Stock Argument

Capital Markets

The Dar es Salaam Stock Exchange (DSE), which rang its first bell in 1998, today has 18 listed companies, of which six are cross-listed, while seven were listed following privatization. […]

The Dar es Salaam Stock Exchange (DSE), which rang its first bell in 1998, today has 18 listed companies, of which six are cross-listed, while seven were listed following privatization. In a story common among emerging markets, the exchange was instigated with a number of objectives fundamental to Tanzania’s broader economic objectives. Key to these is the fleshing out of the capital markets for the raising of funds for business, especially SMEs, as well as government schemes, and the fostering of a broader investment culture and promulgation of best practices, corporate governance, and transparency. All these together underpin the drive to make Tanzania appealing to the broader international investor base, and ultimately to boost financial penetration among Tanzanians. Recent DSE efforts to boost its operational effectiveness and ease of use featured an upgrade of its vendor technology platform to Securities and Trading Technology (SST).


In pursuit of further liquidity, the DSE has been subject to key reforms, where in 2Q2014 the central bank—the Bank of Tanzania—amended Foreign Exchange Regulations pertaining to listed securities. Accordingly, foreign investors from the East Africa Community may now trade in the local government bonds market. The DSE is regulated by the Capital Markets and Securities Authority (CMSA), a state agency established under the Capital Markets and Securities Act, 1994. The CMSA, too, is in the midst of amending the regulations that govern capital markets securities regarding foreign investors to boost participation in both equities and bonds. The interest the prospect of these reforms has generated is clear in 2Q2014 data, where foreign investor participation in equity trading stood at 55.19%, up QoQ from 48.73% in 1Q2014. The current limit on foreign participation is 60%, the lowest to be found in East Africa, and followed by Kenya at 85%. Yet as the DSE’s CEO Moremi Marwa explained in a TBY interview, “It is important we note that most of the companies listed on the DSE have already reached or, in some cases, exceeded that limit. What this means is that, generally, foreigners are not allowed to participate in our market because, in most of the companies, the ownership limit has already been reached.”


In an active 2Q2014, the DSE introduced its promotional DSE Scholars Investment Challenge competition, where around 5,000 students were introduced to the various instruments and the concepts of saving and investment. Leveraging Tanzania’s rising mobile phone penetration—inching towards 70%—the bourse encouraged students to access trading platforms remotely by phone, a trend already familiar in developed economies.


Also promoted heavily during the quarter was the DSE’s new Enterprise Growth Market (EGM). The market is geared at SMEs, which data from Tanzanian organization Financial Sector Deepening Trust (FSDT) baseline survey of 2013 puts at over 3 million, employing over 5 million Tanzanians out of a total working population of some 20 million, and stumping up 27% of GDP. The key SME sectors are trade (55%), accommodation and food services (26%), and manufacturing (14%). The DSE targeted SMEs with a series of TV and radio programs explaining the benefits of listing to raise capital for growth, and greater participation in the value chain. And as the DSE stresses in its promotional activities, the EGM has the capacity to play a part in national economic transformation to curb the common scenario of migration from rural to urban areas, by making capital available nationwide. There is a way to go yet, and to date the EGM has seen one listing that raised capital of TZS4.5 billion ($2.81 million). To incentivize further listings the EGM has less stringent listing criteria, stipulating a capital base of TZS200 million ($125,000), and a minimum public float of 20%. In contrast, listing on the main market stipulates a two-year profitable trading record, minimum share capital of TZS500 million ($312,500), a minimum issue volume of 1 million shares, and a 25% public shareholding.


On a scheduled investment of $1 billion, Vietnam-based telecoms operator Viettel is poised to enter Tanzania to establish a third-generation (3G) mobile network, with services earmarked for launch in 2H2015. Under sector regulations geared at offering citizens stakes in the fast-growing telecoms sector, the state expects Tanzanian mobile operators to list on its stock exchange in 2015. Related legislation passed in 2010 had originally envisaged the mandatory listing of telecoms companies in 2013, as a shot in the arm for corporate governance and transparency in the key sector. The total market capitalization on the DSE will clearly also rise in consequence.


According to the DSE, its investor base currently numbers 200,000. For 2Q2014, official data puts total capitalization at TZS18,902 billion ($11.81 billion) of QoQ growth of 10%; while domestic market capitalization growth outperformed that number by 11 percentage points. This welcome data was in large part due to the declining interest rate trend for the quarter where weighted average yields on Treasury bills slid from 14.70% in March to 12.51% in June 2014.


For 2Q2014 the DSE’s benchmark All Share Index posted a solid QoQ gain of 10.96% to 2,172.71, up from 1958.09 as at March 31, 2014. The most active equities for the quarter were Jubilee Holdings Ltd. up 35.20%, National Microfinance Bank (50%), Tanzania Breweries Ltd. (21.25%), and TOL Gasses Ltd. (59.68%). Domestic market capitalization appreciated 21.28% to TZS7,489.95 billion ($4.68 billion) from TZS6,175.83 billion ($3.86 billion) in 1Q2014. Meanwhile, the Tanzania Share Index gained 21.28% to close the quarter at 3,561.62 points at end-June 2014, as the majority of domestic listed share prices saw gains. Elsewhere, the Banking & Investment Index rallied 35.84% to 3,502.78 points at end-June, 2014, largely propped up by impressive gains of 50% and 8.7% respectively registered by National Microfinance Bank and CRDB Bank. The Industrial & Allied Index rose 14.97% to 4,071.10 points, while the Commercial Services share index shed 1.25% to close the quarter at 1981.88 points. Overall turnover for 2Q2014 saw a tremendous quarterly rise of 89.27% to TZS42.69 billion, as the volume of shares traded soared 71.48% to 68,581,762 shares.


In 2Q2014 the secondary market saw trading of TZS136.13 billion ($85 million) in government bonds, marking a QoQ appreciation of 42.11% (1Q2014: TZS95.79 billion). The weighted average yield to maturity (YTM) for the 15-year paper rose 2.30%, while the 10-year paper rose 2.45%, the 5-year bonds gained 2.67%, while in contrast the 2-year and 7-year bonds YTM respectively shed 6.17% and 0.88%. In the quarter, while no equities were listed, Treasury bonds of various maturities worth TZS251.13 billion were listed, down from TZS 317.04 billion in 1Q2014.

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