KAMPALA. As interest rates on government debt reach historic highs, investors in the country are scaling back on financing of the private sector. An expression often used to describe this is “crowding out the private sector”.
Mr Patrick Ocialap, the deputy secretary to the Treasury in the Ministry of Finance, warned that increased demand to lend to the government only raises the level of public debt.
“Investment skewed towards government securities can only raise government debt to unsustainable levels, which is not good for the economy,” he said at the rebranding of GenAfrica Asset Managers on Tuesday. GenAfrica Asset Managers invests money on behalf of several pension schemes in the country.
A recent report released by Uganda Retirement Benefits Regulatory Authority (URBRA) revealed that at least 75 per cent of the Shs5.1 trillion worth of pension assets are invested in government securities. Mr Ocailap said investing this money in the private sector would be better for the economy.
“However, an increased focus on investing in private sector projects will have more multiplier effects in employment, consumption and further investment levels. This translates into more tax revenue and more balanced fiscal position,” he added.
Interest rates on government debt in the last one year have gone up from 18 per cent for a five-year bond to about 23 per cent as at January 2016. The government is usually considered less risky to lend to, which explains the scaling back on placing that money on the risky private sector.
“We want to see the movement of pension assets away from government securities to the private sector,” said Mr Andrew Kasirye, the board chairman URBRA.
GenAfrica Asset Managers was rebranding from Genesis Kenya Investment Management and has, at least, $1.4b (Shs4.8 trillion) assets it is managing in both Kenya and Uganda.
Mr Andrew Musangi, the chairman GenAfrica managers revealed that across the region, government debt remains more attractive than private sector investment.
“We certainly want to look beyond the government securities where it is safe to invest pensioners’ money,” he said. He said that it would be partly up to them to come up with products that would support private sector investment. Some of the proposed changes include a cash management solution, a private equity fund and further real-estate sector investment. Musangi also noted that as Uganda heads to the general elections next week, investors are scaling back as they use a “wait-and-see approach.”
GenAfrica Asset Managers is majorly owned by Centum Investment Company Limited – listed on the Nairobi Securities Exchange and cross-listed on the Uganda Securities Exchange. Centum acquired this 73.35 percent in 2013. The URBRA requires pension schemes to hire services of fund managers to be responsible for investing the money collected.