Ugandan Anti-gay law threatens trade and investment to Uganda

By Mugyenzi Innocent

Uganda is at crossroads as the new anti-gay law signed by Uganda president threatens its relationships with westerns countries and business. Against all Western threats and outburst, Uganda’s president signed a law that will impose harsh sentences for homosexual acts which include life imprisonment. On February 24 this year, President Museveni signed the anti-gay into law.

A newspaper stand with a variety of Uganda's daily newspaper is seen February 25, 2014 (AFP, Isaac Kasamani)

A newspaper stand with a variety of Uganda’s daily newspaper is seen February 25, 2014 (AFP, Isaac Kasamani)

The new law has prompted local and international outcry from human rights agencies and major donors to Uganda. US state secretary John Kerry expressed US view calling the law a tragic day for Uganda and human rights activates. Mr. Kerry also said that US will start to do internal review regarding US relationship with Uganda. UK foreign secretary William Hague is worried that the law will increase persecution and discrimination of Ugandans and damage Uganda’s international image[1].

How will the anti-gay bill affect Uganda’s access to aid and international relationships?

Since the anti-gay bill was signed into law, many western countries have been reviewing their financial ties with Uganda. Anders Borg, Swedish Minister for Finance, said that Western citizens will be more reluctant to have their taxes finance donor projects in countries that abuse human rights[2]. Norway, for example said it will be withholding $8 in development aid while Denmark is planning to divert its aid from the government to Non-governmental organizations. The biggest threat however is coming from the biggest donors who include US, Canada and the UK. Between 2006 and 2010, US was the biggest donor to Uganda followed by UK. Foreign aid contributes about 20% of Uganda’s annual budget[3]. Donor countries are not the only ones that are threatening to cut aid to Uganda. World Bank has postponed a $90 million loan to Uganda as a result of the anti-gay bill. As donors pull back, there will be many direct and indirect consequences to Ugandans welfare. Many development projects will be put on hold, health services will deteriorate and investments in infrastructure will stall.

What does this mean for trade?

The immediate effect has been on Ugandan currency. The local currency has declined 2.9% against the dollar prompting Ugandan central bank to intervene using foreign currency[4] to avoid depreciation. This is not good for a country trying to attract foreign investment into the country. Major lenders including Barclays bank are also considering the relationship with Uganda. The country’s banks have been downgraded by S&P to B grade making more expensive for Uganda to borrow. The medium and long term effects include reduction in trade and foreign direct investment. It is important to note that Uganda’s major donors are also its major trading partners. It is imperative that these countries will reduce their trade with Uganda citing human rights abuse.

Private businesses are also echoing their concerns. Virgin Group Ltd’s Richard Branson is calling for businesses boycotts against a law he calls “witch hunt”. Mr. Branson who was considering doing business in Uganda has changed his mind and is encouraging follow businessmen to follow suit[5]. Such a move would discourage new businesses to Uganda and affect the tourism industry in particular. Neighboring economies such as Kenya and Rwanda also seem worried. Kenya is a major trading partner and has several businesses that will be threatened by the slow inflows of foreign capital. As the local currency continues to lose value, foreign businesses in the country will be equally affected.

What is Uganda’s response?  

Ugandan politicians are unshaken about aid cuts as a consequence of the law.
Government spokesman Ofwono Opondo said on twitter that Uganda will still
develop without foreign aid. Mr. Opondo added that foreign investors are likely
to follow profitable investments rather than politics. He doesn’t believe that
foreign trade will be affected negatively.

What is my take?

Clearly, anti-gay bill will have consequences on Ugandan international trade strategies. If western countries stand by their decisions to cut investments in Uganda, many development projects stand to fail. This will limit Uganda’s ability to compete in the world market. Uganda will have to seek new trading partners such as Asian and middle-eastern countries.

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