Relationship between Foreign Direct Investment and Country Risk a Case Study of Uganda

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ACKNOWLEDGEMENT

I would like to thank my supervisor for supporting me throughout my project and giving his valuable suggestions. Finally thanks to all my friends and family for their utmost support and inspiration.

DECLARATION

I, (Your name), would like to declare that all contents included in this dissertation stand for my individual work without any aid, & this dissertation has not been submitted for any examination at academic as well as professional level previously. It also represents my own views & not essentially the ones associated with university.

Signed __________________ Date _________________

TABLE OF CONTENTS

ACKNOWLEDGEMENTII

DECLARATIONIII

TABLE OF CONTENTSiv

CHAPTER 4: DISCUSSION AND FINDINGS1

(a)Interview1

(b)Questionnaires1

Questionnaire Survey1

Questionnaire Frame Work2

Questionnaire Design3

Regression Analysis18

FDI definition21

Theories Explaining Location of FDI to Developing Countries21

Employment25

Diversification of Risk25

Financial Sector in the Economic Growth26

SWOT Analysis26

Strengths26

PESTEL framework analysis28

Political Factors28

Taxation32

Real lending interest rate34

Role of Financial Intermediation in Economic Growth34

REFERENCES37

APPENDIX39

CHAPTER 4: DISCUSSION AND FINDINGS

FDI definition

The World Trade Organization defines Foreign Direct Investment (FDI) as follows: “FDI occurs when an investor based in one country (the home country) acquires an asset in another country (the host country) with the intent to manage the asset”.

There are different ways in which FDI takes place. Greenfield investment involves establishing a new plant with its own production abroad. Mergers and Acquisitions (M&As) occur when two existing companies legally join under a single ownership (O'Connor, 2006 pg 165). Another way is through the establishment of a Joint venture (JV), which implies a partnership between the foreign firm and a firm from the host country. In estimates by the National Department of Statistics in Colombia (DANE), in Colombia M&As have represented the majority of cases of foreign investment and have had a faster recovery during the actual crisis. Alternatively, Greenfield investments have been more moderate and resilient (DANE, 2010).

Theories Explaining Location of FDI to Developing Countries

Once a firm has identified the reasons and motivations to engage in foreign investment and has balanced the inherent risks of investing in an unknown market with the benefits of expanding his operations, the company faces the decision of identifying the most appropriate location for investment according to the firm's strategies. For this reason, this section presents a set of theories explaining the location of FDI flows, and it will be limited to those that offer an explanation for the location of FDI in developing countries.

FDI trends in Uganda

The table 1 below shows Uganda's FDI inflows compared to other African countries between 1995 and 2010. As discussed in earlier chapters, FDI inflow to Uganda has increased by about 54% in the past 15 years and this is attributed to its stable political and economic environment as discussed in chapter two by Obwona and UNCTAD. With the East African community rising Uganda seems to be the number one destination for foreign investors this great improvement in FDI that started in the early 90s is attributed to the country's privatisation policy and economic and political stability. According to table 2 however, Uganda is an attractive location to investors because of its lenient administration ...