By George Mangula
Uganda still came in the 10th position in the Absa Africa Financial Markets Index 2020, the same position the country attained in 2019, implying that policy makers need to do more to boost much-needed investments, more so to attract foreign private investors into the economy .
Now in its fourth year, the index done by Absa Group Limited in partnership with Official Monetary and Financial Institutions Forum (OMFIF) analyses the performance of financial markets in selected African countries as well as suggesting solutions to the challenges. The index considers the countries’ performances based on six pillars: Market depth; Access to foreign exchange; Market transparency, tax and regulatory environment; Capacity of local investors; Macroeconomic opportunity; Legality and enforceability of standard financial markets master agreements.
The index that surveyed African 23 countries, shows Uganda, with overall score of 52 points out of 100, lagging behind leaders South Africa (89), Mauritius (79), Nigeria (65), Botswana (63), Namibia (61), Ghana (59), Kenya (58), Morocco (56) and Zambia (53) respectively.
The market depth analysis shows that, with 42 points out of 100, Uganda was ranked 9th behind leaders South Africa (100), Nigeria( 70), Mauritius (70), Botswana (55), Kenya (52), Ghana (48), Namibia (48), Egypt (45).
Access to foreign exchange
Here Uganda with 67 points out of 100, was second to South Africa that garnered 80 points. This parameter saw Uganda beats its Eastern Africa neighbours Kenya, Rwanda, Tanzania and others.
Market transparency, tax and regulatory environment
This particular index shows Uganda as the star of Eastern Africa with 80 points out of 100. Only South Africa (94) Nigeria (89), Mauritius (88) Ghana (83) Botswana (82) performed higher than Uganda.
According to the index, corporate ratings by international rating agencies rose to three agencies in Uganda, up from two last year, which contributed to its rise of three places in this pillarr.
Capacity of local investors
Here, Uganda performed badly with 15 points out of 100 and was ranked 16th below its neighbours-Kenya and Tanzania that did better, with 41 and 34 points respectively.
Analysts say local investors’ willingness to invest in domestic markets can have a significant impact on market development and growth. The pillar measures local investor capacity based on the amount of pension fund assets available in the country relative to the population and market capitalisation. Countries tend to perform poorly in this pillar, especially if their pension systems are not yet well established. However, this pillar shows the greatest improvement from last year, with country scores climbing by 3.2 on average due to growing pension assets. Namibia tops this pillar.
On this front, only South Africa with 78 points out of 100, Egypt (78), Botswana (72), Mauritius (72) and Morocco (72) respectively beat Uganda that garnered 70 points.
The analysis shows that the latest slump in oil prices has shown the value of diversification. The index countries collectively exported $424bn in 2019, 12% less than in 2014. This drop can be fully accounted for by Angola and Nigeria, the index’s largest oil exporters. Nigeria’s exports had been recovering since and continued to increase in 2019, which helps its pillar score. Large and growing exporters were Ghana, Morocco and Egypt. Ghana is likely to fall back as one of its expanding export markets is oil and gas, but this could be offset by flourishing export markets in gold and cocoa.
It says Uganda has a small export market share but has been growing rapidly in recent years. Uganda accounts for 1.6% of index exports, up from 1% five years ago, it says.
Legality and enforceability of standard financial markets master agreements
Uganda was ranked 11th as it scored 39 points out of 100. It came behindMauritius (98), South Africa (94), Nigeria (87), Zambia (83), Ghana (78), Kenya (57), Rwanda (50), and Botswana (46) Tanzania (43) and Mozambique (40) respectively.
Using GMRA documentation
Few Ugandan banks have performed transactions using GMRA documentation, but wider adoption is expected after the legal framework is refined. Uganda’s efforts are part of a broader move to Global Master Repurchase Agreement(GMRA) adoption across the East African Community to enhance cross-border activity.
The EAC’s horizontal repos – repos between commercial banks – have tended to use pledgebased collateral, with ownership of the collateral not formally changing. By using repos, where collateral ownership changes, countries can reduce the risk involved in money markets transactions, especially cross-border deals, and thereby reduce their cost. Frontclear, a firm that develops financial markets infrastructure, is in the final stages of setting up a guarantee fund to facilitate Ugandan interbank trading by insulating banks from credit risk exposure.
The Absa Africa Financial Markets Index evaluates financial market development in 23 countries, and highlights economies with the most supportive environment for effective markets. The aim is to show present positions, as well as how economies can improve market frameworks to bolster investor access and sustainable growth.
The survey was conducted from June-August 2020, covering more than 30 individuals from institutions operating throughout Africa. Participants include chief executives, managing directors, managing partners or country experts across a range of global, regional and local institutions, including banks, securities exchanges, regulators, asset managers and investors.