Uganda’s thriving financial sector ranked no.1 in East Africa

Uganda is running an economy with the most developed financial sector in East Africa, which is only the latest feat that depicts a major milestone in the country’s race towards becoming a regional financial hub, with an eye to increased inflow of foreign direct investments, according to the latest study by the Official Monetary and Financial Institutions Forum (OMFIF) and Absa Bank.
The sixth edition of the Absa Africa Financial Markets Index (2022) report entitled “Harnessing the Power of African Opportunity” shows that Uganda has made significant improvement in five key areas compared to Kenya, Tanzania, Rwanda and the DR Congo. These include access to foreign exchange market, transparency in taxation and regulatory regime, capacity of local investors, state of the macroeconomic environment and transparency in the enforcement of legal contracts. According to the report that was released last week, Uganda beat its regional peers on market accessibility, openness and transparency. It is followed by Kenya, Tanzania, Rwanda and the DRC.
Uganda has eased the severity of capital controls, bolstered interbank foreign exchange liquidity and enhanced reporting standards of exchange rate data. This is in addition to the Bank of Uganda (BoU)’s ability to manage volatility from foreign capital flows by considering the adequacy of forex reserves. Uganda’s interbank foreign exchange liquidity rose significantly, with annual turnover rising to $28.4 billion this year from $21.5 billion in 2021. As for Tanzania, the report praises the country for having moved to liberalize its capital account through its Foreign Exchange Regulation Act 2022 that opened up access to foreign investors in the domestic debt market. In Kenya, its Central Bank also issued guidance for banks to incorporate climate-related factors into their risk management frameworks. The study covered 26 countries with the addition of the DRC, Madagascar and Zimbabwe. South Africa had the most developed financial sector in the continent while Ethiopia, which is still moving towards a securities exchange and more robust legal framework, ranked the least.