By: Boy Fidel Leon
When Professor Augustus Nuwagaba, Deputy Governor of the Bank of Uganda, took to social media to warn about foreign capital inflows, he wasn’t raining on anyone’s parade. He was doing something more important. He was pointing out that the parade could end badly if Uganda doesn’t watch where it’s marching.
Uganda recorded a 12.5% surge in foreign direct investment to $3.365 billion in 2024, driven largely by oil-related activity. The economy grew 5.2% in FY2023/24, projected to hit 6.2% this year and 7.0% in 2025, according to the African Development Bank. The shilling has appreciated 4.0% to UGX 3,605.88 per dollar, buoyed by remittances, coffee exports, and offshore investments. On paper, everything looks good.
But Nuwagaba sees a trap in the triumph. “Large capital inflows bring considerable economic benefits to recipient countries,” he noted. “But we must understand these dynamics to make informed decisions.”
Here’s the problem: when money floods in, the currency strengthens. A stronger shilling makes imports cheaper and helps control inflation, which sounds great until you realise it also makes Ugandan exports more expensive on global markets. Coffee, textiles, fish are suddenly harder to sell abroad because competitors with weaker currencies undercut Ugandan prices. The very inflows meant to boost the economy could choke off the sectors that employ millions.
“When capital inflows surge, the currency appreciates, which helps limit overheating and inflation pressures,” Nuwagaba explained. “In addition, they make imports cheaper but potentially hurt exports.”
This isn’t theoretical. Uganda’s current account deficit widened 27.6% to $4.8 billion in 2024, weighed down by oil imports. Export revenues did rise 22.1% to $8.55 billion, helping cushion the blow, but the trend is worth watching closely. With first oil production expected in late 2025 and over $10 billion in midstream projects underway, the oil sector is forecast to grow 10.4% in FY2027. More money will come in. The shilling could strengthen further. And non-oil exporters could find themselves priced out of markets they’ve worked years to penetrate.
Nuwagaba’s prescription is specific: channel capital into non-factor services like tourism, ICT, and logistics. Sectors that build local value chains and keep wealth circulating inside Uganda. Contrast that with factor services like profits and interest payments, which often get repatriated abroad, flowing right back out of the country. “Capital inflows are most beneficial when channelled into non-factor services where value is created locally,” he emphasised.
It’s a lesson other resource-rich countries learned the hard way. Nigeria’s oil boom strengthened the naira and killed its agricultural exports. The Netherlands experienced “Dutch Disease” when natural gas revenues hollowed out manufacturing. Uganda has a chance to avoid that fate, but only if policymakers think beyond the immediate windfall.
Bank of Uganda Governor Dr. Michael Atingi-Ego revealed in a Bloomberg interview that the central bank had taken “extraordinary measures” to manage the situation, buying $1.5 billion from the market and deploying currency swaps totalling $400 million to date. These interventions signal awareness that strong reserves and currency stability matter, but so does protecting exporters.
Finance Minister Matia Kasaija projects Uganda’s GDP could double to $158 billion by 2030. The State Minister, Henry Musasizi, has promised affordable credit through Uganda Development Bank at interest rates no higher than 12%. The optimism is understandable. Uganda is genuinely attractive to investors right now. Stable inflation at 3.9% in June 2025, improving reserves, strong economic growth, and open markets make the pitch easy.
But enthusiasm alone won’t solve the competitiveness challenge. Coffee is valued globally at $136 billion, yet Uganda earned only $2.1 billion from it in FY2024/25. That gap represents opportunity, if Ugandan coffee remains price-competitive. If the shilling strengthens too much, that opportunity narrows.
“The relationship between capital inflows and domestic economies is complex,” Nuwagaba concluded. “We must balance attracting foreign investment with maintaining economic stability. This requires careful coordination of monetary and fiscal policy.”
The money is coming. How Uganda manages it, whether it flows into productive sectors that employ Ugandans and build long-term capacity, or simply inflates asset prices before flowing back out, will shape the next decade. Nuwagaba isn’t warning against foreign investment.
He’s warning against complacency. The opportunities are genuine, but so are the risks. Managing both will require strategy, discipline, and policy coordination that doesn’t always come naturally when money is pouring in and everyone wants credit for the boom.