Dar es Salaam Stock Exchange: Discussing Capital Markets in Tanzania with Moremi Marwa

Interview with Moremi Marwa, CEO of Dar es Salaam Stock Exchange

Can you elaborate on the impact of COVID on the capital market?

COVID-19 has had an impact on almost every nation and every economy. Tanzania being part of the global economy also had its own impact. However, the impact was limited in the sense that our social and economic activities were not much impacted by the lockdown. Our lockdown was partial, in terms of restricting some of our movements, and that was for only three months, from mid-March to June. From there, the government, after seeing some positive developments, decided to open up the economy and also the social interactions. Since the beginning of July to date, we are just progressing as usual. People, in terms of their social activities as well as economic activities, are just continuing as usual, as if there was no COVID pandemic.

How has that been affecting strategies that you use to bounce back fully as an institution?

I see myself dedicating my time to running this entity and trying to engage more with the public in terms of creating some public awareness and also enhancing the issue of financial literacy to enable financial inclusion as well as inclusive economic development.

On the equity side of our market, 80% and above we depend on foreign portfolio investments, and therefore, given what is happening especially in Europe and America, that is where the big chunk of investments that comes into our market comes from. Basically, fund managers from Europe and America are the key investors in our market. Now, because of the impact and some of the obligations that the fund managers will have during times like these, they have limitations in terms of cash that will go into investments. That has somehow impacted liquidity in our market, which has also impacted the pricing valuations and volatility of some of the companies which are listed in our market here. Some of the strategies that we are using include trying to enhance the domestic investor base by engaging more retail investors. And recently, we have launched a platform we call the mobile trading platform, which is a platform based on the mobile phone, which people use to invest in the market from wherever they are in the country. A significant part of our people live in rural areas. So, this platform gives them access to the trading engine at the Exchange without the need to physically visit a stockbroker. And therefore, we are seeing that by using digital and technology, we are able to mobilize more investment base and using those savings which they have using their mobile platform to invest in the listed securities in the Exchange. Also, we are engaging some of the institutional investors, especially pension funds and those who have long term contractual savings like provident funds, life insurance companies, health insurance companies, to also enhance their investment activities in the market especially now that the valuations are relatively better because of the general lack of demand from global investors in our market. Those are some of the activities that we are doing to try and mobilize a more diverse domestic investor base.

What has been the impact of the mobile app since you launched it? How has the penetration into the market been?

From when we launched the mobile trading platform on the 20th of November, there have been obviously new developments in the exchange. Much as it is only three weeks down the line, however we have almost 1000 individuals who have already used this platform for their investment activity. These are first time investors coming to the market who, by getting this opportunity provided by this platform, now from wherever they are, in rural areas and villages or even in cities and towns, they can perform investment activities at their own convenience without necessarily having to physically go and see a stockbroker. There will be some significant positivity that will come out of it. However, it is too early to provide a good context of what it all means over the long term by having such a platform, which initially was not part of our infrastructures in the market.

You have to create that awareness to the public. What are some of the strategies you have implemented to try and push this new agenda?

Engaging with the public goes beyond the mobile trading platform and creating its visibility and for people to use it. Rather, it is a broader approach to enhance financial literacy and financial education to our people here. What we have been doing for a long time now, almost seven years, is that we are using mainstream media as well as social media to try and engage with the public. For example, we are using local TV and local digital media platforms to provide content to policymakers, to the business community, to potential investors being retail or institutions. And we are seeing some results which are coming out of it. But also, we have some group focused engagements in which we do some visits to some of the entities but also associations, the business community, to try and share, educate, and enhance their understanding of what the stock market can do to enable them diversify their sources of capital and investment opportunities. In 2020, we introduced the Program we call the DSE Enterprise Acceleration Program, which is basically an incubation or acceleration for building capacities to SMEs to enable them consider to run their businesses successfully so they can access capital using financial markets from capital markets to banking into microfinance, all kind of capital sources. However, what we are doing actually is just to broaden some of the entrepreneurs and business owners and business managers who are running SMEs to understand that there are various and different forms of capital that can be accessed, whether private equity or venture capital fund or angel investments or using public offerings to access capital, which is more efficient and fairly priced, as part of the growth and expansion of their enterprises. The DSE Enterprise Acceleration Program is one of the key tools that we are using to engage with SMEs and give them a platform which they can use to raise capital which is long term in nature.

