Anti-Gay Law: Ugandan Shilling Sees Biggest Drop Since 2012

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Written by Dana Sanchez

Uganda’s shilling has dropped for three straight days, eroding gains in Africa’s third-best performing currency this year after President Yoweri Museveni signed a law imposing life sentences on some homosexual acts, Bloomberg reports in BusinessWeek.

The shilling fell the most since March 2012 against the dollar after donors started
cutting aid following Museveni’s Feb. 24 signing of the bill.

Africa’s biggest coffee exporter relies on donors for about 20 percent of its annual budget, according to Bloomberg.

“In the long run, foreign direct investment could be withdrawn, which will have a bigger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

Norway is withholding aid, Bloomberg reports. Denmark said it will redirect assistance to private industries.

London-based Barclays Plc said in an email Barclays Africa Group is assessing the potential impact of the Ugandan law relating to homosexuality.

Standard Bank Group Ltd. — Africa’s largest lender — said it was reviewing the legislation and would not comment, according to spokeswoman Kate Johns.

Swedish Finance Minister Anders Borg is reconsidering his nation’s program after Standard & Poor’s cut Uganda’s credit rating in January on concerns the budget deficit will widen as spending increases, according to Bloomberg. Donors including the World Bank, the U.K. and Ireland suspended support in 2012 because of corruption.

Scientists in Uganda, East Africa’s third-largest economy, found no genetic connection to homosexuality, Museveni said. Uganda’s shilling fell as much as 2.2 percent to 2,513 per dollar and was trading at 2,505 as of 1:53 p.m. in Kampala, Bloomberg reports.

The Ugandan shilling gained 3.1 percent this year until Feb. 21, the last trading day before the law was signed, based on economic growth forecast to accelerate to 6.5 percent in 2014. Uganda’s economy grew by 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, Bloomberg reports.

The drop in the shilling on reports of aid cuts may be an immediate “overreaction,” Nel said. But because aid accounts for 20 percent of Uganda’s budget, there’s an increased risk that potential 2014 investments of $2 billion-plus may slow, Nel said.

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

South Africa was the fifth country in the world and the first in Africa to legalize same-sex marriage. In 2005, South Africa’s courts ruled that traditional marriage laws were unconstitutional. In 2006, the South African parliament revised the laws to allow for same-sex marriages. The law does, however, allow government officials to refuse to conduct same-sex marriage ceremonies if they so choose, AFKInsider reported.

McDonald’s Corp., Coca-Cola Inc., and other sponsors of the Sochi Winter Olympics faced consumer protests over Russia’s anti-gay legislation. American Airlines Group Inc. and Apple Inc. are among companies asking Arizona Gov. Jan Brewer to veto a bill allowing businesses to refuse service on religious grounds — a measure opponents say will allow discrimination against gays.

A Ugandan tabloid newspaper on Tuesday printed a list of dozens of names of people it said are gay, according to Bloomberg.

Some companies doing business in Uganda wouldn’t comment on the stricter laws including Sanlam Ltd., a Cape Town-based insurer.

Uganda’s yields on local-currency bonds due November 2028 were unchanged at 14.85 percent and have dropped 10 basis points, or 0.1 percentage point, in 2014, according to Standard Chartered data compiled by Bloomberg. The Bank of Uganda auctions 70 billion shillings ($28 million) of 15-year paper today.