Uganda government backs off foreign funding bill, but is the risk fully gone?

Parliament passed a softened but still controversial sovereignty law targeting foreign-funded political activity

NEWS ANALYSIS | AYENAT MERSIE | Uganda just passed one of the region’s most closely watched pieces of legislation this year — and even in its watered-down form, it’s leaving a mark.

On May 5, Parliament approved the Protection of Sovereignty Bill. In its original form, the bill was sweeping and, to many experts, alarming: it aimed to tightly regulate foreign funding flows, require “foreign agent” registration, and centralize oversight under the Ministry of Internal Affairs. At one point, it even classified Ugandans in the diaspora as foreigners. Penalties ran as high as 4 billion shillings and up to 20 years in prison.

That version of the bill triggered an unusually broad backlash. The World Bank warned it could expose its own staff to legal risk for routine development work — not a trivial concern for an institution with a $4.5 billion portfolio in the country. Michael Atingi-Ego, Uganda’s central bank governor, cautioned that it could tip into “economic disaster”. Critics inside and outside Uganda raised alarms for weeks.

The version of the bill that passed on Tuesday was much narrower. Commercial funding, humanitarian aid, climate finance, and foreign direct investment are now explicitly exempt. The foreign agent provision has been limited to funding tied to political activity. The bill now awaits Ugandan President Yoweri Museveni’s signature.

But the controversy hasn’t disappeared. As legal scholar Howard Mwesigwa says,  the bill now largely targets civil society and political players, particularly where funding is seen as influencing government policy.

And in the parliamentary debate, one example stood out: The attorney general suggested that while a Ugandan could independently oppose a state-sanctioned project such as the East African Crude Oil Pipeline, the law would apply if they received foreign funding to do so.

That distinction could have massive implications for climate and environmental advocacy groups, many of which rely on international funding. Even in its amended form, the line between acceptable activity and regulated influence remains blurry.

Arshad Bholim, a tax partner at Crowe Uganda, says that the chilling effect started before the bill was even fixed. “People were really afraid,” he says.

Because the problem wasn’t just the restrictions — it was the uncertainty. The original draft set out sweeping controls without clearly defining what counted as a violation, effectively leaving intent open to interpretation.

And that can be enough to have a real impact: Banks slow down. Investors pause. Deals get a second look.

Even if the bill is softened further — or never fully enforced — the message is already out: The rules can shift quickly, and not always clearly. For anyone moving capital or operating across borders, that’s the risk that sticks.

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Source: Devex