VII. Investment Climate A. Openness to Foreign Investment Uganda's attitude towards foreign direct investment is highly positive. Foreign investors may form 100% foreign-owned companies and majority or minority joint ventures with local investors with no restrictions. Acquisition, takeovers and greenfield investments are permitted. Foreign owned investments operate on a level playing field with local companies. The Government of Uganda is working diligently to increase foreign investment in the country. The Investment Code of 1991 established regulations to assist investors in establishing a presence in Uganda using the UIA to screen applications and make recommendations to the UIA's Board of Directors. The screening is done purely to determine the level of incentives for which the investment will qualify. The UIA is both pro-foreign investment and pro- private sector, with representatives from the private sector dominating its Board of Directors. The President of Uganda travels on missions to promote foreign investment, including ones to Europe and the United States during the first half of 1994. The Government has little money to use to promote investment (overseas offices, etc.). USAID is assisting the country by funding a consultant who works with the UIA, and providing much of its support costs. B. Conversion and Transfer Policies The Investment Code guarantees that investors who have invested $500,000 can repatriate their investment and dividends and get foreign exchange to pay debts incurred in the business. Currently it is no problem for investors to get the foreign exchange they need. Not many investors have reached the point where they wish to repatriate profits; however, most are reinvesting profits in their businesses at this point. C. Expropriation and Compensation Ugandan law limits possible expropriation to expropriation for public purposes through a transparent process. The government guarantees that investors will be compensated for any property that is expropriated. Rather than expropriating, the government is actively divesting and returning property confiscated in the past. Return of properties expropriated under former regimes is moving ahead, while the government has shown a willingness to consider debt/equity swaps in which government ownership in companies is being transferred to private sector minority shareholders on mutually acceptable terms. Uganda is a signatory to the Multilateral Investment Guarantee Agency of the World Bank which insures on commercial risk. Uganda has also signed an agreement with the U.S. Overseas Private Investment Corporation (OPIC) and potential U.S. investors can buy political risk insurance from OPIC. D. Dispute Settlement The Investment Act provides for mechanisms to handle disputes. To date, the UIA has not seen disputes develop to the point where these mechanisms have been tested. Potential disputes have been handled before they become a problem. Both the Uganda Manufacturers Association (UMA) and the UIA have access to the President, and major businesspeople also have access to him should a major dispute develop. Uganda is a member of the International Center for the Settlement of Investment Disputes. E. Political Violence There has been some rebel bandit activity in the northern part of Uganda. The U.S. Embassy in Kampala warns American citizens to avoid traveling in that area. Political violence is non-existent in Kampala and the major areas where American businesspeople are likely to be working. American citizens considering travel into this area should contact the Embassy for current information. See the information in the Consular Information Sheet, which is included in the Business Travel section, below. F. Performance Requirements/Incentives Any businessperson can apply for a license under the Investment Act. Foreign owned companies are eligible for the same incentives as Ugandan owned companies, though the hurdle for foreign-owned companies is higher. For full incentives, the hurdle for foreign owned companies is $500,000, while it is only $50,000 for Ugandan owned companies. There are no restrictions on import/export, and repatriation of funds, including profits, is guaranteed under the terms of a formal document issued on behalf of the government by the UIA. There are no requirements for local shareholdings, and there are no performance requirements once the investment has been made. Incentives include a five year tax holiday, duty free import of capital goods, and first arrival privileges for foreigners (i.e., the duty free import of household goods and one personally-owned vehicle). Smaller investors get a smaller tax holiday. For example, a foreign investor investing $200,000 would get a two year tax holiday. G. Right to Private Ownership and Establishment Foreign and domestic private entities have full right to own property and other businesses and may dispose of them at will. As evidence of the government's movement away from public ownership, monopoly rights of marketing boards have been abolished; electricity, water and telecommunications are slated for privatization; and public corporations are being shut down and have lost or are scheduled to lose any monopoly position they held. Ownership of land, however, can be a problem. Ugandan law stipulates that foreigners may not own land for agricultural purposes, though it is possible to obtain exemptions through leasing. These exemptions must be made by the Minister of Finance and Economic Planning, and obtaining them entails a time consuming procedure. Most investors in agricultural production erect a plant to process goods, but use out-growers to do the growing. Also, in some areas, land titles are unclear due to traditional communal land issues or because the land was, in the past, expropriated and clear title has not been finalized. H. Protection of Property Rights The President and other senior government officials have repeatedly and publicly reaffirmed that private property will never again be arbitrarily expropriated. The government is currently returning land expropriated in the past under the Return of Asian Properties Act. This activity was a conditionality of the World Bank and IMF and is closely supervised. The UIA has not encountered problems with protection of property rights. I. Regulatory System: Laws and Procedures The Government of Uganda has been eliminating the big marketing boards that dominated the agricultural landscape, but in their place, it has created numerous authorities with the power to write regulations. These authorities are purely regulatory. Generally, Ugandan commercial laws, e.g., company and partnership law, were inherited from the British. Therefore, the rights and obligations of Ugandan partnerships are similar to those defined in the original English colonial statutes. Efforts are being made to update regulations and laws governing banking and financial institutions, the stock market, and the buying and selling of securities. Foreign exchange laws have already been revised to eliminate government activity in the foreign exchange markets. Foreign exchange rates are now market determined in foreign exchange bureaus or an interbank market. Also, banking laws passed in 1993 provide the foundation for a stronger financial sector. J. Bilateral Investment Agreements There are few bilateral investment agreements. No new agreements have been signed in the past year. K. OPIC and Other Investment Insurance Programs OPIC and MIGA are working well in Uganda. This is an area of interest to the UIA which encourages investors to get insurance. The UIA is satisfied with the insurance programs from both OPIC and MIGA. L. Labor Generally, the UIA has found that existing investors do not indicate that they are having problems with their labor force. There are few Ugandans available for high level specialties, but investors have been able to hire and train workers for low or non-skilled jobs. Several professional firms (law, accounting, etc.) which are based in Nairobi have local representatives. Other types of office oriented services, such as printing, are returning to Uganda. M. Foreign Trade Zones/Free Ports There are no free ports or foreign trade zones in Uganda at this time. N. Capital Outflow Policy Under the Investment Code, investors meeting the hurdle will have no problem with repatriating capital. There are no business impediments to outward investments. O. Major Foreign Investors Most investors in Uganda are people who have past experience with the country. This includes British and Indian firms, as well as large numbers of Kenyan firms. Foreign investors include: Pepsi, Coca Cola, Agip, Shell, Total, Caltex, Sheraton, British Airways, Sabena, Tata, Barclays Bank, Standard Chartered Bank, Mitsubishi, British American Tobacco and a number of others. Companies which have representatives in Uganda through authorized dealers or partnerships include IBM, Wang Computers, DHL International, Ernst & Young, Price Waterhouse, Coopers Lybrand, Mercedes Benz, Caterpillar, and Ford.