How Trump Administration, polls will influence investor decisions

KAMPALA - The new US administration, geopolitical tensions and the upcoming general election in Uganda rank highly as some of the biggest concerns for investors in 2025, according to researchers at Absa. 

The Bank of Uganda describes 2024 as the year of relative stability. The policy actions taken by the regulator saw the economy strengthen its foundation from maintaining one of Africa's lowest inflation rates to achieving fourth place in the Absa Africa Financial Markets Index among 23 countries surveyed. 

David Wandera, the acting chief executive officer at Absa, said the improvements in the index are linked to “strong macroeconomic performance and transparency” that has created a stable environment for foreign investment.

The Ugandan shilling, among Africa's top-performing currencies, is expected to remain resilient in 2025, supported by fiscal consolidation and cautious monetary policy. 

Speaking during the Absa Africa Financial Markets Index and Economic Outlook Forum 2025 at Kampala Serena Hotel on Tuesday, Jeff Gable, the head of research and chief economist at Absa, said events in the US are likely to have a huge impact on the economy. 

“The global environment is already uncertain enough. We are barely a week into the new US administration. Trump version two is going to be different. Trump version one in some sense, there was no real expectations. There was no real organisation on the ground,” he said. 

“We see the US dollar has strengthened, and it has been an astonishing move against other currencies; whether it's the yen, pound, or euro.The US is also re-looking into development assistance and the headline for this is the USAID for other markets. It's going to be America first and it will have implications for us,” Gable said. 

Although President Trump policies are more inflationary, forecast by Absa research shows that Bank of Uganda is likely to slash its policy by 225 basis points in 2025 to 7.5% by the end of 2025 as inflation stabilises and policymakers navigate rising the Government's interest costs and pre-election spending pressures. 

The Government's ability to curb interest costs while funding infrastructure and social programmes will be critical ahead of a politically charged 2025, the report says. 

The central bank's monetary policy committee (MPC) held rates steady in December 2024, citing risks from global geopolitical tensions and policy uncertainty. 

However, with inflation projected to average 3.8% in 2025 — below the 5% BOU target — the research projects further easing to support economic growth. 

“It is quite an aggressive forecast. The policy rate has been vigilant on inflation and risk, which is probably higher than it needs to be. We think there is enough room that can provide some accommodation. But the shilling holding (against the dollar) and that will help consumers have modest inflation registered over the years,” Gable said. 

Benon Okwenje, a market analyst, said: “Bank of Uganda has been more hawkish than dovish. We are in a run-up to elections and if history is to go by, we typically see quite a lot of extra government spending, especially looking at the second half of the year.” 

Early this year, the central bank revised its MPC meetings downwards to four from the previous six annually to review its policy interest rate. 

According to BOU, the change will allow the MPC to conduct more comprehensive economic analysis, leveraging additional data to enhance forecasting accuracy and build upon its established track record of effective policy decisions. 

“Regulation is one of the things that creates uncertainty for us in this sector because it can dramatically shift what is happening. I am not really concerned about the number of times the MPC meets, so long as the outcomes deliver a much more attractive and stable macro-economic environment that allows us to have more certainty and the investment that we are putting into the country,” Sylvia Mulinge, the chief executive officer at MTN Uganda, said.

Interest and election year ahead  

The Government interest expenditure has climbed steadily, consuming 14% of total revenue in 2024, up from 12% in 2018, amid broader African fiscal challenges. 

While Uganda's debt-service burden remains lower than peers like Ghana (40%) and Kenya (25%), the research report warns that cumulative deficits and a shift towards market borrowing could intensify pressures. 

With presidential elections scheduled for early 2026, economists anticipate heightened public spending in 2025, potentially testing fiscal discipline. 

“The challenge we have right now is let us try to work together with the finance ministry and Bank of Uganda to keep the key economic variables such as inflation, exchange rate and borrowing contained. If you look at the fiscal path, it all points towards fiscal consolidation. The deficit is expected to come down into the medium term. They may be challenges now, but the government has committed to fiscal consolidation,” Michael Atingi-Ego, the deputy governor at BOU, said. 

Historically, election cycles in Uganda have driven expanded social and development budgets. Challenges are likely to emerge as the Government seeks to manage oil revenue inflows as well as navigate global trade shifts under a second Trump US administration.

Experts say that a combination of these factors is likely to impact tariffs and development assistance for the economy. 

Budget support from global partners played a key role in funding Uganda's development accounting for over 60% of the national budget in the 1990s. However, this financial lifeline has been steadily shrinking with research projections from BOU indicating that “budget support will be nonexistent in 2025”.

Growth projections 

Uganda's economy is forecast to grow 6.0-6.5% in 2024/2025, buoyed by agriculture growth and construction, though manufacturing and education lag. Headline inflation has held near 3% since late 2023, but sectors such as education (10.3% inflation in December 2024) and health (5.8%) signal emerging pressures according to the Absa research.

Predictable tax environment 

Amanda Kabagambe, a partner and head of East Africa TLG Capital, said the Government needs to create a predictable tax system to boost private investment amid the uncertainties. 

She said predictability fosters taxpayers' confidence and supports effective tax administration — all of which bolster revenue mobilisation in the longer term. 

“We need stability in the tax system because a typical private equity investment is seven to 10 years. It is based on some assumptions and models that work with an expected tax policy. But in a tax policy that changes every June 30, then we cannot invest long-term,” she said. 

“Whilst the Government has put in place incentives across sectors, none have demonstrated stability that inspires long-term confidence. We see changes in solar inputs [tax regime], energy power purchase agreements...Where you don't have stability, we don't have trust and we cannot rely on that.