Unlocking private capital in Uganda through investor education

By Brenda Amony Yiiki

Uganda’s economy, rich in agriculture, mineral and emerging sectors like technology, offers a diverse array of possibilities for investments. With a population of over 50 million, 23 percent of whom are youth between 18- 30 years and over 50 percent under the age of 17, Uganda presents a unique market potential for businesses to grow and thrive. Yet, it remains underexplored with many investors unaware of its potential as an investment destination. Uganda is ranked second in East Africa after Kenya with 31 deals worth USD 79 Million compared to Kenya’s 137 deals worth USD 1.7bn between 2022 and 2023.

The low volume of venture capital (VC) and private equity (PE) has largely been attributed to investment readiness of prospective investee companies. While various programs run by government, private players and development organisations are aimed at improving this, the number of successful deals hasn’t significantly increased.

So, what could be the problem? Is Uganda being well positioned as an investment destination? Is there a need for marketing Uganda and more effort toward educating investors about Uganda? This in my view has been underemphasised and is an oversight potentially impacting how investors perceive and engage with Ugandan businesses.

Understanding the local context

Investors often rely on generalised knowledge and regional trends comparing Uganda to other countries in the region. Yet, despite its geographical proximity to them, Uganda has unique characteristics that set it apart. These include differences in economic development, technological advancement, culture, policy frameworks, and regulatory environments.

Misunderstanding of Uganda’s unique market conditions can lead to missed opportunities. For instance, a fintech company focused on digitising school transactions was told by a Venture Capital investor that their market potential was low, based on the assumption that the country couldn’t have that many schools. In a similar case, another investor expressed concern about a manufacturer traveling over 500 kilometres to collect milk, without fully grasping the complexities of Uganda’s supply chain and agricultural landscape.

Why is investor education important?

Understanding Uganda’s economic and market potential enables alignment of expectations between the investor and the investee. This mutual understanding can lead to a more productive partnership and successful outcomes.

Secondly, it offers clarity around the investment process, the local practices and legal and regulatory framework. When investors are well informed, they can mitigate concerns during the deal process, leading to smoother transactions and enhanced confidence.

A deep understanding of the country’s different dynamics fosters a longer-term investment perspective. Investors who comprehend local market conditions and opportunities are more likely to stay committed, potentially unlocking more investment opportunities.

So, what can be done to close the gap?

At the Deal Flow Facility we are actively addressing this by engaging with the investors in our portfolio and staying closely involved in conversations even after connecting entrepreneurs with investors.

We have also organised several investor education initiatives, such as the pre-Sankalp investor breakfast sessions, Nordic Impact Funds Event and many other one on one sessions with investors. These provide a platform to highlight Uganda’s investment potential while gathering valuable feedback from investors on how best they can be supported in accessing and closing deals within the country.

More can be done. For successful investor education initiatives, there must, be a concerted effort within the market, involving collaboration among key players in the investment ecosystem, including government, private companies, and development organisations. These efforts should focus on:

1. Highlighting the unique characteristics of various sectors through targeted knowledge outputs. These outputs should emphasise the unique features of various sectors, enabling investors to make informed decisions based on accurate information and data.
2. Ensuring that transaction advisors and business support providers deliver accurate information and a true understanding of the sectors in which the businesses they support operate. This accuracy builds trust and fosters a more robust investment climate.
3. Fostering greater networking opportunities within the ecosystem. By connecting and increasing interactions between investors and local entrepreneurs and industry experts. Knowledge sharing can lead to fruitful partnerships.
4. Conducting comprehensive research to better inform investment decisions. This research should focus on market trends, sector specific challenges and emerging opportunities.

Impact of investor education

Improved investor education builds confidence in Ugandan businesses, aligning expectations. and enhancing understanding of local risks, and opportunities. As investors become more informed, they can contribute to job creation, technology transfer and infrastructure development, positing Uganda as a competitive investment hub.

In conclusion, enhancing investor education is essential for unlocking Uganda’s investment potential. By focusing on educating investors about the unique characteristics of the Ugandan market, we can bridge the gap between potential and realisation. Collaborative efforts from all stakeholders in the investment ecosystem will play a pivotal role in fostering a conducive environment for private capital to thrive, ultimately driving economic growth and development in Uganda.