Dar relaxes rules to attract foreign investors

Saturday September 27 2014

Trading on the Dar es Salaam stockmarket is expected to increase from $400,000 daily after the government last week relaxed rules restricting foreign investors from trading in the equities and bond markets.

The Tanzanian government on September 19 in a legal notice revoked the Foreign Investors Regulation of 2003 to allow foreign investors purchase the securities of listed companies.

Dar es Salaam Stock Exchange chief executive officer Moremi Marwa said: “This action is envisaged to improve the level of liquidity in the stockmarket from the current average of Tsh50 billion ($150 million) per annum to a higher level.”

The change of heart is also seen as part of a larger plan by Tanzania to tap foreign investors for the cash for infrastructure projects.

The DSE liquidity ratios are currently at three per cent of the market capitalisation following the recent surge in stock prices.

The market capitalisation has increased to more than Tsh22 million ($13.5 billion).


With the increase in the investor base, there is an expected increase in the market depth as well, Mr Marwa said.

Currently, market capitalisation to gross domestic product (GDP) is about 40 per cent. Mr Marwa said the plan is to achieve a 50 per cent level by 2017, buoyed by ongoing efforts to attract more listings on the bourse.

Tanzania’s move is expected to spark a major shift in asset allocation in Rwanda, Uganda and Tanzania, where pension funds are overexposed to government debt and real estate investment, forcing asset managers to seek a wider selection of regionally quoted shares to boost returns.

“The soon-to-be scrapped cap on foreign holdings of listed companies is especially positive for a country often viewed as slow to reform,” stockmarket analysts Renaissance Capital said in a briefing.

“Tanzania — the East African Community’s second largest economy ($37 billion) and one of the fastest growing economies, at seven to eight per cent — is one of East Africa’s most exciting stories, thanks to the significant natural gas fields discovered offshore,” Renaissance added.

Last week’s legal notice strengthens an earlier one in May that liberalised the capital account through the Bank of Tanzania (BoT), which amended the Foreign Exchange (Amendment) Regulations 2014, and the Foreign Exchange (Amendment) Regulations 2014.

The two regulations were published in the government gazette on May 2 this year. Before this amendment, foreign investors were not allowed to trade in government securities and were limited to only 60 per cent of the listed securities at the DSE.

The first notice allowed nationals from East African Community member nations to participate in DSE securities and take up up to 40 per cent of government securities. However, investors from the same country are not allowed to exceed two-thirds of the 40 per cent threshold.

The notice also allowed Tanzanians to invest in the EAC region without seeking permission from BoT.

The reforms at the DSE are taking place against a backdrop of efforts to encourage Small and Medium Enterprises (SMEs) to list at the bourse.

READ: With targeted reforms, DSE will be the engine of economic development

With the support of the Capital Markets Authority, the DSE has already launched the Entrepreneurship growth market (EGM) to support implementation of Tanzania’s economic growth policies.

Growth of SMEs

The SMEs are seem as major contributors to Tanzania’s economic prosperity, but their development has been hindered by lack of capital.

The EGM is an equity market specifically created for SMEs and start-ups. Although SMEs are estimated at three million, accessing capital from commercial banks has not been easy.

While access to short-term, overdraft or trade financing loans have become accessible, long-term loans are still tied to stringent collateral requirements and high interest rates are charged.

Mr Marwa has been encouraging SMEs to consider listing on the DSE to take advantage of available opportunities to raise funds for growth.