Uganda’s growth expected to outpace big brother Kenya

Uganda, like the rest of East Africa relative to Kenya, tends to play in the shadows when it comes to being a potential investment destination.

From a stock market perspective this is perhaps not too surprising given that cross listings from the Nairobi Stock Exchange dominate Uganda’s ALSI, with domestic stocks at a combined market capitalisation of US$783m, making up just 16.84% of the ALSI’s market capitalisation.

Movements on Uganda’s exchange therefore tend to correlate to a large degree to the performance of the cross listed shares.

A look at the broader economy, however, reveals that while it may be a smaller economy and coming off a lower base, the country has been growing at a solid pace over the past decade or so.

According to the IMF, real GDP growth for Uganda averaged 8.2% between 2004 and 2008, and was 7.1% in 2009, with a 5.6% and 6.4% growth forecast for 2010 and 2011 respectively. Kenya’s comparative growth numbers are 5.1% growth between 2004 and 2008, 2.1% in 2009, and forecasts of 4.1% and 5.8% for 2010 and 2011.

A Reuters survey reveals that some economists are even more bullish, with expectations of 6.7% growth for 2010 and 7% in 2011, fuelled by growing private consumption and public expenditure, the latter more so with presidential and parliamentary elections set for next year.

Beyond that, the discovery and future exploitation of oil, of which Uganda is set to become a top 50 global producer with estimated reserves of 2 billion barrels in the Albertine basin, should see even more economic gains going forward.

Given a not too flattering record of corruption, however, the caveat is that this growth will only be seen to filter to all spheres of the economy and the proverbial “man on the street” if the oil revenues are managed transparently and deployed appropriately.

UK-listed Tullow Oil Plc, the most active player in the nascent Uganda oil industry, in a development that will be positive for liquidity on the local exchange, has indicated it is planning to cross list in both Uganda and Ghana, and do a “small” public offering in each jurisdiction.

The company plans to lodge documentation for both the listing and public offering in September, and all things being equal, to launch the cross-listing and share offering in October.

With a current market capitalisation of GBP11.5bn, this will become by far the biggest listing on Uganda’s ALSI, and hopefully lead to larger volumes being traded as has been the experience with the listings of Zain in Zambia and Safaricom in Kenya, for example.

Article written by the Imara Africa Securities team. Imara is an investment banking and asset management group renowned for its knowledge of African markets.