Prime
Tap into patient capital for continuity, says Chartered Financial Analyst
Mr Kenneth Legesi, the chief investment officer, Ortus Africa Capital. PHOTO/courtesy
What you need to know:
Business are struggling to find patient capital. In an interview, the chief investment officer, Ortus Africa Capital, Mr Kenneth Legesi, CFA, told Prosper Magazine’s Ismail Musa Ladu why local businesses should make themselves attractive to long-term financing as the country negotiates its way through Covid-19.
Does Uganda present a viable opportunity for investment in financial markets bearing in mind the country’s level of economic activities and growth?
Uganda, just like the rest of the world faced a challenging 2020 which factors into growth for the future. According to World Bank estimates, Uganda’s real Gross Domestic Product (GDP) grew at 2.9 per cent in Financial Year 2020,/2021 less than half the 6.8 per cent recorded in Financial Year 2019, due to the effects of the Covid-19 pandemic. GDP is expected to grow at a similar level in Financial Year 2o21.
However, I am optimistic that Uganda provides an opportunity for growth and investment. Now is a good time to look at investing for the long-term as the economy recovers and grows. We have come out of an election cycle, a vaccine for Covid-19 is now available, businesses are adjusting to the effects of the pandemic, the global economy is opening up. . In addition, the operationalisation of Africa Continental Free Trade Area (AfCFTA) presents growth opportunities.
I believe the factors above present opportunities aligned to digitising the economy (across sectors), investing in and supporting sectors which are strong pillars to foster faster economic recovery in manufacturing, health, agriculture and tourism.
However, to tap into these opportunities, the capital needed must be channeled through our financial markets infrastructure. This presents an opportunity for institutional and retail investors to participate in both public and private investment vehicles.
What private market opportunities are locally available for industry players ?
We see opportunities to prepare our market for a post Covid-19 environment, especially digitising the economy further and more specifically focusing on sectors in healthcare, education, tourism, transport and logistics to support trade and growth. We see opportunities for investing in private companies that are active in these sectors. Through platforms such as the Kampala Angel Investment Network, Private Sector Foundation Uganda, East Africa Venture Capital Association, Uganda Manufacturers Association and others all provide avenues to find these investment opportunities or find vehicles through which to invest in these opportunities.
What does sustainable financing mean and how can it be accessed in Uganda?
Sustainable financing means finance that takes into account of environmental, social and governance (ESG) considerations when making investment decisions leading to increased longer-term investments into sustainable economic activities and projects. By extension, this can also mean financing tailored to ensuring long-term growth of the business and the stakeholders it engages with including youth, women and climate. This requires a variety of financing types beyond bank amortising debt (principal and interest repaid monthly) and including instruments such as revenue based finance, venture capital or private equity, venture debt, listed equity as a source of finance. For this to be sustainable, the mix should be sourced from both local and foreign sources.
But why are businesses not utilising such financing (capital) sustainably?
I believe businesses may not be aware and or have not prepared to raise this type of capital. The associated requirements especially from a governance and operational point of view may be steep.
For a business looking to raise patient capital, where are the opportunities?
The opportunities are presented by our local and international financial markets. We have local stock exchanges, a number of financial intermediaries (advisors) including firms such as ours who can help you raise this capital or directly reach out to the providers of this capital and aggregate appreciable amounts of funding.
What do businesses need to have to become investor ready as they negotiate through the Covid-19?
Businesses have to think like an investor and prepare to answer questions on their business plans and growth, demonstrate their ability to execute as a team and show evidence of a big market. All this is captured in an information memorandum which businesses should share with investors and a data room with back up information for due diligence. In addition, the business must be clear on the type of funding they are after. They must also be ready and knowledgeable on negotiating investment terms for example equity, debt and convertible debt terms.
What are your projections about the economy as the country finds solutions to the pandemic?
Despite the Covid-19 headwinds, I expect sectors such as retail, construction, and telecommunications to drive the economy, with mining, transport, and hospitality expected to grow and linked to investments in oil and gas. Operationalising of AfCFTA will also open up economic opportunities.
