Macroeconomic stability keeps Uganda attractive

May 3, 2017 in Investment by Editor

May 3—Uganda is ranked sixth overall in the 2017 African Attractiveness Index, a survey carried out by EY, (formerly Ernst & Young) the professional services firm. Uganda has gone up seven places compared to its 2016 ranking, overhauling popular investment destinations as Egypt and Mauritius.

The AAI Index is designed to help businesses to make investment decisions and governments to remove barriers to future growth. Topping the overall list is Morocco, followed by Kenya, South Africa, Ghana, Tanzania, Uganda, Cote d’Ivoire, Mauritius, Senegal and Botswana.

Among the highlights are South Africa which remains the largest FDI hub in Africa. Egypt, Kenya, Morocco, Nigeria and South Africa (the key hub economies) collectively attracted 58% of the continent’s total FDI projects in 2016. Investment from the Asia-Pacific region (mostly China) into Africa hit an all-time high in 2016.

The 2016 data shows Africa attracted 676 FDI projects, a 12.3% decline. The surge in capital investment was primarily driven by capital intensive projects in two sectors, namely real estate, hospitality and construction (RHC), and transport and logistics. The continent’s share of global FDI capital flows increased to 11.4% from 9.4% in 2015. This made Africa the second-fastest growing FDI destination by capital.

EY AAI 2017 measures the FDI attractiveness of 46 African countries (with the entry of three new countries), constructed on the basis of six broad pillars that act as key determinants for choosing a location to invest. Within each pillar, a set of key indicators have been included with specific weightings to arrive at the overall pillar rank and score. The first two pillars — macroeconomic resilience and market size — are considered shorter-term factors, and account for 40% of the total weighting; the other four pillars are longer-term factors, and account for 60% of the total weighting.

EY says it is important to recognize that this indexed ranking does not provide a definitive assessment of any of these markets. ‘There are no obvious or absolute answers in searching for market potential. In reality, there will be different rankings across organizations and investors with different priorities; and as priorities change over time, so will the rankings,” the report states.

The AAI Index can, however, provide a useful starting point for analysis and support strategic dialogue on growth priorities, risk appetite and investment criteria. The next 10 countries are Egypt, Rwanda, Tunisia, Namibia, Algeria, Zambia, Nigeria, Cape Verde, Cameroun and Ethiopia.

Uganda’s highest ranking as an attractive pillar is macroeconomic resilience, followed by economic diversification, market size, business enablement, but fares averagely when it comes to infrastructure/logistics, governance and human development.

Notably, Tanzania was ranked first for macroeconomic stability while Kenya came in second. South Africa has the best infrastructure, but Mauritius beats everybody else for business enablement, economic diversification, governance and human development.

According to EY, most East African economies continued to grow strongly in 2016, with Kenya, Tanzania, Uganda, Rwanda and Ethiopia all among the fastest growing on the continent. Although there were year-on-year declines in FDI flows into East

‘African markets generally, both Tanzania and Uganda are highly placed on the AAI 2017, ranking fifth and sixth in terms of FDI attractiveness respectively. Recent oil and gas discoveries in these countries have put them even more firmly on the investor map, although Tanzania has also benefited from a strong growth over the last decade, driven by increased investment in infrastructure and services,’ the report reads in part.

Rwanda despite a loss of three places on the AAI 2017, has Africa’s second-best business environment, according to the World Bank’s Ease of Doing Business Index 2017.

Ethiopia, where FDI levels echoed impressive GDP growth in previous years, saw its FDI projects almost halve in 2016, owing to political instability7 and drought. However, the country aims to build its manufacturing hub to drive employment growth. This, combined with its agricultural base and a very large consumer market, has the potential to be a major driver for future FDI flows.