How has the DSE performed in its first 10 years?

Achievements and Challenges for the Domestic Bond Market

The Regulation of Capital Markets in Tanzania: Is there Room for Improvement?

Archievements

ISSN No. 0856 8448 Issue No. 35 April, 2008

04 Minister’s Statement

CMSA Chairman’s Statement05

08 DSE Chairman’s Statement

DSE Chief Executive Officer’s Statement09

The Regulation of Capital Markets in Tanzania; Is there Room for Improvement?10

Profiles of Listed Companies30

How has the DSE performed in its first 10 years?39

Companies with a Listing Potential60

Ten Years of Dar es Salaam Stock Exchange (Dse): Achievements and Challenges for the Domestic Bond Market

65

Profiles of Licensed Dealing Members71

82

Custody Services84The Unit Trust of Tanzania85

A Note on Challenges of Starting Capital Markets in East Africa

What the Dar es Salaam Stock Exchange (DSE) can do:- 89

C o n t e n t s

D S E J o u r n a l

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It is with great pleasure

that I congratulate the Dar

es Salaam Stock Exchange

on the occasion of its 10th

Anniversary celebrations. This

is a significant milestone in the

history of the financial sector in

our country. Capital markets

are a key part of the financial

sector in any country. They

facilitate the intermediation

process by systematically

enabling movement of funds

from those with excess to

investment avenues that are

searching for medium and

long-term funds.

The Government deliberately

t o o k t h e i n i t i a t i v e s t o

establish the DSE with a view

to facilitating the reform

process in the financial sector,

encourage wider ownership

of shares among Tanzanians,

facilitate privatisation process

and assist in mobilisation

of capital for medium and

long-term investments. The

Government is happy that the

DSE has managed to achieve

these objectives despite several

challenges that have been

facing the DSE.

Since it opened its trading

floor, the DSE has on the

and Collective Investment

Schemes) in acquiring shares

of companies that are listed on

the Exchange.

The DSE despite its infancy

was the first Exchange in East

Africa to automate some of

its operations with a view

to keeping abreast with the

best business practice when it

installed a Central Depository

System and later the Automated

Trading System. It is expected

that these technological

infrastructure will help the DSE

reach majority of Tanzanians

and connect them to the rest of

the world’s financial markets.

The Government understand

the challenges that are facing

the DSE, and have been on

the forefront in giving a

helping hand in overcoming

them. However, much as

the Government is striving

to improve the policy and

regulatory environment to

enable the capital markets

thrive, the responsibility of

bringing more products and

creating an active market rests

with the DSE, CMSA and other

stakeholders.

STATEMENT BY THE MINISTER FORFINANCE AND plANNINg

equity front listed seven local

companies, cross-listed 3

foreign companies. On the

side of corporate bonds 9

bonds worth Tshs. 102.6 billion

have been listed whereas the

Government itself listed bonds

worth Tshs. 813.66 billion. In

terms direct participations

by Tanzanians 116,651 have

participated during the seven

(7) IPO’s.

Through i ts operat ions ,

the DSE has facilitated the

Government’s pol icy on

wider allocation of resources

by Tanzanians as many

Tanzanians have participated

either directly or indirectly

( through pension funds

Hon. Mustafa H. Mkullominister for finance

and planning

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THE ROLE OF CMSA IN THE DEVELOPMENT OF SECURITIES MARKET

As we celebrate the 10 th Anniversary of the Dar es Salaam Stock Exchange, it is important that we reflect on the role of capital markets sector in the economic development process. Equally important is the role of the Capital Markets and Securities Authority (CMSA) in development of the capital markets sector.

Capital markets is an integral component of the financial markets that provide avenues for raising long term financial resources and channel them to economic ventures thus availing several economic benefits and potentials for economic development. In the process capital markets provide liquidity, price discovery, reduced inflation, reduced cost of financial transaction, transfer of risk and an alternative source of financing investments.

CMSA mission strives to design and implement purposeful measures which will enable the creation and development of sustainable capital markets that are efficient, transparent, orderly, fair and equitable to all. Our vision is the creation of sustainable capital

CAPITAL MARKETS AND SECURITIES AUTHORITY

CHAIRMAN’S STATEMENT ON THE DSE 10TH ANNIVERSARY

markets which comply with international best practices. Given the current global economic outlook we cannot achieve our goals i f the focus is not directed towards cooperation and sharing of information with other players including international and regional economic groupings.

The first decade of existence of DSE has seen the CMSA directing attention to the promotion of capital markets in the effort to increase domestic resources mobilization, improving the supply of long term capital and encourage the efficient allocation of existing resources. This situation has evolved as result of increased awareness that capital markets can play several key roles in mobilizing resources and allocating the resources in investments

thereby stimulating economic growth.

Developing strong and viable capital markets requires a systematic and integrated approach with particular emphasis on the need to develop, strengthen and improve all aspects of the financial sector. Capital markets complement and compete with other markets including commercial banks. Currently bank borrowing is expensive given the level of lending interest rates and the nature of the loans being mostly short term. Capital markets are already unfolding themselves as competitor to commercial banks by giving savers a better opportunity for investment when companies i s s u e c o r p o r a t e b o n d s . Companies are also able to borrow at a rate substantially less than that obtainable from commercial banks.

As already stated, the major function of capital markets is to mobil ize resources from savers and channel them to investments. A supportive environment for the development of capital markets is therefore that which on the supply side, promotes accumulation of savings for long term investment to build

Dr. Idris Rashidichairman - cmsa

D S E J o u r n a l

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sustainable liquidity in the financial markets. On the demand side, the market requires productive investment opportunities which in turn require a vibrant private sector.

CMSA will continue to support government efforts geared toward creating and implementing sound macro-economic policies, including both monetary and fiscal policies. The monetary policy in Tanzania is targeted at a sustainable low inflation thus creating price stability. Price stability supported by low inflation are conducive to maintaining predictable low and sustainable interest ra tes which encourage savers to invest long term. On the demand s ide a similar environment attracts investors to borrow long term for the purpose of investing in the productive sector. Fiscal policy of a country also impacts on the growth and the development of capital markets. For example excessive prolonged government short term borrowing resul ts into excessive supply which can create havoc in the capital markets.

The success in financial sector reforms in Tanzania is equally important. This includes the establishment of financial institutions including commercial banks and insurance companies.

This has led to growth in financial intermediation and improved payment and settlement systems which are important in building efficient capital markets. The liquidity in the pension funds and other institutional investors has led such institutions to participate actively in the equity and bonds markets. The envisaged restructuring of the pension’s funds and retirement benefits is expected to be a catalyst in the development of capital markets. It’s common trend globally that pension funds are the key players among the institutional investors. Thus institutional investors play a key role in the success of capital markets and specifically in creating liquidity in the market.

P r i v a t i z a t i o n a n d development of capital markets are symbiotic in nature. Privatization enables c o m p a n i e s t o o p e r a t e efficiently and profitably thus making them eligible for l ist ing at the stock exchange. Privatization of well performing companies can also be done by listing the shares of such companies at the stock exchange. And through the Stock Exchange investors get the opportunity to get in and get out of a listed company or a listed security without the involvement of the concerned company.

The partial liberalization of

the capital account to allow foreigners to invest at the DSE could add to the liquidity of our market. However, currently strategic investors who are foreigners own more than 60% of the shareholding i n m o s t o f t h e l i s t e d companies thus inhibiting foreigners to participate in the secondary trading due to the prescribed ………… for foreign ownership contained in the current regulations. CMCA will continue to advise the government on this condition and suggest possible steps to bring about positive development.

The establishment of CMCA as a regulator and developer of capital markets has created confidence and was a timely decision. CMSA came in at a time when there was no stock exchange, no stock brokers/dealers, as well as lack of readily available products to issue to the public and list at DSE. Apart from the notable achievements that we can boast of since the establishment of the DSE, capital markets in Tanzania are contributing about 8% of the GDP and the percentage is destined to increase given the envisaged growth momentum of capital markets in Tanzania. It’s a clear that CMSA has played role of promoting and developing an efficient and transparent capital market in Tanzania.

Market integrity is of priority

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t o b o t h i n v e s t o r s a n d issuers of securities. CMSA has always put in place a robust supervisory system to safeguard the integrity of the market. On site and Offsite supervision of the market place and market players ranks very high on the CMSA daily activities. At this juncture we can proudly report that since inceptions of the capital markets in 1998, there has not occurred an incident that has shaken our capital markets.

The future of capital markets in Tanzania is stipulated in the current CMSA Strategic and Business plan 2007/08 to 2011/12. The strategic plan intends to broaden and deepen our capital markets by addressing the challenges facing the market. The current status of our financial system is characterized by:-

(a) Small financial sector which is still dominated by banks.

(b) Companies have been financing their expansion program through retained earnings.

(c) Growing trend of demand for new initial public offers (IPOs) products by investors which are mostly oversubscribed.

(d) L a c k o f s u p p o r t i v e environment for start ups but high growth potential companies.

(e) Insignificant role played by privatization which has

almost now reached the end. Through the defunct PSRC the government privatized more than 300 public enterprises out of which only 6 were privatized through DSE.

In addressing the above c h a l l e n g e s C M S A h a s prioritized certain key areas as follows:-

(a) Increasing the number of products in the market in terms of equity securities, col lect ive investment schemes, venture capital funds, government bonds, corporate bonds, municipal, infrastructure and housing bonds, securitized debt instruments and in the long term riskier instruments including commodities and derivatives.

(b) Improving the market conditions and the existing structure at the DSE by introduction of a second market segment which will cater for the needs of a section of the economy that up to now has not been able to tap into capital markets, specifically small, medium and start up companies – Enterpr ise Growth Market (EGM). The EGM is envisaged as a new equities market segment that will exist parallel to and complement the existing Main Investments Market Segment (MIMS). This segment of market is targeted to commence operations by December 2008.

(c) I n t r o d u c t i o n o f n e w c a t e g o r y o f m a r k e t intermediaries such as Nominated Advisors with strong expertise in corporate f inance, l aw and account ing . We also expect to see active involvement and stronger dealers/brokers, investment advisers and investment banking and underwriters.

(d) Efficiency in the functioning of the CDS and payment system, brokers trading vide remote locations, electronic filing for intermediaries, and E licensing.

(e) An increased awareness on individual investors, policy markers, potential issuers and professionals through provision of continuous public education.

(f) R e v i e w o f p r i n c i p a l legislation and regulations on a continuous basis and amendment of the Capital Markets and Securities Act (CMS Act 1994).

Our vision for the future is seeing companies and others who wish to raise capital through capital markets have a logical route for obtaining long term financing. Investors also need to perceive that their investments are secure and that they are adequately protected. This can be achieved through provision of services through profess ional ly qualified capital markets players and strong and firm regulatory regime and fair law enforcement.

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Today is a major milestone,

celebrating 10 years since the

Dar es Salaam Stock Exchange

rang its first bell to signal the

official trading of the first

listed company. Trading

started on 15th April, 1998

with only one equity product,

by then TOL Ltd. Ten years

later, the DSE is trading 10

equity products, 5 corporate

bonds and 17 Government

bonds respectively. Over

these ten years, we have

witnessed an increase in

market capitalization from

TZS 161.0 billion in December

1998 to TZS 3,278.9 billion

today.

Those who have followed

closely DSE’s evolvement

will recall, perhaps with

amusement, the open-out-

cry trading system that we

began with, where brokers

used to shout their buy and

sale orders to the Exchange

board writer. Today, both

the trading and the clearing

and settlement systems are

automated, moving the DSE

to the club of automated

Exchanges in the world.

All these achievements are

a good testimony that the

Exchange has steadily grown,

and continues to grow, to

achieve the noble objectives

for which it was established

for.

The remarkable successes

registered could not have

been possible had it not been

the support and cooperation

the Exchange received from

the Government of Tanzania,

Issuers, Licensed Dealing

members , pro fess iona l

advisors investors (both

institutional and retail) as well

as Tanzania’s development

partners. On this score, I

would like to extend our

sincere appreciation to all of

them for their contributions

that have made the DSE what

it is today. Going forward

we count for their continued

support, realising as we do,

of the many challenges ahead

that face the Exchange, and

call for concerted efforts of

all stakeholders to address

them.

We at the DSE do recognise

that the Exchange has not

yet been fully utilised in

mobilising medium and

long-term capital required

investments through issuance

of shares as well as bonds.

There are various reasons

for this shortcoming, the

main one being the paucity

of Issuers of these securities,

which is further compounded

by absence of large and

well researched investable

projects.

O u r m a j o r c h a l l e n g e

therefore is to transform these

problems and weaknesses

into opportunities. To this

end, as we celebrate, I would

like to conclude by urging

all our stakeholders to join

us and support our efforts

and commitment see to it

that the Exchange plays its

noble role of facilitating

capital mobilisation in our

DSE CHAIRMAN’S STATEMENT

Mr. peter l. Machundechairman - dse

D S E J o u r n a l

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As we look 10 years back when

the DSE listed its first product

on 15th April, 1998, we have

every reason to be proud of

the achievements that have

been registered since then.

While we started with only

one product, we are proud

that today we have 10 equities,

6 corporate bonds and 17

Government bonds which are

now all trading on the DSE.

These achievements have put

the DSE on the key position in

the country’s financial sector

as a key vehicle for investment

and raising capital.

While participation in Initial

Public Offerings (IPOs) was

low at the inception, today

the level of participation

in IPOs has gone up as the

recent oversubscriptions in

the IPOs have evidenced.

The investment appetite has

increased because of a number

of reasons including the rising

of share prices once shares

are listed, the good dividends

offered by listed companies,

generous fiscal incentives

offered by the Government

on listed securities and the

increase in level of awareness.

It is, therefore, great that we

are celebrating 10 years of

CHIEF EXECUTIVE OFFICER’S STATEMENT

Mr. Jonathan A. Njauceo - dse

existence amid such buoyancy

in the Stock Exchange. We

have congratulated ourselves

because we have come a

long way in terms of market

development, as well as

development of infrastructure.

B r o k e r a g e h o u s e s h a v e

increased, while the DSE itself

has expanded its unit functions.

On the infrastructure front we

have moved from the manual

to automated operations, in

terms of trading, delivery,

clearing and settlement.

We would like to thank all

stakeholders, the Government

in particular, for all the support

that has been extended to

the DSE from its inception

todate. Indeed, the growth

of the DSE has been made

possible because of the support

obtained from the Government

t h r o u g h c o n d u c i v e

G o v e r n m e n t p o l i c i e s ,

issuance of Government

bonds without mentioning

the direct financial support.

We would like to request the

Government to continue down

that road, ensuring that a

better environment is created

which encourages business

people to invest their money

in productive ventures.

The next 10 years are going

to be years of much faster

development for the DSE.

We intend to put in place a

whole range of new things that

will transform the bourse and

align it to the most developed

Exchanges of the world. DSE

intends to be a central player in

our economy by being the most

preferred avenue for capital

mobilisation in the country.

I would like to thank all

Tanzanians and all other

investors for reinvigorating

the bourse. It is now clear

that Tanzanians have the

potential to raise billions of

shillings in capital through

buying shares and bonds as

has been evidenced in huge

oversubscription of IPOs. The

private sector is advised to take

advantage of this huge interest

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INTRODUCTION

About fourteen years have elapsed since the Capital Markets and Securities Act was enacted in 1994. In the current revision, it is Chapter 79 of the Laws of Tanzania. The revision has consolidated the Act as well as amendments made in 19971. At the same time that the amendments were made (i.e. 1997) a set of Regulations were enacted to cater for a variety of issues including(licensing, registers of interests insecurities, establishment of stock exchanges, advertisements, accounting and financial requirements, prospectus requirements, collective investment schemes and conduct of business)2. A regulation on capitalization and rights issues was adopted in 20003.

Six brokerage houses are in place4, the Dar es Salaam Stock Exchange (DSE) is operational5, nine companies have been listed at the bourse (of which seven are local and three are cross-listed from the Nairobi Stock Exchange)6 now having a market capitalization of about US $ 2,650 mln., two unit trust schemes have been established7 and a good number of Tanzanians are now acquainted with the concept of shares, units and securities dealings generally8. This year, the DSE is celebrating its 10th Anniversary.

More than a decade after the adoption of the current

By Dr. Hamisi S. Kibola*

Chief Executive OfficerUnit Trust of Tanzania

regulatory framework, no doubt it has been sufficiently tested both as to its substance and the manner in which it is implemented. A bad law implemented well may out-do a good law which is implemented badly. However, industry still needs a good law which should be implemented well.

This short paper offers some explanations of; the background

to the capital markets law in Tanzania, problems related to activation of implementation of the law, the major characteristics of the law as well as problems associated with implementation of the law. The paper suggests that the legal framework is consistent with international best practices. However, room for improvement still exists as the market develops and matures with the prospects of diverse instruments that may be offered as well as other participants in the market. Issues such as foreign participation in Tanzania’s capital market have already led to certain legislative developments.

One major conclusion of the paper is that changes need to take place in the regulatory environment. This involves the art or manner in which the regulatory framework is practically implemented. As will be evident later, the Capital Markets and Securities Act was enacted inter alia to facilitate the promotion and development of capital markets in Tanzania. The paper concludes that it is not yet sunset for these noble objectives.

* The views expressed in this paper are those of the author and should not in any way be attributed to the Unit Trust of Tanzania1 Amendments were made by the Capital Markets and Securities Amendment Act, 1997. Act No. 4 of 1997.2 These are now published in Vol. II of Subsidiary Legislation Revised Edition 2002.3 Government Notice No. 288/2000.4 Tanzania Securities Ltd., Solomon & Co. Ltd., Orbit Securities Co. Ltd., Rasilimali Ltd., Core Securities Ltd. and Vertex International Securities Ltd.5 Established as a company limited by guarantee without a share capital in 1996. Trading operations were launched on 15th April, 1998.6 The local companies are TOL Ltd., Tanzania Breweries Ltd., Tanzania Cigarette Co. Ltd., Tanzania Tea Packers Ltd., Tanga Cement Co. Ltd., Swissport

(T) Ltd. and Twiga Cement Co. Ltd. The companies cross listed from the NSE are Kenya Airways Ltd. East African Breweries Ltd. and Jubilee Insurance Co (K) Ltd.

7 Umoja Unit Trust Scheme (Umoja Fund) and Wekeza Maisha/Invest Life Unit Trust Scheme have been established by the Unit Trust of Tanzania. Two other schemes are in the pipeline a Children Career Plan (CCP) and a Regular Income Scheme (RIS).

8 As at 19th March, 2008, the Central Depository System of the DSE had 93,578 accounts. Umoja Unit Trust Scheme had 95,188 .investors and Wekeza Maisha/Invest Life Unit Trust Scheme had 2,210 investors.

THE REgUlATION OF CApITAl MARKETS IN TANZANIA; IS THERE ROOM FOR IMPROVEMENT?

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There is no better statement on the objectives, environment and principles of securities regulation than the one provided by the International Organisation of Securities Commissions (IOSCO)9. By and large, securities regulation will be primarily manifested in the law (i.e. the legal framework/the rule of law). Each jurisdiction has its own legal framework. What IOSCO has done is to stipulate certain principles which should be applied in each of its constituent jurisdictions10. We therefore begin with the Objectives and Principles of Securities Regulation as stipulated by IOSCO as these are deemed to be the basis for international “best practices”. At a later stage we will match the legal framework existing in Tanzania with those principles stipulated by IOSCO. It is pertinent to observe that Tanzania is associated with IOSCO11.

OBJECTIVES OF SECURITIES REGULATION

IOSCO stipulates that the three core objectives of securities regulation are: the protection of investors; ensuring that markets are fair, efficient and transparent; and the reduction of systemic risk. IOSCO recognizes that these three objectives are closely related and, in some respects, overlap.

The Protection of Investors

In as far as protection of investors is concerned, IOSCO states that investors should be protected from predatory activities such as; misleading, manipulative or fraudulent practices, including insider trading, front running or trading ahead of customers and the misuse of client assets. Moreover full disclosure of information material

to investors’ decisions is the most important means for ensuring investor protection. This is due to the fact that investors are, thereby, better able to assess the potential risks and rewards of their investments and, thus, to protect their own interests. As key components of disclosure requirements, accounting and auditing standards should be in place and they should be of a high and internationally acceptable quality.

To underscore the activities of intermediaries in the context of investor protection, IOSCO states that only duly licensed or authorized persons should be permitted to hold themselves out to the public as providing investment services; as market intermediaries or the operators of exchanges. Initial and ongoing capital requirements imposed upon those license holders and authorized persons should be designed to achieve an environment in which a securities firm can meet the current demands of its counter parties and, if necessary, wind down its business without loss to its customers.

Supervision of market intermediaries should achieve investor protection by setting minimum standards for market participants. Investors should be treated in a just and equitable manner by market intermediaries according to standards which should be set out in rules of business conduct. There should be a comprehensive system of inspection, surveillance and compliance programs. Investors in the securities markets are particularly vulnerable to misconduct by intermediaries and others, but the capacity of individual investors to take action may be limited. Further, the complex character of securities transactions and of fraudulent schemes

9 IOSCO is recognized as the international standard setter for securities markets. The Organization’s wide membership regulates more than 90% of the world’s securities markets and IOSCO is the world’s most important international cooperative forum for securities regulatory agencies. IOSCO members regulate more than one hundred jurisdictions and the Organization’s membership is steadily growing. See www.IOSCO.org.

10 IOSCO further recognizes that there is often no single correct approach to a regulatory issue. Legislation and regulatory structures vary between jurisdictions and reflect local market conditions and historical development. The particular manner in which a jurisdiction implements the objectives and principles described in this document must have regard to the entire domestic context, including the relevant legal and commercial framework. Ibid.

11 IOSCO has three categories of members: ordinary, associate and affiliate. The Capital Markets and Securities Authority is an ordinary member of IOSCO.

PART I

OBJECTIVES, ENVIRONMENT AND PRINCIPLES OF SECURITIES REGULATION

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requires strong enforcement of securities laws. Where a breach of law does occur, investors should be protected through the strong enforcement of the law.

In the event of an ultimate dispute, investors should have access to a neutral mechanism (such as courts or other mechanisms of dispute resolution) or means of redress and compensation for improper behavior.

Ensuring that Markets are Fair, Efficient, and Transparent

The regulator’s approval of exchange and trading system operators and of trading rules helps to ensure fair markets.

On fair markets it is stipulated that market structures should not unduly favor some market users over others. Regulation should detect, deter and penalize market manipulation and other unfair trading practices.

Regulation should aim to ensure that investors are given fair access to market facilities and market or price information. Regulation should also promote market practices that ensure fair treatment of orders and a price formation process that is reliable.

In an efficient market, the dissemination of relevant information is timely and widespread and is reflected in the price formation process.

IOSCO defines transparency as the degree to which information about trading (both for pre-trade and post-trade information) is made publicly available on a real-time basis. Pre-trade information concerns the posting of firm bids and offers as a means to enable investors to know, with some degree of certainty, whether and at what prices they can deal. Post-trade information is related to the prices and the volume of all individual transactions actually concluded. Regulation should ensure the highest levels of transparency.

The Reduction of Systemic Risk

IOSCO realizes that regulators cannot be expected to prevent the financial failure of market intermediaries. Thus regulation should aim at reducing the risk of failure (including through

capital and internal control requirements).Where financial failure nonetheless does occur, regulation should seek to reduce the impact of that failure, and, in particular, attempt to isolate the risk to the failing institution.

Market intermediaries should, therefore, be subject to adequate and ongoing capital and other prudential requirements. If necessary, an intermediary should be able to wind down its business without loss to its customers and counterparties or systemic damage.

Risk taking is essential to an active market

and regulation should not unnecessarily stifle

legitimate risk taking. Rather, regulators should

promote and allow for the effective management

of risk and ensure that capital and other prudential

requirements are sufficient to address appropriate

risk taking, allow the absorption of some losses

and check excessive risk taking.

