Uganda has again been ranked as the country with the highest growing financial sector within the East African Region.The latest rankings by the Absa Africa Financial Markets Index also indicated that Uganda ranks fourth in Africa.
Now in its seventh year, the Absa Africa Financial Markets Index evaluates countries’ financial development based on measures of market accessibility, openness and transparency.
The aim is to show how economies can reduce barriers to investment and boost sustainable growth.
The index has become a benchmark for the investment community to gauge African countries’ market infrastructure and is used by policy-makers to learn from developments across the continent. The financial index evaluates financial market development in 28 countries.
According to the 2023 report Uganda scored 62.8, above Kenya at 59, Tanzania at 55, Rwanda 44 and DRC at 35.
In Africa, Uganda ranks behind South Africa at 88, Mauritius at 77 and Nigeria at 67.
“Uganda fared better in macroeconomic environment and transparency. Its score rose by one point to 86 and the country retained its second-place position. The improvement was driven by the small fall in external debt to 26.8% of gross domestic product in2022, from 27.7% in 2021. Meanwhile, the country continues to score highly for its policy transparency, macroeconomic data standards and relatively low inflation rate,” the report reads.
It adds, “On Legal standards and enforceability, the score was unchanged at 85 though there are signs of progress as it became the seventh AFMI country to have adopted netting legislation according to the International Securities and Derivatives Association. A bespoke netting bill is reportedly being drafted to assist with obtaining a clean legal opinion from international bodies, which would further improve Uganda’s score in this pillar.”
Uganda’s score remained unchanged at 79 in terms of market transparency, tax and regulatory environment due to the country’ accounting standards and transparency.
Despite the good performance, the report however, highlights that the score for Uganda declined to 62.8 in 2023, from 64.4 the year before.
The decrease was mostly driven by weaker performance in access to foreign exchange.
“Uganda’s score fell by 10 points to 67 due to relatively lower scores for interbank FX turnover and international reserves adequacy. Reserves declined by almost 18% to $3.6bn in 2022, equivalent to 3.4 months of imports, from 4.6 months a year prior.”
AREAS FOR IMPROVEMENT
Uganda’s lowest score was in Pillar 4: Capacity of local investors. It fell by 1 point to 14, as pension fund assets per capita slipped to $119 in 2022, from $125 in 2021. They remain small compared to the index average of $847.
Building liquidity in domestic markets is another key area for improvement. Turnover across listed equities was just 0.3% of market capitalisation in the year to June 2023.
Limited liquidity in domestic bond markets also restrains Uganda’s score in Pillar 1: Market depth, where it ranks eighth. Initiatives to boost liquidity and local investor participation are underway, including a project to link the centralised securities depositories of the central bank and securities exchange, as well as the ‘Okusevinga’ initiative to improve retail investor access to government bonds.
The Absa Bank Uganda Managing Director, Mumba Kalifungwa, said Uganda’s ranking has improved from 10th when the report was first released in 2017 to 5th in 2021, then fourth in 2022.
Commenting about the report, the deputy Bank of Uganda Governor, Michael Atingi-Ego hailed Uganda’s performance, despite the challenges.
“This is commendable, considering that our economy, like many others, was adversely affected by the COVID pandemic and the effects of the Russia-Ukraine war. The resulting global supply chain shocks put pressure on domestic inflation in the second half of 2022, and the higher interest rates caused liquidity tightness, effectively disrupting access to financial resources,” Atingi- Ego said.
He revealed that Uganda has commenced the process of drafting a Uganda Netting Financial Agreements Bill, which, when complete, will give Uganda a clean netting opinion, effectively reducing risks such as settlement risk and credit risk hence enhancing investor confidence in Uganda’s financial markets.
He said Bank of Uganda’s decisive macroeconomic and macroprudential policy measures have helped to shield the domestic economy and financial system from the complete pass-through of various external shocks.
