Tanzania Report

InterviewsFebruary 18, 2021

Capital Markets in Tanzania: Brokerage and Investment Advisory Services by CORE Securities

George Fumbuka, CEO of CORE Securities Limited

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: Written by Sandra Francisco; Published: February 18, 2021

Interview with George Fumbuka, CEO of CORE Securities Limited

What is the scope of your business at CORE Securities Limited? What are your competitive advantages?

We were licensed by the Capital Markets Authority in the second batch. They began with five, then they added two of us. So, we were seven for a very long time. Now we have about 24 companies, but we are one of the oldest. We were the first member of the stock exchange to lead a company onto the stock exchange. Prior to that, we were using former parastatal companies that had been privatized by the government. The advisors are mostly foreign: English or South African. We were the first ones to bring a product known as Swissport on our stock exchange. Swissport was the first product locally managed that came to the stock exchange. After that event, we had a series of companies coming on to the stock exchange. We did the biggest with Tanzania Portland Cement. When we switched to the loan equity markets we did two corporate bonds for the East African Development Bank and for another investor called Bidco. This was guaranteed by Beckley, South Africa and working with our South African advisors. This new window that opened on the stock exchange is called the enterprise growth market. This was done around 2010. This was supposed to enable new companies to come in that did noy have the track record that was necessary for the previous main onboarding. Since then, we have done five banks. We began with the bank for teachers called Mwalimu Commercial Bank. Then there was a Catholic bank called Mkombozi Commercial Bank. We had another one called Maendeleo Bank. We have a small bank here called the Dar Es Salaam Community Bank. It was the best seller for a long time. Since then, we have had several microfinance institutions join the stock exchange. We had our first unit trust in 2015, called Umande. We have the biggest database of clients because we did a lot of it ourselves, either as advisors or as consultants. The unit trust we developed ourselves. We did one for BGP, for Bidco, and for our parent, Exim Bank, which is the fifth largest bank in Tanzania. We did the retail point for them. In the process, we got the chemistry right and Exim now owns 80% of CORE Securities Limited. We are one of the only firms that is working with a bank. We have half a dozen licensed brokers in various capacities. We have an insurance brokerage as a subsidiary, because most of the things that we do revolve around attracting many customers and is labor intensive. Still, there is a problem with the liquidity in the market. Much of what we can do would require the presence of a market maker. A market maker would intervene wherever you find stocks are overvalued or undervalued. This has been experienced in Tanzania often where stocks begin going very high and then they go very low, but the true value is somewhere in between. A market maker can elaborate on the size of the market and the poor valuation of the market to stabilize the prices. Unfortunately, at the present time, the capital of the brokers is still quite low, much lower than you have in Kenya, Nigeria, etc. This is one reason why we are not taking a lot of the advisory and a lot of the market making that would add value to the product. For the whole country now, the only natural assets that we have are farmland, minerals, and the telecoms. We have a law that requires all mining companies to be listed. We have a law that says all telecom companies must be listed. The float is 25%. We have done only two of those. Otherwise, we still have about 10 a week that could come on the market. There is scope for developing those markets. Many of them come from Australia, from South Africa, etc. So, it would be better to work with colleagues from there, rather than direct from here. Another place that we feel we need to go to is in further developing the CIS, the collective investment schemes. We have regulations for unit trusts, we have regulations for rates, we have regulations for everything, but we do not do it either because of lack of capacity internally or because of the problem of market making. We have a huge Muslim community in Tanzania. One for one, they could be considered to be the richest part of the country. We could deliver something that they would take. The regulator is very participatory and gives us a lot of leverage when we are able to bring something new. This has never been done before by talking to them but we are ready to welcome the idea with two hands or more, because we feel it is a gap that is missing in the country. We are trying to get cooperation with colleagues in Malaysia, Singapore, and Dubai who we can work with in developing Sukuk products. It is a new thing, but there are one or two banks that have done it. So, it is another area that is open for us to develop. The problem is that it may take time because of those historical reasons. Because of our liquidity, most brokers need to be more capitalized.

How has COVID affected your business and the industry as a whole?

It is quite a story for Tanzania because we heard of COVID, we heard of the pandemic, but something happened here when it began. And we thought we were COVID free in practical terms because people were going about their businesses as usual. We worked from the office in the first two months of the pandemic even when the schools were closed and everything was closed. But then an idea came that this may hurt us more than if we just open up. So, we opened up, we had three days of multi denominational prayers, we had the sheiks, the bishops, everybody fasting and praying for three days, and the thing went away. When you see our elections on TV every day, we are wearing no masks. Parliament is operating with no masks. Big congregations working with churches have no masks. We keep a safe distance, we wash our hands, and we keep away from people. But the big thing about COVID 19 has been the effect on our foreign clients. We wanted to send some things to Spain and we could not because they were closed. The effect has been more from the viewpoint of our clients abroad, rather than in Tanzania as such. Even our neighbors in Kenya have had a really big problem with the pandemic (borders were closed then opened). But the big impact for us is from the fact that our foreign parties, our foreign contractors, our foreign stakeholders, were closed by the pandemic. But Tanzania internally has not been very affected. We keep working as usual. We just maintain healthy and careful living.

Crisis brings new technology, new ideas, new ways of doing business. What has been the positive impact? Are you doing something differently now? Did it bring about anything new for the industry as a whole?

