Can Uganda become East Africa’s logistics powerhouse?

Uganda, strategically located in East Africa, is steadily positioning itself as a critical logistics hub in the region. With its central location, the country serves as a gateway for landlocked neighbours like Rwanda, Burundi, and South Sudan. Despite promising developments in infrastructure and trade facilitation, Uganda's logistics and cargo sector faces significant challenges that need to be addressed to unlock its full potential.

In fact, Edward Akol, Auditor General of the Republic of Uganda, mentioned in the 2024 Auditor General’s Report, “The worst performing enterprises were Kilembe Mines Limited, NEC Farm Katonga Limited, Uganda National Airlines Company Limited, Uganda Air Cargo Corporation, and Uganda Railways Corporation. These inefficiencies in key public enterprises underscore the systemic hurdles impeding the country’s logistics capabilities.

While the 2024 Auditor General’s report highlighted major challenges across critical players like Uganda Air Cargo Corporation (UACC), the Uganda Civil Aviation Authority (UCAA) and Uganda Railways Corporation (URC), it also showcased some progress in the logistics sector.

Progress in logistics infrastructure
A major milestone noted in the report is the completion of the airport runway in November 2024 at Entebbe International Airport. This critical development enhances Uganda's air cargo capacity, enabling it to accommodate larger aircraft and facilitating trade in high-value goods like flowers, fish and other perishables.

However, significant gaps remain in critical supporting infrastructure. The cargo terminal and the 240 MW power substation, essential for maximising the airport’s capabilities, remain incomplete. The Auditor General recommended that the Uganda National Oil Company (UNOC) and other stakeholders secure funding and accelerate construction to ensure readiness for growing trade demands, especially with the anticipated commencement of oil production.

Uganda Air Cargo Corporation (UACC): A struggling giant
The Auditor General’s report reveals that UACC, one of Uganda’s key logistics enterprises, is facing substantial challenges:

1. Grounded Fleet: UACC’s primary revenue-generating asset, the Hercules L-100-30 aircraft, has been grounded at Jordan Aeronautical Systems Company (JAC) since November 2022 due to maintenance and avionics upgrades required to comply with civil aviation regulations. This has kept the aircraft out of operation for over two years, severely impacting earnings. Additionally, three out of four aircraft have been deregistered and are awaiting disposal, leaving only one operational aircraft undergoing maintenance in Amman, Jordan.
2. Financial Constraints: UACC faces severe financial inefficiencies: It had outstanding receivables worth UGX.20.75 billion, with UGX.8.17 billion (39%) overdue for over five years. Trade payables decreased to UGX.6.04 billion (from UGX.7.49 billion in the prior year), but the corporation’s return on assets (ROA) was a negative 6%, far below the recommended threshold of 5%. The high current ratio of 10:1, while reflecting liquidity, indicates underutilisation of funds. UACC’s strategy shift from leasing aircraft to a joint venture with Alpha MBM left UGX.34.78Bn unutilised for upgrades.
3. Revenue Performance: UACC collected only 14% of its budgeted revenue (UGX.55.3 billion out of UGX.405.3 billion), resulting in a loss of UGX.8.21 billion. Implementation of 21 key activities worth UGX.405.89 billion also fell short, with 12 unimplemented and nine partially completed.

Uganda Civil Aviation Authority (UCAA): Infrastructure and revenue hurdles
The UCAA, tasked with overseeing Uganda’s civil aviation infrastructure, is also grappling with inefficiencies:

• Rising Debt: Failure to adhere to the On-Lending Agreement has led to UGX.723.63 billion in borrowings as of June 2024, with no repayments made to the Government of Uganda (GoU) despite principal repayments to China EXIM Bank. The financial performance of UCAA declined, driven by 18.9% higher operating expenses, reducing the net surplus to UGX.32.008 billion.
• Cargo Terminal Mismanagement: The failure to enforce CGV-determined rental rates and secure formal tenancy agreements for the new cargo terminal caused a revenue shortfall of $1,389,188.
• Liquidity Issues: While UCAA's liquidity remains robust at 3.36 times, a 23.9% rise in trade and other payables indicates growing financial strain.

Uganda’s trade and export performance
Uganda’s logistics sector plays a crucial role in supporting the country’s trade and export ambitions, particularly for high-value goods like flowers, fish, and coffee. However, inefficiencies in the logistics ecosystem are impeding competitiveness:

• Export readiness: The completion of the airport runway is a step forward, but delays in critical facilities like the cargo terminal hinder Uganda's ability to meet global trade standards.
• Cost and competitiveness: The reliance on road transport, which handles over 90% of cargo, remains costly and vulnerable to disruptions, reducing the competitiveness of Uganda's exports.

Challenges in road infrastructure and logistics
On the other hand, due to over-reliance on road transport, Uganda’s road infrastructure is not only acting as the backbone of the country’s logistics sector but also reported some major challenges. The Auditor General’s report highlighted that the Uganda National Roads Authority (UNRA) reported significant inefficiencies.

