Wednesday, October 8, 2003
Traders turn to Uganda as profits drop
By WASHINGTON AKUMU
Desperate Kenyan investors are increasingly looking beyond the borders for opportunities, stung by low returns on government paper that have hit all-time lows.
Uganda has become a prime target for the deal hunters since interest rates and, by extension, yields on Treasury bills and bonds have remained relatively higher.
"It may not be easy to provide the exact quantum, but from talks with key investors and anecdotal evidence, I can tell you that there has been a major shift among the traditional money market investors.
The Ugandan money market, among other offshore locations has become a major hunting ground due to the prospects of better returns," said Mr Evans Osano, an analyst at fund managers AIG Global Investment.
He spoke during the launch of the firm's Financial Markets Review for the third quarter of this year.
Kenya is currently experiencing the lowest interest rate regime since independence, with the indicative 91-day Treasury Bill rate reaching a low of 0.849 per cent from a high of over 11 per cent at the start of the year.
Uganda on the other hand, despite an annual inflation of about 5.9 per cent, is still a good prospect, given its comparatively high yields on government paper. On the 182-day tenor Treasury Bill for instance, the rate is 18.5 per cent, compared to Kenya's 1.35 per cent.
The unprecedented fall in Kenyan interest rates has been precipitated by high liquidity in the domestic market on the back of renewed investor confidence after January's successful political transition.
A change in the cash ratio rule has meant that banks now have to keep only six per cent of their money at Central Bank as opposed to a previous level of 10 per cent, freeing up more idle money into a cash-flush economy.
The result has been a desperate search for bargains in the local money market, with the CBK auctions being over-subscribed, despite the low yields on offer. The stock market has benefited with the turnover rising 47 per cent to Sh4 billion in the third quarter of the year.
Another indicator that Kenyan investors could be increasingly looking offshore is the increase in the national forex reserves from $2.086 billion to $2.089 billion in the last week of September.
Of this money, commercial bank deposits accounted for $873 million, out of which a substantial $353 million was balances held for their customers in foreign accounts.
AIG Global expects the current interest rate regime to largely obtain for the rest of the year, unless the Government fails in its efforts to get donor funding and resorts to heavy borrowing from the local market.
"The government has so far borrowed some Sh23 billion in only the first three months of fiscal 2003/4, against a projection of Sh32 billion.
External donor support was meant to raise some Sh30 billion, but delays in this could result in key development projects being deferred to the next year, further dampening the growth prospects for the economy, which we expect to remain at sub-two per cent levels," said Peter Wachira, also of AIG Global Investment.
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