An efficient and accurate clearing and settlement process that is properly supervised and utilizes effective risk management tools is essential. There must be effective and legally secure arrangements for default handling. This is a matter that extends beyond securities law to the insolvency provisions of a jurisdiction. Instability may result from events in another jurisdiction or occur across several jurisdictions, so regulators’ responses to market disruptions should seek to facilitate stability domestically and globally through cooperation and information sharing.

After having surveyed the main components of the objectives of securities regulation, let us now highlight the principles of securities regulation.

THE REGULATORY ENVIRONMENT

IOSCO recognises that certain environmental issues are relevant in the regulation of securities markets. Implicit throughout the IOSCO document which spells out the principles of securities regulation is the belief that;

• regulation should facilitate capital formation

and economic growth. • In the context of regulation, there should

D S E J o u r n a l

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also be a recognition of the benefits of

competition in the market place.• Regulation is necessary to ensure the

achievement of the three core objectives. Nevertheless,

• Inappropriate regulation can impose an

unjustified burden on the market and

inhibit market growth and development.

IOSCO realizes that it is possible to identify general attributes of effective regulation that are consistent with sound economic growth and observes that:

• There should be no unnecessary barriers to

entry and exit from markets and products;

• The markets should be open to the widest

range of participants who meet the specified

entry criteria;

• In the development of policy, regulatory

bodies should consider the impact of the

requirements imposed;

• There should be an equal regulatory burden

on all who make a particular financial

commitment or promise.While observing that there must be an appropriate

is the Capital Markets and Securities Act. This is supplemented by the Companies Act, the Auditors and Accountants (Registration) Act as well as legislation in the area of taxation. Exchange control legislation is relevant in the context of foreign participation in Tanzania’s capital market.

THE CAPITAL MARKETS AND SECURITIES

ACT

The legal framework for securities regulation in Tanzania is centered on the Capital Markets and Securities Act (Cap. 79 of the Laws of Tanzania). The Act was enacted to “establish a Capital Markets and Securities Authority for the purpose

and effective legal, tax and accounting framework within which the securities markets can operate IOSCO is further aware that securities law and regulation cannot exist in isolation from the other laws and the accounting requirements of a jurisdiction.

T H E P R I N C I P L E S O F S E C U R I T I E S

REGULATION

Apart from articulating the objectives of securities regulation, IOSCO has also stipulated thirty principles of market regulation. These principles are clustered in the following categories; A. Principles Relating to the Regulator; B. Principles for Self-Regulation; C. Principles for the Enforcement of Securities Regulation; D. Principles for Cooperation in Regulation E. Principles for Issuers; F. Principles for Collective Investment Schemes; G. Principles for Market Intermediaries; and H. Principles for the Secondary Market.

The principles are elaborated in Part III of the paper which compares international best practices with the legal framework of capital markets in Tanzania.

PART II

THE LEGAL FRAMEWORK OF SECURITIES REGULATION IN TANZANIATHE REFORM AGENDA

The background has often been given of the economic liberalization measures which were adopted in Tanzania during the early 1990’s. Suffices to point out that the development of capital markets was a part of the package of reforms which also included; trade liberalization, relaxation of exchange controls, de-regulation of interest rates as well as divestiture of public enterprises. In the place of public finance of the productive sector, capital markets had to fill the gap as the necessary infrastructure in propelling the “engine of growth” which has now come to be a synonym for the private sector.The apex legislation in regulating securities markets

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of promoting and facilitating the development of

an orderly, fair and efficient capital market and

securities industry in Tanzania, to make provisions with respect to stock exchanges, stockbrokers and other persons dealing in securities and for connected purposes”. It may be observed that the major component of the Act is concerned with “dealing in securities”12 Dealing in securities “is defined as“ whether as principal or agent making or offering to make with any person, or inducing or attempting to induce any person to enter or to offer to enter into:-

(a) any agreement for or with a view to acquiring disposing of’ subscribing for’ or underwriting securities; or

(b) any agreement the purpose or the intended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the price of securities.

Technical assistance in the formulation of the Act was provided by the Commonwealth Secretariat and later supplemented by the International Finance Corporation. As earlier mentioned, the Act was extensively amended in 1997. The amendments introduced inter alia certain issues of a fundamental nature in securities business (relating to public issue of securities and conduct of business) as well as market development issues (the need to regulate collective investment schemes). The enactment of the Act may have been expedited for the sake of compliance with some reform benchmarks. The extensive amendments carried out thereafter set the pace for the subsequent market development work.

The Act is divided into fourteen parts making provision for transitional as well as regular/continuous situations. On transitional provisions,

Part X provided for an Interim Stock Trading Facility (ISTF) - a stage which was skipped in favor of a stock exchange13. Pending the establishment of the Capital Markets and Securities Authority, the Governor of the Central Bank performed the functions of the Authority14.

The other parts of the Act deal with; the Capital Markets and Securities Authority, Stock Exchanges, Licenses, Register of Interests in Securities, Conduct of Securities Business, Accounts and Audit, Fidelity Funds, Trading in Securities, Collective Investment Schemes, Public Offers of Securities, Advertisements Relating to Securities Business and the last one on miscellaneous provisions. The provisions of the Act are supplemented by detailed regulations. We will highlight the main aspects of these parts before doing a detailed comparison of its elements with what we have seen is recommended by IOSCO.

Apart from the Act, there are also certain other legislations which have a bearing on the conduct of securities business. The paper will touch on these legislations at their appropriate points of reference.

THE CAPITAL MARKETS AND SECURITIES

AUTHORITY

The Act established a Capital Markets and Securities Authority (CMSA hereinafter “the Authority”) as a body corporate with perpetual succession and a common seal The Authority is vested with the following functions:- (a) To advise the Minister on all matters relating

to the securities industry;(b) to maintain surveillance over securities to

ensure orderly, fair and equitable dealing in securities;

( c) Register, license, authorize or regulate in

12 “Dealing in securities” is defined as “whether as principal or agent making or offering to make with any person, or inducing or attempting to induce any person to enter or to offer to enter into:-

(a) any agreement for or with a view to acquiring disposing of’ subscribing for’ or underwriting securities; or

(b) any agreement the purpose or the intended purpose of which is to secure a profit to any of the parties from the yield of securities or by reference to fluctuations in the price of securities.

13 The provisions for an ISTF were based on the premise that appropriate conditions for a stock exchange did not exist. It was however resolved that a “revolutionary” step should be taken given the support that was available from both bilateral agencies and multilateral institutions.

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accordance with (the) Act, or anyregulations made under it stock exchanges, investment advisers, securities, dealers and their agents and to control and supervise their activities with a view to maintain proper standards of conduct and professionalism in the securities business;

(d) to formulate principles for the guidance of the industry;

(e) to determine the minimum capital requirement for a license holder, depending on the size of operations and risk;

(f) to monitor the solvency of license holders and take measures to protect the interest of customers where the solvency of any such license holder is in doubt;

(g) to protect the integrity of the securities market against any abuses arising from the practice of insider trading;

(h) to adopt measures to minimize and supervise any conflict of interest that may arise for dealers;

(i) to review, approve and regulate takeovers, mergers, acquisitions and all forms of business combinations in accordance with any existing rules of practice authorizing or requiring the security to do so;

(j) to create the necessary environment for the orderly growth and development of the capital market;

(k) to perform the function referred to in section 35 of the Companies Act;

(l) to undertake such other activities as are necessary or expedient for giving full effect to the provisions of (the) Act; and

(m) to do anything which is calculated to facilitate the discharge of its functions or is incidental or conductive to their discharge, under (the) Act15.

In order to discharge these functions, the Authority has been granted certain statutory powers. These include: powers to direct production of books; disclosure of ownership of securities the subject of acquisition or disposal, disclosure relating to dealing in securities; advise given by a dealer or investment adviser, financial position of persons involved in a relevant transaction etc; powers of investigation etc.

In addition to the powers stated above, the Authority is empowered to: approve a stock exchange16 as well as Collective Investment Schemes17; issue directions to a stock exchange18 and prohibit trading in particular securities19. No one may carry on business as dealer or investment adviser (or their representatives) without a license issued by the Authority20. As it were, the Authority may revoke a license issued by it21. In respect of Collective Investment Schemes, the Authority may carry out an investigation on the administration of any scheme and issue directives to a scheme22.

In connection with public offers of securities, the Authority is empowered to approve a prospectus23. Furthermore, all advertisements relating to offers of services in relation to securities business of offer of securities has to be approved by the Authority24. It may appear that the powers of the Authority are limitless. This is however not the case as Parliament has made action by the Authority subject to certain conditions. The Authority is therefore accountable in the implementation of its mandate. Thus the Authority may take action; “Where it considers that there is sufficient cause to do so”; “Where it considers it necessary for the protection of investors”; Where it “has reason to

suspect that a person has committed an offence”’;

15 Section 10 of the Capital Markets and Securities Act.16 Section 26(3), Ibid.17 Section 115, Ibid.18 Section 30(1), Ibid.19 Section 31(1), Ibid20 Sections 32(1) and 34(1), Ibid.21 Section 46(1), Ibid.22 Section 123(1), Ibid.23 Section 131, Ibid.24 Sections 135 and 136, Ibid.

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Where “it believes on reasonable grounds”; Where “it appears to be in the public interest”; Where the Authority “is of the opinion that it is necessary to prohibit trading”; or After it has given a person to be affected “an opportunity to

be heard”.

The Authority is an administrative agency whose decisions/determinations are subject to judicial review. Where a requirement has been stipulated for the Authority to act subject to a certain prescribed condition (such as; having a reason to suspect, reasonable belief or a particular opinion) the Authority is obliged to have a verifiable basis for undertaking the respective course of action.

It is also significant to observe that the Authority operates within an executive power structure. The power to make Regulations under the Act is vested not on the Authority but on the Minister of Finance25. Moreover, “the Minister may give to the Authority directions of a general or specific character as to the exercise of its functions, and it shall be the duty of the Authority to give effect

to any such directions”26.

STOCK EXCHANGES

A stock exchange is defined as “any body corporate which has been approved by the Authority under Section 26.” It is therefore clear that the establishment of a stock exchange is regulated under the Act.

Certain conditions have been prescribed for the grant of approval of a Stock Exchange. A proposed stock exchange must be a body corporate, there must be a minimum of three members dealing in securities independent of and in competition with each other and the body corporate must have rules which make provision for a variety of matters such that it is a Self-Regulating Organisation (SRO). Further approval will be a granted if “the interest

of the public will be served”.

As an SRO, a stock exchange is obliged to maintain rules;

(i) for exclusion from membership of persons who are not of good character and high business integrity;

(ii) for the exclusion, suspension or disciplining of members for conduct inconsistent with just and equitable principles in the transaction of business or for a contravention of or failure to comply with the rules of the stock exchange or the provisions of (the) Act;

(iii) for the making of a report to the Authority by the body corporate whenever it rejects any application for membership, where it suspends or expels a member or where it suspends trading in particular securities of, or made available by, a body corporate on the stock exchange;

(iv) for the terms and conditions of the Chief Executive Officer of the body corporate, including a term that such Chief Executive Officer shall not be liable to dismissal or removal from his office without the prior approval of the Authority;

(v) with respect to the conditions under which securities may be listed for trading in the stock market proposed to be conducted by the body corporate;

(vi) with respect to the obligations of the issuers of the listed securities;

(vii) with respect to the conditions governing dealing in securities by members;

(viii) with respect to the class of securities that may be dealt in by members

(ix) with respect to a fair representation of persons in the selection of its Council members and administration of its affairs including the representation of listed companies, investors, and the professions relevant to securities trading; and

(x) generally, for the carrying on of business of

25 Section 148(1), Ibid.26 Section 147, Ibid.

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the stock exchange with due regard to the interests of the public27.

Amendments of the Rules is subject to approval of the Authority which in addition has the “nuclear

option” the power to withdraw approval of a stock exchange if it is “in the public interest.”28

As part of regulatory oversight, the Authority may issue directions to a stock exchange as well as prohibit trading in securities29. A stock exchange is obliged to assist the Authority by furnishing such returns and other information30.

The DSE was approved as a stock exchange in 199731. As an SRO, it maintains a “Blue Print”32 which contains rules on: membership and business conduct, listing, trading, clearing, settlement and depository, foreign investors etc.

LICENSES

Access to securities business is regulated in a licensing regime. No person shall carry out the business of dealing in securities or investment adviser (or their representatives) without a license from the Authority33.

Although the Act provides that any person may be granted a dealer’s license, in practice licenses have been granted to body corporates. Licenses are granted subject to a fit and proper test which includes: minimum financial requirements as may be provided by the Authority; educational qualifications and experience; good reputation/

character as well as an opinion by the Authority that an applicant will perform respective duties “efficiently, honestly and fairly.”34 The Authority may suspend or revoke a license35. However, the Authority “shall not revoke or suspend a licence…without first giving an opportunity to be heard”36.

Several obligations are attached to a holder of a license under the Act; A dealer’s deposit (in the case of a dealer) must be lodged37; Notification of change of any particulars38; Compliance with financial requirements and conduct of business rules39.

REGISTERS OF INTERESTS IN SECURITIES

Market intermediaries (dealers, dealer’s representative, investment representative) and financial journalists are required to maintain each a register of securities in which they have an interest40. The register is to be in prescribed form.

The main objective of this requirement is to prepare a stock of information which may be useful in the event of unethical activities mainly as a tool to regulate adverse effects of conflicts of interest. The register is to contain particulars of securities in which the applicable persons have an interest. Any changes in the interest are to be recorded in the register. The Authority may require any person obliged to maintain such a register to produce it for inspection41.

CONDUCT OF SECURITIES BUSINESS

27 Section 26(3), Ibid.28 Section 26(6), Ibid.29 Sections 30 and 31, Ibid.30 Section 28(1), Ibid .31 Government Notice published in 1997.32 DSE Copyright, 2003.33 Sections 32(1) and 34(1) of the Capital Markets and Securities Act.34 Section 37(3)(b), Ibid.35 Sections 46(1)(b) and (3).36 Section 36(4), Ibid.37 Section 42(1), Ibid.38 Section 44, Ibid .39 These aspects are dealt with elsewhere in the paper.40 Sections 50 and 51 of the Capital Markets and Securities Act.41 Section 54, Ibid.

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The key requirements of conduct of business include: the issue of Contract Notes for transactions, investor protection where a dealer deals as principal, provision of priority to client orders and appropriate use of clients funds. There is a prohibition of: provision of credit to employees of dealers and short selling. Moreover obligation is imposed on an investment adviser to have a basis for recommendations made to clients.

A Contract Note constitutes evidence of a sale or buy transaction. A prescription has been made on the contents of a Contract Note to include apart from names of the dealer, appropriate name of the client, date of transaction, the description of the securities subject matter of the transaction, price per unit, amount of consideration, rate and amount of commission, stamp duty and taxes payable etc42.

The rule on priority to client’s orders is based on the premise that a dealer is allowed to deal as principal and if this rule were not there, clients would have been exposed to front running by a dealer. It is therefore provided that when a dealer deals as principal, the counterparty should be informed of this fact. Secondly, clients orders shall have priority over those of the dealer43.

The treatment of clients funds is also regulated. Moneys are to be deposited in a bank account (not later than the next day), a receipt indicating the deposit and its terms has to be issued by the dealer, money is to be retained in the account until it is used for the appropriate purpose44. It will later be observed that dealers are required to maintain trust accounts for this purpose.

In addition to the provisions of the Act, other

detailed requirements for protection of investors are enshrined in the Capital Markets and Securities (Conduct of Business) Regulations. These include; regulation of material interest by licensees, prescription of customer agreements, timely and best execution, timely and fair allocation, prohibition of front running, churning and a requirement for customer confidentiality.

ACCOUNTS AND AUDIT

Specific requirements relating to accounts and audit have been prescribed for dealers. Dealers are required to maintain “such accounting records as will reflect correctly and explain the transactions and financial position of the business of dealing in securities”45. Clients proprietary documents are protected46.

A dealer is obliged to maintain a trust account in which clients funds are to be deposited47. Moneys in a trust account can only be withdrawn for specified purposes48. A dealer must maintain an audit trail, reconcile customer money at least once every two months and conform to recognized financial standards.

There is a requirement for appointment of an auditor by a dealer49. A removal or resignation of the auditor requires consent of the Authority50. In addition, auditors have an obligation to report to the Authority the occurrence of certain prescribed matters which include; matters that adversely affect the ability of a dealer to meet his obligations, that constitute a breach of conditions stipulated in a license or failure to maintain accounts as prescribed, mishandling of clients documents or failure to maintain a trust account51.

Financial statements of a dealer (Balance Sheet and

42 Sections 58(1) and (2), Ibid .43 Section 63(1), Ibid .44 Section 64(1), Ibid.45 Section 67(1)(a), Ibid .46 Section 68(1), Ibid.47 Section 69(1), Ibid.48 Section 70(1), Ibid.49 Section 71(1), Ibid. This has to be done within one month of commencement of business.50 Sections 72 (1) and (2), Ibid.51 Section 75(1), Ibid .

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Profit and Loss Account) have to be lodged with the Authority within three months of the close of a financial year52.

FIDELITY FUNDS

A stock exchange is required to establish and keep a fidelity fund which is to be applied for the purpose of compensating persons who suffer pecuniary loss from any defalcation committed by a member company or firm or any of its directors or partners or by any employees of such member company or firm in relation to moneys or properties entrusted to or received by them or being trustee(s) received such property53.

Although the assets of a fidelity fund form part of the property of a stock exchange, they are to be maintained separately from other property of an exchange. They are to be held “in trust”. Separate financial statements have to be prepared for a fidelity fund54.

A fidelity fund is to be funded through; monies paid by member companies, income accruing from investment of the fund, moneys contributed by a stock exchange, any penalties levied by the exchange etc. The Act prescribes a minimum of one hundred million shillings or such other sum as the Minister may direct to be paid to the credit of the fund. In view of the dire situation in which Licensed Dealing Members of the DSE found themselves during the initial life of the exchange, the Minister prescribed that the fidelity fund of the DSE shall consist of 0.02% of the commissions charged in relation to transactions undertaken at the Exchange. Since then, the Fidelity Fund of the DSE has been growing gradually.

Claims against a fidelity fund have to be settled by the Council of an Exchange. Legal proceedings against a fidelity fund are pre-empted by this

procedure55.

TRADING IN SECURITIES

The provisions of the Act dealing with trading in securities are aimed at preventing predatory practices such as; false trading and market rigging, market manipulation, fraudulent inducements of persons to deal, insider dealing as well as the use of manipulative devices and dissemination of information about illegal transactions.

False trading relates to any practice which “is calculated to create a false or misleading appearance of active trading in any securities on a stock exchange or a false or misleading appearance with respect to the market for, or the price of, any such securities”56. Market rigging on the other hand is employment of sales and purchases of securities “that do not involve a change in the beneficial ownership of those securities” or by any fictitious transactions or devices maintaining, inflating, depressing or causing fluctuations in the market price of any securities57.

Market manipulation involves carrying out directly or indirectly two or more transactions in securities of a body corporate which transactions have, or are likely to have, the effect of raising, lowering, maintaining or stabilizing the price of securities of the body corporate in a stock exchange… with intent to induce other persons to sell, purchase or subscribe for securities of the body corporate or of a related body corporate58.

Insider dealing involve dealings in securities by persons who by reason of their association with body corporates are in possession of information that is not generally available “but, if it were might materially affect the price of those securities”. A direct prohibition is prescribed for any person who at any time “in the preceding six months

52 Sections 74(1) and (4), Ibid .53 Sections 83(1) and 94(1), Ibid.54 Section 83(2), Ibid.55 Section 95 of the Capital Markets and Securities Act.56 Section 106, Ibid.57 Section 107, Ibid.58 Section 112, Ibid .

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prior to a specific deal” has been connected with a body corporate whose securities are the subject of dealing. The same applies to a person who is connected with a body corporate who is prohibited from dealing in securities of another body corporate “if by reason of his being or having been connected with the aforementioned body corporate he in possession “ of material information. Finally, connected persons cannot procure third parties to deal on their behalf59.

COLLECTIVE INVESTMENT SCHEMES

Collective Investment Schemes are defined as; An open-ended investment company60; A unit trust scheme; Such other arrangements being arrangements with respects to property of any description, including money, the purpose or effect of which is to enable persons taking part in the arrangements (whether by becoming owners of the property or any part of it or otherwise) to participate in or receive profits or income arising from the acquisition, holding, management or disposal of the property or sums paid out of such profits or income; and Any other scheme or arrangement deemed by the Authority to be a collective investment scheme for the purposes of (the) Act61.The establishment and operation of Collective

Investment schemes is regulated. Schemes have to be authorized by the Authority62. A scheme must have a Manager as well as Trustee (or Custodian) for whom fit and proper tests have been prescribed. Application for authorization of a scheme must be accompanied with certain prescribed particulars (Deed of Trust and Offering Document)63.

The regulation of Collective Investment Schemes extends to several operational areas including: offering investment plans64; pricing, issue and redemption of units or shares65, conduct of meetings of unit holders66, transactions with associated persons67, the obligation for a scheme to maintain a member’s register68, reporting requirements69, advertising and public announcements by schemes70, investment limits71 as well as audit and financial reports72.

The powers of the Authority in relation to Collective Investment Schemes are also extensive. Apart from authorization of schemes, the Authority may appoint inspectors to “investigate and report on the administration of any scheme”73, give directions to a Manager of a scheme to cease the issue or redemption of units or wind up a scheme74. The Authority may also revoke the authorization of a scheme75.PUBLIC OFFERS OF SECURITIES

59 Section 112(4)(a), Ibid.60 The Companies Act defines an “open-ended investment company” as a body corporate:-

(a) which has its purpose the investment of its funds with the aim of spreading investment risk and giving its members the benefit of the results of the management of those funds by or ’ on behalf of that body; and

(b) the members in which have rights represented by shares of securities of that body which;(i) those members are entitled to have redeemed or purchase from them by, or out of funds provided by that body; or(ii) the body ensures can be sold by he members on an investment exchange at a price related to the value of the property to which they relate.

61 Section 2, Ibid.62 Section 117, Ibid.63 The First Schedule of the Capital Markets and Securities (Collective Investment Schemes) Regulations provides requirements on the contents of an

application for authorization of a Collective Investment Scheme. The Second and Third schedules provide for the contents of Constitutive and Offering Documents respectively.

64 Regulation 20, Ibid.65 Regulations 21 31, Ibid .66 Regulation 36, Ibid.67 Regulations 32 34, Ibid.68 Regulation 37, Ibid .69 Regulations 38 43, Ibid. provides for publication and distribution to holders of Annual and Semi Annual Report. The publication of offer and redemption

prices (or Net Asset Value) is also required. By virtue of section 128(1) of the Act, an Annual Report of a Collective Investment Scheme has to be submitted to the Authority.

70 Regulations 47 51, Ibid . provides that advertisements are to be submitted to the Authority for approval. There is a prohibition of mention of unapproved schemes.

71 Regulations 52 58, Ibid. Investments of a Collective Investment Scheme cannot exceed certain prescribed limits. In addition, a unit trust “shall not borrow”.

72 Regulations 61 64, Ibid. A Collective Investment Scheme shall appoint an auditor “at the out set”. The auditor shall be independent of the Manager and Custodian.

73 Section 123(1) of the Capital Markets and Securities Act.74 Section 124(1), Ibid.75 Section 122(1), Ibid.

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Though the part of the Act dealing with public offers of securities is short, it contains provisions with most significant impact to investors who hold securities of various issuers. The issuance of securities including advertisements is made conditional on the approval of a prospectus. In other words, no securities may be issued without a prospectus being filed with the Authority and the Authority having approved it76.

