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Attaining Sustainable Growth in Uganda through Capital Market Liberalization

Simon P. Ocailap

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Abstract:

Whereas capitalism has been criticized in today’s world, it does have a lot of good that

can be attributed to it. For instance, the West seems to have thrived through such a system, and

one could argue that its financial prowess is still increasing. By borrowing this basic concept, it

may suffice to say that if we tried the same, Uganda may just have a shot at enjoying such levels

of development. Without neglecting the different demographics in the country, for instance with

respect to income inequality, this seems like a safe bet.

For almost a decade now, the Ugandan economy has struggled to maintain a sustainable

development structure. A vast range of issues such as foreign direct investment and globalization

have influenced the current state of affairs in the nation. Nevertheless, there has been

improvement, as evidenced by slightly developed capital markets (financial instruments) and

banking sectors, which seem to suggest room for improvement. This paper offers an overview of

historical trends and a positive outlook as to how the Ugandan investment climate can be tamed

in order to attain sustainable growth while effectively mitigating risk and attracting domestic and

foreign investment.

The paper then highlights my analysis of the research while offering an informed

Christian response to the topic of capital market liberalization (especially looking at the system

of capitalism). I do this by engaging in discussions related to the down-sides of capitalism. I also

highlight the need for an addition financial system (capital markets) while specifically alluding

to the usefulness of this for the well-being of the Ugandan population. By examining this, I draw

the conclusion that a well monitored (non-corrupt) implementation of capital market

liberalization will produce slow but steady growth for Uganda. I proceed to offer a few insights

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on what businesses could do to adopt these ideas such as franchising and the creation of mergers.

Finally, I offer recommendations for research in areas I found lacking; such as how social

demographics affect investor perceptions.

Literature Review:

Introduction

Capital market liberalization, a result of globalization and trade liberalization, refers to

the relaxation of government restrictions on the financial market. The functioning of capital

market liberalization is such that not only governments but private entities perform in it. In other

words, investors around the world are able to invest in financial instruments such as the stocks

and bonds of various countries. According to this concept, it suffices to infer that many Less

Developed Countries (LDCs), particularly Uganda in this case, are at a big disadvantage due to

an inability to carefully tap into the potential that capital market liberalization has to offer.

What then should Uganda’s posture be in this instance? In this paper I attempt to answer

this question by proposing a few steps that could allow the nation to tap into the potential

resource of capital market liberalization. In order to understand these steps, however, it is

imperative that we understand the health of the Ugandan capital market in years past. In his

article, “Capital Account Liberalization: The Ugandan Experience,” Uganda’s central bank

deputy governor, Louis A. Kasekende offers insights on what the Ugandan economy has gone

through to attain a starting point for capital market liberalization. He writes, “Since 1987 Uganda

has been pursuing policies aimed at stabilizing and reforming the structure of the economy with

support from the World Bank, the IMF, and other multilateral and bilateral donors” (pg. 102,

2001). Therefore the Economic Recovery Program (ERP) was started in order to focus on a lot of

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issues, including liberalization of the foreign-exchange system and the trade and marketing

systems. The policy stipulations in the ERP were not strongly advocated for due to a lack of

consensus on a strategy for revival of the economy. In spite of this, following the resurgence of

instability in 1992, the government adopted a big-bang approach resulting in accelerated

implementation of both the stabilization and structural reform policies. Owing to the revitalized

desire for sustainable economic development, during periods following 1995-97 the government

focused on issues such as the need to attract resources for investment, supporting private sector-

led growth, and the possibility of designing an exit strategy for investors in case things did not go

well (Kasekende, 2001).

In spite of these principles, theoretical and empirical research still indicated that

liberalization of the capital account could increase the vulnerability of financial market stability.

However, Kasekende writes that while abstaining from the controversial issues of the sequencing

of the identifiable policies related to its implementation, capital account liberalization was

generally accepted. Therefore, by 1997, “Uganda had completed 10 years of consistent

implementation of these stabilization and reform policies, which were justified by closing the

savings-investment gap in order to promote sustainable long-term growth” (pg.103, 2001).

