Uganda: Harsh Economy Hurts Capital Markets

The Monitor (Kampala)

Martin Luther Oketch

31 December 2011

What were the key developments that took place in Uganda’s Capital Markets Industry in 2011?

Centum Investment Company Limited cross-listed shares on the Uganda Securities Exchange (USE) on February 10 2011. The cross-listing saw the company introduce four million shares on the USE. The cross-listing of Centum brought the number of counters at the USE to 14.

Bank of Baroda and Stanbic Bank issued bonus shares during the year raising their capital as per the Bank of Uganda requirements. Bank of Baroda issued 600 million bonus shares while Stanbic Bank issued 5.1 billion bonus shares. The listing of the bonus shares is expected to increase the free float available for trading at the Uganda Securities Exchange. In the collective investment scheme, African Alliance (U) Ltd wound up the African Alliance Uganda High Yield Fund (HYF).

During the year, the USE introduced a Local Counter Index (LCI) which will monitor the performance of domestic counters at the bourse. The new index will help in segregating the performance of local counters at the USE from the performance of the entire market as measured by the USE All-Share Index which includes cross-listed counters.

On the legal front, His Excellency the President assented to the Capital Markets Authority Amendment Bill 2010. The Bill amended the CMA Act, Cap.84 to insert a new part dealing with offering of securities to the public, replacing the provisions of the Companies Act relating to the issue of prospectuses. CMA also forwarded several regulations to the Ministry of Justice and Constitutional Affairs for publication.

They include: The draft Capital Markets Authority (Takeovers and Mergers) Regulations; Asset Backed Securities Regulations; and the statement of principles and the CMA Conduct of Business (Amendment) Regulations. The publication of the above mentioned regulations is expected to be done in 2012.

How did Uganda Securities Exchange perform this year?

As at December 15 2011 the total annual market turnover stood at Shs38.49 billion up from Shs29.52 billion recorded in a similar period in 2010, a growth of 30.38%. Over the same period the USE All-Share Index dropped by 34.36% from 1180.55 recorded in 2010 to 774.83 points recorded in 2011. Market capitalization as at December 15 2011 was Shs9.44 trillion down from Shs12.68 trillion around the same time in 2010, a fall of 25.55%.

The low performance at the USE is largely attributed to the tough macroeconomic environment in the domestic market with high inflation rates and a depreciating shilling as well as the continuous recessionary conditions in the international markets.

How many financial service providers are there in Uganda’s capital markets industry?

CMA currently has 21 licensees holding various licences. The breakdown is as follows: Broker/Dealer/Investment Advisor 8, Investment Advisor 7 Fund Mangers 5, and Collective Investment Scheme Manger1 and Trustee 1

During the year, CMA also licensed Pearl Capital Partners as a Fund manager/ Investment advisor; CFC Stanbic Financial Services as a broker/dealer; and Standard Chartered Bank as an Investment advisor. At the same time the stock broker/dealer licenses of MBEA Brokerage Services Ltd and First Renaissance Capital were revoked. The Fund Management license of First Renaissance Capital was also revoked.

In detail, explain the achievements and challenges faced in the capital markets industry during 2011?

Achievements: CMA continued to pursue its public education mandate by entering into partnerships with other organizations to promote capital markets among the general public. This year CMA renewed its partnership with the Association of Chartered Certified Accountants (ACCA)-Uganda to enhance the quality of financial journalism as well as promote the growth and development of investment clubs in Uganda. CMA also continued to work with the National Curriculum Development Centre (NCDC) in its efforts to include capital markets as a module in the A-Level Entrepreneurship Subject, which will go a long way in promoting capital markets among the young people in secondary schools.

CMA also stepped up its efforts at encouraging private companies especially Small and Medium Enterprises (SMEs) to access the capital markets as viable alternative source of long-term finance by participating in one of the Monitor-KPMG TOP 100 SMEs forums and also partnering with NSSF and other private equity players to promote private equity in Uganda.


During the year 2011, the macro-economic environment was characterized by high inflation and high interest rates, a weak Uganda shilling and a gloomy global outlook. All these variables combined to undermine performance at the USE.

The key challenges faced include: the low uptake of SCD accounts with only 10,000 accounts being open compared to an estimated 40,000 investors in the market. The low number of investors with SCD accounts affected trading as close to 75% of the total number of investors can’t trade. The capital markets industry did not have any IPOs or new bond issues.

What are the major factors hindering the development of the capital markets industry in Uganda?

The low levels of awareness among investors and the private sector on the investment opportunities available in the capital markets is an impediment to the development of the capital markets industry. This has led to a low absorption capacity while private sector companies have not tapped the capital markets to raise funds.

The capital markets have a limited product offering with shares and bonds being the main products. There are currently 14 listed companies and 5 corporate and 30 government bonds which limit risk diversification opportunities for investors. The innovation and creativity in the local capital markets remains quite low hence the few products on offer.

The capital markets industry competes with traditional investment avenues such as real estate, education and farming. The conservative nature of most investors has meant that they have continuously invested in these traditional investment avenues with very little consideration for the capital markets.

How far have you gone with plans to issue bonds across the East African region?

The CMA Board gave the go-ahead for consultations with stakeholders on the Draft Regulations for the issuance of Regional Bonds. The consultations are part of the country level discussions and approval process for the proposed regulations to ensure input from all stakeholders. A consultative meeting has been scheduled for early 2012.

What can you say about CMA’s outlook and strategies for 2012 in its effort to develop Uganda’s capital markets industry?

We remain upbeat that the capital markets industry will recover fully in the year 2012. We expect some IPOs in the year. However, the recovery process will be dependent upon a low inflation and interest rate environment, a stable shilling, stability in the Euro-zone and deepening of the regional integration process.

Strategies that CMA will apply to encourage growth and development of the capital markets in 2012 will include: lobbying for enactment of legislation that will spur growth, participation in formulation of policies that will encourage development of the market and enhancement of the public education programme to stimulate both supply and demand. Regional co-operation will remain a critical component in the development of the Ugandan capital markets.

CMA also plans to promote other investment classes such as asset backed securities as a way of diversifying the investment opportunities in the Ugandan capital markets. In addition to promoting alternative investment asset classes, CMA will also promote the development of private equity which is critical for the preparation of SMEs and high growth companies to access the capital markets.

The commencement of the new retirement benefits regulator, the Uganda Retirement Benefits Authority (URBA) in 2012 and the subsequent liberalization retirement benefits sector coupled with the commercial production of oil could trigger an increase in absorption capacity, creativity and innovation in Uganda’s capital markets industry.

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