The Bank of Tanzania (BOT) has recently announced that the full Capital Account liberalisation, a measure to easy flow of cross border capital to and from a country, will be approved after the Foreign Exchange Regulations (BDC) 2015 are fully approved by the BOT.
The full Capital Account liberalisation proposed in 2013 is part of the Tanzania’s engagement with the East African Community (EAC) to support the formation of a unique common market with free-flows of capital between the member countries.
The measure was expected to be fully implemented by end of 2015; however, the last stages of development on the BDC currently constitute the government’s focus, explained BOT Director of Economic research and Policy, Mr. Johnson Nyella.
If Tanzania wants to attract more investments to its financial markets, the measure needs to be approved and accelerated since it is still at the draft stage, Mr. Nyella added.
After the liberalization, Tanzania will be allowed for free flows of investment capital to and from the country which would bring more efficiency on capital allocation in different instruments listed in the Dar es Salaam Stock Exchange (DSE), specially the debt ones, explained DSE CEO, Mr. Moremi Marwa.
Currently, only Tanzanians are allowed to buy Treasury Bills, Government Bonds and trade shares at the DSE.
On the other hand, Tanzanians will be also allowed to invest in securities in other markets as those in Uganda, Kenya and Rwanda.
According to the BOT, the country needs to proceed carefully with the liberalisation process since the country’s debt holds the highest rate compared with neighboring countries.
This is why many corporate and individual investors will be attracted to the DSE but the higher liquidity will affect returns on issued debt.
In September, 2014, the Capital Markets and Security Authority (CMSA) lifted controls on foreign share ownership restricted to a maximum of 60% that raised the capital inflows to the DSE by 40%.
