The report released by Absa dubbed “Absa Africa Financial Markets Index” has revealed that Uganda ranks highest in the East Africa region in access to foreign exchange and scored third position on the Continent only ranking behind South Africa and Egypt.
The index evaluates financial market development in 20 countries and highlights economies with the clearest growth prospects.
The Index tracks the progress of financial market developments across South Africa, Nigeria, Mauritius, Botswana, Kenya, Namibia, Ghana, Zambia, Egypt, Uganda, Mozambique, Senegal, Morocco, Ivory Coast, Angola, Tanzania, Rwanda, Cameroon, Seychelles and Ethiopia.
It assesses countries according to six pillars namely; market depth, access to foreign exchange, tax and regulatory environment and market transparency, capacity of local investors, macroeconomic opportunity, and enforceability of financial contracts collateral positions and insolvency frameworks.
Speaking to the press shortly after presenting the report, David Wandera, Head of markets at Absa Uganda attributed greater access to foreign exchange to high level of foreign reserves.
“The area where Uganda has done well is the second pillar (access to foreign exchange) largely because of the level of our foreign reserves to net portfolio inflows. Basically the reserve building Program by Bank of Uganda has created adequate reserves to cater for any foreign currency needs by any investor who comes in to Uganda,” said Wandera.
“It is easy for an investor to come to Uganda, invest and take out his money without worrying about not having access to foreign exchange like in other countries.”
“Another pillar where Uganda did well is macroeconomic opportunity largely because of our GDP growth which is estimated to be between 5 and 6%. That GDP rate is basically growing three times as fast as for example South Africa if you look at the period between 2018 to 2023.”
Despite tremendous performance in access to foreign exchange and macroeconomic opportunity, Uganda got a worrying score on the capacity of local investors.
As a result, Wandera said Uganda needs to improve on pillar four (capacity of local investors).
“The areas for improvement for Uganda are capacity of local investors. Meaning, how is the ordinary Ugandan able to access the financial markets. Are they aware of the product, are they aware of where to put their savings? Apart from putting their savings in land, what other options are there for ordinary Ugandan to invest in?” he asked.
Asked why the capacity of local investors is lagging despite abundant opportunities in Uganda, Wandera differed from question and said: “the opportunities are not as many compared to more developed countries. Uganda for example has less than 10 traded instruments.”
The instruments/ products he referred to include shares in the financial markets, bonds, bills, unit trust among others which are few products available compared to countries such as South Africa that has about 15 of them.
He also attributed the challenge to lack of awareness of the products among the people to create the demand to participate in those products.
To make people aware of the above products however should be the role of Capital Markets Authority to make people get to know of the financial markets which can make Ugandans not only put their money in land and buildings as many do.
While it is good to invest in properties because they hold value, Wandera does not encourage that. In fact, he said, “they (properties) are not very liquid. This means that if someone wants their money for an emergency financial crisis, they may not be able to get it compared to if they had a Treasury Bill or Bond.”
Another area for Uganda to improve is sixth pillar (legality and enforceability of standard financial markets master agreements).
This talks about legal framework basically. How to manage insolvency. If a company winds out, how quickly is it for someone to get their money.
On the matter Wandera said, “We are doing law on that measure because we don’t have clear adequate sort of policy framework to create comfort for our investors compared to other East African countries.”
The sixth pillar according to the report is the second lowest ranking. The report attributed it to weaknesses as measured by the World Bank in it’s insolvency framework.
The report advises that improving this pillar can help attract international investors who want to be sure that they can quickly and easily reclaim at least some of their capital from a failing investment.
Uganda remains 10th but with a score of 52% on the Index overall. This is two points better than 2018 score which was 50%.