The determinants of foreign direct investment in Uganda

Abstract

The study investigated the determinants of FDI inflows to Uganda for the period 1985 -2005. Specifically, the study sought to examine the trend of FDI inflows to Uganda, capture the sensitivity of the determinants to FDI to the level of inflows and to generate an appropriate FDI function in Uganda. A generic FDI model was estimated using econometric techniques. Estimation results reveal that market size, exchange rate and political climate are important determinants of FDI inflows in Uganda. Sectoral analysis also indicates the wholesale trade, communication and financial sectors as the major recipients of FDI to Uganda. The emergence of the above sectors as dominant recipients of FDI suggests that FDI to Uganda is no longer resource seeking, that is, targeting the traditional agricultural sector but rather suggest the possibility of a shift in FDI motives from natural resource and market seeking FDI to more efficiency seeking FDI. These findings imply that Uganda’s FDI policy should target the efficiency seeking FDI if FDI inflows are to be maximized.