For my country report I chose to explore the country of Uganda, officially the Republic of Uganda, located in East Africa. While doing my research, I came across the fact that Uganda is considered one of the poorest countries in the world that is operated by a presidential republic. When looking to invest, many factors must be taken into account before making the decision to invest in a host country. According to the textbook, “attractiveness depends on balancing the likely long run benefits of doing business against likely cost and risk.” (p.94) Some of these factors include the economic, political and cultural environment, as well as the competition that already exists in that space. Reasons firms may be dissuaded when it comes to internationalizing in Uganda, could be due to the high energy and production costs, corruption, and also their current poor infrastructure. I chose this country with those facts in mind, and throughout my paper I will analyze how Uganda could potentially develop its domestic financial market. Some ways in which they could potentially become attractive to foreign investors is by, avoiding inflationary pressure, sustaining economic development and controlling their interest rate. Currently, Uganda is not seen as a sound investment but the Government of Uganda (GOU) is revising some of its laws to improve their open markets, government accountability and develop an attractive infrastructure. My paper will analyze a country with substantial and versatile natural resources that will also take a look at the macro environment.
As previously mentioned, Uganda is known as one of the least-developed and poorest countries. This can be attributed to its long-standing political instability and irregular economic management. The most current government system which is a republic, took power in 1986 and ever since has been doing its best to rebuild Uganda’s infrastructure, which was destroyed by war and ever since neglected. Currently, their economic structure is mixed which grants them “variety of private freedom, combined with centralized economic planning and government regulation.” (Michigan State University) After gaining power in 1986, the government chose to implement a Structural Adjustment Program, this program is intended to enforce economic policies that would result in improving capacity utilization and resource mobilization, the restoration of price stability and (obviously) rehabilitate their overall infrastructure to make it more attractive to foreign firms. The programs improved the shape of the economy, but did not directly lead to economic growth. Uganda began experiencing tremendous poverty reduction and economic growth in 1995, and that carried on until 2010.
Their growth has faced a great number of risks, regional instability, credit market constraints, global uncertainty and the delayed completion of a public infrastructure program that would most likely thrive like the previous adjustment programs. Additionally reduced trade restrictions has promoted the ideal situation where the nation’s economy will improve. There are few formal trade barriers, but there are some factors that will increase cost for foreign business’. Some of these factors include high transport costs, bureaucratic inefficiencies, and an inundation of counterfeit consumer products. Due to its open markets, strong economic growth and abundance of natural resources, Uganda could present opportunity for knowledgeable investors. But, the key word is knowledgeable, due to the things previously mentioned before- overall, Uganda would most likely be a difficult investment climate.
The political system in Uganda is a presidential republic, which its current president is Yoweri Museveni. This means that the president is both head of state and head of government, as there is a multi-party system, which allows the government to exercise executive power. Uganda provides national elections, and the president is then elected for a five year term. Their current president has been re-elected many times, and has been in office for about thirty years.
Considering Uganda was initially a British colony, the law and English legal system are primary. The legal system is based on African customary law and English common law. According to The Future of African Customary Law, customary law “means the customs and usages traditionally observed among the indigenous African peoples of South Africa and form part of the culture of those peoples” (p. 338). Our textbook, then goes on to define common law as something moderately similar, “law based on tradition, precedent and custom”. Taking all other negative factors out of the picture, considering common law is the same legal structure that the United States court system uses, that could potentially look appealing to an investor since there would be some type of familiarity when it comes to the law.
Uganda is made up of many different ethnic groups, their known for being multilingual but English is one of the main languages spoken, which is necessary for political and economical success. According to the textbook, “culture is a complex whole that includes knowledge, beliefs, arts, morals, laws, customs and other capabilities acquired by people as members of society.” (pg. 128) As of right now, the GOU guarantees its citizens the freedom of religion, yet it must be registered with the government and almost more than 80% of the community practices as Catholic. It is important to remember when assessing the cultural environment that culture is constantly evolving, globalization and economic progress are two factors that contribute to cultural change. The Uganda Culture Policy states that “Ugandan cultures are continuously adopting and adapting because of local and foreign influences. In some cases, this has led to the degradation of the moral fabric of the society with the most affected category being the youth.” This statement made by the GOU leads me to believe that there is a lack of attention being paid to the evolution of their culture, it seems as though they are so focused on building their economy that they are forgetting to stick to their roots and initial beliefs.
