Uganda has commenced the process of drafting the Netting Financial Agreements Bill, which will give the country a clean netting opinion, effectively reducing settlement and credit risks and hence enhancing investor confidence in Uganda’s financial markets.
The Deputy Governor Bank of Uganda (BoU), Dr Michael Atingi-Ego said markets that have been granted a clean netting categorization have observed several-fold increases in investor participation in their markets and, hence, enhanced access to capital.
He was speaking in Kampala on Tuesday at the release of the 2023 Economic Outlook and Africa Financial Markets Index Report by Absa Bank.
Now in its seventh year, the Absa Africa Financial Markets Index has become an essential tool for investors and Policymakers, providing insights into the performance of financial markets across the continent.
The report ranks Uganda as the highest-growing financial market within the East African region and 4th on the continent. Uganda scored 63 percent, followed by Kenya at 59, Tanzania at 55 percent, and Rwanda at 44 percent.
Despite this, the Deputy Governor Bank of Uganda acknowledged that the country is still plagued by low capacity of local investors, characterized by pension assets per capita of only about $125.
“This has adversely affected our performance under Pillar 4: “Capacity of Local Investors”, with a score of just 14%. We, therefore, recognize the need for further pension sector reforms to ensure that pension assets are invested in the real sector of domestic economic growth,” he said.
But he said Uganda government securities have gained global visibility through international listing on the FTSE Frontier Emerging Market Index, effective July 2023.
“We are also in discussions to list on the ABABI Index of the AfDB and, thereafter, the JP Morgan Emerging Market Index. These indices provide global visibility for our government securities attracting more offshore investment which should in theory eventually lower government borrowing costs. The Ugandan market is also in the process of adopting the FX Global code of conduct to support ethical trading in the financial markets,” he said.
To build on this momentum, Dr Ego said the National Financial Inclusion Strategy 2023-2028 will focus on deepening savings and credit markets by expanding the usage of diversified financial products and services.
“One such product is “Project Okusevinga” by the Bank of Uganda, an initiative that will enable the buying and selling of government securities on mobile phones using mobile money balances. When rolled out, we anticipate that it will improve retail investment in bills and bonds. Additionally, the finalisation of the Islamic banking and regulatory framework and related tax laws in August 2023 will facilitate the emergence of Islamic banking services and financial products,” he explained.
Mr Dickson Ssembuya, the Director Research at the Capital Markets Authority (CMA) Uganda, said some of the issues that have affected the past public equity offers include valuation, timing (offering securities when the Fed rate is being hiked, speaking to capital flows) and misinformation and rumors from on the structuring of IPOs.
“The Authority is in the process of reviewing the regulatory framework to ensure it is facilitative enough to increase issuer access (companies looking to raise capital through the capital markets) and investor access,” he said.