However, this still left a void that has not yet been successfully filled. External financing,

including capital flows, was expected to fill the savings-investment gap because the objective of

higher rates of growth, Kasekende argues, requires higher levels of investment.

Exploring Current Trends in Uganda: Condition of the Investment Climate

But how does a small LDC like Uganda attain these investment levels? The answer

would seem as simple as attracting investment capital. Of course this has proven difficult owing

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to the current perception of the investment climate. Kasekende offers some insights on this by

talking about sequencing and some of the concerns related with it. An open developing economy

like Uganda’s cannot simply jump to the point of capital account liberalization without taking a

few more steps in the right direction, such as determining the optimal order for liberalizing the

domestic financial sector and the external real and financial sectors (pg.104, 2001). This

highlights the need for an optimal kind of sequencing. A second concern is the determination of

the order of financial liberalization and how it should fit into the stabilization program. In other

words, capital account liberalization should not be undertaken prematurely in order to influence

private capital in-flows. In fact, Kasekende argues that it should be one of the last steps in

economic reform. The investment climate in Uganda is also characterized by several of other

issues including; lack of an effective exit strategy for insolvent institutions, segmentation within

the system which limits competition, asymmetric information and lack of effective supervision

capabilities (Kasekende, 2001).

One of the major concerns with many investors is the country’s ability to handle its large

amount of debt. Investors are more often associating the health of the country’s economy with its

ability to raise revenue and pay back its debt. Over the last decade and a half, Uganda has seen a

slow transformation in attaining lower debt levels and ultimately reducing its dependence on

foreign aid. That being said, “a lot of debt restructuring reforms have been, and are being

undertaken in order to ease long-run foreign exchange constraints and enhance the sustainability

of foreign exchange in-flows” (pg.109, 2001). This may seem like a larger scale public capital

investment from foreign nations, but there is still something to be said about how private

investors’ perception of Uganda’s market is greatly influenced by public notions and assessments

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by foreign markets. Most of these negative perceptions of the investment climate are what gave

rise to the movement of Private Sector Development (PSD) which was implemented in order to

attract foreign investment capital. “The adoption of the Investment Act of 1992 thus had this

objective in mind: to promote and facilitate investment by providing fiscal incentives, protecting

investors, and introducing a mechanism for the repatriation of dividends” (pg.110, 2001). The

creation of the Uganda investment authority a year prior to this act in 1991 has been acting as an

investment center catering to the needs of both foreign and domestic investors.

Based on our brief review of Uganda’s recent economic history, we may now better

analyze the current trends of the investment climate. In 2005, the Economic Policy Research

Centre (EPRC) released a study titled “Trends and financing of investments in Uganda.” The

study indicates that in spite of having seen growth in investment from 15.8% between 1990-1991

to 22.2% between 2003-2004, there are two responsible factors: domestic savings increased and

foreign resources of various types. In Uganda, “there was and still is a highly positive trade

deficit; the difference between imports and exports” (pg.19, 2005). What this connotes is that the

country has to finance most of its deficit by relying on foreign resources, which to some

investors is very unattractive. According to the EPRC study, Uganda’s domestic savings were at

relative lows, averaging only 2% per annum, but increased to about 10% of GDP post 1996-

1997. They have since averaged about 7%, and have shown signs of slight improvement. This

heavy reliance on foreign investment has produced two effects on the economy: it has

supplemented domestic consumption, both in the private and public sectors, and it has, in many

instances, acted as a substitute for domestic savings (EPRC, 2005). The latter effect should be

interpreted with some consideration. It is important to increase foreign investment through

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capital liberalization, but not at the expense of the inhabitants of the country. Citizens of Uganda

need to first improve their own saving culture before they even begin dreaming of attracting

private foreign capital. The study notes that as a result of Foreign Direct Investment (FDI)

primarily by foreign governments, the country usually runs a current account deficit, which, over

time, equals the excess of national investment over saving. This trend has created growing net

foreign debt and the growing role of non-residents in capital formation. This should be

worrisome because as Kasekende noted, there is too much asymmetric information, which means

the domestic public cannot harness their own capital resources, save, and invest. Although this

study dates to almost a decade ago, it communicates information valuable in understanding

today’s domestic economy due to the country’s continued slow growth.

