Why aren’t companies in Uganda listing?

For some mind-boggling reason, some companies that should list on the Uganda Securities Exchange (USE) are not listing. Neither are those expected to cross-list, particularly the multinational companies, doing so.

Over the last 20 years, about 17 companies have since listed on the USE. This means there is still plenty of work to do, including going back to the drawing board.

Listing means floating part of the company shares to the public through a process called the Initial Public Offering (IPO). Cross listing happens when a firm lists its shares on different stock markets in the region, in addition to its domestic stock exchange.

In Uganda, this is done through the Uganda Securities Exchange under the watchful eye of Capital Markets Authority (CMA).

Some of the benefits accrued from the aforementioned exercise includes; raising considerable capital for the company, an immediate and significant improvement in the company’s overall financial position.

It leads to increased domestic savings among the local population. Also, there are high chances of private company ventures “doing business with you” because they tend to get attracted to listed companies.

Currently, there are nine domestic companies listed on the USE, with the other eight being cross-border listings, bringing the total number of companies currently trading in the bourse to a paltry 17.

Few companies
The small number of players in the capital markets – an avenue best suited for raising patient capital, is increasingly become a subject of discussion, with the main question (issue) rotating around why companies aren’t raising capital through the bourse and instead dealing with loan sharks, uncompromising money lenders, and commercial banks whose business model is suited to short-term lending rather than long term borrowing.

Concern
Bank of Uganda Deputy Governor, Dr Louis Kasekende, has been seeking answers as to why the financial market is not attracting players in droves, recommending research to unearth the root cause of the problem, rendering the capital markets unattractive to businesses despite being a more cheaper and patient avenue to mobilise long-term capital.

However, there are some companies particularly in sectors such as manufacturing and telecommunication sectors that should by now have listed or cross-listed but have shunned it.

Speaking at the Investment Conference organised by the Uganda Chapter of CFA Society East Africa held in Kampala recently, the director in charge of Economic Affairs at the Ministry of Finance, Planning and Economic Development, Mr Moses Kaggwa noted with regret that government move to boost the financial market in the early 1990s with privatisation of state-owned companies did not pay off.

To give a head start to the capital market in 1991, the government started divesting its interests in about 60 enterprises, with the condition to some to sell their shares to the public by listing on the USE. This didn’t turn out as planned, compelling Mr Kaggwa to concede, saying:
“Privitsation didn’t help,” adding, “Kinyara Sugar Works was withdrawn from listing. It should have listed by now.”

To list or not to list?
An analysis of Capital Markets development in Poland, Sri Lanka, Kazakhstan and Vietnam with possible lessons for Uganda’s case done by researcher Dickson Ssembuya casts a bright future for the capital markets.

In his analysis he observes: “The projected rapid economic growth in the future, pension reforms, the expected production of crude oil and regional integration indicate that the best is yet to come for Uganda’s capital markets.”

He continued: “The capital markets in Uganda can be positioned as an alternative source of long-term capital as well an alternative investment avenue for the public to take advantage of the expected structural changes in the economy.”

Low uptake
Despite the optimistic projection, the uptake of capital markets remains disturbingly low. Even successful businesses in the country such as Mukwano Group of Companies, a leading conglomerate with business interests in manufacturing, agriculture, property development, supply chain management and packaging, still remains a family business.

Family business
The same goes to Mulwana Group of Companies - a diverse business conglomerate with interests in dairy farming, plastics, manufacturing and real estate among other things.

Irrespective of being ripe for listing according to some analysts, Mukwano Group of Companies is still under the tight grip of family hands despite the death of the founder.

And then there is the Madhvani Group of Companies – one of the largest diversified private-sector groups in East Africa. Started in Uganda in 1914, the Group has developed into a widely-diversified conglomerate with a geographical spread into various African countries, the Middle East, India and North America.

