Thursday, January 1, 2015

COVER: How capital markets fared in 2014

Former President Ali Hassan Mwinyi rings a bell to officiate at the first trading day of Swala Oil & Gas Tanzania on the Dar es Salaam Stock Exchange (DSE) mid 2014. With him is Swala CEO David Mestres Ridge (left) and Swala Chairman Ernest Massawe (right). Inset is Uchumi Supermarket CEO Jonathan Ciano whose firm was cross-listed on the DSE in August 2014. PHOTOS | FILE 
By Alawi Masare,BusinessWeek Reporter
In Summary
  • FINANCE: The total market capitalisation grew by 40 per cent to Sh22 trillion in 2014, according to DSE chief executive officer Moremi Marwa
  • Capital markets are financial markets for the buying and selling of long-term debt or equity-backed securities. These markets channel the wealth of savers to those who can put it to long-term productive use, such as companies or governments making long-term investments. Financial regulators oversee the capital markets in their jurisdictions to protect investors against fraud, among other duties. Modern capital markets are almost invariably hosted on computer-based electronic trading systems.

Dar es Salaam. When the capital markets started in Tanzania, the rules capped foreign ownership of the local listed companies at 60 per cent.
It was a deliberate move to protect native investors considering that the concept of capital markets was at its infant stage.
As Raphael Masumbuko, chief executive officer of Zan Securities, recalls a counter, which reached the limit, remained untraded for whatever period provided there was no local demand for its shares.
However, that is a thing of the past, thanks to liberalization of the capital account effected in September 2014.
Opening of the capital account is one of the big issues in 2014 that Mr Masumbuko cannot forget.
“The liberalisation is one of the best achievements in the local capital markets that improved liquidity and pushed up prices of some shares on increased demand. There is a big improvement in the turnover, market capitalisation and even the indices,” he says.
The total market capitalization, which measures the total wealth of the stock exchange and how the stock market performs within the economy, grew by 40 per cent to Sh22 trillion between January and December, according to DSE chief executive officer Moremi Marwa.
Market capitalisation also measures how the stock market contributes into the economic growth and in wealth generation to those investing in listed companies.
The total market capitalisation accounts for 43 per cent of the country’s GDP (before the October 2014 GDP rebasing) compared to the levels of 30 per cent in January 2014, says Mr Marwa.
“Our market is now efficient in terms of pricing and valuations. That is to say, there is now a positive argument for savvy and sophisticated entrepreneurs to consider DSE as both an exit mechanism and a capital raising platform,” he says.
The DSE liquidity increased significantly during the year from the previous average turnover of Sh50 billion per annum to an average of Sh300 billion this year. Relative to the GDP, the domestic liquidity ratio was at six per cent (compared to the ratio of less than two per cent previously).
The regulators – both the Capital Markets and Securities Authority (CMSA); and the Bank of Tanzania (BoT) amended their regulations to allow foreigners buy as much shares as they can while the government securities are reserved for the East African investors and limited at 40 per cent for non-Tanzanians.


A central bank official was recently quoted by the media as saying that plans are underway to remove all foreign restrictions in 2015.
Other development
The Dar es Salaam Stock Exchange (DSE) which launched last year the new alternative listing window for small and medium-sized firms also saw Swala Oil and Gas Tanzania Ltd joining it in August this year.
Swala was the second company on the Enterprise Growth Market (EGM) segment after Maendeleo Bank which was listed last year.
Mkombozi Commercial Bank became the third to list on the EGM on Monday this week after a successful initial public offering (IPO).
Mwanza Community Bank also launched its IPO toward the end of 2013 but it is yet to list pending approval from CMSA.
“Swala is the first in the oil and gas industry to go public. I also count it as an achievement in the development of the local capital markets,” says Mr Masumbuko.
Both the Electronic and Postal Communication Act and the Mining Act of 2010 have provisions that require the telecoms and mining companies to list in the local stock exchange. But there seems to be no political will to implement the legislative pieces that were passed and signed amid lots of expectations from Tanzanians.
“Despite these achievements, encouraging the government to implement laws and policies meant to increase the vibrancy and growth, our local capital market is still a key challenge. Encouraging the private sector to consider DSE as a potential long term capital raising platform is also still a challenge – cultural business practices related to transparency and good governance require some time to change. However, we believe that with constant awareness creation and public education, this will change,” says Mr Marwa.
DSE has been able to migrate into a new Automated Trading System (ATS) and Central Securities Depository (CSD) systems.
The new system is far more operational and cost efficient and is highly scalable to accommodate new capital market products and services such as close ended collective investment schemes, Exchange Traded Funds, Real Estate Investment Trusts, Financial Derivatives, etc.
DSE enhances its efforts for public awareness and public education to inform the business community, existing and potential investors, the government (its agents and local governments) and policy makers on the role of stock market to facilitate financing of business enterprises and government programmes.
The target is to list at least five companies in 2015.
“We will continue to engage with Municipals and Local governments in potential of raising public funds and listing Municipal Bonds in the Exchange,” says Mr Marwa.
DSE also says will make the necessary preparations for potential listing of closed-ended collective investment funds, especially REITS and ETFs.

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