Next we will examine some of the domestic sources of investment capital and the

possibility of improving access to finance for the majority of uninformed Ugandans. “Due to the

nature of the banking system in Uganda, a lot of domestic investment is financed by personal

savings. Other savings held for speculative purposes such as real estate and foreign currencies

still impede the growth of savings with the financial system” (pg.27, 2005). Due to the

inhibitions, we must consider possibilities for improving the already existent but relatively

unhealthy financial system, while encouraging investment in non-monetary assets, such as

financial instruments, which would hopefully yield returns that would boost individual and

collective growth efforts. An ideal starting point would be to develop Small, Medium and Large

Enterprises’ (SMLE’s) understanding of the financial system and how to tap into that potential in

order to grow business and the larger financial sector.

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In a 2009 World Bank Study of “An assessment of the Investment Climate in Uganda,”

this principle is discussed. The study notes that access to finance is the most binding constraint

on firms other than infrastructural development. Therefore, direct interventions are still not the

most suitable solution for creating a sustainable impact. There needs to be a tighter rein on other

issues by improving the regulatory environment through measures such as registration of

financial institutions, enforcing contracts, and reducing corrupt tendencies. This strategy coupled

with an investment in resources to educate the public are some baby steps that the nation can

take in order to attain its goal.

Thus far we have explored what sources of investment capital exist based mainly on the

formal sector of the economy. It is, however, worth noting that much of Uganda’s economy

consists of poor households that are heavily dependent on the informal financial sector. We

therefore need to discuss the current state of this sector and whether or not capital market

liberalization can be applied in such a way that it caters to the needs of the poor and uninformed

(asymmetry exists on a large scale). Collins et. al in their text Portfolios of the Poor (PoP) can

help us understand in a broader way what this informal sector looks like today.

In PoP, ‘financial diaries’ of about 250 households in the countries of India, Bangladesh

and South Africa were interviewed over a span of six months in order to ascertain cash-flow in

poor households. In the third chapter of this text, the authors indicate that they seldom observed

households converting lump sums of earned income into a longer term financial asset: lump

sums were built to be spent. Additionally, the authors add that “the financial capacity of the poor

is constrained not just by low incomes but also by the characteristics of the financial instruments

available to them today” (pg. 97,2009). Their analysis reports that most poor households in the

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majority world cannot sustain momentum when it comes to engaging in the financial sector.

Unfortunately, most of the formal sector is difficult for them to engage with because they cannot

borrow with ease due to a lack of collateral or a capacity to pay back their loans. By extension,

we may note that there is a need for additional financial instruments that even the poor can

access in Uganda as well. Now we must recognize that liberalizing the capital markets may not

be final solution, but it could be a start for all households (assuming they had the capital to deal

with risks). There is a common misconception that the poor often live hand-to-mouth, that they

spend every penny that comes in immediately. This is a myth. Contrary to popular belief, poor

people do have assets and find creative ways that may enable them to save and accumulate

capital. These means are generally unstable though and which necessitates advocating for capital

market liberalization. The discussion about whether or not this liberalization would positively

affect the poor households must be examined thoroughly. I will get into the details of this

discussion later in this paper. Prior to this discussion, however, we will examine Africa’s

financial system and how it relates to Uganda.

Exploring the Weak Financial System in Africa: Connection to Ugandan Market

Uganda is certainly not alone in its fight towards economic prosperity. Although

comparisons may be difficult, the nation does have a lot to learn from her neighbors within the

East-African Community (EAC) and the broader continent of Africa. Understanding different

demographics may reveal the degree to which proximity to other nations influences development

and whether trade openness is helpful. Michael Gwama in his book Explaining Weak Financial

Development in Africa offers some key insights on the matter. Initially, Gwama draws a

distinction between endowment theory and inequality, highlighting that the latter is what matters

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in assessing the weak financial systems in Africa. Endowment theory emphasizes the role of

geography and disease environment in shaping institutional development (Gwama, 2014).

