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By George Mangula
The 2019 Absa Financial Markets Index report was released in Kampala on Tuesday with Uganda coming in 10th position just like in did in 2018 although with some improvement in the score, as it attained 52 out of 100 compared to 50 in 2018.
The Absa Africa Financial Markets Index evaluates financial market development in 20 countries and highlights economies with the clearest growth prospects.
Prepared in partnership with the Official Monetary and Financial Institutions Forum (OMFIF) and released every year, the index tracks the progress on financial market developments across South Africa, Nigeria, Mauritius, Botswana, Kenya, Namibia, Ghana, Zambia, Egypt, Uganda, Mozambique, Senegal, Morocco, Ivory Coast, Angola, Tanzania, Rwanda, Cameroon, Seychelles and Ethiopia.
The aim is to show not just present positions but also how economies can improve market frameworks to meet yardsticks for investor access and sustainable growth.
The index assesses countries according to six pillars: market depth; access to foreign exchange; tax and regulatory environment and market transparency; capacity of local investors; macroeconomic opportunity; and enforceability of financial contracts, collateral positions and insolvency frameworks.
Uganda’s Performance
Uganda remains 10th but with a score of 52 out of 100 on the index overall. This is two points better than 2018 score. This, however, keeps Uganda in the fourth position behind Kenya, which ranks third in Africa. Tanzania and Rwanda ranked 7th and 9th respectively in Africa complete the East African ranking.
The market developments and policy changes which contributed to the growth of financial markets in Uganda include;
• Uganda’s reduced withholding tax on 10-year government bonds from 20% to 10%.
• All local Ugandan banks signed onto a Global Master Repurchase Agreement (GMRA) and the market is now able to trade horizontal repos.
Pillar 1 – Market depth
Uganda’s overall performance improved slightly, with the decline in liquidity offset by the higher value of listed bonds and equities. However, Uganda’s market liquidity continued to drop, with $11m in turnover, down from $25m. Turnover has been hit by uncertainty over Umeme, the country’s main electricity firm and most-traded stock.
Pillar 2: Access to foreign exchange
Uganda ranks highest in East Africa on access to foreign exchange, in third position after South Africa and Egypt. Uganda performs strongly in this pillar, with almost the same score as top-ranked South Africa.
It has a high level of foreign reserves relative to net portfolio investment flows and enough reserves to cover more than four months of imports.
Pillar 3: Market transparency, tax and regulatory environment
Uganda’s credit quality has improved as the report points out that Uganda has earned international corporate credit ratings for the first time, alongside Cameroon and Senegal. International credit ratings aid transparency and reflect confidence levels.
Pillar 4: Capacity of local investors
Uganda’s pension assets have risen with government securities accounting for 75% of assets and quoted equities tallying up to 14%.
Pillar 5: Macroeconomic opportunity
Uganda registered a decline in non-performing loan ratios, boosting the country’s Pillar 5 scores.
Areas for Improvement
The country has the highest tax rates on dividends in the region with no exemptions or incentives to encourage financial market development.
Uganda’s lowest ranking is on Pillar 4, ‘Capacity of local investors’, reflecting in large part the country’s low level of pension fund assets per capita. Initiatives to broaden access to pension plans should be considered in future financial inclusion strategies.
Uganda’s second-lowest ranking is in Pillar 6, where it is 12th. This is due mostly to weaknesses, as measured by the World Bank, in its insolvency framework. Improving this score can help attract international investors, who want to be sure they can quickly and easily reclaim at least some of their capital from a failing investment.
To bolster market capitalization, Uganda’s Capital Markets Authority is developing mandatory listings for firms in strategic sectors such as telecommunications, tier one banks and mining firms to increase the number of listed companies on its bourse.