Secondly, the contents of a prospectus are also prescribed. The Authority shall not approve a prospectus unless “it contains all such information as investors and their professional advisers would reasonably require and reasonably expect to find there for the purpose of making an informed assessment” 77of the securities being offered.

It is pertinent to note that under the Act, “every

director of an issuer shall be liable to pay

compensation to any person who has acquired

any of the securities in question and suffered

loss in respect of them as a result of any untrue

or misleading statement in the prospectus or

the omission from the prospectus of any matter

required to be included”��. It is equally pertinent to observe that among the prescribed contents of a prospectus is a cautionary statement (on first page) which among other things states that “The

securities offered have not been approved or

disapproved by the Authority”79. The contents of a prospectus have been very meticulously spelt out in the Regulations.

Apart from public issues as such, the law also regulates capitalization and rights issues of listed companies. These cannot be carried out unless approval of the Authority has been granted. Specified information is required in an application for capitalization or rights issue. A deficiency which may be noted here is that no requirement is

placed for provision of information to shareholders especially as concerns a rights issue. Admittedly, this is not essential in a capitalization/bonus issue.

A D V E R T I S E M E N T S R E L A T I N G T O

SECURITIES BUSINESS

An “advertisement” has been defined as “every form of advertising whether in a publication, brochure, handout, by letter head, by display of notice, circular or other documents by exhibition of photographs or cinematography films or videos, or by sound broadcasting or television broadcasting or distribution of recordings or in any other manner”80.

Advertisements for offer of any services in relation to securities business can only be published by a licensee who is obliged to register a copy thereof to the Authority seven days prior to its submission for publication. The Authority is empowered to prescribe particulars to be included in an advertisement. The same situation applies in the case of advertisements offering securities81.

THE COMPANIES ACT

The Companies Act which regulates the affairs of companies in Tanzania supplements provisions of the Capital Markets and Securities Act in two main areas; matters relating to publication of prospectuses and establishment and effect of the establishment of a depository by an approved stock exchange.

PUBLICATION OF PROSPECTUSES

The Companies Act traditionally provides for a prospectus to “be delivered to the Registrar for registration on or before the date of its publication. “82 To complement the Capital Markets and

76 Section 131, Ibid.77 Section 132(1), Ibid. In addition, the Capital Markets and Securities (Prospectus Requirements) Regulations prescribe the following information which

should be in a prospectus; rights of holders, information on bankers, statement on legal status and affairs of the issuer, information relating to directors, capital and debt of the issuer, valuation report, material contracts, risk factors and use of the proceeds of an issue.

78 Section 133, Ibid.79 Part I of Schedule to the Capital Markets and Securities (Prospectus Requirements) Regulations.80 Section 2 of the Capital Markets and Securities Act.81 Part XIII, Ibid.

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Securities Act, the Companies Act now categorically states that “The Registrar shall not register any prospectus unless……….the prospectus has been approved by the Capital Markets and Securities Authority”83.

The effect of the above provision of the Companies Act is to unequivocally regulate public companies whether they are listed or not. An additional requirement has been stipulated for a prospectus which relates to shares which would be “dealt in an approved stock exchange or (which) states that the application has been or will be made to an approved stock exchange for permission to deal in the shares…” For such a prospectus, a Certificate of the Exchange is required to the effect that “the prospectus has been scrutinized by the stock exchange and that its requirements relating to the intents thereof have been satisfied”84.

ESTABLISHMENT OF A DEPOSITORY BY A STOCK EXCHANGE

The Companies Act recognises the principle that shares or other interest of any member in a company is movable property and transferable in a manner provided by articles of the Company. The establishment of a Central Depository System (CDS) by the DSE called for an adjustment to the Companies Act so as to provide for transfers within the environment of immobilization.

A permissive provision in the Companies Act stipulated that “an approved Stock exchange may establish a depository in which securities may be maintained.” This is subject to a proviso that the Council or other ruling body of such exchange shall prescribe rules relating to safe custody, transfers and reports to be filed with the Registrar. Finally, the rules prescribed for the depository “shall be

satisfactory to the Registrar85.”

In relation to transfer of shares immobilized in a depository, it is provided that this “shall be effected in accordance with the transfer procedures prescribed under the rules of such exchange.” The Council of the DSE has to this effect adopted rules on Clearance, Settlement and Depository86.

A U D I T O R S A N D A C C O U N T A N T S

(REGISTRATION) ACT, 1��2

The Auditors and Accountants (Registration) Act, 197287 was enacted to provide for the establishment of a National Board of Auditors and Accountants (NBAA) as well as the conduct of professional examinations in the accounting industry and registration of Accountants and Auditors. In 1995, the Act was amended to empower the NBAA “to stipulate accountancy or auditing standards

and guidelines as appropriate and to ensure the

compliance of the standards and guidelines by the

subjects��.” This role of the NBAA is relevant to preparation of financial statements and disclosure standards which are significant in the regulation of capital markets (in relation to investor protection, transparency etc.). As commented by IOSCO, “securities law cannot exist in isolation from the other laws and the accounting requirements of a jurisdiction”.

The NBAA has adopted International Financial Reporting Standards for application in Tanzania. Other international standards adopted by the NBAA include; International Accounting Standards and International Standards of Auditing. These standards are binding on accountants and auditors authorized by the NBAA. The Auditors and Accountants (Registration) Act vests on the NBAA the mandate of control over conduct of registered

82 Section 35(2) of the Companies Act.83 Section 35(2), Ibid.84 Section 35B(i), Ibid.85 Section 63A(2), Ibid.86 DSE Blue Print op. cit. The Clearance, Settlement and Depository Rules make detailed provisions with respects to nature of securities deposited in

the CDS (held in trust for the beneficial holders), criteria for admission of members of the CDS, deposit of securities, confidentiality, maintenance of a register of existing securities holders and safekeeping of securities.

87 Act No. 33 of 1972.88 Auditors and Accountants (Registration) (Amendment) Act, 1995 (Act No.2 of 1995).

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auditors and accountants89.

REGULATION OF FOREIGN INVESTMENT

Foreign investment is regulated under the Foreign Exchange Act, the Capital Markets and Securities Act as well as the DSE Blue Print. Foreign Exchange (Listed Securities) Regulations, 2003 seek to ensure that capital flows for investment in the capital markets is remitted through banking channels.

The Capital Markets and Securities (Foreign Investors) Regulations, 2003 allow foreign investors to participate in acquiring listed securities90 and places limits on their participation. To begin

by IOSCO. We have also reviewed albeit generally, the legal framework of securities business in Tanzania. A point has been reached where we can now compare Tanzania’s legal framework with the IOSCO principles which in essence encapsulates best practices. For ease of comparison, this exercise is simplified in a matrix.

IOSCO STANDARD TANZANIA’S LEGAL

FRAMEWORK

Protection of InvestorsInvestors should be protected from predatory activities such as; misleading, manipulative or fraudulent practices, including insider trading, front running or trading ahead of customers and the misuse of client assets. Full disclosure of information material to investors’ decisions is the most important means for ensuring investor protection. Accounting and auditing standards should be in place and they

with, foreign investors cannot participate in the Government securities market91. A maximum limit of 60% of issued shares has been fixed as the maximum permissible for foreign investors. For individual foreign shareholders, the maximum limit is 1%. In respect of institutions, the limit is 5%.. The stock exchange as well as depositories are obliged to file regular reports with the Authority.

The DSE Blue Print stipulates Dar es salaam Stock Exchange (Foreign Investors) Rules, 2003. The Rules provides for deposit of shares held by foreign investors in the CDS. It also binds Licensed Dealing Members of the Exchange to respect the limits imposed on foreign investors.

PART III

A COMPARISON OF INTERNATIONAL BEST sPRACTICES WITH THE LEGAL FRAMEWORK OF CAPITAL MARKETS IN TANZANIA.

Up to this stage, we have examined the Objectives and Principles of Securities Regulation as stipulated

should be of a high and internationally acceptable quality. Only duly licensed or authorized persons should be permitted to hold themselves out to the public as providing investment services; as market intermediaries or the operators of exchanges. Initial and ongoing capital requirements imposed upon those license holders and authorized persons should be designed to achieve an environment in which a securities firm can meet the current demands of its counter parties and, if necessary, wind down its business without loss to its customers.Supervision of market intermediaries should achieve investor protection by setting minimum standards for market participants. Investors should be treated in a just and equitable manner by market intermediaries according to standards which should be set out in rules of business conduct. In the event of an ultimate dispute, investors should have access to a neutral

mechanism (such as courts or other mechanisms

89 Section 15 of the Act allows the NBAA to suspend registration of accountants or auditors if they are “convicted of any offence against (the) Act or is after due enquiry held by the Board, found to have been guilty of any act or omission amounting to improper, disgraceful or grossly negligent professional conduct”.

90 Regulation 3(1) of the Capital Markets and Securities (Foreign Investors) Regulations.91 Regulation 3, Ibid.

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of dispute resolution) or means of redress and

compensation for improper behavior.

False trading, market manipulation, insider

trading, Market rigging, timely and best execution,

timely and fair allocation, prohibition of front

running, churning and a requirement for customer

confidentiality are all provided for.Covered below

under Principles for IssuersThe NBAA has adopted

International Financial Reporting Standards

effective 1st July, 2004 (IASB). NBAA has also

adopted International Accounting Standards and

International Standards of Auditing (IFAC).Dealers

and investment advisers have to be duly licensed..

No person is allowed to carry out this business or

“hold himself out as carrying on such business”

unless he is holder of a licence.Minimum capital

requirements have been spelt out for dealers/

brokers. Dealers are allowed to trade on their own

behalf as well as others. Breakers can only deal

on agency basis.A fit and proper test has been

developed for dealers and investment advisers.

Apart from what has been stated above, rules of

business conduct have been spelt out in a specific

regulation. Conflict of interest by licensees is

regulated. There is also a prescription of customer

agreements,The Court may on application by any

person whose interests have been, are or would

be affected…grant an injunction. The Court is

also empowered to prohibit payment or transfer of

moneys, securities or other properties in protection

of investors

Ensuring that Markets are Fair, Efficient and

TransparentThe regulator’s approval of exchange

and trading system operators and of trading rules

helps to ensure fair markets.Market structures

should not unduly favor some market users

over others. Regulation should detect, deter

and penalize market manipulation and other

unfair trading practices.Regulation should aim

to ensure that investors are given fair access to

market facilities and market or price information.

Regulation should also promote market practices

that ensure fair treatment of orders and a price

formation process that is reliable.IOSCO defines

transparency as the degree to which information

about trading (both for pre-trade and post-trade

information) is made publicly available on a

real-time basis. Pre-trade information concerns

the posting of firm bids and offers as a means to

enable investors to know, with some degree of

certainty, whether and at what prices they can deal.

Post-trade information is related to the prices and

the volume of all individual transactions actually

concluded. Regulation should ensure the highest

levels of transparency.

A stock exchange has to be approved by the

Authority. In so doing, trading and other rules

are evaluated. Trading system operators are also

licensed by the Authority.These are covered as

explained earlier under provisions on investor

protection.Regulation provides a basis for fair

access. The major constraint here is market

structures rather than regulatory deficiency.Timely

and best execution is provided for as explained

above.At the trading floor of the DSE a single

price order matching system given best price was

implemented. The same has been automated.All

orders are posted in the ATS at the DSE. These are

available to all traders. Post trade information is

provided in a daily Market report

The Regulatory EnvironmentRegulation should

facilitate capital formation and economic growth.

In the context of regulation, there should also be a

recognition of the benefits of competition in the

market place.Regulation is necessary to ensure

the achievement of the three core objectives. Ne

vertheless,Inappropriate regulation can impose

an unjustified burden on the market and inhibit

market growth and development.There should

be no unnecessary barriers to entry and exit from

markets and products;The markets should be

open to the widest range of participants who meet

the specified entry criteria;In the development

of policy, regulatory bodies should consider the

impact of the requirements imposed;There should

be an equal regulatory burden on all who make

a particular financial commitment or promise.

Comments on this area are made in the last part

D S E J o u r n a l

2�

of the paper.

A. Principles Relating to the Regulator1 The

responsibilities of the regulator should be clear

and objectively stated.2 The regulator should be

operationally independent and accountable in the

exercise of its functions and powers3 The regulator

should have adequate powers, proper resources

and the capacity to perform its functions and

exercise its powers.4 The regulator should adopt

clear and consistent regulatory processes.5 The

staff of the regulator should observe the highest

professional standards including appropriate

standards of confidentiality.

The Capital Markets and Securities Authority spells

out the responsibilities of the regulator.Regulator

is operationally independent but subject to general

and specific directions of the Minister on policy

issues.The Act spells out extensive powers of the

regulator. The regulator is funded by Government.

Capacity building is on-going based on market

developmentThis aspect is covered in the last part

of the paperThe CMSA is compliant but on-going

capacity building is necessary given novelty of the

markets.

B. Principles for Self-Regulation6 The regulatory

regime should make appropriate use of Self-

Regulatory Organizations (SROs) that exercise

some direct oversight responsibility for their

respective areas of competence, to the extent

appropriate to the size and complexity of the

markets.7 SROs should be subject to the oversight

of the regulator and should observe standards

of fairness and confidentiality when exercising

powers and delegated responsibilities.

Self regulation is recognized in the Act. However,

the relationship between oversight and self

regulation has not been clearly defined.The stock

exchange as the only current SRO is subject to

oversight of the regulator.

C. Principles for the Enforcement of Securities

Regulation8 The regulator should have

comprehensive inspection, investigation and

surveillance powers.9 The regulator should

have comprehensive enforcement powers.10 The

regulatory system should ensure an effective and

credible use of inspection, investigation, surveillance

and enforcement powers and implementation of an

effective compliance program.

The regulator has comprehensive powers of

inspection, investigation and surveillance.The

regulator has comprehensive enforcement powers.

Enforcement procedures have not yet been

developed. The potential for inconsistencies

therefore exist.

D. Principles for Cooperation in Regulation11

The regulator should have authority to share both

public and non-public information with domestic

and foreign counterparts.12 Regulators should

establish information sharing mechanisms that

set out when and how they will share both public

and non-public information with their domestic

and foreign counterparts.13 The regulatory system

should allow for assistance to be provided to

foreign regulators who need to make inquiries

in the discharge of their functions and exercise of

their powers.

The CMSA is a member of IOSCO and shares

the responsibility for implementing international

cooperation spelt out. The Authority is also a

member of the East African Securities Regulatory

Authorities (EASRA) and a Southern African

Development Community Committee on the

same.

E. Principles for Issuers14 There should be full,

timely and accurate disclosure of financial results

and other information that is material to investors’

decisions.15 Holders of securities in a company

should be treated in a fair and equitable manner.16

Accounting and auditing standards should be of a

high and internationally acceptable quality.

The requirements for disclosure by issuers are

comprehensively stated in the Act and regulations.

The continuous listing requirements of the stock

exchange require disclosure of regular and other

material developments by an issuer.The NBAA has

formally adopted International Financial Reporting

D S E J o u r n a l

2�

Standards in Tanzania.

F. Principles for Collective Investment Schemes17

The regulatory system should set standards for

the eligibility and the regulation of those who

wish to market or operate a collective investment

scheme.18 The regulatory system should provide

for rules governing the legal form and structure of

collective investment schemes and the segregation

and protection of client assets.19 Regulation should

require disclosure, as set forth under the principles

for issuers, which is necessary to evaluate the

suitability of a collective investment scheme for a

particular investor and the value of the investor’s

interest in the scheme.20 Regulation should ensure

that there is a proper and disclosed basis for asset

valuation and the pricing and the redemption of

units in a collective investment scheme.

The Act and regulations make provision for

approval of Collective Investment Schemes as

well as qualifications of Managers and Trustees/

Custodians of SchemesThe Act provides for open

ended investment companies, unit trusts and

other arrangements which are CISs as well as

their constitutive and operational requirements.

The property of collective investment schemes

belongs to investors in the schemes. It is to be held

by the Trustee/Custodian.Disclosure of the main

aspects of a Collective Investment Scheme is done

in the Offering Document. Other requirements

exist such as; publication of sale and redemption

prices, publication of annual and semi annual

reports. Notification to holders has to be made on

changes to the Constitutive and Offer Documents.

The basis for valuation of securities of a scheme has

been spelt out (net asset value of a scheme divided

by number of units or shares outstanding. Rules

for pricing and redemption of units/shares have

been spelt out.

G. Principles for Market Intermediaries21

Regulation should provide for minimum entry

standards for market intermediaries.22 There

should be initial and ongoing capital and other

prudential requirements for market intermediaries

that reflect the risks that the intermediaries

undertake.23 Market intermediaries should be

required to comply with standards for internal

organization and operational conduct that aim

to protect the interests of clients, ensure proper

management of risk, and under which management

of the intermediary accepts primary responsibility

for these matters.24 There should be procedures for

dealing with the failure of a market intermediary

in order to minimize damage and loss to investors

and to contain systemic risk.

Done as explained in the section on protection

of investorsMinimum capital requirements have

already been observed. Rules on segregation of

investors funds and maintenance of trust accounts

exist.Accounting regulations and conduct of

business regulations provide for this area.

H. Principles for the Secondary Market25 The

establishment of trading systems including

securities exchanges should be subject to regulatory

authorization and oversight.26 There should be

ongoing regulatory supervision of exchanges and

trading systems which should aim to ensure that

the integrity of trading is maintained through

fair and equitable rules that strike an appropriate

balance between the demands of different market

participants.27 Regulation should promote

transparency of trading.28 Regulation should be

designed to detect and deter manipulation and

other unfair trading practices.29 Regulation should

aim to ensure the proper management of large

exposures, default risk and market disruption.30

Systems for clearing and settlement of securities

transactions should be subject to regulatory

oversight, and designed to ensure that they are

fair, effective and efficient and that they reduce

systemic risk.

Establishment of stock exchanges is regulated.

PART IV

D S E J o u r n a l

2�

categorical conclusion of this paper is that the

legal framework of securities markets in Tanzania

to a very large extent meets the standards of best

practices. However, the best law has never been

written this even with the precision of the most

careful draftsman. It is suggested that room for

improvement of securities law in Tanzania exists in

two areas; the legislative area; and the environment

of regulation

LEGISLATIVE REFORM

Securities markets are not static but dynamic. New

products, players and methods of doing business

will evolve. Where regulation is left behind (i.e.

no regulation exists) serious conflicts could arise.

Needless to mention, the evolution of the markets

in Tanzania is grinding slowly. Areas which

deserve immediate attention for review include;

regulation of takeovers, mergers and acquisitions,

enforcement actions as well as regulation of

advertisements. Furthermore, attention will have

to be focused on the legal implications of de-

mutualisation at an appropriate time.

REGULATION OF TAKEOVERS, MERGERS AND

ACQUISITIONS

As Tanzania’s economy continues on the growth

path and the private sector becomes more dynamic

with a combination of both local and foreign

investors, corporate restructuring is likely to be a

tangible feature. It is essential that guidance in the

form of regulations be prepared so that corporate

strategists do not guess what the acceptable

standard of conduct is92.

ENFORCEMENT ACTIONS

Enforcement actions are necessary in the event of

a breach of the Act or Regulations. The CMSA has

published Enforcement Guidelines which however

are not binding on the Regulator ( by virtue of a

disclaimer provision) and persons who may be

subject to such action are advised to seek their

own legal advise93. The proper approach is for the

Guidelines to be developed into a set of regulations

so that any party involved in an enforcement action

is certain of ongoing activity and is fully aware

of his/her rights and obligations. A clear format

should spelt out in appropriate Regulations on

enforcement which should be equally applicable

as between the Regulator and an enforcement

target is required. This issue would not have

been committed to this paper save for the belief

that as stated by IOSCO, a Regulator is also

accountable.

REGULATION OF ADVERTISEMENTS

We have observed that all advertisements for

offering securities or services in the securities

industry needs to be approved by the Authority. In

practice, this turns out to be a rigid procedure for

sometimes very simple tasks. A more useful model

is to adopt a flexible procedure which allows for

licensees (or other authorized entities) to advertise

while following stipulated guidelines. It becomes

the role of the regulator to publish the guidelines

and that of licensees to comply with them. Those

who are not licensed (or authorized) continue to

be in the regime whose advertisements have to be

approved.

ISSUES RELATING TO THE ENVIRONMENT OF SECURITIES REGULATION IN TANZANIA

Having reviewed Tanzania’s legal framework for securities markets and compared it against IOSCO

principles we now pose the ultimate question whether room for improvement of the former exists. One

92 A search of legislation in this area shows that this is work in progress..93 See www.cmsa-tz.org

D S E J o u r n a l

2�

The implementation of this suggestion requires

adjustments to both the Act as well as advertisements

regulations.

ENVIRONMENT OF REGULATION

Earlier, it was observed that IOSCO believes;

regulation should facilitate capital formation

and economic growth; should recognize the

benefits of competition; should achieve the three

core objectives. Furthermore, IOSCO realizes

that inappropriate regulation can impose an

unjustified burden on the market. There should

be no unnecessary barriers to entry and exit from

markets and products. Regulatory bodies should

consider the impact of the requirements imposed

and finally, there should be an equal regulatory

burden on all who make a particular financial

commitment on promise.

We review these environmental issues in the

context of; public issue of securities, regulation of

CIS and oversight regulatory procedures.

PUBLIC ISSUES OF SECURITIES

The public issue of securities has important

consequences to securities markets it creates the

underlying products (securities) which are traded

in the markets. It has already been observed that

a prospectus has to be approved by the CMSA.

It is significant to know the evaluation approach

adopted by the Authority with the view to approve

or disapprove a prospectus. This forms part of the

“environment” of regulating public issue. Another

issue here is consistent application of allotment

criteria.

Prospectus Evaluation Approach

Two evaluation approaches are usually mentioned

- Disclosure Based Evaluation (DBE) and Merit

Based Evaluation (MBE). In the DBE, the key

task is to ensure sufficient disclosure to enable

investors make “informed” decisions. The MBE

approach goes a step further and seeks to establish

the merits of an issue. It is akin to underwriting

the performance of a product.

The legal approach adopted in Tanzania is the

DBE. We have seen that a prospectus cannot

be approved by the Authority unless it contains

information such as to make investors and their

professional advisers capable of “making an

informed assessment”94. We have also observed

that in the cautionary statement presented by the

law, “the securities offered have not been approved

or disapproved by the Authority” a full disclaimer

of liability on the part of the Authority. In the

meantime, “every director of an issuer shall be

liable....”

The substantive point raised here is that it has not

been made clear whether the actual evaluation

approach being applied in Tanzania is the DBE or

MBE or a combination of the two. Sometimes even

the pricing of an issue is regulated. It is not argued

here that “all and sundry” should be admitted into

the market. Rather the cloud of doubt as to which

approach to be adopted has made the market

schyzophrenic. In this context, it is useful to recall

the wisdom of IOSCO:

• Regulation should facilitate capital formation

and economic growth;

• Risk taking is essential to an active market

and regulation should not unnecessarily stifle

legitimate risk taking.

Consistent Application of Allotment Criteria

In so far as closed-ended products are concerned,

it has become the normal practice that allotment

criteria (of IPOs) is approved by the Authority.

For privatization issues (i.e. where shares of

Government are being sold to the public), one

could maintain that even the actual application of

allotment criteria needs to be confirmed.

Allotment criteria is an important tool for fund managers. It enables them to evaluate the likelihood that an application to buy securities may be

94 Note 78, above.

D S E J o u r n a l

2�

successful (including the magnitude). After having evaluated an allotment criteria, financial positioning is carried out involving opportunity costs. It turns out to be a wild goose chase if allotment criteria is varied post ante and shots aimed “between the goal posts” are deemed to be injurious to the crowd - because the original goal posts have been shifted.

