Interview
2 August 2005
The Capital Markets Authority (CMA) recently concluded a campaign to educate secondary school students about activities of CMA. Elias Biryabarema & Robert Mukombozi talked to Mr Japheth Katto, CMA's Chief Executive officer about the campaign
What role does CMA play in the financial sector?
CMA is a statutory body set up by an Act of Parliament (the Capital Markets Authority Act) in 1996 and its role is to develop, promote and regulate the capital markets industry in Uganda. This industry is composed of different components like the stock exchange (actual market place), broker/ dealers, investment advisers, fund managers among others.
What was the Secondary Schools Capital Markets Challenge Campaign all about?
One of our roles is promoting and developing the capital market. We have appreciated through experience that one of the impediments to capital markets development is lack of awareness about this industry. There is also need to demystify, some people think the things we deal in are very complicated, but honestly, capital markets deals in financial instruments.
Is that perception changing?
Yes. To make the sensitisation simpler, we had to involve students and their teachers through seminars. We are
working in partnership with the British Council, Kenya Airways and German Technical Corporation to reach different schools. Children are learning to buy shares of their own choices at an early age by placing orders through the brokers, using the money won in our essay competitions and more schools are getting interested.
We are also assisting students and schools to form investment clubs; we have developed for instance an agreement in a form of charter that will help them in developing such clubs.
Most importantly, a subject known as entrepreneurship, which is being added onto the curriculum will help students and teachers understand basic skills in capital markets business.
How do you assess Uganda's stock market industry?
Assessment is all about drawing benchmarks. In terms of shares of companies listed on the stock exchange, only seven are listed, we could do with more but we are expecting more to come through cross listing. The biggest challenge here has been to get local companies in Uganda to use the capital markets.
To solve this problem, we have decided to continue giving education on listed companies but we also have the capital markets project, a US treasury funded venture.
This project, overseen by Uganda Securities Exchange (USE), CMA and Bank of Uganda, is identifying some potential companies that could list and they are assisting them to restructure for that purpose. five companies will soon be listed.
Is Kenya doing better than Uganda?
Yes, but we are not worried because we have almost the same number of listed companies with Tanzania, yet she finished the cross listing. Kenya has 47 but it started the capital markets business long ago. It is also interesting that the trend in Uganda's performance in the stock market has grown. In May, USE registered a trade of Shs1 billion.
Could the problem be partly due to lack of a consistent savings culture in Uganda?
Uganda's savings rate to Gross Domestic Product is very low, under 10 percent, compared to countries like Kenya that have 20 percent and Malaysia with over 40 percent. We have been attracting people to save in monetary terms.
This does not mean that we are failing people to invest in other ventures like land, houses and cattle but we also want them to go into the monetary sector by offering them suitable products. These services can come from CMA, banks, insurance among others.
We are also persuading the government to consider tax incentives to attract a pool of savings from people. For the saving culture to grow, liberalisation and reform of the pension sector should be emphasised because there has never been a country whose savings has grown without utilising the pension funds. Reforming the pension sector will automatically increase savings like it has worked in Kenya and Malaysia.
How has CMA helped institute policies that have fueled economic growth?
CMA has provided an avenue for raising capital for development of the economy. There is a relationship between a developing economy and a developing capital market. Most of the developed economies have developed capital markets.
We also provided a barometer for economic growth by reflecting things happening on the market for either change or stabilisation. The government has not really done much in promoting this business but we ask them to give us more support so that manufacturers and entrepreneurs can use capital markets for raising finance.
They can get money through us to grow their businesses and if the government considers incentives for them, then it would be better.
We are grateful that listed companies like Uganda Clays Limited and Dfcu Bank are paying very good dividends and more of such companies would do better if they are encouraged.
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