Mr. Leo Kibirango, pioneer chairman of the Capital Markets Authority (CMA) and former governor of the bank of Uganda (BOU) points out critical hurdles in the capital markets industry that must be overcome. They include the liberalization of the pension sector; the creation of a fully operational central depository system law; the need to widen the market through creating more tradable instruments; licensing more players; reinforcing the regulatory environment; increasing products on the USE and promoting cross border trading. Amidst all these, but let’s not forget the need for the masses to know and appreciate this new investment tool.
The greater challenge however is getting Ugandans to understand the importance of stock markets amidst grim conditions of poverty, corruption and illiteracy. Currently, only a handful of Ugandans appreciate the opportunities available through the capital markets. While we continue to register an increase in participation (particularly in the IPOs) it’s not necessarily an indicator of apt comprehension of the game. In fact most elites buy shares because experience relays that most stock will register an increase on the first day of trading on the secondary market hence one can sell and bag twice their initial investment. The ‘get-rich-quick with the least hustle’ culture also drives them.
The contribution of mass education therefore remains critical and presents a challenge that key stakeholders must address. Education has been the landmark of any civilization. Improved literacy increases one’s competitiveness in the job market, improves communication skills and sharpens minds. This has a direct impact on business development through innovation.
With the biggest percentage of the population being in rural areas, creating awareness of the capital markets remains imperative. We must discard the notion that rural areas are synonymous with utmost poverty. While that might be true to some extent, it’s true that rural areas as well are consumers and offer productive labor. Most of our food for example comes from rural areas meaning that farmers are being paid for supply of produce. On the other hand Telecom services are being extended to the rural areas. Rural areas therefore wield some economic and monetary power that can be tapped. Capital markets have the capacity to accommodate rural populations the same way financial institutions do. Banks are rushing to offer services unlike 5 years ago when rural populations were ignored and not viewed as bankable.
The percentage of GDP attributed to savings is clearly very low. It stands at less than 10% compared to the sub-Saharan average of 19.4%. To stimulate the growth of savings, the government should promote the value of savings particularly among the younger generation. This can be achieved by fronting the capital markets as an alternative vehicle as opposed to stashing one’s money on a savings account where it is bound to earn close to nothing once inflation is factored in.
The capital markets present a world of opportunity where even those in rural areas can have a stake in giant urban companies. A decision to purchase shares does not only translate into an investment that will earn you a return in form of a dividend, but it gives you a say in the affairs of the company. Shares are a more credible savings machine. They are near liquid. One can thus easily convert them into cash unlike in the case of real estate. There is also the issue of risk that is demystified through investing in a portfolio that allows for a healthy spread of risk depending on one’s risk profile.
Governments and other stakeholders in the industry ought to strengthen education systems primarily the formal. There should be a properly laid out education programme/curriculum that applies interactive tools which will draw interest in the subject of capital markets among others. The Capital Markets Schools challenge in Uganda for example is a great resource in this regard but it may not suffice. It is important that our formal education systems take a dynamic approach to include current issues that are driving the global village. Education must give students the opportunity to learn and appreciate useful skills and knowledge that rhyme with the times.
Capital markets are clearly Africa’s future in terms of meeting capital requirements, creating credible and better governed business entities and financially empowering the investor. As we all grow, work and inevitably retire at some point, capital markets will in time be able to offer a better retirement deal that will not make retirement a dreadful thought.