Monday, March 12, 2012

BIG MONEY EYES UGANDA

It is easy to feel a bit discouraged by Uganda’s prospects, what with our political circus, our crumbling roads and endemic corruption, who can be blamed.

But investors with an eye on Africa choose to take a longer term view, judging that all these shortcomings are speed bumps on what they see as an inevitable growth path.

Speaking about Africa in general and Uganda in particular financial services firm African Alliance Group CEO Tony de Castro said,

“The big thing here is the growth in population and what you want to do with it. It is estimated that the population of Uganda will have doubled by 2050, this kind of demographic change if harnessed has historically driven in economies in the north and Asia.”

“Growth will come there is no question the only risk is timing. Do you jump in too early and miss the larger part of the move or do you jump in to late and entry becomes too expensive,” he added in a recent interview.

De Castro a founding member of the 20–year old financial service group, is looking to invest more in Uganda and through the investment banking wing of his company’s operations facilitate the massive investments required to unlock th is economies latent potential.

“We have gone past the fixing stages we now need substantial investments in the fixed assets – transport, communications and energy infrastructure … everybody is underestimating the investment required but it’s going to be huge,” he said.

And it has already started, he said. He remembers Kampala at the beginning of the century very much less developed than it is today.

“When we talk about the population doubling by 2050 most people seem to be operating as if the explosion will happen in 2050, but it is already happening,” he said.

His family, which controls the African Alliance Group, believes that the continent is on the verge of change and all for the better believing that the two major drivers will be the demographic changes and urbanization.

“Uganda has reached the cusp, where capital is going to start coming in more and more significant amounts and not only because of the oil. Oil is supplementary to the economic growth we foresee here,” he said.

He is unsurprised by the criticism government is suffering.

“Your way of thinking is one that wants perfection, but these transitions are never perfect … we tend to be self-critical in Africa but historically it is always messy, Africans want to be in the twenty first century but we forget it’s taken centuries for the north to get where it is,” De Castro counsels.

With better technology it shouldn’t take Africa that long, he says, but it will still take time.

“Given what we see here we want to be big investors, we want to focus on big projects in infrastructure, energy, mining, insurance and housing investments that will service the coming boom,” he said.

Local capital mobilization remains a challenge largely because the insurance industry was destroyed in the high inflationary years but he is confident it is on it way back.

Recently the company’s Uganda arm has been forced to shut down its unit trusts for lack of critical mass of investors. Unit trusts are collective investments schemes, which by pooling money from many investors can take advantage of economies of scale to cut costs and provide a better return.

“We shut down the High Yield Fund in 2010 and the Money Fund and Balanced Fund in 2011 owing to un- feasibility based on inability to achieve critical mass (approximately 4 Billion per fund) required to profitably operate these schemes,” African Alliance Uganda boss Kenneth Kitariko said.

“We have decided to focus on institutional mandates at this time where we believe we are better poised to add value, however, should the market conditions change in favor of running a retail product, we will certainly return to the market with Unit Trust products.”

De Castro does not see the inability to raise long term capital as a major stumbling block pointing out that during such transitions economies are often importers of foreign savings.

So what is the major stumbling block he sees going forward.

“The biggest challenge is decision making … take the first step. Not only at the highest levels but also at the bottom and middle levels. Make a decision whether good or bad but just make a decision,” he said.

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