Inequality, on the other hand, manifests itself via a political channel, wherein inequality is

thought to pave the way for a manipulation of financial systems on the part of politicians and

elites. A more direct impact, Gwama argues, comes from limiting access to finance. Owing to

the fact that financial institutions are infested with credit restrictions, mitigating financial

repression and allowing portfolio diversification would lead to financial openness, which in turn

may reduce the cost of capital and increase its availability to borrowers. In addition to financial

openness, however, “there is a need for trade openness especially owing to the small size of

African capital markets” (pg.72, 2014). Openness to trade is an avenue through which African

markets such as Uganda’s can attract investment that may spark international interest. In spite of

this trade openness approach, countries should still take caution in order to mitigate adverse

effects such as an undermining of infant industries within regions that may stem from free trade.

In regard to the discussion on trade and/or financial openness discussion, John Bosco

Nnyanzi wrote an article on financial openness, capital flows, and risk sharing in Africa. Her

empirical studies were focused on determining whether cross-border capital flows and capital

account liberalization play a significant role in risk-sharing and thus development in sub-Saharan

Africa. She remarks that, “it has been documented that countries that have their capital account

liberalized are likely to access finance at lower cost and diversify their assets and liabilities

across countries (Kose et al.2006). Perhaps the removal of restrictions on capital account

transactions and the removal of multiple exchange rates make this possible” (pg.56-57, 2015).

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Based on her findings, Nnyanzi comes to conclusion that “the deepening of the capital

markets may not help much although the outside investors (e.g. from the West) may find it more

attractive to invest in the African markets. In other words, it may not necessarily follow that the

development of capital markets would lead to an increase in risk sharing although the possibility

cannot be rejected” (pg.79, 2015). With regards to this paper, it is vital to note that Nnyanzi’s

conclusions hint at the vitality of capital market liberalization in Sub-Saharan Africa, though not

much evidence suggests a strong correlation between liberalization and risk-sharing reduction. In

this paper I will later assert that the diversification of risk across African borders is good for

attaining overall sustainable development within the region as well as the individual nations.

Furthering this discussion, Gwama raises the idea of remittances. Remittances, he argues,

if channeled through the formal financial system, boost efficiency, and hence encourage financial

development. Typically, this is not the case, as remittances often act as substitutes rather than

complements to the system, and may compete with the formal financial system. An empirical

study in Gwama’s excerpt shows that purely geographical and environmental factors have a less

critical role to play in financial instability. This information ties in well with Gwama’s

observation that endowments do not matter for Africa’s financial development as much as we

typically like to think. Rather, inequality is inhibits financial development in the continent.

Nonetheless, if trade openness and remittances were embraced and carefully monitored, they

would encourage financially healthy economies.

Thus far we have discussed the health of the Ugandan economy, and proposed possible

steps that can be taken in order to attain capital market liberalization. It is necessary to talk about

the current capital market structure as well as financial institutions within the region, and how

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developing these avenues could eventually lead to a more attractive financial sector for both

domestic and foreign investors. In regards to building a case for capital markets we must note

that Uganda as a whole does not have a strong Capital Market base, as measured by stock

liquidity. Joseph Lutwama in discussing “Strategies for Improving Liquidity in Uganda’s Capital

Markets Industry” defines liquidity of the stock market as being a good barometer for the proper

functioning of a market, as it measures the degree of ease with which stocks are traded. He goes

on to define five good characteristics of liquidity:

● Tightness, which is low transaction costs (difference between buy and sell prices)

● Immediacy, which is the speed with which orders are executed

● Depth, which is the existence of abundant orders

● Breadth, which means that the orders are both numerous and large in volume, with

minimal impact on prices, and lastly

● Resiliency, which is a market characteristic in which new orders flow quickly to correct

order imbalances (pg.2, 2006).

Lutwama notes that liquidity in the Ugandan economy as measured by the ratio of market

turnover to market capitalization is still very low compared to other emerging markets. This is

attributed to a number of factors including a limited number of market players (only seven

companies listed on the Ugandan Stock Exchange), and the continued use of a manual clearing

and settlement system that is very tedious (Lutwama, 2006). Lutwama then suggests both supply

side and demand side interventions that can improve the country's’ liquidity measure, and thus,

financial prowess.

