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The East African : Jul 19th 2015
The EastAfrican BUSINESS JULY 18-24,2015 OFFER CHEAP, LONG-TERM CAPITAL Venture capital inflows rise but few deals sealed P≥ivate equity funds have ≥egiste≥ed low penet≥ation ≥ates in Uganda, due to mismatched expectations By BERNARD BUSUULWA The EastAfrican I ncreased inflows of private equity and venture capital funds across East Africa have afforded Ugandan businesses the option of cheaper, long-term capital, but differences in the expectations of foreign investors and local entrepreneurs have led to few transactions being concluded. While private equity funds usu- ally go to fast-growing businesses that need capital for expansion, venture capital funds are preferred for startup companies that require money to establish production facilities. Many private equity funds come in for a 3-7 year investment period coupled with targeted returns of investment averaging 20-30 per cent — calculated in US dollar terms. Average funding amounts range from $1 million-$10 million per transaction, industry sources said. In spite of this, foreign private equity funds have registered low penetration rates in Uganda, which is attributed to mismatched expectations. Whereas most PE funds are fo- cused on determining accurate financial valuations for businesses in order to reduce acquisition costs and boost returns on investment, local entrepreneurs seem more interested in strategic commercial benefits tied to equity transactions. These include strengthening business supply chains, improving product quality certification standards, providing strong marketing systems and hiring talent. As a result of these divergent goals, relatively few PE transactions have been recorded. Less than seven PE deals are executed in Uganda every year while funds mobilised for investment lie idle for several months before being utilised, sources said. Most of the PE deals are in the financial services sector. PE firms Growing interest in Ugandan companies has been registered among PE firms based in Mauritius, South Africa and the United Kingdom, industry sources said. “I am optimistic about larger vol- umes of private equity funds being mobilised over the next three years as political stability and economic integration deepens across the region,” said Richard Mugera, country director at Ascent Capital’s Uganda Office. Despite emerging signs of elec- tion fever and traditional investor jitters experienced during the election cycle, the government is optimistic about strong growth in private equity and venture capital flows in 2016. “We expect inflows of private equity and venture capital to slow down for some time as the election cycle takes its course. “However, the aftermath of the general election should witness BENEFITS FOR COMPANIES PE firms from various countries have shown interest in Ugandan firms. Picture: AFP Many private equity funds come in for a 3-7 year investment period coupled with targeted returns on investment averaging 20-30 per cent, calculated in US dollar terms. Most private equity funds are focused on determining accurate financial valuations for businesses stronger capital flows on account of a solid economic track record. So far, significant commercial interest has been noted among investors based in Turkey, the Nordic countries and the US,” said Frank Sebbowa, executive director at Uganda in order to reduce acquisition costs and boost returns on investment. Growing interest in Ugandan companies has been registered among PE firms based in Mauritius, South Africa and the United Kingdom, industry sources said Investment Authority. Some 79 private equity deals worth $822 million were recorded across the region between 2007 and 2014, research data from KPMG and the East African Venture Capital Association shows. Insu≥ance p≥oducts inc≥ease but uptake still low By ISAAC KHISA The EastAfrican INSURANCE PENETRATION in Uganda remained static even as premium income increased by 6.9 per cent last year, a result that highlights the continuing poor public perception of the industry and the limited number of insurance products available in the market, officials say. Penetration stagnated at 0.85 per cent in 2014 as the underwriting business posted Ush495.9 billion ($140 million) in premium income, up from Ush463 billion ($130.94 million) in 2013. Comparatively, premiums increased by 31 per cent in 2013 on the back of robust economic growth, a gradual shift in public perception about the value of insurance, product innovation and broadening and deepening of distribution channels. This year, the industry is banking on an 8.5 per cent growth rate as a result of anticipated activity in the oil and gas sector, as well as huge public infrastructure projects and increased private domestic consumption. According to Uganda’s Insurance Regulatory Authority chief executive officer Ibrahim Kaddunabbi Lubega, the low penetration of insurance in the country is attributed to public mistrust, low public awareness and narrow insurance product range, especially for low income earners. The regulator is encouraging insurance firms to exploit micro-insurance products for their growth. Currently, Kenya remains the market leader with a penetration rate of 3.2 per The low penetration of insurance in the country is attributed to public mistrust, low public awareness...” Mr Lubega CEO Uganda’s Insurance Regulatory cent followed by Tanzania with 2.3 per cent and Rwanda at one per cent. Mr Lubega blamed last year’s sub-par per- formance on the introduction of taxes on insurance products, depreciation of the shilling and a slowdown in the economy. The government imposed an 18 per cent value added tax on insurance products and revised stamp duty upwards from Ush5,000 ($1.40) to Ush35,000 ($10). In addition, the economy slowed down from 5.1 per cent to 4.7 per cent. The asset base for the insurance sector rose from Ush754 billion ($213.24 million) in 2013 to Ush915 billion ($258.77 million) last year, signifying the sector’s capability to handle insurance risks. Net claims incurred for both life and nonlife insurance grew by 10.7 per cent to Ush101.3 billion ($28.56 million). Uganda currently has 28 insurance compa- nies, 13 health membership organisations, 29 brokers, 17 loss assessors and over 1,000 agents. Houses for sale in Nairobi. Picture: File 37 Real estate agents to ≥egiste≥ on e-platfo≥m By MWANGI MUIRURI Special Correspondent REAL ESTATE agents in East Africa will from September be registered online to protect investors from fraudsters in the sector. The move is meant to counter the increase in suspect property agents. “We will carry out online reg- istration of all licensed and authorised estate agents in a bid to weed out rogue elements who have been ripping off huge sums of money from an unsuspecting public,” said Kenya’s acting Lands Cabinet Secretary Fred Matiang’i. Dr Matiang’i said that despite the region having laws to govern the sector, large-scale fraud is still widespread, putting off many investors. Speaking in Nairobi during the 2015 East Africa Real Estate Infrastructure Development and Finance Conference, Dr Matiang’i called on regional agents to ensure they register within the stipulated time or face stiff penalties. The exercise, he said, is antici- pated to provide a comprehensive electronic database that will enable users to search for property online and ensure they are dealing with real agents. According to Odenda Lumum- ba, the co-ordinator of the Kenya Land Alliance — which champions reforms in policies governing land — property rights in many emerging markets are dysfunctional. “In the 2013/14 financial year, 260 suspect land deals were made in East Africa,” he said. Dr Matiang’i said the regional real estate sector is growing at a rapid rate due to demand, which is attracting unscrupulous operators. “We have seen buildings under construction collapsing, flooding due to destruction of the environment, illegal alienation of government land and mushrooming of unplanned settlements,” he added.
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