In a bid to boost the country’s struggling financial sector, Uganda Finance Minister Matia Kasaija has directed the insurance industry regulator to ensure that all companies importing goods into the country get their marine cargo cover locally, beginning July.
This is one of several government interventions meant to help the financial sector recover.
In the financial year that ends June, Uganda’s financial sector is expected to shrink by 1.8 per cent. This compares poorly with the 5.8 per cent growth registered in the 2015/2016 financial year.
Other interventions that Mr Kasaija has promised to help the sector recover are the continued funding of the agriculture insurance subsidy, rollout of bancassurance products, reform of the pension sector and the promise to reduce government borrowing from two per cent of GPD to one per cent.
But while Mr Kasaija has promised to reduce domestic debt, he has spearheaded the government’s plan to increase the amount borrowed from local financial markets from Ush612 billion ($168.9 million) in 2016/17 to Ush954 billion ($263.2 million) in the financial year that starts July.
Over this period, government also plans to roll over a Ush5 trillion ($1.4 billion) maturing domestic debt.
Chief executive of the Uganda Insurers Association Miriam Magala, said there will be no need for a new law to implement the marine cargo cover.
She said that all the Insurance Regulatory Authority (IRA) has to do is work with government agencies such as the Uganda Revenue Authority to ensure that importers are checked to confirm the directive is adhered to.
So, Unlike Kenya which had to pass an Act requiring that imported goods be insured locally, Uganda does not need fresh legislation to achieve this goal.
Passing pro-insurance industry laws has been problematic, as shown by the government’s failure to liberalise the pension sector.
The move was supposed to reduce the monopoly over the management of retirement benefits held by Ugandan workers in the private sector, which is currently enjoyed by the National Social Security Fund.
Allowing private sector workers to save some of their mandatory pension with the insurance industry would increase interest rates for savers. And according to Mr Kasaija, this would in turn increase domestic savings and widen access to much needed long-term capital among private sector players.
The law to liberalise pensions has been in parliament for more than seven years now and it is unclear how the minister intends to change this state of affairs. But for marine cargo insurance, Mr Kasaija has a plan.
“The Insurance Regulatory Authority will effective July 1, 2017, administratively enforce and implement provisions in the Insurance Act under Section (3)(2),” he said.
Under this section, only companies licensed in Uganda can issue insurance policies for ships, aircraft or other vehicles registered in the country. These firms are also the only ones that can insure goods imported from other countries into Uganda.
“Implementation of this policy will boost Uganda’s premiums, just like it did in Kenya,” said Ms Magala.
Kenya started implementing the policy in January this year and in just two months, local insurance players registered a 40 per cent growth in marine cargo insurance premiums, Ms Magala said.
For Uganda, this would mark tremendous growth, as like the rest of the economy, insurance hasn’t been doing well.
Insurance penetration in Uganda currently stands at 0.73 per cent of GDP, compared with 0.76 per cent at the end of 2014.
According to IRA chief executive Ibrahim Lubega Kaddunabi, insurance penetration has been shrinking over the past two years due to the prolonged drought, government’s failure to implement planned public projects and the 2016 general election which created uncertainty and scared away investors.