Learning to Share

There are 17 nations in Sub-Saharan Africa today that operate a stock market. And yet, compared to the Nigerian Stock Exchange (NSE)—targeting a market capitalization of $1 trillion by 2016—most suffer from a relatively slim roster of stocks. Tanzania is keen to open up an economy that had largely been closed to non-nationals, and the Dar es Salaam Stock Exchange (DSE) has been a key component of this transition. Trading commenced in April 1998, and the bourse today has two indices, the Tanzania Shares Index (TSI) of local stocks, and the market cap-weighted All Share Index (DSEI) comprising all stocks listed on the DSE. The government views the equity market as a vehicle for generating liquidity with which to diversify the economy. Indeed, companies that list a minimum 30% of their equity on the exchange pay a reduced corporate tax rate of 25% (instead of 30%). Yet, the bourse remains small, where its 17 listed stocks posted a total market capitalization of $1.8 billion at end-2012. On November 27, 2013, the figure had reached $10.5 million. Trading takes place between 10.00 am and 12.00 pm on Tuesdays, Wednesdays, and Thursdays.

CRUNCHING THE NUMBERS

For the year 2011/12 ended June 30, 2012, Treasury bond listing and equity transactions declined by a respective 53% and 8%. The $268.8 million in government bonds listed was around half that seen in 2010/11 ($569.5 million). Also underlining the DSE’s need to evolve commercially was the 33% decline in government subvention from $310,732 over 2010/11 to $207,200 in 2011/12. Meanwhile, equity turnover at the DSE slid 8% from $30 million in 2010/11 to $27.6 million in 2011/12, and was at $302,296.5 as at June 28, 2013. Yet, the All Share Market Index climbed 14% from 1,264.49 on June 30, 2011 to 1,437.84 on June 30, 2012. Meanwhile, equity turnover slid 8% from $44.45 billion in 2010/11 to $30 billion in 2011/12. World Bank data reveals that the market capitalization of listed companies as a percentage of GDP was at 6.4% as of 2012. Trading on the DSE is serviced by seven brokerage firms, with business practice monitored by sector watchdog the Capital Markets and Securities Authority (CMSA).

A LITTLE DRY

A perennial woe of any stock exchange is a shortage of liquidity. Yet today, the 60% cap on foreign participation in Tanzania’s capital markets is exacerbating the problem. By comparison, neighboring Kenya has an 85% limit, while Uganda and Rwanda virtually have none, and the government is being lobbied to lower the bar. Foreign investor participation reached 60.4% in the three months to September from 53.1% between April and June. Yet, during the year ending June 30, 2012, the DSE listed African Barrick Gold and Precision Air Services. Furthermore, a mini-IPO of Tanzania Breweries Limited and Kenya Airways rights issue helped propel market capitalization.

THE ABC OF SME

Entrepreneurship has flourished amid Tanzania’s steady liberalization resulting in the rise and rise of the SME, and a thirst for capital to enable growth and diversification. According to Tanzania Chamber of Commerce Industry and Agriculture (TCCIA) data, over 95% of businesses in Tanzania are SMEs, together contributing roughly 35% of GDP. At over a million enterprises, they generate upwards of 40% of overall employment. Acknowledging these numbers is the Enterprise Growth Market (EGM) of the DSE, a new window specifically listing start-ups and SMEs to tap local and foreign investor interest. Listing on the EGM, unlike the DSE, does not stipulate three consecutive years of profitability prior to application. The EGM was launched on November 5, 2013 by Prime Minister Mizengo Pinda, and pioneered by Maendeleo Bank. This was followed by Mwanza Community Bank’s IPO of 5 million ordinary shares at a nominal value of $0.3 per share. Reportedly, Australian oil and gas exploration firm Swala Energy. plans to list shares in its 65% Tanzanian participation on the EGM to raise up to $2 million. The DSE is already a member of the East African Stock Exchanges Association (EASEA), but in quest of liquidity the concept of a unified regional exchange has emerged. The envisaged entity would integrate the capital markets of four Eastern African countries, namely Kenya, Uganda, Tanzania, and Rwanda, with a combined capitalization estimated at $31 billion. In the words of Moremi Marwa, CEO of the DSE, “The foreign investors’ limit should not apply to people in the East African community.” And on the potential mechanics of a unified bourse he told TBY that “The intention is to have each exchange stand on its own, but integrate the trading platforms and the central depository system.”