By John Ricardo Munyegera
KAMPALA, Uganda – Friday 6th May 2016: Capital investments refer to funds invested in a firm or enterprise for the purposes of furthering its business objectives. Capital investment may also refer to a firm’s acquisition of capital assets or fixed assets such as manufacturing plants and machinery that is expected to be productive over many years.
The main factors affecting the decisions surrounding capital investment projects must reconcile with where the capital is coming from. Uganda has been on fierce batter to attract foreign direct investments and indeed all indications show that increase. The biggest dilemma is that these are draconian loans from China and some others from the EU and the World Bank or IMF.
The clear capital investment factors are elements of a project decision, such as cost of capital or duration of investment, which must be weighed in order to determine whether an investment should be made, and if so, in what manner the investment is best made in order to maximize utility for the investor. The main areas were capital investments through FDI are coal, oil and natural gas; real estate; renewable energy; communications; metals; chemicals; financial services; transportation and among others.
Uganda has leapfrogged all the other East African countries in capital investments (in US$ billions) according to the Financial Times 2016 Foreign Direct investments (Global Greenfield investment trends) report. Now Uganda is number five (5) in the whole of Africa. The best five is led by Nigeria at US$8.6 billion, Mozambique at US$5.1 billion, South Africa US$4.7 billion and Uganda at US$4.6 billion yet even on the market shares in Africa; it’s 5%. The number of FDI projects into Africa in 2015 increased by 6%.
The major capital investments which propelled Uganda to get on the direct sport in Africa is the increased Capital investments which rose to US$4.6 billion following a joint investment in the coal, oil and natural gas sector by a Russia-based investor. Such an injection of capital in an economy at a growth rate of 5.9% as forecasted in the financial year, 2016 -17. This is also true due to the fact that, the Real GDP growth rate of Uganda also stands at a steady increase at 6.5% according to the African Economic Outlook of 2015.
The key economic trends across the rest of Africa as per 2015 and the past four months of 2016 include the following; the FDI into Africa by project numbers increased by 0.6% in 2015. This means that it was not an increase in most economies. Africa recorded 156 more FDI projects than the Middle East in 2015, a figure that has widened by 98% compared with 2014. It also continued to dominate job creation with 95,387 more jobs created than in the Middle East.
This therefore confirms that somehow the unemployment ratios were dented in some countries however on a small scale in comparison to the 54 African economies. Indeed for most of the time; South Africa has been and even in this report the top African destination for “inward FDI” by project numbers, and continuing a long-term trend even in the near future.
In terms of ‘FDI net inflow’ of projects in Africa; South Africa leads at 118 projects, followed by Kenya 84 projects, Morocco with 71, Egypt 59, Nigeria 51 and finally Ghana with 40 projects. On the outward side, Kenya also features most as 38 of the projects left and South Africa again with 66 as well.
In comparison with the Middle East: The United Arab Emirates retained her position as the top FDI destination in the region by project numbers, accounting for 24% of projects. Also Bahrain recorded strong inward FDI growth during 2015, entering the top 10 by project numbers for the first time since 2012. It also saw a 143% increase in outbound projects.
Previously, Saudi Arabia was the top country by capital investment in the Middle East, with US$9.8 billion recorded in 2015 for 2014. Therefore, the Middle East and Africa regions were responsible for US$59.8 billion in outward capital investment, up 54% on 2014.
What about the globe perspective? According to the findings of this report, globally, capital investment increased by nearly 9% in 2015, while the number of jobs created via FDI grew by 1% to 1.89 million. However, the number of projects declined 7% to 11,930. The main areas of investment have been in the coal, oil and natural gas which have reclaimed there top spot as the largest generator of capital investment globally, with US$113.5 billion of announced FDI recorded in 2015. The once-hot renewable energy sector is on the rise again, with project numbers increasing by 50% and capital investment reaching US$76 billion. This accounts for more than 10% of all capital investment globally last year.
The big FDI story of the past year is ‘India’. After a long period of trailing behind China, the south Asian country is now racing past its formidable rival. India was the highest ranked country by capital investment in 2015, with US$63 billion-worth of FDI projects announced. In 2015, India was for the first time the leading country in the world for FDI, overtaking the US at US$59.6 billion and China with US$56.6 billion.
China therefore saw a 23% decline in capital investment and a 16% drop in FDI projects. This in other words puts a great concern to the many African economies which have been banking on the volatile financial loans from China. China’s economy is also declining hence facing her own share of a slowing economic development.
One last point of concern is that the rapid growth of FDI in India shows that while economic development organizations try to attract FDI for the contribution of FDI can make to employment and GDP, FDI is strongly attracted to high-growth economies. This is therefore, intertwined to development and promotes employment.
In conclusion, success breeds success and to attract high volumes of FDI, locations need to create the conditions for strong economic growth and development to take place. This has been the case in Uganda were the many FDI companies are given tax holidays as well as offering free land for example to promote the ethos of industrialization and as incentives. Besides that, according to the 2014 and 2015 Ernest and Young investments attractions in Africa, Uganda has been an FDI hotspot for so long in the Sub-Saharan Africa.
The great dilemma of such economic promotions of FDIs however, is that, it promotes less domestic investment as for them, are never given such economic incentives. Still they create fewer jobs for Ugandans as many Chinese companies and the rest have showcased the same as they come with their workers.