27 December 2018

Tanzania: Achievements and Challenges As the DSE Turns 20

As the year 2018 ends, we mark the end of the 20th anniversary of existence of the stock market in our midst. DSE started operations in 1998, this also being the period of active privatization of state-owned entities/enterprises.

So the DSE has somehow grown (in relative terms) to become among the few stock markets in the region to achieve some relevant milestones, as measured in the stock markets indicators and context, i.e achieving the self-listed status (being the third among 27 Stock Exchanges in Africa - after Johannesburg Stock Exchange and Nairobi Securities Exchange), having a market segment that focuses into enabling SMEs as well as new ventures, and also a growing market for debt securities listings and trading.

Since the beginning, political authorities and policy makers wanted DSE to be one of tools for privatisation of state-owned entities targeting at dispersing wealth and creating economic empowerment for many, as well as wider financial inclusion; in the process making DSE an official capital raising market for domestic securities, especially those emanating from private sector and multi-national companies (MNCs) operating in the local market but listed abroad.

The official number of current listings comprise of 28 equity securities, 5 corporate debt securities (though there have been 15 entities that have issued corporate debt securities and listed in the DSE) and about 140 Government (Treasury) bonds. Excluding cross-listed securities from the London Stock Exchange (LSE) and Nairobi Securities Exchange (NSE), all other securities have been issued and listed in the local currency. DSE's [sometimes] relatively innovative tendencies have created one of the region's exchange platforms that is aligned to the best international standards and practices as they related to delivery and settlement (DvP) of cash and securities as required by IOSCO Principles. DSE is using an automated trading systems (ATS) that is linked to the national payments system and central depositories both at the DSE and Bank of Tanzania.

To cement further on the development we pursue, this year, we have been thoroughly evaluated and inspected by the World Federation of Exchange towards becoming a full member to this global organ, if this will crystalize we will be the 8th among 29 stock Exchange in Africa to achieve this milestone; this year also FTSE Russell - one of the leading global providers of stock market indices and associated data service, including markets/countries' classification, reached out to the DSE, informing us that as part of the FTSE Country Classification Annual Review, the FTSE Russell Country Classification Advisory Committee and the FTSE Russell Policy Advisory Board have approved the addition of Tanzania to the "FTSE Watch List" for possible Classification into Frontier Market Status, from the current status of being Unclassified.

The equity market size as at December 25, 2018 is about Sh20 trillion (of which 50 per cent equivalent to Sh10 trillion emanates from domestic listed companies); while the debt/bonds market size is Sh9.2 trillion - about 98 per cent being government bonds. Average annual liquidity is about Sh500 billion for equity instruments and about Sh600 billion for bonds - (this year - 2018, equity turnover is Sh200 billion and bonds turnover Sh990 billion). Investor base for listed equity instruments is about 550,000 and about 2,000 investors for bonds instruments. Relatively, the stats above could make us feel good - but in a situation where domestic market cap is only 10 per cent of the GDP, where bonds market size is only about nine percent of the GDP, and where local investor base is only one per cent of the population - one should not feel good.

One pillar of success story for any stock exchange, in any country is its strategic alignment with the particular country's political agenda-supporting the economic growth (like our current industrialisation agenda), or democratisation of wealth and finances, or the local content agenda, or economic empowerment for many citizens, or deepening the financial inclusion, or market integration and harmonisation of legal/regulatory environment to facilitate easy of doing business and trading, etc.

But for a large part, our experience has been different -- the DSE is not being treated as the primary national engine for financing economic development. Instead of creating efficient incentives structure that will encourage companies to access public money and list, as a savings mobilisation tool and for intermediation and economic growth, different or alternative policies have been chosen. The consequences of these other policies are an economically weak exchange, with a vastly inadequate supply of securities. This is a big lost opportunity for democratization of wealth and finances, financial inclusion, financial literacy and economic development

As for DSE operatives and stakeholders we need to appreciate the fact that financial markets operate in an extremely complex environment, influenced by diverse factors and technologies. Big data, Artificial Intelligent, crypto-currencies, smart grids, and shifting geopolitical powers, etc.

So, as we think of past 20 years, we should appreciate that we are operating in a globalised environment where information travels at the speed of light and manual tasks have to be automated. Technology is reducing operating and transaction costs for everyone, including the experts. Technology is increasing the flow of information and reduces operational costs. But yes, it will not eliminate intermediaries; the value of their advice keeps on increasing as the world becomes more connected.

Mr Marwa is chief executive officer of the Dar es Salaam Stock Exchange Email: moremi@dse.co.tz

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