Thursday, July 2, 2009

10 Years Latter, DSE is Still Crawling

In the past decade, Africa has experienced a surge in the development of stock markets. On this particular article, the author analyze how does DSE failed to provides incentive to Tanzanian investors. Enjoy the peace!

DSE: 10 years later, is it significant for the national economy?

Dar es Salaam

AS the Dar es Salaam Stock Exchange (DSE) recedes into its usual napping at the end of the year, there are several questions that call for answers, whether the stock exchange was already a significant player 10 years down the road, or if it wasn?t how much time there is before it perhaps becomes one.

So far the DSE had five sessions by perhaps ’forcing’ the pace, but at times, like lately, three sessions have been more or less adequate and it transacts little business all the same. Is Tanzania really a place to conduct share sales, or this is a World Bank fairy tale project?

Experts were trying to point out that Idd and Independence festivals had diminished the trading, which fell by a hefty 79.51 per cent as most companies were inactive and seven that were active traded marginally. Usually such a situation cannot arise if the bourse was embedded into the national economy, but as it is merely a sort of speculative market in like manner as shopping from some fashionable goods in supermarkets, any excuse is sufficient for not going there. One could just say trading at DSE stopped because it was rainy on one of the days, and the following day was too hot.

The DSE market capitalization now stands at 3,901.13bn/-, which in itself is a substantial portion of the economy, the difference being that much of what is quoted there isn’t quite national in character, and it is hard to actually state in what manner the DSE activity itself engages portions of the financial sector, and the financial outlook of the listed firms.

It would for instance be interesting to make a survey of capitalization efforts and stock market activity, where it is unlikely that the DSE activity is substantial for instance to foreign firms listed there. In the latter case, it would be proper to see their presence at DSE in cost-benefit analysis of maintaining offices for that purpose, or adding that aspect of share trading to board activities - instead of hiving off such aspects. It is fallow share trading, where a firm maintains its presence for future benefit, just in case....

Companies like East African Breweries and Kenya Airways are thus on the DSE as a potential stock trading zone in future, while local firms might have an eye to properly raising capital, and this to varying successes, since trading is conducted in relation to ’blue chip’ firms.

There is more of a speculative interest in stocks rather than proper investment, as the latter usually reflects balance sheets and growth prospects, while the former relates to sectors, those which make money easily get the lion’s share of buyers. Thus the listing of the National Micro-finance Bank (NMB) seems to have cut into the dominant share trading place of Tanzania Breweries Limited (TBL), though it is arguable if this shift is sustainable, that NMB has greater profitability prospects in comparison with TBL.

It can thus be said that the creation of the Dar es Salaam Stock Exchange is a ’supply side’ measure, that to the extent that it is of use for putting up a market economy, it was vital to bring it about to that it contributes whatever it can to the process of modernization..

Yet however, it has scarcely been grasped in terms of what it should be, for instance the fact that no pressure has come from either listed firms or the breadth of economic experts that land ownership be converted to private instead of state control, so that a rising land market provides the ’neutral’ charge that the DSE needs for its ’positive’ charge. Without a building and land market a stock exchange cannot work, for it is a sphere of exchanging values and balancing investment efforts - and when both fail, investors run towards gold to find shelter.

Indeed, it is hard to say which market is important to the economy, the stock market or the interbank foreign exchange market - for which there is very little that is said on a weekly basis - but it seems to be the key partner of the government and the central bank in managing the country’s economy on a day to day basis, the stock exchange being a window dressing for wider reform and modernization ’feel good’ needs.

There is more of a financial market in the country than there is a stock market, and the cash that finds its way into DSE is largely what wasn’t accepted at the Treasury bills, bonds market, and which is available for trading or speculative activity generally. There is no proper investment climate that one can credibly underline at DSE.

For instance there is scarcely a report as to whether any funds flow into DSE from any other quarter, though several of its stocks are large firms, and this situation is liked by the central bank as it ensures that the capital account is not liberalized.

While this part of modernization requirements appeared to be a matter of course towards the end of the third phase administration, despite that former BoT governor, the late Dr Daudi Balalli wasn’t known for making any public remarks on the issue, the current holder of the post is apparently an adept of pre-liberalization outlook, or he would perhaps say ’post-liberalization’ scheme of things. With the current global downturn, anti-liberals of all hues find their positions vindicated, for as far as they are concerned, it is capitalism as such which has failed to work properly, and the solution is state intervention to correct that they call market failures.

It is hard to say what can be brought under the ’market failure’ thesis and thus how much the government should do to correct what the market has failed. What can be listed under such a notion depends on the one listing it, and in our case there is pressure to return petroleum to a state firm to import and distribute, since prices being 20% above their predictable global level owing to the fall in crude oil prices if market failure.

Parliament also wants the state to take up at least 50 per cent of shares of gold mining firms, since there is ’market failure’ of equal benefit from their local operations, if everything is left to the market - that is, using merely the instrument of taxation.

Thus under such an aura of convictions, it is hard to see the Bank of Tanzania moving towards capital account liberalization and giving the sort of breadth that the DSE needs. Only when the doors to foreign investment will be opened shall there be stock trading at DSE, along with reform in land ownership so that industrial and financial stocks can be balanced or boosted in value from shifts in economic results or movement in land prices.

In Tanzania at the moment land prices don’t exist at the paper market level, so land isn’t allocated by the market and bringing about the benefits thereof. It is governed by machinations in the government and concerned ministries, dampening stock trading and fostering corruption, hampering credit and ruining job creation possibilities. In the absence of pluralism in economic thinking, as different from a herd mentality created by the 1967 Declaration and underlying nationalism, where blaming foreigners is key to economic and policy thinking as a whole, these methods of governance or land allocation are comprehended as natural.

Sovereignty lies in ability of the president to revoke the title to a certain piece of land, despite the fact that if land was free from the president’s hands its value would rise fast, attract scores of investors and the president’s agencies would then collect the relevant taxation from what becomes a booming economy. But isn’t sovereignty, freedom to do as we please, more valuable to the country than bread and butter, or is that not what was said in the Mwongozo wa TANU, in 1971

1 comment:

Anonymous said...

You only need to pop to their website to realise that DSE has run out of ideas.
Someone need to tell these people its time to wake up.