Uganda is a country situated in East-Central Africa with a potential of 42 million forex traders characterized by high diversity in terms of ethnicity and politics. As you may already know, its financial system consists of informal, formal, and semi formal institutions. Insurance companies, banks, and capital markets are examples of formal institutions, while loan associations and village savings stand for informal institutions, obviously.
Nowadays 62% of the population of Uganda still doesn’t have access to financial services and only 33% of individuals in this country hold accounts in banks. Nonetheless, this region suffers both legal restrictions and low capitalization, yet it still has a well-developed microfinance industry.
Moreover, the rural and micro-enterprise sectors account for more than half of the country’s GDP, but in the commercial farming sector, microfinance can’t overcome the shortage of long-term loans.
Why has forex become popular in Uganda?
The global foreign exchange market, also known as forex, is the largest one so far. It represents the process of changing one currency into another, enabling traders to purchase goods locally or abroad. It’s also worth pointing out that all the transactions in this market occur via different computer networks, which means that currency trading is held electronically, enabling everyone from investors to traders and financial institutions to participate in this process.
After the outbreak of the COVID-19 pandemic, forex trading became even more attractive in numerous countries around the world and clearly, Uganda is not an exception. Due to the fact that loads of people lost their jobs, income sources, and savings, individuals started thinking about alternative self-employment options. Moreover, advances in technology, as well as the development of internet connectivity and the fierce competition between several brokerages, have made forex trading even more appealing in this country.
But in order to make informed decisions and avoid being tricked, there are a few statements every beginner or professional trader should keep in mind, nevertheless the country they are trading in. First and foremost, it’s vital to seek reputable forex brokers, in order to get access to trading platforms, trading education, customer support, and numerous downloadable software. Even though finding reliable Forex brokers in Uganda isn’t an easy job, there are several trustworthy ones you can benefit from. Furthermore, constantly following up on trading news, and making analyses of past activities in the market during weekends can be a good way to improve skills as well.
The country’s financial sector environment
Uganda’s capital market is not that developed to be a game-changer in providing long-term funds. Moreover, the pension system is also weak. Only a short number of financial institutions are open to liquidity management, portfolio diversification, and the mobilization of savings. But, taking into account the basic features, the signs of recovery from financial depth are still encouraging, suggesting that the above-mentioned sector in Uganda is underdeveloped and dominated by commercial banks.
Another factor worth mentioning is the country’s unfree economy. As we already stated, Uganda has the capacity of becoming an upper-middle-economy country in 20 years, but the high rate of corruption and the weak institutional capacity may present an obstacle in achieving its goal.
Also, due to a 4 months period of lockdown in 2020, the economic activity experienced some difficulties, hitting the industrial sectors. If the impact of the COVID-19 pandemic lasts longer across the globe, it may have dramatic consequences on the country’s economy preventing a fast recovery of exports or grabbing the attention of tourists. All of this could conduct a more drastic result amplifying the fiscal imbalances.
Factors leading to challenges in the development
Even though there was slower economic growth in the last decade in Uganda, before the expansion of the pandemic, there were still signs of decline in poverty thanks to shifts to jobs offering higher salaries and better working conditions. But, the “COVID shock” led to a lot of firm closures, a rise in unemployment, the bankruptcy of companies and largely contributed to the fact of people switching back to farming. Moreover, market-entry costs have also increased, making it harder for both local and international investors to start a business.
All the above-stated reasons have mainly contributed to the fact that during 2020 the country’s gross domestic product increased by only 3%, which represents half of the 6.7% growth witnessed in 2019. Unfortunately, GDP isn’t expected to grow much by the end of 2021 either, experts point out.
Taking into account the current situation, in order to provide growth in the labor force, and improve the living conditions of individuals in this region, the government needs to create at least half a million jobs a year, which is an extremely high rate compared to the 70,000 jobs created presently.
