The Independent Uganda: You get the Truth we Pay the Price
There’s a need for enhanced liquidity in domestic markets to foster economic growth and socio-economic transformation
Kampala, Uganda | JULIUS BUSINGE | Uganda has preserved its fourth-place ranking in the Absa Africa Financial Markets Index for 2023, despite a slight decrease in its overall score from 64.4 to 62.8.
The index, which assesses financial market development in African countries, highlighted areas of both improvement and challenge for Uganda, particularly in access to foreign exchange and local investor capacity.
A significant factor contributing to the decline was a weaker performance in the access to foreign exchange (Pillar 2), with Uganda’s score dropping by 10 points to 67. This was attributed to a decrease in interbank foreign exchange turnover and a reduction in international reserves, which fell nearly 18% to $3.6 billion in 2022, equating to 3.4 months of import coverage, down from 4.6 months the previous year.
On the other hand, Uganda showed progress in the macroeconomic environment and transparency (Pillar 5), where its score improved by one point to 86, maintaining its second-place position in this category. The improvement was driven by a slight decrease in external debt as a percentage of GDP and by the country’s continued high marks for policy transparency, macroeconomic data standards, and a relatively low inflation rate.
Analyst’s view
Jeff Gable, Chief Economist at Absa, said despite the recent uptick, inflation in Uganda is expected to briefly touch the 5% target mid-year before settling at 4.4% by December 2024, with an average of 4.2% forecast for the year, compared to 5.4% in 2023.
Uganda also remained steady in legal standards and enforceability (Pillar 6) with a score of 85, showcasing advancements such as the adoption of netting legislation. This move aligns Uganda with international legal standards and is expected to further enhance the country’s attractiveness to investors.
However, the capacity of local investors (Pillar 4) emerged as an area requiring attention, with Uganda’s score dipping slightly to 14. The decrease was linked to a reduction in pension fund assets per capita, highlighting the need for initiatives to boost domestic investment capacity.
Alan Lwetabe, Director of Investments at the Deposit Protection Fund of Uganda, underscored the importance of creating a supportive environment for Ugandan businesses through tax incentives and education on financial markets and governance.
“We also need to give confidence to Ugandan businesses that they would be supported once they formalize and one of the areas to look at is tax incentives. We need to build a new Kampala corporate community,” he said.
He also stressed the need for enhanced liquidity in domestic markets to foster economic growth and socio-economic transformation.
Despite the challenges, initiatives such as the project to link centralised securities depositories and the ‘Okusevinga’ initiative aimed at improving retail investor access to government bonds are underway to bolster market depth and liquidity.
Looking forward, as Uganda navigates the complexities of enhancing its financial market infrastructure, the collaborative efforts of stakeholders across the private and public sectors are deemed crucial for the country’s continued advancement in the Absa Africa Financial Markets Index.
