Uganda’s financial sector has again been ranked as the highest growing within the East African region by the Absa Africa Financial Markets Index released on Tuesday in Kampala.
The financial index by Absa evaluates financial market development in 28 countries and highlights economies with the most supportive environment for effective markets.
The 2023 report released on Tuesday indicated that Uganda scored 62.8 in 2023
“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 says.
It adds that Uganda also performed well in 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 in terms of market transparency, tax and regulatory environment also remain unchanged at 79 after scoring well for its accounting standards and transparency, and progress has been driven by the development of environmental, social and governance standards.
The report says that whereas Uganda has maintained its position within the East African region and fourth in Africa, the score declined from 64.4 in 2022.
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,” the report says.
Areas for improvement
The Absa Africa Financial Markets Index report for 2023 shows that Uganda scored the lowest in terms of capacity of local investors.
“The score fell by one 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,” the report says.
It adds that building liquidity in domestic markets is another key area for improvement as 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 terms of 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.”
