[2008-08-20]  Citizens in Diaspora Buy Govt Securities Worth 150 Million U.S. Dollars
The participation of none-resident Ugandans in the purchase of government securities is making a distinctive mark on Uganda's economy with inflows hitting $150 million.

An IMF survey titled: "World Economic and Financial Survey," shows that since late 2006 purchases of Uganda government securities by none residents have surged to about $150 million, making at least one per cent of the Gross Domestic Product (GDP).


The surge is an indicator of a fresh source of financing that Uganda can tap into to boost its capital base. The IMF survey states that private capital inflows to sub-Saharan African countries, having more than quadrupled since 2000, represent an increasingly important share of foreign financing to these countries.

"This mirrors the trends among developed and emerging market countries, where capital flows have also surged owing to abundant global liquidity. Private equity and debt flows to sub-Saharan African countries remain small and are estimated at about $53 billion in 2007, compared with total global capital inflows of about $6.4 trillion in 2006," reads part of the survey report.

According to the IMF in 2006, private capital inflows to sub-Saharan Africa overtook official aid for the first time. The bulk of these inflows went to South Africa and Nigeria, but portfolio flows are also increasing in a small group of other countries--notably, Ghana, Kenya, Tanzania, Uganda, and Zambia--in response to improved risk ratings and attractive yields.

Private capital flows to sub-Saharan African countries have increased almost five fold over the past seven years, from $11 billion in 2000 to $53 billion in 2007. The survey show that the increase in portfolio flows to $23 billion in 2006 was particularly rapid, reaching about 14 times the 2003 level.

On the other hand it states that private debt flows have also increased rapidly since 2004. While FDI remained fairly stable at about $15-21 billion. Nigeria and South Africa together accounted for 47 per cent of total FDI flows; South Africa received 88 per cent of the portfolio inflows.

In 2007 sub-Saharan Africa experienced one of its highest growth rates in decades. Real GDP expanded by about 6.5 per cent fuelled by growing production in oil exporters and rising domestic investment and productivity across the region. Drivers include successes in stabilising economies and implementing structural reforms. The IMF survey says that this evidence suggests that the inflows are driven by push rather than pull factors.

With its pro-market emphasis yielding positive results, the Ugandan government moved as early as July 1997 to liberalise the capital account after liberalising the current account way back in 1993, even though the prevailing conditions--a shallow financial sector, limited regulatory capacity, and public debt restructuring--were considered less than ideal.

The survey reveals that minimal capacity to enforce capital controls and the need to attract foreign capital to reduce reliance on foreign aid persuaded Uganda to open up its capital account.


Source: Allafrica