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LETTERS FROM KAMPALA
Balancing economic priorities in Uganda
Maryanne Njeri
Published: 15-AUG-06

Our Kenyan neighbours seem to be having a superb time with regard to their growing economy and what is even more spectacular is the interest and participation of the people during their recent KenGen IPO, which was the largest in East Africa.

More IPOs will be taking place this year and next year and the interest by the ordinary Kenyan investor seems to be growing. Here at home, the investment climate is not at the same temperature as that of our Kenyan neighbours. This is very ironical because we won the 2005 award for being the most investor friendly country in East Africa.

The Uganda Securities Exchange which was inaugurated in June 1997, has eight listed companies, five local equities and three cross listed from Kenya (Kenya Airways, East African Breweries Limited and Jubilee Insurance Holdings Limited) in comparison to the Nairobi Stock Exchange which has more than 40 listed companies. DFCU Holdings was our largest IPO in 2004 with an offer of 79�509�743 shares representing a 39,97 percent stake in the company at a value of Ushs 45�742�567�670 at an offer price, which was oversubscribed. To enable more Ugandans to actively invest in the stock market, a lot of investor education and sensitisation needs to take place.

Most Ugandans tend to invest in Small and Micro Enterprises (SMEs). Consequently, most Ugandans are not investing as much as they should in the Uganda Securities Exchange (USE).There are several local businesses that are seeking capital to enable them to expand their operations.

However, there are some large local businesses which may be reluctant to list on the stock exchange for fear that the disclosure requirements could expose them to greater tax liabilities. Additionally, many of Uganda�s largest firms are family-owned operations which are reluctant to open up to outsider control.

As for the local banks, most remain conservative and have been criticised for not being open minded when it comes to lending to SMEs. The Ugandan government needs to play a bigger role in attracting local capital to the USE. Unfortunately, it has been focusing on attracting foreign investment

On the flipside, Ugandans are slowly getting more interested in the bourse. Public education is a key component of USE�s activities and it has invested a great deal of resources to sensitise the masses about the nature and operations of the Exchange.

In a bid to reach out to more potential investors, the Exchange has created a Public Resource Centre at its new premises as well as a highly dynamic website oriented at educating the ordinary investor.

Privatisation of state owned corporations such as Kinyara Sugar Works Limited (KSWL) is another way of boosting activity and interest on the USE. After being in the news in recent months over controversies surrounding the divestiture of 51 percent of the government�s shareholding, on June 15, KSWL was finally sold off through the Privatisation Unit after the government initiated a tender process to a strategic equity partner. The remaining 49 percent equity of the sugar company will be divested by way of an Initial Public Offer followed by listing of KSWL�s shares on the USE.

Spurring activity on the USE will need to be followed by serious measures to address Uganda�s recurring budget deficit. The country�s budget is heavily financed by donor aid in the form of concessional loans and grants, which are projected at 8,6 percent of Uganda�s Gross Domestic Product (GDP).

However, during the fiscal year beginning on 1st July 2006, this will be reduced to 8,4 percent of GDP. But this is below the percentage point reduction agreed to in the International Monetary Fund�s (IMF) Policy Support Instrument (PSI).

In January the IMF�s board approved a reduction of donor funding from 8,8 percent of GDP in 2005/06 to 7,7 percent of GDP in 2006/07.The IMF�s resident representative in Uganda, Peter Allum says the government had an option of choosing a less ambitious programme. That may make sense in view of the energy crisis facing the country.

The energy crisis has compelled the government to resort to thermal generation of electricity. But analysts say this option is expensive due to escalating oil prices in the international market and will increase the budget deficit even further. The government will need to spend at least $155mn per annum on thermal generation.

However, renewable energy generation projects are being developed as public-private partnerships to generate at least 50 Mega Watts to be supplied to the national grid. For this the required funding is at least $108mn. Some $65mn will come from the private sector and $43mn from the government.



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