Uganda’s Capital Markets are roaring ahead despite Covid-19

By Samuel Sanya

The Capital Markets Authority (CMA) recently released its quarterly report for the three months ended September 2021. The report is largely a story of growth in stark contrast to the doom and gloom that has been witnessed in other sections of Uganda’s financial sector.

Central to this growth has been new strategic partnerships with other players in the financial sector such as the National Social Security Fund (NSSF), increased awareness of products in the sector through the CMA’s investor resource education program and robust supervision of the capital markets eco-system.

At the end of September 2021, CMA’s report indicates that Collective Investment Schemes (CIS) Managers had a total of Ugx857.3 billion in Assets Under Management (AUM). This growth represented an increase of 17.1% from Ugx731.9 billion registered at the close of the second quarter (June 2021).

Collective Investment Schemes are also referred to as “investment funds”, “mutual funds” or simply “funds”. Here, like minded individuals save in a common pool and invest together through a professional manager. There five approved funds by the Capital Markets Authority (CMA) namely; Xeno, UAP Old Mutual financial services, ICEA, Sanlam and Britam. Each of these require an individual or a group of individuals to have at least Ugx100,000 to invest.

This money sits with a custodian bank such as Standard Chartered or KCB to further safe guard the investors’ money. The money is then invested in assets, such as bonds, equities (company shares) or fixed deposits as per the scheme documents and investment mandate.  

The CIS come with tax benefits and also compounding benefits. Profit is re-invested every day to ensure that small money gradually becomes bigger money. This money, plus the profit made for the given period, can be given back to the investor with 24 hours whenever they have other pressing needs.

The total number of CIS accounts at the end of September 2021 was estimated at 25, 112 compared to a total of 20,668 investor accounts at the end of the previous quarter, an increase of 23.4%. This area is set to keep growing and some experts estimate that there is a Ugx13 trillion potential for the CIS. “This growth in assets under management and clients can be attributed to increased awareness about the benefits of investing through CIS vehicles among local investors,

As part of the efforts to revitalize the growth of the CIS sector, CMA will enhance the current public awareness campaigns on CIS products, work with stakeholders to improve distribution and develop a promotion strategy for CIS products,” the CMA report reads.

A breakdown of where the CIS money was invested by asset allocation at the end of September 2021 indicates that investments in Government of Uganda bonds took up 69.5%, followed by Fixed Deposits at 12.6% and Government of Uganda Treasury Bills at 9.4%. This is reflective of the investment strategy for largest funds (Umbrella funds) that investors have invested in, which hold the bulk of their assets in fixed income securities such as government bonds.

Fund management at Ugx4.2 trillion.

While CIS funds focus on individuals and small groups of individuals like investment clubs; Fund managers largely focus on firms and institutions. The fund manager is responsible for implementing a fund’s investment strategy; they oversee pensions, manage analysts, conduct research, and make important investment decisions from day to day.

The total assets under management for fund managers licensed by CMA closed the third quarter of 2021 at Ugx 4.2 trillion representing a gain of 3.8% from Ugx 4 trillion at the end of June 2021.

On an annualized basis, the AUM grew by 16.7% from Ugx3.6 trillion recorded in a similar period in 2020 (3Q2020). The increase in AUM can be credited to the rise in value of the assets held and also recruitment of new members by the schemes whose funds are under management.

“Liberalization of the pension sector would help attract more Ugandans, to save with different pension schemes. This would help mobilize local capital, which could be deployed for productive use by the real economy,” the CMA report points out.

CMA placing emphasis on public education (Issuer and Investor Education)

During the period under review, CMA continued with its investor education program which aims at creating awareness about capital markets among the public to drive market activity through Collective Investment Schemes (CIS). The program is conducted through external resource persons contracted by CMA to reach out to potential investors in the capital markets, with emphasis on investment through CIS. “The view is that with an enlightened general populace, demand for capital markets products – especially CIS, is expected to rise, leading to more market activity in Uganda’s capital markets,” the CMA report says.

Additionally, as part of outreach efforts, CMA has a close partnership with National Social Security Fund (NSSF) through an options matching program that includes monthly webinars.

CMA also runs an Issuer Resource Persons Program which seeks to increase the supply of securities in the capital markets. The program involves the use of external resource persons to reach out to key persons of prospective issuers to sensitize them on opportunities presented by market-based financing.

A key milestone for Issuer Resource Persons is presenting to boards of prospective issuers on market-based financing. During the presentations, boards are sensitized on the different types of non-bank market-based financing, its merits, and the preparatory steps for accessing it.

The resource persons are expected to tap into their networks to reach business owners and founders, CEOs, board members and CFOs in companies that show prospects of tapping into market-based financing.

Since the launch of the program in May 2018, a total of 40 companies have been reached. A total of UGX42 billion has been raised through the program by companies in the education; medical equipment; and microfinance sectors. During the review period, presentations were made to companies in the energy supplies and medi-care sectors.

Furthermore, the Authority in collaboration with CISI Kenya held a webinar under the theme “Effective capital raising towards capital market growth in East Africa”. The webinar, among other things, provided a platform to securities regulators within the region to showcase their initiatives towards facilitating efficient and effective capital raising within their markets and also reach out to practitioners and other key players within the market on their role towards fostering these initiatives.

With these interventions, it is easy to see why the future of Uganda’s capital markets is bright.

Samuel Sanya is Communications & Public Education Officer Capital Markets Authority Uganda