of this project is to produce competent graduates who are capable of working in the tourism and hospitality industry offering internationally rated professional services.
Construction of a wild life/forest lodge
The objective of this project is to provide additional accommodation to mid-range travelers to Uganda’s protected areas (PAs).
The proposed locations include Mabira and Budongo forests, Queen Elizabeth National Park (QENP) and Murchison Falls National Park (MFNP). The project is also aimed at providing water rafting services between Karuma and Murchison Falls, game drives, angling and nature walks in addition to accommodation.