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On the supply side, he advocates for policies and practices such as privatization, tax

incentives, and the regional integration of markets, for instance, in the EAC that can increase the

number of listed companies and other securities on the USE. On the demand side, liquidity can

only increase if the investor base increases. Lutwama offers three ways in which this can happen:

educating the general public, increasing the institutional base, and again, fostering regional

integration (pgs.5-6).

In summary, the capital markets structure needs to take some broad strides in order to attain

sustainable operational, let alone productive levels, while minimizing negative economies of

scale.

Methodology: Liberalization and its Application to a Ugandan Investment Climate

Capital markets, though, are not the only financial institution to which the nation’s

attention needs to be drawn. Banks fail to fill their place as an important financial institution in

the nation. In the text, “Bank Privatization in Sub-Saharan Africa: the case of Uganda

Commercial Bank,” George R.G Clarke, Robert Cull and Michael Fuchs note that, in spite of

previous liberalization efforts as evidenced in history, Uganda’s banking sector slipped into

crisis in the early to mid 1990s owing to solvency issues. Solvency can be defined as the ability

for a company to reach its long term financial obligations. For almost all banks this is coupled

with liquidity measures in order to determine health of the industry (World Bank, 2009). Uganda

Commercial Bank typically stands out as one failed privatized bank that succumbed to a lack of

solvency, and eventually merged with Stanbic Bank in 2001. The article argues that in order for

most, if not all private financial institutions to stay afloat, they need to manage their profitability

better by effectively monitoring and managing their loan portfolios. This is important because

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healthy financial institutions eventually attract greater savings, and thus investments in the

capital markets. The two have a subtle but vital relationship.

These solvency issues are linked to interest rates and their management. Dorothy

Nampewo in her article, “What Drives Interest Rates Spreads in Uganda’s Banking Sector,”

discusses how one of the objectives of increasing financial liberalization was to increase the

efficiency of the financial system. This increase would be evidenced by a reduction in interest

rate spreads. These are defined as “the difference between average lending rates and average

deposit rates within the banking system” (pg.76, 2012). Nampewo goes on to note that the main

determinants of these spreads in banking institutions are classified into bank specific, market

specific, and macroeconomic factors. For Uganda, spreads are mainly driven by the bank size, as

well as overhead costs and sectoral compositions of loans (Nampewo, 2012). Owing to the fact

that bank rates, treasury bill rates, and other factors affect these spreads, Nampewo offers two

suggestions to improve the situation.

First, “the government should attempt to increase financial intermediation, which can

manifest itself in ways such as raising the deposit rates in order to increase savings as there is a

deficit in this. Secondly, commercial courts or tribunals and support for the credit reference

bureau need to be enhanced” (pg. 84). This will improve the levels at which information on loan

defaulters is shared across different banks. Nampewo believes that this information is relevant as

there is a direct correlation between non-performing loans and the spread (they move in the same

direction). A broader understanding of these loans would thus limit the spread, creating a more

efficient system, which is paramount to attaining capital market liberalization.

Conclusion:

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In conclusion, Uganda’s economy has not yet arrived, per se, but shows a lot of potential,

as evidenced by historical trends. There is still a lot of work to be done with respect to the

government and private sector to create a more efficient, healthy, and sustainable financial

situation that would attract both foreign and domestic investors. Investors will help drive the

economy in a positive direction, creating wealth for locals that could then improve their way of

life and aid in attaining sustainable economic development.

Informed Response

Based on all the research I have highlighted above, there are several implications which

should be further explored. First of all, I am of the strong opinion that Uganda’s economy is one

of high growth potential as is highlighted by Kasekende’s historical trend. Nonetheless, taking in

accordance with Gwama’s opinion, I am inclined to believe that trade openness and remittances

are viable methods by which Ugandans can attain successful capital market liberalization and

eventually steady economic development. The major problem with the Ugandan economy is

systemic in nature. Uganda must first reform its systems before we can grow steadily in

economic terms. Uganda has mostly seen military leadership that has always come into office

through military coups. Although we have seen substantial growth over the years with respect to

financial and economic development, the rate at which this happens is alarmingly low which is

linked to the sorely lacking education system and the level of effectiveness in managing our

national affairs.

