Tanzania is expected to weather growing economic challenges affecting the region in the fourth quarter of 2011 better than Kenya and Uganda, making it a more attractive destination for investors.
The first half of 2011 delivered some unexpected shocks that have severely disrupted the pace of the economic recovery, with a heavy impact on the performance of currencies in Uganda, Kenya, Tanzania and Rwanda but the re-emergence of financial tensions in the Eurozone appears a biggest risk.
The spillover effects of a gloomy forecast on global growth, the recent downgrade of US government debt, the unrelenting crisis in the oil-rich Arab world and continuing worries about the European debt crisis continue to shake the five economies.
At least three listings are set for the Dar es Salaam Stock Exchange (DSE) by the end of the year, which could attract investments at the bourse.
The DSE has been the best performing stockmarket in the EAC, up 9.8 per cent while the Nairobi Stock Exchange and Uganda Stock Exchange are down 23 per cent and 17 per cent respectively.
Tanzania’s rate of inflation has risen more slowly than its neighbours, thanks to a surplus of agricultural commodities such as maize and other grains when there is scarcity across its borders due to drought and distribution constraints.
And its currency is holding up better in trading against the dollar than Kenya’s and Uganda’s, easing the pressure on imported inflation, especially on oil.
“It is tough times across the region,” said Ken Kaniu an analyst with Stanbic Investment Management Services. “But Tanzanian might end up doing better than Kenya and Uganda.”
The fund manager last week released its economic update for Kenya and Uganda where it identified key challenges facing the region as double-digit inflation, volatile local currencies and depressed activity at the stockmarket.
The analysts though expect inflation across the region to ease off in coming months as farmers begin to harvest their crop and bring it into the market and also as global oil prices fall on reduced demand.
Kenya’s inflation rate hit 16.67 per cent and Uganda’s stood at 21.4 per cent in August, with the Kenya shilling facing its worst pressure in two decades.
“We have to take some action toward that end, basically just to ensure that we restore some kind of stability on the monetary side. Inflation numbers are definitely out of the range we had originally predicted,” said Kenya’s Finance Minister Uhuru Kenyatta a fortnight ago. “We are in discussions with the Central Bank to deal with this issue to ensure stability and normalcy returns.”
But Tanzania reported a slower acceleration of price with inflation at 13 per cent.
“Though it is an expensive place, the prices have remained relatively stable,” said Job Ongeri, a Kenyan accountant living in Dar es Salaam.
Tanzania’s currency has lost only seven per cent to the dollar to trade at Tsh1,630. Uganda’s shilling has been the hardest hit – being landlocked, it has to bear the brunt of increased costs, losing around 18 per cent to exchange at Ush2,818.
But as Uganda’s oil, hopefully, comes on stream, pressure will be taken off the shilling with the country relying on fewer imports.
“The envisaged inflow of funds to the ongoing oil exploration and infrastructure projects augur strongly for a recovery and stability of the local unit in the medium to long term horizon,” said Stanbic Investment Management Services in their latest report.
Kenya’s currency has lost 13 per cent to the dollar with it current trading at around Ksh94.
“Not much is coming in in terms of inflows of dollars, the only thing giving us dollars has been tea,” said Solomon Alubala giving one of the reasons why the local currency remains weak.
“The impact of the weak shilling is usually on inflation,” says Mr Alubala.
There have been interventions from the regulator, Central Bank of Kenya, which has sold dollars in the past week in efforts to strengthen the shilling.
“We believe the levels of liquidity will determine the direction of the shilling,” said Stanbic Investment Management Services in their economic update.
At its next bi-monthly Monetary Policy Committee meeting at the end of September CBK is expected to increase interest rates with the aim of strengthening the shilling.
Higher interest rates might make investments opportunities in the bond market attractive and also the lower shares price are also attracting bargain buyers looking to buy shares on attractive valuations.
The DSE will see the high profile sale of a 20 per cent stake in Tanzania Breweries Ltd, by EABL, to the public. TBL is the most valuable stock on the DSE, whose share offer is expected to generate a lot of interest.
EABL opted out of the TBL investment after its relationship with South African SAB Miller turned sour. EABL and SABMiller had invested in Tanzania with a joint venture in listed TBL.
Precision Air will become only the only second listed airline in the region, after Kenya Airways, with its initial public offering pencilled in for late September or early October.
It comes at a time when air travel on the African continent is opening up as more airlines increase their regional fleets to take advantage of the opportunities opening up.
Also, African Barrick Gold is expected to cross list its shares by end of the year.
But the DSE is faced with the issue of liquidity and accessibility, which will be a wait and see to know whether or not there will be better activity.