This study is about the relationship between interest rates and the level of investment in Uganda. This chapter presents the background to the study, the statement of the problem, purpose of the study, objectives of the study, research questions, and scope of the study, significance of the study, the conceptual model and the organizational setup of the study. 1.1
Background to the study
Interest rates are likely to experience an up ward pressure as the central bank steps up efforts to curb inflationary pressures from increased government spending. However, the increase in interest on short term instruments such as treasury bills will be controlled by issues on long term bonds whatever the case. Commercial banks are not likely to significantly alter their plans to lend to the private sector beyond the existing strategies such that interest rates will remain higher many agents can afford (kakongoro, 2003). Literature on economic growth and development; Few economic ideas are as intuitive as the notion that increasing investment is a good way to raise output and income. The recent empirical research also supports this view the rate of investment is robustly and positively correlated with the rate of economic growth in cross country, long run growth regressions. Growth was constrained by lack of investment that in turn was constrained by lack of finance. Consequently, if financing was made available, it was argued, physical capital investment and ultimately, growth would follow (Reinikka, 2001). The rate of investment will be slower. This is so because the higher the rate of investment the higher the cost and lower is the rate of return. Consequently, the rate of return becomes equal to the rate of interest much quicker putting an end to further investment during a given period of time. The net investment will take place at the rate of return equal to the market rate of interest (Vaish, 2000). 1.2
Key information and background of Uganda clays limited
Uganda Clays Limited was incorporated as a private limited liability company on 10 July, 1950 in Kampala, Uganda. On 4 March 1999, UCL was converted into a public limited liability company under section 33 of the companies Act. Uganda Clays limited is an important supplier of building clay products in the housing and construction industry. Its main business is the production and sale of roofing tiles, walling materials such as burnt clay bricks, interlocking and corner blocks, partition blocks, ventilators, suspended floor units, floor tiles, pipes, other building materials and decorative clay products such as grilles, flower pots, vases and other pottery. In the financial year ended 31 December, 1998, the company’s turn over was UShs 2.8 billion and the profit after taxation was UShs 98.6 million. For the six months ended 30 June, 1999, the accounts of the company showed a turn over of UShs 1.6 billion and profit after tax of UShs 133.9 million. Uganda clays Shortlisted on Uganda Securities Exchange in 2000, as a way of raising the share capital. 1.3
Statement of the problem
Borrowing costs continue to raise concern as interest rates show no signal of coming down. Bank of Uganda, in a pre-emptive move to limit inflationary pressures is gradually increasing the bank rate (Mutebile, 2003). However, Ugandans are still faced with numerous bank charges that affect customers ability to invest or take up the new products commercial and financial institutions offer them (Mutebile, 2006). It is against the above knowledge gap that the researcher sought to examine the relationship between interest rates and the level of investment. 1.4 Purpose of the Study
The study sought to establish the relationship between interest rates and the level of investment in Uganda.
To identify the various types of investment
To analyze the relationship between interest rates and the level of investment in Uganda. iii.
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