Via Quartz, a look at Uganda’s promising financial sector:

Kampala could soon dislodge Nairobi from its status as the financial capital of eastern Africa if Uganda continues with measures that have seen it rise to become the regions’ most developed financial sector. This is according to the sixth edition of the 2022 Absa Africa Financial Markets Index (pdf) released by the Official Monetary and Financial Institutions Forum(OMFIF), a London-based banking think tank and Absa Bank, one of Africa’s leading banks.

The country trounced all regional peers this year to emerge as the region’s leader in terms of growth of foreign exchange markets, macroeconomic opportunities, and enforceability of standard master agreements—three of what the report calls “pillars” of capital markets growth.

Kenya has been leading the region, with a score of 65 in 2020, 58 last year but dropped further to 47 this year, partly due to this year’s general election economic uncertainties.

Uganda’s finance industry is on the rise

Uganda’s rise in the finance industry, according to the survey of 23 countries, is fueled by “large pension fund assets under management.” It also ranks high in other ‘pillars’ such as transparency in taxation and regulation, market depth, and transparency in the enforcement of legal contracts but is beaten by Kenya and Tanzania in terms of capacity of local investors.

The country’s capital markets have been tremendously improving in the past two years, scoring highly in areas such as trade and settlements automation despite the fact that only 18 firms are listed on its stock exchange, compared to 64 firms in Kenya and 28 in Tanzania.

A new law—the Foreign Exchange Regulation Act 2022—allowed more foreign players to invest in the local debt market while also inviting investors from the Southern Africa Development Community to purchase government bonds.

Uganda on the rise

The Ugandan economy grew at 4.6% this year, faster than had been predicted, with the World Bank citing an uptick in business activity after the economy reopened last January after a two-year closure over the covid-19 pandemic. “On the supply side, services, and industry were the main drivers of economic growth. There was also strong recovery in wholesale and retail trade, real estate, and education, with industry rebounding through construction and manufacturing,” the World Bank says. It anticipates the rate of economic growth could rise to over 6% in the medium-term.

This year’s Africa Happiness Index, a survey of 40 African countries, also ranks Ugandans as the happiest citizens in the eastern Africa region. It uses parameters such as GDP per capita, social support, healthy life expectancy, freedom to make choices, and generosity.

The International Monetary Fund (IMF) has praised a move by the Bank of Uganda to control inflation by tightening liquidity conditions, predicting that per capita income will rise from $812 to $1,180 by 2026.

However, the country’s GDP was $40 billion last year, trailing Kenya and Tanzania which were at $110 billion and $67 billion respectively.

Africa is embracing sustainable finance

According to chairman of OMFIF, David Marsh, “Deepening local financial markets is now universally seen as an optimal means of hedging against international economic fluctuations. African countries are embracing sustainable finance, incorporating international investment norms and in some cases adopting pioneering methods.”

But for Uganda to unseat Kenya as the leading financial hub, it will have to do more to grow its fintech and mobile money sector so it can bank its huge unbanked population. To attract even more foreign investors, the country must stop internet throttling and create a conducive environment for startup growth.