Sufficient attention needs to be paid to an allotment criteria before it appears in a prospectus. Changing its application is not only illegal but contributes towards a negative environment of securities regulation95.

REGULATION OF COLLECTIVE INVESTMENT

SCHEMES

Two Collective Investment Schemes have already been established and two others are on the way. The provisions of the law relating to Collective Investment Schemes in Tanzania are exemplary. Questions may be raised on the management structure of Schemes but this is a relatively easy matter to handle. Does not call for overhaul of the law.

A key environmental issue here is the relative ease with which a Manager of a scheme should be allowed to manage a scheme at the same time as the legitimate interests of regulation are protected. In short, the task of a regulator is to regulate a scheme and not to manage it.

The law has laid down a sufficient basis for regulation in as far as treatment of unit holders and reporting to the Authority is concerned. It is significant that additional requirements of a management type are required to be included in Offering Documents of a Collective Investment Scheme the impact of which is to convert the regulator into Manager of a Scheme. This is the result where for instance service providers of a scheme have to be approved by the regulator.

The Event of a Legal Lacunae

As earlier observed, securities markets are dynamic. Sometimes, markets may be ahead of regulation meaning that financial commitments and promises are being made without reference to an existing law. In such an event where there is a legal lacunae, the situation can be sticky especially those who would already have risked their capital.

This is an area where caution needs to be exercised and an appropriate approach taking into account the interests of all parties should be developed. It is recommended that a useful approach would be a consensus building approach where the interests of market players are articulated and concerns of regulation applied. It is best to realize that exercise of power in such cases is more political than enforcement

CONCLUSION

Finally, the paper argues that Tanzania’s capital markets regulatory framework meet the standards of best practice. By implication, the paper dispels the notion that Tanzania’s market is overregulated. There are some few areas to be adjusted and newer areas to be regulated. Legal reform is in this case an ongoing exercise.

The paper has argued that the environment of regulation needs to be improved to assist market operators not to guess on the regulatory approaches which are applicable. The actions of the regulator are subject to judicial review. However, there is no discounting the fact that many in Tanzania would not prefer to initiate actions for judicial review because they are expensive and may invite further wrath of regulators. Market development would therefore require that regulation be; objective, impartial, transparent and conducive.

95 The Allotment Formula stipulated in the Prospectus of Twiga Cement Co. Ltd. was not adhered to leading to opportunity loss in some cases.

D S E J o u r n a l

30

I am happy to report that our predictions

for the year 2006, which I presented in last

year’s Annual Report, have come true, with

the TATEPA Group making a record profit

of Tsh 2.2bn for the year 2006. The world tea

market was buoyant, helping both Wakulima

Tea Company Limited and Kibena Tea Limited

achieve healthy results. In our blending and

packing business a price increase boosted Chai

Bora, despite increased blending costs. All of

this has allowed your Board to propose our

highest ever dividend of Tsh 45 per share, or

a yield of over 10%.

The year 2007 is looking good in terms of

weather and therefore, made tea production.

Kibena is also receiving much better rainfall

and will be able to irrigate for a period this

year, though still not completely. Even though

world tea prices have taken a dip, we do expect

them to remain better than last year, and as a

consequence Chai Bora should enjoy a better

“cost of sale” base.

In the last AGM, TATEPA shareholders had

approved the formation of a new subsidiary

company, and the transfer of TATEPA’s tea

packing business (Chai Bora) to this subsidiary.

I am happy to tell you that during 2006 this

new company, called Chai Bora Limited was

formed and TATEPA’s branded tea packing

business was transferred into it at the end

of 2006. The new company commenced

operations as at 1st January 2007.

Now for some specific details:

Wakulima Tea: Over the period Wakulima

achieved a record production of 4,000 tonnes

and realised an average sale price of US$

1.60 per kg. With these impressive results,

Wakulima achieved a net profit before tax of

Tsh 1.9 bn which is a record. The company

paid a dividend of Tsh 551m to its shareholders

(TATEPA, and RSTGA and their 14,000

smallholder tea growers).

Kibena Tea: The Kibena Division also realized

an average sale price of US$ 1.60 per kg. At

2,791 tonnes, its production was lower than

average due to the unfavourable weather

conditions and the lack of water for irrigation,

but the business still made an operating profit of

Tsh 660 million. However, since the Company

is highly geared, causing its financial costs to

be rather high, Kibena’s operations delivered

a net profit before tax of Tsh 168 m.

Chai Bora: The Chai Bora branded tea packing

business has reported a more profitable year,

although the full positive effect of the increase

in prices will be reflected in this next financial

year of 2007. I am pleased to report that Chai

Bora has maintained its strong position as the

dominant packer in the market, and held its

share at around 60%.

Dividend: Considering the performance of

the TATEPA group for the year 2006, I am

delighted to announce that your Board of

TANZANIA TEA pACKERS lIMITED

CHAIRMAN’S STATEMENT

D S E J o u r n a l

31

Directors have recommended payment of a

cash dividend of Tsh 45 per share with an

option to take Scrip. This is subject to approval

by our financiers and yourselves.

Financing: During the year 2006, the

management negotiated a new arrangement

with CRDB Bank Limited to replace Kibena’s

long-term loan and facilities which were

previously provided by Barclays Bank Tanzania

Limited. Under the new arrangement Kibena

received a grace period of one year before

starting loan repayments, and the repayment

is now to be made over a 7-year period, at a

fixed interest rate. This has had a positive

impact on the cash flow of Kibena and on the

performance of the Group as a whole over the

past year, which meant that there was no need

to process the agreed Shareholders Loan. The

cash flows for the Group are also looking good

for the year 2007.

TATEPA/HIV AIDS Projects: TATEPA

continues to be a vocal and proactive soldier in

the fight to tackle HIV/AIDS in the workplace.

Along with many other respected businesses in

the country, TATEPA is a member of the AIDS

Business Coalition Tanzania (ABCT). ABCT is

an important organisation which is promoting

good governance with regards HIV/AIDS in

the workplace, and gives businesses access

to information and advice to help them deal

with this pandemic. Programmes exist in all

three Group Companies with the Wakulima

programme recently receiving accolades from

GTZ.

Fair Trade Tea: Both Kibena and Wakulima

continue to be proud holders of Fair Trade

accreditation for their socially responsible

philosophy. The premium paid by Fair Trade

consumers in the West feeds directly back to

our farmers. In this last financial year Kibena

and Wakulima received a total of Tsh 627m

which has been utilized by the Companies

smallholder trusts for schools and other social

activities.

HACCP Accreditation: In early 2007 (but

due to work done in 2006) both Kibena and

Wakulima gained HACCP accreditation,

becoming the first factories in Tanzania to do

so. HACCP is a critical quality control check,

and it is another great feather in our cap that

our factories meet these stringent and exacting

standards. The new company Chai Bora

Limited is now also undergoing accreditation

and should achieve this in early 2008.

Expansion Programme: Exciting proposals

were discussed at Board level recently and

these include expanding capacity at Chai Bora,

a potential new factory at Rungwe, and further

development of both our smallholder areas in

Njombe as well as mechanical harvesting.

As I do in every report, I would like to

thank the management and staff for their

hard work, but particularly so this year for

such a successful 12 months after the earlier

challenges. I would also like to thank all our

stakeholders and consumers without whom

we would have no business.

As per the Articles of Association of the

Company, none of the directors are due for

retirement as at the date of this AGM, so it is

only for me to now thank all attendees and

look forward to a prosperous 2007.

D S E J o u r n a l

32

Our History

Tanzania Cigarette Company is a dynamic multi-

national, leading Tobacco company in East Africa,

with strong roots in Tanzania.

The Company was established in 1961 by British

American Tobacco. In 1967, the Government of

Tanzania acquired a 60% shareholding under the

Nationalization Program and in 1975 it bought the

remaining 40% and changed the name to Tanzania

Cigarette Company Limited (TCC).

In 1995, RJ Reynolds of the USA acquired a 51%

stake in TCC for USD 55 million.

In May 1999, Japan Tobacco Inc. (JT) acquired all

non-US tobacco operations of RJ Reynolds, includ-

ing its 51% stake in TCC.

In September 2000, JT increased its shareholding

in TCC to 75%.

In August 2000, TCC became a public limited com-

pany. Its shares were listed on the Dar es Salaam

Stock Exchange on 16th November 2000.

Who We Are

We are majority owned (75 %) by Japan Tobacco

International (JTI), the international arm of Japan

Tobacco Inc. (JT), with headquarters in Geneva,

Switzerland. The remaining 25% is owned by the

Tanzanian public as follows: PSPF 3.9%, PPF 3%,

NSSF 2.9%, Unit Trust 2%, Government of Tanzania

2.5% and the General Public 10.7%.

JTI has offices in more than 40 offices worldwide

and about 23,000 employees around the world, with

products sold in more than 120 countries. JTI is a

wholly owned subsidiary of Japan Tobacco Inc., the

World’s 3rd largest tobacco company.

Our Products

We produce leading cigarette brands for the domes-

tic and regional export markets. Our brands include

Sportsman, Sweet Menthol, Embassy, Safari, Club

and Crescent & Star.

Our Contribution to the Economy

We provide direct employment to over 650 Tanza-

nians. Indirectly, we support over 85,000 tobacco

farmers and 2,500 distributors, retailers and sup-

pliers.

We are one of the leading tax payers in the country.

In 2007, we contributed Tshs 90 billion in various

taxes, and were voted by the TRA the most compli-

ant tax payer for 2007.

In addition, we generate significant forex revenues

for the country through our exports to the region.

Our Performance

Tanzania Cigarette Company (TCC)

C O M P A N Y P R O F I L E

D S E J o u r n a l

33

  TZS M 2003* 2004 2005 2006 2007

For the year:  

Gross Turnover 109,226 120,517 135,643 152,611 191,457

Excise Duty and VAT 44,406 50,529 59,305 65,146 80,428

Net sales 64,820 69,988 76,338 87,465 111,029

EBITDA (note1) 27,489 28,833 27,173 29,371 39,714

Depreciation and amortization  2,978 3,279 3,782 5,075 6,230

Operating income 24,511 25,554 23,391 24,296 33,484

Taxation 1,127 7,787 6,716 6,719 9,229

Net income 23,560 17,839 17,051 15,641 24,393* Tax holiday ended Aug ‘03      

At year end: Net Property, plant and equip-

ment 20,273 21,937 23,084 38,921 39,090

Total assets 62,406 58,779 60,823 73,448 82,315

Interest bearing debts - - - 6,376 255

Total Liabilities 15,837 16,265 16,836 26,609 23,583

Total shareholders’ equity 46,569 42,514 43,987 46,839 58,732

TANZANIA CIGARETTE COMPANY LIMITEDConsolidated Five-Year Financial summary

notes:1. EBITDA = operating income + depreciation and amortization

D S E J o u r n a l

3�

P R O F I L E

SWISSPORT Tanzania Ltd

Swissport Tanzania Ltd is a member of Swissport International, a leading global ground handling company which operates at more than 43 countries in five continents and

is active at 180 stations with its head office in Zurich, Switzerland. Swissport International is owned by Ferrovial, a leading European Infrastructure and Service corporation based in Spain.

Operating at Tanzania’s two major airports of Julius Nyerere (JNIA) and Kilimanjaro (KIA), with a turnover of over Tshs 16 billion and a workforce of 650 employees (JNIA 530, KIA 120), Swissport Tanzania Ltd provides ground handling services for over 670,000 passengers and 23,000 tonnes of cargo a year on behalf of about 20 airlines whose total number of landings is about 16,000 a year.

BackgroundSwissport Tanzania Ltd, previously known as Dar Es Salaam Airports Handling Company Ltd. (DAHACO) was formed in 1984 and started its operations at JNIA on October 1st, 1985 and expanded its operations to KIA in 1990. The national flag carrier, ATC was the majority shareholder with 65% followed by Scandinavian Airlines System with 15% and the rest were held by SWEDFUND AB of Sweden and IFU of Denmark 10% each. Since, ATC, the 100% government owned airline held majority stake, the company was rendered a parastatal organisation. The company ownership changed in 2000 when Swissport International acquried the 35% shares owned by the Scandinavian firms and 16% shares owned by the Government. A very successful IPO was launched in 2003 resulting in 668% oversubscription, whereby the Government sold its remaining 49% shares to the public at a price of Tshs. 225.00 per share. Swissport Tanzania became listed at the Dar Es Salaam Stock Exchange in May 2003 and the current share price is about Tshs.770.00.

Until October 1st 1985, ground handling operations in Tanzania were performed by the then Air

Tanzania Corporation (ATC) which was formed in 1977 following the collapse of the East African Airways (EAA). Swissport Tanzania Ltd was formed following the need for Air Tanzania to concentrate on its core business of flying, inadequacy of both expertise and facilities to handle wide bodied aircraft in addition to other reasons. The expansion of Julius Nyerere International Airport, then Dar Es Salaam International Airport (DIA) in 1984 saw introduction of such types of aircraft.

Services providedSwissport Tanzania provides ground handling services which encompass ramp handling, passenger handling, executive aviation handling and cargo services as well as other related aviation services.

Swissport Tanzania is a customer focussed company, operating using the ISO9001 Quality Management System embedded with IATA and airline specific standards.

Corporate Social ResponsibilityIt is a culture for Swissport Tanzania Ltd to sincerely take care of its employees and to support various social initiatives for the benefit of the community. Swissport has been certified by the Occupational Safety and Health Authority of Tanzania (OSHA) as compliant to providing a safe and health environment. In May 2007, Swissport CEO was awarded a certificate by the Trade Union Congress of Tanzania for being best CEO in recognition for his efforts of promoting workers participation in the company and excellent leadership. Furthermore, Tanzania Association of Employer’s – ATE nominated Swissport Tanzania as the overall second runners up best employer in the country in its second bi-annual contest following and independent survey conducted by Ernst & Young in 2007. The company supports the Tanzania Education Authourity by donating funds annually, the recent donation was Tshs 12 million. The company also supports Kurasini National Children’s Home and currently a project of erecting two classrooms at the center,

D S E J o u r n a l

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1. HISTORY OF OWNERSHIP

TOL Limited started operations in the country in 1950 as a branch of the African Oxygen and Acetylene Company. In 1965 the Company became a branch of East African Oxygen Limited of Kenya. In 1978 the Company became a subsidiary of BOC who in 1979 invited the Government of Tanzania to participate in the ownership of the then Tanzania Oxygen Limited thus converting the Company into a Parastatal under the NDC group of companies.

During 1994 the Government indicated its intention to privatize the Company through a public share issue which would result in a significant dilution of the Government shareholding in TOL Limited. In April 1998 the initial public offer was concluded, making TOL Limited the first Company to be listed at the Dar es Salaam Stock Exchange. The Government shareholding after the IPO and Rights Issue therefore changed to 71.14% while the public and institutional investors held 28.86% of the total shares.

Towards restructuring the Company, it was decided that the Government divest further by bringing in a Strategic Investor. The process of bringing in the investor was concluded in January, 2005 when a Consortium of Tanzanians teaming up as SAAMI Holdings, in collaboration with SWEDFUND AB of Sweden acquired majority

C O M P A N Y P R O F I L E

...turning the wheel of progress

share holding of TOL Gases in a competitive bidding. Current percentage of ownership of TOL Gases is therefore SAAMI HOLDINGS (55.31), Government of Tanzania (11.16), SWEDFUND (4.69), Institutional Investors and other shareholders (28.84).

In order to explicitly present the Company’s activities, the name TOL Gases Limited was adopted in September 2006.

2. ACTIVITIES:

The Company’s business is classified under the following four operating areas:

• Industrial gases• Medical gases and healthcare products• Welding and metal fabrication• Transport

Industrial gases have accounted for a major proportion of the business over the years. Industrial gases sold by the Company include:(i) Industrial Oxygen(ii) Dissolved Acetylene(iii) Nitrogen(iv) Compressed Aid(v) Argon(vi) Hydrogen(vii) White Spot Nitrogen(viii) Carbon Dioxide(ix) Medical Oxygen(x) Nitrous Oxide

TOL Gases Limited

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Abstract

This paper seeks to determine how

the Dar es Salaam Stock Exchange

has performed in general terms as

well as in formal terms - over the

first 10 years of its existence. For

the later purpose, the paper uses

two equity stock-market indices

that have been developed by the authors to

track the performance of individual listed

securities as well as the performance of the Dar

es Salaam Stock Exchange as a whole.

Considerable research has been devoted to

measuring the performance of stock markets,

where newspaper and TV headlines are

prefaced and closed by striking news about the

ups and downs of their stock indices. Political

leaders are now judged by the extent to which

their policies affect the performance of their

stock markets. Executives’ pay is increasingly

being pegged on share performance and

rewarded by stock options.

Rigorous description of the indices’

methodology is outside the Authors’ terms of

reference and so only a brief technical insert is

made to introduce the 2 stock market indices

How has the DSE performed in its first 10 years?[Assessing 10-years’ Performance of the Dar es Salaam Stock Exchange using the COREDEX Composite Index]

used in this paper. Suffice to

say that the use of stock market

indices is the standard method

of assessing the performance

of a stock exchange. This paper

is devoted to providing such

assessment for the Dar es

Salaam Stock Exchange in its

first 10 years.

The paper begins by describing the key players

in the industry in hilarious journalistic terms.

With the benefit of hindsight, it gives a bird’s eye

view of the contradictions that one may expect

when an economy schooled in many years of

centralised socialistic management is suddenly

drawn into the whirlpool of stock markets

pitting unsophisticated investors supported

by nascent Regulators and career civil servants

against shrewd striped-suit attorneys and

hard-nosed first-world arbitraging investors.

Beginning with a formal technical insert,

the paper then goes on to apply statistical

description of the movements of the shares

prices of individual listed companies, along

with the two market indices: the COREDEX

Composite Index (CCI) and the COREDEX

Average Index (CCI). An appendix presents

By George Fumbuka & CORE Securities Limited1

1 George Fumbuka is an Authorised Dealer’s Representative of CORE Securities Limited, Licensed Dealing Member # D.007 of the Dar es Salaam Stock Exchange. This paper builds on an earlier paper published in Accountancy and Business Review, Journal of the Institute of Accountancy Arusha in 2003 to celebrate 5 years of the DSE.

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tables and graphs that recapitulates the

mission of this paper, which is to provide

answers to the question: “How has the Dar

es Salaam Stock Exchange performed in its

first 10 years?”

Not discussed in this paper, please note that

the DSE has also seen 5 corporate bonds and 19

treasuries. It has also seen 3 crosslistings.

A 10 - YEAR CHRONOLOGY OF LISTINGS

OF THE STOCK EXCHANGE

The Dar es Salaam Exchange (DSE) first

opened its doors for trading on 15th April

1998. At that time it had only one share

TOL Limited - that had been the subject of

a protracted initial public offering that saw

intense wrangling between the Regulator and

the Issuer. The subscriptions deadline was

eventually extended but the issue was still

under-subscribed, leaving the Government

and its agencies with some 46% of the stock.

This proved an eye-opener to the handling

of privatisation of parastatals via the stock

exchange. Subsequent listings experienced

the normal learning curve as mixed fortunes

finally moved towards a pattern.

TOL Limited (TOL)

TOL began as Tanzania Oxygen Limited

from the colonial days, a branch of the then

UK company British Oxygen Limited (now

the multinational giant BOC plc). For reasons

that are not quite clear, the company escaped

the massive nationalizations of 1967, but BOC

“offered” its equity stake in the company to the

Tanzania Government, through NDC.

With a healthy cash flow and a near-monopoly,

albeit in a small market, the company remained

a profitable parastatal during the difficult

period post-1967, paying taxes and dividends

throughout. As required by the listing rules,

TOL did indeed have “a good track record of

profits and dividends for at least 3 years” it

had no problems with its past.2

With rudimentary knowledge of and no

experience at all on the workings of capital

markets in nations formerly ruled under

socialism, the Management of TOL now

convinced its equally untutored Board to

embark on a “development” venture whereby

TOL now borrowed heavily to finance massive

state-of-the-art facilities from the US.

According to the Prospectus, the new

production lines would more than double

TOL’s sales within the year and provide

enough capacity to feed the whole of the SADC

Region. The timing of the IPO launch, no to

mention the expected proceeds, were very

optimistic. With hindsight, one can say they

were too optimistic.

The IPO had the specific object of refinancing

this debt and providing needed working

capital. However, by the time the less-than-

expected IPO proceeds arrived, the interest

expense and the exchange losses alone had

already made devastating inroads into the

company’s net worth.

Whereas the IPO price was Shs 500 (a premium

of Shs 400 on par), the closing price at the DSE

on the 15th of April 1998 was Shs 510. Although

2 The Regulator especially in nascent markets like ours faces the dilemma of letting in too many speculative Prospectuses by shrewd operators to an unsophisticated public (thereby discrediting the whole capital markets concept), or insisting on proven results (in which case the genuine entrepreneur is hampered by red tape). The 3-year trackrecord requirement is therefore wisely tied to discretionary powers if the product on offer has got particularly attractive features.

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the price of the TOL share reached a high of

Shs 520 at one time, it never really gained

momentum and was soon trading below the

IPO price. The closing price on the DSE trading

floor on 26th June 2003 was Shs 265.

TOL has never declared any dividends, and

the Company was soon struggling even to

serve its local market, of which it had (and still

has) a near monopoly. It quickly became clear

that the TOL prospects had been exaggerated

one can now say grossly exaggerated - in the

prospectus.

This was not helped by subsequent revelations

of sloppy business decisions, before and

during the IPO, on the Issuer’s part. As

was normal in those times, the Company’s

management became the scapegoat and were

fired unceremoniously (leading to continuing

charges and counter-charges in Court).

Responsibility for the fiasco, fortunately,

eventually fell where it rightly belonged

as the Chairman and his Board (inherited

from the parastatal days) resigned én masse

under pressure from the Government and

shareholders at the next AGM.

TOL’s performance tottered from bad to

worse, reaching a low of Shs 180 in April

2001 and trading activity virtually came to a

halt. The DSE was reluctant to de-list its first

baby, justified by ongoing discussions with the

self-same UK multinational BOC plc, acting

through its Kenyan subsidiary East African

Oxygen Limited.

The hopes of a rescue by BOC buoyed the TOL

share price somewhat, reaching a local high of

Shs 225. These talks however broke down for

what was seen as the Kenyans’ bad faith they

were eating into TOL’s market share in Moshi,

Arusha and the Lake Zone at the same time as

discussions were being held and trade secrets

divulged. The TOL share price blundered

further to below Shs 200 again and prospects

were now quite real that the Company would

be de-listed from the Stock Exchange.

The Government as guarantor of the loans

- intervened once again, paying the past-due

debts that were threatening to send TOL into

receivership. At the same time, the Government

as major shareholder - announced that it

was entering into discussions with another

strategic investor, the South African company

Afrox. Afrox is a subsidiary of the self-same

UK multinational BOC plc.

To bring Afrox into the equity, the TOL Board

came up with a proposal for a 3-for-2 rights

issue at a price of Shs 165 (at a time when

the shares were trading at Shs 200). The idea

was that any shares not taken up in the rights

- along with shares still in Government hands

or its agencies would be sold to Afrox, such as

to leave the latter with 60% of the equity.

The rights issue performed rather better than

expected, given cold facts and TOL’s recent

circumstances. As many feared, however, the

Afrox deal never actually materialised, nor

did the Company’s fortunes improve.

Later, a consortium was organised by local

investors was put together to take up the 60%,

of which 10% was taken by Swedfund, the

Swedish development institution. Although

another rights issue was floated and flopped

the Government approved the proposal and

agreed to clean TOL’s balance sheet by taking

over the onerous debts it had guaranteed.

