Among the reforms initiated to strengthen Dar es Salaam Stock Exchange is the Enterprise Growth Market, targeting small and medium enterprises. DSE chief executive spoke MOREMI MARWA to JOSEPH MWAMUNYANGE on the future of the DSE.

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Tanzania’s capital market has carried out a number of reforms in the past few years. What are some of the issues addressed?

Over the past few years, we embarked on projects to position the exchange as the focus and engine of economic development in Tanzania. This has involved developing the strategic business plan that will move us from where we are to being a proper platform for long term, sustainable capital raising.

We have conducted a demutualisation study that provides us with the roadmap towards our efforts of improving our governance structure and change from a mutual entity into a commercially run business entity.

We have also revised rules and developed others to improve our efficiency in the way we interact with members, listed companies, intermediaries, the regulator as well as the business and investment community.

Recently, we introduced the Enterprise Growth Market (EGM) segment within the exchange that targets small and mid-sized companies, start-ups and companies that cannot raise capital through the exchange.

Access to capital has been a key impediment to the development of entrepreneurship and growth of SMEs. Do you see the EGM helping the situation?

The EGM will be part of the capital solution for SMEs. The EGM, like the Main Investment Market segment of the exchange, is a platform for businesses to raise long term capital and list their shares. It is also for creating liquidity for investors who would want to exit.

Furthermore, the stock exchange complements other sources of capital for business.

How risky is the Enterprise Growth Market when compared with the Main Investments Market Segment?

Listing requirements at the EGM segment are less stringent in terms of capital size, number of shareholders, percentage of shareholding held by the public, experience of business operations and profitability among others.

EGM is for startups and SMEs — who are perceived as high risk ventures. However, as a risk management measure, we require that companies envisaging to be listed on the EGM must engage and get services of nominated advisers— these are specialised experts trained and licensed to provide guidance on corporate governance, listing requirements and risk management.

Across East Africa, company disclosures on how much or what benefit directors get have been very opaque even with the listed firms. In Tanzania, it’s even worse going by how firms report their financials. Why is that the case?

We always strive to ensure our members operate within the law. We have, therefore, put the necessary mechanisms that insure proper disclosures and transparency. There are specific regulations and rules to ensure that the spirit of these mechanisms is continuously and consistently implemented.

What factors do you see driving growth in the stock market in the next year?

We have initiated operational and tactical actions such as reducing the settlement on equities and bonds from five and three days to three days and one day respectively
We have extended our trading period from two hours per day to four hours, introduced the wide area network in our trading and settlement platforms, thus enabling brokers, dealers and CDS users to access our platforms remotely.

We have so far seen substantial increase in the trading activities in the market and the public queries into the stock exchange activities. We expect more companies to list on the exchange and increase our investor base from the current 185,000 to at least 500,000 in the next four years.

What could affect stock prices?

Our economy is expected to grow at about seven per cent, inflation is about six per cent. The exchange rate has been relatively stable and interest rates are coming down — all these factors are catalysts to growth.

With good corporate governance and risk management practices as companies try to run in efficient ways, we expect good performance for listed companies. This will lead to the growth of market prices and the accompanying indices.

While firms have been saying they would wish to list on the DSE, the rate of new counters coming up has been rather slow, why is this the case?

This could be due to lack of information, availability of alternative funding sources, lack of courage to pursue the public funding raising route, family owned businesses factors and the fear to share benefits, success stories and challenges.

Other factors are reduced pace of privatisation and the slow pace of implementing laws and legislative actions that are meant to allow Tanzanians to participate in the purchase and own some of the companies operating in key sectors of the economy.

Any regulatory changes that could change the stock market in the pipeline?

The Mining Act of 2010 and Electronic and Postal Communications Act, 2010 are at different phases of implementation. These pieces of legislation have provisions that require companies operating in Tanzania in these respective sectors to offload part of their holding and allow Tanzanians to participate by way of a partial ownership and list on the exchange.

The regulator is also in the process of reviewing the foreign investors’ limits regulations to relax the existing threshold to a relatively higher level.