THE DEMOCRATISATION OF CAPITAL

Last week the Uganda Securities Exchange (USE) partnered with mobile company MTN to allow mobile phone owners register to buy and sell shares on the exchange.

To trade on the USE one needs to have a Securities Central Depository (SCD) account, this is basically an electronic record of your share holding, trading history allows you trade shares. So under the new partnership one will be able to open an SCD account from their phone. With an SCD account working through a broker people will be able to participate in the USE.

It was a logical progression. First, the banks allowed us to transact off our phones. Then the mobile phone companies allowed us to  transfer, save and borrow off our phones. And now we will be trading off our phones.

With MTN’s more than 10 million subscriber base if only one percent or 100,000 new SCD accounts are created, they may  very well cure the USE of its shortage of liquidity.

There has not been much activity on the USE because there are a few companies listed, 14 in all and most of the shares are held by institutional investors who are more inclined to buy and hold. This latest development coupled with the impending listing of MTN on the USE may improve matters considerably in years to come.

This is important for the wider economy and the for the individual shareholders.

"A major difference between the rich and the rest,  is that the rich more than the poor, have their money work for them. My favourite American Warren Buffett has been quoted as saying something to the effect that if you can not get your money to work for you, you will work until your death....

Democratising shareholding is effectively giving more and more people a chance to jump onto the wealth accumulation ladder.

Shareholders benefit from the annual dividends paid out by the companies and the appreciation in share price if the company is profitable.

Over the last three decades the economy of Uganda has grown more than sevenfold but the everyday Ugandan complains that he is not seeing these gains in his pocket.

This is not surprising as most of the benefits of this growth have ben enjoyed by the owners of capital, the company owners. As the economy has grown the companies have grown with it and therefore too how much the owners of these companies can keep for themselves.

It is not unusual from companies to make profit margins of 20 percent, way above the average inflation rate of five percent we have seen over he last decade.

Meanwhile the everyday man if he is employed has maybe seen single digit annual growth in their paychecks if at all, which has barely kept ahead of inflation. But companies have also cut back on their staffing by automating over the years, which has seen whole departments wiped out in some industries. Such restructurings have made them more profitable.

You can see how the economy’s growth favours the company owners over the workers, never mind the jobless ones.

Going by the above, a chance to play in the company ownership game should be jumped at for anybody who wants to benefit more from the economy’s fortunes.

To illustrate, when Stabic bank listed on the USE in 2007 a share sold at sh70 along he way the slit the share into ten, so that the IPO price in hindsight would be sh7. On Friday a share in Stanbic was trading at sh26 an almost four fold increase in value during the period. This might not seem like much but it represents an almost annual ten percent compound growth in share price. The way to think about is who would give you ten percent return a year for your money? Even at the banks to enjoy such rates you would need to put down a few millions.  Not to mention that Stanbic shareholders have also enjoyed an annual dividend that probably represented half the money they spent buying the share at IPO.

No doubt, to benefit from the stock exchange is a long term play. If you want to bag a windfall  in a month or a year the stock exchange is not for you. But then again no sustainable fortune was built in a month or even a year. And then you have to ask yourself, if all the richest people , genuinely rich people, became so by owning companies, building them over years, why would you reject an opportunity to own an already well run company, saving

  yourself the pain and heartbreak of building your own company from scratch?

Author Thomas Piketty in his book “Capital in the 21^st Century” made the point that as long as the returns on capital remain higher than inflation, the gap between the rich and the rest will continue to widen.  Inflation is a rough proxy for the rate of salary increments. So in an economy like ours where inflation hovers around five percent how do you keep up with company owners who are enjoying at least 20 percent return on capital?

The trick is to join them. And the more people who can the better for them of course but for the economy as a whole.