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As the “consortium” was never actually

incorporated, being a collection of individuals

acting informally through the name of the

organiser, the 60% “block” did not really

exercise a controlling vote power. As one

reads these sketches, moves are afoot for

private transfers to the individual names of

the individuals concerned. With the balance

sheet clean-up stated above, TOL’s fortunes

have since improved, though TOL’s long-

suffering shareholders wish the improvement

was bigger.

Tanzania Breweries Limited (TBL)

On 28th September 1998, the DSE made its

second listing Tanzania Breweries Limited,

abbreviated TBL. This used to be another of

the ailing parastatals, one of the first to be

privatised by selling 70% of the shares to

South African Breweries, a subsidiary of the

multinational SABIA.

The TBL Prospectus described SABIA as the

6th largest brewer in the world with operations

ranging from the former Soviet republics in

Central Asia and the pampas lands of Latin

America to the lucrative US markets in the

deep South, not to mention virtually the whole

of Africa.

With massive injections of working capital,

supported by world class standards of

marketing and quality control TBL went

from strength to strength and was soon seen

as attractive for flotation through an offer for

sale. This was assisted by a 3-year tax holiday

and cash proceeds from the sale of prime-site

residential properties in Uzunguni that had

been discounted in the negotiations (being

“non-core” assets, using a language peculiar

to the privatisation industry).

TBL’s performance in the field was rosier than

its performance in the DSE because, contrary to

market expectations, the share price stagnated

at close to the IPO price for a long time. They

inched up every now and then close to the

dividend pay dates but there was nothing

spectacular.

The dividends being paid were tiny compared

to the profitability of the company3. In fact,

for one day in 2000 the shares sold at below

the IPO price and it was only after the stock

broking fraternity decided to lend support

by discouraging sales below Shs 5504 that the

slide southwards was checked. During most

of this time from 1998 to 2001 TBL shares rose

to about Shs 620 and no more.

The entry of TCC (see below) and some hostile

questioning at the AGMs eventually forced

SABIA to take steps in support its shares on

the DSE.

First, their marketing efforts became more

“DSE-friendly”, singing praises for TBL as a

good investment, rather than just for the booze.

Steps were also taken to empathize with the

community through sponsorship of societal

activities like football, youth training and the

environment. To meet minority shareholder

concerns, TBL finally decided to increase its

3 At one time, TBL decided to change its accounting period to end 31st March in line with requirements on the London Stock Exchange where SABIA had just listed. The resulting 6-months’ gap was never fully compensated in that year’s dividend. The market speculated that SABIA were not increasing the dividend since they got more income upfront in the form of management fees and royalties for brands used by TBL.

4 At that time, the Brokers were convinced that the TBL shares were performing below its fundamentals. They compared them to EABL shares on the Nairobi Stock Exchange and reasoned that TBL should fetch at least T Shs 750.

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dividend payout rates in fact, it even gave a

second “special” interim dividend.

Slowly but surely, aided by its sheer size, TBL

re-established its premier position on the DSE.

Its shares rallied back, rising from 600 through

700 and 800 to reach the magic number 1,000 in

July 2001. The closing price on the TBL counter

on 26th June 2003 was Shs 1,650 and TBL was

at that time one of the 3 largest listings in East

Africa in market-cap terms.

Towards the end of 2002, fresh TBL shares

equal to 20% of the equity were given to

EABL in exchange for SABIA getting 20% of

EABL shares in Nairobi. This appears to be a

justifiable commercial transaction although

Regulators and some investors queried the

deal on M & A grounds.

T a n z a n i a T e a P a c k e r s L i m i t e d

(TATEPA)

While the first 2 products on the DSE were

sourced from the Government sector in the

manner of former parastatals being privatised

whatever their merits, it was in all cases the

Government selling its shares to the public

(and collecting the proceeds net of issue costs)

rather than the Issuer (the company) raising

capital for developmental work.

The first truly private sector initiative to use

the DSE to raise equity capital was the small

tea growing and manufacturing company

Tanzania Tea Packers Ltd. Backed by venture

capital funds and a track record of expertise

amongst its anchor directors, TATEPA quickly

convinced the Regulator and the market that

it had a viable product though it lacked the 3-

year profits-and dividends stated in the listing

requirements. .

Although TATEPA is relatively small its

market-cap at IPO was all of Shs 3.5 billion

compared to Shs 7 billion for TOL and Shs 130

billion for TBL and (later) T Shs 41 billion for

TCC it proved a welcome addition to the DSE

stable, steady if not spectacular.

From an IPO price of Shs 330, TTP shares

traded at T Shs 400 within 3 weeks, rising to a

high of 480 in early 2000.

In view of its low starting price and the absence

of IPO frills, TATEPA’s shares were never able

to rise to the phenomenal heights or lows of its

predecessors. It languished at about Shs 450 for

some time but its steady (if small) dividends

ensured that for a long time its yield was in fact

second only to that of TCC, the DSE flagship.

TATEPA is the unsung hero of the DSE and its

shares have stabilised at about Shs 600, with

the normal highs and lows either side of the

ex-div trading period.

In February of 2000 the company acquired

the assets of a pure tea growing company

to, in the words of the directors, increase

TATEPA’s critical mass as well as diversify

into production, both in line with industry

trends. The deal comprised a swapping of

shares at a price whose main effect appears

to have been to increase the underlying price

post-deal from Shs 450 to T Shs 580 as at the

close of business on 26th June 2003.

Tanzania Cigarette Company (TCC)

Thanks to the increasing pace of privatisation

and the a massive public awareness campaigns

led by the CMSA, the DSE, the Privatisation

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Trust and the brokers, another products had

to come in the market. This was Tanzania

Cigarette Company (TCC).5

This time another player entered the market

- the institutional investor in the form of the

state-owned pension funds. Though these had

played some hand in all IPO’s including the

dreaded TOL this was more due to Government

prodding or actual directives than to their own

volition. To most of their Trustees schooled in

the old anti-private sector days and thoroughly

averse to risk this was still a new phenomenon

and they could never countenance “public”

funds being “wasted” in the stock exchange,

the epitome of capitalism.

The largest of these NSSF, PPF, LAPF, and

PSPF have combined net annual cash inflows

in excess of Shs 100 billion. For a long time

they had invested their funds in real estate

(non-performing office blocks subject to rent

restriction laws or else situated in remote

areas) or were forced to buy Government

bonds (at negative real yields) to fund its

budget deficits.

This time the pension funds were ready. The

TCC offer for sale was heavily touted, at the

back of a generous advertising budget. The

team that managed this IPO took pains to

address the three most important market

expectations, which are:

• First, that dividend is king

• Next, that dividend is king

• Finally, that dividend is king.

Unlike TOL, the IPO price was deliberately set

at Shs 410 well below the intrinsic value and

small enough for small (so called) investors to

be attracted. The Prospectus provided for an

immediate dividend of Shs 47 per share on the

date of listing6, and a final dividend at the end

of the year that was just 3 months away.

This was the proverbial offer that one

cannot refuse. The IPO was quickly “over-

underwritten” by the pension funds7 and

some insurance companies and financial

institutions.

The only interesting question to ask is:

how did TCC do it? This begins from the

disappointment with TOL and, to a lesser

extent, TBL. There was also the generous

advertising budget borne by the Government,

which was quite obviously addressing more

strategic concerns than mere gain, most of all

its policy to widen share ownership among

citizens.

From an investor’s point of view, however,

the attractive thing in TCC was its balance

sheet. At the time of the IPO it had hefty cash

resources at bank and negligible liabilities

apart from unpaid dividends in the past.

The Prospectus was well written, highlighting

5 Like TOL, TCC had been profitable even during the parastatal days, thanks mainly to first class management supported by a monopoly position in an essential commodity. Like TBL, however, it did not come to the market straight: it was first sold to the US multinational R J Reynolds which, probably due to the American anti-smoking litigations, sold it again to the Japanese multinational JTI. In an instructive illustration of Tanzania’s investment and tax laws for tax planners, first RJR then JIT each enjoyed a 3-year tax holiday for investing in the same investment.

6 Strictly speaking, NBAA accounting standards make this dividend a capital receipt deductible from the IPO price rather than a credit to P&L. It is therefore safe to say that the TCC IPO was pitched at well below its fundamental value a ploy for future IPO’s, the Regulator permitting.

7 The pension fund managers have not yet cottoned on to the full tricks of institutional investors, however. One would have expected some feverish bid activity close to the year-end to boost the balance sheet value of their investments - by NBAA accounting standards, the shares have to be marked to market. By this evidence alone, one suspects that pension fund managers are not yet being evaluated on their balance sheets.

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the free cash flows but without the unnecessarily

rosy projections that people saw in TOL. The

Reporting Accountants and the Lawyers

appear to have done their homework this time;

the Sponsoring Broker took pains to address

market expectations as identified by the

(local) brokers - even in the face of a reluctant

(foreign) Lead Advisor.

The rest is history. The IPO was oversubscribed

to the chagrin of the underwriters. The TCC

shares then set the tone for the DSE. They

quickly reached Shs 500, overhauling the

mighty TBL within 5 weeks. The shares never

looked back and peaked at a whooping Shs

1,900 on 25th March 2003. To put matters in

perspective, TCC is trading at a higher yield

than TBL, which began at Shs 550 in the IPO

(compared to Shs 410 for TCC) TBL is also

thrice as big in market capitalisation.

What of the future? To the continuing onslaught

from the American anti-smoking lobby should

be added the promptings of the anti-tobacco

lobby and the World Health Organisation8.

These are the major threats to TCC. It is difficult

to decide if the continued support of MPs from

the tobacco-growing areas in Tanzania will

help. There are also the increasing exports

to South-East Asia (China, Korea, Myanmar,

Japan, Iran, etc., where smoking is variously

reported as a delicacy or a symbol of status)

these will also contribute towards balancing

the equation out.

For the average investor in Tanzania, however,

there is a prosaic and much less exciting finale:

the end of the tax holiday in 2003. The cigarette

is no less taxed today than during the Parastatal

days, when TCC sales taxes were virtually the

only innovative news in the Finance Minister’s

Budget speech. Tax planning is certainly going

to be the unenviable lot of the TCC CFO for

many years to come along with the WHO anti-

smoking lobby and “group-action” American

trial attorneys..

Tanga Cement Limited (SIMBA)

Privatisation of former state-owned enterprises

continued to be the main source for new

listings at DSE.

The next candidate was Tanga Cement

Company l(brand name, Simba) located at

Pongwe, some 20 kilometres from Tanga.

Owned 60% by the Swiss company HOLCIM,

it was described as the second largest in the

world. In the parastatal days, there were 2

other cement companies: in Tanzania: the

oldest was the Tanzania Portland Cement

Company, located in Dar es Salaam (whose

brand was Twiga, now also listed, see below),

and the Mbeya Cement Company (brand,

Tembo)9.

Learning from the experience of TCC, the

investing public were ready for another IPO,

convinced that it is possible to get hefty capital

gains within a few weeks of listing. This

turned out to be the case the IPO was heavily

8 All cigarette packets carry a prominent warning: “smoking can damage your health“. There are also huge danger-warning posters written“ no smoking“ displayed within the factory and in the canteen. Is this what they mean by “cutting-your-throat”?

9 Although Twiga, Simba and Tembo are popular animals in Tanzania (giraffe, lion and elephant respectively), there does not appear to be any obvious connection between cement and wildlife. The market now awaits the listing of Tembo shares

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oversubscribed and a maximum of 5,000 shares

was allotted plus 17% of the balance applied

for.

Since the IPO price was only Shs 300,

institutional investors were left unsatisfied and

became the source of a fat capital gain upon

listing as share price rose to Shs 730 within a

fortnight.

The learning curve thundered on inexorably

and Tanga Cement proved to be another

milestone. From an IPO price of Shs 300, a

forecast earnings-per-share of Shs 47 and a

promised dividend of only Shs 23.50 at least 6

months way, there was no way a hard-nosed

investor would accept a price of Shs 730 - but

this is exactly what happened. When the

euphoria died down and common sense took

over, the price had to fall almost crash to Shs

450 within another week.

This spectacular rise and fall seemed to self-

correct towards the indicated intrinsic value

of the Simba shares, but the last word had not

yet come. The year’s results were announced 5

months later, showing earnings had exceeded

forecasts and the promised dividend per share

was raised to Shs 55. Hopes were fired anew;

trading hit off towards the roof again and the

shares were soon trading at Shs 750, settling

at Shs 700 ex-div.

All in all, investors got very rich out of Simba

especially the shrewd ones who had submitted

literary - hundreds of applications10.

Dar es Salaam Airports Handling

Company (DAHACO)

Oversubscription now proved to be another

avenue towards untold riches and the next

IPO was awaited with interest. This was the

airports ground handling company DAHACO.

It begun as a joint venture between the

parastatal Air Tanzania Corporation and some

other airlines but was soon privatised 51% to

the company Swissport, owned by Swissair.

This was a small IPO, smaller even than Tanga

Cement, and market operators expected a

huge oversubscription. In recognition of this,

the Government decided that shares would be

allotted only to individual applicants unless

there was an under-subscription.

Learning from the Tanga Cement experience, it

was anticipated that the IPO would advantage

the small man in terms of capital gains as soon

as the institutionals entered the secondary

market.

This was not to be: many people applied, so

many, in fact, that the final tally was a list in

excess of 40,000 applications.

This must be seen in its proper perspective,

however. Though the Prospectus did say that

multiple applications would be consolidated

in the event of oversubscription, this was

easily short-circuited by the famed African

extended family just apply in the names of

all your cousins since they have no passports

10 The Prospectus stated that allotment would be for a minimum of 5,000 shares per application and mentioned nothing about consolidating multiple applications in the event of oversubscription.

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to identify them.

The 40,000 applications were probably no more

than about half that number acting in unison.

Although a first-come-first-served allotment

system would solve this problem, nationals in

remote corners of the land would thereby be

disenfranchised.

The inevitable anti-climax arrived - lots and

lots of work processing the applications

and a final tally of only about 440 shares per

applicant!

The initial DSE price rose to Shs 750 per share,

stabilised at 630, before settling at between

550 and 600. The TCC ploy (a dividend

immediately upon listing) was also used in

DAHACO but the spectacular riches that

would have arisen had the IPO been larger

were nowhere to be seen.

DAHACO marked another milestone in the

history of privatisation of former parastatals

and their subsequent listing. Typically, when

a strategic investor had been identified, the

procedure was for the MEMARTS to be

amended to reflect the new realities. The

Company, while still retaining its private

status with all the pre-emption rights thereby

entailed, would normal undergo a series of

contractual undertakings with the Government

in the form of a Shareholders’ Agreement.

The latter would override any contrary

provisions in the Articles, especially with

respect to the appointment of directors,

voting at the AGM, the rights of the Board

vis-à-vis those of the AGM, the rights of the

Management vis-à-vis those of the Board, and

so on.

This was necessary because in many cases

the strategic investor was given management

rights, especially where the new investor

committed itself to specified investment in

equipment or technology intended to turn

the company around. In such cases, the

shareholders agreement would insist, for

instance, that the business plan and budgets

be free from undue interference by the Board

or the AGM.

In one ridiculous case, the strategic investor

was given majority control of the Board,

including the Chairmanship, even though its

share of the equity was less than 50%. This

proved controversial when the investor was

thereby given control over the preparation

and approval of the financial statements that

were to determining how much it should pay

for his shares as if, once again, the investor

could cut its own throat!

To go back to DAHACO, the shareholders’

agreement provided for the anchor investor

(with 51%) to nominate the Chairman and 2

other directors while the Government (with

49%) would nominate 2. This had to be

changed in the new set up prior to listing of

the company.

The solution was to do away with the

shareholders’ agreement altogether because the

Government would no longer be a shareholder

and no names would be necessary because

of the freedom to sell or buy one’s shares at

will in the DSE. The Articles were therefore

amended to state that “any shareholder” with

more than 50% of the shares would nominate

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3 directors, one of whom would be Chairman.

The remaining shareholders would appoint 2

directors by vote at the AGM”.

For the first time since the socialist days,

we saw democracy at work as 5 applicants

campaigned for a seat on the Board at the

AGM. Less than 30 years earlier, there was

no surer way to loss of a public office since

these companies were all parastatals at that

time. For good measure, technical know-

how counted (s opposed to technical know-

who in the past), public advertisements were

made and a shortlist made by KPMG after

interviewing 16 applicants some 2 weeks prior

to the AGM without any other prior vetting for

political correctness.

DAHACO (later renamed Swissport Tanzania

Limited to capitalise on the parent’s band

name) had another advantage: the 51%

strategic investment by the (foreign) anchor

shareholder) meant that more foreigners

could buy Swissport T shares in the secondary

market. This provided for fireworks as

entrepreneurial Brokers cultivated foreign

investors and hedge funds to buy into the DSE.

The added liquidity catapulted Swissport T to

blue-chip stature in spite of it being essentially

small-cap.

Swissport had an exclusivity clause for

servicing DIA and KIA until 2005, which was

extended during the IPO preparations to 2007.

That clause has now expired and it is now

possible for competitors to enter the market,

or airlines to do “self-handling”. In view of the

relatively small throughput at these airports

and the considerable capital investment

required, the cost of entering the industry will

be prohibitive for budding competitors, more

so if safety concerns preclude airlines from

self handling.

Will Swissport succumb to the competition?

Time will tell, but it looks like the onus has

been placed on the Government as the landlord

to revamp the airports’ infrastructure before

deregulation can safely proceed. One suspects

that Swissport will maintain its DSE niche for

yet a little longer..

Tanzania Portland Cement Company

Limited (TWIGA)

The next IPO was that a second cement

company, which can rightly be given the

accolade that Tanzania’s capital markets

had com e of age. All the IPO Advisors

were indigenous firms and the IPO broke all

past records in terms of disclosure, size and

innovation.

The anchor shareholder also answered to world-

class benchmarks it was HeidelbergCement,

the 4th largest cement manufacturer in the

world and listed on the Frankfurt Stock

Exchange in Germany. With a previous

shareholders’ agreement with the outgoing

Government and with the need to abide to

listing German requirements, the Prospectus

and MEMARTS were innovatively structured

to provide a seamless transition to a listed

company.

Valuation was also undertaken by applying

global comparatives, based on the numerous

listed companies both in Tanzania and the

region. TWIGA turned out to have the not only

D S E J o u r n a l

��

the highest IPO proceeds (T Shs 95 billion) but

also the largest market cap on offer (T Shs 23

billion).

The IPO also continued the trend of employees’

share option schemes, this time they got 5% o

the Company’s share capital (not 5% of the

IPO, as in earlier situations DAHACO, TCC,

TBL and TOL).

If one is permitted to take advantage of

hindsight, then TWIGA is the classic case.

Not only was there already another cement

company on the DSE SIMBA it so happened

that the newcomer had the competitive edge.

This comes about because TWIGA (the giraffe,

compared to SIMBA, the lion) has a longer

neck (and reach, being closer to the lucrative

Dar es Salaam market). It also sits at the

starting point of the central railway line to the

high-growth market area in the lake zone and

its minerals wealth.

To be sure, the lion is the more aggressive and,

being a relatively new comer, is leaner, and so

the giraffe found itself hard-pressed to match

the former’s dividends’ track record. However,

the debate will probably be won by whoever

invests in capacity faster than the other.

TWIGA’s share price began at a relatively high

price of T Shs 720, people having missed the

warning in the prospectus that the company

would not be very generous with dividends

given the need to plough back profits to fund

investment expenditure without diluting the

minority. Notwithstanding spirited push for

dividends prior to and during the first AGM,

the dividend was small and the price fell and

plateaued there. It was only when TWIGA

published its cash-rich interim accounts

and SIMBA failed to meet its own dividend

target (citing the same problem of capital

investment!) that investors finally believed

TWIGA’s story and the price then short up.

As one reads these sketches, TWIGA is the

clear number 2 in the DSE in terms of market

capitalisation and in its phenomenal rate of

capital gain: it is now trading at 3 times its

IPO price and appears to have won the capital

investment race with plenty of cash to spare.

The only cloud in TWIGA’s horizon is the rule

of law (or lack of it since matters have gone all

the way to the Court of Appeal) because its

prime sites for limestone and other inputs has

been occupied by squatters and somewhat

to the frustration of its strategic investor all

efforts to evict them appear to coincide with

elections time. More than any other single

factor, this problem has the potential to stop

TWIGA dead in its tracks. Recapitulation

The performance of individual shares on the

DSE in its first 10 years data has been taken

from 15 April 1998 to 31st March 2008:

Table 1: Summary of IPO Statistics

Table 2: Performance of individual securities

As far as things go, the above tables reveal a lot

of relevant information but, nevertheless, one

really needs to supplement this information

with “the big picture” how has the DSE

performed as a whole?

D S E J o u r n a l

�0

This sort of information is provided by market

indices. The next section tries to address this

aspect.

SECTION 2

TECHNICAL INSERT: DEVELOPMENT OF DSE MARKET

INDICES

The paper now needs to make formal definition

of the market indices that it shall use to make

formal assessment of the DSE’s performance.

This insert provides technical description of the

indices and the statistics that it derives from it

in reaching its conclusions about how the DSE

has fared in the last 10 years..

For this purpose, the following simplified

working assumptions shall be used in order to

get to grips with the subject matter fairly quickly.

In real life, there are complications that do arise-

these will be stated in the appropriate places in

the text, as well as the methods used to redress

the complications. In most cases these methods

are also non-complex.

There is a point in time, τ, at which a market

index is to be computed.

•Let Η be a securities market comprising η

listed companies.

•Let υi,τ be the price of the shares of the ith

company at time τ.

•Let ωi be the total number of ordinary shares

issued in company i.

•Let λ I be the number of shares in company i

that are controlled by an investor or a group

of investors acting in unison.

•Assume that υ ≥ 0 and λ ≥ 0.2 in the relevant

period and that η and ω are constant.

The following 4 types of common market indices

can be computed:

üA price-weighted index φ 1 – such as the COREDEX

Average Index

üA value-weighted index φ 2- like the COREDEX Composite

Index

üAn equal-weighted index φ 3 – not developed in tis

paper

üA geometric mean index φ 4 – not developed in this

paper

In practice, the index would be multiplied by an

arbitrary constant to arrive at a nice round-sum

such as 100, 1 or 1,000 for the opening index at

time τ = 0. This is computationally unnecessary

but makes for aesthetically pleasing headlines in

the financial press.

The Price - Weighted Index

This index is simply the average of the closing

prices, irrespective of the number of shares in

the market.

The price-weighted index of Η at time τ is

.),( 0

,

1 η

υτφ

η

τ∑==Η i

i

In order to assess the performance of the Dar

es Salaam Stock Exchange, a price-weighted

index has been developed, called the COREDEX

Average index. This index has got the following

traits and procedures for its maintenance:

1. A simple aggregative of actual share prices

2. Base date is 15th April 1998 =100

D S E J o u r n a l

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3. Adjustments are made in the divisor to reflect

additional listings of ordinary shares on the

Dar es Salaam Stock Exchange. Only voting

shares are included, all of them, irrespective

of ownership and size of the issuer

4. Adjustments to the divisor are also made

for delistings, fresh issues or rights issues,

bonus shares, share splits and consolidations

(equivalent US terminologies are “stock

dividends”, “stock splits” and “reverse

splits”) and other dilutive corporate actions

5. In calculating the index, closing prices are

used. Where no trading has taken place the

last closing prices available are used.

6. Total-return calculations are not annualised

(for initial and current periods). Dividends

are assumed to be re-invested at the date

trading goes ex-div

7. The COREDEX Average Index (CAI) is

published by CORE Securities Limited,

licensed dealing members of the Dar es

Salaam Stock Exchange.

