KAMPALA – I have been actively involved in Uganda’s fund management and investment space since 2016. During this time I have invested my own money and also managed other people’s money. The last 5 years have been the best years to be a fund manager and an investor in Uganda but things are about to change radically. The thing though is that many people don’t see the storm brewing. You see we are wired to believe that when the good times come, they will not stop and likewise when we go through a turbulent period, we find it hard to believe that it will end someday.
In 2016, the Central Bank Rate (CBR) , which is the base rate for Treasury Bills and Bonds, hit a high of 20.5% meaning that if you invested your money then you will be guaranteed a return of 17.4% (after the 15% tax that is charged on Treasury Bills returns). Considering that inflation was recorded at 5.45%, you could have a net return of 11.95%. This is pretty impressive for the safest investment in town. First forward to 2021, the CBR is now at 6.5% per year with an after tax rate of 5.5% and inflation is hovering at 3.5%. This net return to the investor is therefore 2%. This is going to hit Pension Funds, Unit Trusts, Fixed deposit rates, long term insurance savings products etc like a hurricane. The returns on these products in the coming years 2021/2022 will make many investors and savers miserable.
While this will hurt risk-averse investments and investors, it’s going to be a boon to firms and individuals that can take on risk and manage it well. It will make investing in things like Startups quite appealing because aggregated funds will find it not attractive to dump 85% of their funds in Treasury Bills and Bonds. For comparison, in the USA, a well managed private equity real estate fund can manage a return of 21% per year but if you bought US Treasury Bills, the return is just 0.04% per year. I suspect and barring an economic upset, the years of high rates on treasury bills and bonds are behind us. This means that we will have no option but to take a chance on our entrepreneurs, start-ups and invest in things that a while ago seemed so risky for funds like NSSF. We will need to work on enabling laws and improve our honesty as business people to build trust that is so critical to enabling a risk taking culture. We will also need to learn to celebrate our risk takers when they win but be prepared to give them another chance when they fail. Right now it’s hard to fail in Uganda, because you instantly branded a crook even if you did your best and maybe were taken out by factors beyond your control.
At Four One Financial Services Limited, we spotted this trend in 2019 and have been laying the groundwork to encourage our people not fear risk but to learn to manage it. For example we are building Bitbricks, a private real estate investment fund that is working on bringing to market 172 affordable homes on the market in the next 5 years with a possibility of delivering 20% return per year. If you want to take on some risk in your portfolio but you don’t how, I would be more than happy to advise.
The Author, Livingstone Mukasa is a Financial Advisor, Entrepreneur, People’s Professor of Streetnomics and the Author of “The Great Financial Rebuild” & “Investing for the Future”.