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Section 3: Infrastructure in Uganda

Fitch Solutions Logistics Risk Index

  • Uganda is placed in fourth position out of 11 East Africa states and in 156th position out of 201 states globally in the Fitch Solutions Logistics Risk Index.
  • Uganda's Logistics Risk Index score only just outperforms the East Africa average, given its extremely strong score for trade procedures and governance. However, in terms of transport and utilities network, the country underperforms regionally.
Chart: Logistics Risk, 2019
Chart: Logistics Risk, 2019

Logistics Risk Index: Methodology and Components

  • 100 = Lowest risk; 0 = Highest risk
  • The Logistics Risk component is calculated using the average of the Transport Network, Trade Procedures and Governance and Utilities Network scores.
  • Transport Network: this indicator assesses the extent and quality of road, rail, air and waterway transport networks within a country, which indicate capacity and ability to transport raw materials and finished goods around a country.
  • Trade Procedures and Governance: this indicator assesses the time and cost required to import and export goods by container. In addition, a country's air freight volumes and connectivity to shipping networks is used to gauge its potential as a shipping or freight hub. An ideal market would have strong freight connections and low levels of trade bureaucracy.
  • Utilities Network: this indicator assesses the quality and availability of electricity and fuel, and their costs, and considers the availability of water, industrial usage, and evaluates the quality and extent of the telecommunications networks and internet penetration. A well-developed utilities sector enables the smooth running of supply chains.

Electricity Supply and Costs

Uganda has one of the lowest electrification rates on the African continent, particularly in rural areas. Businesses will be restricted mainly to urban areas in setting up their operations and may be required to make extra arrangements in the form of private, costly energy alternatives. That said, the country has relatively low electricity transmission and distribution losses for the region and power cuts were reportedly almost eliminated following the construction of the Bujagali hydropower plant.

The government is working to expand its power supply by constructing a number of micro-hydropower projects along the Nile River, and is promoting the development of other sources of renewable energy, such as off-grid solar power systems. The electricity generation mix will become increasingly dominated by hydropower as the government focuses on expanding hydroelectric capacity, which already holds a dominant share. This could improve electricity supply, but shortages will remain a significant risk due to vulnerability to drought.

Uganda's electricity costs are not prohibitive. They are the third highest in the region. However, electricity consumption per capita is extremely low, translating into higher electricity tariffs in order to stop low consumption from disincentivising electricity generation.

Chart: Electricity Cost and Electrification Rate
Chart: Electricity Cost and Electrification Rate

Fuel Costs

Uganda depends entirely on fuel imported via regional neighbours. Fuel prices are raised by weaknesses of the local currency, import costs and the impact of supply disruptions. While the country enjoys a liberalised downstream oil sector with a deregulated pricing system, shortages are frequent due to logistical challenges, propagating the emergence of an informal sector and high prices in the fuel market.

The Hoima refinery is in early stages of development, but due to financing difficulties and lack of private sector involvement, its realisation remains far from secure. This suggests that Uganda will likely remain without refining capacity and entirely dependent on fuel imports over the next ten years, leaving businesses exposed to potential disruptions.

Transport Network

As a landlocked country, Uganda's road network constitutes the most important means of transport and facilitates the movement of the majority of domestic cargo and passenger traffic. The country is well connected to all immediate neighbours (the Democratic Republic of the Congo, Rwanda, Kenya and Tanzania) via main roads. This reduces overall travel times and costs for key export sectors to Kenyan and Tanzanian ports, as well as to key regional trading partners such as South Sudan and Rwanda.

There are various road projects in Uganda at various stages of development, as part of the country's wider ambition to improve links across the country and with regional neighbours. A large number of road projects centre around Kampala under the Second Kampala Institutional and Infrastructure Development Project (KIIDP 2), which seeks to enhance infrastructural and institutional capacity of the capital city and improve urban mobility. The plan involves widening, upgrading and constructing roads and junctions to reduce traffic congestion and will connect the capital with other major cities in the country. At the same time, Uganda is prioritising the construction of oil roads that will facilitate the transportation of oil.

The major initiatives underway to upgrade key transport corridors will be instrumental in supporting overall economic growth and reducing the cost of doing business in the country. The majority of projects will receive funding from the Ugandan government with some assistance from multilateral banks. Mainland China continues to play a key role in the country's transport network. For example, Uganda received a US$2.9 billion loan from the Export-Import Bank of China in 2017 for the construction of a 273km standard gauge railway (SGR) connecting the capital Kampala to Kenya through the border town of Malaba, as part of the Northern Corridor.

More recently in 2019, the Ugandan government also announced that it will invest US$205 million in the rehabilitation of its existing narrow-gauge railway line from the capital Kampala to the border with Kenya, with this railway development being prioritised over the planned new standard gauge railway that is backed by Mainland China.

Supply Chain Logistics

Uganda's landlocked status means that the country has very low levels of connectivity with international shipping routes, as supply chains have to traverse either Kenya or Tanzania to access ports. This causes lengthy transit times and heightened costs, which are further increased as a result of poor infrastructure and congestion issues on regional roads and ports.

In addition, there is a lack of diversification across domestic and regional supply chains, which are mainly reliant on the road network for overland freight transport. This increases the risk of disruption on roads, which can cause supply chains to grind to a halt. This is set to improve over the long term, with the coming online of a railway line that will link Uganda directly with Kenya's Mombasa port.

In terms of ease of trading from a time and efficiency perspective, import and export border and documentary compliance procedures in Uganda remain competitive when compared to other East African states, in particular to neighbouring Tanzania. In fact, Uganda has made improvements to its trading across borders procedures over the last couple of years by implementing the Single Customs Territory and by developing the Uganda Electronic Single Window and the Centralized Document Processing Centre.

Chart: Time to Export and Import, 2017
Chart: Time to Export and Import, 2017

Tariffs and Trade Regulations

From a tariff barrier perspective, Uganda is relatively competitive in the region as an export and import market, having the third lowest average applied tariff rate of 5.9%, compared to a regional average of 8.8%. This puts Uganda above key regional peers Rwanda, Kenya, Ethiopia and Tanzania.

In addition, and specifically for manufacturers, Uganda's Manufacturing Under Bond initiative allows manufacturers to seek a customs licence to hold and use imported raw materials intended for manufacture for export in secured places without payment of taxes.

Uganda is a key player in regional integration, bilateral and international negotiations. Furthermore, Uganda is a founding member of the World Trade Organisation (WTO), having been a member of General Agreement on Tariffs and Trade since 1962 (the precursor to the WTO). As a member of various multilateral trade organisations, Uganda shows commitment to reduce trade barriers, which could benefit businesses, particularly in the form of lower tariffs.

 

Manufacturing in East Africa: Uganda

Section 1: Industrial Manufacturing Focus
Section 2: Labour & Land Resources
Section 3: Infrastructure
Section 4: Regulations & Tax Incentives
Appendix: Relevant Government Bodies

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Content provided by Picture: Fitch Solutions – BMI Research
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