BusyMarkets Kampala #012: Budget plans already causing some anxiety

Uganda parliament

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The local currency traded relatively stable last week with balanced demand and supply seen throughout. The shilling was seen trading at the 3735/3745 levels this week. Most traders are forecasting a volatile unit ahead of inflation numbers for May, as well as final touches being made in the sh52.7 trillion budget for 2023/24 by the Uganda government.

The local focus will be on inflation and the budget pronouncements. Fiscal pressures (money collecting) remain a major concern and collectively all key factors are negative for the shilling and, therefore sustained stability may not be guaranteed especially in the short run.

The big question here is; Is Ministry of Finance through Bank of Uganda willing to borrow locally to meet the budgetary shortfalls/deficits, thus bettering interest rates to attract investors? We can only watch and make sense of it in the next edition.

On a brighter note, Uganda’s economy has continued to recover. GDP growth for the 2022/2023 financial year ending June 30th, is projected at 5.5% compared to 4.7% for the last financial year. Growth is expected to reach 6% or even 7% in the medium term.

In the regional market, Kenya shilling continues to trade under pressure with importer demand still heavy, while inflows kind of insufficient to satisfy the existing demand. The unit is likely to trade within the unpleasant 137-140 levels in the coming days.

What’s buzzing on Uganda Stock Exchange?

The Board of NIC holdings ltd recommended for the approval of shareholders a final dividend payment of Shs1/- for every ordinary share held at the close of register on 31st August, 2023 out of the profit for the year ended 31st December, 2022 subject to withholding tax. If the recommended dividend is approved by shareholders, payment will be made by 14th September, 2023 to members entitled to dividend. Not a good stock to own if you ask me.

Bank of Baroda (Uganda) Limited informed its esteemed shareholders and the general public that the 2023 Bonus Issue Prospectus had been approved by the Capital Markets Authority. Uganda Securities Exchange had approved the listing of additional 12,500,000,000 ordinary shares of par value UGX 10. This was something the new directorate at Baroda took on first. The Listing Date for the additional 12,500,000,000 ordinary shares is 5th June,2023.

Eyes on smooth UMEME transition. Last year government advised UMEME of its intention to let the concession run to its natural end, with the distribution of assets falling back to government after settlement of the contractually specified buy out amount.

The payment by the government to UMEME of the buyout amount is a precondition to the retransfer by UMEME of the distribution system back to Uganda UEDCL (Uganda Electricity Distribution Company Limited) at the end of the concession term.

Parliament and cabinet and probably believe ending UMEME contract is one of the necessary innervations for reducing the high power tariffs in the country. I will keep monitoring the stock with more attention as it happens to be the most lucrative equity to ever be listed on USE. Now trading at Ugx 440 whereas a year and a half ago the stock was trading at Ugx 200.

Uganda Money Markets

Bank of Uganda was seen in the market on Thursday last week mopping out excess liquidity through a seven-day mop-up repo and issuance of 28-day Bank of Uganda bills. There wasn’t any government paper auction this week however there is one next week.

Prevailing rates on the one-year treasury bill are at 11.7% down from 12.1% while three months and six months is in the region of 10.38% and 10.50% respectively. Short term investors are surely going to be more prominent in unit trusts at UAP and ICEA since unit trusts are offering to fix monies at 11% per month and proceeds are not taxed.

The product too, seems risk free and plans by the country’s revenue ombudsman, the Uganda Revenue Authority, to have proceeds taxed were squashed by parliament. I advise that one picks unit trust investment over treasury bills since the rates continue to placate.

Seth Nuwagaba is an investment banker at one of the biggest banks in East Africa.