Ugandan MPs want to ‘fence off’ bourse

Ministry of Finance officials in Uganda are headed for a clash with legislators over amendments to a new law that could lock citizens from other East African countries out of the country’s stockmarket.

The proposed law, seen as a challenge to the spirit and letter of East African economic integration, comes after a similar action by Tanzania, which barred its citizens from participating in initial public offers in Uganda and Kenya and likewise prevented foreign citizens from investing in the Tanzanian mart.

Angered by the recent debacle of the Safaricom IPO, which saw Ugandan investors suffer huge losses, the Parliamentary Finance Committee has rejected two Bills on capital markets presented by the ministry, which it considers detrimental to Uganda’s interests. The Committee wants restrictive clauses inserted in the drafts.

Tanzania has in the recent past closed its stockmarket to foreign participation and also barred its citizens from trading in stocks offered by firms in neighbouring countries — the latest case being that of Kenya’s premier mobile phone operator, Safaricom.

The committee’s position appears to be particularly targeted at Kenyan firms after claims of a “raw deal” in the Safaricom IPO.

“I am surprised that Uganda can make such laws that undermine the integration process. The Capital Markets Authority bosses have on the other hand been meeting to harmonise policies, especially on cross-listing,” said Beatrice Kiraso, the Ugandan EAC Deputy Secretary General.

“We need to push for a political decision-making authority so that partner states can harmonise policies and national legislation,” she said

The ministry has tabled the Securities Central Depositories Bill, 2008 along with proposed amendments to the Capital Markets Authority Act, but the parliamentary committee has proposed the inclusion of restriction clauses.

“Uganda has been too open, unlike other members, particularly Tanzania,” said Godfrey Ekanya, a member of the committee.

According to Uganda’s Capital Markets Authority, no law prevents foreign firms from trading stock in Uganda. It was because of this that Ugandans got an opportunity to participate in East Africa’s largest IPO.

“Because of the open system, nothing can block any company outside Uganda from selling shares here,” said CMA chief executive Japheth Katto.

The Ugandan MPs are now demanding that foreign firms wishing to trade shares in the Ugandan market first seek CMA approval. But both the CMA and the Uganda Securities Exchange say thay are encouraging East African companies to trade in Uganda’s money markets in the spirit of the Customs Union.

Mr Kato said he would propose to the MPs to consider harmonious supervision of stock exchange trading in the region through a mechanism created by the central banks so that problems affecting one country in another partner state can be handled at a regional level.

With the exception of Burundi , the other members’ stock exchanges operate under the umbrella of the East African Securities Exchanges Association, which is a member of the Capital Markets Development Committee of the Community.

The body recognises the importance of promoting simultaneous public issues of securities in the region with the ultimate objective of attracting regional flows of capital to enhance economic development within the East African Community.

Currently, only two companies are listed in all three markets — East African Breweries and Kenya Airways. The three markets have a total of 50 companies listed on their main investment market segments.

Uganda’s State Minister for Finance (General Duties) Fred Omachi told The EastAfrican he was still studying the amendments to the CMA Act and would accommodate the MPs’ concerns to seal loopholes in the existing law.

“I am proofreading it. I already have a Cabinet memo on my desk. I will table the Capital Markets Authority Act amendments before Cabinet next week,” Mr Omachi said while appearing before the Parliamentary Committee on Finance to defend another Bill — the Securities Central Depositories Bill, 2008.

The minister says the CMA Amendment Bill will be tabled in parliament in three months’ time.

Uganda, Kenya and Tanzania last year signed an agreement committing them to enact the Securities Central Depositories laws by December 2007, which enables electronic trading on the stockmarkets.

Kenya and Tanzania have since started the electronic system after establishing the new law.

However, nine months down the road, Uganda is yet to establish the law. The country is still operating a manual system.

The MPs say they will restrict ownership of a central depository to Ugandans in the new law even though under the Community the five countries are currently negotiating a Common Market with free movement of capital and labour.

“Nobody (foreigners) will establish a central depository before their being licensed,” Mr Kato said.

In the new law, Uganda’s CMA, just like in neighbouring Tanzania, will license the stock exchange to operate the central depository.

The central depository is created to facilitate the immobilisation of securities; the deposit and withdrawal of certificates in respect of immobilised securities; the dematerialisation of securities; to open, maintain and close securities accounts and facilitate the efficient transfer of book-entry securities, among other things.

Uganda’s new law provides that the CMA will approve the central depository if it is satisfied that the establishment and maintenance of one would promote the positive development of capital markets in the country.

The law also provides that the central depository shall establish and maintain a guarantee fund for the purpose of providing an indemnity against default in respect of payments for delivery of securities by any participant.

An analysis of the two laws that are still to be passed by parliament indicates that Kampala is deliberately moving to ring-fence its stock exchange.

Uganda has taken a strong stance in reducing space for foreign participation in its stockmarket after complaints that the majority of Ugandan investors lost billions of shillings in the Safaricom IPO.

Mr Kato believes that if there had been close monitoring of the Safaricom trading, Ugandans would have faced minimal losses.

“Safaricom was a unique issue. Shares were offered to all East Africans. We appreciate there was a problem. Some of the issues involved in the Safaricom deal were outside our control. For instance, the mode of payment was dictated by Kenya,” Kato said

But Simon Rutega, the Uganda Security Exchange boss, says the current legal framework does not restrict movement of capital. “The legitimate concerns were delay of refunds. The others were investment risks,” he said.

On July 16, the Parliamentary Finance Committee wrote to Dyer and Blair, expressing its concern over the way the broker handled the Safaricom IPO.

“Many people have not been able to get their refunds as per the set date — June 9 — and some of the funds are loans. You have also introduced several new charges when making refunds. In addition, those who paid for new shares have not received any information,” the letter, signed by the Charles Oleny Ojok, the committee vice chairman, stated.