Most recent World Bank data shows that about 19.5% of the Ugandan population (7.78

million) is below poverty level. This poverty is largely attributable to a lack of enough effective

financial systems, which further indicates the necessity for capital market liberalization. In spite

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of this disposition, however, we must carefully consider whether or not such a system is even

attainable. Simply introducing a system does not mean that it will thrive Africa as a whole has

seen some hurt as a result of merely adopting certain policies. The freshest that comes to mind is

the post cold war era. Judith Matloff in writing about “Where Marx Left His Harshest Marks”

highlights the effects of post cold war socialism on select African countries including

comparable countries the Congo and Tanzania. In her text she highlights a quote by Tanzanian

deputy secretary general who stated that, ‘Socialism as policy was not a mistake. But the way it

was practiced was. He goes on to say that the models of Eastern Europe were wrong for an

underdeveloped country like ours. We lost a lot of time in terms of development and are sorely

trying to catch up now.’(pg.2, 1995) This should at the least be a wakeup call for people like

myself that are seeking to adopt western ideals for a less developed economy like Uganda’s. I

have also given this question special consideration in light of my Christian inclination.

Changing of cultures is an increasingly discussed phenomenon, and I think that the

existing financial culture in Uganda will be impacted by a drastic change like liberalization. So

how can we think about this as Christians that love financial soundness? Dr. Brian Fikkert and

Steve Corbett in a recent text, When Helping Hurts introduce the idea that as Christians seeking

to make financial impacts in societies, we must be wary of the various ways that we implement

policies. Implementation is also directly tied to the issue of sphere sovereignty. As Christians we

are in constant relationship with God, fellow humans, ourselves, and the community at large.

With regard to the human-human relationships, I am of the view that we can easily take

advantage of our fellow human beings, and could even make the case that capitalism may

perpetuate this. Capitalism encourages constant betterment and growth. As we strive for

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betterment of ourselves or families income, it is easy to fall into the mindset that our wellbeing is

more vital than that of others. While implementing a liberalization strategy policy makers should

be cautious of the capitalistic tendency to facilitate false self-superiority.

Additionally, we must also consider whether we are we helping or hurting. This is

another issue that Fikkert and Corbett highlight in their text. Capital market liberalization while

seen as a viable financial instrument poses a challenge - especially in Uganda - because we

require capital in order to participate in it and capital is scarce for a majority of Ugandans.

Additionally although opening the Ugandan market to international investment in the form of

liberalization is good, it may also be an avenue for policy interruption within the country.

Uganda may have to adhere to different market forces (both foreign and local) within our capital

market structure, and this could create the negative effect of pushing the service even further

away from the poor. So what is the solution? Space does not permit an elaboration although I

will say that a domestic and regional (East-African) coalition in order to create for a better

internal financial system is much needed before broadening our scope as a nation. Systems such

as education on financial soundness, the underdeveloped stock market, and the efficiency of

monitoring markets need to become well-organized before we can compete in the global market.

Similar to capital market liberalization is the system of capitalism. Christian analysts

often debate whether or not capitalism is the right moral economic system. This picks deeply at

our conscience as Christians as we start to wonder what it is that we can or cannot do especially

with regard to secular policy. In other words, we hear a lot of noise and need to discern it better.

Before implementing a new economic system Ugandans must first understand who we are and

what we do with our money. In the text “Morality and Economics: Yes the Twain Meet,” Van

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Til Kent highlights that in most societies that adopt capitalism, the livelihood rights quickly

becomes an issue. We are constantly trying to do the most we can in order to attain that which

we all strive for: true livelihood or what some have coined the “American Dream.” Kent then

argues that we need to adopt a sort of anthropological theory.

Anthropological theory by Van Til’s definition begs the question, “‘who is a human

being as seen by the Christian faith and how is this person seen and treated” (pg. 489, 2007). As

a Christian seeking a capitalistic approach for economic development, I am constantly

attempting to understand this phenomenon. I think that we are called to love those we are

entrusted to, and for me that is the Ugandan populace. In introducing this idea of capital market

liberalization, I do see the struggle in implementation and possibility for extortion of a fellow

human being. Additionally, I see the challenges in mitigating the misuse and abuse of a

potentially good system.