What has been the impact since you started this DSE Enterprise Acceleration Program?

We launched the DSE Enterprises Acceleration Program in January this year as an extension of the SME or startups market segment in the market called the enterprise growth market, which is a platform used for small and medium enterprises as well as startups to raise capital Now, with the DSE Enterprise Acceleration Program we engage more with the public to get some more traction to enable SMEs to access public money and get listed onto the Exchange. This year, we have had 15 entities that have gone through this training and capacity building program. In the beginning of 2021, we intend to establish a segment in the market called the SME Acceleration Agreement, which will be basically listing some of these entities to give them access to potential investors who are private investors in these companies. And then, a few years down the line, as part of their exit, these private equity or venture capital funds might see that exit through the Exchange is one of the mechanisms for them to exit but also now provide an opportunity for other investors to come in.

Four years ago, during our last interview, you talked about the reluctance of certain Tanzanian businesses to go public and some of the reasons being perceived costs for the flotation or disclosure or perhaps the ownership dilution. How has that changed? Have you overcome these challenges? What has been the impact so far?

For anything significant for the society which also touches into the cultural perspectives, it takes a little bit of time to change, and hence the need for a strategic patience and consistence. And given our own history as a nation, from the centralized economy to now market-based economy and the democratization of enterprises and capital and finance, it takes a bit of time for people to change the way they contextualize and perceive some of those aspects. In this way, the reason why we came up with the enterprise growth markets and now some of the initiative to build the capacity for enterprise entrepreneurs and business owners is part of that education and financial literacy that we are trying to engage in order to change some of these cultural aspects. We understand that it is a journey, and we have to consistently engage with the business community, but also even policymakers to see that capital markets are one of the tools for finance for development. As long as we have deficit funding on infrastructure or utilities or commercial enterprises, then it is fair that we diversify and consider capital markets as one of the tools that can help a nation to finance its enterprises and development projects. We are also mindful that it takes a bit of time before we get where we want to go.

What has been the performance of the domestic listed companies so far?

Over the years, there have actually been some consistently good improvements. When I joined Dar es Salaam Stock Exchange seven years ago, our domestic market was around TZS 5 trillion, which is $2.8 billion and our liquidity on the equity side was TZS 50 billion per annum, which is $25 million a year. But now, our annual average turnover is almost TZS 500 billion per annum, which is almost 10 times where we were seven years ago. And in terms of market cap, we are at TZS 9.2 trillion, which is closer to 4.5 billion USD, so an additional almost $2 billion over this period of time. That is on the equity segment. If you look on the bond segment, seven years ago, the size of outstanding bonds in the market was around TZS 5 trillion, which was $2.5 billion, but now we are at TSS 12.6 trillion, which is almost $6 billion. So, we went from $2.5 billion to $6 billion of outstanding bonds listings, more than two times where we were seven years ago. And in terms of the investor base, we were at 300,000 investment accounts at the Exchange, but now, we have 600,000 investment accounts in the Exchange, so almost doubled as well. If you look at the first 10 years of the Exchange and the developments that were there, the growth that we saw, and then if you look into this second 10 years, and now we are on the seventh year, there has been a significant enhancement of the market. So, talking about liquidity size of the market, the kind of returns that investors are getting, investor participation in the market, there has been some growth. This year, for example, as much as we have the COVID-19 and the impact that we have seen for most of the African markets, as you look into their indices, most of them are down, companies are losing value, and there are also significant volatilities. But for us this year, our domestic market cap has gone up by 2%. So, we are at an additional around TZS 200 billion this year, where if you look across Africa, all markets have gone down. In terms of liquidity, for example, in the bonds market, it has doubled compared to last year. Last year, we traded close to 500 million USD, but year to date we are at almost 1 billion USD of liquidity in the bonds market. And then we are seeing retail investors also participating in the bond market while previously it was only institutional investors like pension funds or commercial banks or collective investment schemes and unit trusts. So, there has been really some significant development. In terms of listing 7 years ago, we had 12 listed entities, but currently in the domestic listed entities we have 22. So again, it has almost doubled. This is linked to the level of awareness that we are trying to create and using again media, both domestic and international media, to try and enhance visibility and profile the Exchange and getting to where we want to go. Last year, for example, we were accepted into full membership to the World Federation of Exchanges. This is the global association of exchanges and to qualify to be taken as a full member to that global association of exchanges, it means in terms of your institutional setup, in terms of your governance, in terms of your risk management, the infrastructures that you have as a market are in line with what is expected of international standards. And also, FTSE Russell which is one of the global country classifications and market classification body last year classified us as frontier market status. And this year, we were accepted in their frontier market index. So, that tells us that we are making some progress, slowly, but at least we are seeing that what we are trying to do here is being seen, appreciated, and recognized by investors, but also some of the global entities which look into the capital markets.

