Wednesday, November 20, 2013


A few days ago the Capital Markets Authority (CMA) announced their new boss Keith Kalyegira. The Uganda Securities Exchange (USE) is also in throes of recruiting a new CEO.

The two institutions have nurtured our markets from inception and have set up the necessary structure on which to vault to the next level.

Since the USE’s inception in 1997 sixteen stocks – eight local and the other eight Kenyan companies, have been listed.

In addition there is a treasury bond and bill secondary market and a few corporate bonds have also been issued and trade on the exchange.

The CMA regulates the USE and another capital markets that may be created. Capital markets provide an alternative avenue to the banking industry for raising finance and may also serve as a useful vehicle for small players to get in to the investing game.

In the last decade or so the cut throat competition in the banking sector has seen an ejection of the traditional high street banking model. There was a time believe it or not, when banks used to open at 9 am to close at 2 pm , when opening  an account came with prohibitive criteria and bank loans were an exclusive product.

We had transposed the high street banking model, which had evolved over centuries to our pre-industrial society, the net effect of which that total bank accounts are barely five million out of a population of 35 million today.

"The introduction of extended hours by, the now defunct, Greenland Bank and improved ICT – not least of all the entrance of mobile money, has driven the snobbishness out of the banks. In the process more people have bank accounts, more transactions are finding their way from the dark unregulated alleys of down town Kampala to the formal financial sector and of course the industry’s profits have grown by leaps and bounds....

The capital markets will have to make the same leap of faith. It’s true that there are still too many blue chip companies that can still list or raise money on the securities exchange at more favourable terms than they get at the bank. But there also a myriad of companies beyond Kampala road which are doing brisk business, turning over tens of billions of shillings  and  who have just discovered the banks, but who would be well served by a vibrant capital markets industry.

Clients – small and big, no longer go to banks, the banks come to them a similar shift in mentality will have to be adopted by our capital markets.

For starters an alternative investment market is long overdue. This would be a like a lower tier market from the main board on the USE, with less onerous requirements for listing that can afford the smaller firms to jump in on the action.

This is critical now on two accounts. With the growing regional competition our firms are going to need all the help they can get. For starters they will have to grow, to benefit from the greater efficiencies that come with greater economies of scale. Cheaper finance will go some way in helping their.

"But lost to some observers too is that with the liberalisation of the pension sector, fund managers will be forced to invest abroad for lack of investment opportunities here.  By growing the USE’s portfolio for example, by making it more accessible to a wider pool of companies, we may be able to keep most of our money here. The benefits of retaining the money versus expatriating it to develop other economies cannot be overemphasised...

Kalygeria and his counterpart at the USE are the second wave of reformers, their predecessors Japeth Kato and Simon Rutega respectively have done most of the heavy lifting, Uganda is looking to them to take the market to the next level.

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