Uganda: A bitty bourse
Every August, in what has become an annual ritual, the staff at Kampala-based Apas Financial Services religiously bank a dividend check from Safaricom, the Kenyan telecom behemoth. Apas acquired 12,100 shares in the cross-border Kenya and Uganda initial public offering (IPO) in 2008, and the shares recorded a 455% rise in value from KSh5 in 2008 to KSh27.75 ($0.28) currently.
Attractive as this may make investing sound, Apas is one of the few Ugandan players in this game. People and companies remain hesitant about tapping the securities markets, to the dismay of regulators, brokers and bourse managers alike.
“The value of the companies listed on the stock exchange is still low compared to where it should be, at about 4.5% of gross domestic product (GDP). We would like to be at 10% in the next five years,” says Keith Kalyegira, chief executive of the Ugandan bourse regulator, the Capital Markets Authority (CMA). “That will be a sign of meaningful participation in the market, and this growth can come from existing companies or new companies,” he tells The Africa Report.
The public has been slow to embrace capital markets, and many business owners prefer bank finance, says Paul Bwiso, chief executive of the East African country’s main bourse, the Uganda Securities Exchange (USE). “Few have undertaken any investments in the capital markets,” he says.
According to the 2017 ‘Africa Financial Markets Index’, a Barclays Africa (now Absa) and Official Monetary and Financial Institutions Forum publication, while Uganda enjoyed low foreign exchange restrictions and had a strong capital market development agenda, its markets were hampered by low local investor capacity, low living standards, low GDP per capita, low net portfolio flows and low market liquidity.
About 87% of investors in Uganda’s markets earn USh5m ($1,300) or less per year, an investor survey commissioned by the CMA and seen by The Africa Report shows. About 95% of investors had USh10m or less in capital market holdings, the survey shows.
Joseph Kitamirike thinks this trend for small investors should be encouraged rather than lamented. A former chief executive of the main bourse, he opened ALTX three years ago to enable even lower-income earners to invest the equivalent of what he calls pennies, opening hitherto unavailable opportunities to a majority of the population in a country where GDP per capita stands at $666.
Cutting out the brokers
“Our smallest investor invests USh10,000 a week. That’s where we want to start for people who are coming into the market. That’s about three dollars,” Kitamirike tells The Africa Report.
ALTX, which currently trades securities based on the treasury market, offers remote access to investors, from account opening and order placement to payment by mobile money. Unlike the traditional bourse, it largely eliminates the role of brokers, hence cutting transaction fees. It hopes to attract 10 million investors in five year’s time. And this year, it expects to reach USh1bn in turnover; impressive but still a far cry from the USE’s USh37.5bn from January to early September 2018.
“The problem is, when you permit trading by mobile, which is what we have, [you] need also to put appropriate securities on the market because the person who will come to you via mobile will require a certain type of product,” says Kitamirike. “If he/she is a person who is on the inclusion frontier, he will probably not appreciate the mainstream product. The product has to be modified to suit his entry,” he says.
“I don’t know whether the regulator needs to catch up and build up knowledge, but as long as there is a gap between what you are doing and what the regulator is thinking, there is always a risk,” Kitamirike says.
The CMA’s Kalyegire responds to Katamirike’s criticisms: “We approved their depository receipts public offer more than two years ago. But what does our market need primarily? Is the market ready for alternative products? I think that’s a business decision that they made and are pursuing,” he says. “Even as we consider submissions from intermediaries who are licensed by this alternative market, we have to be mindful of the consequences of those approvals,” he adds.
Noise on the street
Beyond regulation, Uganda endures many self-inflicted wounds. The mid-August initial public offering (IPO) by drug-manufacturer Cipla – the first in six years – coincided with riots calling for the release of singer-cum-politician Robert Kyagulanyi, aka Bobi Wine.
Mushaija Zacheus, a researcher at Crested Capital, the brokerage firm which handled the IPO, says that political tensions are influencing the market’s performance: “Capital hates noise. So because of the noise and the things going on right now, people are holding their money, they are fearing to invest,” he says. “I am not saying this affected our IPO, but we don’t know until we have a clear evaluation of the whole thing,” he concludes.
CMA boss Kalyegira says the regulator is enhancing public education and the government is taking a lot more interest in the subject of capital markets. Ultimately, he says, Uganda aims to join the frontier markets category of the Morgan Stanley Capital International (MSCI) index, which requires two companies of at least $700m in size to be publicly quoted. “There’s a large category of investors in the world that cannot invest in a market that is not classified in the MSCI category,” Kalyegira says.
This article first appeared in the October 2018 print edition of The Africa Report magazine