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Needed: Vibrant bourse that can cater for many
2006-03-31 10:13:18
By Editor
Despite Tanzania having her economy extensively liberalized by privatising former loss making parastatals, the country’s capital or equities market is still at infancy, 11 years since its birth.
The Dar es Salaam Stock Exchange (DSE), with less than ten listed counters, is still far behind other bourses on the continent such as the Johannesburg Securities Exchange, Lagos or Kenya Stock Exchanges.
Some of the notable publicly listed companies in this country include Tanzania Breweries, Tanzania Cigarette Company, Tanga Cement (Simba), Tanzania Tea Packers (Tapeta), Dar es Salaam Airport Handling Compnay (now Swissport) and Tanzania Oxygen Limited (TOL), all big companies.
That the country’s equities market has remained dwarfed is indeed bad news for the economy and ordinary savers.
This is particularly so for a country such as ours where the numerous banks that have been granted operating licences have shunned developing a lending culture on the pretext that it is too risky to do so.
They instead invest their money in high yielding government bonds and Treasury Bills which are risk free since the government has to honour its obligations.
A vibrant stock exchange provides a good, cheap and sustainable source of capital by mobilising resources from savers - both individual and corporate, and channeling the same into investments, particularly the productive sectors for spurred economic growth.
We therefore welcome the present accelerated intentions to operationalise the findings of a feasibility report on setting up appropriate segments for the country’s capital markets, which was commissioned by the Capital Markets and Securities Authority (CMSA).
That there is a big demand for more products in the securities business is obvious.
However, most companies have complained that the listing requirements are presently too stringent and discourage companies from raising money from the public.
For instance, for a company to successfully list on DSE, it must have a good track record and three consecutive years of posting profits.
But that may not make sense in some instances, it is the very lack of liquidity which might have led a company not to realize any profits.
Take the case of TanzaniteOne, the world’s largest producer of tanzanite, which failed to list because of that requirement, but had a much easier go when it sought listing on the London Stock Exchange.
The point we are making is that there is so much ignorance among the public about what stock exchange is all about. It is of vital importance that public education should begin seriously now.
We agree with the findings of the study, which underscores the need for two main investment vehicles for the equities market — a Main Investment Market (MIM) and an Alternative Investment Market (AIM).
We also support the findings in noting that the only change to the present main investment vehicles should be the establishment of a regulatory framework and that the regulator should in essence be a promoter and facilitator and not a policeman.
We, however, would wish to point out that whilst we fully support cross listings as it enables Tanzania to earn foreign exchange and thereby help the country’s balance of payments, as was shown when the East African Breweries Limited listed on the DSE, there is need for caution.
The Bank of Tanzania has allowed foreigners to trade in shares at the bourse after partially liberalising the capital account.
But we should always be cautious of the potential danger that complete capital account liberalization can brew through capital flight especially when there is a sudden increase in foreign currency circulating in the economy.
This occurs when money supply is expanding in the same degree with a potential of missing inflation targets.
Money laundering and capital flight are indeed so dangerous, as they can totally destroy an economy, the Malaysian experience having shown us all.
Apart from all this there is also the need to set up an alternative investment mechanism to cater for small and medium enterprises that may not have acquired the requirements to list on the main bourse.
Together with this there is also a need to ensure that the corrupt culture of insider trading that has tarnished so many other stock markets on the continent does not develop.
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