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By Prof Wasswa Balunywa

There has been a lot of effort to develop Uganda’s financial markets but we still have an underdeveloped market The Uganda stock exchange has about 16 listed companies and only 6 of them are Ugandan owned! Ugandans are generally poor, financially excluded, and interestingly poor entrepreneurs despite high entrepreneurial! Very few participate in this important market. There are very few financial instruments in the financial markets and very few people go to financial markets to find money to invest. It is not surprising therefore that while markets in the developed countries were dropping by large percentages nobody in Uganda, except those with shares in listed companies has been talking about fears in the drop of the stock index. Whenever there is an announcement that the President would address the country, the markets will be jittery. Yes, indeed they are, but it’s not visible in Uganda. It is not something to write home about in financial market terms.
The Coronavirus has so far led to a partial shutdown in the Ugandan economy, markets have closed, malls have closed, the airport has closed, the educational institutions have closed and some factories have also reported partial closure. This is intended to stop the spread of the virus and its impact. This should be sufficient to cause panic in the stock market. Unfortunately, it is not enough in the Ugandan context. This is attributed to the small size of the Ugandan economy, the small size of the formal sector and which leads to a small size of the market. Still an undeveloped market.
The development of the financial market in Uganda will be crucial for the social transformation of the country. The Uganda government has over the years put in place ideal microeconomic policies that have seen the country grow. Monetary policy has been sound leading to low inflation and price stability. It is the interest rates that have defied everybody! Ordinarily, interest rates are a few percentage points over inflation. Inflation in Uganda has been quite low 3-5% per year but commercial banks’ interest rates are 20% per year! This puzzle has had no smart response. These policy factors have favored the development of a strong market, but the market has not developed. On the side of the key players, there has been a debate on establishing an Agricultural Bank for a long time. There is a debate on the re-establishment of a government-owned commercial bank, all these are options to think about. Unfortunately, our instruments are weak. Cheques are not respected. There are no shares to think of. All these don’t favor the growth of sound financial markets.
My thinking is that the government as a product of the coronavirus effect should establish companies in selected industries with a plan to selling shares to the public. The government should also use the concept of a unit trust to collect small sums of money from different individuals to fund some of these enterprises. The private sector runs business better but it will not be possible for ordinary Ugandans to start and compete with foreign investors. Wider participation of Ugandans in the financial markets can only be planned because it will not happen on its own.
In the developed countries, shares of big companies are going through the floor as a result of the virus. Nobody wants to buy a share of companies that are going to close. The oil sector has been badly hit with the price per barrel as low as 5 dollars per barrel. Remember one time this was almost US$ 100 per barrel! But governments are coming in to help. Uganda needs to be careful as it selects these companies for government to invest in. When the Coronavirus war finally ends, the world corporate graveyard will be full of one-time big company names that the virus killed. When the dust settles, only smart companies will wake up. Uganda needs to start from them. But read my lips without embracing new technologies, we are lame ducks. The price in losses and human beings will be unprecedented.

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