There has also been an integration of the four regional stock markets in Rwanda, Uganda, Tanzania, and Burundi. What informed this project and what impact will it have on the East African capital market?

This has been a long coming project for almost seven years, this project is funded by the World Bank and managed by the East African Community Secretariat based in Arusha. The intent was to connect the East African markets, where investors in Tanzania will be able to invest in the Nairobi Securities Exchange or Uganda Stock Exchange or the Rwanda Stock Exchange without necessarily needing to have a broker here in Tanzania speaking with a broker in Kenya, or these other countries before a transaction happens. The project entails having the Smart Order Router, which is an infrastructure that will be based at the East African Secretariat offices in Arusha in Tanzania. Each of our markets can be linked technologically through either the automated trading systems or the central depository systems to this SOR. Currently, we have already done the use acceptance tests and now we are doing the demonstrations, posting some of the trades, and seeing how the transactions happen in other markets. The expectation is that in the beginning of 2021, we might go live. That is the intent by all stakeholders from the system vendor, the East African Community Secretariat, and for us who are participants to this initiative. And if these demos prove to be not that challenging, then we anticipate to see this happening in 2021. To start with, we will not have Kenya within the platform, but they indicated that they are paying close attention to the ongoing developments and we anticipate that probably some few months down the line, they might see the need to also participate. Kenya contributes significantly to our capital market space in the East African Community and therefore having Kenya in will make the project itself commercially and economically viable.

As the CEO of Dar es Salaam Stock Exchange, how many local and foreign investors have you managed to try to get to the country?

The fact that the level of liquidity has increased by almost 10 times in this 7-year period says that the investor base has also increased. From the domestic perspective, we have moved from around 250,000 to 300,000 to 600,000 investor base, almost doubled. Foreign investors are largely institutional investors investing into our market, so much as they may be smaller in number relative to domestic investors but their contribution in terms of liquidity and ownership is significant in terms of the liquidity, which on average now is around 500 billion Tanzanian shillings or close to $250 million, a big chunk of that, almost 80%, comes from foreign portfolio investors mostly from Europe as well as America. And as much as we continue to profile the Exchange and enhance its visibility by achieving frontier market status or achieving full membership to the World Federation of Exchanges, we anticipate that this will enhance the confidence of foreign investors to participate in our market. Again, their participation in our market is not only about the Dar es Salaam Stock Exchange and whether its institutional framework or its governance or the infrastructure that it uses is in line with what international investors expect, but also, people and institutions are investing in the economy and its outlook, they are investing in sectors within the economy and some of the listed companies represent some of the sectors in the economy. In Tanzania, for the past almost 30 years, the average growth rate of the gross domestic product (GDP) has been 7% consistently. So, this year, even with the COVID-19 impact on some of the sectors such as tourism, which is quite big in Tanzania, as well as trade which has been impacted, still, our GDP is anticipated to be at 5.5% according to the National Bureau of Statistics, the Bank of Tanzania, as well as the IMF and World Bank. So, the growth level of 5.5% is relatively larger compared to some of the economies within the East African Community or even Sub Saharan Africa. This kind of growth is significantly even at the time where COVID-19 is impacting economies and hindering their growth. So, these investors are looking into some of the sectors here but also the economy in general and they are attracted by what they are seeing. Some of the sectors that we are seeing some developing interests include infrastructure and the government is putting a lot of investments in that area. There is a significant public spending that goes into infrastructure, railway, roads, ports, airports, and so on that is attracting a lot of capital. We are seeing the same in sectors such as manufacturing, especially industrial related manufacturing, agroprocessing, telecommunication, financial services, and mining. Because of that, the economy is anticipated to continue doing relatively well. The investors are investing in what they are seeing that the economy will be able to produce and given that the economy will continue to do relatively well, then we anticipate to see investors both domestic and foreign participating in our market.

