‘Open government securities market will make investment cheap’

Kampala. Investment in government securities (Treasury bills/bonds) have been made easier in Uganda following a decision by Bank of Uganda (BoU) to open up primary market for all commercial banks.
The move will see the banks participate, link small and big investors to open accounts and begin investing.
In the past, the Central Bank had restricted the government securities primary market to six Primary Dealers (PDs) who were licensed to participate and later sell the securities to other banks and investors in the secondary market.
However, on Tuesday, during a ceremony to award the best Primary Dealer of 2016 in government securities, BoU announced that going forward, all commercial banks will have similar access to the Central Securities Depository (CSD).

This means that the banks will be able to open CSD accounts at BoU for their clients, issue and accept bid submission forms on their clients’ behalf and facilitate their clients’ secondary market transactions.
On the new development, the head of global markets at Stanbic Bank Uganda, Ms Anne Juuko, told Daily Monitor that the move opens up government securities market for all kind of investors, which is a wonderful thing.
“This is a wonderful move and development which is going to lead to development of government debt market because my grandparents deep down there in Kasese can now just walk into Stanbic Bank and open up the SCD account and begin investing government securities without coming to Kampala,” she said.

She added: “We are making it cheaper and accessible for all Ugandans to participate. This development will promote and increase secondary market trading, which in turn will lead to increased liquidity in the secondary market.”
Drawing examples from the region, Ms Juuko said Kenya has been doing it and the Kenyan market is more developed and ahead of Uganda’s because they (investors) can now buy and sell government securities using their phones (M-Pesa).
Globally, the World Bank Group’s Government Bond Market Development Programme supports the development of local currency bond markets to increase developing countries’ attractiveness for domestic and foreign investment.
The World Bank says government bond markets are the cornerstone of efficient fixed income markets, which are important to support economic growth and reduce poverty.

“Smooth functioning, fixed income markets help governments sustain policy initiatives, match investors with investment opportunities based on risk-return preferences, facilitate capital market financing of enterprises and critical infrastructure projects, and reduce reliance on foreign currency borrowing and bank financing,” says the World Bank.
The World Bank further states that developing efficient fixed income markets is vital for developing countries to make efficient use of scarce capital for productive investments and thus promote jobs and prosperity.
Head of treasury at Exim Bank Uganda Faisal Bukenya, in an interview with Daily Monitor, said the move will also make it more accessible and flexible for investors wishing to participate in government securities.

BoU on investment
While announcing the new development, the governor BoU, Mr Emmanuel Tumusiime Mutebile, explained: “Government securities operations and commercial banks are all eligible to open CSD accounts at BoU on their client’s behalf, settle their clients’ successful bids and buy their clients’ securities if the client wishes to sell. This is part of the BoU’s on-going commitment to make investing in the government securities easier and more accessible to the public.”
Mr Mutebile said investors will also access their CSD account statement through their respective commercial banks.
“Our expectation is that we will have more participants in the primary market and a more liquid, efficient, competitive and attractive secondary market for government securities,” he said.
Stanbic Bank Uganda was named the best primary dealer of 2016; Mr Mutebile stated that PDs have contributed to the growth of the government securities market by ensuring high demand during primary market auctions.

In 2016, Mr Mutebile said the ratio of primary dealers successful bids in the auctions, relative to the rest of the market, was 61 per cent of all auctions bids.
“The auction bid to cover ratio, which is the total size relative to the amount tendered, for treasury bills and bonds in 2016 averaged 1.21, indicating that demand for government securities is strong and sufficient to accommodate the needs of government for domestic finance,” he said.
Mr Mutebile added: “Primary Dealers have also enhanced liquidity in the secondary market. Total turnover in the secondary market increased by 12.5 per cent to Shs3.6 trillion in 2016 from Shs3.2 trillion in 2015.”

About bond markets

Bond markets provide the means to fulfil mid and long-term funding needs.
When developed, they contribute to reduce the financial risks of the overall economy, provide the government with a non-inflationary source of finance, create a well-balanced financial environment and promote economic growth.
Development institutions say the development of the government bond market is a long-term and dynamic process. Building and establishing a credible market for government securities must be viewed as a key component of the country’s development strategy.
There are two main prerequisites to develop the medium and longer term government securities markets, which include certain level of macroeconomic stability and a liberalized and stable financial system supported by competition.

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