Interview with Moremi Marwa CEO of the Dar es Salaam Stock Exchange

TanzaniaInvest interviewed Mr. Moremi Marwa, Chief Executive Office of the Dar es Salaam Stock Exchange (DSE). TanzaniaInvest and Mr. Marwa discussed the current state of the capital markets in Tanzania and the opportunities available for both investors to trade at DSE and for companies to list.

TanzaniaInvest: Trading at DSE started in 1998. 14 years later only 18 companies are listed. How do you explain such a slow growth? What is the current status of DSE?

Moremi Marwa: DSE has 18 listed companies, 12 domestic companies with market capitalization of TZS 6,138 billion (as of 24th February 2014) and 6 are cross listings from other stock exchange – in total DSE market capitalization is TZS 16,795 billion.

Listings have been growing a relatively small pace; only a few (7) companies out of more than 300 companies have been privatized by listing into the Exchange.

The private sector also has not used the exchange for raising long-term capital. In total, only 12 companies have used the exchange for capital raising purposes.

This is largely due to lack of awareness on various capital raising approaches, especially on capital markets.

Low level of business and investors using the Exchange for capital raising and for investment purposes has been the case despite government’s initiatives to provide fiscal incentives to both issuers and investors as a way of motivating them to raise capital and invest through the exchange.

The other key reason why there are only a handful of companies that use the exchange for capital raising is our listing requirements where most small and medium sized companies could not comply.

To address these two reasons; we have embarking in a sustainable public awareness and education campaign that aims to impart the public with the necessary knowledge on the opportunities provided by the Exchange for capital raising and for investment.

{xtypo_quote_left}We have established an Enterprise Growth Market (EGM) as an opportunity for SMEs to raise long-term capital through the Exchange{/xtypo_quote_left}

We have also established an Enterprise Growth Market (EGM) as an opportunity for SMEs to raise long-term capital through the Exchange.

Disclosures and transparency requirements for listed companies is another key reason why companies shun from accessing public funds and listing into the Exchange.

TI: The Dar es Salaam All Share Index – increased by about 60% in the last 3 years. During the same period the DJI increased by about 35% and S&P500 by about 44%. What is hindering DSE attractiveness to investors?

MM: Over the past three years DSE indices and market capitalization have depicted a strong growth trajectory.

The DSE All Share Index and total market capitalization have grown at a consistence compounded annual growth rate of above 20%.

The Tanzania Share Index (TSI), an index that tracks and measures the performance of domestic listed companies have in total grown by about 150% in the past three years.

In 2013 TSI index and domestic market capitalization grew by 100%.

{xtypo_quote_right}In 2013 the Tanzania Share Index (TSI) that measures the performance of domestic listed companies grew by 100%{/xtypo_quote_right}

This is a significant growth for the exchange – what this implies is that investors are optimistic with the economic fundamentals of the local economy and also the fundamental performance of most the listed companies.

This is also an indication of growth in satisfactory levels by investors in their investment returns (dividends and capital gains) and the market in general.

{xtypo_quote_left}the number of Tanzania who uses the Exchange for their investments activities is still decimal – less than 200,000{/xtypo_quote_left}

Despite the said growth levels, the number of Tanzania who uses the Exchange for their investments activities is still decimal – less than 200,000 Tanzania maintains investments accounts with the DSE, this is less than 1% of the total population.

We also should note that in addition to the high growth capital gain, investors in the DSE listed companies also have been enjoying relatively strong dividend payments – and both capital gain and dividend enjoy tax incentives –zero capital gain tax and only 5% in dividends payments.

Lack of awareness explains this low level of Tanzanians in using the Exchange for investment purpose.

{xtypo_quote_right}investors in the DSE listed companies also have been enjoying relatively strong dividend payments – zero capital gain tax and only 5% in dividends payments{/xtypo_quote_right}

TI: What are the advantages and disadvantages for a private company to float at DSE?

MM: There are many advantages that private companies may enjoy by raising capital and listing into the Exchange, just to mention a few:

(i) availability of current and future capital raising opportunities;

(ii) relatively low cost of funding (interest rates for commercial loans) – due to low level of risk perception following compliance to continuous listing requirements;

(iii) publicity and profiling of the company;

(iv) tax incentives;

(v) ability to attract and retail good talent;

(vi) good corporate governance and management practices.

TI: How do you compare to region index for example to the Nairobi All Share Index?

MM: The Nairobi Stock Exchange (NSE) started in 1950s; it has 62 listed companies with a market capitalization of US$ 21 billion (TZS 34 trillion).

All 62 listed companies are domestic companies except 1 company that is cross-listed from Uganda Securities Exchange.

NSE market cap to GDP is about 50%. 

Almost all key sectors are represented in the Exchange: Agricultural sector 7 companies; Commercial & Services sector 9 companies; Telecommunication 1 company; Automobiles 4 companies; Banking 11 companies; Insurance 6 companies; Manufacturing 9 companies; Constructions 5 companies; energy 5 companies – hence indices in the NSE may be perceived to be a reflection (barometer) of the economy.

TI: 2013 saw the launch of the DSEs’ Enterprise Growth Market (EGM), to enable entry to capital markets for entities, which up to now have not had access to this opportunity. What make listing to EGM easier?


