BusyMarkets Kampala #013: Slight gains for the UGX, budget highlights

Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Financial investments are subject to market risks, and readers should do their own research and consult with a professional advisor before making any investment decisions. Furthermore, the views, information, or opinions expressed herein are solely those of the author in their personal capacity; they do not necessarily reflect the views of the author’s employer or BusyContinent.

The UGX made some small gains against the USD this week ahead of budget reading. The shilling is seen trading at the 3691/3701 levels. I believe the gains are mainly due to needs by firms or proprietorships to settle statutory obligations as the tax man will be on a massive look out for defaulters. Most taxes should be settled by 15th of the following month however income tax can be settled any time between closure of books and half year (30^th June).

Also to note is that these taxes are settled in local currency, thus giving the unit short term gains we are seeing now. The highlights on the annual budget estimates for FY 2023-24 are:

• The budget for FY 2023/24 has been projected at 74 trillion shs an increase of 4.606 trillion shs from the previous financial year, which was 48.134 trillion shs
• Uganda’s public debt increased from $20.98 billion to $21.74 billion in the first half of FY 2022/23, and interest payments rose by 1.42 trillion shs. Out of this stock, 7 trillion shs is external debt, while 33 trillion shs is domestic debt. In short, Uganda’s public debt has increased by 2.8 trillion shs in the previous financial year to date.
• And an additional 2.78 trillion [$734.8 million] in grants and loans, which make up 21 percent of the proposed budget, that’s directly under the control of aggrieved external players/ donors who have been raffled by the recent signing of the anti- homosexuality bill by President Museveni, even threatening sanctions and other penalties.

We have been talking about public debt for over six months and Its obvious that technocrats have decided to cut on consumer expenditure as the main measure to save and raise payments. The money approved to service debt obligations for FY 2022/23 amounted to 15 trillion UGX by the end of Dec 2022. Of that, 6.5 trillion shillings has been spent thus far.

For the financial year 2023/24, a total of 17.1 trillion shillings has been proposed to service the country’s debt, an increase of 2.1 trillion shillings from the previous financial year.

What’s buzzing in stock markets?

British American Tobacco Uganda called for Annual General Meeting that be held at Sheraton Hotel, Rwenzori Ballroom, Kampala, on Thursday, 6 July 2023. The Annual General Meeting (AGM) is mainly to approve audited financials for the year ended 31 December 2022.

But most importantly to declare a final Dividend, of UShs. 209 per ordinary share for the year ended 31 December 2022, to be paid on 1 August 2023 to shareholders whose names appear on the Company’s share register at the close of business on 11 July 2023.

Equity Group Holdings announced to the public that it has entered into a binding term sheet with the Government of Rwanda, Rwanda Social Security Board, for the purchase of 91.93% of the issued shares in the capital of Compagnie Générale De Banque (Cogebanque) PLC Ltd (the Cogebanque Acquisition) with a view to eventually amalgamating the business of Cogebanque with that of Equity group banking subsidiary in Rwanda, Equity Bank Rwanda.

Cogebanque is rated as the fourth biggest bank in Rwanda and this can implies exponential growth for the bank in the region plus dividend returns for investors. I say go for it.

The Board of Directors of Stanbic Uganda Holdings Limited also announced the appointment of Mr. Baker Magunda as an Independent Non-Executive Director and Chairman of the Board, effective 2^nd June 2023 following the retirement of the Board Chairman, Mr. Japheth Katto.

Money Markets

There was a Treasury bond auction this week for the 3-year and 15-year govt papers. There will be a Treasury bill auction, marking the last auction as we close the financial year (FY).

I expect interest rates to slightly rise because much as the Uganda government prefers to take on cheaper external debt, domestic credit is always readily available to borrow with less bureaucracies attached. A slight improvement in rates is persuasive to investors thus financing part of the budget deficits for the coming financial year.

Needless to say that Uganda’s international reserves dropped by $775.9 million from $4,346.0 million at the end of November 2021 to $3,570.1 million in November 2022.

Below are the prevailing & Indicative interest rates per annum.

My Take

1. Trade with caution as an investor, Uganda is poised for harder economic times in the coming FY. Remember to keep the businesses insured. Higher risk implies higher returns.
2. Diversify the investment portfolio by tapping into real estate, manufacturing, fast moving consumer goods.

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