WHILE around the world, stock markets are being used to support companies and investors raise capital and give investors opportunities to back new and expand established enterprises, stock market in Tanzania in my judgment isn’t as robust enough capitalisation compared to its pears as a source of capital for investors.
Perhaps the culture of investing on financial products is not there or the way most of us understand and take on stock market’s role is not well understood, henceforth, lack of mechanisms to encourage investors, notwithstanding of their riches to view stock market as a place, where they can grow their investment and source capital than placing their money in saving accounts or bonds for returns.
Given its simplicity and effectiveness for risk assessment, market capitalisation in my view can be a helpful metric in defining which stocks an investor can be interested in, and how to expand their portfolio with companies in various economic segment such as, financial, industries, basic materials, consumer goods, consumer services, utilities, health care, communications, oil and gas etc.
Using market capitaliSation to show the size of a company is important because company size is a basic determinant of various characteristics in which investors can be attracted aware of prevailing market risk.
Many persons miss the point to appreciate that a rising stock market or size of market capitalization is commonly associated with a growing economy assessment and indicate to greater investor buoyancy.
Investor confidence in stocks indicates business activities that can support to push economy ahead. Meaning, when stocks increase, people invested in the equity markets gain wealth. From an economic point of view, this amplified wealth time and time again leads to increased consumer spending, as trades buy more goods and services when they’re confident they are in a financial position to do so.
When buyers buy more, businesses that produces and sell those goods and services decide on to produce more and sell more, reaping the benefit in the form of increased revenues. This cycle is amongst many benefits of having dynamic and robust stock market.
The debates over market efficiency and size of market capitalisation exciting as they are would not be vital if the stock market did not affect real economic activity and investments. If the stock market were a sideshow, market inefficiencies would merely redistribute wealth between smart investors and noise traders.
But if the stock market influences real economic movement, then the investor sentiment that affects stock prices could also indirectly affect real economic activities, performance and growth.
My thinking on why stock market of Tanzania is not as active as others across east Africa was triggered by on-going debate on market capitalization, size and number of listed enterprises that unfortunately are fewer in Tanzania when compared to Kenya, amidst feeling that given massive investment being done in Tanzania will soon surpass Kenyan economy and rest of EAC individual country economies.
Centred on anecdotal investigation at the time of lettering this reflection on what might be holding back Tanzanian stock market vibrancy and its market capitalisation, and to place my thinking in perspective, I noted that the New York stock exchange is the largest in the world at over USD$18.2 trillion in market capitaliSation, over five hundred times bigger than the total value of all the exchanges in East Africa.
The NYSE is trailed by the NASDAQ at over USD$6.8 trillion and the London Stock Exchange at USD$6.2 trillion. A bit closer to home is the Johannesburg Stock Exchange which has USD $951 billion in market capitalization, nearly 30 times as large as the EAC exchanges.
Picturing on NYSE and other active market in terms of capitalisation incited my thinking to gaze at EAC exchange market in an endeavour to ascertain what makes it weak as source or place where businesses nurture capital for new investment and expand existing big business?
Kenya, presently being regarded as the largest economy in the EAC region, analysis of number of listed companies indicated that the NSE of Kenya has the biggest market capitalization equal to USD $18.8 billion, followed by Tanzania at USD $9.8 billion, Rwanda just under USD $3.7 billion and the lowest being Uganda while Burundi does not have a stock exchange set up, unless created yesterday.
The size of market capitalization in my opinion matter a lot as far as investment is concerned because the growth of an exchange depends on the volume of participants’ capital and number of new companies listing on the stock exchanges.
Number of listed companies and sector involved for East Africa counties could help to shed light on what can be done to provide enticement for more companies and individuals to list and view stock market as place to raise capital and good returns over long period as compared to other sources.
While Kenya has 62 listed enterprises stretching from financial (23), industries (6), basic materials (4), consumer goods (13), consumer services (11), utilities (3), communications (1) and oil and gas (1) on its side, Tanzania has only 27 listed enterprises stretching from financial (13), industries (3), consumer goods (4), telecommunication (1), oil and gas (1), basic material (1) and consumer service only 4.
Uganda has 17 listed companies where financial (8); consumer goods (2), health care (1), consumer services (4), utilities (1) and industrial (1). Rwanda has 8 listed companies, financials (4), consumer goods (1), services (2) and telecommunication (1).
At any level the number of listed companies and sector involved leaves more to be desired as country’s stock market continued to be seen as sources for capital for investment and expanding businesses in addition to traditional sources i.e. banks.
In this article, I am trying to address empirically the broader question of how the stock market affects investment and why there are few participants in the stock market with more interest in Tanzania stock market. Or simply why isn’t our Tanzania stock market is not growing as fast as it should?
Having looked at the market size and market capitalisation size and taking things at broader view and causes in perspective, I have at least several main causes that have maintained low participation of companies and individuals in the stock market through listing and if nothing is done about it, the prospect of stock market for Tanzania to develop as compared to Kenya and the rest of the world stock markets would remain small.
My observations may trigger topics for discussion and debate but devoid of mixing words, for majority Tanzanians culture of investing on financial products is very low making many people to think investing in banks and particularly in saving accounts is best option to grow returns.
Looking at government securities and government bonds, widely most investors are banks and pensions funds. And for individuals who buy some of these financial products, majority not all invest to hold instead of studying the markets behaviour and trade from time to time.
In my opinion, another causes is the fact that most of Tanzanians, especially now are investing in informal system especially through “vicoba” aimed at investing to consumer instead. Much as vicoba are being praised to be a benevolent father for many, such system would never create a base for long term investment.
As I pen this editorial down, with stock exchanges becoming important sources of investment capital for large corporations, the positive experience with relatively sizable companies in capital raising and other economic finance will continue to invigorate debate on whether our exchange is capable of promoting between Tanzania wealth creation, trade, investment and economic growth.
Tanzania is one of the African countries that is expected to see a considerable economic growth primarily due to on-going infrastructure investments economic reforms, sound macro-economic policies and the expanding credit growth to private and public sector.