Treasury bond re-openings impact DSE revenue

TANZANIA: IN 2024, the country’s capital markets achieved remarkable growth, marked by increased investment values, regulatory enhancements and a broader range of investment opportunities.

Although the secondary bond market experienced a decline in transaction value, the number of deals nearly doubled, reflecting growing retail interest in fixed-income securities.

Conversely, equity turnover almost doubled during the year, driven primarily by increased domestic participation, which offset a significant net foreign outflow. Equity turnover surged by 92 per cent to 228.95bn/-, with domestic investors absorbing substantial foreign disposals.

Net foreign outflows rose by 143 per cent to 26 million US dollars as foreign purchases dropped while foreign disposals almost doubled.

Foreign purchases stood at 14.9bn/- in 2024, down from 22.5bn/- in 2023, while foreign disposals increased from 49.8bn/- to 81.4bn/- in 2024. The 2023 figures exclude one-off mergers and acquisitions transaction on the Tanga Cement counter.

The trend of foreign outflows persisted similar to the last three years, influenced by global investors’ cautious approach to emerging and frontier markets amidst increasing global economic uncertainties.

Despite two US Federal Reserve rate cuts in September and November 2024, foreign investors continued liquidating Foreign Portfolio Investments (FPIs) in frontier markets.

The newly elected US administration has indicated policies contributing to global economic uncertainty. Expected tax cuts could prove inflationary, prompting the Federal Reserve to reconsider its expansionary stance.

Additional concerns include potential trade wars, tariff hikes against Chinese goods and restricted access to the US market for BRICS aligned countries.

Despite expectations of continued foreign outflows in 2025, increasing domestic participation in DSE reflects market resilience. Growing financial literacy and heightened capital market awareness among local investors pushed domestic market capitalisation up by nearly 8 per cent 2024.

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The Bank, Finance & Investment (BI) sector index rose by over 27 per cent, supported by strong earnings growth and a favourable business environment fostered by friendly government policies.

CRDB Bank Plc led the financial sector, recording a 45.65 per cent price appreciation in 2024, fueled by a 45 per cent increase in earnings during the year’s first nine months.

CRDB paid a 50/- per share dividend, translating to a 10.9 per cent dividend yield at the year’s start and a total annual return of 55.98 per cent, net of taxes on dividends.

Other counters with significant total returns included the self-listed Dar es Salaam Stock Exchange (DSE) at 38.8 per cent, National Investment Company Ltd (NICOL) at 28 per cent and NMB Bank Plc at 26.51 per cent.

DSE’s performance was bolstered by increased bond listings, leading to higher listing fees in 2023 and additional transaction fees from notable deals like the Tanga Cement transaction valued at approximately 106bn/-.

However, Treasury bonds re-openings have impacted DSE’s revenue from bonds listing fees since additional bonds pay 50 per cent less of the initial listing fees compared to new listings.

In 2024, the secondary fixed-income market faced challenges, with bond transaction values declining by 15 per cent to 3.38tri/-, despite a 70 per cent increase in the number of deals.

On the primary market side, the government collected 3.8tri/- from Treasury bond auctions, an 8.0 per cent increase from the previous year, despite a smaller aggregate offer size.

Subscription rates soared, with the 25-year Treasury bond achieving a remarkable 274 per cent subscription rate, contributing to an overall subscription rate of 170 per cent.

Yields remained elevated as the Bank of Tanzania (BoT) focused on stabilising the shilling. August 2024 saw liquidity constraints in the banking sector, with the 7-day interbank rate exceeding the 8.00 per cent upper corridor for several trading sessions.

The BoT intervened by issuing reverse repos to inject liquidity, easing market pressures. Cashew auctions held in October 2024 also played a pivotal role in stabilising the shilling, with 400,000 metric tonnes valued at 1.4tri/- (600 million US dollars) auctioned.

These auctions, combined with tourism and gold exports, contributed to a 14.6 per cent appreciation of the shilling from mid-October to mid-December 2024. Tanzania’s capital markets demonstrated innovation in 2024 with the introduction of new products.

CRDB Bank Plc issued the nation’s first infrastructure bond, aimed at raising 150bn/- to support projects under the Tanzania Rural and Urban Roads Agency (TARURA). Additionally, nine new collective investment schemes were launched, mobilising 81bn/- under five fund managers.

The total Net Asset Value (NAV) of collective investment schemes reached 2.7tri/- by year-end, with CRDB serving as the custodian for 97.5 per cent of these funds.

The outlook for Tanzania’s capital markets in 2025 remains optimistic, underpinned by a favorable domestic environment and a steady pipeline of innovation.

Fixedincome securities are expected to continue playing a significant role, especially in financing financial institutions and commercial banks amid double-digit private sector credit growth.

The government’s increasing reliance on capital markets for alternative financing is evident in initiatives mentioned in the 2024/25 national budget such as the proposed Food Security Bond by the National Food Reserve Authority (NFRA) and plans to establish a Venture Capital Fund of Funds to support startups and SMEs.

Despite positive domestic trends, global economic uncertainties pose risks. Protectionist policies from the US could pressure the foreign exchange reserves of developing economies.

Additionally, geopolitical fragility in the Middle East may disrupt global fuel and food supplies, adding to economic volatility.

● The writer is CRDB Bank Plc’s Head of Capital Markets