In recent years, the government has been pushing for increased savings amongst Ugandans with savings estimated at 17.95 percent of the value of the economy in 2021, according to the World Bank. This means for every 100 Shillings made in Uganda, only about 18 Shillings was saved.
This was an improvement from the previous year, but still far below the 2013 level of 24 percent.
The stock market, the NSSF, village savings schemes, savings and credit co-operatives (SACCOs), and now retirement benefit and collective investment schemes are the most commonly promoted.
However, there is the centuries-old one that few talk about: government treasuries or the Treasury Bonds and Bills, yet, the section of the financial markets is deemed safest and one of the most lucrative.
Many Ugandans see this as an elite business or one meant for the rich. But as experts explain, even the most ordinary person can participate, provided they can have a bank account.
Bonds and Bills are just paper (now electronic) which shows that the government owes the holder some money, of a certain value and for a specified period of time.
So, sort of a certificate showing that the holder has lent to government money, and at interest.
So, by buying government paper, one is not only saving, but investing too, while the government is getting a ready source of money for funding its programs where the revenues fall short.
A Bill and a Bond are differentiated by the length of the duration period, with Bills having maturity dates of 91, 182, or 364 days and they give the saver a choice depending on why they are saving or for how long they are able to put the money away.
Treasury bonds on the other hand are long-term debt instruments also issued by the Government through the Bank of Uganda to the investing public. Treasury Bonds are issued with maturities of 2, 3, 10, 15, and 20 years. So, Bonds are a more patient investment than Bills. However, even before maturity, the investor may terminate it.
In Uganda, to buy government securities, one needs 100,0000 Shillings as a minimum and all Bills and Bonds are in denominations of 100,000.
Experts say the treasuries offer a higher return than most of the investments available, financial or physical, while also being almost 100 percent secure. Savings at the collective investment schemes and retirement benefits schemes, including NSSF offer returns of between 9 and 12 percent per year, while Bills carry yields of between 11 and 15 percent per year, and Bonds between 11 and 19 percent per year.
The yield (return on investment) depends on the maturity or the length of the debt.
Dr. Charles Abuka, the Executive Director of Operations at the Bank of Uganda says that this is because the transactions are local and in the local currency, which assures total government control, except where rising inflation and interest rates significantly.
“There are however, risks on interest rates because a rise in the interest rates results in lower bond prices, while inflation may reduce the purchasing power of a bond’s future coupon and principal payments,” he said.
For an individual to invest in treasuries, one is required to open a Treasury Bills account on the Central Depository System (CDS) which is like ‘an electronic warehouse for the treasuries’ and handles all related transactions.
The account is opened through a licensed agency, commercial bank, investment advisor, or brokers, according to the Uganda Securities Exchange. These deal directly with the Central Bank as Primary Dealers, through which buyers submit their bids, and once the bid is successful, the banks deduct the bid amount from the bidder’s account.
Currently, there are seven Primary Dealers; ABSA Bank, Bank of Baroda, Centenary Bank, DFCU Bank, Housing Finance Bank, Stanbic Bank, and Standard Chartered Bank, which transact with the BOU on behalf of their clients. Once the treasuries are sold at the Primary Market (from the Bank of Uganda), dealers can continue trading in them on the secondary market with those willing to sell theirs to those willing to buy.
In case the client/investor feels they need money and that the treasuries they hold are the solution to their needs, they can ‘withdraw, by selling the Bond to a commercial bank, or any other Treasury bond investor or find a buyer through the Uganda Securities Exchange for a broker to find a buyer.
“Bank of Uganda will only rediscount bonds at the prevailing rediscount rate for Treasury bonds with less than 91 days to maturity. This should be a last resort option,” says the USE in a statement.
In the secondary market, investors are advised to sell their bond to the party with the highest bid (buy) price and buy from the party with the lowest ask (sell) price.
NSSF has been investing in Uganda govt Treasury bills and bonds. So I am sure investing in bonds isn’t a contentious matter. The issue here is that the govt wants direct investment at the end of last year, BOU reported that the outstanding government date through treasuries was equal to 30.7 trillion shillings, 85 percent being in treasury bonds.
Livingstone Mukasa, the Chief Executive Officer at Four One Financial Services, says that Ugandans who have embraced Bills and Bonds take them as their final investment, which is wrong.
“I view investments in Treasury Bonds, Unit trusts, voluntary retirement savings, etc as ‘Investment parking spaces’ and not final investments. You invest in them as an aggregation tool and as you look on investing elsewhere,” he said.
Mukasa, also the author of Investing in the Future, says the ultimate final and optimal personal investments should be in business, education and skills, content creation, the stock market (where it works), and Real Estate. “Rather than be afraid of risk, we should seek to manage it,” he said.