Over liberalization: What about the capital markets?

By Denis Kasekende

In light of an article published in the New Vision of Tuesday, July 15, 2014, page 7 titled, “Over-liberalisation hurting economy, says Jacob Oulanya”, I wish to note that the issues the deputy speaker raises are not new.

Various individuals, private businessmen and even business associations have raised concerns about the high interest rates charged by commercial banks (most of them foreign owned) in Uganda.

Hundreds of people have complained about the poor telecommunications services in this country, regardless of the high tariffs, and many other complaints have been raised, generally about the exploitation from the service industry which is largely dominated by foreign players.

Liberalisation has its advantages and it is why the World Bank recommended this move for Uganda in 1987, when Uganda was picking up the pieces after a period of political and economic instability, and we can all see the fruits. However, this model, in my view, was not meant to be the ultimate solution to moving Uganda from the dilapidated economic status at the time to the middle income status we’re aiming towards.

I believe liberalisation served its purpose, and 27 years later, the country needs to rethink this liberalisation strategy and move towards increased citizen participation in the economic affairs of this country.

About 75% of the top 200-300 companies in Uganda are foreign owned companies. While these companies have greatly improved the competitiveness of our economy through provision of services, sometimes preceded by large scale investments in infrastructure and systems, their level of investments (in service sectors like banking, telecommunications and insurance) is relatively much lower than the profits these companies have consistently generated over the years, most of which are repatriated, placing a strain on the country’s currency and contributing to inflationary pressures.

But there is another way around this. If, some of these companies issued only 20% of their shares to Ugandans over a five year period, a significant amount of foreign exchange would be retained in Uganda by way of dividends, on an annual basis.

The question then to address is whether Ugandans (individuals and institutions) can afford to buy a portion of these companies. Given the volume of liquidity in the Ugandan banking sector (estimated at sh15 trillion) and the scarcity of medium to high yielding investment products, there is no doubt these funds can easily be mobilised by Ugandans. In addition, the rate at which NSSF is growing and the pension reforms in the offing, will release sufficient funds to invest in these companies. So Ugandans have the capacity to be part of their country’s growth, given the opportunity.

Policy makers need to realise sooner that the economy is at the heart of every citizen. Whereas the political drama has seemingly taken over center stage, and appears to be what majority care about most, the economy of this country is a more critical matter because right from the newly born to those tending towards retirement, the effects of a good or bad economy can be easily traced.

Therefore, for development to be meaningful to us all, and for liberalisation to be appreciated from a longer term perspective, the policy must be reviewed and aligned with the current development needs of the country and its citizens.

The writer is a financial management specialist