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 worldwide criticism.

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.

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 Uganda’s government. Branson, the billionaire founder of the Virgin Group conglomerate, said he had been seriously considering investing in Uganda but would not now do so.

“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 in e-mail comments to Reuters. “The new laws will put people off and we will not be setting up new business in Uganda while they exist.”

Discrimination

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.

READ: Anti-gay law doesn’t violate human rights, Uganda says

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, that has not really changed.”

The attractions of Uganda include a likely seven per cent 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 per cent of its domestic bond market.

But the discovery of oil in Uganda in the past few years has contributed to a 40 per cent 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.

Employment

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 employment discrimination.

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.

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. “Security concerns in east Africa will temper US criticism of Uganda’s human rights record and provide (President) 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.