There is little doubt that the discovery of oil in Uganda has excited much interest in the country’s economy which has in turn largely impacted positively on “the pearl of Africa”.
With the independence of neighbouring South Sudan and its vast reserves of oil, Uganda’s economy is expected to reap handsome rewards given that Kampala is South Sudan’s largest trading partner.
With a GDP of $39.7bn and a population of 33m the Ugandan economy has been growing in the last five years albeit slowly and last year reached the 5.1%. This growth was attributed largely to telecommunications, financial services and construction which contributed some 54% of the total economic growth. The traditional economic drivers of agriculture and tourism now play second fiddle. With a young population, its membership in the expanded East African Community (EAC) and Common Market for Eastern and Southern Africa (COMESA), its own oil resources and as a gateway to South Sudan and Ethiopia, Uganda is all set to grow at an accelerated pace.
The country’s financial sector, hitherto under the shadow of neighbouring Kenya, is also likely to expand to cater for the increasing pace and volume of transactions.
Uganda’s financial system is still considered small and is dominated by the banking sector. Unlike Kenya, Uganda’s banking sector is dominated by three foreign banks: the South African majority-owned Stanbic and the two British multinational banks, Standard Chartered and Barclays.
Kenyan banks, namely Kenya Commercial Bank (KCB), Equity Bank, Diamond Trust Bank (DTB) and Fina Bank also have an imprint in the Ugandan banking sector. Nigeria’s United Bank of Africa (UBA) and the Togolese headquartered multinational, Ecobank, occupy important niches.
Of the 23 registered Ugandan banks only two local banks, Centenary and Crane Banks, make it in the top. Total assets of Ugandan banks stands at $4.78bn.
The Ugandan legislature has sought to make the country’s financial and general business environment freer by enacting investor and commercial friendly laws.
“The privatisation of Uganda Commercial Bank removed the dead hand of the state and its corrupt politics from the banking sector, opening the way to competition and product innovation,” says Andrew Mwenda, editor of The Independent newspaper.
Much of the banking business is still limited to Kampala and major towns serving 28% of the population. This means that 42% of Ugandans are only served by the informal financial sector and 30% are completely cut off from financial services of any kind.
It is this largely unbanked populace and the informal financial sectors that indicate a sector that still holds substantial growth promise.