Aside from growth, what have been the challenges that are affecting Dar es Salaam Stock Exchange?

The first challenge is the size of our market. For significant global investors, they are looking into our market and see that even with something like $5 billion of domestic market cap, this size is still on the lower side to them. Therefore, we are missing that opportunity and the kind of foreign investors that we are getting are mid-sized fund managers and not the big global fund management investors. So, if we can make our market more vibrant, getting some more entities listed in the market, that will be able to attract even more and larger global investors coming into our market. To be able to attract more entities to come into our market it is a matter of financing needs and the public education – whether the business community understand and are willing to use the capital market. The more the business community and entrepreneurs are informed about the diverse and various forms of capital, and some of these will be more efficient capital compared to bank-based kinds of capital, which is also short term in nature, then we will see some more companies listed in the Exchange. We also encourage our business community to be more ambitious in terms of looking into their business and how they can expand those kinds of business. That could contribute more into the economic growth in creation of jobs and tax revenue to the government. This is part of what we are doing with the DSE Enterprise Acceleration Program, trying to encourage people from the business community to become more ambitious in running their businesses and also trying to think on ways in which they can be more sustainable over the long term and the kind of capital that is needed to make them more sustainable. The capital market is one of the tools that will enable them to achieve that. So, this is part of the public awareness that we are trying to do, which is another challenge to be able to make people understand. Also, we are engaging with policymakers. Back in 2010, we had two pieces of legislation. One was called the Electronic and Postal Communications Act and the other one the Mining Act. Part of the provisions in those pieces of legislature was to require companies within the telecom space as well as the mining space to consider offloading part of their shares and invite the public to invest in those companies, and then they get listed on the Exchange. Those Acts require these companies to use the capital markets, but that implementation has not been aligned to the spirit of the laws. So, we are encouraging the government agencies to require implementation of these pieces of legislation, which will enable more entities to be listed on the Exchange, and in line with the spirit of the laws to enable an inclusive economic empowerment to our people, enabling people to take ownership in some of the companies whose contribution to the economic growth is significant.

What are some of your success stories and achievements with Dar es Salaam Stock Exchange?

Our success is aligned to whether we are achieving what we intended to achieve, or not. Our first strategic plan ran from 2012 to 2017. We were able to implement some of the activities and now we are implementing the second five-year development strategic plan for DSE, which runs from 2018 to 2022. We have almost two years before we will see how far we have come. So far, in line with our own strategic plans, we are seeing that we are almost over 70% of what we intended to do. So, if we would be able to get the necessary support from some of the stakeholders into our strategic plan, then we might see that a large part of the strategic plan is being implemented. Otherwise, if we can’t achieve that we might say we achieved what we might call a just moderate achievements, because there is so much more that can be achieved, and the potentials are significant. The economy still has some significant gaps in terms of funding that is required for infrastructure for more public utilities, for financing commercial enterprises. We want to see our economic growth move into the higher middle classes since Tanzania was categorized into the category of lower middle-class countries. The way to push us into the levels of higher middle class according to the World Bank categories is the growth of GDP at the levels of 10% and above, and to be able to achieve that you need financing. Part of that financing will come from the fiscal side, but part of it will come from the monetary side and the capital market is part of that. If the capital market can be utilized more, we can see the growth anticipated for us to be in the upper middle class.

You talked about the strategic plan from 2018 to 2022. And now, you are almost in the third year. For the next two years of this five-year plan, what do you want to achieve? And what is your plan for after 2022?

