Why Uganda's stock market is not growing

By Martin Bakundana

As I pen this article down, there is a pending IPO listing in Uganda for the first time in almost five years. Cipla-QCIL is listing 18% of its shares to the Ugandan public (although 90% of that has already been allocated to Institutional investors).

Therefore, practically, there are only 10% shares available for the many retail investors (representing just 65,717,932 shares or 10% of the IPO shares to be listed).

Founded in 1997, the Uganda Securities exchange has grown from zero equity listing to the current (paltry) 16 (8 Local and 8 Cross-border listings) in a space of almost 21 years. With the current M.Cap of about 21bn (Approx $5.5m) the USE is almost the smallest in the region. The question to be answered is "Why isn't our Stock market growing as fast as it should?" I will try to answer this by making comparisons with the Vietnamese market (comparable to Uganda both in GDP numbers and Age of the stock market).

The Historical Background

The USE was formed in 1997 as a company limited by guarantee by the Capital Markets Authority (CMA) under the Capital Markets (Licencing) regulations of 1996.  The first product of the USE was a bond issued in 1998 (EADB) and no equity was listed on the USE until 2000 when the first two local equities were listed (Uganda Clays and BAT Uganda). The subsequent years saw six (06) more local equities listed in 2002 (Bank of Baroda Uganda), 2004 (DFCU Ltd and New Vision Limited), 2007 (Stanbic Bank Ltd), 2009 (National Insurance Corporation- NIC), and 2012 (Umeme Ltd). 

Almost in the same period (2001 - 2013), 8 cross border companies were listed, and these are 2001 (EA Breweries Ltd), 2002 (Kenya Airways), 2006 (Jubilee HL), 2008 (KCB), 2010 (Nation Media Group- NMG), 2011 (Centum Holdings), 2012 (Equity Bank) and 2013 (Uchumi). The USE All Share Index was officially launched in 2003. It should be clearly noted that there has been no single IPO on the USE since 2013! This is very indicative of the problems of our market. (No IPO for more than 5 years should worry all and sundry especially our policy makers)

So, why isn't our Stock market growing as fast as it should?

To answer this question, let us first look at the history behind its formation, and the approach for growth to support the sector. The formation of the USE was timely, considering that Uganda started privatization in the mid to late 1990s. Specifically, from the year 1997, Uganda went full scale on privatization but rather than take these companies through the Public listings, the government opted to go "Full private". Some have described our "Privatization" process as "Personalization". The public did not only miss the opportunity to participate in "owning" these companies, but the process denied the economy an opportunity to grow by providing a robust stock market that would mobilize huge economic resources for the various companies that needed it to spur economic growth.

Therefore, the stock market missed a big chance to tap on to the process that would fast transform the economy and facilitate its growth. This has had almost reciprocating effect in that the slow growth of the USE has negatively affected the wider economic growth, and, Similarly, the slow economic growth has further dampened the mood at most USE counters, hence affecting its growth. It is therefore safe to say that one of the major causes of the slow growth of the USE was the wrong implementation strategy of Privatization. Can this trend be reversed? Absolutely. How? Through redesigning the listing rules and creating incentives for private companies to go public. No Single IPO for more than five years is simply unacceptable!

Just to draw comparisons, let us look at the Vietnamese Stock exchange and specifically focus on the HoSE (The Ho Chi Minh Stock Exchange). Vietnam has 2 stock exchanges, the other being the HNX (the Hanoi Stock Exchange) which started in 2003. The HoSE started on July 20, 2000 with only 2 securities but by 2006 had grown to 13 licenced securities. This was followed by a rapid growth to 247 securities with a Market Cap of $28.28bn by the year 2010. As of 29th December 2017, the HoSE had 344 companies listed on the exchange excluding bonds and ETFs. In 2017 only, 31 new equities were listed on the HoSE and another 15 bonds, 1 ETF and 1 Fund certificate making it 48 new companies in just one year (2017). The total trading volume was 48.07 billion securities and the market capitalization- Mcap (as at end of 2017) was 57% of GDP. If we look at the combined MCap of both security markets, they represented a whopping 74.6% of Vietnamese GDP.

It thus makes sense for us to make comparisons because the two exchanges (the USE and the HoSE) started almost at the same time. In fact, if we look at the macro economic variables as well, GDP per capita was $286.7 for Uganda (at the time the USE was formed) while the same for Vietnam was $401.50 (at the time the HoSE was formed). There was hence no significant difference.  However, 20 years later (1997), the GDP per capita for Uganda was about $667 (representing a 132.65% growth over 20 years) while the same for Vietnam 16 years later (2016), was $2,214 (representing a 451.43% increase over 16 years). If our stock market had grown as fast as it should have, our GDP per capita would have as well increased. This obviously considers the growth in population with Uganda at about 40.9 million people up from 21.7m people in 1997 (representing 88.5% growth) while the Population of Vietnam was 94.6m in 2016 up from 77.6m in 2000 (representing a 21.9% growth). This further suggests that Uganda's GDP per capita growth has been negatively affected by the high population growth rate, another policy intervention matter.

Whether the upcoming listing of the Cipla-QCIL IPO will signify an upward trajectory in our market, only time will tell.

The writer is a PhD (Finance) student and Corporate Governance and tax expert and a CMCRC research scholar