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Wednesday, May 27, 2009

A look at Capitalism

Yesterday morning, we had the choice of either going downtown to get internet access or attend the Ugandan stock market. As one of the individuals who attended the stock market, it was an eye opening.

First off, the stock exchange has only been open since 1999, or for 10 years. Currently, there are 10 companies that are being traded on the exchange with all of the trading done manually. But, in the next three months, trading will be down electronically. Officials hope this will open up the exchange so investment in the country will be increased. Also, trading is done only three days a week (Monday, Tuesday, and Friday) from 10am until noon. The 10 companies traded come from the five sectors of the Ugandan economy so officials believe it is a good representation of the economy.

Studying finance at Drake, I was shocked by the experience but also learned a lot. Take a look at America and the large stock exchanges that currently exist there and how much trading is done each week. Cash truly flows freely and capitalism is clearly present. But, not here in Uganda.

I believe one of the ways to jump achieve sustainability in Uganda is through the development of a strong stock exchange. By doing so, companies will be able to raise funds that they couldn't otherwise raise. Doing so, will allow them to grow. As companies grow, so does the economy, the GDP, and the GDP per person. More will be able to be accomplished within the country. But, the problem is that many companies in Uganda are family owned and they have no intent to go public because they do not want to share their profits with others (dividends). If companies aren't willing to do this, how is the economy suppose to grow? To me, it seems to be a cultural problem. My question to you is this: How does the government within Uganda convince companies of the benefits to go public? Also, what incentives could they offer to these individuals as well? And, how long until the stock market starts to grow substantially here?

Fianlly, with electronic trading, you as an American will be able to buy Ugandan stocks. Why would or wouldn't you buy Ugandan stocks. What are the benefits and the risks?


  1. The government coud convince companies to go public by offering incentives. If incentives are offered that outweigh current situations, then companies will be more likely to take up public practices. Tax incentives could be used, whereas if companies engage in public practices, then they face less taxes that they would have to pay. If these decreased taxes outweight current taxes, then this exchange and change to from private engagement to public businesses, could be more common. Instead of incentivizing these companies to go public, laws could be instated and regulated, that penalize companies that are not public. This would be hard to instate here and hard to regulate. Basically, this probably would not be a very good idea.

    I would be hesistant to buy stock in Uganda because I am hesistant to buy stock anywhere. I do not know a lot about stock exchanges, so I definitely am skeptical of my ability to make good decisions in the stock market. Ugandan stocks are probably more risky to engage in Uganda because of corruption and a slower rate of development compared to other countries. I do not know a lot about what companies are successful and growing here, so I would be unsure as to what stocks I would buy and I probably would make a lot of bad decisions.

  2. I am writing this with Sheila now. We both strongly disagree with you Korey. The only people who benefit from the stock exchange are people with money like corrupt gobvernment officials and foriegn "investors" that are raping the Ugandan workforce. You have to have to have money to invest money. Average Ugandans don't have money. That's why the exchange is so small. If you go over the list of companies trading stocks, they are not owned and operated by Ugandans. I will bet that the majority of the stockholders are not Ugandan. And the Ugandans that own shares are already rich in a nation of poverty. The Ugandan Securities Exchange is an extension of western imperial power. It is creating a death trap that you have fallen into. See you in h...

  3. When we went to the exchange I just really felt that they had put the horse before the cart in setting up their stock market. The way a stock price is established is no different really than the haggleing that goes on in the market. At the start of the Chicago stock exchange the actual farmer would bring his corn to the exchange and haggle the price. The difference between this and the market is just that the prices are recorded at a stock exchange and traders can point those previous transactions and be able to negotiate a price reasonable to that. I just fill they have forgotten the basic and base of a stock exchange. They need to meet more with the farmers (which are also the overwhelming majority of Uganda's economy) and educate them more about the benefits so as to better organize them.

    They mentioned they were moving to a more electronic function which I think is extremely importantly as crops are extremely affected on an international scale. To have an affective stock exchange it must be available to as wide a market as possible. The more the market the more the buyers and the more sellers and the more of the chance for a mutally beneficial trade.

  4. Eric, I dont think you fully understood what I was writing about. Yes, I realize that the the majority of the population in Uganda can not afford to buy stocks because they have other more important needs to meet first (food, water, shelter, clothing). So, yes I agree there is a lack of funds in Uganda and that is a problem with regards to achieving funds for sustainable development.

    However, in order for Uganda to grow as a nation, funding is needed. The Ugandan government could easily print more money to pay for the costs to develop the country. However,that would create serious inflation issues which the country does not want. So, for me, the best way to get more money into the country is through foreign investments. By setting up an electronic stock exchange, the rest of the world will have access to the Ugandan stock market and will be able to invest their funds in the country for a return. As we learned on our tour yesterday, stocks return about 25% per year here, much higher than in the United States partly because it is a growing market.

    So when the stock exchange goes electronic and when the government can convince businesses in Uganda to go public because of the benefits it presents, then the Ugandan economy will be able to grow at a much faster rate. Investors will be attracted to the returns offered here in Uganda and there would be a potential to attract a large amount of investors. The only problem is the amount of corruption in the country, and that is reflected by the large return rate.

