2009 Index of Economic Freedom

Quick Facts

Population:

• 29.9 million

GDP (PPP):

• $26.7 billion
• 5.1% growth
• 5.7% 5-year compound annual growth
• $893 per capita

Unemployment:

• 3.2%

Inflation (CPI):

• 6.8%

FDI Inflow:

• $306.7 million

Uganda's economic freedom score is 63.5, making it the 63rd freest economy in the 2009 Index. Its score is 0.3 point lower than last year. Uganda is ranked 4th out of 46 countries in the Sub-Saharan Africa region, and its overall score is above the world average.

Macroeconomic stability and reform have given Uganda five years of sustained growth averaging about 6 percent. Uganda scores relatively well in government size, financial freedom, labor freedom, and fiscal freedom. Total government expenditure is moderately low, and many state-owned businesses have been privatized. Price stability is largely restored, and the financial sector has become more open, although credit is still not easily available in rural areas.

Uganda's tariff barrier has eased slightly, but non-tariff barriers still limit trade freedom. Uganda opened its first commercial court several years ago, but most investors seek settlements or outside arbitration. Corruption remains pervasive, especially in the judiciary and at high levels of government.

Background Back to the top

Despite market reforms and a decade of economic growth, Uganda remains poor and dependent on Kenya for access to international markets. The “abstinence, be faithful, and condoms” program has reduced HIV prevalence substantially. Agriculture employs about 80 percent of the workforce and accounts for about 30 percent of GDP. Milton Obote led Uganda to independence in 1962 as prime minister, suspended the constitution in 1966, and was ousted in 1971 by Idi Amin Dada. When Tanzanian forces ousted Amin in 1979 after a period of economic and social disintegration, Obote returned to power only to be ousted by a military coup. Insurgent leader Yoweri Museveni came to power in 1986 and, after the establishment of a multi-party government in 2005, was elected to a third five-year term in 2006. A 2006 truce between the government and the Lord’s Resistance Army ended a 20-year conflict that had created a human rights catastrophe in northern Uganda.

Business Freedom 58.7 Back to the top

The overall freedom to start, operate, and close a business is limited by Uganda's regulatory environment. Starting a business takes an average of 28 days, compared to the world average of 38 days. Obtaining a business license takes less than the world average of 18 procedures and 225 days, but costs are high. Bankruptcy proceedings are fairly straightforward but costly.

Trade Freedom 75.2 Back to the top

Uganda's weighted average tariff rate was 7.4 percent in 2006. The government has made progress in liberalizing the trade regime, but import and export restrictions, some high tariffs, import and export taxes and fees, inefficient and non-transparent regulation and customs, export promotion programs, weak enforcement of intellectual property rights, and corruption add to the cost of trade. Ten points were deducted from Uganda's trade freedom score to account for non-tariff barriers.

Fiscal Freedom 80.4 Back to the top

Uganda has moderately high tax rates. The top income and corporate tax rates are 30 percent. Other taxes include a value-added tax (VAT) and a property tax. In the most recent year, overall tax revenue as a percentage of GDP was 12.6 percent. Some minor tax cuts were introduced in the 2007–2008 budget to bring Uganda in line with other members of the East African Community. Fuel taxes were raised, and exemptions related to the VAT were expanded.

Government Size 86.9 Back to the top

Total government expenditures, including consumption and transfer payments, are low. Spending management is reasonably sound. In the most recent year, government spending equaled 20.9 percent of GDP. Many state-owned companies have been privatized or divested.

Monetary Freedom78.4 Back to the top

Inflation is relatively high, averaging 6.9 percent between 2005 and 2007. The government influences prices through state-owned utilities and enterprises. Five points were deducted from Uganda's monetary freedom score to account for policies that distort domestic prices.

Investment Freedom50.0 Back to the top

Foreign investors do not receive equal treatment and may face a number of performance obligations as conditions for gaining required business licenses. Foreign investment is allowed in most sectors, and foreign investors may form 100 percent foreign-owned companies and majority or minority joint ventures with local investors and may acquire or take over domestic enterprises. Dispute resolution can be lengthy and politicized. Regulation can be non-transparent, ad hoc, inconsistent, and subject to corruption. Residents and non-residents may hold foreign exchange accounts. There are no restrictions or controls on payments, transactions, or transfers. A slow registry and complex regulations make land acquisition difficult.

Financial Freedom60.0 Back to the top

Uganda's small financial system is dominated by banking. The banking sector is relatively open to competition, and government influence in the sector is not heavy. Most banks are foreign-owned, and four account for about three-quarters of total assets. Access to financial services has been gradually expanded across the country. A new regulatory law bringing Uganda in line with international financial regulatory standards was adopted in 2004. The insurance sector is small, and the state-owned National Insurance Company is undergoing privatization. Capital markets are relatively small and underdeveloped, though more private companies are being listed on the stock exchange.

Property Rights30.0 Back to the top

Uganda opened its first commercial court about seven years ago, but a shortage of judges and funding drives most commercial cases to outside arbitration or settlement. The judiciary suffers from corruption. Domestic private entities may own and dispose of property and other businesses. Foreign private entities share these rights, but there are restrictions on land ownership. Ugandan laws protect intellectual property in theory but rarely act as a deterrent to counterfeiters and pirates.

Freedom From Corruption28.0 Back to the top

Corruption is perceived as widespread. Uganda ranks 111th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. The will to combat corruption at the highest levels of government remains weak. In addition to demands for and acceptance of bribes, bureaucratic apathy and ignorance of rules within public organizations contribute to perceptions of corruption. Foreign businesses report some difficulties due to lack of transparency and possible collusion between competing business interests and government officials.

Labor Freedom87.9 Back to the top

Uganda's flexible labor regulations enhance overall employment and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee is not difficult. Regulations related to the number of work hours are relatively flexible.