We must also consider whether or not capitalism is a stretch from Christianity. St.

Augustine, one of the father’s of the Christian faith, once remarked that “Business is in itself an

evil.” To further perpetuate this notion, Clapp Rodney in his text “Why The Devil Takes Visa”

quotes the Bruderhof communities which state that, “Consumerism will continue to exercise

undue influence over Christians until we desecrate this unholy taboo and stop regarding our

economic lives as an entirely private matter” (pg. 32,1996). This is a hard pill to swallow. We

do need to take caution when engaging in capitalism because like any other sphere it is stained

with the fall and can lead to greediness as well as self-preservation at the expense of others.

Capital Market Liberalization for Uganda therefore would mean implementing a system that

values the wellbeing of others while sustaining economic development for the individual in a bid

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to improve the whole. This is extremely difficult as competition is at the heart of a capital

market.

In spite of this complexity, I would still argue for the implementation of this system.

Capital market liberalization provides a platform through which Ugandans can save and grow

their own household incomes. By trading commodities on a stock exchange, and eventually

globalizing this market, I think Uganda can become a strong player in the market. Uganda as a

Nation would have to compete in order to become a viable player in the global marker, but I

think that by taking some of the advice of the researchers summarized previously, we can attain

sustainable economic development. Essentially, a more efficient system is at the heart of

attaining economic prosperity. Uganda needs to create a more effective monitoring system that

would develop its trade floors, and encourage for the enlisting of more companies. Introducing

such a shareholder system would then encourage more effective company management, higher

returns, and greater revenue returns to the government in the form of taxation. I recognize the

over-simplification of this policy, a lot of hard work would have to be done first, yet such a

system would benefit the majority of Ugandans, both rich and poor.

In this rush for profits and materialism, even though justifiable in the betterment of one’s

household income, we still do need some caution. Scripture tells us in Romans 12:2 that we

“should not conform to the standards of this world but be transformed by the renewing of our

minds...” (NIV) As a Christian, I would hope to observe the Ugandan population imitating this

process. It is difficult to merge capitalistic ideals with biblical ideals in one sense, and I honestly

would not evangelize on the streets of Kampala while throwing in a motion for liberalization. I

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think the sphere of capital market liberalization is good in and of itself, and as such it should be

kept that way and done well to the glory of God.

In summary, oftentimes the words capitalism and Christianity cannot be uttered in a

similar sentence without some kind of contrast being drawn. There are certainly negative effects

that this wealth-accumulation mindset could have on us, whether as believers or non-believers.

However, I am also of the view that there are measures that can be taken to ensure that this

corruptible system be used for good. My support for this argument can be summarized in two

ways. The first support concerns the idea of sphere sovereignty that I mentioned above. All the

different spheres of the world are created for a purpose: to glorify God and enjoy Him forever.

However, poverty-stricken individuals, such as the majority of Ugandans, do not see understand

the value in themselves or in creation and the rest of the world. It is therefore crucial that

individuals work hard and find themselves in a bid to glorify the Lord. Part of a current citizen’s

responsibility is to future generations, be it family members or otherwise, and capitalism could

create an opportunity for individuals to exert themselves and grow as they plan for future

generations.

The second support concerns the ideal of redemption. In spite of our broken systems,

there is redemption of all things in Christ Jesus. I believe that we are called to be partial to the

poor, and that in fact, God himself is partial to the poor. In the book of James, we see this theme

as in James 2:14 which states, “What good is it, my brothers and sisters, if someone claims to

have faith but has no deeds?” James advocates for action to help the poor. Summed up, we are

called not only to care, but to do something about the state of poverty. As a Ugandan, I envision

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this through carefully adopting certain foreign policies, such as capitalism and liberalization, in

order to attain sustainable growth in the nation.

Recommendations for Business Practice

With globalization at the forefront of capital market liberalization, small scale businesses

and financial institutions can use this opportunity to create mergers and acquisitions in a bid to

develop their investment capabilities. This process would align well with Lutwama’s idea of

developing regional support and growing businesses. Mergers would encourage this by boosting

infant industries such as banks and financial institutions, and thus encourage potential financial

investment capital from foreigners.

