Investors try to ignore Anti-Gay Law

Fuzzy guidelines on ethical investing and aid donors’ timid response to Uganda’s new anti-gay law have reassured fund managers and private equity firms about continuing to invest in the newly oil-rich east African country. Uganda signed legislation this year which strengthened punishments for anyone caught having gay sex, imposing jail terms of up to life for “aggravated homosexuality” – including sex with a minor or while HIV-positive. It also criminalised lesbianism for the first time. The law – slightly watered down from original plans a few years ago that included the death penalty for those considered worst offenders – drew high-profile criticism worldwide.

h3. Big Dent

The White House said it was reviewing its relationship with Uganda’s government, and Richard Branson, the billionaire founder of the Virgin Group conglomerate, said he had been seriously considering investing in Uganda but would not now do so. But so far, the new law has resulted in the redirection of just $118m or so in aid, unlikely to make a big dent in the country’s budget. Guidelines on socially responsible investing do not necessarily cover discrimination by sexuality.

Zain Latif, founder of investment holding company TLG Capital, which invests in frontier market companies, has two ongoing projects in Uganda. “There has been a lot more talk than action,” Latif said, pointing to a relatively muted reaction to the law in Uganda’s exchange rate. “With Africa you have a lot of noise – if you focus on why we are investing in Africa – it has not really changed.” The attractions of Uganda include a likely 7% growth path, according to the World Bank, and as with many other frontier markets, a young and growing population, rising middle class and consumer demand and high returns on domestic debt. Uganda has not yet drawn as many foreign investors as other sub-Saharan African economies such as Nigeria or Kenya.

h3. Signed a Deal

Its small stock market is not part of the benchmark MSCI frontiers index, and foreigners are estimated to own less than 10% of its domestic bond market. But the discovery of oil in Uganda in the past few years has contributed to a 40% jump in foreign direct investment to east Africa in 2012, to more than US$ 6bn. Private equity firms see potential for juicy returns. The government estimates reserves at 3.5 billion barrels and this year signed a deal with three oil firms, Britain’s Tullow , France’s Total and China’s CNOOC to get the oil out of the ground.

Five consortiums and Japan’s Marubeni are currently bidding for a $2.5bn refinery project.

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