Uganda accounted for fewer investment deals in East Africa in 2012, according to a survey by the international tax firm Deloitte, as investors appeared to look out for countries with less bureaucracy and better trade rules to channel funds.
Even with its oil industry, the most talked-about sector in East Africa these days, Uganda could not generate as many private equity deals as its counterparts Kenya and Tanzania. According to Deloitte’s 2013 East Africa Private Equity Confidence Survey, Kenya had the biggest number of the deals after close to $475m was invested in the region, with the agribusiness taking a bigger slice of this money.
“In East Africa, most investors are focusing their investments in Kenya, the regional economic hub,” the report notes. The report added: “New investments are increasingly targeting growth SMEs in consumer - driven sectors. There is activity across infrastructure, real estate, health care, agribusiness and green energy.”
Uganda’s oil industry was expected to be the biggest attraction for deals. However, a deadlock over issues like the stabilisation clauses, field development plans, input tax, and capital gains tax assessments, have all conspired to slow down activities within the industry. Investors appear to be employing a cautious approach until most of these disputes have been settled.
“Respondents were also excited about Uganda, but this was not reflected by 2012 deal activity – perhaps because the main excitement, oil, is still a few years away from generating significant revenue,” the report reveals.
Uganda has so far discovered 3.5 billion barrels of oil. According to Fred Kabagambe-Kaliisa, Permanent Secretary in the ministry of Energy, the asset worth of Uganda’s oil stands at $150bn today.
Production of the first barrel of oil is expected around 2016. To get there, though, Uganda needs to build a refinery and an export pipeline, both of which form part of a broad infrastructure development plan that is to cost more than $10bn.
According to the report “sectors like financial services, manufacturing, real estate and healthcare continue to see activity each year, reflecting the consumer-driven focus of many PE funds. This focus appears to be well-placed, as these sectors continue to grow and provide viable deal flow opportunities in many countries.”
One notable deal in Uganda was seen in health care, where Abraaj group – who had snapped up Aureos and their healthcare fund – bought into Vince Pharmaceuticals, the country’s largest pharmacy retail chain.
The report, however, notes that venture capital funds – money that usually (VC) targets start-ups – continues to meet challenges in the region. The report takes a dig at Kenya, where plans to set up an ICT hub, appear to be glossy on paper but hard to implement on the ground.
“VC funds continue to grapple with the difficulty of finding and nurturing viable companies, and underneath the noise of enthusiastic media coverage, there’s this: Nairobi’s Silicon Savannah’ may be in desperate need of a large dose, not of money, but of modesty,” the report points out.