Kampala, Uganda |URN | The Uganda Investment Authority (UIA) predicts a significant decline in both Foreign Direct Investment (FDI) and Domestic Direct Investment (DDI), particularly in tourism, transport and construction sectors due to the economic crisis induced by the COVID-19 pandemic and shutdown.
The value of planned FDI projects in 2019/20 financial year was USD 1,184 million with projected growth of 28 percent. But now, investment is projected to decrease in the financial year 2020/21 starting to rebound in the financial year 2021/22. This is according to a policy paper on boosting investments during and post-COVID-19 period.
The report, the outcome of the quick survey UIA conducted on the impact of the COVID-19 lockdown on investments attributes the projected decline in FDI on the negative impact of COVID-19 pandemic on the economies of FDI source countries such as China, India, and the European Union. The contagion disrupted supply chains, slowed economic activity, reduced foreign remittances and slowed investment decisions.
The report states that DDI, which declined to USD 328.7 million in 2018/19 financial year from USD 441.1 million the previous year is forecast to decline by 50 percent in this ending 2019/20 financial year, rising gradually through 2020/21 financial and rebounding between 25 percent to 30 percent in 2021/22 financial year.
Foreign remittances into Uganda are projected to decline impacting negatively on especially the real estate sector. According to the Bank of Uganda, foreign remittances are projected to decline to USD 238.8 million in 2020/21 financial year down from USD 955.6 million in 2019/20 financial year attributed to a fall in wages and decline in employment of Ugandan diaspora.
The results of the quick survey on the impact of COVID-19 on investments showed that the workforce has been adversely affected with the biggest number of companies, 23.8 per cent reporting that they had asked workers to stay home but supported them with some minimal allowances while 21.8 percent of the companies said they had decreased the number of working hours.
On the impact on business continuity measures, the report states that 56 percent of the respondents had temporarily closed business or production.
The report adds that the top most concern for most businesses during and after the COVID-19 pandemic is uncertainty accounting for 22.4 percent of all businesses that responded to the survey. Other top concerns are loss of revenue, reduced productivity and demand for services, business closure, cash flow issues, inability to pay taxes, staff wages, utility, rent, internet costs and inability to service debt or loans amongst others.
The policy paper which has been presented to the Executive and Parliament calls for policies and interventions formulated on the basis of evidence generated in order to mitigate the negative impact of the pandemic on private investments in Uganda.
The report states that UIA, working with the private sector under the aegis of the Presidential Investor Roundtable (PIRT) which it facilitates has made a raft of policy and intervention proposals to the government.
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These include funding for the agriculture sector particularly having a specific horticulture fund with Uganda Development Bank amounting to USD 25 million to be accessed for existing operations only, reduction of the VAT rate to 14 percent from 18 percent for 2020/21 financial year to reduce cost of production, drop in electricity prices by 30 percent from April 2020 to September 2020 for lodges, agri processors and all manufacturing factories, reduction in corporate tax to 20 percent from 30 percent for the next two years 2020/21 and 2021/22.
Other proposals in the report are increased financing for SMEs, boosting domestic direct investment in labour-intensive industry like agri sector for export and import substitution, creation of development funding for domestic direct investment and remodelling of the Youth Livelihood Fund and Women Enterprise Fund by linking SMEs with UIA to boost domestic direct investment throughout Uganda.