The Regulatory Environment for Domestic and Foreign investments

The Laws governing investment and commerce in Uganda

Uganda’s investment regime is liberal and mostly supportive of foreign direct investment. As in many other market economies, the movement of Investment capital in Uganda is regulated by rules and regulations to ensure the smooth conduct of business and boost confidence for investors. The Companies Act (2012) is one of the principal laws governing investment in Uganda. An entity has to be either incorporated or registered in Uganda in order to legally do business. Other forms of agreements e.g., Partnership Agreements, Collaboration Agreements, and Technology Transfer Agreements are governed by the Contracts Act (2010). Uganda’s new Investment Code Act (2019) is the guiding legal framework that governs investment in Uganda’s economy. The investment code also contains provisions on key investment requirements and support areas, e.g., licensing, incentives, and priority sectors. Technology is one of the priority sectors amongst others including agriculture, agribusiness, manufacturing, energy, transportation, and healthcare. Uganda sets a minimum capital investment threshold requirement for foreign investors of US$ 250,000.  The Uganda Investment Authority’s (UIA) one-stop centre helps to register with the UIA, failure upon which may result in penalties to the unregistered foreign investor. Uganda’s debt markets remain comparably shallow, however, foreign and international debt instruments can and do move into and out of the economy with few restrictions. The Central Bank of Uganda does not regulate debt secured from foreign banks that do not take deposits from the public in Uganda. The cost of registering a loan/corporate debt is low; stamp duty costs 1% of the loan. Also, interest and stamp duty are both tax deductible.

Foreign companies that wish to invest in Uganda may be required, in the near future, to comply with Uganda’s national local content laws. The laws place an obligation on a local content entity to give preference to goods manufactured and services produced in Uganda. The National Local Contents Bill (2019), recently passed by parliament, is yet to be assented to by the President of Uganda. The bill will introduce minimum local content requirements on execution of public contracts, and also establishes within the Ministry of Finance, Planning, and Economic Development (MoFPED), a department tasked with the responsibility of implementing the law.


Laws Regulating Sources of Funding in Uganda

Most companies in Uganda, including in the ICT sector, are funded by equity sources, including family and friends contributions and personal savings. Large corporations regularly raise capital on the Uganda Stock Exchange (USE), while small enterprises cannot participate in the USE effectively. In response to this challenge, the USE started the Growth Enterprise Market Segment (GEMS) platform, whose primary objective is to help Small and Growing Businesses (SGB) raise long-term, low-cost capital through public listings. GEMS allows for less-stringent criteria for public listing by SGBs. Therefore, the platform offers exciting prospects for startups whose relatively short commercial life limits their ability to comply with strenuous requirements for issuing initial public offerings (IPO).  There is no legislation specific to the establishment and operations of private equity (PE) funds. Over the past few years, however, Uganda has seen an increase in PE fund activity. The absence of a regulatory framework makes it easier for PEs to enter and exit the market with limited red tape, plus PEs do not have to be established in Uganda to participate in deals.


Laws Regulating Digital Commerce in Uganda

Uganda ranks 3rd amongst the top 5 countries in Africa, in terms of regulatory maturity of the digital economy. A mature regulatory framework is key for maintaining a competitive, transparent and fair investment environment. Uganda’s regulatory and policy-making functions for the digital economic are, for the most part, separate and independent. Also, Uganda's impressive set of cyber laws and regulations has evolved to address emerging market structural developments and assist inward Foreign Direct Investment (FDI) into the telecommunications and ICT sectors. Key amongst them is the Electronic Transactions Act (2011) and the attendant regulations that govern e-commerce transactions. Licenses and approvals from the Uganda Communications Commission (UCC) and the National Information Technology Authority (NITA-U), the regulatory agencies established under the Uganda Communications Act (2013) and the NITA-U Act, may be required by some prospective investors. The UCC mostly regulates equipment for the communications sector and as well as content. NITA-U mostly regulates ICT service providers and specified products which require inspection before being imported into Uganda.

Consequently, the telecommunications and broadband markets are dynamic and competitive, albeit a few challenges. Despite the highly liberal environment, foreign direct investment inflows into the digital economy in Uganda are concentrated in digital infrastructure. This trend will remain instrumental in reducing the associated internet costs. The expected drop in internet prices could support strategies for convergence of digital entrepreneurship startups’ business models with incumbent operators, in their shared quest to address pressing efficiency challenges that limit the growth of industry and commerce in Uganda. For example, a highly informal and fragmented retail sector limits the ability for attaining brand effectiveness and consolidation of Fast-Moving Consumer Goods (FCMG). Branded e-commerce retail outlets now provide FMCGs with almost limitless opportunities for channel efficiency and effectiveness. Jumia, the e-commerce virtual marketplace is one such example.

Companies that invest in Uganda are required to comply with Uganda’s data protection and privacy laws during the conduct of business. Uganda’s National Data Protection and Privacy Law (DPPL) (2019) which is modeled against the EU’s General Data Protection Regulation (GDPR), will shape privacy practice for digital and non-digital startups and incumbents for the foreseeable future. Currently, the DPPL regulations and the national data protection office are work in progress.

From a sub-sector-specific perspective, the Fintech industry in Uganda will continue to grow but guided by the recently passed National Payment Systems act (2020) and the draft national payment systems regulations. The NPS act establishes a regulatory sandbox framework that will help promote innovations in the Fintech sector. This means that companies that wish to pilot new products and services will now enjoy better regulatory certainty. The law also places Fintech firmly under the regulatory supervision of the central bank of Uganda. Several new requirements in the regulations which include licensing fees, the periodic submission of annual audited accounts, and the requirement for Central bank approval for a Mergers & Acquisitions, will contribute to a more predictable and secure business environment for investors.