According to the latest research by the Official Monetary and Financial Institutions Forum (OMFIF) and Absa Bank, Uganda operates an economy with the most developed financial sector in the region.
This latest feat marks an important milestone in the country’s race to become a regional financial hub, with a view to increasing foreign direct investment inflows.
The 6th edition of the Absa Africa Financial Markets Index (2022) report shows that Uganda has made significant improvements in five key areas compared to Kenya, Tanzania, Rwanda and DR Congo.
These include access to the foreign exchange market, transparency in taxation and regulatory regimes, capacity for local investors, the state of the macroeconomic environment, and transparency in the enforcement of legal contracts.
Uganda has outperformed its regional peers in terms of market accessibility, openness and transparency, according to a report released last week.
Kenya, Tanzania, Rwanda and the Democratic Republic of the Congo follow.
The report, entitled Harnessing the Power of Africa’s Opportunity, shows that Uganda is improving in opening its markets to foreign investment.
The country has relaxed capital controls, strengthened interbank foreign exchange liquidity, and tightened reporting standards for exchange rate data.
This is in addition to the Bank of Uganda’s (BoU) ability to manage volatility from foreign capital flows given the adequacy of its foreign exchange reserves.
Uganda’s interbank foreign exchange liquidity has increased significantly, with annual turnover increasing from $21.5 billion in 2021 to $28.4 billion this year.
Tanzania is also liberalizing its capital account through the Foreign Exchange Regulation Act 2022, opening up access to foreign investors in the domestic bond market.
This included enabling investors in Southern African Development Community (SADC) member countries to participate in the government bond market at primary market level.
The new regulations will give domestic residents easier access to the local financial markets in order to diversify their investment portfolios.
Uganda has also made significant improvements in environmental, social and governance (ESG) indicators, according to Absa’s report.
This comes after the BoU launched its strategic plan for 2022-27, which includes new goals such as promoting a sustainable financial system.
The Central Bank of Kenya has also issued guidance for banks to incorporate climate-related factors into their risk management frameworks.
The Absa Africa Financial Markets Index is used as a benchmark by the investment community to assess the market infrastructure of African countries and to help policy makers learn from others.
The survey covers 26 countries, including the Democratic Republic of the Congo, Madagascar and Zimbabwe.
South Africa had the most developed financial sector on the continent, while Ethiopia, still pushing towards a stock exchange and a stronger legal framework, ranked last.