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, savingyourself the pain and heartbreak of building your own company from scratch?
Author Thomas Piketty in his book “Capital
in the 21st 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.
