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Uganda’s Financial Sector Ranked as Highest Growing in East Africa

According to the Absa Africa Financial Markets Index, Uganda's financial industry is the one in East Africa that is growing the fastest.

Uganda’s Financial Sector Ranked as Highest Growing in East Africa

According to the Absa Africa Financial Markets Index, Uganda’s financial industry is the one in East Africa that is growing the fastest.

The financial index by Absa assesses the growth of the financial markets in 23 nations and identifies those with the most favorable market-friendly environments.

The performance of each nation is measured across six key pillars, which are: market depth, access to foreign exchange, market transparency, tax and regulatory environment, capacity of local investors, macroeconomic environment and transparency, and legal standards and enforceability. These pillars together make up the index scores.

The index shows that South Africa, Mauritius, and Nigeria kept their places in the top three on the continent this year because they continue to do well on tests of market depth, transparency, and the ability to enforce contracts.

Namibia and Kenya improved their positions within the top 10, while Uganda finished fourth after moving up two spots.

According to the Report, Uganda’s total Index score increased this year by 6 points to 66, propelling the nation from sixth to fourth in the rankings.

This is primarily a result of increasing environmental, social, and governance incentives, as well as strict data reporting criteria.

The biggest improvement in Pillar 3: Market Transparency, Tax and Regulatory Environment was seen in Uganda, which saw its score rise from 60 in 2021 to 81 today.

The Bank of Uganda’s strategic five-year plan from 2022–2027, which focuses on the “sustainability of the financial system and climate risk,” is largely to blame for the improvement in ESG activities and standards that followed.

Uganda maintained its top rankings in Pillar 3 for corporate reporting standards and the transparency of financial information.

The category for which Uganda received the highest score, Pillar 6: Legal standards and enforceability, was 90.

According to the index, this is mainly because there are legal rules governing the enforceability of collateral and netting-off.

In order to enhance interbank transactions and expand the adoption of standard master agreements, Uganda recently teamed with the European Union and Frontclear BV. This partnership would improve Uganda’s Pillar 6 score.

Other than that, Uganda improved its score in Pillar 2: Access to Foreign Exchange from 65 to 84, primarily as a result of increasing foreign exchange interbank liquidity.

The evaluation of adequate foreign exchange reserves also improved. While it drastically declined in other AFMI economies, this statistic in Uganda remained at four months of imports in 2021.

The index also shows that, despite turmoil in the global economy and somewhat increased inflation, Uganda ranks third in Pillar 5: Macroeconomic Data Standards due to its promising growth prospects. macroeconomic climate and transparency are the reasons

Points for development

Corporate bond turnover and total equity turnover in Uganda remained low in 2022, despite marginal gains in the country’s Pillar 1: Market Depth score.

“The stock market capitalization of Uganda remained relatively low in the year leading up to June 2022, falling by 1.5 percentage points as a proportion of GDP. And despite the most recent ESG incentives and guidelines, there are few ESG products (such green bonds) available on the domestic market, according to David Wandera, Executive Director and Head of Markets at Absa Uganda, who presented the index.

“Pillar 4: Capacity of local investors, where Uganda scores 14, is a critical area for improvement. Pension fund assets per person were $125, which is significantly less than the overall average.

Ramathan Ggoobi, the Permanent Secretary of the Ministry of Finance, remarked during the announcement that the index helps the creation of fact-based national policy.

He also praised the nation for the index’s development.

In a keynote speech, Micheal Ating-Ego, the deputy governor of the Bank of Uganda, stated that it is crucial for policymakers, regulators, and the users and providers of capital to learn from the successes and difficulties among peer countries in order to pursue our national and international goals.

According to him, the AFMI is an essential tool for monitoring development, identifying shortcomings, and emphasizing the prospects presented by African financial markets. I am quite happy to take part in this event as a central banker tasked with promoting the growth of the financial industry in Uganda.

“The 2022 AFMI is particularly exciting for us since it offers quick affirmation for the actions made by Uganda and its counterparts that saw considerable improvement in 2018. The index also demonstrates forcefully the obstacles preventing us, though.

While we celebrate the advancements of the past year, we must grit our teeth, clench our fists, and draw up our socks in order to face the ongoing difficulties and realize the full potential of the financial markets to propel national advancement.


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