Foreign direct investment (FDI) involves external firms investing in local companies in Uganda. Multinationals seeking to operate in the country merge or acquire entities. These multinationals usually target businesses operating in the capital Kampala and become owners by acquiring equity shares. Trans-national institutions such as the International Monetary Fund (IMF), the World Bank and the African Development Bank (ADB) also provide short- and long-term financing to local firms through loans or direct aid.
Entities may raise funds for short- and long-term capital needs by issuing equity shares to investors. These share sales are conducted on the Uganda Securities Exchange under the jurisdiction of the Capital Markets Authority, which is the regulatory arm of the Central Bank of Uganda. Equity shareholders--or stockholders--receive regular dividends and make profits when share prices rise. They also hold voting rights and may approve appointments of corporate senior leaders.
Uganda-based companies also may raise funds by selling debentures--also called bonds--on local or foreign securities exchanges. Investors who buy bonds--referred to as bondholders--receive periodic interest payments and initial amounts lent at maturity. For instance, a Kampala-based entity might issue one million U.S.-dollar-denominated bonds paying eight percent interest, maturing in 2025 to investors such as local banks, emerging-markets funds or international institutions. Entities not listed on securities exchanges also may raise funds through private sales--or placements--to investors.
Local banks, insurance companies or other financial institutions also may lend directly to Ugandan businesses. This type of lending may be fixed-interest term loans, overdraft agreements or revolving lines of credits. Borrowers pay periodic loan installments to lenders until loans are amortized--that is, fully paid. Private investors such as local entrepreneurs also may help entities raise financing by lending through investor syndicates. These syndicates--or groups--are arranged by investment bankers for clients or through the Uganda National Chamber of Commerce and Industry.
Ugandan public officials encourage foreign and domestic investments in fields of interest such as rural agriculture, education, health services and energy independence. They provide financial incentives--such as tax breaks and grants--to investors who build plants and hire local workers. Authorities may also invest directly in companies to increase productivity or economic output.
