Introduction
The capital markets are a platform where individuals and institutions, both local and foreign that have excess funds meet entrepreneurs who are looking for long term patient capital for investment. In this market, instruments known as securities (shares, bonds etc.) are exchanged for capital by the entrepreneurs. The capital markets are an important component of a modern economy because they facilitate access to long term patient capital which may not be accessible from traditional sources such as commercial banks.
The capital market in Uganda
The capital market in Uganda was established out of the need to enhance private sector growth, following the liberalization of the economy in the early 1990’s. The Government aimed at positioning the private sector as the engine of growth by exiting State Owned Enterprises through different channels, among them being the capital market. It was thus necessary to ensure access to long term patient capital for the private sector to support growth. Government then retained the role of ensuring a legal and regulatory framework is developed for the market to operate fairly and efficiently.
The Capital Markets Authority Statute 1996 was the first legislation in Uganda to provide for the regulation of the capital markets in Uganda. The 1996 statute established the Capital Markets Authority (CMA), a regulatory body formed for the purpose of promoting,facilitating and regulating the development of an orderly, fair and efficient capital market industry in Uganda. The Authority was given the power to approve:public offer of securities to raise capital; the establishment of stock exchanges; and licensing of securities dealers and other intermediaries. To date, the industry has registered various achievements over the years, including a UGX 4.46 trillion domestic market capitalization from the eight domestic listed companies; over one trillion worth of funds under management by the CMA licensed fund managers; UGX 293 billion raised through corporate bond issuances; two approved securities exchanges and several licenses issued to conduct brokerage services, investment advisory and collective investment schemes.
Regional integration
With the revival of the East African Community in 2000, the region opened up to business transactions among member states. The existence of the Uganda Securities Exchange (USE) provided Kenyan companies with regional operations an opportunity to share ownership with Ugandans by cross-listing. Currently, eight Kenyan companies are cross-listed onto the USE, boosting market capitalization and the profile of Uganda’s capital markets as an alternative platform for raising long term finance.
The East African Common Market Protocol which provides inter alia for the free movement of capital was signed by the East African member states in 2009. The signing of the protocol provided an opportunity for Uganda as long term capital could move across the region,making it easy for Ugandan companies to tap into the region to raise capital. Harmonization of the East African Community (EAC) securities legal and regulatory framework was identified as a priority area to ease flow of long term capital across the region. This has been achieved partly through EAC Council Directives and todate, a set of seven directives including those on public offers for debt and equity, as well as regional listings and collective investment schemes have been gazetted. More than ten other directives have been developed and will soon be gazzetted. The development of these directives has been spearheaded by the regional securities regulators with support from the regional exchanges. The CMA (amendment) Act 2016 also provided for the implementation of the EAC Council Directives in Uganda.
As part of the collaboration efforts to ensure harmonized securities markets, the East African securities regulators under their umbrella body, the East African Securities Regulatory Authorities (EASRA) have also initiated various collaborative efforts towards harmonization of the markets. EASRA’s main objectives are establishment of technical cooperation and information sharing among member states. Some of the areas where the regulators have cooperated well include inspections of licensed intermediaries, where joint supervisory colleges have been established.
Broadly, the benefits of a harmonized framework include growth and deepening of the regional capital markets, promotion of economic growth, widening of the investor base, increased opportunities for issuers to raise capital within the region for infrastructural development and commercial ventures among others.