Could you give us a brief insight of the historical background of the Dar es Salaam Stock Exchange?
The DSE has now been in operation for about two years. It was only last week that we celebrated the second anniversary. A lot of preparatory work, is still in our hands. As our country was under the framework of socialism and self reliance, it had more to do with a public sector economy. Therefore the establishment of a stock exchange was not an easy task. The concept of shares was relatively unknown to the public. Furthermore, most of the companies were private companies, therefore existing shareholders would have pre-emptive rights before a share could be transferred. There was no broker and there was no stock exchange. We had to establish the DSE from the scratch, on a clean slate. That means - we had to create conditions for the existence of an exchange. In some other countries where people have shares which are transferred, some individuals and institutions see a business opportunity, so they intermediate, and trade in shares as a result of seeing a business opportunity. In Dar es Salaam there was no such group of people, who would see this opportunity and move in to establish an exchange. It means that this exchange was established as part of a Government policy towards creating a market economy, facilitating privatization and developing a culture of holding stocks. Therefore we had to create the environment for this institution to grow. In other words we had to focus on what one would have in a fully fledged stock exchange. We needed brokers, we needed shares, and we also had to promote public companies so that shares can be issued and traded.
Most of the companies which are coming in now are companies that have been privatized, these were private companies, private in the sense of the company law. these were companies whose shares have been held by a few number of people. What we had to do for the companies which were being privatised is to prepare them for being listed on the stock exchange. It meant converting them into public companies with the shares being fully transferable.
That is what I meant by developing the products for trading in the market. You also need in a fully fledged stock exchange some basic enlightenment about the concept of shares. We have had to do a lot of public education. We have to do a lot of seminars to a number of potential players including; policy makers, parliamentarians, Chief Executives of organisations, lawyers, journalists etc. We introduced all these groups to the new concept of shares, the concept of the stock exchange. We had to do all that before the 15th April, 1998 when the bell went on for the first time, and our stock exchange was commissioned. It has taken a long time for the exchange to be launched, because in our country we don't just start something, without having government blessing, you do it by way of an official launch. So we did that only last week. I would say, it was not a simple matter, it was hard, but we knew that it was going to be hard and therefore we put in sufficient efforts.
How many Companies have been listed on the Dar es Salaam Stock Exchange so far?
We have three companies whose ordinary shares (equities) are listed.. These are TOL Ltd, a company which manufacturers industrial gases, medical gases, etc. Tanzania Breweries Ltd, which is a brewery company. We have Tanzania Tea Packers Ltd. which is a tea packing company. Those are three companies whose ordinary shares are listed. We also have a bond listed by the East African Development Bank.
How many Companies have recently announced that they want to join the stock exchange?
There is one immediate one, Tanzania Cigarettes Company which is due to come in October this year. A local bank, CRDB Bank Ltd. is likely to join in the near future. Of late Tanzania Telecommunications Co. Ltd, which is being privatized, has shown a lot of interest in being listed, but that would depend on the privatization path that it takes.
How many trading sessions do you have per week?
We normally have three trading sessions per week, we do it on Tuesday, Wednesday and Thursday. We started with only one day trading, that was Wednesday. When Tanzania Breweries Co. was listed we went on a two day trading session these were Tuesday and Thursday. After Tanzania Tea Packers Ltd. and the East African Development Bank bond got listed, we went on a three days session. If Tanzania Cigarettes Company joins, we could probably go on a full trading week.
How do you generate funds, and who helped you to set everything from the scratch?
This is a government initiative, so the government supports the existence of the stock exchange, through the Bank of Tanzania and The Capital Markets and Securities Authority. They injected some funds to get the market started. They are really committed and we have had a lot of support from them. We are very encouraged. In terms of consultancy studies, like studies to establish the type of trading system that we were going to have and the type of clearing and settlement system, the World Bank provided funds for those studies. Our other supporter is SIDA (Swedish International Development Agency). They have supported the exchange by way of providing technical support. They have also supported the acquisition of computer software and hardware for our central depository. We are one of the stock exchanges in Africa which has already installed a central depository. We are keen to see that it works efficiently. SIDA is also supporting us on management as well as public education. On sustainability we do not generate sufficient revenue to cover our general expenses. We only generate between 22-25% of our financial requirements. We have a deficit of between 75-78%. The government and donors agencies are supporting us on covering the deficit and development work.
To what extend would you say does the DSE contribute to the development of the economy in Tanzania?
