Uganda’s economic reconstruction and recovery efforts over the last three decades have yielded impressive structural shifts.
In the 1980s, agriculture was the mainstay of over 50% of the population and 75% of export earnings. In 2017, agriculture accounted for 21.5% of GDP and 46% of export earnings. Uganda’s gross capital formation averaged about 21% over the same period. In 2019, services accounted for 43.2% of GDP while industry contributed 27% of GDP (Manufacturing value added at 8.3% as of 2017/18). The structural shift away from agriculture and towards services has created numerous investment opportunities and employment for millions of Ugandans.
Uganda has been ranked as a global hotspot for entrepreneurs with 35.5% of adults (age 18 and above) owning or co-owning a new business in 2014, more than three times the global average. The country has established a vibrant startup ecosystem where startups have emerged as a prominent type of development actor with the potential to solve sector specific challenges and bridge the service delivery gap. Uganda has the second youngest population globally with over 78% of the population being below the age of 35 years. Over 55% of the youth own or co-own a new or existing business. Uganda enjoys a regional trade hub status serving as a convenient goods and services’ transit point for reaching central Africa’s hinterland. Also, numerous entrepreneurial opportunities manifest in the need for solving efficiency bottlenecks in industry and commerce in Uganda.
Uganda’s reputation for entrepreneurial vibrancy is rooted in the economy’s high liberalization rate and an ascendant attractivity for a diverse investor base. True to this attribute, Kampala’s tractable startup ecosystem has served as a testbed for entrepreneurs who experiment with new business models tailored to fulfil the unmet needs of a tech-savvy class of youthful digital device holders in a business environment unfettered by burdensome regulations.
Broadly, FDI inflows to Uganda reached a record high of USD 1.3 Billion in 2019, a 20% increase from USD 1 billion in 2018, on account of oil and gas, including the international oil pipeline, and also projects in construction, agribusiness and manufacturing. Other sectors of interest that continue to attract investments include transportation, healthcare, and energy. Some sub-sectoral growth rates are staggering. For instance, from 2016 to 2018, Uganda’s fintech industry which has over 80 players, registered an average annual growth rate of 35%. As of the year ending 2020, Fintech reached 155, almost doubling in number over two years.
The country’s Small and Medium size enterprises account for sizeable share of Uganda’s impact investing market. According to the Global Impact Investing Network (GIIN), in 2015 at least 139 impact deals in Uganda had been sealed, resulting in more than US$ 300 million disbursed, or more than 20% of all investment activity in East Africa overall.
Quite a number of impact investment funds in Uganda are financed by Development Finance Institutions (DFIs) and philanthropists while others are financed by development partners through various corporate social responsibility programs. The ticket sizes range between US$ 200,000 and US$ 2 million.
The Government of Uganda runs three publicly funded initiatives namely the National ICT Initiatives Support Program (NIISP), Hi Innovator, an initiative of the Uganda National Social Security Fund (NSSF), and the Ministry of Gender Youth Livelihood Program. The Uganda Youth Venture Capital Fund which was until recently run by the Ministry of Finance, planning and Economic Development has funded around 4,450 projects that support young individuals and groups.
Other government/development partner supported programs include grants, lines of credit, and guarantee facilities for the agribusiness sector.
Uganda’s capital city, Kampala, is home to most of the key startup ecosystem players including Makerere University Innovation and Incubation, the Kampala Capital City Authority (KCCA) Employment Services Bureau, Hive Colab, Outbox, Angels Hub, Pulse Lab Kampala, EA RANLab, The Tribe, The Innovation Village, Uganda Innovation Lab, the Hub Kampala, FinAfrica, Grameen Foundation, AppLab Uganda and Women in Technology Uganda.
The Innovation village is a leader in the innovation ecosystem and has established a formidable network of investors, development partners, government, academia, and the major telecommunications players to support over 100 startups across 5 sectors.
Kampala is also a network hub for international Innovation hubs such as United Nations (UN) Global Pulse Lab and the Microsoft Innovation Centre. International smart mobility solutions have been piloted in Kampala including Uber, and Safe Boda. Other cities in Uganda including Mbale, Gulu, Jinja, Mbarara and Kisoro, have pioneered innovative and tech-enabled solutions tackling sector-specific challenges tailored for the domestic market.
Investment firms currently active in Uganda’s startup ecosystem number about 27. They include, among others, the 97Fund at Innovation village, Imuka Access, The Kampala Angel Investment Network (KAIN), and the UN Capital Development Fund (UNCDF). This situation has limited the options available for small SGBs to attract investment funding.
Speaking at the #360mentor seris hosted by Robert Kabushenga, Diana Njuguna, a Senior Investment Manager at Renew Capital advised SMEs trying to raise capital to have a vision. She says it is important for them to have their books in order to express themselves adequately.
“Starting with the basic, when I ask an entrepreneur, what is your vision and you are not sure what it is, then I assume you are not sure of what you are doing. For you to get there, you should be able to articulate clearly what it is that you want and how am you able to get there. Sometimes when I meet an entrepreneur and they are able to tell their story in an interesting way, I pick interest in the person. Ultimately I need to invest in a person that I feel I can trust. The promoter (entrepreneur) has to be credible and reliable. I feel drawn to partner with that person. I want to know more. Then other stuff like business model can come later,” she said
She further advised SMEs to beef up their networking skills and seek for feedback.
“Do not be isolated. Ask a friend. Ask an advisor. There’s Tony Otoa’s Stanbic Business Incubator, there’s NSSF Hub, OUTBOX, FSD and all these people who are giving feedback. Get that feedback. Build that relationship from the beginning. Let the investor feel that you are credible and they can trust you. Let them buy into your story. If they are able to build trust in the beginning, that’s when the art of storytelling makes sense. That’s where it begins being able to articulate things very clearly and systematically,” said Njuguna.
According to Njuguna, the amount of capital available depends on the size/ nature of the business that you have.
“You will have to first invest your own capital. Then say go to your family and friends then grants or loans. I caution against loans especially if you are just starting. You are trying to establish your proof of concept. You don’t want to hustle to pay the bank for a value you haven’t yet realised. Then you scale up, you have loans from microfinance institutions, banks, angel investors as well, investment clubs are coming up too as investors. But importantly, you must be aware of the level where you are at,”
She added that grants can be of help but they are very expensive as it costs a lot of time to write proposals and there is no certainty to it.
“So if you are looking for commercial capital, go to angel investors, venture capital, and investment clubs. If get to a higher stage, you could probably consider the public market. But ultimately, it depends on you and the stage you are at,” She advised.
Therefore, if there is an SME seeking to raise capital for their business, they can opt for one of those.