Twelve ques­tions a good in­vest­ment pol­icy should ad­dress

By: Isaac Okello

In the re­cently re­leased re­port by the Au­di­tor Gen­eral, for the year ended 31st De­cem­ber 2015, he pointed out that the Gov­ern­ment does not have an in­vest­ment pol­icy and le­gal in­stru­ment to clearly guide the processes of iden­ti­fi­ca­tion and eval­u­a­tion of pos­si­ble in­vest­ment pro­jects. He fur­ther noted that there were no le­gal in­stru­ments to au­tho­rise the gov­ern­ment to make long-term in­vest­ments. He ad­vised the gov­ern­ment to es­tab­lish a clear in­vest­ment pol­icy to guide and di­rect the gov­ern­ment to the ar­eas iden­ti­fied in the Na­tional De­vel­op­ment Plan, in ad­di­tion to a com­pi­la­tion of an en­abling law to guide all its long-term in­vest­ments.

Ac­cord­ing to Gov­ern­ment Fi­nance Of­fi­cers As­so­ci­a­tion, an Amer­i­can based or­gan­i­sa­tion, an in­vest­ment pol­icy is the sin­gle most im­por­tant el­e­ment in a pub­lic funds in­vest­ment pro­gram. It de­scribes the most pru­dent pri­mary ob­jec­tives for a sound pol­icy: safety, liq­uid­ity, and yield. It also in­di­cates the type of in­stru­ments el­i­gi­ble for pur­chase by a gov­ern­ment en­tity, the in­vest­ment process, and the man­age­ment of a port­fo­lio.

Such a pol­icy im­proves the qual­ity of de­ci­sions and demon­strates a com­mit­ment to the fidu­ciary care of pub­lic funds, with em­pha­sis on bal­anc­ing the safety of prin­ci­pal and liq­uid­ity with yield. Ad­her­ence to an in­vest­ment pol­icy sig­nals to rat­ing agen­cies, the cap­i­tal mar­kets and the pub­lic that a gov­ern­ment en­tity is well man­aged and is earn­ing in­ter­est in­come suit­able to its sit­u­a­tion and eco­nomic en­vi­ron­ment.

Uganda In­vest­ment Au­thor­ity (UIA) was es­tab­lished by an Act of Par­lia­ment (In­vest­ment Code 1991, which was later re­vised to the Edi­tion 2000 Laws of Uganda) with the aim of pro­mot­ing and fa­cil­i­tat­ing pri­vate sec­tor in­vest­ment in Uganda. It op­er­ates as a semi-au­tonomous gov­ern­ment agency op­er­at­ing in part­ner­ship with the pri­vate sec­tor and Gov­ern­ment of Uganda to drive na­tional eco­nomic growth and de­vel­op­ment.

One of the most im­por­tant roles of the Au­thor­ity is to re­view and make pol­icy rec­om­men­da­tions to Gov­ern­ment about in­vest­ment. The gov­ern­ment af­ter re­ceiv­ing such sug­ges­tions then comes up with an in­vest­ment pol­icy, that the Au­di­tor Gen­eral al­ludes does not ex­ist, and needs to be for­mu­lated.

There are sev­eral ob­jec­tives to con­sider while draft­ing of an in­vest­ment pol­icy. The most pru­dent pri­mary ob­jec­tives for a sound in­vest­ment pol­icy should be: safety, liq­uid­ity, and yield, in that or­der. How­ever, a good in­vest­ment pol­icy should ad­dress the fol­low­ing key ques­tions, in­clud­ing:

  • Who are the au­tho­rized in­vest­ment of­fi­cers?
  • What stan­dard of care will be es­tab­lished?
  • What in­stru­ments will be el­i­gi­ble for in­vest­ment?
  • How will di­ver­si­fi­ca­tion be en­sured?
  • How will safe­keep­ing be han­dled?
  • What is the max­i­mum term for any given in­vest­ment?
  • What type of in­ter­nal con­trols should be in place?
  • Who will com­prise the in­vest­ment com­mit­tee (in­ter­nal/​ex­ter­nal mem­bers), if any?
  • What type of in­vest­ment re­ports/​per­for­mance re­ports will be pro­duced?
  • What types of bench­marks will be used?
  • Will an in­vest­ment ad­vi­sor be used (and to what ca­pac­ity)?
  • What are the cri­te­ria for be­gin­ning or end­ing an in­vest­ment re­la­tion­ship?

The guide­lines pro­vided for in the pol­icy that ad­dresses the ques­tions raised above would make a strong in­vest­ment pol­icy that would steer the gov­ern­ment and Uganda In­vest­ment Au­thor­ity for the greater good. The Au­di­tor Gen­eral was there­fore right to sug­gest that the gov­ern­ment needed to for­mu­late an in­vest­ment pol­icy.

As it is, it seems the Uganda In­vest­ment Au­thor­ity has fallen short on its oblig­a­tion to sug­gest any pol­icy rec­om­men­da­tions to gov­ern­ment, and it op­er­ates with­out any pol­icy guide­lines.

How then, does such an in­vest­ment au­thor­ity op­er­ate, yet its ob­jec­tives are to :

  • At­tract value adding in­vest­ment that brings tech­nol­ogy, skills & jobs
  • Con­tribute to the im­age of Uganda as a lead­ing African In­vest­ment des­ti­na­tion
  • Pro­vide ser­viced sites, build­ings & com­pet­i­tive in­fra­struc­ture to meet the needs of grow­ing Ugan­dan based busi­nesses
  • Stim­u­late & lead key stake­hold­ers in cre­at­ing a com­pet­i­tive busi­ness en­vi­ron­ment
  • Setup and de­velop In­dus­trial and Busi­ness Parks; and Of­fer sup­port to SMEs

It is, there­fore, pru­dent to as­sert that gov­ern­ment acts fast and puts in place such poli­cies that would serve to ben­e­fit the coun­try through proper guid­ance and ad­her­ence to the rule of law. Be­sides, the lack thereof ex­poses the gov­ern­ment to a risk of en­ter­ing into less prof­itable in­vest­ments re­sult­ing into loses.