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

The decision by Tanzania to initially ring-fence her capital markets during the initial phase of the implementation of the common market protocol in July has raised eyebrows among its partners.

Free movement of capital and other factors of production are the key pillars of a common market that the region evolves into from July this year.

Appetite for investment cash is expected to grow phenomenally as companies seek to expand production to meet rising demand from an integrated regional market. “It will not be possible initially to issue instruments that target EAC as a single region until all these restrictions are removed,” said Jimnah Mbaru, the chairman of Dyer and Blair Investment Bank and former Nairobi stock exchange.

He however remained positive about the integration project saying Kenyan companies that move into Tanzania will be able to raise money from banks in case they choose not to come back home – the region’s deepest capital market -- to float security and debt instruments.”

Kenya has the most advanced capital market in the region with Uganda and Rwanda as the only countries with fully open capital markets that allow for free movement of capital.

The Uganda Stock Exchange is the smallest in the region with only 11 listed firms compared to Kenya’s NSE which has 55 and Tanzania with 15 listed firms.

Some Kenyan companies like Kenya Airways, East Africa Breweries, Kenya Commercial Bank and Jubilee Holdings are cross-listed in the three markets to sidestep hurdles in movement of capital

According to the common market protocol’s annex on free movement of capital, Central Bank of Tanzania will - up to the end of this year - only permit purchase of foreign securities if shares are to be acquired by externally generated funds.
Up to 2015, non residents – citizens of other partner states and companies not established in Tanzania - will only be allowed to buy up to 60 per cent of shares of primary or secondary issues at the county’s stock exchange.

The protocol also prohibits Tanzanians from making any form of direct investment outside national borders within the next two years while the citizens are barred from lending money to entities outside Tanzania up to 2015. Tanzanians are equally barred from selling or buying money market instruments abroad in the next five years.

Similarly non residents of Tanzania will not be allowed to buy instruments like corporate bonds, treasury bills and commercial papers in Tanzania up to 2012 and neither will non Tanzanians be allowed to sell the same instruments in Tanzania before the end of 2012.