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The East African : April 21st 2014
MONEY AND EQUITY MARKETS APRIL 19-25,2014 ROAD TO LIBERALISATION Tanzania complies with EAC rules, to open up capital account in 2015 New ≥ules will allow Tanzanians to invest ab≥oad, ease ≥est≥ictions on fo≥eigne≥s By PETERSON THIONG’O The EastAfrican T anzania is to liberalise its capital account by the end of next year in a move that is expected to raise the country’s appeal among international investors. The country says it is amending laws that cap foreign ownership of stocks and bonds in line with East African Community requirements to allow free movement of capital. The change of heart is also seen as part of a larger plan by Tanzania to tap foreign investors for the cash for infrastructure projects. In an interview last week, President Jakaya Kikwete told the Bloomberg news agency that his government was reviewing the laws and the process was expected to be completed by the end of next year. Bars foreigners Tanzania bars non-residents from buying its bonds and limits foreign ownership of companies to 60 per cent, well below the not-so-strictly-enforced threshold of 75 per cent set by neighbouring Kenya on listed companies. Tanzania’s move is expected to spark a major shift in asset allocation in Rwanda, Uganda and Tanzania, where pension funds are overexposed to government debt and real estate investment, forcing asset managers to seek a wider selection of regionally quoted shares to boost returns. And, just as East Africans are allowed to buy and sell shares at the Dar es Salaam Securities Exchange, Tanzanians will also be free to invest in other capital markets. “The central bank has given me assurances that we will meet that deadline,” President Kikwete said in Dar. “By 2015, we will be fully liberalised.” The new rules will allow for- eigners to take up shareholding in several mining and tel- By 2015 we will be fully liberalised.” President Jakaya Kikwete Business watch Safaricom shares hit all-time high amid local rivals’ exit talk Safaricom shares price hit an all-time high of Ksh13.40 ($0.15) last week, pushed by reports of the impending exit of two of its competitors — yu Mobile and Telkom Orange. The price has almost doubled in seven weeks from Ksh6.15 ($0.07) and almost tripled from the initial price. Safaricom shares were listed at Ksh5 ($0.05) in September 2010. While Orange officials said the business required Ksh30 billion ($353 million) in additional capital from strategic partners, yu Mobile was the subject of asset buy-out moves by Safaricom and Airtel Kenya. KCB Group sets up holding firm Activity at the Dar es Salaam Stock Exchange. Tanzania is set to liberalise its capital account by the end of next year. Picture: File ecom firms, in line with regulations that require them to list part of their stake in the local market. Under 2010 laws, mining firms working under licence and telcos were required to list part of their shareholding in the local market. But the country has not developed laws to effect this requirement. There are six telecoms op- erators — including Vodacom, run by Britain’s Vodafone, and Airtel, run by India’s Bharti. Tanzania has been reluc- tant to fully open up the capital account for fear of capital flight, which could precipitate a currency and banking crisis that would hurt its economy. The move is also expected to increase foreign participation at the bourse and help grow the bond market, which has a bond-to-GDP ratio of less than five per cent compared with 16 per cent in Kenya and about 22 per cent in South Africa. Highest return Tanzania government secu- rities offer the highest return in the EAC, with yields on the 91-day, 182-day and 365-day Treasury bills averaging 12.16 per cent, 13.22 per cent and 13.3 per cent, respectively. Yields on Uganda’s 91-day T-bill average 10 per cent and Kenya’s 91-day, 182-day and TOUGH CONDITIONS Tanzania’s central bank issued a Foreign Exchange Circular in 1998 that allows citizens to acquire, sell or transfer to any person within or outside the country any security or coupon on which capital money, dividends or interest are paid in foreign currency, but only if the security or coupon 364-day are at 8.8 per cent, 9.8 per cent and 10.3 per cent, respectively. Rwanda’s 91-day, 182-day and 364-day T-bills have yields of 5.2 per cent, 6.2 per cent and 7.7 per cent. Key driver Foreign investors are a key driver of Kenya’s capital market as more than half of the trading at Nairobi Securities Exchange is driven by foreign buying and selling of shares. The IMF partly blames the narrow investor base in Tanzania and, indeed, the EAC, for the low levels of international investor participation in local markets relative to regions such as Southern Africa. “Low liquidity is also due to the shallow investor bases,” says the IMF in a report assessing the regional capital markets. “Local commercial was bought solely using externally acquired funds and that the Bank of Tanzania must be notified. Across the border, Burundi’s Foreign Exchange Regulations issued in 2010 require residents to obtain central bank approval to buy foreign shares or securities, lend or invest abroad. banks and pension funds, dominant investors in the region, generally tend to hold securities until maturity.” According to The East Af- rican Common Market Score Card 2014: Tracking EAC Compliance in the Movement of Capital, Services and Goods report released earlier this year, Tanzania and Burundi have the highest number of restrictions to cross-border trade and flow of foreign direct investment in the region. The scorecard was developed over 18 months. In Tanzania, a foreigner may deal in up to 60 per cent of shares of primary or secondary issues in the local stockmarket while Kenya, which defines a local investor as a citizen of the EAC, allows foreigners to purchase a maximum of 75 per cent of shares in a local company. to run its subsidiaries KCB Group has become the third Kenyan bank to set up a holding company for running subsidiaries, including regional offshoots. The Nairobi bourse-listed lender is set to seek shareholders’ approval at the upcoming annual general meeting for KCB Bank Group to be owned by a special vehicle, the Business Daily has reported. The holding company will oversee KCB Kenya and its regional units in Uganda, Tanzania, Rwanda, Burundi and South Sudan. Kenya’s largest bank also has an investment banking arm called KCB Capital. Mid-sized lender I&M Bank is a wholly owned subsidiary of I&M Holdings Ltd while Equity Bank has also announced plans to set up a non-bank financial institution to own its subsidiaries. 45 Insurers brace for mergers and acquisition as deadline nears Insurance companies in the East African region will be seeking merger and acquisition deals as the deadline for the separation of general and life insurance business in Uganda nears. Newton Jazire, Lion Assurance managing director, said although some companies have started separating the businesses, small ones that are unable to run them as separate entities will have no choice but to merge or be acquired. American equity firm raises $698m for sub-Saharan fund Carlyle Group LP, the US private equity firm, has raised $698 million for its sub-Saharan Africa fund. The firm, which has invested in Tanzania-based supply chain manager Export Trading Group and Mozambiquebased shipping firm J&J Africa, is looking at investing in other countries across Africa, its co-head for the region, Marlon Chigwende, said. It is the largest first-time private equity fund ever in the region.
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