I have been asked before to justify the existence of the exchange. The key role of a stock exchange is to mobilize capital for investment in productive enterprises. Therefore, an exchange contributes to the growth of the economy. In as far as the situation in Tanzania is concerned, there are three issues to be taken into account in assessing the role of an exchange. There is the privatisation issue. The money goes to the government because it is the one which offers it's shares for sale. This implies that the contribution of that financial flow to the economy's growth is so to speak indirect. | On stock exchange proceeds which have moved into enterprise, The case of Tanzania Tea Packers Ltd. is illustrative. Tanzania Tea Packers were able to obtain Tshs. 520 million. They have been able to improve their distribution network, build depots, etc. This is a first time that we have a company making the actual use for which our exchange has been established - as a tool for mobilization of capital by the private sector.
The East African Development Bank were able to raise about 10 billion Shillings for lending in Tanzania. In this context, they were able to avoid exchange rate risk because they were borrowing from within the country and lending within the country.
I would say a modest achievement has been made. This has not contributed much to the economic growth of the country though. We are now planting the seed for a much bigger contribution of the stock exchange in the future.
In future, do you plan to bring in foreign companies?
Yes, we in East Africa have big plans for regionalization of the stock markets. We have plans for cross listings of securities, so that companies listed in Dar es Salaam can also trade on the stock exchanges in Kenya and Uganda. As a nascent Stock Exchange we still have a number of problems which have to resolve before we can become a destination for international companies seeking a listing at the Dar es Salaam Stock Exchange. Our first stage will be for foreign investors to come by investing in companies which are presently listed, before international companies list.
What is the policy in attracting companies to join the stock exchange?
The decision to list on any stock exchange is a prerogative a company. The company is coming in to enjoy certain benefits upon complying with certain regulations. The DSE's policy on attracting companies to list at the exchange has been as follows:
To identify those companies which have good chances of compliance with the rules, and which have a record of good corporate governance. If a company lists at the exchange, it is no longer a secret club. It becomes a public company. More transparency is required than before. We have to establish that this is a company which can relate to the requirements of the exchange. We have attempted to do this by way of contacting auditing and management consultancy firms. We are working with them in order to have a criteria for selection of the companies which we should bring to the stock exchange. We would like to bring in good companies.
We also expect to conduct a seminar, whereby identified companies will be invited for enlightenment on what the stock exchange can do for them. They will also communicate to us their expectations. With this kind of dialogue, we believe we are likely to have a stock exchange acting as a full partner between investors and the companies. We work in partnership with the Capital Markets & Securities Authority to influence Government to adopt favourable measures which would encourage participation of the stakeholders in stock exchange activities.. We have so far convinced Government to cut down dividend with holding tax for listed companies from 15% - 5%. We are also trying to convince them to adopt a preferential corporate tax structure for listed companies, so that instead of the current 30% it is reduced to 20% for the listed companies. This move will get more companies into the market.
How would you describe your image today in Tanzania?
Being a new organisation, there was a lot of scepticism before the stock exchange was going to be launched. After the launch, there was still some scepticism, but I would say the situation has currently very much improved. On our second anniversary, one could feel that now the country has become aware of this new culture. I heard the Prime Minister addressing the public, telling them that the Government has decided to privatise and Tanzanians should now invest. Now the challenge is more to the public than to the stock exchange.
Could you list us two things which have to be improved to attract more investors?
There is a distinction between a foreign direct investment and portfolio investment. Foreign direct investment is being handled directly by the Investment Centre. They have a couple of problems, but we know that they are working towards solving them. As far as portfolio investment is concerned, there is a restriction on foreign investment, because foreign investors cannot currently participate in the DSE. This restriction may be lifted within 18 months. We, at the Dar es Salaam Stock Exchange look forward to this change, because we know it will provide us with a lot of advantages. Tanzanian Companies will be able to access foreign capital. There may also be be a number of companies out there which cannot come to the market because the potential of the market to attract capital is limited without the participation of foreign investors. We know that the performance of our market operators will also have to improve because they will be dealing not only with local people, but international investors as well who understand the concept of shares, and the operation of a capital markets. The Exchange itself also has to be improved.
We also need modern vehicles for mobilisation of domestic resources and external resources as well as the establishment of collective investment schemes These are key things that have to happen.
How do you see the future of the Dar es Salaam Stock Exchange in three years time?
Within three years time after foreign portfolio investment has been allowed into the country we are likely to see the potential of the Tanzanian economy through the DSE. We have very big sized companies which have large market capitalisations. The local market is not enough to absorb the shares of these companies. When foreign investment is allowed in with good companies we are unlikely to have a problem of absorption. That is the time when the Tanzanian Stock Market will really boom.
What kind of message would you like to say to our leaders and potential investors?
Some people say Tanzania has been a sleeping giant and I share this view. Any serious investor that comes to Tanzania has realised value from his investment. I believe, as Tanzania ascends into globalisation it will offer a number of opportunities to both local and foreign investors, and they should take advantage of it. |
