Saturday, December 31, 2011

Tanzania: Stock Exchange in Dar es Salaam Still Standing Strong

Sebastian Mrindoko

It continued to offer its core business that is a platform for intermediation of the securities in Tanzania and allowing providing value to the listed securities.
It also continued with an important task of regulating the market to ensure investor protection, efficient processes and best practices. "The 2011 has been a good year for the equity market against the backdrop of challenges seen in the macro-economic parameters like the weak shilling against major currencies, high inflation, high interest rates," said the DSE Chief Executive Officer, Mr Gabriel Kitua, in an interview over the bourse performances.
This year, African Barrick Gold (ABG) cross-listed and Precision Air will be listed on Wednesday December 21. The two companies have added an opportunity for them to be able to fund their future growth through issuance of bonds or additional shares through our capital markets.
According to Mr Kitua, the new companies also have widened the investment opportunities to Tanzanians that has always been limited. The value of listed securities appreciated improving the wealth and so the livelihood of the investors holding the stocks in our market. For example, the Tanzania Share Index that tracks movement in value of listed domestic companies appreciated by 22 per cent from 930.09 points in January to 1,142.97 points as of November 2011.

Also market capitalisation rose by 22 per cent from 5,012.86bn/- in January to 6,093.56bn/- as of November. Likewise, the all share index that tracks the movement in value of all companies including the cross listed stocks appreciated by 12 per cent. The impressive growth can be attributed to the increase in prices for most counters in the exchange.
The index appreciations are notwithstanding the dividend payments that were made by the listed companies during the year. With inflation at less than 18 per cent, the 22 per cent appreciation ensured net positive gain to investors on stocks listed at the equity market. DSE emerged one of the top five good performing stock markets in Africa this year.
Among other achievement seen this year at DSE, the bourse was awarded the "Best Sustainable Stock Exchange in Africa for 2011" by the World Finance Magazine.
However, during the year the DSE had to sadly delist NICOL that failed to meet the listing requirements. DSE is a self regulatory organization and has tight rules that ensures transparency and efficiency in the systems.
The regulatory function is aimed to ensuring that investors are always protected through timely disclosure of the important information for proper investment decision making. NICOL failed to submit the audited accounts for two years. DSE also continued providing an efficient secondary market for the treasury bonds. As a result, the government has been able to continue raising debt through the capital markets despite the soaring inflation.
Despite decline in the volumes, ability for trading of the bonds that have coupon rate of less than the inflation made it possible for the government to continue tapping the market at reasonable interest rates. Considering only the indices, the Dar bourse has performed well than both the Nairobi Stock Exchange (NSE) and the Uganda Stock Exchange (USE) which lost most of the value of listed stocks during the year.
For example, while DSE's investors have gained by 22 per cent this year, the NSE investors lost almost 30 per cent since January. It implies that most stocks listed at the NSE lost a third of their value this year. In terms of contribution into the economy, DSE has been playing a significant role. The economic growth depends largely on production of goods and services which in turn rely on investments.
Investments in this manner could only be channelled into production if the people who contribute the money are sure that their savings will be safe and their returns will be safeguarded. DSE provides mechanism for even small savers in the country to own a stake in big productive entities in the economy and to ensure that the rights of all investors regardless their size are safeguarded.
All economies that have recorded remarkable growth have ensured that they promote and develop their stock exchanges. The future prospects of any economy rests on its ability to invest in long-term productive ventures like infrastructure, production of goods, quality human resources, service delivery and research and development.
"It is the stock exchange that facilitates secure savings mobilisation from individual small savings into mainstream economic activities. The more effective the exchange the more effective and fast growing the economy," said Mr Moremi Marwa of the Tanzania Securities Limited (TSL) in an interview.
He said the DSE contributes to the economic development of the country though relatively small. For example, DSE domestic market capitalisation to GDP ratio was about 5 per cent as of November 2011 compared to the same ratio at the NSE which was above 30 per cent. Likewise, the liquidity of the market ratio, stock market turnover ratio as of November this year was about 3 per cent at DSE, 15 per cent at NSE.
He said effectiveness of the exchange is determined by the financial literacy, the understanding of the citizens of the opportunities available in investing in shares and bonds and how they can participate. Unfortunately, Tanzania is lagging behind in the financial literacy on the stock exchange opportunities.
Less than one per cent of Tanzanians have ever participated in investing through the equity market. For a meaningful economic development, the country needs to have at least five per cent of the population participate to channel their savings into growth of the country's formal economy through equity market. Also the government biggest contribution shall be in encouraging more listing and funding big publicity campaigns when it offloads the shares it holds in some parastatals so that more Tanzanians become aware of the opportunities.
Active trading of the bonds at the DSE has enabled the government to raise badly needed funds for growth through the capital markets. Issuance of the treasury bonds has also facilitated corporate bond issuance at a very reasonable rate. Apart from the ability to mobilise savings within the country, DSE mobilises the investment funds from all over the world for the local economy.
At the moment about half of all trading at the market is contributed by the foreign portfolio investors. It is expected that the 2012 will see increased awareness on opportunities available at DSE which will lead to bigger participation by local investors boosting their contributions to daily turnover to about 70 per cent leaving aside 30 per cent to the foreign portfolio investors.
DSE has several plans on the awareness for the schools children and college students, the general public through road shows, use of media and use of crowd pulling events like exhibitions and the professionals or special groups like executives of companies with potential for listing through presentations in their fora.
Additional wider reaching programmes will be developed for the wide population. It must however be said that financial literacy project is one of a very expensive venture. Given the level of the market development, it is however, the priority number one.

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