The following are some of the international

indices using a similar method:

• The Dow Jones Industrial Average,

for 30 stocks on the New York Stock

Exchange

• The Straits Times Industrial Index for

large, actively traded shares on the

Singapore Stock Exchange

• The Nikkei–225 Stock Average from

the first section of the Tokyo Stock

Exchange.

The COREDEX Average Index is ideal, due to

its computational simplicity, for tracking the

average performance of the DSE where the

overall trend is more important than precise

short-term assessments.

Performance of the DSE over the period 15th

April 1998 to 31st March 2008 according to the

COREDEX Average Index shows that since its

inception, the DSE has recorded a cumulative

return of 156.96%, an average return of just

nearly 16% per annum. This is well above

inflation in the period (which was in single digits)

and average interest on bank deposits which has

averaged well below 5% and the average yields

on Treasury Bills (currently below 10% though

it was around 10% one time).

The attached Table 3 shows the results of using

the COREDEX Average Index on the performance

of the DSE since 1998:

The Value-Weighted Index

The Value-Weighted Index is based on weighted

average of the shares in the index, each weighted

by the number of shares in circulation. In other

words, this is an index of changes in the market

values of the company as a whole rather than

the market value of its individual shares as in

the price-weighted index. It is - sort of - like the

difference between the value of the forest and

the values of individual trees. For this reason,

this Index is sometimes called the “Prices times

quantities Index”

This index is derived by the following formula:

The value-weighted index of Η at time τ is

.

.

.),(

10,

1,

2

∑

∑

=

== η

ν

η

τ

υωτφ

υω

ii

iii

H

For alternative evaluating the performance of

D S E J o u r n a l

�2

the DSE, a modified form of a value-weighted

index has also been developed – the CORDEX

Composite Index. Unlike the conventional value-

weighted index above, it is argued that the shares

listed on the DSE are not freely available to the

average investor. To a large extent, the companies

listed are mostly former parastatals companies.

This means that they are still controlled either

by the Government or by strategic investors

pursuant to a defined shareholders’ agreement

that constrains the tradability of the shares on

the stock exchange.

In deriving the COREDEX Composite Index, it

has assumed that shares in excess of 20% that

are held by one person or entity, or a group of

persons or entities acting together, would not

be freely available for trading. Such controlled

percentages are therefore excluded from the

weighting.

Consequently, the COREDEX Composite Index

is a value-weighted index that weights the shares

by the free float. The above formula is modified

as follows:

The COREDEX Composite Index at time

τ =

∑

∑

=

=

−

−

η

τ

η

υλω

υλω

00,

1

).1.(

).1.(

iiii

iii

i

, where

λ is the controlled stock percentage and the

free float is (1- λ ).

The controlled shares in each listed company as

at 18th April were:

TOL 45.8% (increased to 71% on 12 th

December 2001)

TBL 75%

TATEPA 58.3% (Increased to 67.6% on 28th

February 2002)

TCC 75%

SIMBA 62.5%

DAHACO 51%

TWIGA 69.3%

The COREDEX Composite Index has got the

following characteristics:

1. An aggregate of prices-times-quantities

index formula, where the quantities are

the respective free floats of the constituent

shares. The Paasche weighting method is

applied.

2. Base date is 15th April 1998 =100

3. Adjustments are made in the divisor to reflect

additional listings of ordinary shares on the

Dar es Salaam Stock Exchange. Only voting

shares are considered.

4. Adjustments are also made for de-listings,

rights and new issues, and other dilutive

corporate actions

5. In calculating the index, closing prices are

used. Where no trading has taken place the

last closing prices available are used.

6. Total-return calculations are not annualised

(for the initial and current periods). Dividends

are assumed to be re-invested at the date

trading goes ex-div

7. The COREDEX Composite Index (CCI) is

published by CORE Securities Limited,

licensed dealing members of the Dar es

Salaam Stock Exchange.

Most international indices are value-weighted,

D S E J o u r n a l

�3

among which are the following that use the free

float in their weightings like the CCI:

• The Standard & Poor 500 Index of the top 500

US companies

• The Ing Barrings Pan-Asia Index of the top

companies in Asia

• TSE 300 Index, the top 300 shares on the

Toronto Stock Exchange

• The OBX Index for the top 25 shares on the

Oslo Stock Exchange

The COREDEX Composite Index has been

developed for high net-worth individuals

and institutional investors as well as their

professional advisors. The idea is that the CCI

captures the movement of share prices on the

DSE in a manner that is most responsive to the

specific needs of this group of users.

Performance of the DSE over the period 15th

April 1998 to 31st March 2008 according to the

COREDEX Composite Index shows that since

its inception, the DSE has recorded a cumulative

return of 170.14%, or an annual average of over

17%.

The attached Table 4 shows the results of

using the COREDEX Composite Index on the

performance of the DSE since 1998:

THE EQUAL - WEIGHTED INDEX

This index assigns equal weights to the price

relatives of its constituent shares. It is given by

the following formula:

The equal-weighted index of Η at time τ is

∑=

=Ηb

i i

ti

1 0,

,3 ),(

υυ

τφ

The most famous equal weighted index today is

the Value Line Composite Average in the US – so

famous, in fact, that another generic name for any

equal weighted index is “value line average”.

The American Stock Exchange also publishes

similar indices.

The Geometric Mean Index

This index takes the geometric average of the

price relatives of the shares in the market. It is

sometimes called the price-relative index but this

name is not used here to avoid confusion with

the equal-weighted index that is also based on

price relatives.

The geometric mean index is given by the

following formula:

The geometric mean index of Η at time τ is

=Η ),(4 τφηη

τ

υυ

1

1 0,

,

∏

=i i

i

This index is most suitable in very active

securities market, where the smaller stock is as an

equal indication of the market’s buoyancy as its

bigger brother. It can be shown mathematically

that the geometric mean of their relative changes

tends to downplay the effects of extreme cases.

In comparison with the arithmetic mean used in

the price-weighted index, it tends to lag behind

slightly.

The most famous index calculated in this manner

is the FTSE of the London Stock Exchange (though

some sub-indices are value weighted) and, more

recently, the Warsaw Stock Exchange.

Statistical Application of the DSE Market Indices

The index numbers that have been developed

to track the performance of the DSE have been

D S E J o u r n a l

��

applied on the DSE trading results for the period

15th September 1998 (when the DSE first opened)

to 30th June 2003 – a period of about 5 years. The

results are tabulated and additional indicators of

performance derived from the primary indices,

as described below.

The total return over the entire period obtained

through compounding by chain linking the

periodic returns: , where:

R = the cumulative rate of return for the

period

r = the rate of return, day-on-day

n = number of days in the period

(1+r) = Index on day n divided by index on day

n-1.

The rate of return is the compliment of the

geometric mean of [R plus 1], raised to the

power n, computed using ordinary spreadsheet

software packages like Lotus 1-2-3 or MS Excel.

From the periodic return for the index [

1)1)...(1)(1( 21 −+++= nrrrR ), three more

statistics are taken: the compounded periodic

return; average return, and standard deviation.

The average return is simply R annualised by

exponenting it with 365 divided by the number

of days in the period.

The standard deviation σ can be calculated

as:

2/1

1

2

1

)(

−

−=

∑=

n

RRn

ta

σ .

Summary and Conclusions

The DSE opened its doors for trading on 15th

April 1998 with only one security: TOL. Ten

years later, on 31st March 2008, the Exchange

has seen another 5 listings – one of which,

TATEPA is a purely private sector capital-

raising initiative while all the others are former

parastatals which were essentially driven by the

Government’s privatisation exercise.

During this time, performance has been variable.

TOL was an obviously bad case to open a stock

exchange with, but this was ameliorated a bit

by TBL, the next much larger issue. TATEPA

came in after TBL but was too small to make

a difference. TCC was a resounding success,

which by general consensus has wiped out

entirely the bad memories and misgivings that

the nascent market had registered after the

TOL fiasco.

The latest offerings, SIMBA, DAHACO and

TWIGA, showed that there is appetite for more

IPO’s that private entrepreneurs can tap to raise

risk capital. It is now possible to conclude that

the market has come full cycle. If investors are

ready to oversubscribe an IPO by 700% and

more, it means that there is money out there that

only needs to be parcelled out and channelled to

productive use in a win-win situation between

the investor and the issuer.

What of the bigger picture? Measured by the

COREDEX indices, the DSE performance has

been much better than expected in the strange

market that emerged from the former socialist

economy where “ownership of shares” was

listed as one of the cardinal sins that a self-

11 The DSE has got its own indices. These began only in 2007, though, some 9 years from Day 1.

D S E J o u r n a l

��

respecting citizen could inflict on himself11.

The tables overleaf summarise the performance

of the listed companies and the DSE as a whole.

It will quickly become obvious – if it had

not been expected – that the 2 measures (the

COREDEX Average Index and the COREDEX

Composite Index) give similar but not identical

signals on the DSE’s performance. This is not

11 The DSE has got its own indices. These began only in 2007, though, some 9 years from Day 1.

surprising if one bears in mind the philosophy

behind the two indices’ construction. There is

no mathematical or financial justification for the

2 indices to give the same answer12.

The COREDEX Average Index is computed

to give the general movement of the DSE

market for the average investor; the COREDEX

Composite Index is suitable for high net worth

individuals and institutional investors.

Shilling, Henry

Sharpe, W F, Alexander, G J and Bailey, J

Cutler, Mary L

Ross, S A, Westerfield, R W and Jaffe, J

Brealey, R A and Myers, S C

Copeland, T E and Weston, J F

Foster, George

Fumbuka, L G

International Guide to Securities Market Indices

Investments

Market Indices: A Learning Exercise Using Warsaw Stock Exchange Prices

Corporate Finance

Principles of Corporate Finance

Financial Theory and Corporate Policy

Financial Statement Analysis

Assessing the Performance of the DSE using the COREDEX Composite \index and the COREDEX Average Index

International Publishing, Chicago

Prentice Hall, Upper Saddle River, NJ

Financial Practice and Education

Irwin McGraw Hill, Boston Mass.

McGraw Hill, NY

Addison-Wesley, Reading Mass.

Prentice Hall, Englewood Cliffs, NJ

Accountancy and Business Review, Journal of the Institute o f A c c o u n t a n c y Arusha, Vol. 1 No. ISSN 0856-7263

1996

1999

Fall/Winter 1995

1996

1997

1988

1986

January June 2004

REFERENCE

D S E J o u r n a l

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So long as any particular index is interpreted

correctly and used consistently, there is every

reason to expect users to benefit.

ABOUT THE AUTHORS

CORE Securities Limited is a licensed

Dealing Member of the Dar es Salaam Stock

Exchange. It owns another firm Consultants

for Resources Evaluation Limited a CMSA

licensed Investment Advisor.

George Fumbuka is Fellow of the Association

of Chartered Certified Accountants (FCCA),

having qualified in the UK in 1976. He also

took an MBA degree form the University of

Strathclyde Business School (1980), majoring

in security analysis and portfolio management.

He is registered by the National Board of

Accountants and Auditors (NBAA) in the

category of Certified Public Accountant in

Public Practice.

Mr. Fumbuka taught for 5 years at the Institute

of Finance Management, leaving with rank

of Senior Lecturer and Coordinator of its

Professional Accountancy programme. He

worked for the Board of Internal Trade (as

Management Accountant) the then Coopers &

Lybrand Associates Limited (as Management

Consultant), for TANESCO (as Manager

Finance, then Director of Supplies and

Transport) before going into private consulting

business.

With colleagues affiliated with academic and

research institutions, he founded a management

consulting company called Consultants for

Resources Evaluation Limited (CORE) under

whose auspices he has undertaken numerous

assignments for clients in industry, commerce

and the financial sector. He is retained as

visiting trainer, resource person and external

examiner for many professional bodies and

training institutions of higher learning. In

2000, he led a team of consultants to prepare

Tanzania’s national accounting and auditing

standards for the NBAA under funding from

the World Bank, which facilitated a seamless

migration to IFRS, fully beginning 2005 .

He has published widely in finance and

accounting, including a definitive monograph

on consolidated accounts..

George Fumbuka is an active member of

the accountancy profession, sitting on the

Technical Committee of the NBAA. He

also sits on its Governing Board and those

of the Institute of Accountancy Arusha

(IAA), the Tanzania Institute of Accountancy

(DSA) and the Ngorongoro Conservation

Area Authority. From 1997 to 1999, he was

Tanzania’s representative to the ACCA

International Assembly in London.

Mr. Fumbuka has been involved in capital

markets matters since the liberalization of the

financial sector. He is currently Authorised

Dealer’s Representative and Chief Executive

Officer of CORE Securities Limited, Licensed

Dealing Member of the Dar es Salaam Stock

Exchange. He led the Company when it was

the Lead Advisor in the flotation of DAHACO

and TWIGA Cement. He is Secretary of the

Tanzania Stock Exchange Brokers Association

and sits on the Governing Council of the Dar

D S E J o u r n a l

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D S E J o u r n a l

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D S E J o u r n a l

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D S E J o u r n a l

�0

1.0 INTRODUCTIONAs Dar es Salaam Community

Bank marks five years of

successful operations it extends

its gratitude to all its esteemed

customers, shareholders,

business associates, Government

and the general public for their

confidence & support, factors

which have enabled the bank to

register success and attain the

status it has now.

The bank is proud to announce that, within five

years the number of customers has grown from

12,1�1 in 2002 , to more than ��,000 clients by

2007.

Last year the bank introduced foreign exchange

operations, enabling our clients to open, operate

foreign currency Accounts so as to undertake

foreign currency transactions. This year the

we have introduced ATM services under

“UmojaSwitch,” a consortium of six banks

including, Akiba Commercial Bank, Azania

Bank, Twiga Bancorp, BOA Bank Tanzania

and Tanzania Investment Bank. The aim is to

offer a wide ATM network to our customers

by accessing services 24 hours a day, seven

days a week and 365 days a year at any of the

consortium member bank’s ATMs.

In response to the need of the bank’s services

the bank plans to open up its third and

fourth branches at Temeke

and at Tabata Dampo in

Ilala Municipality before

June 2008. Currntly, the bank

operates from two branches at

Arnautoglu – Mnazi Mmoja

and MagomeniBranch- at Hotel

Travertine.

It is gratifying to note that the

products and services offered

by DCB have benefited and

transformed the lives of many Dar es Salaam

people and Tanzania at large.

2.0 SHARE CAPITAL

Authorized share capital

�0,000,000 shares of TZS 2�0 each value of

TZS 10,000,000,000

3.0 CAPITAL BUILD-UP PROGRAMME

THROUGH IPO

The first shareholders subscribed for 1,123,244

shares worth TZS. 1,123,244,000, to kick-start

the bank.

Immediately after registration of the bank, the

capital so contributed was found inadequate to

sustain operations of the bank. It was deemed

prudent to involve stakeholders in Dar es

Salaam Region through offering shares on

Initial Public Offer (IPO). 672,000 shares valued

TZS 1,000/= each were sold through an IPO,

bringing the paid-up shares to 1,795,588.

STATEMENT BY

THE MANAgINg DIRECTOR ON

10TH DSE CELEBRATIONS

D S E J o u r n a l

�1

�.0 CAPITAL BUILD-UP PROGRAMME

THROUGH RIGHTS ISSUE.

Pursuant to BOT recommendations to strengthen

the bank’s capital by doubling the paid-up

capital, at the 4th AGM held on 1st July 2006, the

�.0 Capital position after Rights Issue and Share dividend

In their effort; towards continued capital build-

up, the Shareholders at the 5th AGM held on 26th

May 2007, resolved to receive shares in lieu of cash

dividend for the dividend declared out of 2006

profits. The declared dividend of TZS 215 million

1

2

3

4

5

DSM City Council

Ilala Municipal Council

Kinondoni Municipal Council

Temeke Municipal Council

Public (individuals, companies,

etc. 2,643 shareholders)

Total

291,143

277,367

277,367

277,367

-

1,123,2��

25.92%

24.69%

24.69%

24.69%

-

100%

341,143

327,367

327,367

327,367

472,344

1,���,���

19.0%

18.2%

18.2%

18.2%

26.4%

100%

January to June 2002S/NNumber of

shares % ageNumber of shares % age

July 2002 –Dec 200�

DSM City Council

Temeke Municipal Council

Ilala Municipal Council

Kinondoni Municipal Council

Public

Total

341,143

327,367

327,367

327,367

472,344

1,���,���

1,050

1,050

1,050

1,050

1,050

295,476

238,095

306,758

295,476

251,279

1,3��,0��

310,249,800

249,999,750

322,095,900

310,249,800

263,842,950

1,���,�3�,200

Shareholders No. of shares Offered

Price per share

Number of shares

purchased

Value of share purchased in TZS

Table 2: Additional share capital through rights issue as at 30th June 200�

Table 1 Paid-up Share Capital structure from 2002 to 200�

shareholders resolved to raise capital through

Rights Issue. The Rights Issue was issued at one

to one share and aimed at retaining the current

shareholding structure. The result of Rights Issue

programme was achieved by 77.25% as provided

in table 3 herein below;

or 12% per share (1,795,588 original shares) was

therefore paid to the shareholders in the form of

shares at the price of TZS 1050.00 per share.

At the same Meeting the Shareholders deliberated

on the share split from one share of TZS 1,000 each

to four shares of TZS 250 each.

D S E J o u r n a l

�2

Table 3: Capital Position after Rights Issue and Share Dividend (Excluding share premium).

2,686,828

2,671,188

2,626,060

2,396,536

3,088,824

13,469,436

��1,�0�,000

���,���,000

���,�1�,000

���,13�,000

��2,20�,000

3,3��,3��,000

1�.��%

1�.�3%

1�.�0%

1�.��%

22.�3%

100.0%

Shareholders No. of shares Value in TZS % age

DSM City Council

Ilala Municipal Council

Kinondoni Municipal Council

Temekei Municipal Council

Public (2,�2� Members)

Total

�.0 CAPITAL BUILD-UP PROGRAMME THOUGH LISTING AT DAR ES SALAAM STOCK EXCHANGE ‘DSE’

The bank is currently in the listing process to raise

the capital to meet the expansion programmes.

Further to that, during the Rights Issue exercise

the bank was directed by the Capital Market and

Securities Authority to list the shares at DSE for the

benefit of 2,626 shareholders as an exit mechanism

and price discovery facilitation process. It is

expected that this exercise will be undertaken

before 30/06/2008

D S E J o u r n a l

�3

T he CRDB Bank has removed various

fees charged on Internet Banking

service. This is one of other services

and products offered by the bank whose rates

and charges have been reviewed downwards.

“The move will enhance the accessibility

of the services to customers,” says Tully

Esther Mwambapa, CRDB Bank’s Director of

Marketing and Research.

Ms Mwambapa said CRDB Internet Banking

customer will now pay only connection fee and

enjoy the service free of charge.

Other changes according to the bank official is

on issuance of TemboCard and TemboCardVisa.

The cards will now be issued free of charge.

These cards can be used in ATMs anywhere

in the country for withdrawal and depositing

cash. They can also be used to buy services and

goods at point of sale terminals at supermarkets

and other places. TemboCardVisa can also be

used to services from ATMs of other banks

within and outside the country which have a

Visa sign.

Speaking at a press conference recently, the

Bank’s Managing Director encouraged business

people to use the cards instead of traveling with

huge sums of money. Elaborating, Dr Kimei said

a businessman from Kariakoo in Dar es Salaam

or Mwanjelwa in Mbeya who is a customer of

CRDB Bank, no longer needed to carry cash

when traveling on a business trip to places

like Dubai or Hong Kong. He advised them to

visit their branch managers, giving Lumumba

or Vijana for Kariakoo and Mbeya branch for

the case of Mwanjelwa as examples. He said the

respective branches would credit the amounts

required by the customers in foreign currency

into their accounts. He said it was not necessary

for a customer to have a forex account in order

to get this service.

In the same occasion Dr Charles Kimei

announced that all money transfers within

CRDB Bank network will now be free regardless

the amount. He said his Bank has also increased

the cash withdrawal limit without notice from

Tshs 1 million to Tshs 5 million.

According to the CEO, the Bank has scrapped

fees for cash withdrawal at non-domicile

(different locality) branch for amounts up to

Tshs 5 million. Previously the limit was Tshs 1

million for savings account and Tshs 2 million

for current account.

The Bank has also reviewed the foreign currency

minimum interest bearing balance. From now

the minimum interest bearing balance for

customers with USD/EURO 1,000 and GBP

2,000 will get an interest. Previously it was

only those with a balance of USD/Euro 5,000

and GBP 3,000 respectively. All the changes are

effective from 1st March 2008.

CRDB Bank’s Internet banking, TemboCard for free

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Abstract

The bond market segment of the Dar es Salaam Stock Exchange has expanded significantly over the past few years. This development should help reduce the country’s historical dependence on local banks financing. Although much progress has been made, vulnerabilities associated with narrow investor base and a few investment vehicles remain and secondary markets still suffer from low liquidity.

1.0 Introduction

An organized exchange is a system through which financial assets (securities) are created (listed) and exchanged (traded). Although the existence of a financial market is not a necessary condition for the creation and exchange of a financial asset, in most economies financial assets are created and subsequently traded in some type of organized financial market structure.

Financial markets provide three additional economic functions. First, the interactions of buyers and sellers in a financial market determine the price of the traded asset; or, equivalently, the required return on a financial asset is determined. This important function is called the price discovery process.

Second, financial markets provide a mechanism for an investor to sell a financial asset. This feature offers liquidity in financial markets, an attractive characteristic when circumstances either force or motivate an investor to sell. In the absence of liquidity, the owner must hold a debt instrument until it matures and an equity instrument until the company

either voluntarily or involuntarily liquidates. Although all financial markets provide some form of liquidity, the degree of liquidity is one of the factors that differentiate various markets. The third economic function of a financial market reduces the search and information costs of transacting. Search costs represent explicit costs, such as the money spent to advertise the desire to sell or purchase a financial asset, and implicit costs, such as the value of time spent in locating counterparty. The presence of some form of organized financial market reduces search costs. The DSE is an organized exchange that was incorporated in September 1996 as a private company limited by guarantee and not having a share capital under the Companies Ordinance (Cap. 212). The DSE is therefore a non-profit making body created to facilitate, among other things, the Government implementation of the economic reforms and facilitation of the

TEN YEARS OF DAR ES SALAAM STOCK EXCHANGE (DSE):

ACHIEVEMENTS AND CHAllENgES FOR THE DOMESTIC BOND MARKETBy Dr. S. R. Mohamed, Senior Lecturer, the Institute of Finance Management, Dar es Salaam, Tanzania

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wider share ownership of privatized and all the companies in Tanzania. Currently, the exchange is open for 5 days in a week from Monday to Friday except on public holidays. Trading takes place between 10a.m and 12 a.m due to thinness of trading.

1.2.1 Functions of DSE

The DSE like many other emerging capital markets was created to perform seven major functions. The first function is to provide a market for listed securities. Specifically, it was created to enable those who wish to join or exit the market to do so efficiently. This role ensures liquidity in the secondary market. The second function of DSE is to facilitate price discovery. Demand and supply forces together with an efficient information processing mechanism will ensure that buyers and sellers of securities transact at fair prices. The third role of DSE is to facilitate transparency. Disclosure requirements put in place by the DSE require listed companies to promptly disclose all price sensitive information so that investors may make informed decisions. The fourth role of the market is to facilitate privatization and wider ownership of resources. The market has facilitated and continues to facilitate privatizations of parastatal organizations which were previously under the control of the Government.