• Share capital requirement to the Main Investment Market (MIM) is a minimum of TZS 500 million while in the EGM TZS 200 million

• A minimum of 1,000 shareholders & 25% public shareholding on MIM while it is 200 shareholders and 20% held by the public for EGM

• 3 years of operability & 2 years of profitability record for MIM; operability or profitability are not necessary for the EGM

• Acceptable and a bankable business plan and adequate skilled management – applies to both segments

• Lead Adviser, Sponsoring Broker, Legal Adviser & Accountant for MIM vs. Nominated Adviser for the EGM to assist during capital raising & listing

• No lock in period for anchor shareholders in the MIM, compared to 3-years of lock in for promoters/ anchor shareholders.

TI: So far only one companies listed at EGM: Maendeleo bank. Do you expect new companies to list in 2014?

MM: Yes, we do expect more companies to list into the EGM – so far we have two applications and our plan is to have 5 companies list into the EGM in 2014.

TI: Which measures or incentives are you introducing to invite companies to list?

MM: Fiscal incentives to issuers:

(i) Three years of relief on corporate tax from 30% to 25% for all listed companies with more than 35% of equity being issued to the public

(ii) Tax deductibility of all Initial Public Offering (IPO) costs for the purpose of income tax determination

(iii) Withholding tax on investment income made by Collective Investment Schemes is final tax Fiscal Incentives to Investors

Fiscal incentives to investors:

(i) Zero capital gain tax as opposed to 10% for unlisted companies

(ii) Zero stamp duty on transactions executed at the DSE compared to 6% for unlisted companies

(iii) Withholding tax of 5% on dividend income as opposed to 10% for unlisted companies

(iv) Zero withholding tax on interest income from listed bonds whose maturities are three years and above.

TI: How attractive do you consider investing in stocks at DSE when compared to government bonds and other investment products available in Tanzania?

MM: Government bonds also called Treasury bonds are part of the fixed income instruments issued by the Central government and are not exposed to default risk – they are characterized as the safest investment – they have a fixed level of return (fixed coupon and fixed yield levels); fixed period of time (government bond in Tanzania has fixed durations – ranging from 2-years to 15-years in our market).

Because of the low level of risk, returns on government securities are relatively low as well.

Bonds issued by the Central government are listed at the DSE in order to provide investors and entry and exist mechanism and liquidity for investors.

Stocks listed in the Exchange on the other hand may not a safe as government bonds – however their returns are two fold: capital gain and dividends; these returns are not fixed and can not be pre-determined as is the case for the government bonds.

Returns for investors in the listed stocks depend on the market sentiments and the fundamental performance of the underlying companies and the economy.

Hence returns may be as high as 100% for an investment portfolio made of all DSE domestic listed companies as in 2013 at the DSE plus dividends.

But in some incidences and in some years returns may be less than the 10%-15% range that investors in government bonds currently obtain.

TI: Foreign investors are currently allowed to hold up to 60% shareholding of listed companies. Do you consider local investors having enough capital to sustain DSE growth?

MM: Going by capital raising history at the Exchange, all companies listed at DSE (except IPOs on TOL, TBL & PAL) were oversubscribed, meaning investors subscribed more funds than what issuers needed.

Also almost all 13 corporate bonds that have been issued and listed in the Exchange experienced oversubscription.

{xtypo_quote_left}all companies listed at DSE (except IPOs on TOL, TBL & PAL) were oversubscribed. Also almost all 13 corporate bonds that have been listed experienced oversubscription{/xtypo_quote_left}

Most of the weekly issued government securities (treasury bills and treasury bonds) are oversubscribed.

In addition to this, local professional institution investors and retail investors are always in the look out for good and bankable projects that require capital and eventual listing into the Exchange as an investment opportunity and a diversification strategy for them.

Foreign investors also plays a key role in the capital raising and liquidity and proper price discovery at the Exchange and they compliment the existing local pool of investors – the increase in the level of investor base increases market activity and liquidity.

TI: The Tanzania Capital Market and Securities Authority (CMSA) is working in allowing for greater shareholding by foreign investors at DSE. What do you think will be the impact of such amendment?

MM: Relaxing the foreign investors limit will increase the investor base in the Exchange, as a result of this the level of activity and liquidity and the Exchange is envisaged to increase as well.

TI: Tanzania is experiencing strong economic growth and greater visibility as a viable investment destination due to the recent discoveries of natural gas. What is your personal message to investors, foreign and local?

MM: Over the past decade Tanzania has experienced high rates of economic growth due to economic reforms, sound macroeconomic policies and the expanding of both public and private sector.

In 2014, Tanzania is expected to be one of the 10 fastest growing economies in the world and among 7 in the Sub Saharan Africa. Tanzania GDP is envisaged to grow by 7%.

{xtypo_quote_right}In 2014 Tanzania is expected to be one of the 10 fastest growing economies in the world and among 7 in the Sub Saharan Africa{/xtypo_quote_right}

As Tanzania middle class continue to grow and drive demand for goods and services and as investment sectors continues to look at financial services, education, health services, infrastructure, consumer and industrial products as sectors that will motivate most of the growth – the capital market is key driver to this growth.

The legal and regulatory framework and the infrastructure is in place ready to provide the capital raising and investment opportunities to issuers and investors.

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