In recent weeks, Uganda has emerged as a surprisingly attractive destination for global investors seeking yield, as major economies enter a phase of lower interest rates and a weaker dollar.
This change may not seem significant at first glance, but the fact that more than two billion dollars of foreign money has already flowed into Ugandan government bonds demonstrates how quickly investors' interest has shifted to the country.
According to data published in a Reuters report, this is approximately twelve per cent of Uganda's total public debt. For a country that, until just a year ago, was excluded from the market due to political and institutional problems, this surge in investor confidence represents a shift that warrants serious analysis.
A combination of global and domestic factors lies in the background. The weakening dollar and more favourable financial conditions in developed economies have prompted investors to seek high yields in emerging markets once again.
Uganda, almost unexpectedly, has become part of this trend. Such movements were previously reserved for larger African markets, such as Kenya or Nigeria, but are now being directed towards economies not formally included in any of the major global bond indices.
Thus, Uganda enters the group of the riskiest, but potentially most profitable, destinations for short-term financial capital.
Back in the "zone of acceptable risk" amid rising public debt
Encouraging macroeconomic indicators certainly play a role. According to the Ugandan Ministry of Finance, economic growth in the fiscal year 2024/25 is above six per cent, which means the country is outperforming most sub-Saharan economies.
Inflation has stabilised below the target value, and foreign exchange reserves have increased during the summer and autumn. International institutions confirm these figures.
In June, the World Bank resumed funding to Uganda after a two-year freeze imposed due to a draconian anti-LGBT law.
The return of international financial institutions is interpreted as a signal that the country is, at least formally, back in the "zone of acceptable risk".
However, this same funding highlights another aspect of the situation. Uganda has achieved growth, but at the same time, it is experiencing a sharp rise in public debt.
The state increasingly depends on a continuous inflow of fresh capital and very favourable borrowing conditions
Reuters reports that total public debt at the end of December 2024 was $29.1 billion, an increase of almost eighteen per cent compared to the previous year. So, while investors are arriving, the state's liabilities are accumulating rapidly.
Expressed as a share of GDP, public debt reached 52.1 per cent, becoming a serious burden on the budget. Of particular concern is that debt service costs are increasing faster than income, so interest already takes a very high share of expenditures.
In practice, this means the state increasingly depends on a continuous inflow of fresh capital and very favourable borrowing conditions. Thus, the question of sustainability arises, because it is clear that a single external shock in global finance could disrupt the entire structure.
An opportunity for above-average returns
It is also interesting to observe the type of capital currently flowing into Uganda. These are primarily funds specialising in emerging markets, hedge funds, and investors targeting short-term high returns.
This money is often called "hot capital" because it is quickly withdrawn when global financial conditions change. This has already been seen in other countries that became targets of short financial cycles before Uganda.
When yields lose their appeal or the dollar strengthens, the same investors swiftly withdraw from the market, leaving local economies vulnerable.
Yields on Ugandan government bonds are significantly higher than those in developed economies
Despite this, Uganda is currently relying on a favourable moment. Yields on Ugandan government bonds are significantly higher than those in developed economies, so investors receive much more than from US or European bonds.
In addition, the exchange rate of the shilling has remained fairly stable in recent months, further reducing their risk.
The central bank maintains a conservative policy, which gives investors additional assurance that there will be no sudden changes to the rules.
Although Uganda is not part of major global indices, foreign investors are treating it as an opportunity for “above-average returns” at a time when other economies are struggling with slower demand and weaker growth prospects.
A political structure that can become unpredictable
The return of international financial institutions also plays a significant role. The World Bank’s decision to renew funding to Uganda in June had a strong symbolic effect. During the funding pause, Uganda relied mainly on domestic funds and bilateral loans.
When funding was restored, it signalled that institutions were slowly returning to the game. At the same time, international investors interpreted this decision as confirmation that political risks, although present, have not reached a level that would require long-term isolation.
In economies dependent on short-term capital inflows, political shocks often have a direct financial effect
Despite this, political risk remains one of the most important factors. Uganda enters an election cycle in early 2026, and President Yoweri Museveni, in power since 1986, is expected to run again.
Human rights organisations have pointed to violations of basic freedoms, political arrests, and pressure on the opposition for years.
These issues are not only a moral problem but also form part of economic risk, as such a political structure can become unpredictable when social tensions increase.
Investors putting money in now need to assess not only the economic signals but also the resilience of the system in case political dynamics become unstable.
In economies dependent on short-term capital inflows, political shocks often have a direct financial effect.
Attracting capital despite deep structural problems
An equally important challenge is the debt structure. Uganda relies on both domestic and external debt, but local shilling debt has grown more rapidly in recent years. This makes the country particularly sensitive to exchange rate fluctuations.
If the shilling weakens, Uganda will become significantly less attractive to investors, as real returns decrease and risk increases.
Uganda's central bank is currently keeping the exchange rate and inflation under control, but it is uncertain how long this can continue when stability depends more on the mood of foreign investors than on actual economic reforms.
Uganda is a classic example of a country that, thanks to favourable financial moment, attracts capital despite having deep structural problems
In the global context, Uganda is a classic example of a country that, thanks to favourable financial moment, attracts capital despite having deep structural problems.
Investors are investing because they are seeking opportunities, not because they believe Uganda is permanently stable.
This paradox is evident in the Reuters report, which notes that investment growth in Uganda coincides with warnings from leading analysts that it is a high-risk market with the potential for sudden reversals.
A fragile rise that can disappear as quickly as it arrived
If the current combination of a weaker dollar, stronger demand for yield, and a relatively calm political environment changes, Uganda could face serious difficulties. Such a scenario is not mere speculation but a recurring pattern in developing markets.
At a time when much of the world is slowing down and developed markets are offering increasingly modest returns, Kampala offers potentially high returns for those willing to accept the risk
When US interest rates rise again or global liquidity tightens, the riskiest economies will be the first to feel the impact.
Despite these challenges, Uganda currently has a rare advantage. At a time when much of the world is slowing down and developed markets are offering increasingly modest returns, Kampala offers potentially high returns for those willing to accept the risk.
For some investors, that is sufficient. For a thorough analysis, however, it is important to recognise that deep problems lie behind this temporary attractiveness: accelerated borrowing, dependence on capital inflows, political uncertainty, and structural weaknesses. All this makes Uganda an interesting, but by no means safe, destination.
Uganda today demonstrates how quickly global capital flows can lift a country that was previously overlooked and how fragile such a rise can be. An inflow of two billion dollars can disappear as quickly as it arrived if investor sentiment changes.
It is this uncertainty that makes Uganda the important economic story of the moment – not because it represents a huge success, but because it clearly reveals how today’s financial cycles operate and the gap between short-term attractiveness and long-term sustainability.