    I hope this has cleared up any confusion you may have had.

  5. I don't see the Ugandan stock market growing any time soon, if at all. As Korey said, why share dividends with others when you are simply trying to provide for your own family? I'm usually an optimist, but I see no way in which the Ugandan government would want to provide incentives for those reluctant to participate in the stock exchange. In addition, the general public here knows about corruption in the government, and would be very skeptical of any sort of incentive they would be willing to provide.

    In response to the second part of Korey's question, I would personally keep my investments in the United States. While we have seen a drop in the stock markets back home, the credit crunch is almost as bad here in Uganda, thanks to a ripple effect. Perhaps one of the benefits of investing here in Uganda is that there are many rapidly growing industries such as the telecommunications companies. But there are also significant risks, as the government is more unpredictable in its decision making than the U.S.


    Hey those a great concerns you have, as a person who has been monitoring Uganda’s only Stock Market since 2003, let me share with all of you some information you might not have captured on your visit; otherwise it was great hosting you

    Shannon the tax incentives are there dividend tax less by 5%, corporate tax exemption for some years.
    , corruption is every where I read about Murdoff Ponzi scheme guy….(65B)

    Ehall true the majority are not Ugandan our Kenyan neighbours are more accounting for over half of the estimated 50,000 retail investors, but hey not all is lost the Stock Market has provided a safe platform for the National Social Security Fund (with over 200,000 Ugandans contributing to it), it cannot be ignored the NSSF is a major player in the market.
    Yes we have corruption, but that word is used unnecessarily to point to where we are trailing, Didn’t Singapore move from “Third World to First World” within a generation in the midst of corruption??? Some times those are simplistic donor arguments to justify there need to the countries they come from (Ehall if you take a closer look at donor project budgets they spend more money on salaries and workshops than actual implementation of the ‘life improvement project’: so for me corruption takes many dimensions…)

    Probably your right and wrong, because in all honesty after the world bank scored huge success privatizing Latin America companies in the late 1980s, over they came to Africa and in 1998 the Uganda Stock Market was established and the truth is that no company in Uganda I know has listed(IPO) in order to raise capital: all of them are due to Government divesting their shares as the World Bank dictated but alas now in your country you are doing the reverse, are we at the cross roads- I don’t Know.
    Your wrong in the sense that its here now- lets use it to raise the much needed capital through equity: debt is really expensive cause of the aforementioned risks in Uganda..
    Price determination, haggling is same though its harder to notice in the ‘video game’
    (I am totally against this for our young market) electronic trades at the NYSE
    Hey Quint we also have a commodity exchange for cereals like maize though I know little about it

    True there is corruption in Uganda but I think you guys are giving it too much credit
    Don’t you think so? Because of this we have so many oversight bodies that have actually increased this vice……. Whomever is emphasizing this probably is a white collar Ugandan rolling in their chair in an air conditioned office; because when your in the dungeons of the economy this is not the most hard pressing issue; I rest my case here

    Last word;
    Koreykd your right about the Exchange contributing to growth but unfortunately the guys manning our securities industry are a bit snobbish (they study in western universities and think what works at the big stock markets from Toronto, Tokyo to Taipei can work out here) I personally have a bone to pick with them on this issue; you know Rome wasn’t built in one day so Microsoft’s reporting standards and totally irrelevant here…..

    There is a preference of debt here, because like I wrote earlier this industry was build with privatisation as a big anchor, either attitudes change or… forget the family owned
    business talk, these are just excuses for not exercising innovation and creativity in attracting equity seekers.

    Right now the countries in the western Hemisphere are busy nationalizing in the current situation where capitalism has proved ‘predatory’

    Uganda is a risky country to the outside: inflation now is 13% but we all know rewards follow risks;
    At Wall Street when they buy in exhanges in Uganda they call them Frontier Funds (very high risks with possibility of huge returns)

    Please find a compilation of some vital statistica on our market.

    Company name IPO year IPO*price Current price
    (28th May 2009)
    U C L 2000 4/= 85/=
    B A T 2000 1,000/= 485/=
    BOBU 2002 60/= 390/=
    NVL 2004 200/= 1090/=
    DFCU 2004 230/= 485/=
    SBU 2007 70/= 140/=

    UCL-Uganda Clays Limite
    BAT-Bristish American Tobacco
    BOBU- Bank of Baroda Uganda
    NVL- New Vision Limite
    DFCU- Development Finance Corporation Uganda
    SBU-Stanbic Bank Uganda

    IPO- Initial Public Offer

    /= Uganda shillings
    *Prices have been adjusted for share splits.
    The above arecompanies that Primarily listed in Uganda.
    Note: over the last 12 months these stock have been falling.

    Muhimbise Andrew
    I happened to be at the Stock Market on the day of your visit, thanks guys these are great insights from undergraduate students: Good work Drake & Mubs

    Andrew is an Independent retail Investor in the East African region managing his own small Portfolio on top of other Small Business Ventures, he was a student at the Makerere business School (2003-2006).