Local private equity firms, in coordination with the country’s regulator, the Capital Markets Authority (CMA), are working towards establishing regulations. This move aims to create a consistent business environment and operational costs for private equity firms operating in Uganda.
Private equity firms view Uganda as a potential investment hub and are urging the CMA for regulations to facilitate increased investment in Ugandan businesses. According to East Africa Venture Capital Association (EAVCA) data, Uganda is attracting investors, particularly in financial services and agriculture, ranking second only to Kenya.
The energy, healthcare, ICT, and telecommunications sectors are also gaining popularity in Uganda. EAVCA predicts increased activity in oil and gas and logistics due to the country’s strategic position and the commercialization of its oil deposits.
Despite the potential, local private equity fund managers face challenges competing with firms in tax havens. The collaboration with the CMA aims to address this issue by mandating firms to be domiciled in Uganda, ensuring equal tax obligations.
During Kampala Impact Day, Ms. Doris Odit Achenga, the EVCA’s Country Coordinator for the Uganda Chapter, emphasized the need for regulations to support the industry’s growth. Kampala Impact Day is an annual event organized to assist small and medium-sized businesses in addressing cash flow gaps through strategic investments.
When private equity firms invest in Uganda while being domiciled in countries with lenient tax laws, such as Mauritius, it complicates taxation for the Uganda Revenue Authority. This discrepancy also hampers local firms’ ability to secure substantial funding from major investors compared to firms based in countries with less stringent legal regulations.
Mr. Terrence Tumwine, a senior research officer at CMA, acknowledges the challenge faced by local private equity firms and highlights ongoing efforts by policymakers to establish regulations addressing these concerns.
Data from EAVCA reveals a surge in private equity investments in Ugandan companies, nearly doubling from Shs114 billion in 21 deals in 2021 to Shs266 billion in 32 deals in 2022. Investments are predominantly directed towards pharmaceuticals, hospitals, manufacturing (especially agro-processing), and renewable energy.
Investors in East Africa, traditionally focusing on Kenya, are now diversifying their portfolios, considering Uganda as part of their expansion strategy. The competition for capital is increasing, emphasizing the need for businesses with scalable models and growth potential.
A typical private equity deal involves a long-term partnership, lasting seven to ten years. Investors take a shareholding in a business and often participate in its management to facilitate growth and profit-sharing. Deals take time to materialize, requiring companies to undergo internal preparations and documentation.
Ms. Norah Koigi, Director of Deal Flow Facility, emphasizes the importance of companies understanding their business and preparing thorough documentation for potential investors who conduct due diligence before committing to long-term partnerships.