Small and Medium Agribusinesses Development Fund

Tailoring

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Importance of agribusiness for EU in Uganda

• Agriculture/rural development one of focal sectors in NIP under 10th (60 million Eur for the period 2006-2013 )+ 25 million Budget lines and 11th EDF

• Under 11th EDF (2014-2020) focus on: - Support private sector along selected value

chains agreed with MAAIF and other DP (ie fishery/aquaparks, beef, commercial forestry)

- Support to Local Governments capacity building in Northern Uganda

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Background to the initiative• Importance of agricultural sector socially, economically and environmentally (livelihood and food security)

• Importance of SMAs for job creation and economic development, through pulling effect

•Medium and long term finance constraints

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Importance of agriculture in Uganda

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77%

24%

EMPLOYMENT GDP

47%

EXPORTS

Agribusiness as driver of growth

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SMEs Agribusiness access to finance

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Challenges• - Demand and competition: can we identify a sufficient

number of reliable/eligible investees?• - Investees financial transparency• - Mutually agreeable valuation of investee• - Exit strategy from investees• - Volatility of UGS (forex cover?)• - Contracting an experienced Fund Manager for a small Fund• - Weakness of financial sector to complement our fund

investments (max 35% of investees needs)

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Risks• - Limited demand: one country, one sector • - Sensitive environment (ie: land issues, GMOs)• - Difficulty in finding reliable fund manager (also

because of inclusion of socio-environmental criteria)• - Investors’ potential default• - Non-diversified illiquid speculative long term

investments• - Foreign exchange and inflation risks• - Fraud issues• - Limited access to financial information

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Opportunities• - Strong macro-economic outlook (oil, further integration

and growth of EAC)• - Comparative advantage of agriculture/agribusiness

sector• - Demographic growth• - MLT funding needed• - Sound banking sector, even if limited MLT lending

capacity and spread out• - Development Partners’ support partly reducing risks for

private sector• - Complementary programmes by other DPs in the sector

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Fund objectives

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•Objective : contribute to the development of Uganda's agriculture and to the improvement of rural livelihoods, incomes and food security.

•Project purpose : support the development of Small and Medium Enterprises (SME) engaged in agribusiness by improving access to Business Development Services and to long-term finance.

•Development impact : maximized through strict criteria for socially and environmentally responsible investments, a sound investment assessment and selection methodology and a strong monitoring and evaluation system.

Fund design steps followed

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•Four in depth studies carried out in 2011 and 2012, with results validated by a reference group including several relevant stakeholders (development partners, private sector, GoU representatives, service providers):1)Feasibility study: analyze demand (desk review), supply and proposed structure and governance2)In depth survey of more than 40 SMAs to deepen demand analysis (is there enough potential market to sustain the fund?)3)Ex ante impact analysis and design of socio-environmental criteria4)Detailed design study

•Contacts with perspective investors and potential fund managers

• 10 to 15 years US$ 30+ million non- revolving Fund incorporated in Uganda

• Minority investment, US$ 200,000 up to 3 million for 4-5 years in agribusiness SMAs

• Instruments :Equity, mezzanine/convertible debt, debt financing, self-liquidating instruments with equity components, targeting a net annual IRR of at least 10% (in USD)

• Supported by a BDS matching grant component

Proposed Equity Fund characteristics

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Project structure

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•Funds Structure :Structured fund to accommodate different categories of investors (public investors and development partners), intermediate investors (FDIs, institutional investors) and private investors (private funds and private investors). EDF funds (around 13 million USD) used to leverage public and private investments.

•BDS matching grant Facility (around 4 million USD): the SMA DF will provide Business Development Services (BDS), through a matching grant facility, to improve corporate governance and the technical, managerial and marketing capacities of small and medium enterprises (investees and potential investees), and to strengthen their upward (market) and downward (smallholder farmers) linkages.

Investment criteria•SMA up to 500 permanent employees…•Strong, reputable and trustworthy management, with sound governance and good financial records •Promising development perspectives: SMAs with strong growth potential•Based on satisfactory social (ie reach smallholder farmers as customers or suppliers), environmental, economic and financial criteria

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Governance and Management

- - EU funds channeled through IFAD, who will also provide TA

• - Fund Board responsible for strategy and governance

- - Fund Manager with a team presence in Uganda

- - Supported by an Investment Committee (nominated by Fund Board, in charge of assessing Fund Manager proposed investments)

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Governance and management - follow up

• - Equity and quasi equity prioritized financial instruments (60% equity/40% debt)

• - Non cash detrimental exit strategy (ie privilege integration with strategic partners)

• - Hands on management by the Fund Manager throughout the whole investment period

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Implementation process• - 12 months preparation phase supported by EU

funds• - 3-4 years investment phase, • - 5 to 6 years management and disinvesment

phase• - Investment decision by Investment Committee

upon proposal by Fund Manager

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BDS grant component

• - Beneficiaries: (potential) investees, value chain partners up and down stream

• - All type of business support through TA, twinning, coaching… 50% co-financed by beneficiaries

• - Managed by Fund Manager embedded BDS Officer

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Reporting, monitoring & evaluation

• - Quarterly reporting by Fund Manager (FM) on social, environmental, economic and financial performance of investees and Fund

• - Yearly monitoring of global Fund impact by Fund Manager

• - Five yearly impact monitoring by outside independant party

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The Fund envisaged set-up

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The way forward

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After approval by EU HQ:1.Signature of Financing Agreement with GoU2.Contribution Agreement with IFAD3.Recruitment of Fund Manager4.Fund establishment and set-up5.Investors joining in6.Operational phase (investments and BDS matching grant scheme)7.EU exit strategy on the basis of Fund performance and interest by GoU and other investors

Thank you !22