Uganda’s Capital Markets: Achievements, Challenges and Future Prospects
1. What are the key achievements of the Capital Markets Authority (CMA) in recent years?
Over the last 7 years, a total of Ugx 1.06 trillion has been raised in the equity market through primary and secondary offers, bringing the total to Ugx 2.11 trillion since the inception of Uganda’s capital markets. Additionally, more than 132,000 Ugandans are actively participating the equity market yet we have barely scratched the surface.
There has been a surge in assets under management in Collective Investment Schemes (CIS) from about Ugx 55 billion in 2017 to more than Ugx 2.2 trillion currently and about 65,000 Ugandans have saved and invested in the schemes. The National Development Plan-3 sets a target of mobilizing at least Ugx 1 trillion in the form of savings from Ugandans through CIS.
The key drivers of the growth witnessed have been investor confidence due to the protection provided by the robust regulatory framework, public sensitization and an increase in the number of CIS Managers, which has spurred competition hence on-boarding more Ugandans as CIS investors. We had 2 CIS managers 7 years ago ,we now have 6.
2. What specific initiatives are being undertaken to attract new investors and issuers to the market?
CMA in partnership with the European Union and FSD-Uganda have established a Deal Flow Facility (DFF), which matches Ugandan businesses to investors. The DFF plays a critical role in preparing Ugandan businesses to be investment ready, in addition to matching them with investors. . Over 200 Ugandan companies have interacted with the DFF.
Additionally, we educate the public about capital markets through radios, seminars, in person presentations, television, and webinars as highlighted earlier. These efforts are able to reach a minimum of 1 million Ugandans per annum, who are educated on saving and investing through capital markets.
3. What are the challenges and opportunities for integrating the Ugandan capital markets with regional and international markets?
Capital Markets integration has its merits and demerits. Key among the demerits is the reversal of inflows from offshore investors due to economic shocks, as was witnessed when the Federal Reserve Bank in the USA increased the federal fund rate. This has greatly depressed market activity in frontier markets such as Uganda, as well as increased volatility. Increasing the capacity of both domestic retail and institutional investors will mitigate this challenge.
The opportunities presented by integrating Uganda’s capital markets globally include the diversification of the investor base, as an integrated market is able to attract a wide range of investors from all corners of the world. With a diversified investor base, capital-raising activity is likely to be successful and secondary market trading is vibrant due to the presence of a wide cross-section of buyers and sellers.
At the regional level, the Capital Markets Infrastructure project, which is aimed at connecting regional securities exchange, is operational. The project links securities exchanges in Uganda, Tanzania and Rwanda, allowing for seamless trading of securities across the East Africa Community (EAC). We laud the Government of Uganda and other member states of the EAC for supporting this initiative from inception. This is a major milestone in integrating capital markets across the EAC to create a single asset class, which is the EAC asset class.
5. How is the CMA ensuring that the regulatory framework for the capital markets is effective and up-to-date?
We are in the processing of reviewing the CMA Act (Cap 84) which is the mother Act for Uganda’s capital markets. This will definitely result in a revision of the regulations and guidelines thereof, to ensure consistency of the regulatory framework. The ultimate objective of the review process is to enhance investor protection and safeguards, while also ensuring that we enhance access to the capital markets for entities wishing to raise non-bank, long-term market based finance.
6. What are the plans for implementing the Investor Compensation Fund established by the CMA Act?
Regulations for the Investor Compensation Fund (ICF) have been finalized and are awaiting gazetting. As per Section 81 of the CMA Act, the objective of establishing the ICF is to provide a mechanism for compensating an investor, should they lose money due to a failure of a licensed broker or dealer to meet his or her contractual obligation.
