Invest in Capital markets

A delegation from the China development fund-CADF was recently in Uganda, to meet a cross section of government leaders, and key players in the private sector, to introduce a five-billion dollar equity fund established by the Chinese government to facilitate Chinese investment in Africa, through partnerships with African enterprise.

 

This comes at a time when Africa is continuously referred to as the next frontier for investment and business opportunity within investment finance circles, mostly in western capitals leading to an increased presence of investment banks and equity firms in African capitals, particularly Nairobi, Johannesburg, and Lagos. 

 

This renewed economic interest in Africa comes on the heels of  recent economic turmoil in western finance following the housing crisis in America, slumping economic growth numbers, the euro crisis in the EU, and with China and Indian economic power reaching critical mass in their production capabilities, competing with the US, Europe and Japan for raw materials from developing nations. 

 

With a combined population of about 1.2 billion people, accounting for 15% of the world’s population, and one of the fastest growing economies in the world at an average of 5.5% per annum, African markets present a lucrative option for the roaming capital concentrated in investment banks and private equity firms looking at making maximum profit for their clients.

 

Throughout the Chinese presentation to a selected Ugandan business audience, held at the ministry of finance board room, there was notable absence of many key players from the capital markets industry, and it appeared from the responses and questions that were being put to CADF, that very few people including ministry officials, understood clearly how private equity financing and investment banking works. 

 

Indicating an urgent need to mainstream alternative financing (other than commercial bank loans), available for business growth and trade opportunities in our development growth and investment strategy. 

 

Just like many economies around the  world, Uganda’s economic distress that recently played itself out as a result of high interest rates on bank loans, the expectation would be that the economists at BoU, ministry of finance and trade experts would converge to study Uganda’s economy within a global context, and explore ways we can attract foreign investments in the economy, diversify investment and finance options for traders and businessmen/women, in a bid to grow an economy that is targeted to increasing our foreign exchange reserves, discourage an import oriented economy, and make us competitive in the world of global finance and investment.

 

Such innovative ideas would include devising strategies centred on growing capital markets for both investment through the stock market, and mainstreaming alternative finance in our investment strategy looking towards private equity financing and stock markets as an option to accessing affordable financing for business growth and trade.

 

Capital markets are key because they present option for both business financing, and investment opportunity, with private equity investments most attractive because they come in as minority shareholders for the period of time it will take them to recoup their investment, and hand back the company to the business owner. 

 

This is what makes the proposal of the five billion dollars Chinese’s investment in Africa through CADF attractive. Whereas the fund is primarily established to off load accumulated forex exchange for the purpose of expanding Chinese economic influence around the world, it also gives Africa an opportunity to build on, and strengthen its own capacity. 

 

Africa can only benefit from this arrangement if capital markets are mainstreamed through investment, business and trade practice.