bank of uganda remarks by prof. emmanuel tumusiime - mutebile, governor, bank of uganda at the breakfast organised by the institute of corporate governance uganda theme : “ governance as a core pillar for economic development ” at sheraton hotel. november 25, 2016 institute of corporate governance of uganda : corporate governance breakfast with the theme “ governance as a core pillar for economic development ” president, institute of corporate governance uganda ( icgu ) the executive of the icgu governing council our host, pwc ladies and gentlemen, good morning i would like to begin by thanking the institute of corporate governance of uganda for inviting the governor to give a key note speech at this breakfast and to commend the institute for the excellent work that it is doing to promote good corporate governance in uganda. the theme of this breakfast is corporate governance as a core pillar for economic development. the link between corporate governance and economic development is probably not intuitively obvious so i will offer you my own perspective on how corporate governance can contribute to development. a key driving force of sustainable development is the harnessing of positive externalities to private sector activities and the minimising of negative externalities. positive externalities occur when social rates of return to investment exceed the purely private rates of return. examples of positive externalities include the spillovers of benefits which occur when firms train workers, invest in research and development and adopt new technologies which generate “ learning by doing ’ benefits. examples of negative externalities include pollution or collusive or abusive manipulation of markets. given that investable resources are scarce, long term development requires that social rates of return are high. hence rapid economic development is more likely to be realised in a society which can enable the private sector to generate high private rates of return to investment while at the same time yielding positive externalities so that social rates of return are even higher. conversely, economic development will be held back if private sector activities create negative externalities, thus depressing social rates of return to investment. why should corporate governance have any impact on positive or negative externalities of private investment? in any firm there is an inherent tension and potential conflict of interest between what are often termed the “ insiders ” of firms – dominant shareholders and senior managers – and the “ outsiders ” who include small shareholders, the creditors of the firm, its employees and customers and the general public. the insiders are those who have actual control over the form, but without effective restraints insiders may abuse their control over the firm

china's technology industry is dominated by “ sea turtles ” ( chinese who have lived abroad and returned ). uganda can learn from this. bis central bankers ’ speeches in particular, unlike other foreign investors, ugandan diaspora investors may have other considerations that do not fit nicely with generally accepted fdi rationale. first, they may be more likely to invest in uganda even when other investors could consider uganda high - risk, simply because they have better knowledge and relationship opportunities that other investors lack. secondly, they can combine this knowledge with the skills, knowledge, and networks they have cultivated abroad, yielding important synergistic advantages. third, they can invest for altruistic reasons – for “ love of home country ”, with the expectation that their investment will have a positive impact on families left behind in home. 2. what can the ministry of foreign affairs do? uganda ’ s growth prospects and returns on investment which are among the highest make investing in uganda very attractive. the increasing urbanisation, the rapid growing consumer - oriented market, strong demographics, rising investment in infrastructure, and improving corporate governance and regulation, all bode well for the continued growth of uganda ’ s investment story. however, uganda is facing various challenges and is currently incapable of fully exploiting its economic potential. the challenges include : human capital, representing the store of knowledge, skills and values acquired through education, work and social learning that raise productivity and well - being ; infrastructure deficit e. g. inadequate electricity, poor road network, railway system, etc. lack of these, means high costs for doing business and this scares away business even from the ugandan diaspora. without business, there is no employment, no production of goods and services, no expanding of the tax base, etc. it is a vicious cycle. another bottle neck is weak institutions ; which is combination of low human capital, infrastructure and political rent seeking and political patronage. ugandan diaspora can play a vital role in allaying some of these challenges. ugandan diaspora could become an important class of investors because they have a better understanding of the risk assessment capability of their country, which makes them less risk averse to the opportunities that appear very risky to the average investor. their personal attachment and commitment to their country of origin turns them into investors with a longerterm outlook, which often is critical, particularly in infrastructure. everyone is aware of celtel ’ s and mohammed ibrahim ’ s success by investing early in african mobile technology when most others did not