Regulating & promoting the development of capital markets in Uganda: an interview with Capital Markets Authority CEO

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The Securities Exchange is a reflection of the economy; when the economy does not perform well, the markets do not do perform either.

The automation of the stock trading at the Uganda Securities Exchange (USE) in late August 2015 was highly anticipated to turn around the fate of the stock market. At the same time, it would act as an eye-opener for Uganda’s stock market to foreign investors.

Despite the slow growth of the capital market in Uganda, CMA has made progress on various fronts. In a conversation with Summit Consulting Ltd, Mr. Keith Kalyegira, the Chief Executive Officer shares his excitement about CMA’s future, explains the company’s role in setting the pace of capital markets development and the contribution to the NDP III.

  1. Who is Mr. Keith Kalyegira? How did your early training and roles prepare you to win in your current job as the CEO of CMA?

Keith Kalyegira is a father and husband. He is a Christian. He is passionate about the development of Uganda’s economy particularly the role of finance in economic transformation. That has always been my vision to ensure that there is justice in the disbursement of capital.

Am an early investor, my first investment in 2000 in the shares of a gold company in South Africa. This was at the beginning of my MBA at the University of Cape Town. That marked the journey of my equity investments. I went on to invest in other companies like Iron and steel, magnet manufacturing, and ICT between 2000 and 2003. This helped expose me to financial markets in developing African economies. This excited me about the power of financial markets.

When I returned to Uganda, I joined the privatization unit and one of the exciting roles in that job was restructuring of parastatal pension funds. This involved introducing the role of independent fund management for pension funds, particularly for the Uganda Communications Employees pension scheme. The task was to improve its performance for the benefit of members who were staff of Uganda Telecom, Post Bank, and Uganda Posts

I went on to briefly manage NSSF investments and ended up as an independent adviser on the NSSF Investment Committee. I also served as the Chief Executive Officer of an investment advisory firm that was fully licensed by the Capital Markets Authority. My interest was developing the equity market.

  1. What motivated you to invest in the gold company as early as 2000 in South Africa?

I was curious about how equity markets work. The influence of associations and friends and the news broadcast every evening about the performance of the Johannesburg Stock Exchange shed light. I bought shares because I studied finance, and there is no way I couldn’t participate. I took a 21-year investment plan in an offshore money market fund called Zurich life. One of the things I have realized about investments is the power of time. Many people procrastinate before they know it time has gone by.

  1. 2020 in review: What would you describe as CMA’s biggest achievements?

Our biggest joy was to see the sustained growth in the assets under management by collective schemes. This was against all odds during the COVID-19 pandemic that created lots of economic uncertainty. Many of the investment scheme managers were able to set up their campaigns to make people realize the alternative investments. We are also pleased that our licensees were able to continue operating using digital platforms when face to face interactions was discouraged or difficult.

  1. Tell us about CMA’s plans to help the business community raise affordable finance?

My key message to the business community is to reduce over-reliance on bank loans. They should realize the need to organize their businesses in such a way that they can attract partners – either finance partners or strategic partners who understand the business very well and are also able to mobilize expansion capital. Businesses need to be transparent in their record-keeping, reduce subjectivity in management: – hire competent people to run the business. Many times, the quality of personnel is comprised at the expense of hiring incompetent relatives.

When a new business investor comes into Uganda, they have the option of starting a greenfield project, acquiring an existing business, or partnering with an existing business. If you are organized, you are a good candidate for a partnership or acquisition. But if you are disorganized, the foreign investors will compete with you and probably end up outcompeting you. Businesses need to be prepared for regionalization and globalization to be competitive and attractive for potential partners. Therefore it’s important to prepare your business to access market-based financing which is sometimes more patient than bank financing.

As the regulator, our intention going forward is to remove impediments to deepening access to capital markets products like collective investment schemes, to encourage Ugandans to increase their savings in financial assets. We are strengthening management practices to improve the regulatory framework to ease access to market-based financing. We are in the process of reviewing the licensing regulations, market conduct regulations, and offer of securities regulations. We will focus on enforcement working together with other partners like the Uganda Police and office of the Director of Public Prosecutions to ensure the interests of investors are protected, so as to maintain confidence in investing in financial assets through licensed intermediaries or practitioners.

