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January 24, 2011

Investment funds announce Uganda cotton project

Acumen Fund, a nonprofit venture firm addressing poverty in South Asia and East Africa, and Root Capital, a nonprofit social investment fund that is pioneering finance for grassroots businesses in rural areas of developing countries, have announced an investment in Gulu Agricultural Development Company (GADC), a for-profit cotton ginning company in Uganda. The $2.2 million co-investment, Acumen Fund's first in Uganda, aims to help GADC rebuild the cotton industry in Northern Uganda and provide former refugees with critical support to regain their livelihoods.

“We are excited to make our first investment in Uganda and look forward to being a part of GADC's, and Uganda's, future,” said Jacqueline Novogratz, CEO, Acumen Fund

For Root Capital, this loan builds on a portfolio that includes six other small and growing businesses in Uganda and more than 35 businesses across sub-Saharan Africa.

GADC is the only commercial ginnery with operations based in the Gulu District of Northern Uganda, and it sources both organic and conventionally-produced cotton from approximately 42,500 smallholder farmers in and around the area. The joint Acumen Fund, Root Capital investment will be used to purchase conventional and organic seed cotton sourced from local smallholder farmers in the 2010-11 growing season.

Gulu District is currently recovering from nearly 25 years of armed conflict and civil strife that left the North the poorest region in Uganda, with an estimated 61 percent of the people living in poverty, almost twice the national poverty level of 31 percent.

Two years ago, farmers in Gulu and Amuru Districts began returning to their farms where they face the challenge of reconstructing their lives as subsistence farmers, requiring a reliable cash crop, such as cotton, to enable them to meet basic needs such as school fees, medical bills, and other necessities. GADC's long-term vision is to reduce poverty and serve as a catalyst for the economic recovery of the entire region by re-building the once-vibrant “cotton ecosystem”—an ecosystem that before the conflict provided livelihoods to tens of thousands of smallholder farmers.

In addition to the impact on farmers, the co-investment by Acumen Fund and Root Capital will enable GADC to take full advantage of a year with record highs in cotton prices and a bumper harvest in the region. In the upcoming season, GADC will gin the cotton it buys—from both conventional and organic growers—and sell the cotton lint to international cotton buyers. This will provide farmers with much-needed market access in an area with few buyers. GADC will also sell cotton seed, a byproduct of the ginning process, to local merchants for use in oil processing or for export as a garnishing. Additionally, GADC has established a tree nursery and distributed thousands of seedlings to farmers in order to reverse deforestation caused by the cutting of trees to produce charcoal.

To help farmers generate income year-round, GADC will distribute sesame seeds to roughly 2,000 of its farmers at the end of the cotton growing season, as sesame is a high-value cash crop which grows in the cotton off-season. Helping cotton farmers grow sesame is one example of GADC's efforts to build a stable growing environment for cotton farmers in Gulu area. In subsequent seasons, GADC will continue to expand its organic cotton operations, develop its extension services model for its organic farmers, and extend its operations into value-added activities such as spinning and weaving of cotton, as well as other off-season crop processing.

“We are excited to make Acumen Fund's first investment in Uganda. The expansion of our investments beyond Tanzania and Kenya will allow us to better serve East Africa and become a truly regional fund,” said Biju Mohandas, East Africa Manager, Acumen Fund.

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