[2008-02-05]  Better gov't policies will boost Uganda's stock market.
STOCK markets are crucial areas of wealthy creation and capital formation for individuals and companies globally.

While millions of investors, in other parts of the globe have considered stock markets as vital areas of investment, Uganda like several other African countries still has a lot to do about this lucrative platform of investment.

Although the Uganda Securities Exchange (USE), the nation's only stock market has made impressive strides to make its mark on their economy just 9 years in operation, it still faces major policy issues that could cook its goose if government does not expedite the implementation of fundamental policies which financial analysts say are necessary for a strong bourse.

Speaking to Business Power, Mr Simon Rutega, and the Chief Executive Officer USE said: "Government needs to continue to provide policy frameworks in the budding stages of our capital markets industry so that large successful entities can be attracted to the Uganda Securities Exchange and partner with the Uganda population in equity issues." He gave Stanbic Bank Uganda (SBU)'s Initial Public Offering (IPO) as a perfect example of how the stock exchange could turn around people's investments.

The bank's stock was listed in January 2007 at shs70 per share and hit the shs245 mark during its first trading session before it plummeted to shs140. However by January 24 2008, the bank's share price was trading at shs230 after falling from shs235 form the previous session but the stock remains the most traded with weekly volumes rising over 2.5 million.

Stanbic is commended for having introduced an IPO that provoked massive interest among thousands of Ugandans to engage in the USE securities, last year. According to the Capital Markets Authority, the regulatory body of Uganda's capital market, the number of investors on the bourse rose to over 50,000 more than double prior to SBU's listing.

Mr Rutega observed that although government has supported the bourse through privatization there is need for more tax incentives and coercion.
"So that entities which reach a certain size in the economy can partner with Ugandan investors and promote the country as a Foreign Portfolio Investment (FPI) destination. I hope entities like MTN, and Barclays Bank can be attracted to list and partner with Ugandans," he explained.

FPI means investments by individuals, firms, or public bodies from another country in a country's financial instruments like government bonds, stocks.

So far, only 9 entities grace Uganda's stock market 3 of which are cross listed on the Nairobi Stock Exchange (Kenya) and Dar es Salaam Stock Exchange of Tanzania.

The local listed companies include; Uganda Clays, Development Finance Bank of Uganda (Dfcu), British America Tobacco Uganda (Batu) and The New Vision Limited (NVL) and Bank of Baroda Uganda (Bobu). Market capitalization of the bourse has increased from shs62 billion in 2000 to over Shs5.1 trillion (over $3 billion) to date.

But most of these listed stocks are those in which government has divested its shares through initial public offers save for cross-listed companies on other regional bourse.

However, some of the economy's most solid companies including the top 10 tax payers like MTN, Shell, and Total have not yet considered listing on the USE because they see modest value in listing yet the public is keen to buy into stakes of these revenue giants. Usually, companies list to raise capital to invest their business.

Other are discouraged by the withholding tax on dividends which is now 10 per cent from 15 per cent, in the financial year 2006/7 and earlier. This is on top of 30 per cent of earnings as corporate tax remitted by the listed companies.

Government does not however levy tax on capital gains but some of the major investors are reluctant to list their companies on the USE because of the current tax levied on dividends while family business want no interference in their ownership.

According to Mr Rutega, if a better investment environment is enabled, more companies will be motivated to list thus expanding the bourse and giving investors more options from which to save and mint money.

Source: © 2008 Monitor Publications Ltd