  1. What’s the status of collective investment schemes in Uganda?

Currently, they are five (5) licensed schemes:- Sanlam, Britam, UAP, ICEA, and Xeno. These provide a total of 13 funds: balanced funds (2), income funds (1), money market funds (4), and equity funds (1), umbrella funds (2), savings funds (1), and bond funds (1). The performance is good with most of them offering a return on investment in excess of 10% after taxes. This is relatively higher than what the banks are offering on the market in fixed deposits.

  1. The Government intends to raise long term financing for infrastructural projects through project bonds, what role has CMA got to play?

For the Kampala – Jinja highway, the winning Special Purpose Vehicle is likely to raise part of its financing through the issue of a UGX infrastructure bond. As the regulator of the industry, we are revising the bond guidelines to include infrastructure, municipal, and project bonds that can be issued by special purpose vehicles which are new companies set up for specific projects, and therefore do not have a performance history or track record. This is a work in progress and is expected to be finalized in the next eight (8) months.

  1. Are there any candidates for new listings on the USE? Do you see any Initial Public Offerings (IPOs) coming up?

Increasing listings are part of the role of Securities Exchanges. However, they have been some initiatives to try and encourage public ownership of companies in Uganda. As part of these initiatives, I am aware the telecoms will soon be coming to the stock market. I hope this will spur and encourage other companies to follow suit. We expect to see a huge increase in the number of investors. As an example, when MTN Ghana listed, they were 127,000 new investors who came into the Ghanian market, 96% of who were Ghanaian.

  1. What does the delay in the Umeme license renewal mean for capital markets and Uganda’s economy as a whole?

It creates uncertainty for existing investors. However, this doesn’t come as a surprise. In 2012 when Umeme listed on the stock market, the risk of a non-renewal of the concession agreement was disclosed to investors in the prospectus. It was clear that the concession could come to an end. That’s the beauty of stock markets – transparency of information upon which investors can act. All the necessary information is disclosed to the general public.

  1. How do you see the short- to mid-term outlook for the key sectors driving equity markets in Uganda?

One of the key drivers of equity markets is liquidity. CMA is exploring the issue to increase the role of dealers in playing a more active role in driving liquidity. Once the market is liquid, it encourages investors to come in knowing that any time they can exist. Take the example of BAT share price, it’s been stuck at Ugx30,000 for over three years, a challenge the licensed dealers and the Uganda Securities Exchange should have taken up. If you got active dealers, how come such a share price has not changed for so many years?

  1. What can be done to spur more listings on the Growth Enterprise Markets Segment (GEMS)?

One of the steps taken by the CMA was to launch a program where we hired consultants to talk to companies about the existence and benefits of market-based financing. As we review the regulations, we are mindful of the need to admit individual market advisers. We recognize that the biggest driver of the stock markets globally are intermediaries. We are also considering a reduction in fees to attract more licensees.

  1. The Government of Uganda launched the NDP III. To achieve the NDP III, what is CMA’s role?

One of the areas where CMA is expected to play a role in improving the liquidity of the debt markets – with emphasis on the corporate bond market. However, this requires increased liquidity and price discovery in the government bonds market as well. Debt capital market development invariably leads to Equity capital markets development. This will be achieved through working together with the Central Bank (as agent for the Ministry of Finance) and Ministry of Finance (as the issuer of debt on behalf of Government). The NDP III also expects to see an increase of Collective Investment Schemes (CIS) assets under management, to Ugx1 trillion in the next four years. This target is likely to be achieved soon given the rate of growth we have witnessed of CIS assets so far. We want to see more tax-efficient private equity entities being established in Uganda so that the growing savings in the collective investment schemes, investment clubs and retirement benefit funds can be channelled to private equity firms for onward investment in the real economy.

  1. In terms of numbers, how do you see the equity market and what does it mean for investors?

If the Telecoms follow through and list on an exchange in Uganda, we are likely to see a sharp increase in the number of retail investors. The use of mobile money, which they operate, will facilitate this process giving telecoms the opportunity to see their customers also become their shareholders, which is great for long term customer loyalty among other benefits.

  1. What would be your advice to a new chief executive officer in your kind of industry?

Have a long term vision of the difference you would like to make is important. The industry is relatively still relatively young. Uganda’s money supply is still only about 22% of the national GDP so the financial system is still not yet well developed.

Any CEO in this industry is therefore involved in the industry at a very good time as the only way forward is growth. As the economy becomes more monetized, clients will need more solutions to financing their businesses.

Young captains in the industry need to differentiate themselves, become skilled in what they are doing if they are to be recognized as experts.

Thanks for the insights

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