25 Nov 2019
Section 2: Labour & Land Resources in Uganda
Fitch Solutions Labour Market Risk Index
- Uganda is placed in joint second position (with Kenya) out of 11 East Africa states and in 120th position out of 201 states globally in the Fitch Solutions Labour Market Risk Index.
- Uganda outperforms the East Africa average significantly in terms of availability of labour and labour costs. However, it underperforms regionally for education levels.
Labour Market Risk Index: Methodology and Components
- 100 = Lowest risk; 0 = Highest risk
- The overall Labour Market Risk score is calculated from the average of the Availability of Labour, Education and Labour Cost sub-component scores.
- Education: the education sub-component focuses on general and tertiary schooling. Scores are based on enrolment at each level of education and interest in technical subjects, such as science, manufacturing, construction and engineering. This gives an indication of the talent pool available in a country and emphasises higher value technical skills.
- Availability of Labour: the availability of labour score takes into account the size of the workforce, the quality, age and health of the labour pool and its composition (both with regards to the nationality of workers, and their occupations).
- Labour Cost: this sub-component assesses worker flexibility and the cost of hiring in a particular country. It includes factors such as the minimum wage, severance pay and unemployment. The scores are calculated to reward the countries with the lowest cost of hire.
Labour Supply and Skills
Uganda offers investors an advantage in terms of the size of its labour force, which separates it from many of its regional competitors. In particular, Uganda boasts a large working-age population, which stands at an estimated 22.3 million people and is the fifth largest out of the 11 East African states.
That said, companies operating in Uganda will face a number of constraints in recruiting local workers with the necessary skills to drive operations. The population is predominantly rural, which means that the labour supply is spread across the country, with the vast majority of Ugandans engaged in subsistence agriculture. Additionally, the quality of the workforce is diminished by poor access to healthcare and education, translating into low life expectancy and limited secondary and tertiary educational attainment. In fact, secondary school enrolment rates are some of the lowest in the East African region, and only one-tenth of the Ugandan labour force is currently estimated to have obtained their secondary education qualification or above.
Access to skilled labour is not boosted significantly by current incoming migrant flows, as the majority of migrants come from the sub-region and are likely low-skilled workers. Despite Uganda having a very low foreign migrant stock, there are few barriers for firms wishing to hire foreign workers. The Uganda Investment Act 1991 does not impose any direct requirements about local employment or have mandatory requirements for local employment in management positions.
Labour Costs and Regulations
The Ugandan labour market is favourable to investors in terms of its low costs and a high degree of employer flexibility. This is largely due to the fact that national minimum wage is negligible, and labour tax and social security contributions are low.
Moreover, poorly drafted labour laws and poor enforcement of any protections afforded to workers in terms of these laws mean that the power dynamics in the Ugandan labour market are skewed firmly in favour of the employer. This gives employers high levels of flexibility in terms of annual leave, salaries and working hours, and greater ease of firing and hiring workers. While the notice period in cases of redundancy dismissal remains relatively high, there are no severance pay requirements in cases of redundancy. Overall, this considerably reduces the likelihood of labour unrest interrupting production or resulting in wage increases.
However, the poor protection of workers' rights in Uganda has come to the attention of the International Labour Organisation, which has been working with the Ugandan government to improve matters. International businesses therefore face heightened reputational risks should they be perceived as attempting to take advantage of the poor protection of labour rights in the country.
While Ugandan laws recognise the rights of workers to join labour unions and to bargain collectively (except for public sector employees), labour unrest in Uganda largely remains irregular. According to Freedom House's 'Freedom in the World' 2016 Report on Uganda, many businesses in the private sector refuse to recognise unions.
Land Resources, Construction Permits and Registering Property
Officially, foreign businesses cannot own land in Uganda, but there are certain incentives and loopholes investors use to gain leaseholds or outright ownership. The Ugandan Constitution restricts the expropriation of property, unless it is in the 'national interest' and contingent on compensation to the land owner. That said, disputes over land have previously led to delays in infrastructure projects in Uganda. The country is a member of the International Centre for the Settlement of Investment Disputes and the Multilateral Investment Guarantee Agency.
The application process for a construction permit involves 18 separate procedures, beginning with an Environmental Impact Assessment that must then be approved by the National Environment Management Authority. At an average 8% of warehouse value, construction permit costs are significantly higher than the OECD average of 1.6% of the warehouse value. However, this figure still outperforms the Sub-Saharan Africa average of 8.8%. In spite of the costs, construction permits are issued relatively quickly. It takes 114 days to get a construction permit issued in Uganda, which is faster than the East African regional average of 148 days.
Registering property can be a complicated process in Uganda, where it takes 42 days on average to register ownership. The process is impeded by the high volume of registration procedures, a total of 10 compared to an average of 4.7 in the OECD. That said, official costs of land registration are very competitive, set at 3.1% of the property value, which is lower than the regional average of 5.8%.