The other function of DSE is to facilitate raising of capital by firms. These companies are able to sell new securities at prices which lower the cost of capital and improve their chances of increasing operating profits. Creation of wealth through investing in listed securities is also a function of DSE. In real terms, all listed securities at DSE have generally performed well compared to bank deposits. The last function of DSE is to contribute to the cultural transformation of Tanzanians. This is mainly

a knowledge revolution geared towards educating Tanzanians on issues related to stock market operations. This exercise has contributed substantially towards public enlightenment which has caused some Tanzanians to invest in listed companies as a result of the said transformation. 1.2.2 The DSE Trading System

When the first trading commenced on 15th April 1998, trading used to be conducted at the DSE trading floor under open outcry continuous auction trading system. Specifically, the representatives of the licensed dealing members (LDMs) converged at the trading floor during trading hours to trade securities received in their respective offices. Trading used to be conducted by LDMs shouting their orders to the board writer who records the order on the board. The board writer used to write the orders as received from LDMs. When bid and offer matches, then the securities in question was considered to have been sold or bought.

With effect from 15th December 2006, trading has been conducted at the DSE trading floor through an Automated Trading System (ATS). This is an electronic system which matches bids and offers using an electronic matching engine. LDMs usually converge at the trading room and post their orders in the ATS. Matched orders are displayed on the computer terminal in the trading room and projected in the public gallery. Currently, the ATS operates on a local area network (LAN) but the exchange plans to extend operations to a wide area network (WAN) which can be accessed by brokers even out of Dar es Salaam.

1.2.3 Clearing and Settlement System

Clearing and settlement of transactions at DSE is facilitated through an electronic Central Depository System (CDS) which has been operational since1999. The system facilitates

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registration of changes of ownership of securities electronically. The CDS facilitates the delivery of securities in time for the settlement of trades to be implemented within five working days (T+5). The exchange is in the process of upgrading its system so as to

move into a clearing and settlement regime of (T+3) days.

1.2.4 Listed Debt Securities at DSE

In addition to seven domestic and three cross-listed equity companies, the DSE has four corporate bonds and a series of

Table 1: Outstanding Corporate Bonds as of 30th June, 2007

Key: EADB= East African Development Bank PTA= Eastern, Central and Southern African Trade Development Bank BB= BARCLAYS BANK (T) LTD SCB=STANDARD CHARTERED BANK LTDSource: DSE handbook, June 2007

Table 2: Outstanding Government Bonds as of 30th June, 2007

7.82

6.20

6.10

9.18

7.75

6.60

10.08

8.50

7.50

11.44

2

5

5

5

7

7

7

10

10

10

7 July 07 – 25 Jan 09

26 Sept 07

16 Jan 08

10 Sept 08 – 12 April 12

22 Aug 09

23 Jan 10

16 Oct 10 – 11 Jan 14

31 Oct 12

30 Oct 13

23 Oct 13 – 01 Feb 17

247.7098

19.5000

22.0260

116.2038

25.2000

18.9867

98.1581

12.1290

14.4800

80.1668

��0.��3�

Source: DSE handbook, June 2007

Issuer Remarks Issue Date

23rd May, 2005

23rd January, 2004

4th July, 2005

6th July, 2005

Principal Amount (TZS billions)

15.0

10.0

26.4

8.0

Coupon Rate

Floating rate

Fixed & Floating rates

Fixed Rate & Floating Rate with a cap of 15% p.a

Floating

Redemption Date

15th August, 2010

4 equal installments commencing on 19th July, 2007

19th July, 2010

Final maturity 25th August, 2015 with callable option after 25th August, 2010

EADB

PTA

BB

SCB

Unsecured

Unsecured

Unsecured & subordinated

Unsecured & subordinated

Coupon Rate (%) Tenor (Years) Maturity Date Cumulative Face Value of Bonds (TZS billions)

Grand Total

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Government bonds of different maturities. These bonds together with the other important characteristics are shown in Table 1 and 2 below.

2. Achievements of the Bond Market

Ten years have elapsed since the DSE started its operations on the 15th April 2008. The first bond was listed in 1999 while the second bond made its way to the exchange in 2002. The first Treasury bond was listed in March 2002 with the market value of TZS 8.4 billion and tenor of five years. There after, a series of Government and corporate bonds with different maturities and embedded options were issued.

The maturity of Government bonds has typically been 2, 5, 7 and 10 years with a large chunk of the issue skewed toward the short and the medium-term segment of the market. Table 1& 2 show that the market value of the outstanding corporate and government bonds as of 30th June 2007 is about TZS 60 billion and TZS 661billions respectively. This shows that domestic bond market has constituted a growing source of financing for the Government and of portfolio allocation for parastatals and other private investors. The very introduction of the bonds and the growth of their outstanding value is clearly an achievement for DSE.

On the other hand, the corporate bond market has witnessed a significant growth not only in the number of issuers but also in the degree of innovations. For instance, floating rates bonds are very common in the corporate bond market1. Optional features like callable option for a Standard Chartered issue that is expected to mature on 15th August 2015 and cap feature that is attached to a Barclays Bank (T) Ltd is

also a significant step in the right direction.

Introduction of an Automated Trading System (ATS) at DSE is also an achievement worth noting. It has made matching of bids and offers much efficiently. The educational programmes that have been conducted by DSE management have also greatly helped to educate the general public about the dynamics of the bond market. Of course, more needs to be done in this area.

3. Challenges of the Bond Market

The bond market has constituted a growing source of financing for our economy. The expansion of this market has reflected a conscious effort by investors and the government authorities to reduce their vulnerability to adverse external shocks. In this context, a key issue is to strengthen demand and supply conditions for domestic debt. This shall be accomplished, inter alia, by continuing to pursue stable macroeconomic policies.

In spite of the successes we documented, the bond market has remained underdeveloped owing to a number of policy and structural impediments. These included an illiquid secondary market, the absence of a deep and diversified investor base; regulatory restrictions that hampers the development of other primary and secondary market activities; and the lack of an adequate infrastructure for facilitation of innovations in debt instruments.

The secondary bond market, has for instance, been very inactive. For example, by the end of 2002, only six secondary bond market transactions were registered at the DSE. Out of these six, there was only one Treasury bond transaction. The pattern of illiquidity in the secondary market has prevailed over time. It is argued that the investor base for the bond

1 See for example, BIDCO, Barclays and Standard Chartered bond issues

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market is not broad enough to allow for active secondary market. Most of bond investors are financial institutions, mainly pension funds and insurance companies, who seem to have preference for a buy-and-hold strategy. This behaviour could partly be explained by existence of very limited (bond) investment avenues and perhaps due to their high degrees of risk aversion or may be due to the regulatory restrictions on choosing “the right” investment vehicles. There is also a possibility that the current bond holders pursue a deliberate passive investment strategy so as to reduce the risk caused by maturity and value mismatch between their assets and liabilities mix. As a result, these investors tend to buy and hold their bond portfolios until maturity and their actions obviously contribute to the illiquidity of the secondary bond market.

The low level of secondary market trading is a concern since active markets are an essential prerequisite for the cost-effective taking or unwinding of positions. Poor liquidity can induce large changes in market prices and volatility. Liquid financial markets are necessary for the functioning of modern risk management systems, which rely on the derivation of accurate benchmark rates for the pricing of portfolios and the smooth functioning of markets for the frequent rebalancing of positions. On the other hand, in addition to macroeconomic factors, the pricing of longer-term bonds can be influenced by liquidity. It is also true that the size of a market has a bearing on liquidity [see for example, McCauley and Remolona (2000), Amante et al. (2007) and Gyntelberg et al. (2005)]

Equally important is the breadth of the investor base and the type of securities traded in the market. The investor base at the DSE has been very narrow for the last ten years. Non-institutional and perhaps small investors have played a limited role in the bond market. The market seems to have been dominated

by institutional investors mainly the pension funds. The narrow investor base is obviously hampering the development of secondary market liquidity. The number of available investment opportunities has been limited too. As a result, a deliberate effort has to be made so as to increase investor base by reducing barriers that prohibit small investors from participating in the bond market and by also increasing the number of investment opportunities through innovations in the market.

The lack of significant innovations and the seemingly high degree of risk aversion among prospective investors and issuers may jeopardize the growth of the bond market in Tanzania. Innovations, for example, can create a lot of opportunities and mitigate some of the problems that surround our market at the moment. Issuers may wish to introduce inflation-linked bonds that will be very attractive to the would be investors because they would preserve the purchasing power of their investments in bonds. Some investors are currently reluctant to commit their funds at fixed rates for long periods of time for fear that borrowers in the region could be exposed to a significant degree of refinancing risk should domestic or global financial conditions deteriorate.

Another aspect of innovation is for as many issuers as possible to introduce derivative features such as callable, convertible and putable options. Some of these options will be attractive to both investors and the issuers. Introduction of zero coupon bonds could also add value to our market. These bonds are particularly attractive to portfolio managers who wish to offset particular liability streams and preserve the real values of their investments.

Further, there should be a gradual extension of the maturity structure of Government and corporate bonds. The progress made by

D S E J o u r n a l

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the government in lengthening the maturity of their fixed rate debt is commendable but more needs to be done. This can be achieved in stages, for instance 15years may initially be introduced followed by 20 year bonds and so forth. The wider availability of longer-dated bonds shall not only provide a useful representation of the term structure of interest rates but the lengthening of maturity profiles of domestic debt shall help in reducing the risk resulting from maturity mismatches.

The economy in Tanzania is growing at a rate of about 7 percent. The main drivers of this growth are mining, manufacturing, transport and communication, hotels and tourism, building and construction and agriculture. To sustain growth, part of the funding will have to be drawn from the domestic bond market. Firms will have to borrow from the exchange to finance their investment opportunities. On the other hand, following the reduced frequency of government bonds auctions and reduced tender sizes, the Treasury bond market has experienced over subscription phenomenon. For instance, in January 2008, the demand for Treasury bond amounted to TZS 23.0 billion, against TZS 15.0 billion offered by the Government [See, Bank of Tanzania, Monthly Economic Review, February 2008]. This pattern of events will undoubtedly put tremendous pressure to the domestic bond market and the exchange to increase the number of debt instruments in the market.

As mentioned earlier, trading at DSE is being conducted through an Automated Trading System (ATS) and the exchange is planning to extend its operations to a wide area network (WAN) which can be accessed by brokers even out of Dar es Salaam. While this is a commendable effort, electronic trading technologies should also provide low-cost and real-time information about the performance of the bond market and issuers of debt securities. According to Wooldridge et al (2003), these

developments should also greatly reduce transaction costs and processing times so as to further broaden market participation.

4. Conclusion

The DSE has made significant progress in developing domestic bond market for a decade. However, there are still a number of challenges. The most pressing are the need to increase secondary market liquidity and increase the depth and breath of the market. Moreover, the extent to which the bond market constitute a dependable source of funding for our economy remains to be tested. Although the bond market appears at this time to be less vulnerable to financial shocks, less auspicious market conditions could expose incipient domestic bond market to unforeseen pressures. In this respect, policymakers should encourage further developments of our bond market.

References

Amante, A, M. Araujo and S. Jeanneau (2007):

“The search for liquidity in the Brazilian domestic

government bond market”, BIS Quarterly Review,

June, pp 69–82.

Bank of Tanzania, Monthly Economic Review,

February 2008

Gyntelberg, J, G. Ma and E. Remolona (2005):

“Corporate bond markets in Asia”, BIS Quarterly Review, December, pp 83–93.

McCauley, R and E Remolona (2000): “Size and

liquidity of government bond markets”, BIS Quarterly Review, November, pp 52–60.

Wooldridge, P, D Domanski and A Cobau (2003):

“Changing links between mature and emerging

financial markets”, BIS Quarterly Review, September,

pp 45–54.

D S E J o u r n a l

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C O R P O R A T E P R O F I L E

Vertex International Securities

Vertex is a Licensed Dealing

Member of the Dar Es Salaam Stock

Exchange (DSE) and Licensed

Primary Dealer in Government

Securities. The Company was incorporated

under the Companies Ordinance and issued

with Certificate of Incorporation number

35381 dated 11th December 1998.

As a Licenced Dealing Member of the DSE,

Vertex offers a comprehensive range of

securities dealing services which include:

• Securities Dealing;

• Advice in Initial Public Issues of Equities

and Bonds;

• Arrange underwriting of public issues;

• Syndication and private placements;

• Structuring Collective Investment

schemes

• Investment Advice

• Research Information on both listed

and unlisted investment instruments

• Specialized Financial Products and

Services

Vertex’s sister company, Vertex Financial

Services Ltd, provides corporate finance

advisory services with focus on structured

project finance, business valuations, as well

as mergers & acquisitions transactions.

Vertex’s approach to the creation and

preservation of value and the forging of

personal relationship with its clients is

founded on a total commitment to excellence

and professionalism, which forms the bedrock

of its business philosophy. Our business

philosophy is founded on innovation,

integrity, best practice and performance

driven. Our teams are structured to provide

the specialist practical skills needed to meet

the specific needs of our clients.

Today, Vertex has:

• Unrivalled knowledge of all aspects of

Tanzania’s domestic market

• Access to international experience and

best practice in capital markets

• Structruring expertise in innovative

financial products which are bankable

in one of the region’s fastest growing

economy.

D S E J o u r n a l

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Vertex International Securities limitedDealing Member of the DSE Linced

VERTEX WISHES TO EXTEND ITS WARMEST CONGRATULATIONS TO THE DAR ES SALAAM STOCK EXCHANGE ON ITS 10TH ANNIVERSARY

As a leading player in the market, our track record speaks for itself ……

Barclays Bank Tanzania Limited

Co-arrange and Sponsoring broker for the first Corporate Bond in Tanzania.

Sponsoring broker for the largest private Sector Corporate Bond to-date, issued in tranches.

Lead Adviser and Sponsoring broker for the first Rights Issue of a DSE listed company in Tanzania

Co- sponsoring broker for the shares listing of Tanzanite-One on the London Stock Exchange AIMS market

CONTACT US AT:Zambia High Commission Building, Cnr Ohio St. / Sokoine Drive

P. O. Box 13412 Dar es Salaam, Tanzania, Tel: +255 22 2116382 / 2110387 Fax: +255 2110387, E-mail: vertex@smartcardtz.com

VIS

D S E J o u r n a l

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CORE Securities Limited

With introduction of

capital markets in

Tanzania towards the

end of the millennium,

CORE Securities Limited was founded in

1997 to specialise in dealing and investment

advisory matters, which required a CMSA

and DSE license.

Prior to that, the shareholders had founded

a management consulting company called

Consultants for Resources Evaluation

Limited, incorporated in 1988 as an

indigenous enterprise wholly under the

control of Tanzanian nationals comprising 6

shareholders and several principals affiliated

with academic or research institutions.

Its main objectives were and still are

to render consulting services in capital

markets operations; funds arrangement and

management; corporate finance; economic

and market studies; taxation, public

finance and policy analysis; informa¬tion

technology; collective investment scheme;

and professional training in all these areas.

Subsequent reorganisation saw CORE

Securities Limited reconstituted as the parent

company (specialising in dealing matters) and

CORE specialising in investment advisory

matters (which also required CMSA license).

The parent company is licensed by the CMSA

in the category of Dealer in Dual Capacity

(License: D.007). Two of its Directors and 2

of its senior staff are licensed by CMSA as

Authorised Dealer’s Representative. The

Company itself is additionally licensed by the

Bank of Tanzania as a Authorised Dealer in

Government Securities.

The subsidiary company is licensed by the

Capital markets and Securities Authority

(CMSA) in the category of Investment

Advisor.

The Group has used these authorisations,

and those of its directors and key staff, to

play a key role in the development of capital

markets in Tanzania and their evolution from

their early days in 1998 to date. Between

them, the 2 companies have handled many

capital market and corporate finance advisory

assignments.

CORE Securities Limited(Licensed Dealing Member of the Dar es Salaam Stock Exchange)Ground Floor, Twiga HouseP.O. Box 76800 Dar es Salaam, TanzaniaTel: +255 22 2123103 Fax: 2122562 E-mail: core@cats-net.comhttp://www.coresecurities.co.tzBusiness Registration No. 33144

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SOLOMON has been involved in a number of sponsoring projects.

Our project undertaking experience includes:

1. Tanzania Oxygen Limited (1998): SOLOMON carried the first

role sponsoring in the market. This included;

• forward an application and Prospectus (acceptable to the Client) to

CMSA and DSE for consideration and approval for going public and

listing on the DSE respectively,

• submit to DSE and CMSA, and other regulatory bodies all necessary

documents to support the application,

• ensure that regulators are made aware of all information that should be

brought to their attention,

• scrutinize the accuracy and adequacy of information provided to the

regulators,

• advise the Issuer on all requirements in relation to pricing, marketing,

distribution process and continued requirements on the issue,

• counter check all stated facts and certify that the issuer is suitable for

listing; and,

• take reasonable steps to ensure that the issuer has complied with all

relevant conditions and requirements for going public and listing at

the DSE

2. Tanzania Breweries Limited (1998): Co-sponsoring, advised on timing,

structuring, marketing and pricing of the issue in relation to the equity

transaction involved. SOLOMON was also involved in the subsequent

merger and acquisition transaction.

SOLOMONSTOCKBROKERS

D S E J o u r n a l

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WHO ARE WE?

SOLOMON STOCK BROKER CO. LTD are

stock brokers in the business of buying and

selling of equities or shares registered by THE

DAR ES SALAAM STOCK EXCHANGE (DSE)

ALSO

Buy and sell Government securities TREASURY

BILLS/BONDS both in primary and secondary

market issued by Bank of Tanzania.

WHERE TO FIND US

SOLOMON STOCKBROKER CO. LTD are

located at

PPF House, Ground Floor

Morogoro Road/Samora Avenue

P.O. Box 77049

DAR ES SALAAM

CONTACTS

SOLOMON STOCKBROKERS CO. LTD

Tel: +255 22 2124495

+255 22 2112874

Fax: +255 22 2131969

Email: solomon@simbanet.net

SOLOMONSTOCK BROKERS

NI NANI?

SOLOMON STOCKBROKER CO. LTD ni

wakala inayekuwezesha kununua na kuuza

HISA za kampuni zote zilizoandikishwa katika

soko la MITAJI la DAR ES SALAAM STOCK

EXCHANGE (DSE)ALSO PIA

Na ununuzi na uuzaji wa HATIFUNGANI na

DHAMANA za muda mfupi zinazotolewa na

Benki Kuu ya Tanzania.

TUKO WAPI?

SOLOMON STOCK BROKER CO. LTD are

located at

PPF House, Ground Floor

Morogoro Road/Samora Avenue

P.O. Box 77049

DAR ES SALAAM

SIMU ZETU

SOLOMONSTOCK BROKERS CO. LTD

Tel: +255 22 2124495

+255 22 2112874

Fax: +255 22 2131969

Email: solomon@simbanet.net

SOLOMONSTOCKBROKERS

Reach / Access / Invest Reach / Access / Invest

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A B R I E F C O M P A N Y P R O F I L E

1. COMPANY BACKGROUND

Rasilimali Limited was incorporated on 4 February,

1980 vide certificate of incorporation No.7586 as

a wholly owned subsidiary company of Tanzania

Investment Bank (TIB). Its mandate then was “to

purchase, take or lease or in exchange or otherwise

acquire any land and buildings in Tanzania”. It was

a property developer and was assigned to oversee

the construction of the Bank’s office Block to be

called “RASILIMALI HOUSE”. This project was

later postponed and therefore Rasilimali Limited did

not start operations as expected. In the early 1990s

the bank embarked on restructuralisation program

under which it was decided to start some new

activities including merchant banking, in addition

to its traditional role of lending. The enactment

of the Capital Markets and Securities Authority

(CMSA) Act of 1994, prohibited banks to undertake

the activities capital market operations unless under

a separate independent company which is to be

regulated by the CMSA.

Pursuant to the rules and regulations of CMSA,

TIB decided to reactivate Rasilimali Limited

and transform it from Real estate developer into

providing Financial Services and Securities Dealing

Company. Rasilimali Limited was granted licences

as per CMSA’s requirements on 10th October

2. SHARE HOLDING:

Rasilimali Limited is wholly owned by Tanzania

Investment Bank, with an authorized capital is Tshs

150 million and fully paid up capital is Tshs 62.5

million.

TIB as the owner of the company has appointed the

following as Board Members of the company, Mr.

Thomas F. M. Samkyi (Chairman), Mr. Charles M.

Chenza (Director),

Mr. Elsie Kanza (Director), Mr. Bernard P. Mono

(Director) and Mr. Aidan Eyakuze (Director).

3. COMPANY ORGANIZATION STRUCTURE:

The company is headed by the General Manager;

currently it is Mr G.E. Maganga. It has two main

departments, namely the Operations and Investment

Advisory Services Department which is headed by

Mr Arphaxad G. A. Masambu. The two above, both

are holders of the ADR’s Licence. The Department of

Finance and Administration is headed by Mr Fabian

M Mauna.

4. PROFILE OF PROFESSIONAL STAFF:

The above three staff are the professional and key

resource persons to the company in relation to

the daily Operations of the company, Investment

activities and Capital markets advisory services.

The company can however access other professional

resource persons (as and when needed) from the

parent company, Tanzania Investment Bank. These

include professional resource persons in the areas

Consultancy, Advisory Services, Research Studies,

Financial Analysis, Auditing and Accounting,

Engeneering, Economics and Agriculture.

(1) Bryson E. Mwanga - Head of Finance; B.Com, CPA (T), Master of Finance

(2) Mr G. Matembele - Relationship Manager – Investment and credit analysis; BA Economics and Statistics, Master of Project Management

(3) Ms M.J.J. Maeda- Legal Counsel & Secretary to the TIB Board, LLB, LLM,Advocate

(4) Mr L.O. Mlewa- Head of Portfolio Management –B.Com. Finance, M.Sc. Banking and Finance.

(5) Mr T.M.F. Samkyi- Head of Business Development and Appraisal; BSc Agriculture; MSc Agr.Economics

(6) Mrs M. Mcharo- Head of Credit Administration; B.Com. Finance, MSc Banking and Finance

(7) Mrs M. Rwegarulira- Relationship Manager;

RASILIMALI LIMITED

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BA-Economics, MSc Finance (Credit & Finance Analyst)

(8) Mr I. Tairo- Legal Counsel and Secretary to the Company (Rasilimali Ltd) – LLB, Advocate.

�. CO - ACTIVITIES

The company has entered into an agreement with

KPMG Tanzania to jointly undertake assignments

that are always put to tender. This means only for

commercial activities which need the professional

capacity of both companies.

6. SERVICES PROVIDED:

(i) Brokerage Services: Share trading,

Underwriting and Brokerage Sponsoring

(ii) Securities Primary Dealership (i.e. Dealer

in Government Treasury Bills and Treasury

Bonds)

(iii) Share valuation i.e. both quoted and unquoted

shares

(iv) Investment Advisory Services

(v) Consultancy Services and Feasibility Studies

(a) Portfolio Management

(b) Raising money in the Capital Markets

(vi) Fund Management.

�. OFFICE LOCATIONRasilimali Limited is located on the Ground Floor

of the Government Flight Agency Building, Dar es

Salaam, at the junction between Sokoine Drive and

Zanaki Street,

�. RASILIMALI AGENTS

The agents of Rasilimali Limited who are registered

by The Dar es Salaam Stock Exchange are;

a) Equities Consult Limited: Is located along

Liberty Street, within Ibadhi Mosque Buliding.

