Yoweri Museveni has won a sixth term as president of Uganda, but will the contested nature of the result spook investors?
Days after Uganda’s hard-fought presidential election, which saw Yoweri Museveni clinch a sixth successive term, his main challenger was confined to his home by a phalanx of soldiers.
Neither the US ambassador nor vital food parcels could reach Robert Kyagulanyi, alias Bobi Wine, the 38-year-old singer-turned-politician whose call for change resonated strongly with millions of young Ugandans.
With no EU or US election observers, an opaque counting process and an internet shutdown, allegations of fraud and irregularities abound. Official results, though, give Museveni – a former rebel fighter in power since 1986 – a runoff-avoiding 58.6%, to Wine’s 34.8%. Such a result is not farfetched, experts say, but there is no way of knowing if it is correct, pushing Uganda towards a period of political instability.
The disputed election comes at a challenging time for Uganda’s economy, which has outperformed many of its neighbours under Museveni, but must now bounce back from a coronavirus-related slump in 2020.
Kampala, the capital, swells with young, angry and unemployed Ugandans, while the government presides over ballooning public debt. That could keep international investors at bay and dampen the long-term growth prospects of the world’s largest coffee producer.
“Any escalation of violence in the aftermath of the elections may spook investors and cause jitters in local financial markets, which could make it more difficult for the government to service its external debts, which amount to around 34% of GDP,” says Virág Fórizs, emerging markets economist at Capital Economics.
The World Bank says Uganda’s GDP grew at 2.9% in 2020, less than half the 6.8% recorded in 2019. The most significant cause of this has been the coronavirus pandemic, which disrupted trade, caused a global economic slump and restricted movement, hitting Ugandan exports, tourism, real estate, remittances and FDI. As a result, Uganda entered 2021, and the discordant election, with a serious fiscal imbalance.
According to the IMF, Uganda has pulled millions out of poverty in recent decades, thanks primarily to a well-performing agriculture sector. However, the Covid-19 pandemic highlighted structural challenges that have left millions of young Ugandans devoid of hope and prospects.
While some 700,000 Ugandans reach working age annually, just 75,000 jobs are created each year, leaving more than 70% unemployed or underemployed. With a young 44m-strong population that will more than double by 2050, that challenge is not going away.
The buck stops with Museveni, who helped oust two dictators only to engineer constitutional amendments that could allow him to stay in charge of the East African country almost indefinitely. On his watch, experts say, a patronage system has emerged, with a thick layer of well-paid civil servants drawing state funds and squeezing local businesses. Museveni owes his continued rule to these low-level mandarins, whose ranks grow every year.
“Currently, companies who are well-connected with government officials are favoured when awarding contracts,” says Zaynab Mohamed, an analyst at NKC African Economics. “In the longer term, deep-rooted corruption across all state institutions will continue to make it difficult for businesses that are not well-connected with the government to thrive.”
Wine’s youth appeal
Wine was just three years old when Museveni first took power. In recent years, he has emerged as Museveni’s main opponent and has been arrested, shot at and beaten since becoming an MP in 2017.
Amid a government crackdown and a wave of arrests, 54 people were killed by security forces in the run-up to the election. Wine, who was placed under detention for 11 days after the election, has vowed to challenge the result.
His chances of success are slim, experts say. “Following the 2001 presidential election, the Supreme Court unanimously found that there had been widespread violations of electoral laws including intimidation of voters, publication by the government of false statements, corruption in polling stations and manipulation of the voter register,” says Ed Hobey-Hamsher, senior Africa analyst at risk intelligence firm Verisk Maplecroft. “Despite this, the Supreme Court upheld Museveni’s victory.”
Uganda’s president retains strong support in rural areas and among elderly, conservative voters, which might have handed him victory in January. “The political threat posed by Kyagulanyi to Museveni’s managed succession in 2026 will only increase,” predicts Hobey-Hamsher, because he is young, urban-based, Catholic, adept at social media and a member of the country’s largest ethnic group, the Baganda.
“The disputed election has received a lot of attention in the West, and the outcome is likely to result in a reduction in Western FDI and aid,” says Mohamed.
In the longer term, endemic corruption, political interference in the judiciary, the further consolidation of power in the presidential palace and the threat of political instability are likely to hinder new investment. Today the president is hidden behind hundreds of advisors while the fortunes of ordinary Ugandans stagnate.
“The prospect of long-term investment is probably damaged by this in as much as it underlies the structural challenges that are going to face Uganda moving forward,” says Ben Shepherd, a consulting fellow at the Chatham House Africa Programme.
Reconciling Uganda’s “increasingly powerful population of often unemployed and often angry young people with a political system that shows very little will or ability to adapt” will be especially difficult.
“Foreign investors and extractors already operating in Uganda are likely to proceed with business as usual,” says Mohamed, while there is some cause for optimism, from an investment perspective. “External tailwinds from elevated gold and coffee prices will support the recovery this year,” says Fórizs.
Opportunities in oil and construction
Most importantly, Uganda is due to begin exporting oil in 2024, and Museveni’s victory in January will clear the way for some $20bn of related projects, including an oil pipeline and refinery.
“The most promising sector is the nascent hydrocarbons sector,” says Vincent Phiri, NKC African Economics’ economist for Uganda.
“This year, we could see the signing of final investment decisions for Uganda’s major oil project, following years of delays due to disagreements with authorities on tax-related matters and the impact of Covid-19 on the finances of the oil companies involved in the project.”
There are also opportunities in the construction sector, driven by the government’s infrastructure drive, as well as manufacturing and agriculture, says Phiri.
“However, elevated regulatory risk, high levels of corruption and intermittent political instability could weigh on FDI inflows,” he cautions.
All told, NKC forecasts real GDP growth of 6% in 2021 as the economy rebounds from Covid-19. However, while Uganda’s medium-term growth prospects look relatively stable, corruption, a lack of job creation, the looming threat of political instability and rising public debt could make investors queasy for years to come.
In a post-election speech, Museveni, donning a military jacket, said elections had been the most “cheating free” since independence from Britain in 1962.
“If anyone dares to disrupt our peace, we will deal with him or her decisively,” he boomed. Such grandstanding will not persuade foreign investors, multinational corporations, donors or extractors that Uganda is a reliable long-term investment location.
“Without that investment,” says Shepherd, “it is hard to see how sufficient jobs can be created that would offer peaceful pathways to fulfilment for Uganda’s young people.”