The Group’s current turnover in Uganda, according to its websites, exceeds $500 million (about Shs1.8 trillion) while its assets here are valued in excess of $1 billion. This makes it arguably the largest private-sector investor in industry in Uganda!

Despite all that, just like the other two, it hasn’t listed yet.
The three are just some of the examples of local companies that analysts believe should have listed. But for some reason, they haven’t done so.

Multinationals
Then there are multinational companies and corporations mainly in telecom and banking that should at the very least cross-list but, have not despite making a killing here.

Specifically talking about why family owned-businesses do not list, the chief executive officer of the Capital Markets Authority of Uganda (CMA), Mr Keith Kalyegira, in a sideline interview of the CFA Society East Africa Investment Conference, said: “Many prefer to keep the family-owned business within the family and not have to account to or explain to outsiders. So there is an inherent reluctance to work with external partners and that is understandable.”

Transition for family businesses
He continued: “After all the family has gone through in establishing the business, growing it, it becomes a very emotional matter when considering bringing an external partner. But it is important to note that you will get to a point where you may want to transcend generations.

For that to happen, you will need independent boards that will work in the interest of the family’s shareholders. And that time is going to come as the country gets of age. Many of the older family businesses need to start thinking about this.”

According to Mr Kalyegira, companies that have been around for 20 years and counting should start thinking about the next generation, unless they are already multinational corporations. Many of the multinationals, he said are listed already elsewhere.

It is time for family businesses to start thinking about shared ownership. Getting involved in capital markets activities ensures continuity long beyond the founder’s demise.

Way forward, experts view
According to Mr Kaggwa, family companies are afraid of disclosures. And because of that, “We are now considering providing them tax waiver as an inducement for them to open up and then float shares and ultimately list on the USE,” he said

He said, this is something we continue to study to deepen capital markets in the country.

The government is also toying with the idea of compelling profitable companies into listing.

This, according to Mr Kaggwa, though unpalatable, will be part of the licensing requirements.

Why capital markets?
Relevance of capital markets to SMEs
Discussing the relevance of capital markets to Small and Medium Enterprises (SMEs), the chair of the session, Prof. Samuel Sejjaaka, country team leader at Mat Abacus Business School, noted that part of the problem is around trust issues by SMEs who are suspicious of being exposed after many years of building their businesses by hook or crook.

As for the chairman of Kampala City Traders Association (KACITA), Mr Everest Kayondo, most of the association members don’t really find capital markets exciting, let alone a reliable source of raising patient capital. This explains why some traders stash away some money instead of investing it in the stock market/shares.

He said: “KACITA members do not understand it one bit. And they do not even know where to go for help or how to access such and other related information.”

He continued: “They want to know how easy it is to liquidate when they are no longer interested in holding shares. But they don’t have that information. They also find listings requirements lengthy and laborious and many of them are already grappling with formalisation and others are finding just it repugnant to open up their business for scrutiny by strangers.”

Investing in capital markets
He was of the view that the money injected in building arcades can actually be used in buying shares floated on the stock market.

But for Mr Joseph Lutwama, a financial market analyst, there is need for heading back to a drawing board, with an intention of coming up with a new palatable concept and products for all to partake.

“If KACITA and others don’t understand the products, it means the brokers are not speaking the language of the SMEs. So, we need to abandon boardroom solutions and reach out to the SMEs and give them a customised products,” Mr Lutwama told the Investment Conference participants.

Susan Khainza, Chartered Financial Analyst (CFA), believes that ethics, corporate governance and disclosures are key things and shouldn’t be compromised for the sake of accommodating SMEs. She recommends that instead, they shouldn’t be made very complex to prohibit participation of SMEs into partaking capital markets opportunities.

Melissa Cook, CFA, in her keynote presentation, noted that family businesses are a big deal in Africa. For that, it requires independent board of directors to make prudent decisions that are in line with the family values. She said professional people instead of a “lazy” nephew or a son-in-law should be contracted to manage the business. These professionals inculcate the spirit of transparency.