Govt to Turn to Financial Markets for Infrastructure Funds – Rugunda (

Government will consider capital markets as a viable option where it can borrow money to finance its infrastructure projects, Prime Minister Ruhakana Rugunda has said.

Rugunda told a meeting at Serena hotel in Kampala at the official launch of the automated Uganda Securities Exchange (USE) early this week that “government would look into that seriously”.

“I encourage the private companies to come and raise cheap capital through capital markets either by listing or issuing corporate bonds,” Rugunda said. “As government, we look forward to issuing long-term bonds to fund infrastructure projects.”

Often, government has been blamed for borrowing overseas – in China and other countries – sometimes at higher market rates, instead of issuing bonds through capital markets. Early this year, NSSF managing director Richard Byarugaba told reporters that the fund had the capacity to fund government infrastructure projects.

“The money is available. It is government that has failed to issue infrastructure bonds… We have talked to Bank of Uganda and asked why bonds are issued only for monetary policy, and not infrastructure,” Byarugaba said.

Byarugaba said they already lend to government, with more than 50 per cent of government securities bought by the fund, but that was not enough.

“I am sure if say KCCA issued an infrastructure bond, we would invest. There, the risk would be on government.”

Meanwhile, the online platform is expected to pull more investors to the financial markets and companies to list on the exchange. Local firms have shown less interest in listing as a worthwhile option to raise cheap affordable long-term finance. Commercial banks offer short-term loans at high interest rates – now averaging 23 per cent – and not so many businesses can afford such expensive money.

Paul Bwiso, the USE managing director, described the move to automation as “a landmark” in Uganda’s securities market. Automation means high speed and less time needed in settlement of transactions.

The online system means USE is targeting to operate at the speeds of T+1, which means that for most stock trades, settlement would occur one business day after buying. The manual system the USE had, on average, took about five days to complete a transaction. This was a big turn off for some investors.

“This is a very big milestone not just for the stock exchange but for the economy of Uganda as well,” Bwiso said.

Stephen Mulema, the director of financial markets, Bank of Uganda, said the move would attract more investors onto the bourse.

“More investors will come in. The biggest challenge has been on liquidity but increased visibility will attract more investors,” Mulema said.

Sixteen companies are listed on the USE although more than 60 per cent of the firms are cross lists from Kenya. The Nairobi Securities Exchange (NSE) has more than sixty listed companies. According to Bwiso, 80 per cent of the trading is taking place on the power distributor Umeme stock.

However, Uganda’s financial markets continued to grow with the Capital Markets Authority, the regulator, reporting that transactions value jumped to Shs 492bn in 2014, from Shs 252bn in 2013.

About Shs 130bn has been traded so far this year, according to Bwiso. The effect of the weak shilling, which has depreciated by more than 20 per cent this year, has had a huge dent on the stocks with about Shs 2 trillion of the value lost on the USE, affecting especially the cross-listed companies.


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