Uganda

							UGANDA
Rank: 59 Regional Rank: 5 of 40
ganda’s economy is 63.4 percent free, according to our 2007 assessment, which makes it the world’s 59th freest economy. Its overall score is 1.5 percentage points lower than last year, partially reflecting new methodological detail. Uganda is ranked 5th out of 40 countries in the sub-Saharan Africa region, and its overall score is much higher than the regional average.

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The economy is 63.4% free
100
Sub-Saharan Africa Average = 54.7 World Average = 60.6
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80

Uganda scores highly in fiscal freedom, freedom from government, financial freedom, and labor freedom. The top income and corporate tax rates are moderate, and overall tax revenues are not large as a percentage of GDP. Government expenditures are also fairly low, and government-owned businesses do not account for a significant portion of total tax revenues. Uganda has a small but developed financial sector that is dominated by banking. The labor sector is elastic in workweek hours and workforce flexibility. Uganda is weaker in freedom from corruption, property rights, and business freedom. Regulations make commercial licensing burdensome and are not always enforced consistently. Closing a business is also difficult. Uganda opened its first commercial court several years ago, but slow resolution and understaffing lead most investors to seek settlements or outside arbitration. Corruption is a problem, but no more so than for other African nations. BACKGROUND: Uganda remains poor despite market reforms that contributed to economic growth averaging over 6 percent annually during the past decade. The government’s “abstinence, be faithful, and condoms” (ABC) program has reduced HIV prevalence to 6.5 percent in 2005 from 18 percent in the 1990s. President Yoweri Museveni, who has ruled since leading a successful insurgency that seized power in 1986, was elected to a third five-year term in 2006 following the adoption of a controversial constitutional amendment that removed the two-term limit. The agricultural sector employs most Ugandans and accounted for over one-third of gross domestic product in 2004. How Do We Measure Economic Freedom? See Chapter 3 (page 37) for an explanation of the methodology or visit the Index Web site at heritage.org/index.

60

40

20

0

1995

2007

QUICK FACTS
Population: 27.8 million GDP (PPP): $41.1 billion 5.6% growth in 2004 5.4% 5-yr. comp. ann. growth $1,478 per capita Unemployment: n/a Inflation (CPI): 3.3% FDI (net inflow): $237.2 million (gross) Official Development Assistance: Multilateral: $585 million Bilateral: $751 million (28% from the U.S.) External Debt: $4.8 billion Exports: $1.2 billion Primarily coffee, fish, fish products, tea, cotton, flowers, horticultural products, gold Imports: $2.2 billion Primarily capital equipment, vehicles, petroleum, medical supplies, cereals

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UGANDA’S TEN ECONOMIC FREEDOMS
Business Freedom Trade Freedom Fiscal Freedom Fdm fm Government Monetary Freedom Investment Freedom Financial Freedom Property Rights Fdm fm Corruption Labor Freedom 54.1 58.8 87.1 86.7 78.3 50 70 30 25 94
0

INVESTMENT FREEDOM — 50%
Foreign investment is allowed in privatized industries. Foreign investors may form 100 percent foreign-owned companies and majority or minority joint ventures with local investors with no restrictions. They also may acquire or take over domestic enterprises. Foreign investors, however, do not receive equal treatment, especially for performance obligations. A slow land registry and complex land regulations make it difficult for foreign companies to buy land. Both residents and non-residents may hold foreign exchange accounts. There are no restrictions or controls on payments, transactions, or transfers.
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100

100 = most free,

= world average

BUSINESS FREEDOM — 54.1%
Starting a business takes an average of 30 days, compared to the world average of 48 days. To maximize entrepreneurship and job creation, it should be easier to start a company. Obtaining a business license can be very difficult, and closing a business is difficult. Regulations are sometimes inconsistent, causing unreliability of interpretation. The overall freedom to start, operate, and close a business is restricted by the national regulatory environment.

FINANCIAL FREEDOM — 70%
Uganda’s small financial system is dominated by its banking sector. The banking industry generally is sound and well capitalized. The central bank has tightened supervision and increased regulatory requirements in the wake of several bank closures in the late 1990s. Uganda had 16 commercial banks and two development banks in 2004. Most banks are foreign-owned. New banks are not allowed unless they offer completely new financial services or take over existing banks. As of 2004, there also were seven savings and loan institutions and a number of microfinance institutions. The insurance sector is small and comprised 15 companies in 2003, including the state-owned National Insurance Company, which is undergoing privatization. Capital markets are relatively small and underdeveloped. Foreign investors may participate in capital markets, and foreign-owned companies may trade on the stock market subject to some restrictions.

TRADE FREEDOM — 58.8%
Uganda’s weighted average tariff rate was 10.6 percent in 2005. The government has made progress toward liberalizing the trade regime, but inefficient and non-transparent customs implementation, import restrictions, weak enforcement of intellectual property rights, and corruption still add to the cost of trade. Consequently, an additional 20 percent is deducted from Uganda’s trade freedom score to account for these non-tariff barriers.

PROPERTY RIGHTS — 30% FISCAL FREEDOM — 87.1%
Uganda has moderate tax rates. Both the top income tax rate and the top corporate tax rate are 30 percent. Other taxes include a value-added tax (VAT), a property tax, and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 11.7 percent. Uganda opened its first commercial court about six years ago, but a shortage of judges and funding drives most commercial cases to outside arbitration or settlement. The judiciary suffers from corruption.

FREEDOM FROM CORRUPTION — 25%
Corruption is perceived as widespread. Uganda ranks 117th out of 158 countries in Transparency International’s Corruption Perceptions Index for 2005.

FREEDOM FROM GOVERNMENT — 86.7%
Total government expenditures in Uganda, including consumption and transfer payments, are low. In the most recent year, government spending equaled 23.8 percent of GDP, and the government received 0.1 percent of its revenues from state-owned enterprises and government ownership of property. Many state-owned companies have been privatized or divested.

LABOR FREEDOM — 94%
The labor market operates under highly flexible employment regulations that enhance overall productivity growth. The non-salary cost of employing a worker is moderate, and dismissing a redundant employee is not difficult. Regulations on increasing or contracting the number of work hours are flexible.

MONETARY FREEDOM — 78.3%
Inflation in Uganda is relatively high, averaging 6.9 percent between 2003 and 2005. Relatively high and unstable prices explain most of the monetary freedom score. The government is able to influence prices through state-owned utilities and enterprises. Consequently, an additional 5 percent is deducted from Uganda’s monetary freedom score to account for these policies.

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2007 Index of Economic Freedom