One of the most pressing issues is the delay in settling payables. UNRA disclosed liabilities amounting to UGX.997.722 billion, with UGX.0.781 billion outstanding for over five years. These delays resulted in UGX.27.66 billion in interest charges on unpaid Interim Payment Certificates (IPCs), forcing ten contractors to suspend works on projects worth UGX.299.32 billion as of November 2024.

Additionally, physical inspections revealed defects in five out of six sampled road projects worth UGX.236 billion, including impassable sections, poorly compacted gravel, and inadequate drainage systems. Delays in the completion of 22 road projects valued at UGX.63.912 billion further strained the sector, increasing administrative costs and denying citizens access to vital infrastructure.

The challenges were exacerbated by inefficiencies in land acquisition. Of the UGX.324.903 billion budgeted for land acquisition, only UGX.276.226 billion was used to compensate 5,068 Project Affected Persons (PAPs), leaving many uncompensated and causing project disruptions.

Moreover, UNRA stations in regions like Gulu, Arua, Kitgum, and Luwero achieved only 30.7% of their planned road maintenance targets (507 km out of 1,650.6 km). Funding shortfalls also affected the Jinja station, which failed to finalise the construction of stores due to a UGX.0.478 billion shortfall.

Railways: A critical yet underutilised freight backbone
Uganda's railway system, managed by the Uganda Railways Corporation (URC), is a critical component of the nation's logistics network, particularly for cargo and freight transportation. However, as highlighted in the 2024 Auditor General's Report, the railway sector faces systemic inefficiencies and underutilisation, limiting its role in easing Uganda's over-reliance on road transport.

Of the 1,266-kilometer railway network, only 21% (269 kilometres) is operational, significantly constraining Uganda’s ability to efficiently transport freight. Over 90% of traffic along the Northern Corridor (Malaba–Kampala railway line) is carried by road, with rail freight accounting for a mere 7% of the total cargo. Despite the high demand for cost-effective railway cargo services, URC has been unable to fulfil the demand for import and export freight due to infrastructure, funding, and operational challenges:

• Shortfall in Freight Volumes: During the audit period, URC transported 689,908 tonnes of cargo, falling short of the budgeted 1,318,066 tonnes by 47.66%.
• Unmet Demand: URC only managed to transport 255,527 metric tonnes (MT) of confirmed import and export cargo orders out of the requested 411,837MT, meeting just 62% of customer demand.

Major challenges in Rail Freight are:

1. Ageing and Insufficient Fleet: Out of 1,420 wagons, only 646 are in good condition, while 774 are unfit, with 198 considered scrap. Additionally, only 11 of 51 locomotives are operational, and just two ferries out of five are in use for marine extensions across Lake Victoria.
2. Maintenance and Funding Gaps: The maintenance budget for rolling stock and permanent infrastructure is funded at only 35% of the required amount. Maintenance schedules are reactive, dictated by the availability of funds rather than preventive measures.
3. Operational Inefficiencies: Between January 2022 and June 2023, only 67% of scheduled trains departed on time, while 10% were cancelled altogether, often due to crew shortages, fuel unavailability, and locomotive failures.

The inefficiencies in Uganda’s rail freight services carry significant economic and environmental costs. With over 90% of cargo dependent on road transport, freight costs remain high, eroding Uganda's trade competitiveness in regional and global markets. This over-reliance on road cargo not only inflates transport expenses but also accelerates road wear and tear, leading to higher maintenance costs for the government. Furthermore, the underutilisation of rail transport—a more energy-efficient and environmentally friendly option—amplifies the environmental impact of Uganda’s logistics sector. Addressing these inefficiencies is critical to reducing costs, preserving infrastructure, and promoting sustainable development.

The Auditor General’s call to action

The Auditor General’s report delivers a compelling call to action, urging sweeping reforms to transform Uganda’s logistics and transport sectors into engines of economic growth. The recommendations paint a vision of efficiency, resilience, and connectivity, emphasising the urgent need to fast-track critical infrastructure projects such as the cargo terminal and power substation to boost logistics capacity. Diversifying transport modes—by revitalising rail and water systems—offers a path to reduce Uganda’s costly dependence on deteriorating road networks. Revamping Uganda Air Cargo Corporation (UACC) through fleet modernisation, asset optimisation, and debt recovery could breathe new life into the nation’s air freight potential, while the Uganda Civil Aviation Authority (UCAA) must unlock revenue streams through stricter rental enforcement and better financial discipline.

In the railway sector, modernising freight systems, expanding specialised wagons, and securing private investment through public-private partnerships (PPPs) are critical to meeting rising cargo demands. Addressing inefficiencies like the staggering 663% cost escalations in road projects and the over-reliance on non-competitive procurement practices is vital to maximise public resources and avoid crippling delays. With these bold reforms, Uganda can position itself as a logistics powerhouse in East Africa, leveraging its strategic location to foster trade, attract investment, and drive sustainable development.