What we intend to see happening by the time we reach 2022 is to see our stock market used more as one of the platforms for finance for development. Currently, we see some improvement; however, we want to see our contribution become even better and become relatively significant. Currently, the domestic market cap to GDP is less than 10%. And for any measure that level is not good, especially for a middle-income economy. If we can get to about 15% of our domestic market cap to GDP, then that is where our contribution to the economic development in terms of financing enterprises and development projects will be to the extent that is expected for a middle-income country. The second and broader objective is to make sure that we have instruments, meaning products or more securities which are listed on the Exchange, from the equity and bonds to different kinds of bonds. In line with the Sustainable Development Goals, we want to see some more green bonds issued in the market. We want to see our local governments and municipals also using the capital markets to finance some of their local development projects, which is currently not the case. Currently, our bond market is largely dominated by the treasury bonds, which are issued by the central government. So, if local governments can issue municipal bonds and get listed on the Exchange and enable more citizens participating in financing their local development projects, that is something that we want to see. Green bonds are products that have large traction from global impact investors but also local investors who are interested to see how we are running businesses while conscious into the idea of environmentally friendly. If we have green bonds, that is something which will attract investors to participate. And then, we have Tanzanians who are in the diaspora who want to participate in financing their local economy here. If there can be an issuance of diaspora bonds to enable Tanzanians who are in the diaspora to participate in financing our domestic economy, that is something we also want to see happening. We also want to see other instruments that will enable retail investors to come into the market. If we can list, for example, ETFs, or the closed ended collective investment schemes, which provide a platform for retail investors who are not sophisticated but also who want to limit their risks of investment in the market, then you need funds, which are managed by professional fund managers, which are also listed on the market. So, if we can see those kinds of instruments being listed on the market by 2022, then we will see that we have grown. In terms of achieving these goals, what we are doing includes engagement with policymakers, engagement with potential issuers, engagement with various stakeholders, so that at the end of the day, the Exchange is here to provide the legal and technological infrastructure as a platform for the government and private sector to raise funds and capital for their expansion from the central government to a local government, state owned entities or private enterprises – we would like this platform for raising capital to be more utilized. We are here and we are providing that platform, both through our legal and technological infrastructure. We want to engage more so that people can use this platform efficiently.

Why did you get into this industry? What led you to becoming the CEO of Dar es Salaam Stock Exchange? What do you want to achieve on a personal level for the future?

I started my career after completion of my first degree at the University of Dar es Salaam here in Tanzania. I did my first degree in accounting and then my second degree in finance. I am also a chartered accountant. My career started with Barclays in their treasury department trading on FX and money markets and some of the fixed income instruments. From there, I went into advisory and especially corporate finance transaction advisory. I worked with Deloitte & Touche in their offices here in Dar es Salaam and later I also moved to EY in their corporate finance transaction advisory. I saw our level of corporate finance transactions, from that perspective, being underutilized – while in there we used to advise private equities and venture capital funds and development finance institutions, etc., on how and where to invest in Tanzania and the East Africa region. In most instances, whether at Deloitte or Ernst and Young, we worked from Nairobi where most of the M&A transactions and other corporate deals take place. So, I thought that as a country we needed to do more in that space. That is why I was interested in joining the capital market and seeing from the institutional and infrastructure perspective and also from the legal and regulatory framework how we can use the capital market as one of the tools to attract foreign capital coming into our market. And then, coming here, I saw that there was a gap in terms of financial literacy and public awareness when it comes to finance, especially in accessing capital. And so I have also invested a lot of my time to try to educate our people. For example, on a weekly basis for the past seven years, I have been writing articles which are published in the local newspapers here. I have more than 3000 articles which have been published. I also have my blog where I write on matters of finance, capital markets, and investments. What I will do next, time will tell. But for now, I see myself dedicating my time to running this entity and trying to engage more with the public in terms of creating some public awareness and also enhancing the issue of financial literacy to enable financial inclusion as well as inclusive economic development. I want to see more democratization on how finance is used to create wealth for our people. That is what keeps me busy here.

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