COMMENT: Uganda’s economic development question

The capital markets Industry holds the key to unlocking the gridlock which has kept the Uganda economy underperforming over the last several development decades under the economic transition benchmarks of jobs, home ownership, education and Health.

So how does the capital markets industry unlock the gridlock? Simple; it is the sub-sector of the Financial Services Industry which moves and converts Expensive Cash as a medium of intermediation in the economy , into Convertible Term Instruments which can be discounted . It is called Securitisation.

It is this belief that made me establish (with the support of the Bank of Uganda) the securities trading platform known today as the Uganda Securities Exchange Ltd [USE] – in the face of extreme odds – including opposition in writing from the World Bank .

Simply explained, without securitisation of the economy, there can be no growth with jobs, no structured development of the home ownership industry , no financing for quality education, and no health insurance to grow the health services industry.

Even the great Uganda Railway was financed by a debt instrument issued by the British East Africa Company in London – a bond, several decades ago. That repayment would come from opening up of the hinterland for cotton, ivory etc.

More recently, the Madhvani Group raised US$20 million on the Uganda Securities Exchange ltd. So imagine what the Government can raise. Look at what the Kenya Government has been able to raise on the Nairobi Securities Exchange over the years.

It is backward, to say the least, that in this 21st century we are to date struggling to finance our infrastructure deficit with cash and peddling the long discredited notion that tradaeable instruments are expensive complicated etc.

Because of our open capital account (no currency restrictions on repatriation of profit) Uganda can finance more than half of its global infrastructure deficit (energy, roads, rail, water etc.) with listed local currency bonds.

It is true that listed instruments come with open restrictions in the Information Memoranda and leave no room for rent seekers. But is that not what we want? Let us give the Capital Markets Industry and Uganda a chance.

Accordingly, we are proposing the following : A 10 Year Financial Markets Development Plan (FMDP 10) to be championed by the Bank of Uganda (BOU), the National Planning Authority (NPA), and the Ministry of Finance Planning and Economic Development (MoFPED).

Concurrently, we are proposing that the government issues a 10-Year Hybrid Infrastructure Bond – covering the financing gaps in energy, roads, water and sanitation, and at the same time targeting a refinancing of the current expensive sector obligations

A third instrument we are proposing is a 30-Year Cross Border Water Towers Bond to finance the preservation and development of our fast depleting and deteriorating forests and water reservoirs like the lakes and rivers. Some economists will cry out that 30 years cannot be supported by our economy – but this particular instrument will be oversubscribed as it will be both regional and global at the same time.

Each of these three proposed capital markets interventions, on its own, will add at least 2 extra GDP growth points to our current jobless rates – pushing our economy on the path of the much sought after transformation – without factoring in oil. These proposals are ready and will be presented shortly – but we need open minds.

For example, the time for local currency instruments has come and we know how to structure the proposed instruments. They have to be listed because institutional and other medium to long term investors require the structured and transparent exit provided and represented by the Uganda Securities Exchange (USE) trading platform.

We will also need to re-benchmark the year in which NDP2 begins to align it with the beginning of the proposed 10 Year Financial Markets Development Plan (FMDP10).

To all those who emailed me for an explanation of the ‘growth rate conundrum’, I hope clarity has been achieved.

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Dr. Onegi-Obel is the founder and long serving Chairman and Director of the Uganda Securities Exchange Ltd -USE. He serves on many boards in Uganda and the region.

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(onegi.obel@use.or.ug , geoffrey@obel.co)