Sector Panel Discussion: Investing in Financial Markets (2nd UK Convention)

Hon. Maria Kiwanuka, The minister for Finance, planning and economic development was keynote speaker on the session about financial markets.

 

Mr. Phillip Wabulya, Executive Director Operations – Bank of Uganda explained that in 1993, the government had liberalized the economy, when just $50,000 could move the entire market of Uganda and the exchange rate would be up. The trade has changed positively and the capital markets right now demand a Diaspora bond because a lot of Ugandans are looking for other investment avenues and products beside the usual real estate.

 

Mr Wabulya further said that Uganda has an active secondary market whereby government securities are being traded. In addition, the Minister of Finance is committed to build skills and investment opportunities, and the Bank of Uganda via the UK Convention, aims to raise awareness and to look forward to the implementation of the Diaspora bond in the near future.

 

Mr Wabulya explained how people in the Diaspora will be able to buy or sell the Diaspora bond after its introduction, and how they will be able to access it from outside Uganda. He cited that from July 2011, Uganda received about $252million of investment in the financial markets in the bonds and treasury bills. He assured investors and Ugandans that it is already happening, that the opportunities are there and other shrewd investors were taking advantage of them, rather than looking at only infrastructure, housing and the like.

 

Mr Wabulya also said that Uganda Stock exchange (USE) realized that in Uganda, a lot of the financial markets are based in the commercial banks.  Bank of Uganda, Uganda Securities Exchange and Capital Markets Authority are currently discussing and exploring the best way to make it work. He said “we have what we call a central depository system that we hope will give access to a lot of investors to invest electronically into the government of Uganda securities and equity market, which will be operative in the next few months.”

 

Regarding threshold of investment, Mr Wabulya said that currently, foreign investors hold 15% of the government stock of government securities. A foreign investor can invest from as low as UgShs 100,000 without any maximum limit.

 

Concerning the minimum and maximum investment allowed for the Ugandans in the Diaspora, Mr Wabulya gave the following example: £100 a month totals £1200 a year; during the recent inflation where interest rates were as high as 25%, Ugandans who would have invested 1million UgShs shillings would have earned UgShs 250, 000. He stressed that no other investment right now can offer that amount of money anywhere in the world.

 

Lastly, Mr Wabulya addressed the worries of fraud, non- compliance of regulations and how to mitigate any risk from mismanagement of funds, which were put forward by some delegates. He revealed that every investor he had visited recently said that the Bank of Uganda pursued a very strong monetary policy that has insulated commercial banks from the problems that could have happened. He explained that banks in Uganda are sufficiently capitalized and have enough liquidity to meet the obligations. He added that BOU has a very strong supervision team headed by Mrs Justine Bagyenda that does not tolerate any flexibility in terms of any breaches in the requirement.

 

Hon. Maria Kiwanuka, the Minister for Finance, planning and economic development clarified that the Diaspora bond project is still in the discussion stage with an ongoing discussion and research, both inside and outside Uganda. The government policy right now is that any government issued bond would be for income generating infrastructure such as a hydro powered dam or a toll road or an electricity transmission line. This would be a long term productive project. She added that no bond would come into effect until a survey would have been conducted about the various Diaspora groups, their incomes, their investment characteristics and their risk perceptions.  Only then will any bond be tailored to a certain project and to a certain Diaspora group or groups. The minister finally said that so far, the Ugandan government has not yet issued a Diaspora bond, so this is just the consultation process.

 

The Minister of Finance concluded the session by thanking the panelists and the delegates who patiently listened to the vast information that had been shared.

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