DISCIPLINE IS ESSENTIAL, CRITICAL FOR UGANDA ECONOMY

The concept of third party endorsement is a powerful one.

If you go out singing your praises, people will dismiss you as a braggart and send you on your way, shoes aimed at the back of your head. But if someone more respectable snatches the trumpet and blows for you, people are more likely to believe them than you.

Last week Absa Bank released its Africa Financial Markets Index 2019 as well as Uganda Economic Forum.

"Their Africa Financial Markets index, which is in its third year of publication, ranks 20 countries on the continent according to their suitability as investment destinations, using their financial markets as an indicator of this...

The countries chosen all had their own stock exchanges except Ethiopia, which despite being one of the strongest growing economies in Africa, was last on the Index.

Uganda was tenth, unchanged from last year, though its score on the index rose to 52 from 50 in 2018. Uganda fell to fourth in EAC, from second last year behind Kenya. Rwanda and Tanzania went from being outside to inside the top ten.

This is an important index and long in coming.  It provides an outsider’s view of the markets to potential investors. Investors outside the continent often see the continent as one country, they can’t be bothered to dig deeper, the smallness of our individual markets don’t justify the effort.

It is therefore useful to have such an index, previously fronted by Barclay Bank, to at least afford the continent a second look, by some of the biggest global fund managers, for who testing the waters may be a few tens of millions of dollars’ worth of investment.

The index used market depth, access to foreign currency, market transparency, capacity of local investors, macroeconomic opportunity and the legal framework, as the criteria to judge the countries.

 It’s clear from the index that countries, which ranked high on the transparency of their markets – South Africa and Mauritius are also the ones with not only the biggest inflows, but also have the biggest local investor interest in their own markets...

They say capital is a coward. It doesn’t like risk. One of the keys to mitigate risk is information or knowledge. The more access to information the more comfortable capital is.

So this index, on one hand, helps to allay investors’ fear and at the same time serve as a useful tool for countries to improve their environment for investment.

Absa’s economic outlook told us a few things we knew. They confirmed that Uganda’s economy is expected to continue growing, but they thought at a slower speed – 5% in 2020, than official figures suggest.

They said due to lower agricultural output and weaker demand at the end of 2019 they have been forced to lower their own projections for last year. This stickiness will continue into this year they think. Nevertheless, Absa expects that agriculture, continued infrastructure investment and election related spending will drive the economy this year.

They worry though that the twin deficits in trade – due to projected import increases to support public investments and the budget – forcing increase contracting of debt, can cause major discomfort were investors to judge our situation too risky.

"Common sense dictates, that with these twin deficits hanging over our head, government needs to be more disciplined in how it spends and contracts debt. Any economic shock down the line, will mean the pain will be much greater, given our high import bill, low revenue mobilization and ambitious spending plans....

A surprising revelation, or maybe not, was that Uganda’s exports to the EAC, as a percentage of total exports fell back to under 30% in 2019 from 40% four years previously. The continued insecurity in South Sudan and the closure of the southern border for most of last year must have been the reason.

Taking the two reports together, the major take home has to be the inadequacy of our local resource mobilization.

It means we are not collecting enough taxes, which supports the urgency to widen the tax base. We have huge deficits in human capital and infrastructure which cannot be bridged if we do not collect more tax. Not only does it limit what we can pay for ourselves, but also how much we can borrow to close those same gaps.

Low revenue collections put a real cap on our development ambitions.

But just as important, if we cannot mobilise savings to participate meaningfully in our own markets why do we think we can attract credible investors? The best advertisement for foreign direct investment is a credible pool of local players who can either be partnered with or bought out all together or provide real market research independent of official statistics.

The Absa reports should serve to reinforce concerns about this economy. We are not a basket case but we are balancing delicately on the edge. We should recognize that and act accordingly.