Additionally, developing a clearer understanding of market regulations (domestic,

regional, and foreign) could enable businesses in Uganda to create a better competitive

advantage. Knowledge is power, and so I believe that knowledge and understanding are in fact

vital to encourage healthy competition that can help in wealth accumulation. Businesses and

financial institutions in Uganda should seek to tap into foreign markets in order to allow for

broadening an investment base to encourage capital accumulation within the country.

Lastly, franchising as a means to attract foreign investment in capital markets would be

another viable option for of companies. In Uganda, for instance, Kentucky Fried Chicken (KFC)

recently opened up a restaurant which is experiencing success. If other foreign companies

capitalized on this potential their presence and success could encourage both local ownership and

a more developed capital market system by increasing the number of members on the Uganda

stock exchange.

Recommendations for Further Research

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While doing this research, I found that there is a lack of research on the difficulty of

attracting capital investments for Uganda in particular. Information about a broader category -

say Africa or East-Africa, - is plentiful, but there is not substantial information which pertains to

the Ugandan investment climate and what truly makes it unattractive for investors.

In connection to the previous point, there seems to be paucity of knowledge. Research

needs to be done focusing specifically on what role is played by issues such as cultural

demographics, political instability, and lack of a solid social framework with respect to the

sluggish development of the financial sector. While Kasekende, (2001) offers some insights as to

the history and current financial unhealthiness of the nation, he does not analyze the details

surrounding and influencing investors’ perspectives on the country’s investment capabilities.

Lastly, research needs to be done on what Uganda’s investment climate looks like

measured against a country of similar demographics and structural set-up. Uganda can then

improve its practices based off of others’ experiences. I do recognize the difficulty in comparing

cases, however, the principle behind this type of research still stands. There is a lot to be learned

by Ugandans in the investment arena, and this learning should not be limited in any way.

Research of every kind, especially in comparison analysis, would prove immensely helpful.

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References:

1. Anonymous, 2005 "The trend and financing of investment at the macro level in Uganda: The implications for sustainable growth,"Occasional Papers 93815, Economic Policy Research Centre (EPRC).

2. Brian Fikkert, Steve Corbett (2009, 2012). When Helping Hurts: how to alleviate poverty without hurting the poor and yourself. Moody publishers, Chicago, IL

3. Clapp Rodney (10/7/96). Why the devil takes visa. Christianity today, Vol. 40 Issue 11, p18. 16p.

4. Daryl Collins Jonathan Morduch, Stuart Rutherford, Orlanda Ruthven, 2009. Portfolios of the Poor. Princeton University Press. Chapter 3, pp. 65-94.

5. George R.G Clarke, Robert Cull and Michael Fuchs (2009). Bank Privatization in Sub-Saharan Africa: The Case of Uganda Commercial Bank. World Development Vol.37, No.9, pp.1506-1521.

6. Gwama, M. (December 01, 2014). Explaining weak financial development in Africa. African Review of Economics and Finance, 6, 2, 69-87.

7. Joseph Lutwama (March 31, 2006). Capital Markets Authority-Uganda Capital Markets Journal, Vol. 10, No. 3, January-March 2006, pp. 2-12.

8. Judith Matloff (9/5/95). Where Marx left his harshest marks. Christian Science Monitor. Vol. 87 Issue 196

9. Kasekende, L. A. (January 01, 2001). Capital Account Liberalisation: The Ugandan Experience. Development Policy Review, 19, 1, 101-120.

10. Nampewo, D. (November 26, 2012). What Drives Interest Rate Spreads in Uganda’s Banking Sector? International Journal of Economics and Finance, 5, 1.), pp. 76-85.

11. Nnyanzi John Bosco, March 2015. Financial Openness, Capital Flows, and Risk sharing in Africa. Global Economy Journal. Mar2015, Vol. 15 Issue 1, p51-82. 32p.

12. Van Til Kent, summer 2007. Morality and Economics: Yes, the Twain meet. Christian Scholar’s Review, Vol. 36 Issue 4, p485-490. 6p.

13. World Bank, 2009. An assessment of the investment climate in Uganda. Washington, DC: World Bank (Vol.1)

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