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Uganda asked to focus on local investors

By Vision Reporter

Added 29th April 2013 02:32 PM

Emphasis on foreign investment is overrated. Policy makers should instead focus on local investors, increasing the tax to Gross Domestic Product (GDP) ratio and value addition to agricultural produce to achieve higher economic growth rates. These remarks were made by Razia Khan, the Standard Chart

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Emphasis on foreign investment is overrated. Policy makers should instead focus on local investors, increasing the tax to Gross Domestic Product (GDP) ratio and value addition to agricultural produce to achieve higher economic growth rates. These remarks were made by Razia Khan, the Standard Chart

By Samuel Sanya

Emphasis on foreign investment is overrated. Policy makers should instead focus on local investors, increasing the tax to Gross Domestic Product (GDP) ratio and value addition to agricultural produce to achieve higher economic growth rates.

These remarks were made by Razia Khan, the Standard Chartered Bank Africa regional head of research recently.

“Foreign Domestic ownership is a risk. The economy would take a hit if the investors decided to sell their holdings,” Khan said.

She noted that huge tax breaks to foreign investors are placing the country on a race to the bottom.

Khan said better infrastructure, a robust economy and efficient governance systems are sufficient to attract investors and maintain high economic growth.

She was making a presentation themed “Uganda at a time of transformation.”

Khan noted that Uganda needs to depend less on donor aid, narrow the current account deficit and to manage the dwindling national reserves.

She argued that the country will become less vulnerable to external shocks and set the country back on a trend of high growth.

“As Uganda moves toward moves towards the oil economy, there will be more investment in infrastructure. This means imports will continue to outstrip exports in the short run, further affecting the national current account balance,” she said.

Khan noted that current tax to GDP ratios of 12% are far behind the sub-Saharan average of 22%.

Higher tax collection ratios will shield the country from external shocks such as aid cuts and the global financial crisis.

She added that the ratio should be increased before the commercial production of oil to ensure that the contribution of oil does not distort the economy.

“The oil discoveries are modest on a global level. A counter cyclical fund should be created to save oil revenues even before commercial oil production starts,” she said.

Khan added that the fund would avert a situation where the oil revenues lead to an abnormally strong shilling, rendering the country’s exports uncompetitive on the international markets.

Lower export revenues would further worsen the current account deficit.

The counter cyclical fund will also avert inflation from hitting the roof, especially for non-tradable services. “When oil revenues increase transport, rent and other service charges there is a real problem,” she noted.

Turning her focus to trade, Khan noted that Africa is increasingly trading with China, Brazil and within itself than with Europe and the US. She added that exports to other African countries and Asia can make up for lower exports to Europe.

Uganda’s export revenues are closing in on $3b, from $500m in the financial year 1997/1998.

She noted that the while oil revenues may increase the welfare of Ugandans, agriculture will remain the main economic growth driver, contributing a lot more jobs and export incomes.

“The real transformation in Africa will happen when the continent starts to feed itself. At the moment, Africa is still a net importer of food, even though, the continent has the largest portion of Arable land in the World,” Khan noted.

She said there is need to add value to agricultural produce to maximise returns other than exporting produce in its raw material state.

 

Uganda asked to focus on local investors

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