(Adds comment from Richard Branson)
* Fund managers, private equity not looking to leave
* Small amount of aid redirected
* Business leader Richard Branson among those to object
By Carolyn Cohn
LONDON, April 1 Fuzzy guidelines on ethical
investing and 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 country, despite
Business leader Richard Branson was among those to object
when the east African country 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 criticism from western governments too.
The White House said it was reviewing its relationship with
Branson, the billionaire founder of the Virgin Group
conglomerate, said he had been seriously considering investing
in Uganda but would not now do so. (here)
"I find the imposition of the new anti-gay laws in Uganda
very sad and damaging to the country's reputation and
prospects," Branson said on Tuesday in e-mailed comments to
"The new laws will put people off and we will not be setting
up new business in Uganda while they exist."
But so far, the new law has resulted in the redirection of
just $118 million or so in aid, unlikely to make a big dent in
the country's budget. And 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
"With Africa you have a lot of noise - if you focus on why
we are investing in Africa, that has not really changed."
The attractions of Uganda include a likely 7 percent 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 drawn as many foreign investors as other
sub-Saharan African economies such as Nigeria or Kenya.
Its small stock market is not part of the benchmark MSCI
frontiers index, and foreigners are estimated
to own less than 10 percent of its domestic bond market.
But the discovery of oil in Uganda in the past few years has
contributed to a 40 percent jump in foreign direct investment to
east Africa in 2012, to more than $6 billion. 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 consortia and Japan's Marubeni are
currently bidding for a $2.5 billion refinery project.
Homosexuality is taboo in almost all African countries and
illegal in 37, including Uganda, where rights groups say gay
people have long risked jail. Fear of violence, imprisonment and
loss of jobs means few gays in Africa come out.
A total of 1,250 investors managing $34 trillion in assets
worldwide have signed up to the United Nations' Principles for
Responsible Investment (PRI), which encourage them to consider
environmental, social and governance issues in investing.
But the UN PRI says it does not prescribe signatories to
look at specific issues. Companies may choose, for example, to
abide by the International Labour Organisation's convention No.
100 on equal pay for equal work, and convention no. 111 against
But even these do not explicitly discuss sexuality. Foreign
investors are prominent in many countries where homosexuality is
illegal or laws are seen as anti-gay such as Nigeria and Russia.
(For GRAPHIC on same-sex laws
around the world, see link.reuters.com/tuh27v)
David Mcilroy, chief investment officer of sustainable
Africa equity fund Alquity in London, does not have any holdings
in Uganda, due to the undeveloped nature of the stock market.
His focus when looking for sustainable firms, however, is on
how companies treat staff and suppliers and how they operate
within local communities.
"For some institutional investors, depending on where they
are based, the law might be an issue," he said. "It's not an
issue for us at the moment."
Some companies have taken a local stand. Orange Uganda, a
unit of France Telecom, suspended advertising in a local tabloid
newspaper for its exposure of alleged gays.
But analysts said others were unlikely to follow suit, given
the law is very popular in Uganda.
There also appears little reputational risk in investing in
Uganda, when most of the world's governments and aid
organisations are doing so.
Uganda's $20 billion economy has traditionally been heavily
dependent on aid support. But the percentage of the budget which
comes from aid has dropped below 20 percent, analysts say, from
as much as 40 percent more than 10 years ago.
This is due to withdrawals following a corruption scandal in
2012, but also to a gradual rise in domestic financing as the
country's economy has expanded and tax revenues grown.
The World Bank and donors in Sweden, Norway, Denmark and the
Netherlands, have suspended or redirected aid that had been
bound for government worth over $118 million due to the law.
Complicating the issue for Washington is the fact that
Uganda has soldiers fighting Islamist militant group al Shabaab
in Somalia, helping the United States, which wants action but
not its own troops on the ground. The U.S. military last month
also deployed planes, troops and air crew in Uganda to help find
elusive warlord Joseph Kony.
U.S. administration officials were quoted as saying this did
not signal the White House was weakening its criticism of the
anti-gay legislation. But analysts were doubtful, particularly
as they see superpowers such as the United States battling with
China for control of Africa's resources.
"Security concerns in east Africa will temper U.S. criticism
of Uganda's human rights record and provide (President) Museveni
with greater legitimacy," said Sarah Collier, senior Africa
analyst at political risk consultancy Maplecroft.
But some analysts thought it was too soon to be complacent
about Uganda, particularly as investors can take months to make
investment decisions. While the sums involved in the removal of
aid may be small, more withdrawals may come as governments
reconsider, or support may stop once existing projects end.
The action of withdrawing or redirecting aid, however small,
also sends a warning, said Stuart Culverhouse, chief economist
at frontier markets broker Exotix.
"That signal is stronger than the actual financial
implications in terms of affecting what investors want to do.
It's too early to say if that's (factored) in investor
(Additional reporting by Elias Biryabarema in Kampala; editing
by Anna Willard)