Analyst gives economy a clean bill of health

A financial analyst has given Uganda’s investment future a clean bill of health and predicts that the economy is set to attract even more offshore investors than its African peers.

With forecasted growth estimated at 6 to 7 per cent – higher than the projected growth for sub Saharan Africa - per annum, foreign investors, the analyst said, will be attracted to investment opportunities in Uganda.

Kampala

A financial analyst has given Uganda’s investment future a clean bill of health and predicts that the economy is set to attract even more offshore investors than its African peers.

With forecasted growth estimated at 6 to 7 per cent – higher than the projected growth for sub Saharan Africa - per annum, foreign investors, the analyst said, will be attracted to investment opportunities in Uganda.

Head of CEEMEA Research Global Market based in London, Mr Stephen Bailey-Smith, said: “Investors are looking for high returns which are a sub set of high economic growth. One would assume investing in markets where their profit is a worthwhile investment.”

He told investors at a seminar on global market outlook and development recently in Kampala that returns on investment in emerging and frontier markets like Uganda have higher returns than in the developed economies.

“Investors worldwide are watching interest rates in emerging economies and developing economies we expect foreign direct investment will continue normally in these economies, with more foreigners coming to investors in Uganda,” he said.

Mr Smith’s prediction comes hot on the heels of recent positive developments on the local capital markets scene indicating an increasing inflow of capital into the economy despite a global economic recession that has shadowed growth for most economies for over a year now.

Mr Smith said equities in emerging economies and most of the African stock markets outside South Africa such as Nigeria, Ghana, Kenya and Uganda among others have not fully recovered but a turning point is around the corner in the next six to nine months because of rising interest from offshore investors.

Stanbic Bank’s issuance of a programmed bond worth Shs30 billion and PTA Bank’s Shs8.5 billion tranche note of a total Shs40 billion are clear indicators of growing confidence in the local market capital market. The local stock market made a surprising upward gain of 43 per cent in the third quarter from a depth of 30 per cent loss in the second quarter of the year.

“Over the medium term, however, we are positive on the outlook for global equities and current conditions are providing many opportunities to add value through stock selection,” Mr Smith said.
A robust return of foreign investors will in turn boost confidence among local investors, and encourage an inflow of new technology.
In an interview recently, Mr Kenneth Kitariko, the general manager of investment firm African Alliance told Business Power that the run-away investors are coming back.

“As of now, the local investors are coming back not in the numbers that we previously had but they are coming back,” he said with lukewarm interest from foreign investors.

The World Bank, the IMF and Bank of Uganda have all recently revised upwards their forecasts for growth for Uganda on the back of a strong performance of the country’s economic pillars.

The positive performance of the stock exchange is attributed to the new thrust of confidence riding on new capital inflows of offshore investors attracted by higher returns. The government has issued more bonds to attract investors. Although inflation remains a teething challenge at double digits, the recent downgrading of the impact of expected El Niño rains by the meteorological department gives hope that inflation will be controlled as food – the main driver of inflation in Uganda - is likely to be readily available.

The current stability in the global financial market has also seen the local currency regain a stable position against major foreign currencies after a 30 per cent drop in the second quarter against the US dollar. A unit of the greenback is exchanging at an average of Shs1,865 and according to Mr Smith could slide further to Shs1,750 by the end of 2010.

“Pricing of all commodities is still going to be priced in US dollar terms internationally. The US dollar is expected to remain the dormant and principal reserve currency for some years still,” he said.