As far as social mobility goes, I do not believe that Uganda promotes any advantages considering there is a lack of personal achievement and structure changes. Additionally, Uganda is known for its extreme corruption and lack of accountability when it comes to this topic. There is a 63 page report called “Letting the Big Fish Swim: Failure to Prosecute High-Level Corruption in Uganda,” and this report documents Uganda’s lack of political will when it comes to holding its government accountable for large scale theft and other crimes. These facts make Uganda unappealing when it comes to internationalizing a firm within its country. As a culture, not only are they neglecting their youth, which I will address next, but also their citizens.
As a society, I don’t think it could be said that Uganda is a free economy. A free economy has liberal attitudes towards women’s rights, homosexuality and other rights that would favor equality. In 2014, Uganda passed an Anti-Homosexuality Act, that the Constitutional Court of Uganda ruled invalid (on procedural grounds). Additionally, in 2013 they eliminated some of the worst cases of child labor, but they still are engaging in such behavior. These examples promote the notion that Uganda has difficulty achieving international standards of human rights. According to the International Association for the Protection of Civilian Arms Rights,
“The report shows that an alarming 43,512 armed crime incidents were reported in the country between 2010 and 2014, which is the highest in East Africa. The estimated total number of guns held by civilians in Uganda is 400,000, yet only about 3,000 are legally registered, according to Gun Policy statistics.” The lack of collectivism is demonstrated through these surprising findings.
Considering crime rates are so high and crime is so common, it is no surprise that Uganda also suffers from a serious cartel problem. The evolution of these cartels has diminished competitive practice, and also has threatened competition and its principles. Unlike many other countries, Uganda does not have a competition law. As cartels and cartel-like tendencies have started to dominate the Ugandan market, the consumers really suffering from growth in prices are located in the banking, sugar sectors, telecom and fuel markets. Considering there are no laws against competition, the result of this has been market monopolisation by a small number of companies, increased trade gap and has resulted in less than acceptable results. These results are things such as market sharing and price-fixing. Although there are those adjustment programs that I mentioned earlier, this issue of cartels has promoted unemployment, debt and poverty. Therefore, it would not be wise for a foreign firm to integrate in until they did put some competition laws in place.
If a firm is looking to internationalize, Uganda is not a very appealing country to expand a business in. Due to the corruption, political instability, child labor, and cartel issues this would not be an educated investment. Yet, if one chose to expand into Uganda I would recommend the idea of using a wholly owned subsidiary. According to the text, a wholly owned subsidiary allows the firm to own 100% of the stock (pg.498). I’d choose this method of entry because it presents zero risk when it comes to being duplicated by competition, and it also allows the firm to maintain control of their product and technology. Another advantage would be that Uganda and the United states both participate in common law, this would present some familiarity when it comes to the legal system.
Although a wholly owned subsidiary could potentially work in Uganda, there are some high development costs associated with such an entry. These costs can be counteracted with the cheap labor that is provided within Canada, although that could potentially mean child labor. Another disadvantage would be the fact that the firm would need to align with a local firm in Uganda in order to sell the product, this could present great risk associated with corruption and local competition. Additionally, depending on the product it is important to check domestic demand before internationalizing and depending on the industry, there is a possibility that the industry in Uganda has reached its peak of competitors resulting in little to no share of the market to develop within.
Finally, the structure and the strategy of the foreign firm would require the capability to adhere to the Ugandan culture. Although the legal system shares similarities, I do not think there are enough to sustain a business within Uganda without extensive knowledge and research. And, even though Uganda is considered a mixed economy, it is definitely a less developed mixed economy. Considering it is a mixed economy, it provides a variety of private freedom, as well as government regulation. Private freedom would definitely appear as an advantage, but having government regulation could lead to corrupt behavior that would hinder the success of the foreign business.