Exciting times ahead for Uganda’s capital markets

Exciting times ahead for Uganda’s capital markets

The capital market is a crucial component of the economy that channels personal or pooled savings to public or private enterprises, or governments in need of long term capital. This capital is used to generate economic output, thus supporting development and creating wealth. Domestic market capitalization, which is the market value of Ugandan companies listed on the Uganda Securities Exchange (USE), has grown from UGX0.2 trillion in 2005 to UGX 4.5 trillion by March 2017.

The Capital Markets Authority (CMA) is the body responsible for promoting,developing, and regulating the capital markets industry in Uganda, with the overall objectives of investor protection and market efficiency. Since inception, CMA has approved applications for eight domestic equity offers that raised a total of UGX 290 billion, four secondary equity offers that raised UGX 294 billion, and nine corporate bond offers that raised UGX291 billion.

Recently, the USE launched an e-platform dubbed ‘Easy Portal’ that aims to ease access to real time trading information thus cutting on investors’ journeys to their stockbrokers. The online portal allows investors to track their portfolio and buy shares during Initial Public Offerings (IPOs). Uganda’s second stock exchange, ALTX East Africa, has also issued depository receipts which are designed to enable retail investors access the government treasury bills/bonds market at a fraction of the cost charged in the underlying market. Retail investors can now invest in government securities with as low as UGX 10,000 and ALTX intends to enable them access the market directly through their mobile phones. These market development measures are expected to spur trading activity for retail investors in the near future, ultimately leading to increased financial inclusion.

The Ugandan capital market is underpinned by an enhanced regulatory framework that meets international standards. Recent changes to the regulations governing Uganda’s securities markets culminated in the passage of the CMA Amendment Act which was gazetted in May 2016. The regulatory amendments were pivotal for CMA’s successful application to become an appendix A signatory to the International Organization of Securities Commissions (IOSCO) Multilateral Memorandum of Understanding(MMOU).  The IOSCO MMoU supports mutual cooperation, assistance, and consultation among members to ensure compliance with, and enforcement, of securities laws and regulations. The MMoU provides an international benchmark for cross-border cooperation and offers securities regulators tools for combating cross-border fraud and misconduct. CMA will also benefit from increased access to knowledge and research through the IOSCO network.

To further develop the market, CMA has finalized a ten year Capital Markets Development Master Plan (2016/17-2026/27) which is due to be launched before the end of this financial year. The master plan is a result of extensive consultations with various stakeholders within the capital markets industry, government, the private sector, and experts from different fields. The master plan has identified the pre-requisites for a well-functioning capital market and makes recommendations for comprehensive reforms aimed at improving the supply of, and access to, patient and long term capital to both government and the private sector in Uganda.

The underlying justification for several of the recommendations in the Plan is to facilitate increased access to the alternative patient capital available from the capital markets and thereby reduce on the over reliance of short term commercial bank financing within Uganda’s economy.

A solid regulatory framework, along with successful implementation of the Capital Markets Development Master Plan will ensure that Uganda’s capital markets are well positioned to play a role in supporting national growth needs with reference to Vision 2040that seeks to transform Uganda into a middle income country.

The writer is a Research and Market Development Officer at the Capital Markets Authority

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