Uganda ranked highest growing financial market in East Africa, 4th In Africa

by Christopher Kiiza
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Uganda has ranked the highest growing financial market in East Africa, and maintained the fourth position on the African continent, according to the latest Absa Africa Financial Markets Index (AFMI) 2023.

The Absa AFMI released annually assesses the development of financial markets across 28 African nations, and highlights economies that offer the most conducive environment for efficient market operations.

The AFMI is measured based on six pillars which include; market depth, access to foreign exchange, markets transparency, the capacity of local investors, macroeconomic environment and transparency, and the legal and enforceability of standard financial market agreements. 

“As a country, Uganda’s ranking has improved from 10th when the report was first released in 2017, to fifth in 2021, then fourth in 2022. And pleasingly, I am proud to announce that we have maintained the fourth position out of 28 markets for a second year running in 2023,” said Absa Managing Director, Mumba Kalifungwa at the launch of the index in Kampala on Tuesday.

Uganda achieved a score of 62.8 behind South Africa which has a score of 88, Mauritius at 77, and Nigeria at 67. The three are powerhouses in terms of financial markets on the continent.

Regionally Uganda is followed by Kenya which scored 59, Tanzania with 55, Rwanda with 44, and DRC with 35.

Uganda’s score, according to Kalifungwa, was achieved through favourable policies and establishment of the required market infrastructure and ensuring overall financial stability.

Despite topping the East African region and ranking closely behind Africa’s biggest economies, Uganda’s score declined from 64.4 attained in 2022.

Presenting the report, Absa Bank Uganda Executive Director, David Wandera said that Uganda registered an unchanged score on pillar one (market depth) which measures the size, liquidity of Uganda’s domestic, equity and bond markets. 

Uganda’s score in access to foreign exchange fell by 10 points to 67 due to relatively lower scores for interbank foreign exchange turnover and international reserves adequacy. Reserves declined by almost 18 per cent to $3.6bn in 2022, equivalent to 3.4 months of imports, from 4.6 months a year prior.

On to the third pillar (market transparency, tax and regulatory environment) which measures tax systems regulation, and information availability, Uganda’s score remained unchanged at 79.

Uganda fared better in pillar 5 (macroeconomic environment and transparency). Its score rose by one point to 86 and the country retained its second-place position. The improvement was driven by the small fall in external debt to 26.8% of gross domestic product in2022, from 27.7% in 2021. 

Meanwhile, the country continues to score highly for its policy transparency, macroeconomic data standards and relatively low inflation rate.

In pillar 6 (Legal standards and enforceability), the score was unchanged at 85 though there are signs of progress as it became the seventh AFMI country to have adopted netting legislation according to the International Securities and Derivatives Association. A bespoke netting bill is reportedly being drafted to assist with obtaining a clean legal opinion from international bodies, which would further improve Uganda’s score in this pillar.


The AFMI report indicates that there is need for improvement in pillar four (Capacity of local investors). This is Uganda’s lowest score. The capacity of local investors fell by one point to 14, as pension fund assets per capita slipped to $119 in 2022, from $125 in 2021. They remain small compared to the index average of $847.

The Bank of Uganda Deputy Governor, Michael Atingi-Ego said Uganda’s performance in the index has been enhanced by the Bank of Uganda’s adoption of the environmental, social, and governance policies in its strategic plan for 2020 to 2027.

“I am pleased that Uganda has maintained its ranking of being the first in the region and fourth in Africa. To us, this is commendable considering that our economy, like many others was adversely affected by COVID-19 pandemic, and the well-known effects of Russia – Ukraine war.”

The Bank of Uganda’s decisive policy measures have helped mitigate the adverse consequences of various external shocks, specifically the measures largely contributed to curbing exchange rates volatility and lowering inflation.

“Despite these positive developments, our score dropped by one percentage points from 64 to 63. While we remain the fourth, this score dropped from 64 to 63 on account of reduced FX reserves and liquidity that resulted from the flight to quality as offshore funds exited the frontier markets amid rising interest rates environment in their home countries,” he said.

Atingi-Ego, however noted that Bank of Uganda has embarked on several missions to sustainably build robust foreign exchange reserves. 

“We are currently engaged in a market wide adoption of International Swaps and Derivatives Agreement (ISDA) to facilitate derivative trading as a risk management and a hedging tool as well as a funding tool. This is in addition to the Global Master Repurchase Agreement (GMRA). We believe that the adoption of these agreements is going to broaden the Bank of Uganda toolkit for monetary and financial policy implementation, leave alone reserve build up operations.”

Bank of Uganda is also working with several stakeholders to diversify Uganda’s FX reserve asset base.

In April last year, Bank of Uganda gazetted the financial preference and appraise book value regulations which according to Deputy Governor, led to an increase in horizontal repo transactions. This has greatly reduced credit risk among interbank players and also facilitated a more efficient monetary policy transmission.

Uganda has now commenced the process of drafting the Uganda netting financial agreement bill which when complete will give Uganda a clean netting opinion, effectively reducing risks such as settlement risks and credit risks and hence enhancing investor confidence in Uganda’s financial markets.

Markets that have been granted a clean netting categorization have observed seven-fold increase in investor participation in their markets, and hence enhanced access to capital.

“The Uganda government securities have also gained global visibility through international listing on the FTSE Frontier Emerging Market Index, effective July last year. We are also in discussion to list on the ABABI Index of the African Development Bank, and thereafter, JP Morgan Emerging Market Index. These indices provide global visibility for our government securities, attracting more offshore investment, which should in theory eventually lower the government borrowing costs. The Ugandan market is also in the process of adopting the FX global code of conduct to support ethical trading in the financial markets,” said Ating-Ego.

The Deputy Governor also said Bank of Uganda is intentional about increasing efforts to develop the domestic financial markets, and added that Uganda’s position as a leading financial market in the region should prompt the public to question why Uganda should not ambition to establish itself as a financial centre to rival others in the region.

“The question is how can we ensure that our financial markets fit into this so that we become a financial hub in the region?”

In this regard, Ating-Ego revealed that the Ministry of Finance has appointed Bank of Uganda to chair the Uganda Fixed Income Market Steering Committee, which is comprised of key stakeholders in the financial markets in Uganda.

The committee is going to spearhead the development of strategies specifically geared towards addressing the stumbling blocks to fixed income, market development in Uganda and generally developing the financial markets landscape in Uganda.

The Deputy Governor said Uganda must not lose its position, but rather improve to a better one.

“We are challenged by the fact that we need to maintain this position. We don’t need to be seen to be backsliding. Now the guys who are ahead of us, the South Africans, the Mauritius and the Nigeria, these are heavy markets, and we cannot afford to go back. So, we have to push and see that one of them comes down. And that’s not an easy task. But I believe is possible. So, I want to believe that our efforts in building these markets are going to prosper,” he said.

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