There is a wave of developments in Kampala City ever since Kampala City Council (KCC) was transformed into Kampala City Council Authority (KCCA).One of them being the planned redevelopment of Kisekka market by the Vendors expected to cost Shs800 billion. One may wonder whether the vendors in Kisekka market and other similar markets in Kampala have the capacity to actually raise Shs800 billion to fund such ambitious projects.
According to a story that was published in the Daily Monitor on April19, 2012, the Kisekka market vendors have so far raised Shs75 billion out of the Shs800 billion. However, they would need a 30 per cent down payment of the total value of the project before a bank could advance them the reminder 70 per cent. Without down playing the role of banks in financing such projects in this article, I want to share with you another financing option that could be available to the Kisekka market vendors; the capital markets.
Capital markets provide an avenue through which investors from all walks of life are able to finance the most pressing long-term financial needs facing their communities. The word “investor” has been synonymous with eithersome Americans, Britons, Chinese or Indians. So you may be thinking capital markets’ financing is reserved for such “investors”. The capital markets have no class creed. It only takes you to have money in your pockets to participate in the capital markets. Then how can these capital markets mobilise such huge sums of money from the pockets of ordinary wananchi? Retail Bonds are one of the ways through which the ordinary wananchi can finance massive projects like the proposed Kisekka market redevelopment.
A retail bond is a loan advanced by individual investors to either government or public companies with an approval from the Capital Markets Authority. The fundamental difference between this loan and a bank loan is that this loan can be traded on the stock exchange enabling the individual investor to recoup their investment before the loan matures. Retail bonds also provide an opportunity for citizens of a community to make a valuable contribution to the development of their community. Individual investors have not been actively involved in Uganda’s bond markets which still remain a preserve of institutional investors like the National Social Security Fund.
A notable success in the use of retail bonds has been the government of the Republic Philippines. Just two months ago in February 2012 the government of the Republic of Philippines was able to raise an equivalent of $4.2 billion (Shs10.5 trillion) from the sale of 15-year and 20-year retail treasury bonds to finance its budget deficit. This is 27 per cent of Uganda’s GDP. According to research from Evolution Securities, in 2011 just over £1 billion (Shs4 trillion) of corporate retail bonds were offered on the London Stock Exchange and this figure is expected to exceed £3bn (Shs12 trillion) in 2012.
Critical to the success of issuing retail bonds in Kampala will be the adherence to the applicable legal and regulatory requirements of the applicable laws such as the Companies Act and the CMA Act including good corporate governance and financial reporting standards by the markets in Kampala. This will greatly enhance the confidence of investors to invest in the retail bonds. Effective regulatory oversight of the markets by KCCA will also be vital for investor confidence. In the next issue I will get into the specifics on how the markets in Kampala can raise funds for their redevelopment through issuance of retail bonds.
Joseph Sanjula Lutwama is the Research and Policy Manager at the Capital Markets Authority.