Tanzania to let citizens invest in East Africa’s stock markets

The Tanzania government is set to remove restrictions on movement of capital across its national borders freeing the hands of its citizens looking for higher returns on their investments to put their money in foreign markets.

Enjoyment of this primed fruit of integration starts in January next year when the country’s stringent exchange control rules come to a close allowing Tanzanians to buy equity in listed companies in other EAC member states.

The move marks a significant step in the 12 year integration project whose progression continues to be shackled by remnants of Tanzania’s past socialist policies and a growing wave of nationalism that has sustained the fear of swamping by foreigners in a free market economy.

“This bears the potential of dramatically increasing demand in the equities markets and boosting share prices as more takers come on board,” said Bob Karina, an executive director at the Faida Investment Bank.

Two years ago, Tanzania used these restrictions to bar its citizens from buying shares in East Africa’s biggest share sale - Safaricom - blocking attempts by the Kenya government to roll out a region wide initial public share offering (IPO).

Safaricom – the region’s most profitable company – had allocated 65 per cent of the shares issued under its highly publicised IPO to local (EAC) subscribers but got no takers from Tanzania.

A few months later, the country’s capital markets regulator also blocked East Africans from participating in the public share sale involving the National Micro-finance Bank of Tanzania.

Analysts said removal of the restrictions is the clearest signal yet that Tanzania is slowly stepping back from its protectionist policies in favour of a free market offering hope that the country will also let go of its nationalistic policies on land ownership and movement of labour.

Lifting restrictions on cross-border investments also means Tanzanian companies looking for capital to grow their businesses can from January next year include Uganda, Rwanda and Kenya’s capital markets in their list of options – a move that could take the integration of the region’s economy to the next level.

Plans to lift the restrictions on cross-border investment are contained in the annex of the Common Market Protocol that comes into effect later this year. The clause indicates that East Africa’s biggest nation by size and population is set to begin the task of phasing out its exchange controls restriction in December this year ushering in a new era of doing business in the region.

The protocol however indicates that the country’s capital market will remain a no go zone for foreign companies and governments seeking to raise capital through debt instruments until 2015. Tanzania will also continue to bar its citizens from buying or floating foreign debt instruments and from making any direct investments in any of the four member states over the next five years.

Tanzania’s tight grip on its capital markets bars citizens from investing outside their national borders, a restriction that has diminished the benefits that accrue to its citizens from the regional integration project.

Tanzania’s capital markets regulations not only prohibit citizens from participating in foreign IPOs but also bar its companies and citizens from buying or selling of shares in foreign markets.

“We may be forced to forgo the attractiveness of Tanzania as the most populated country in the region until it removes all the exchange controls. We expect very minimal impact on the general flow of capital in the region because Tanzania will only be restricting money going out of her economy but not that going in,” said Robert Bunyi, an analyst at the Nairobi based Mavuno Capital

Lifting of the restrictions in December 2010 means Tanzanians will not participate in Uganda’s National Insurance Corporation (NIC) share sale that kicked off mid this month and continues up to February 5. NIC, the biggest insurance underwriter in Uganda according to industry statistics, seeks to sell off 40 per cent of its stake to the region’s citizens.