Lack of incentives has been cited as the reason Impact investment capital — funds supported by development banks, pension schemes and wealthy people — has not reduced the financing problems faced by Uganda’s agriculture sector.
Impact investment funds usually target the agriculture and finance sectors, but investors seem to favour equity-based funding.
The latest data compiled by the World Bank shows that impact investment capital (IIC) received by Uganda’s agriculture sector amounted to $60 million in 2015, with 40 investment transactions completed during that period.
Uganda’s agricultural sector accounted for less than 20 per cent of overall private sector credit flows in the past compared with the services sector, which accounted for more than 25 per cent of private sector credit inflows.
Last year, total IIC funding inflows recorded in Uganda’s agricultural and financial sectors cumulatively grew to around $300 million.
However, lack of tax incentives targeted at reputable investors and access to useful subsidies in the form of cheap, high quality seeds and fertilisers required by farmers could slow down future inflows, observers say.
In contrast, the total value of credit facilities extended to Uganda’s agricultural sector by commercial banks increased to $3.3 billion last year, a reflection of the deeper pockets of banks and the loan allocations issued against foreign credit lines provided by the European Investment bank and the United States Agency for International Development in recent years.
According the the World Bank, overall IIC flows to East Africa were estimated at $2.5 billion by the end of 2017.
The number of dedicated investor offices in Uganda rose to 12 last year compared with Nairobi’s 48 during the same period.
“Investors surveyed complained of few bankable investment opportunities and insufficient numbers of suitable local candidates for staffing investments.
These complaints mirror the results of worldwide surveys of impact investment across all sectors…” reads the World Bank study titled, Closing the Potential-Performance Divide in Ugandan Agriculture (2018).
However, agriculture sector players feel IIC flows have achieved little impact in this area, with some citing bigger contributions made by new foreign-backed lenders.
“ABI Trust, Roots Capital and Oiko Credit Ltd are among new financial institutions that have registered positive results in the local agricultural sector. The entry of these players into the Ugandan market has helped cut the big funding gap suffered in this sector for a long time,” said Robert Byaruhanga, a senior manager at Kyagalanyi Coffee Ltd, one of Uganda’s largest coffee companies.
According to Mr Byaruhanga, some lenders offer interest rates of around 6-7 per cent per year while commercial banks offer them loans at around 12 per cent under the Agricultural Credit Facility.
“Those that borrow with attractive collateral assets tend to enjoy even lower interest rates. Besides that, businesses that lack good collateral assets but have good business plans are able to acquire heavy duty machinery through credit arrangements that allow the lender to register the asset in their names and also dispose it of easily in case of default,” added Mr Byaruhanga.
Some farmers, however, have voiced their suspicions about the involvement of external players in their businesses, a factor that could affect execution of future investment deals in the industry.
“Though there is more money flowing into the agricultural sector these days, the needs of theoretical business experts that handle investors’ money are very different from those of real life farmers. For this reason, ordinary farmers are reluctant to partner with these people,” said David Mayeku, a rice farmer.