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By Emmanuel Tumusiime-Mutebile | How to convert $800 million dollars sent home by Ugandans living abroad into FDI

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Posted February 2, 2014 by Ugandan Diaspora News Team in Diaspora Remittances ~ 2,630 views

     

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The East African — Summary – Beyond sending remittances, they can also promote trade and public-private partnerships and foreign direct investment – FDI, create businesses and spur entrepreneurship and transfer knowledge and skills.

A major driver of Uganda’s economic growth has been private sector gross fixed capital formation, which as a percentage of the GDP rose steadily from 5.2 per cent in 1988 to 18.3 per cent in 2008 before declining to 15.8 per cent in 2012. Ugandans living abroad contributed directly and indirectly to this surge in private sector investment.

The role of Ugandans living abroad is evident in the remittances into the country, which as a source of foreign exchange as well as resources for consumption and investment have grown steadily in recent years. For instance, in 1998, remittances were estimated at $165 million, equivalent to 2.6 per cent of GDP. In 2012, this had risen to $910 million, equivalent to 4.3 per cent of GDP during 2012.

The average remittances per year between 2008 and 2012 amounted to about $800 million, exceeding official aid, which averaged $538 million, but equivalent to foreign direct investment (FDI) in Uganda. In addition, remittances have been a more stable source of capital than private capital. Remittances have had a direct impact on poverty reduction because they flow directly to households.

According to the Uganda Bureau of Statistics and Bank of Uganda, the recipient households use remittances to support general household expenses and education (81 per cent was used on consumption compared with 16.9 per cent used for non-consumption purposes and 2.3 per cent that was transferred to other households).

However, remittances have not played a major role beyond supporting household welfare, even though they could enhance and enable FDI in Uganda. The Ugandan diaspora has knowledge, expertise and experience that could be deployed in enabling private sector investment. The Ugandan diaspora can play an important role in the economic development of the country.

Beyond sending remittances, they can also promote trade and public-private partnerships and FDI, create businesses and spur entrepreneurship and transfer knowledge and skills.

In addition, those working for multinationals can play a role in influencing investment decisions to outsource operations to firms in Uganda. Their skills could also be mobilised to provide managerial and knowledge expertise to firms and research and development laboratories in Uganda.

Bright minds

Ugandans living abroad can also help spread ideas. Worldwide, many of the emerging world’s brightest minds are educated at Western universities. An increasing number go home, taking with them both knowledge and contacts. In particular, unlike other foreign investors, Ugandan diaspora investors have other considerations that do not fit nicely with the generally accepted FDI rationale.

First, they may be more likely to invest in Uganda even when other investors would consider Uganda high-risk, simply because they have knowledge and relationship opportunities that other investors lack.

Second, they can combine this knowledge with the skills, knowledge, and networks they have cultivated abroad, yielding important synergistic advantages.

Third, they can invest for altruistic reasons — for the love of their country.

Uganda’s growth prospects and returns on investment, which are among the highest, make investing in the country attractive.

Increasing urbanisation; a rapidly growing consumer-oriented market; strong demographics; rising investment in infrastructure; improving corporate governance and regulation, all bode well for the continued growth of Uganda’s investment story.

However, Uganda is facing various challenges and is currently incapable of fully exploiting its economic potential. The challenges include human capital; infrastructure deficits; inadequate electricity; and a poor road and rail network — all result in high costs of doing business and thus scare away investors.

Without business, there is no employment, no production of goods and services, no expanding of the tax base, etc. It is a vicious cycle. Another challenge is weak institutions. The Ugandan diaspora could become an important class of investors because they have a better understanding of the risk assessment capability of their country, which makes them less risk averse to the opportunities that appear risky to an average investor.

Their personal attachment and commitment to their country of origin turns them into investors with a longer-term outlook, which is often critical, particularly in infrastructure.

Government Bonds.

Government bonds are one way that non-residents are able to invest, especially in much-needed infrastructure like power, transport and telecommunications. These bonds, however effective in providing access to large-scale trans-formative projects, such as Kenya’s 12-year Infrastructure Bond paying 16 per cent yield, do not offer direct access to development projects run by local companies.

What Uganda needs is a way of enabling direct investment in projects that help strengthen the economy, have a developmental impact on the community and increase Uganda’s standing as a high-growth investment destination.

Diaspora investment

One of the greatest challenges of governments seeking to strengthen diaspora investment and entrepreneurship is determining the best way to organize national efforts to court and connect with those outside their home country.

Should existing agencies be adapted or reorganised to engage them? Should new organisations be created?

Some countries, such as Jamaica and India, have created separate ministries for diaspora affairs. Other countries, such as China, have taken a much more local approach, establishing diaspora assistance agencies at provincial and municipal levels. Ghana has bifurcated its national investment-promotion agency, separating the staff who deal with non-resident Ghanaians from those who focus on non-Ghanaian investors.

n my view, if Uganda were to take the route of directly stimulating diaspora investment (including issuing of diaspora bonds), it must give serious thought and consideration to their status issues.

For example, will diaspora investors or entrepreneurs be entitled to special economic incentives and benefits that are not available to non-diaspora investors? What will the legal status of those living abroad be relative to their resident counterparts? How will their interests be represented formally and informally within the Uganda political system?

Creating too great a privileged status for those living abroad relative to local citizens ultimately may flop in terms of promoting diaspora investment and entrepreneurship because such favouritism may breed mistrust, resentment and even contempt among local citizens. Better tuned government policies and co-operation can make the difference. The main task is to make Ugandans living abroad true partners in development in both countries of origin and of residence.

The writer is Governor of the Bank of Uganda

Source – The East African


About the Author

Ugandan Diaspora News Team

Ugandan Diaspora News Online is an independent, non political news portal primarily aimed at serving Ugandans who work and reside outside Uganda. Our aim is to be a one stop shop for everything Ugandan and the celebration of our Ugandan heritage.

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