Turning excess liquidity into productive capita

TANZANIA: WHAT if the money investors are competing to lend to the government could also finance businesses, expand private-sector investment and create new opportunities for wealth creation? Tanzania’s capital market is sending a clear signal: Investors have money to invest, and the challenge is increasingly about providing the right products to meet their expectations.

The recent oversubscription of the 25-year Treasury bond offers an important lesson on how the country can unlock this investment potential.

Oversubscription has increasingly become a familiar feature of Tanzania’s financial market whenever attractive investment opportunities emerge.

The recent auction of the 25-year Treasury bond illustrates this trend. Investors submitted bids totalling approximately 2.2tri/-, while the government accepted bids worth only 550bn/-, leaving approximately 1.7tri/- in bids unaccepted.

Although unaccepted bids do not necessarily represent idle cash, the outcome provides an important indication of investors’ willingness to commit substantial funds to financial instruments offering attractive returns and investment horizons.

It also raises a critical question: Where can this investment appetite be channelled when the available supply of preferred instruments falls short of demand? The answer lies not merely in increasing the issuance of existing securities, but also in broadening the range of investment opportunities available in the market.

Beyond government securities Government securities remain important instruments for financing public expenditure, managing liquidity and providing investors with relatively predictable income streams.

However, an investment ecosystem that relies heavily on government securities may overlook opportunities to mobilise domestic savings towards private-sector growth and long-term economic development.

Tanzania needs a more diversified capital market offering investment products that respond to different investor preferences, risk appetites, liquidity requirements and investment horizons.

Corporate bonds present one opportunity. Businesses with sound financial positions and viable expansion plans could raise long-term funding directly from investors, reducing their dependence on bank lending.

However, issuers must demonstrate financial strength, maintain transparency and offer terms that adequately compensate investors for the risks involved.

Collective investment schemes, including money market funds, bond funds and equity funds, can also help broaden participation by allowing investors to access diversified portfolios through professionally managed structures.

Exchange-Traded Funds (ETFs) provide another avenue, enabling investors to gain exposure to a basket of listed securities through a single investment product.

Additionally, infrastructure bonds and appropriately structured green and sustainability-linked instruments could mobilise longterm capital towards commercially viable projects in sectors such as energy, transport, water and climate-resilient infrastructure, subject to sound project evaluation and effective investor protection.

Innovation must match investor expectations Developing new products alone will not solve the challenge. Products must be commercially viable, accessible and supported by credible governance, transparent pricing and appropriate risk disclosures.

Financial institutions, fund managers, investment advisers, issuers and market regulators therefore have a shared responsibility to strengthen product innovation and investor education.

Digital investment platforms can improve access, while suitable minimum investment thresholds can enable participation by individuals who may not have substantial amounts of capital.

Equally important is the need to offer a balanced combination of return potential, liquidity and risk. Investors should not be encouraged to pursue higher yields without understanding the possibility of capital losses, interest-rate fluctuations, credit risk and other investment risks.

The objective should be to create a market where investors can make informed choices across different asset classes rather than compete for a limited number of familiar instruments.

From investment appetite to economic transformation Tanzania’s capital market must now move beyond interpreting oversubscription as a successful fundraising outcome.

It should also recognise it as a signal to deepen the market, diversify investment opportunities and strengthen the connection between domestic savings and productive investment.

ALSO READ: Making Dira 2050 investable through capital markets

The next phase of capital market development will depend not only on how much money Tanzania can mobilise, but also on how effectively it can transform that money into productive capital.

By developing credible, innovative and accessible financial products, market participants can help channel investors’ resources towards businesses, infrastructure and other productive activities while offering returns commensurate with the risks undertaken.

This is how excess demand for investment opportunities can become a catalyst for broader financial inclusion, private-sector expansion and sustainable economic growth.