What you need to know:
- Uganda continues to seek ways through which it can create strong financial markets to support economic growth. This ongoing effort is beginning to bear fruits, but still needs a lot of support. David Wandera, the Absa executive director and head of markets, spoke to Daily Monitor on where Uganda is now and what needs to be done to achieve better
Absa uses the African Financial Markets Index to gauge the growth of financial markets in different countries. How is it important to Uganda?
The Index was launched in 2017 to evaluate financial market development in Africa, including Uganda, by measuring market accessibility, openness, and transparency. It also measures progress in the development of financial markets and shows how different countries can reduce barriers to investment and boost sustainable growth.
Over time, the Index has become a benchmark for investors to gauge financial markets and for policymakers to identify areas of improvement.
For Uganda specifically, the Index provides a benchmark to measure the country against other African countries and highlight why it should be a preferred destination for capital investment.
For example, the low inflation rates and relative currency stability compared to other countries could be a deciding factor for investors on whether they should come to Uganda.
Where does Uganda need to improve?
Uganda’s pension assets per capita stand at $119 compared to an average of surveyed countries of $847. This is a key area for development as more savings mobilised would mean more financing available for investment in the economy.
Initiatives such as Okusevinga by Bank of Uganda - which will allow retail investors to access government securities using mobile money - will go a long way to improve financial inclusion and access savings across all levels of the economy.
Where in particular isn’t Uganda performing well?
Uganda’s position in the pillar on market depth - which measures the size and liquidity of domestic equity and bond markets - dropped by two points from six to eight in the current index. This is an area Uganda needs to improve.
Other key areas of improvement would be the size of the markets in terms of volumes of transactions traded, illiquidity in the domestic equity markets - with turnovers of listed equities being only 0.3 percent of total market capitalization - and a limited number of bonds listed.
While other countries have a variety of bonds, such as corporate, infrastructure or municipal bonds, and ESG assets, Uganda’s bond market is dominated by government - an addition to the number and diversity of products and increase in the liquidity of listed stocks would greatly improve Uganda’s score for market depth.
Does this mean the capacity of local investors must be strengthened?
Investor education to enhance the knowledge and understanding of capital markets products and services must be undertaken to improve financial literacy, encourage savings, and create more awareness around investment options available in the financial markets.
Diversification or liberalization of the pension sector to introduce additional fund managers could also lead to a diversity in products available for pension fund assets to be invested in and even increase voluntary savings. Collective investment schemes, which have grown their deposits by more than 100 percent in the last four years, give us a good example here.
Has the Index been helpful to Uganda, if yes, how?
Yes. Over time, the Index has become a benchmark for the investment community to gauge each country’s financial market infrastructure to help them decide where to invest.
You mentioned challenges around the size of the domestic market. How should Uganda improve in this area?
Investor education to enhance the knowledge and understanding of capital markets products and services can help improve financial literacy, encourage savings, and create more awareness around investment options available in the financial markets.
Also, as I mentioned earlier, diversification of the pension sector to introduce additional fund managers could lead to a diversity in products available for pension fund assets to be invested in and even increase voluntary savings like we have seen happen through collective investment schemes.
Uganda is scoring well in some areas. Do you see all areas improving in the future?
At the start of the index, Uganda was ranked 10th, but the country has now moved to fourth. There has been improvement and we believe it will continue because various stakeholders have put in place measures that will improve the score.
How do you view the future of Uganda’s financial market?
I am positive because of the commitments being taken by key stakeholders will increase market depth and product diversity.
This, coupled with initiatives to improve the legislative framework through acceptance of globally accepted legal agreements, stability of the currency, and low inflation creates opportunities for significant growth and development that need to be taken advantage of.
As long as the key stakeholders continue to work together towards achieving positive development of financial markets, we are likely to see the ranking improve.