Uganda leads East African Community as most attractive financial market

KAMPALA, Uganda leaped five positions to emerge as the most attractive financial market in the East African Community (EAC) for investors, according to the Africa Financial Markets Index (AFMI) for 2021.
The country ranked fifth compared to its 10th position in the previous edition in 2020.

“Ghana and Uganda enter the top five for the first time, both earning points for progress in the enforceability of standard master agreements,” the report read.

The AFMI examines countries according to six pillars — market depth, access to foreign exchange, market transparency, tax and regulatory environment, the capacity of local investors, macroeconomic opportunity, and enforceability of financial contracts.

The index, released by the Absa Group, measures the performance of the financial markets of 23 African countries for use by policymakers, investors and asset managers around the world.

On the continent, South Africa, Mauritius, Nigeria and Ghana emerged as the most attractive financial markets.

“Malawi, Egypt and Uganda are among the countries that improved their ranking the most. Advancements in establishing the enforceability of global contractual frameworks lift Malawi and Uganda’s scores,” the report added.

Uganda’s score also improved to 57 from 52 last year on the back of improved pension asset positions over the period.

Uganda enacted legislation late last year with provisions for enforcing close-out netting and collateral arrangements.

Under pillar one, which examines the size, liquidity, and depth of financial markets, Uganda rose one rank to eighth.

This was attributed to a 20- year treasury bond tenor that was introduced for auction in the last quarter of 2020.

The Bank of Uganda (BOU) reformed the primary dealership system in the last quarter of 2020, limiting the competitive bidding in the primary market to seven primary dealer banks.

The dealer banks have since collectively raised over sh12 trillion in the primary market, which they on-sold in the secondary market with total trading volumes amounting to about sh43 trillion between October 2020 and September 2021.

This represents an increase of 289% compared to a year before the new reforms were introduced.

“Going forward, the bank is prioritising global visibility of government securities by advancing efforts to join a frontier market index as this will diversify Uganda financing instruments, boost transparency and widen the investor base,” BOU said.

The index also shows that Uganda’s pension investment increased to 16 points from 15 in the index that measures the capacity of local investors.

Uganda has a large pension fund under management but the index describes them as being illiquid.

A trend analysis of asset allocation by fund managers over the last five years indicates that investments in government bonds as a percentage of total assets under management have grown from 58.6% at the end of the financial year 2016/17 to 71.9% at the 2020/21.

Source: NAM NEWS NETWORK