I happened upon some interesting figures recently, tracking
the growth in foreign direct investment (FDI) in Uganda from 1990, put out by
the UN Conference on Trade & Development (UNCTAD).
The figures showed that FDI in Uganda had grown to $11.2b in
2016 from a miserly $6m in 1990. This figure is not only a measure of new FDI
inflows but the existing FDI in the country starting in 1990.
The devil is in the detail of course, but it is not
difficult to conclude that the more FDI that existed the more that flowed in
the country.
So while there was a six fold leap in the figures between
1992 and 1993, the net result was an additional $54m in FDI. Compare this with
the six percent increase in value of FDI between 2015 and 2016, which in
nominal terms comes to $625m jump.
"The point is to attract more and more FDI you have to have foreign investment to begin with...
It reminds me of the story of the man who walked into the
Mercedes car dealership, then on Dewinton Road, on a Friday evening and asked
to be shown a car. The salesman was not too keen to help being a Friday
afternoon. But also because this man did not seem good for the money, with his
trousers fastened half way up his torso, flowery shirt and imitation snake skin
shoes.
The “prospect” insisted on being given the full tour, never
mind the salesman’s reluctant body language.
After the tour of several of their pricier models had been
completed, the “prospect” seem to settle on one well after closing time.
“Kankomewo,” (Let me come back) was the last the salesman
heard as he shut the door behind the “prospect”.
Next morning when the first people came to open the show
room they were greeted by the sight of the previous day’s “prospect” and a
friend. All dressed in flowery shirts, trousers belted above their budding
potbellies and the imitation snakeskin shoes. But in addition each had a
suitcase in tow that was full of cash to buy the car.
“When I got home I told my friend and he too decided he needed
a car like that one,” the man from the previous day said pointing at their car
of choice.
Foreign investors kind of act the same.
If one likes a country he tends to go back and spread the
word. So if your stock of FDI is rising consistently like Uganda has over the
last quarter of century there is something right we must be doing.
Investors local or otherwise, are looking for security of
person and property, a consistent policy environment and the ability to access
their returns when and if they need them.
The first two conditions allow them to project their company
prospects into the future and the last ensures they will get the investor and
financier partners.
"It’s counterintuitive but just like an individual who wants to bank with an establishment that has ATMs, so too investors, they are more likely to invest in a country where they can repatriate their profits easily. The fact that their foreign investors, meaning they do not live or incorporated in the country, meaning paying their dividends will necessitate expropriating their profits...
Those who think his should not be argue that they are taking
all their profits out, monies which can not only be reinvested here for the
benefit of Ugandans but also depreciates the exchange rate.
This last point is interesting and betrays who the
complainers are. If you are a country aimed at promoting exports an orderly
depreciation of the shilling should be a good thing. So it can’t be the
exporters complaining.
As for repatriating “all” the profits that is not legal,
practical or desirable for a going concern. Upwards of 30 percent of all
profits are paid to URA and regulators, easily half or more of that is
reinvested in the business. And so it might turn out that less than half the profits
are repatriated depending on the development stage of the business. Besides
anyone who has been in any serious business knows that the owner is paid last
if the enterprise is to carry on.
"But this whole discussion, which has captured headlines sporadically over the last three decades, points to the larger issue of the capacity of our own entrepreneurs and what it actually takes to attract FDI to this country...
Just because we have shown some success in attracting FDI to
our shores shouldn’t make us complacent. If you take the total stock of FDI in
the country the aforementioned $11.2b is not even a percent of the
$1.93trillion in total FDI inflows in 2017 alone.
Despite the relative insignificance of our number versus the
global picture we have done very well for a poor country with little effective
demand. All the more reason we should not take FDI for granted.
It’s like they say “The importance of the river was not
known until it dried up.”
And by the way the two friends with suitcase full of money
left disappointed that while they had paid for the cars in full they could not
drive them out of the showroom immediately.
