Capital market development and growth in sub-Saharan Africa : the case of Tanzania

As of December 1999, four companies have been listed on the DSE. Three of these companies have raised a combined equity capital of TShs 28.57 billion (an equivalent of US$35.71 million) in the primary capital market. The fourth company, East African Development Bank, has raised an amount of TShs 10 billion (an equivalent of US$12.5 million) through the issue of a 4-year corporate bond. The present study shows that aggregate savings declined prior to the reform and increased during the reform period. However, expected increases in credit to the private sector did not take place despite policy reforms. The study also finds that the introduction of high-yield government short-term Treasury bills has increased the demand for Treasury bills at the expense of credit to the private sector. As a result, commercial banks tend to switch a greater proportion of their deposit liabilities into Treasury bills. This portfolio switching tends to crowd out the private sector and productive activities from the capital market. Other results show that regional integration and globalization of the Tanzania capital market would be beneficial in terms of attracting foreign capital, efficiency of utilization of capital, and corporate governance. Foreign participation would also encourage domestic participation in the capital markets. Also, findings indicate that the Capital Markets and Securities Authority (CMSA) has been effective in promoting good corporate governance in Tanzania. Disclosure requirements are specified and monitored by CMSA and DSE. The share price movement has been an effective way of demanding accountability from listed companies. The price movement at the DSE has also shown how the operations of a free market mechanism lead to efficient pricing of financial assets in the stock market. The study found that even though the policy changes in Tanzania had a positive impact on capital market development, many challenges and problems remain to be addressed in order to promote a functioning capital market in Tanzania. (Author abstract, modified)