OPTIMIZING THE BENEFITS OF FOREIGN DIRECT INVESTMENT (FDI) INTO UGANDA: THE CASE FOR REGULATION OR SUPERVISION

This study investigated the effects of regulation or supervision on investments, particularly in the financial sector in Uganda, since the enactment of the Investment Code Act in 1991, and the subsequent establishment of the Uganda Investment Authority (UIA) as provided under the Act. It used mostly secondary data and interviews on investments facilitation in Uganda. The Research Design was ex post facto, and the Analysis qualitative. The findings showed that in Uganda, there was a strong supervision of the financial system; the financial institutions were always highly capitalized; the financial sector was dominated by foreign operators; and the rural areas were grossly under-banked. Also, there existed a curious relationship between the financial services phenomenal growth and an equally matched growth in investment in Uganda since 2005/2006 following the lifting of the moratorium on the licensing of new commercial banks in the country. Quite significantly, while Uganda Investment Authority (UIA) had impressive records in attracting investments into the country, it made no concrete efforts to supervise or regulate these investments once they were licensed and established. This was contrary to Section 6(a) of the Investment Code Act, 1991, which authorized the Authority not only to promote and facilitate, but also to supervise investments in Uganda. Rather, UIA seemed to have abandoned the supervisory aspects of its statutory responsibilities almost entirely to the sectoral regulators, such as Bank of Uganda (BoU) for the banking, Insurance Regulatory Authority (IRA) for insurance, Capital Markets Authority (CMA) for the capital market, and Uganda Communication Commission (UCC) for communication. In order for Uganda to optimize the benefits of investments, it was recommended that the investments should be effectively supervised by Uganda Investment Authority in addition to, and as a safeguard to the failures of, sectoral regulation. It was further recommended that there should be deliberate efforts to stimulate local investment in the banking industry so as to restore a measure of local control to this important engine of economic growth which was discovered to be under the near complete dominance of foreign investors. The adoption of a rural banking scheme was also recommended in order to enhance financial penetration into the rural areas of Uganda. The curious relationship that was discovered to exist between the phenomenal growth in financial services and an equally matched increase in investment in Uganda in 2005/06 following the lifting of the moratorium on the licensing of new commercial banks in the country, led to the suspicion that a relationship existed between regulation and foreign direct investment flow into Uganda that calls for quantitative analysis. This was suggested as an area for future research.