Overview:
Uganda's economy shows signs of recovery, but can it last? Analysts weigh in on the factors influencing sustained growth and future challenges.
KAMPALA, Uganda – For many middle-income investors in countries like Uganda, holding U.S. dollars is seen as a secure haven against local economic turbulence. However, financial analysts warn that the greenback’s perceived stability can be misleading, especially when accounting for inflation and currency conversion losses.
“You might earn in dollars but live in shillings,” said Expeditto Gitta, a financial analyst. “It’s not just about promised interest. It’s about taxes, forex mismatches, and juicy gains you’re missing in regional markets.” Gitta added that these “quiet forces have turned the so-called ‘safe’ dollar bet into a sinking vault,” with losses often unnoticed until it’s too late.
The dollar has long been a preferred choice for investors in emerging markets, dominating global forex trades and serving as a reserve currency for central banks. In Uganda, where economic shocks are common, the dollar is often viewed as a reliable hedge, with rents, import costs, and even informal sector prices sometimes pegged to it.
However, this sense of security can be deceptive. “When your life is in shillings, saving in dollars isn’t diversification — it can be quiet self-sabotage,” stated financial analyst Delick Manishimwe.
Recent currency movements in East Africa have highlighted the dollar’s vulnerability. Bank of Uganda data shows the Ugandan shilling strengthening against the dollar from January to July 2025, moving from 3,656.97 shillings to 3,558.19 shillings per dollar.
For dollar-based savers, this appreciation can quietly erode returns. An investor with $1,000 earning 5 percent interest would have $1,050 after six months. However, converting that back to shillings at the weaker dollar rate would yield approximately 3.74 million shillings, only slightly more than the initial 3.66 million shillings. After fees, the net profit could be negligible.
This demonstrates exchange rate risk, an “invisible enemy” for dollar investors whose expenses are in local currency. While the dollar maintains global prestige, Gitta noted that “for local savers, well-chosen shilling assets have often outperformed.” He cited Ugandan government bonds and money market funds offering 11-15 percent returns, free from foreign exchange losses.
Over a five-year period, a 25 percent return on a dollar-denominated investment in Uganda might seem good. However, with the shilling appreciating by 4.78 percent against the dollar during the same period, the real return in shillings drops to about 19 percent, or 3.54 percent annually. When factoring in inflation, which has hovered around 3-4 percent, the actual purchasing power gain may be minimal.
In contrast, shilling-denominated assets like Treasury bonds, equity investments, or fixed deposits have offered higher yields locally. “While the dollar looks like a fortress, it sometimes just keeps you standing still. That ‘safety’ can be an illusion — especially when the local currency holds steady or strengthens,” Gitta and Manishimwe argued.
Looking beyond Uganda, opportunities in regional markets further highlight the “opportunity cost” of dollar investments. For instance, Bralirwa, a beverage company listed on the Rwanda Stock Exchange, saw its stock surge by 46.33 percent between October 2024 and May 2025. Coupled with a 17.54 percent dividend yield, the total return significantly outperformed a typical dollar account, even after slight currency fluctuations.
Portfolio managers emphasize that understanding currency movement, inflation, opportunity cost, and diversification are crucial for optimal investment outcomes.