Tanzania

Country Summary

Macroeconomic performance: Real GDP growth was an estimated 6.7% in 2018, down from 7.1% in 2017. The services sector was the main contributor to GDP (39.3%). Private invest- ment was the main demand-side contributor (63.9%). The external sector stymied economic growth as the current account deficit increased (despite the real depreciation of the Tanzanian shilling), due to a higher volume of imports in 2018 than in 2017. The increase is due largely to increased imports of trans- port equipment, building and construction materials, industrial raw materials, and petroleum products for large public investment projects, such as the Stan- dard Gauge Railway. The import bill also increased as a result of the rise in the price of key commodities, such as crude oil.
The fiscal deficit increased to an estimated 3.9% of GDP in 2018, due to increased capital spending on infrastructure projects. Public debt increased to an estimated 39.3% of GDP in 2018 from 38.2% in 2017. External debt accounted for about 74.9% of total public debt in 2018. The risk of debt distress remains low because public external debt, at 34.5% of GDP, is mostly concessional.
Monetary policy was more accommodative in 2018 than in 2017. This increased domestic liquidity and reduced lending rates, leading to greater private credit supply. Due to improved food supply, inflation eased to an estimated 3.5% in 2018.

Tailwinds and headwinds: The medium-term outlook is positive, with growth pro- jected at 6.6% in both 2019 and 2020, supported by large infrastructure spending. Headline inflation is pro- jected to marginally increase to 5.2% in 2019 and 5.1% in 2020 due to increased government spending.
But the positive outlook faces several downside risks: growing private sector concerns about economic policy uncertainty and increased domestic arrears that could derail the government’s fiscal consolidation and harm the private sector.
Key economic development challenges include slow progress towards inclusive growth, infrastructure bottlenecks, and vulnerability to climate change. Pov- erty and income inequality remain high despite high economic growth. Infrastructure bottlenecks are most notable in the transport and energy sectors. Reliance on rain-fed agriculture has exposed farmers to income shocks. And inefficient public enterprises present a fiscal risk. One of the development challenges on the social front is youth unemployment, which increased to 7.3% in 2016, compared with 5.7% in 2012.
Key opportunities include peace and political stabil- ity, abundant natural resources, a strategic geographic location, and immense development potential for tour- ism. The Export Zone Processing Agency established in 2008 to accelerate manufacturing exports and help the country achieve structural transformation has helped attract close to $1 billion in foreign direct investment and revive the manufacturing sector into one of the fast- est growing in Africa.

Source: African Economic Outlook 2019

Fixed Income

Summary

  • The government securities yield curve extended to 15 years. 
  • The issuance strategy aims to meet government financing requirements, enhance market development and development financing. 
  • Tanzania is 14th in the ABMDI 2017 Ranking Report. 

Issuance strategy 

Issuance strategy in place: to meet government financing requirements, market development and development financing. Objective: increasing the proportion of domestic debt vs. foreign debt; smoothening the government debt profile, widening the investor base, and sustainable debt issuance. 

Benchmark issues 

Although building a yield curve is a consideration for issuance and a REPO market is in place, there are no clear benchmark maturities. The Bank of Tanzania does not reopen bonds. Each issuance is a new issue using the auction method. There is no benchmark yield curve in Tanzania. 

Yield curve 

There is no yield curve in Tanzania currently, although the government issuance strategy includes plans to build a benchmark yield curve. 

Challenges in building an efficient yield curve 

  • Market fragmentation: this is due to the existing small bond issues in the market. 
  • Narrow investor base: Tanzania has partially liberalized the capital account to East African Community (EAC) residents under conditions that have limited the participation of even those EAC residents. The market is dominated by local investors. The absence of foreign investors has limited performance on the secondary market. 
  • Limited and illiquid secondary market: 
  • Pension fund holdings of government securities account for over 40% of outstanding government bonds. These are not made available for sale. 
  • The absence of a horizontal repo market has made government bonds even more illiquid. 
  • The inadequate volume of instruments in the market has led investors to hold on to their securities until maturity. 
  • Lack of transparency: lack of intermediaries giving two-way quotes has limited pricing and transparency in the secondary market. However, all trades in the secondary market have to be reported to the Stock Exchange. 
  • Lack of legal and regulatory framework: absence of legal and regulatory framework supporting both OTC and Exchange trading of bonds   

Guide to Buying Bonds

Procedures for market participation

All Tanzanian residents can participate in the purchase of government securities. They can do so by either bidding directly (primary market) or by contacting a Primary Dealer (secondary market).

Taxation

Tax incentives for investors in listed securities in Tanzanian capital markets and designed to promote activities in the DSE market are:

  • An exemption from stamp duty on secondary market trades.
  • An exemption from the 10% capital gain tax on reselling listed securities
  • A reduction from 10 to 5% of the withholding interest income on listed securities.

Tax incentives for issuers are listed in the Capital Markets Authority website.

Securities longer than 3 years (5-, 7- and 10-year) are exempt from tax. All participants exempt from paying withholding tax must provide tax exemption certificates from the Tanzania Revenue Authority (TRA) to the BoT.

Treasury bills are redeemed by the BoT free of tax.

Settlement cycle

The settlement cycle for bonds is T+1.

Market restrictions

Openness to international investors

On September 2014, Tanzania Capital Markets Authority authorized the participation of foreign investors in local capital markets; they are now allowed to purchase up to 40% of risk-free securities and 60% in equities.

Capital controls 

Substantial FX remittances require documentary evidence and the capital account remains subject to exchange controls.

Foreign Exchange restrictions and profit repatriation

The FX market is readily accessible. Under the current exchange control environment, commercial banks are expected to ensure that all relevant documentation is obtained in support of a foreign exchange transaction. However, convertibility on the capital account remains restricted.

Credit rating

Tanzanian government securities were last rated in 2011; Fitch, Moody’s and S&P gave a rating of B to Tanzania’s creditworthiness; no further rating was issued thereafter. In September 2015, Tanzanian authorities started negotiations with Fitch for a sovereign credit rating in preparation of a Eurobond issuance.

List of Primary Dealers

The list of Primary Dealers (PDs) is provided by the BoT and is subject to change. Currently the PDs are:

1.  Akiba Commercial Bank Ltd.

2.   Citibank Tanzania Ltd.

3.  CRDB Bank Ltd.

4.  Diamond Trust Bank Tanzania Ltd.

5.   Eurafrican Bank Tanzania Ltd.

6.  Exim Bank Tanzania Ltd.

7.   Habidd African Bank Ltd.

8.  International Commercial Bank Ltd.

9.  Kenya Commercial Bank Tanzania Ltd.

10. National Bank of Commerce (NBC) - Tanzania Limited

11. National Microfinance Bank (NMB) Ltd.

12. Stanbic Bank Tanzania Ltd.

13. Standard Chartered Bank Ltd.

14. Orbit Securities Co.Ltd.

15. Rasilimali Limited.

16. Solooni Securities ltd.

17. Core Securities Ltd.

18. Tanzania Securities Ltd.

19. Vertex International Securities Ltd.

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