Tanzania Capital Markets Overview
TANZANIAINVEST has been interviewing Mr. Jonathan Njau, former Chief Executive Officer of the Dar es Salaam Stock Exchange (DSE), to learn about the Tanzania capital markets and their further development.
| Jonathan Njau, Chief Executive Officer of the Dar es Salaam Stock Exchange |
TI: What has been the purpose in setting up the Dar Es Salaam Stock Exchange (DSE) and what has been its development since then?
Jonathan Njau – Dar es Salaam Stock Exchange: The DSE came to life as a result of the government policy of liberalizing the financial sector in Tanzania.
The history goes back to 1990, when the government sponsored a study done by a special commission on monetary issues in this country.
One of the recommendations from that commission was that Tanzania should have a capital market in order to assist in mobilizing the saving of Tanzanians and channel them into long term investments.
Prior to that, in fact, we had no capital market and the entire economy was financed through the money market so to speak.
At the same time, the DSE was introduced to assist the privatization initiatives undertaken by the government that was divesting of some of the parastatal companies that eventually went through the DSE.
TI: How many companies are now listed at DSE?
JN: We now have five companies that have been privatized through the DSE: Tanzania Breweries Limited, Tanzania Cigarette Company Limited, DAHACO, Tanga Cement and TOL.
These are the five companies we have now here which, indeed, came from the privatization process.
We then have one private company from the private sector that came to issue shares to the general public: Tanzania Tea Packers (Tatepa).
This is a case of a private company that saw the use of capital market to raise long term capital.
At first they did not raise that much, about 800,000,000 Tanzanian Shillings, but later they kept issuing bonds to raise additional capital.
This is so far the only private company that came to DSE to issue equities throughout our market.
We have also other companies that issued bonds trough DSE such as Standard Chartered Bank, Barclays Bank, PT bank and East African development bank and BITCO, an oil manufacturer.
TI: Today, is the DSE a real private company led by private market forces or does it remain an attempt of the Tanzania government to artificially boost the existence of a capital market?
JN: Legally speaking, we are a private company.
We have our own autonomy as far as our operations are concerned, but we are still receiving some subsidies from the government, since establishing a stock exchange is not an easy task.
It needs financial muscle and in Tanzania we still do not have a strong private sector that would really take on this task of establishing a Stock Exchange.
So, the establishing of DSE was done under the auspice of the government and its financial support and part of our budget is still subsidized by it.
But operation-wise we are completely independent, and the government does not interfere in what we do.
TI: What do you believe would be the best way in which the DSE could help the growth of the private sector in Tanzania?
JN: The only way is through assisting private companies to access relatively cheap capital to expand or to establish their businesses.
Right now the cost of capital for any business obtained through the banking system remains very high in this country.
Two banks here issued bonds by which they raised capital at a rate of between 9% and 10%.
They are going to lend that money to the private sector at a rate of 18% and above.
So, you can see that {xtypo_quote_right}If companies see the benefits of coming to DSE they can access capital cheaply.{/xtypo_quote_right}if companies see the benefits of coming to DSE they can access capital cheaply.
TI: What is the cost of going public at DSE?
JN: The question of costs is a relative one since it depends on if we are talking of listing costs or of costs for going public.
When a company decides to go public there are a number of costs that this has to incur, such as hiring experts or advisers like lawyers, accountants, and auditors among others.
Such costs are negotiable outside the market, but still people believe that such costs are paid to the DSE.
If you break down the cost of going public at DSE you will realize that this is less than 4%of the amount raised.
The 4% includes also fees payable to the Capital Markets and Securities Authority, the regulator.
TI: What has been the feedback of the companies that came to DSE? How would you assess the results so far?
JN: When the DSE started operations we expected to have not less than five new companies a year but that has not happened.
This because we expected more companies to come out from the privatization process to came straight to DSE but this has not been the case.
There are so many companies which have been privatized through the privatization process conducted by the Parastatal Sector Reform Commission (PSRC) that have yet to come here.
The strategic investors that entered the capital of such companies also entered in specific contract with the government by which they would turn around these companies and, at a certain point in time, they would float the remaining shares still in the hand of the government to the public trough the DSE.
However, such investors are now putting forward several reasons not to become public or to postpone the process, but I cannot really speak on their behalf.
TI: Apart from the once state owned companies, what is the feedback from proper private companies?
JN: We have approached several private companies that we believe have the potential to successfully list on DSE.
Each company was keen on considering the idea to access cheap capital through market listing.
What I believe may have stopped them is the fear of diluting ownership.
To this extent I would stress the fact that the benefits you may get through the capital market override whatever you are trying to protect.
Companies will be able to grow, access better HR and so forth, and you can still retain control by listing only part of the capital of the company rather than 100% of it, by giving 49% to the public.
So, it is very much a question of educating people and entrepreneurs.
At the same time, not all of these entrepreneurs, although lead by entrepreneurship spirit, keep proper records of their accounts, which are necessary to the process of becoming public.
The price of coming to the market is being transparent and many people fear so.
And that is not all; given the level of education per se, the concept of capital market is still a new concept in our country.
We came from a completely state-owned and run economy missing the concept of shares.
Now all of a sudden we are talking to people about the benefits of investing in shares.{xtypo_quote_right}If you now float your capital, shares will be taken the very first day.{/xtypo_quote_right}
The attitude toward the capital market in this country, however, is changing fast.
When we started the process of people buying shares of our listed companies this was very slow since investors had a wait-and-see attitude.
When the biggest companies joining in, Tanzania Breweries, first floated, the amount of shares available were not entirely absorbed by the marketplace so we had to return them to the government and suggest to issue the shares in trenches.
Now the trend is different. If you now float your capital, shares will be taken the very first day.
There is a rush now in buying shares by local investors.