They deal mostly with Investment and Stock

Brokerage activities. Their Telephone No. is

0754-469778; Fax No.028-2540179; and E-mail

No.equtiesmza@yahoo.co.uk

b) C. V. Okhai: This is an agent who is based in

Dar es Salaam. He deals mainly with brokerage

activities and Portfolio Management. His

contacts are: Mobile Phone No. 0713-334499;

Fax No.022-278249 and Email No. cvokhai@

yahoo.com

c) ALI KONDO MNYANI: This agent is based in

Tanga. He also deals mainly with brokerage

activities. His contacts are: P. O. Box 123 Tanga;

Tel no. 0754-313199. His office is in Katani

Limited offices in Tanga

�. COMPANY BASIC INFORMATION

(i) BANKER: (a) NBC (1997) LTD SAMORA BRANCH P.O. BOX 9002 DAR ES SALAAM

(b) CRDB BANK LIMITED HOLLAND HOUSE DAR ES SALAAM

(ii) AUDITORS: TAC Associates P.O. BOX 580 DAR ES SALAAM

iii) LEGAL ADVISORS: TANZANIA INVESTMENT BANK LEGAL COUNSEL DEPARTMENT P.O. BOX 9373

DAR ES SALAAM

OUR ADDRESS:C/OTANZANIA INVESTMENT BANK GOVERNMENT FLIGHT AGENCY BUILDING, GROUND FLOOR,

Zanaki Street/ Sokoine Drive, P. O. Box 9373, Dar es SalaamTelephone: 022-2111711, 0713-777818, 0754-787600) Fax: 022-2122883

E-mail : rasimali@africaonline.co.tz

D S E J o u r n a l

��

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D S E J o u r n a l

�0

Orbit Securities Company Ltd. (ORBIT) is a private Company incorporated in Tanzania in 1996 and one of

founder members of the Dar es Salaam Stock Exchange (DSE). ORBIT is dully licensed Stockbroker/Dealer and Investment Advisor. The Company is also licensed by the Bank of Tanzania as Primary Dealer trading in Government Securities. Orbit is one of the leading Stockbroker/Dealers at the Exchange.

OUR SERVICES

ORBIT team, which brings together experts in Finance, Economics and Accounting, is an ideal place where you can get the following specific financial services: -

• As Broker-dealers, we execute transactions (buying and selling shares) at the Stock Exchange on behalf of our client, and on our own behalf to provide the liquidity in the market.

• As Primary Dealers in Government Securities we submit bids on behalf of investors and facilitate the settlement

process.

• As Investment Advisers, we provide advise on client’s overall investment planning as well as on specifics such as security selection, portfolio diversification, risk management, and timing of transactions. ORBIT will offer advice taking into account the investment objectives of the clients.

• As Corporate Finance Consultants, we advice clients on how to raise money from the public including Private Placement and the preparation of Prospectus/Information Memorandum.

• We provide custody services for foreigners investing in the domestic equity market, by facilitating funds transfers, dividend payment remittance and re-investments.

EXPERIENCE & ACHIEVEMENTS

• Experience in Sponsoring Initial Public Offerings (IPOs) and Cross-listing of shares from Nairobi Stock Exchange. As at April 2008, ORBIT sponsored five

C O M P A N Y O V E R V I E W

Orbit Securities Company Ltd. (ORBIT)

D S E J o u r n a l

�1

of the ten Companies listed on the DSE including three cross-listings namely Kenya Airways, East African Breweries and Jubilee Holdings Ltd. The local listings that were sponsored by ORBIT and highly over-subscribed are Tanzania Cigarettes Co. Ltd. and Tanzania Portland Cement Company Ltd.

• Experience with Placement of Bonds. Among others, ORBIT was Co-Arranger (along with Barclays Bank Tanzania Limited) for five years three tranches Tshs. 30.0 billion and the third tranche of Shs. 10.0 billion was placed in October 2006. The Issuer was Barclays Bank Tanzania Ltd.

• Experience in conducting relevant Capital Market courses to cater for the needs of the fast growing Financial Markets.

• ORBIT is the first Stock-brokerage firm on the DSE to have Back Office Operations and Database Management fully computerized.

• ORBIT has invested heavily on developing human capital and we have a dedicated team to provide professional services to our clients.

INTERNATION PROFILE

ORBIT has business relationship with

New York based Registered Stockbroker

Auerbach Grayson & Company as ORBIT

representative in the U.S.A. market.

Through Auerbach Grayson, ORBIT has

several U.S.A based clients trading shares

on the DSE.

In the recent past ORBIT scooped two

International Quality Awards by Business

Initiatives Directions (B.I.D) one was in

“International Quality Summit Award for

Excellence and Business Prestige in Gold

Category” for 2002 presented in New

York and “World Quality Commitment in

Platinum Category” for 2003 presented to

ORBIT in Paris.

The two awards served to increase

international public awareness and

recognition of ORBIT’s commitment

to quality services to our clients and

acknowledgement of our corporate

achievement and readership.

At Regional level, ORBIT is also well

connected with stock market players based

in Nairobi, Kampala and Johannesburg.

For further information ORBIT Securities Co. Ltd. can be contacted at:

Twiga House, 3rd Floor, Samora AvenueP. O. Box 70254, Dar es SalaamTel: 255-22-2111758/2120863

Email: orbit@orbit.co.tz

D S E J o u r n a l

�2

Capital markets have a proven re-

cord of being the most effective way

of mobilizing capital for investment

and the growth of the wealth of com-

munities. This has proven to be the

case in most successful and fast grow-

ing economies. Despite the frequent

booms and bursts that keep recurring

in capital markets, no other systems

of mobilizing resources has proved

more effective than the markets as it

touches on the individual households and investing

units in communities where they exist. To a large

extent the ease of access and exit by domestic and

the international portfolio investors contribute to

the pace of growth in the capital market.

It is for this reason that the emergence of the priva-

tization concept in the mid 1980s led by the then

British Prime minister, Margaret Thatcher’s govern-

ment, was closely associated with the emergence of

development of capital markets across the emerg-

ing market economies. At the time, the presence of

a capital market in any country in the developing

world, that considered attracting FDI and some

funding from Bretton Woods institutions, became

an important requirement.

Governments were instructed to reform their finan-

cial sectors to facilitate smooth entry and of course

of international capital. New securities laws were

enacted in jurisdictions where they did not existed

and reforms were undertaken where the laws were

not considered sufficient. Besides, the disclosure

demands for companies going public provided the

first step to injecting governance into businesses in

the emerging economies. Pensions reforms were

also recommended as a way of boosting the growth

A NOTE ON CHALLENGES OF STARTING CAPITAL MARKETS IN EAST AFRICABy Robert mathuExecutive DirectorCapital Market Advisory Council, Rwanda

of the capital markets and true to the

fact, those economies that reformed

their retirement benefit sectors

realized immediate returns as the

levels of savings in their economies

increased substantially.

Among the first emerging markets

to present capital markets that at-

tracted portfolio investors were the

likes of Mexico, Argentina, Brazil,

Hong Kong, Singapore, Malaysia and later South

Africa.

In East Africa, only Kenya had an organized secu-

rities market, the Nairobi Stock Exchange (NSE).

Until the last year of the 1980s decade, the NSE

was a remnant of an old East African capital mar-

ket that was started in the early 1950s. At the time,

Kenya Uganda and Tanzania were all protector-

ates or colonies of the Britain Empire. Companies

that were listed and traded on the Nairobi Stock

Exchange were mainly, agricultural and mining

companies that traded across the East African re-

gion. All investors in the NSE were white settlers

and neither Asians nor Africans were allowed, not

only to invest but to borrow any money from any

financial institutions.

All companies listed on the NSE were also listed

on the London Stock Exchange (LSE). Some of the

most active stocks on the NSE like Kakuzi Limited,

a famous coffee and tea plantation, had Market

Makers on the LSE. The NSE had access to the LSE,

the leading international financial centre. The East

African region had a common currency, the EA

Shilling. There were no capital flow restrictions and

I believe some of the restrictive Taxes never existed.

D S E J o u r n a l

�3

At least, I am sure of the CGT (Capital Gains Tax).

Then there were double taxation treaties which

protected investors against multiple taxes.

In the recent years, the development of the capital market in East Africa as a region has been an uphill task. EASRA (East Africa Securities and Regula-tory Authorities) was formed in 1993 as a regional capital market forum for the capital market regula-tors. This body has done a lot of remarkable work towards harmonizing the capital market policies in the original three EA countries of Kenya, Uganda and Tanzania. Consultants after consultants have undertaken studies and always come up with the same recommendations on what the region requires to integrate into one regional East African capital market. EASRA, which is recognized by EAC Charter, presents these recommendations to the respective governments.

But why did it take a long time to implement the

recommendations across the board in all the EAC

countries? Except for the trading, clearing and

settlement technologies, the recommendations

were simply a return of the markets to the early

1950s, when there was free movement of people

and capital within defined jurisdictions. One won-

ders why Kenya, Uganda and Tanzania, have been

unable to resolve that a capital market in the bigger

EA is a panacea for the development of wealth of

its people. Really, it is no wonder the economies

of Singapore and Malaysia were likened to East

African countries in the early 1960s just when we

“took over” the running of our economies politi-

cally and economically.

The purpose of the capital market is well summed

up in, Economics Private and Public Choice by G.

Gwartney, et al, that when a nation’s capital market is integrated with the world capital market, it will be able to attract savings (financial capital) from throughout the world at the cheapest possible price (interest rate). Similarly, its citizens will have access to the most attrac-tive investment opportunities regardless of where those opportunities are located.

The fundamental challenge in developing the capi-

tal markets in East Africa seem to emanate from

some inertia in resolving to move fast enough.

There is a market capable of funding most the

infrastructure projects. These investment projects

have a direct impact on the livelihood of the citi-

zens and yet we have taken almost two decades to

start “thinking very hard” by almost reluctantly

accepting the reality that capital markets can thrive

to support the growth and development of the East

African region.

The other major challenges in the development

of the capital market in East Africa will include

modernization of the Companies Act, which is the

mother legislation for business incorporations and

administration; boldness in accepting the fiscal and

non fiscal recommendations for harmonizing and

development the capital markets; realizing that the

EA capital market and economies, for that matter,

are in constant competition for the world’s FDI;

wait and see attitude among the member states;

restrictions in the capital flows and different cur-

rencies among the East African countries.

On the Companies Act modernization, the laws

used in all the countries have lacked a continuous

update in tandem with the original British common

laws. This has forced the capital markets regulators

in the region to keep creating new pieces of legisla-

tion to provide for the areas where the mother Act

has lagged behind.

A comprehensive set of set of incentives have been

recommended for the harmonization of the capital

markets in the region. Different partner states have

implemented different policies at different times

and some time in different ways. The absence of

harmony will keep the securities markets in regu-

latory arbitrage. The East African partner states

could now consider opening all the licensing of

intermediaries into the rest of the East African

region. This will fasten the transfer of technology,

skills and capital among member states.

The final challenge now is to let business to thrive

by encouraging an entrepreneurial environment

where the regulators focus more on policy matters

while the business community is left to maintain

their zeal on creating value and wealth. Business

decisions should be left to the business people.

D S E J o u r n a l

��

D S E J o u r n a l

��

The Unit Trust of Tanzania [UTT] has been

incorporated on 19th June 2003 under the

Trustees Incorporation Act [Cap. 318],

primarily with the objectives of achieving

wider participation by citizens in the ownership

of privatized enterprises and launch unit

trust schemes in the country. Accordingly, it

launched the Umoja Unit Trust Scheme more

popularly known as the Umoja Fund in May

2005 followed thereafter in May 2007 by Wekeza

Maisha/Invest Life Unit Trust Scheme. A brief

description will help for better appreciation of

both these funds.

The UTT is a financial institution and therefore

its programmes are to hinge on the development

of financial products empowering Tanzanians

to undertake various economic activities. These

financial activities may range from establishment

of collective investment schemes to the formulation

of various financial support products. In “kick-

starting” the activities of the UTT however,

attention was focused on the establishment of a

collective investment scheme the now famous

- “Umoja Fund”.

Umoja Fund:

Accordingly, UTT launched - Umoja Fund, which

is the first Collective Investment Scheme that

has been able to provide an avenue to facilitate

Tanzanians to invest their hard earned savings.

During the initial sale of Umoja Fund units, the

scheme received an overwhelming response from

the investing public.

THE UNIT TRUST OF TANZANIA (UTT)

C O M P A N Y P R O F I L E

Umoja Fund is a unit trust scheme established

under the Capital Markets and Securities act of 1994

as amended in 1997. The scheme is sponsored by

the government through the Unit Trust of Tanzania.

It has been established as an empowerment

scheme.

What are the advantages of investing in Umoja

Fund?

• Investing in Umoja Fund enables you to

benefit from economies of scale and low

transaction costs,

• Umoja Fund is professionally managed by

skilled portfolio managers which help in

getting maximum return at a given level of

risk,

• Being an on going open end scheme, Umoja

Fund units can be liquidated as per your cash

requirements,

• The Income payable to unit holders under

Umoja Fund is ‘TAX EXEMPT’ in the hands

of investors,

• Collateral - In case of need Umoja Fund units

can be used as collateral for getting bank

loans,

• Umoja Fund units are transferable and can

also be inherited,

• Transparency - you get to know the value of

your investments (Net Asset Value) on a daily

basis on every working day,

• Umoja Fund is a balanced Fund with 70 %

in debt and 30 % in equity, which ensures

a steady return as well as growth through

Capital Market exposure.

D S E J o u r n a l

��

Umoja Fund Performance:

• Initial Sale Period : 16th May until 29th

July’2005

• The then largest IPO of East Africa, wherein a

subscription amount of Tzs. 90.5 Billion was

collected from more than 102,000 investors;

• During its short journey of about 3 years,

the scheme has consistently generated

returns of more than 15% per annum which

are higher compared to returns from other

financial products of similar risk profile in the

country;

• The Scheme has been able to pass all the

three litmus tests of – Safety, Liquidity &

Returns;

• The current fund size [i.e. Assets Under

Management] stands at about Tzs. 63 Billion,

which can be termed as a good indicator of

investors confidence in the fund;

• The fund is contributing a lot towards the

creation of domestic capital formation in the

country;

A graphical presentation as indicated below depicts

the annualized return for the current year starting

from 2nd July 2007 up to 31st Mar 2008:

Scheme Return* (%) as on March � , 200�

Since Launch

16.74%

1st NAV(1�th Nov 0�)

16.47%

Trailing � month

21.17%

Trail-ing1 year

Current year

18.45%

The NAV per unit has consistently grown from

Tzs119.5424 as on 2nd July, 2007 to Tzs 135.5412 as on

10th April, 2008. When the same growth is plotted in

the form of an annualized return the return shows

growth from 7.79 % as on 3rd July, 2007 to 18.45% as

on 5th March, 2008.

The returns of the scheme at various points since

launch have been as follows:

D S E J o u r n a l

��

Thus, the chart indicates that Umoja Fund has

been able to give a consistent return of more than

15% per annum since its launch. While the 30%

Government discount provided in the first year

gave an impetus to save, a steady and consistent

Wekeza Maisha/Invest Life Fund:

The unprecedented success of Umoja Fund

paved the way for the second unit trust scheme:

Wekeza Maisha /Invest Life unit trust scheme

which is a combination of Insurance and Unit

Trust (Investment) benefits (i.e. a marriage of

Insurance and Unit Trust). The Initial Sale was

subscribed by 2209 applicants with chosen

contribution amount of Tzs9.76 billion

This is an open – end balanced fund which seeks

to generate long term capital appreciation, while

also offering additional insurance benefits in the

form of Life Insurance, Personal Accident / Total

Disability and Funeral Expenses cover.

The scheme achieved the following initial sale

results:

No of Applicants

2,20�

Commitment Amount (Chosen Contribution Amt)

(TZS)

�,��� billion

return year after year, augers well for confidence

building and efficacy of the fund.

Below is the comparative analysis between Umoja Fund returns and Treasury Bills returns from October 2006 up to January 2008:

The scheme has become open ended for

subsequent sale of units with effect from 1st

February, 2008 onwards and its current NAV per

unit is Tzs. 108.7088 (as on 10th April, 2008).

Two more products are being readied for

launch:

Regular Income Unit Trust Scheme:

While Wekeza Maisha / Invest Life Unit Trust

Scheme was being marketed, the UTT received

market feed back at various forums and in

response to it, it has been decided to launch a

product to suit those individuals/institutions

who have a lump sum corpus and need a steady

return to meet their regular needs. Our in house

assessment of the market has reinforced that there

is a need to address this need gap.

Investors who receive a lump sum amount by way

D S E J o u r n a l

��

of superannuation or due to any other reason need

to plan their investments so that they continue to

get a regular income and at the same time there is

a possibility of capital appreciation on a long term

basis. It is better to plan and remain independent

than be a hapless victim of circumstances once the

lump sum is spent.

It is for all such investors that the ‘Regular Income

Unit Trust Scheme’ offers a solution.

Regular Income Unit Trust Scheme aims at

providing regular income distribution/reinvesting

of income and capital appreciation (if any) over a

long term from a prudent portfolio mix of equity

and fixed income securities.

Children’s Career Plan:

The ‘Children’s Career Plan (CCP)’ is the first

scheme of its nature to be established by the Unit

Trust of Tanzania, which shall work towards the

overall development of children in the country. It

is our duty in Tanzania to provide an environment

conducive for children to grow up healthy,

educated and in dignity. Some of the scheme

features are as follows:-

• Objectives: A child benefit open end

balanced fund, which seeks to generate

long term capital appreciation through a

judicious mix of investment in debt and

listed equity instruments.

• Eligible Investor(s): Open for investment

to Resident as well as Non Resident

Tanzanians i.e. Individuals, Corporate

Bodies, Banks, Eligible Trusts (NGO) etc.

Investments are to be made for the benefit

of a beneficiary child.

• Options: The scheme offers investment

under two options – (a) Scholarship Option

and (b) Growth Option.

• Beneficiary Child & Entry Age: Investment

in the name of a child up to the age of 18

years.

• Minimum Investment: (a) Initial Investment

Amount = Tzs 10,000/- and (b) Additional

Investment Amount=Tzs. 5,000/-. However

there is no limit on the maximum investment

amount made by an investor.

• Transparency: The NAV shall be computed

& disclosed on weekly basis during cool off

period of 6 months and thereafter on daily

basis.

• Liquidity: Partial / full repurchase is

allowed after the beneficiary child would

have attained 12 years of age (which is

an average age for joining secondary school

education in the country). However partial /

full repurchase may be allowed in case of

exigencies e.g. where money is needed for

medical treatment of the beneficiary child

or for any other genuine reason.

It is being planned to launch both these products

by mid of May 2008. Thus the UTT is a futuristic

organization , constantly engaged and committed

to offer to the investors good scheme that serve

as excellent avenues for investment which in turn

lead to empowerment.

One can seek more details through our website:

www.utt-tz.org or contact us through our

e-mail: uwekezaji@utt-tz.org

Wekeza Uwezeshwe!

D S E J o u r n a l

��

A . T O T H E I S S U I N G E N T I T I E S :

The DSE provides a facility for listed companies to raise long-term capital from the investing public by issuing shares or bonds. Through the DSE, a company can go to the public at large and invite the public to lend it cash (by buying bonds) or own a part of the company (by buying shares). In this way, the company can tap the savings of every person in the country or outside the country, in order to obtain the long-term capital that may not be easily available from its own resources or from its bankers.

Companies which raise long-term capital by issuing shares or bonds are able to expand their services, replace equipments and develop new products etc. Above all, listing on the DSE will raise the profile of your company and its products or services.

INCENTIVES AVAILABLE TO THE ISSUING ENTITIES:

(i) Reduced corporate tax from 30% to 25% for the period of three years where the Issuer has issued at least 35% of the issued shares held by the public. The reduced rate is applicable for five years starting from listing date.

(ii) Tax deductibility of all Initial Public Offering (IPO) costs for the purposes of income tax determination. All IPO costs are accepted by the Tanzania Revenue Authority (TRA) as acceptable expenses used in the generation of income and profits, and therefore are taken into consideration when determining profit for tax purposes; and

(iii) Withholding tax on investment income made by Collective Investment Schemes (CIS) is final tax. Investors in CIS are not charged with tax on the income distributed by CIS after the scheme’s income taxation.

B. TO INVESTORS:

The DSE provides a market place where investors can buy and sell shares or bonds. It gives investors opportunities to invest in listed companies and participate in their possible fortunes. The DSE also provides better liquidity for the shares or bonds due to the large established market base.

INCENTIVES AVAILABLE 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;

(v) Exemption of withholding tax on income accruing to fidelity fund maintained by DSE for investor protection; and

(vi) Income received by the Collective Investment Scheme (CIS) investors is tax-exempt.

OTHER BENEFITS OF BUYING SHARES OR BONDS INCLUDE:-

(i) A possible hedge against inflation(ii) Share or bond certificates which is accepted

by banks as collateral.

WHAT THE DAR ES SALAAM STOCK EXCHANGE (DSE) CAN DO:-

D S E J o u r n a l

�0

(iii) Dividend income– which is the company’s distribution of profits to share holders or income (Coupon) paid to bond holders.

(iv) Possible profi t aris ing from capital appreciation

(v) Diversification by investing in different companies listed on the DSE.

(vi) Liquidity – quick possibility of selling your shares when you need cash (applicable only to listed companies).

(vii) Safe custody of your share certificate in the DSE Central Depository System.

PRODUCTS AVAILABLE AT THE DSE INCLUDE:

(i) LISTED EQUITIES1. TOL Gases Limited (TOL)2. Tanzania Breweries Limited (TBL)3. Tanzania Tea Packers Limited (TATEPA)4. Tanzania Cigarette Company Limited

(TCC)5. Tanga Cement Company Limited (SIMBA)6. Swissport Tanzania Limited (DAHACO)7. Tanzania Portland Cement Company

Limited (TWIGA)8. Kenya Airways Limited (KA)9. East African Breweries Limited (EABL)10. Jubilee Holding Limited (JHL)

(ii) LISTED CORPORATE BONDS7 Corporate bonds worth TZS. 57.1 billion

(iii) LISTED GOVERNMENT BONDS2 years tenor of TZS. 216 billion 5 years tenor of TZS. 203 billion 7 years tenor of TZS. 233 billion10 years tenor of TZS. 162 billion

PRODUCTS IN THE PIPELINE INCLUDE:-• National Investment Co. Limited (NICOL)• Dar es Salaam Community Bank (DCB)• National Microfinance Bank (NMB)• Tanzanite One Limited• CRDB Bank Limited (CRDB)

YOU CAN PARTICIPATE THROUGH THE FOLLOWING LICENCED DEALING MEMBERS OF THE DSE:

CORE securities LimitedGround Floor, Twiga HouseSamora Avenue, DAR ES SALAAMTel: +255 22 212 3103, Fax: +255 22 218 2521

Info@coresecurities.co.tz

Rasilimali LimitedFormer TACOSHILI OfficesSokoine Drive, DAR ES SALAAMTel: +255 22 211 1708, Fax: +255 22 212 2883rasilimali@africaonline.co.tz

Tanzania Securities Limited7th Floor, IPS BuildingSamora Avenue/Azikiwe Str, DAR ES SALAAMTel: +255 22 211 2807, Fax: +255 22 211 2809tsl@muchs.ac.tz

Orbit Securities Co. Limited3rd Floor, Twiga HouseSamora Avenue, DAR ES SALAAMTel: +255 22 211 1758, Fax: +255 22 211 3067Orbit@orbit.co.tz

Solomon Securities Co. LimitedGround Floor, PPF HouseSamora Avenue/Morogoro Road, DAR ES SALAAMTel: +255 22 211 2874, Fax: +255 22 213 1969Solomon@simba.net

Vertex International Securities LimitedAnnex Building Zambian High CommissionSokoine Drive/Ohio Street, DAR ES SALAAMTel: +255 22 211 0392, Fax: +255 22 211 0387vertex@intafrica.com

CONTACT ADDRESS:

The Chief Executive OfficerDar es Salaam Stock Exchange

Samora Avenue, Twiga House 4th Floor, P.O. Box 70081, DAR ES SALAAMTel: +255 22 2128522, 2135779; Fax: +255 22 2133849, Website: http//www.darstockexchange.com

e-mail: info@darstockexchange.com