Uganda Shilling Is Sliding...

 

Uganda Shilling Slides as Donors Cut Aid on Anti-Gay Law

Bloomberg - 14 hours ago

Uganda's shilling fell the most since March 2012 against the dollar
after donors started cutting aid after President. Yoweri Museveni
signed a law that imposes life sentences on some homosexual acts.

Norway is withholding aid and Denmark said it will redirect assistance
to private industries, while Swedish Finance Minister
Anders Borg is reconsidering his nation's program. That comes after
Standard & Poor's cut Uganda's credit rating last month on concern
that the budget deficit will widen as spending increases and donors
including the World Bank, the U.K. and Ireland suspended support in
2012 because of corruption. Africa's biggest coffee exporter relies on
donors for about 20 percent of its annual budget.

Museveni signed the law on Feb. 24 after scientists in Uganda found no
genetic link to homosexuality. Uganda's shilling has dropped for three
straight days, paring gains in Africa's third-best performing currency
this year. The currency of East Africa's third-biggest economy fell
2.2 percent to 2,513 per dollar by 6:57 pm. in Kampala, the capital.

"In the long run, foreign-direct investment could be withdrawn, which
will have a bigger impact than the donor aid," Jacques Nel, an
economist at NKC Independent Economists in Paarl, South Africa, said
by phone. The law "creates increased risk that companies may no longer
invest in the country or invest less," he said.

Economic Growth

The shilling's gain of 3.1 percent this year to Feb. 21, the last
trading day before the law was signed, has been bolstered by economic
growth forecast to accelerate to 6.5 percent this year from 5.6
percent in 2013, according to the International Monetary Fund. The
central bank began cutting its benchmark interest rate two years ago,
halving it to 11.5 percent from 23 percent, while neighboring Kenya
cut its lending rate to 8.5 percent from 18 percent over the period.

While the drop in the shilling on the aid cuts may be an immediate
"overreaction," because of the portion of the nation's budget it
accounts for, there's an increased risk that potential investments of
more than $2 billion in 2014 this year may slow, NKC'S Nel said.

The shilling's decline may be related to other economic fundamentals
other than the signing of the bill, Tamale Mirundi, the president's
press secretary, said by phone from Kampala. Investors and other
countries "cannot force us to take what we don't want," he said in
reference to pressure to reverse the laws.

Sochi Games

Homosexuality is a crime in 38 of 54 sub-Saharan Africa nations,
according to Amnesty International. Nigerian President Goodluck
Jonathan signed a law last month that bans gay groups, imposes a
14-year jail sentence for same-sex couples who live together and 10
years for people who make a "public show of same-sex amorous
relationships."

Sponsors of the Sochi Winter Olympics, including McDonald's Corp. and
Coca-Cola Inc., faced protests from consumers over Russia's anti-gay
legislation. American Airlines Group Inc. and Apple Inc. are among
companies calling on Arizona Governor Jan Brewer to veto a bill
permitting businesses to refuse service on religious grounds, a
measure that opponents say is meant to allow discrimination against
gays.

In Uganda, where a tabloid newspaper yesterday printed a list of
dozens of people it said are gay, some companies wouldn't comment on
the stricter laws. Sanlam Ltd., a Cape Town-based insurer with
operations in the country, declined to comment on the legislation,
Ainsley Moos, head of group of communications, said in an e-mailed
response to questions.

"Barclays Africa Group is assessing the potential impact of the
Ugandan law relating to homosexuality," the unit of London-based
Barclays Plc said in an e-mailed response to questions. Standard Bank
Group Ltd. is reviewing the legislation and isn't able to comment,
said Kate Johns, a spokeswoman for the lender, Africa's largest.

Uganda's yields on local-currency bonds due November 2028 rose 15
basis points, or 0.15 percentage points, to 15 percent, the first
climb in 13 days, according to Standard Chartered data compiled by
Bloomberg. The Bank of Uganda auctioned 70 billion shillings ($28
million) of 15-year paper at a yield of 15.25 percent, little changed
from a sale in December.

To contact the reporter on this story: Eric Ombok in Nairobi at
eombok@bloomberg.net
To contact the editor responsible for this story: Vernon Wessels at
vwessels@bloomberg.net

http://www.google.ca/gwt/x?gl=CA&hl=en-CA&u=http://www.bloomberg.com/news/2014-02-26/uganda-anti-gay-law-sends-shilling-to-biggest-drop-in-six-months.html&q=Uganda+Shilling+Slides+as+Donors+Start+Withdrawing+Aid+After+Anti-Gay+Law