We dedicate ourselves to being the leading brokerage and provider of investment advisory services in capital markets in Tanzania and the SADC Region.

Prior to 2015, the market was closed to foreigners. The maximum we could have as a foreigner was 25%. But they changed the regulations in 2014. From 2015, the market has been open. Any foreigner can come here and buy as much as they want. In that year, we had a big boom because our stocks were underpriced and when the foreigners came in, they put the proper values. Slowly but surely, the shares shifted from locals to foreigners. More than half of our shares are now held abroad. And so, if you want to have some real action in those shares, you cannot do it without the support, without the cooperation of these investors. So, the challenge was to see what we could do without them because of this pandemic. What has happened in the past six months to one year is that we have gone to fixed income securities. The market for treasury bills, treasury bonds, is now very high. The yields have gone down by about a factor of two. A lot of the business notes are being held with local banks, local insurance companies, and local individuals, but mainly in government bonds. The action on the stock market on the listed companies is quite low. NMB bank was owned by a Dutch company and was sold to another investment company there. So, it was just a transfer from foreign to foreign. But the real action locally is very minimal now because of the pandemic in our client nations abroad. Now, we want to develop that idea of our fixed income securities further by issuing local retail bonds, by issuing local rates to leverage on the real estate properties, on the farmland properties that can be made and converted into investment structures through the regulations or rates that are already there. We want to see if we can bring up the market, but rely more on what we have rather than on the listed companies and listed shares that are not here.

What are some of your success stories over the years as the forerunner of the company?

This began as something that a good number of us were interested in because we did it in our graduate studies. But we had no capital markets at the time and it was not very popular when the regulation came out in 1994. Then, we had the brokerages opening, manned basically by retiring or retired officers who had some training in finance. So, the first five years were driven by the parastatal companies that were being nationalized. And the challenges that we faced and the way we got over them was that we were working almost from scratch. We had to bring it to the market. The only company that we had to work with was TATEPA which is a tea packing company. This was financed by private equity funds in Russia and it was listed here. And then the time came for the founders to come out but we had no mergers and acquisitions regulations. So, we had to form the M&A regulations specifically for these people. Now we have them, but thanks to that challenge, we were able to do it in a very clear way. So, we look at TATEPA as a real achievement, in addition to the many companies that we brought to this stock exchange and each of them was a challenge in itself. Now, the biggest we have done recently is the Mwalimu Commercial Bank. It is nominally a teachers' bank, and the founder was the Tanzania Union of Teachers. Because of the regulations, you had to have a minimum number of shareholders. The bank has the biggest stakeholders, about 60% or 3 million people. So, this one we had to bring in the light of favoring one particular sector, the teachers sector, to negotiate out of that we really had to do some footwork. At the moment, the teachers remain a very small part of the bank, mainly through the union. But the teachers as individuals are just as many as any other people.

What would be the vision for the company in the medium term, the next two to three years? What would you like to have achieved as a foreigner?

We want to bring something new. The equity market is now held by foreign investors, mainly. The bond market, the fixed income securities market is now what is driving the exchange. But if you could tap into the real estate that we have here and the agricultural farmland that we have here, if you could develop rates on real estate, agricultural land and farmland, it would be something that would leverage all the natural advantages that we have. We have plenty of real estate, plenty of farmland, and a lot of people who want to eat. So, through that, we should be in a position to bring these products to the market. If we could get somebody who could work with us, our regulators are quite inviting. They are ready to work with us. We feel it is one area that we need to tap because it has not been tried yet before.

What are you working on at the moment?

We are doing a rate and we are approaching two telecom companies that we have a mandate with to bring them onto the stock exchange. We also have a mining company that we wish to bring to the market. There is pressure from the regulator, but the way we began with experience on protocol, we found that you need to do a lot of preparatory work because the valuation requires to be balanced and the issuer must be willing and able to participate. So, the thing has been in cold storage but the law is still there. We wish to resuscitate it and so on our program, we are developing a retail point. We are following up with these telecom companies and the mining company. And we are working brand new on the farmland rates.

You have a great experience in different sectors. What drives you and what is your ambition?

I am now in semi-retirement. Since 2015, 2016, when Exim Bank took over, there is almost a war between banking and the brokerage We keep these things quite separated because of the regulations. The company is in the hands of a new CEO and Chairman of the company, but the CEO is from Exim Bank and he is younger and more experienced and with more banking and capital markets experience than many people here. So, it is in good hands. He is driving the things that are making this company do these other innovations. On my path now, in the context and the databases of all the things I have done, I know what happened in the first IPOs, we have the databases of the clients, all the resources that we could get, and these are available in CORE Securities Limited. Using this, we are in a position really to do wonders. We have captured what the law changed about foreigners only companies here, about mining companies having to be listed, about telecom companies having to be listed, we went through all this. We have a huge database of things. Now, we are also into insurance. Exim Bank has many insurance subsidiaries and we as CORE Securities have established brokerage insurance that is now using the resources and the databases of what we have for the benefit of the group. Areas that we could previously not go into because of the licensing reasons, we can now enter. We feel that we are in a position to move ahead. But we are still seeing a problem because most of our stakeholders and our investors are in foreign countries. On a personal level, I am happy to come here two or three times a week to develop an idea, to kick start it, but the real work is being done by the professionals in the office. We have a good team of brokers, a good team of finance people, a good team of accountants, and I am sure that we can deliver.

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