3 December 2012

Uganda: Rising Income, Oil Prospects Attract Offshore Interests

The rising level of income among the growing middle-class in Uganda is creating new opportunities for offshore financial institutions.

The other strong pull factor, according to Standard Bank Group's offshore division, is the budding oil and gas industry that analysts believe will be a game changer by raising wealth levels in the country.

Offshore investments enable an investor to explore jurisdictions that do not impose taxes on investments. These include the British isle and Mauritius among others.

It usually avails the opportunity for various products and wealth management, including unit trusts, cash deposits and asset management, which offer attractive returns beyond what local investors are exposed to.

Standard Bank Group head of offshore investments David Iraka was speaking to a group of high-end investors in Uganda recently, who are beginning to ask financial institutions about the value opportunities available.

"It is a great strategy for your investments. You are diversifying across several regions and currencies," said Iraka.

Uganda has discovered about 3.5 billion barrels of crude oil. Of this, about one billion is recoverable.

These volumes present enormous market value for the country. This is alongside the numerous related industries and employment that will emerge from the oil industry going forward.

On the other hand, the country's GDP is set to bounce back to above 5% after slumping to a low of 3.2% in the last financial year, which means increased total sum economic activity and rising levels of income, all of which present opportunities for banking and other financial products.

Iraka said a majority of the clients are expatriates and high net worth clients. He said offshore investments will empower this group of clients to create and expand their wealth.

"The fundamental principle is diversification. You want to take advantage of tax benefits," said Iraka. There has not been much activity in the market in this segment, but in countries where offshore funds have thrived, a combination of political risks (Zimbabwe) and legislation (Zambia) have favoured the growth of offshore business. The fund has also thrived in West African states of Nigeria and Ghana.

Stanbic Bank head of wealth Allan Kiwanuka said in the past few years, most people invested in real estates and property, as their money piled up.

"But this is not the only opportunity. Also, some of the property are over priced," said Kiwanuka.

Standard Bank though says they have several other funds to take advantage of Africa's current opportunities, including funds for the stock market.

Generally, Africa is on the rise, with growing levels of income and sophistication among a rising middle-income group.

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