/ 25 January 2008

Tanzania’s stock exchange: Small but motivated

Almost a decade on, Tanzania’s tiny stock exchange is still working hard to convince sceptical businesses it is a cost-effective way to raise capital and expand.

“The problem is that not many people understand the mechanics of the stock exchange and how it operates. That takes time,” Jonathan Njau, CEO of the Dar es Salaam Stock Exchange (DSE), says in an interview at his downtown office. “Even the New York Stock Exchange started small and took years to develop.”

Seven local companies are listed on the DSE and another three firms are cross-listed on the more active and rapidly growing bourse in neighbouring Kenya. The DSE trading room, situated in an office building in Tanzania’s commercial capital, seats six dealers in front of computer terminals and a screen projecting transactions in real time.

Trading runs from Monday to Friday from 10am to noon, but occasionally closes early if business is slow.

Mainly local pension funds, banks, insurance companies and a mutual fund called Umoja — Kiswahili for “unity” — buy and sell shares on the DSE, which posts an average daily turnover of about 60-million Tanzanian shillings.

In 192 sessions, the DSE traded 9,8-million shares worth about €8,8-million, according to its latest report for the fiscal year ending June 30 2006.

Future growth will depend largely on businesses learning that the DSE can often help expand their operations more cheaply than borrowing from lending institutions that charge interest rates of up to 15%, says Njau.

“We hope to grow to at least 25 companies by 2010,” he says, adding possible growth sectors include mining, agri-business, manufacturing, tourism and fisheries.


But companies are reluctant to debut on the DSE over concerns of exposing their accounting books to public scrutiny and complying with stringent financial reporting rules. Weak laws in Tanzania means private companies are able to tinker with taxes and accounting.

“The problem of poor disclosure in many of our companies is rampant. It’s a high price for companies to put their affairs on the table,” he says.

Initial costs to prepare the company’s legal affairs and balance sheets are also prohibitive, says David Hillier, head of accounting and finance at the Leeds University Business School and a financial adviser in Tanzania.

A young capital market in a developing nation such as Tanzania will take time to develop and gain experience.

“Their market is constrained by a lack of capital in the country and more accessible funding through multinational lenders,” says Hillier. “This is not yet an active market.”

Another problem is that most Tanzanians remain too poor to participate in the mainstream financial system, says Lwanyantika Masha, a trader with a DSE-licensed brokerage firm.

About 36% of the East African nation’s 38-million people live below the poverty line, according to United Nations statistics.

“Most Tanzanians can be aware of [the DSE] but it’s hard to get involved if they don’t have money,” says Masha.

Last year, the government of Tanzania sold shares in Twiga Cement through an initial public offering worth €13,7-million. In a month of trading, demand from prospective buyers was more than four times higher than the amount available, says Njau.

“There is a lot of money looking for investment opportunities, but the projects aren’t there,” he says.


The DSE has developed a training programme to persuade small and medium-sized businesses that it can provide them with access to cheap capital in their home market and reduce their tax burden.

Njau said he is lobbying the government to revise laws — some are held over from the country’s socialist era — so the DSE can introduce new products such as asset- and mortgage-backed securities and infrastructure bonds.

At least one international mineral company operating in Tanzania has shown interest so far. Tanzanite One, the world’s biggest producer of the rare blue-hued gemstone, shifted its headquarters to Arusha, Tanzania, from South Africa’s Johannesburg this year to be closer to its mining site near Mount Kilimanjaro.

The company hopes to join the DSE this year to boost further its image as a home-grown company.

“We want people to realise that we are a passionate Tanzania business,” says Ian Harebottle. “It will help create a broader base for Tanzanians to benefit.”

The DSE is not unique in the region. Rwanda is set to open its own bourse in the first quarter of this year, while Kenya, Uganda and Tanzania are in talks to merge their bourses into an East African stock market.

United States Trade Secretary Henry Paulson said, after meeting finance ministers of the five-member East African Community in Arusha this past November, that capital markets are crucial to sustain economic growth and cut poverty in poor nations.

The DSE, which opened in April 1998 with one listed company and trading once a week, will celebrate its 10th anniversary this year.