DAR ES SALAAM: TANZANIA’S capital market has entered a new phase of development, with the Dar es Salaam Stock Exchange (DSE) reaching a record 38.74tri/- in total market capitalisation, equivalent to approximately 14.65 billion US dollars, by the end of last week. More significant is the performance of the domestic market, whose capitalisation has risen … The post DSE milestone signals new capital market era appeared first on Daily News .
DAR ES SALAAM: TANZANIA’S capital market has entered a new phase of development, with the Dar es Salaam Stock Exchange (DSE) reaching a record 38.74tri/- in total market capitalisation, equivalent to approximately 14.65 billion US dollars, by the end of last week.
More significant is the performance of the domestic market, whose capitalisation has risen to approximately 26.98tri/-, or about 10.20 billion US dollars. According to the latest market figures, total market capitalisation increased by 4.57 per cent over the past week, while domestic market capitalisation expanded by an impressive 6.47 per cent.
These figures deserve attention not simply because they represent new records for the DSE, but because they offer an opportunity to consider what a growing capital market means for Tanzania’s broader economic ambitions.
A stock exchange is much more than a place where securities are bought and sold. It is a mechanism for mobilising savings, allocating capital, facilitating investment and allowing citizens to participate in the ownership of productive assets.
The latest figures suggest that Tanzania’s capital market is steadily increasing its capacity to perform these functions.
Market capitalisation is often treated as a technical financial statistic. In reality, it provides an indication of the value investors collectively assign to companies listed on the exchange.
When market capitalisation rises, it can reflect stronger corporate earnings, improved business prospects, increased investor confidence, higher valuations and greater demand for listed securities.
The latest record therefore signals more than a strong trading period. It points to growing investor confidence in Tanzania’s listed corporate sector.
The rise in domestic market capitalisation is particularly encouraging. It means Tanzanian companies account for a substantial portion of the value created on the exchange.
This is important because the ultimate objective of capital market development is to ensure that the market becomes an effective channel through which domestic savings are transformed into productive investment.
For many years, discussions about investment in Tanzania have understandably focused on attracting foreign capital.
Foreign direct investment remains important, particularly for projects requiring substantial capital, technology and access to international markets.
But a strong domestic capital market provides another, equally important, source of financing. Tanzania has a substantial pool of domestic savings held by households, pension funds, insurance companies, collective investment schemes, banks and other institutional investors.
The challenge is to ensure that a greater proportion of these savings finds its way into productive investments. The capital market provides precisely that bridge.
When Tanzanians buy shares or bonds issued by local companies, they are not merely investing for a financial return. They are providing capital that can be used to expand businesses, build productive capacity, create employment and support economic growth.
This makes the development of the DSE relevant not only to investors, but also to the wider economy. The record market capitalisation should, however, not lead to complacency.
A successful capital market is not necessarily one with the highest valuation, but one that is deep, liquid, diversified and accessible.
Tanzania still has considerable room to improve in all these areas. The number of listed companies remains relatively small compared with the size and diversity of the Tanzanian economy. Many viable businesses remain outside the formal capital market.
There is therefore a strong case for encouraging more public and private companies to consider listing as part of their long-term growth strategies.
For businesses, listing can provide access to permanent capital, strengthen corporate governance, increase visibility and create opportunities for employees and the wider public to participate in ownership.
For investors, a larger pool of listed companies means greater choice and better opportunities for portfolio diversification. Capital market development should also go beyond the equity market. Tanzania’s bond market provides considerable potential for mobilising long-term financing for both the public and private sectors.
Government securities have already established a substantial domestic market. The next frontier is to deepen the corporate bond market, enabling companies to access long-term debt financing directly from investors.
The development of these markets could be particularly valuable in financing infrastructure, renewable energy, affordable housing, agriculture and other sectors requiring patient capital. Perhaps the most important challenge is broadening participation.
A capital market cannot fully serve the economy if participation is concentrated among a relatively small number of institutional and sophisticated investors.
Technology is creating an opportunity to change this. Digital platforms can make it easier for ordinary Tanzanians to open investment accounts, access market information, buy securities and monitor their investments without having to navigate complicated processes.
Financial literacy must develop alongside technology. Investors need to understand not only how to buy shares and bonds, but also the relationship between risk, return, diversification and investment horizons.
The objective should be to create a culture in which investing becomes a normal component of household financial planning. There is also a significant opportunity in Tanzania’s diaspora. Tanzanians living abroad already contribute to the economy through remittances.
But there is an opportunity to move the conversation from remitting to investing, from simply supporting families to participating in wealth creation.
The capital market provides a natural mechanism through which members of the diaspora can participate in the ownership and financing of Tanzanian businesses without necessarily having to establish or manage a business directly.
Making such investment channels convenient, transparent and accessible could unlock an important additional source of long-term capital. Institutional investors will be central to the next stage of market development.
Pension funds, insurance companies, collective investment schemes and other long-term investors have the scale and investment horizon to provide stability to the market.
Their participation can help improve liquidity, support new issues and provide companies with confidence that there is a substantial domestic investor base capable of absorbing new securities.
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At the same time, institutional investors need a sufficiently broad universe of investable securities to diversify their portfolios effectively.
This creates a mutually reinforcing relationship: More investment opportunities encourage institutional participation, while greater institutional participation encourages companies to come to market.
The current record should therefore be seen as an important milestone, but not the final destination.
The real test of Tanzania’s capital-market development will be whether rising market valuations translate into more capital raised by businesses, more companies accessing the market, greater investor participation, deeper liquidity and increased financing of productive economic activity.
There is also a need to ensure that market development extends beyond a handful of large companies and reaches businesses in sectors such as agriculture, manufacturing, tourism, technology, logistics, energy and housing.
The DSE can play an increasingly important role in Tanzania’s transformation from a savings economy into an investment economy.
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