Uganda’s financial sector has been ranked as the highest growing within the East African region by the Absa Africa Financial Markets Index.
The financial index by Absa evaluates financial market development in 23 countries and highlights economies with the most supportive environment for effective markets.
The scores in the index are determined by the performance of each country across six key pillars: market depth; access to foreign exchange; market transparency, tax and regulatory environment; capacity of local investors; macroeconomic environment and transparency; and legal standards and enforceability.
The index indicates that South Africa, Mauritius and Nigeria maintained their positions on the continent in the top three this year, as they continue to score highly on measures of market depth, transparency and enforceability of legal agreements.
Uganda came fourth after rising two places while Namibia and Kenya improved their ranking within the top 10.
According to the Report, Uganda’s overall score on Index increased by 6 points to 66 this year, moving the country up to fourth from sixth place in the rankings.
This is mainly reflective of strong data reporting standards and new environmental, social and governance incentives.
Uganda’s score for Pillar 3: Market transparency, tax and regulatory environment registered the largest increase to 81 from 60 in 2021.
This was largely due to an improvement in ESG initiatives and standards after the Bank of Uganda launched a strategic five- year plan from 2022-27 which focuses on the ‘sustainability of the financial system and climatic risk’.
Within Pillar 3, Uganda continued to score among the highest for financial information transparency and corporate reporting standards.
Uganda’s highest score was 90 which came in Pillar 6: Legal standards and enforceability.
The index notes that this is partly due to the existence of legal provisions for the enforceability of collateral and netting-off.
Uganda recently partnered with both the European Union and Frontclear BV to support interbank transactions and further use of standard master agreements, which would bolster its score in Pillar 6.
Otherwise, in Pillar 2: Access to foreign exchange, Uganda’s score increased to 84 from 65 which was mainly due to an improvement in foreign exchange interbank liquidity.
The score for foreign exchange reserve adequacy also rose. This indicator stayed relatively stable at four months of imports in Uganda in 2021, while it deteriorated more significantly in other AFMI economies.
The index also indicates despite tumult in the global economy and slightly worsening inflation, Uganda’s solid growth prospects and relatively strong macroeconomic data standards mean it ranks third in Pillar 5: Macroeconomic environment and transparency, behind only Egypt and Botswana.
Areas for improvement
Despite slight improvements to Uganda’s score in Pillar 1: Market depth, corporate bond turnover and total equity turnover remained low in 2022.
“Uganda continues to have a relatively low stock market capitalisation, which fell by 1.5 percentage points as a share of gross domestic product in the 12 months to June 2022. And despite the latest ESG incentives and standards, there is limited availability of ESG products (such as green bonds) on the domestic market,” David Wandera, Absa Uganda’s Executive Director and Head of Markets, said while presenting the index.
“A key area for improvement is in Pillar 4: Capacity of local investors, where Uganda scores 14. Pension fund assets per capita stood at $125, which is much lower than the average across all indexes.”
Speaking at the release, the Ministry of Finance Permanent Secretary, Ramathan Ggoobi said the index supports evidence-based policy development in the country by the government.
He also hailed the country for the improvement in the index.
Giving a key note address, the Deputy Governor Bank of Uganda, Micheal Ating-Ego, noted that the annual assessment of African financial market development using common cross-country indicators is vital for policymakers, regulators, and the users and providers of capital to learn from the milestones and challenges among peer countries in pursuing our national and continental advancement.
He said The AFMI is a vital tool for tracking progress, highlighting gaps, and emphasising the opportunities offered by African financial markets. As a central banker mandated to foster the development of the Uganda financial market, I am most pleased to participate in this event.
“The 2022 AFMI is especially encouraging for us because it provides immediate positive reinforcement for the initiatives taken by Uganda and its peers that improved significantly last year. Nevertheless, the index also depicts starkly the challenges holding us back. As we smile at the progress made in the previous year, we must grit our teeth, clench our fists, and pull up our socks to tackle the persisting challenges and unlock the potential of financial markets to spur national progress. We have taken the initial steps, but a long road remains ahead,” he noted.
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