Weathering the storm at the Dar es Salaam Stock Exchange (DSE)

By: Moremi Marwa, CEO, Dar es Salaam Stock Exchange Aug 2020

The COVID-19 pandemic is undoubtedly causing unprecedented disruption to both businesses and economies, causing a need to delicately balance social-public health priorities on one hand and the preservation of life, and the sustenance of economic activity on the other.

Tanzania responded to the pandemic relative to its own circumstances aligned to its specific social, cultural, and economic challenges. For instance, Tanzania implemented a partial lockdown from mid-March to June 2020 where some of the social, cultural and economic activities were restricted, and then wholly opened up the economy from July 1.

However, some measures taken to contain the spread of the virus disproportionately impacted business output, resulting in changed models of business operations as well as new opportunities. From the market infrastructure perspective, central to recovery is the need to maintain solvency, attract liquidity and enable sustainable access to capital.

In responding to economic policy interventions (monetary and fiscal) executed by the Government including relief measures offered by alternative suppliers of capital, the DSE enhanced its engagement with key stakeholders to raise awareness of alternative approaches that could be deployed to tap into pools of contractual savings through various instruments on the market.

It is unarguable that the DSE, like similar markets, has over the years relied on international investors as the key source of liquidity, volatility, and price discovery. Historically, international investors contributed over 85 percent of liquidity on the equity segment, but from mid-March to-date foreign investors participation has declined to less than 20% of market liquidity, resulting into liquidity challenges. For structural and policy reasons domestic investors and suppliers of capital have remained narrow. Low participation of domestic investors poses the biggest threat to the resilience of the market especially under current circumstances. It has become clear that without the support of a vibrant domestic investor base, the sustainability and resilience of the market is threatened.

The one thing that is expected to challenge market infrastructure participants, also an opportunity, is the existence of means, tools and mechanisms with capability to reach potential domestic suppliers of capital and participants in the securities trading and investment and hence increase the domestic investor base.

Operations and Resilience Challenges — New opportunities

Whether access to capital via capital markets IPOs, or mechanisms and tools of mobilisation of IPO funds, or payment of dividends and bonds coupon, or remote access to market infrastructure, etc — the silver lining seems to be on the Financial Technology (fintechs) whose innovation will enable entrepreneurs access to capital, as well as financiers and capital suppliers to invest and get their returns in an efficient manner. Seeking to integrate technology to develop financial services with limited operational costs seems the way to go for the market.

At the DSE, we believe that fintechs can help mitigate the economic cost of lockdowns and avoid irreversible damage to the socioeconomic fabric of our society. That low-cost fintech solutions hold the key to reaching out to the more than 99% of Tanzanians who do not have investment accounts with the DSE.

So far, mobile money developments seem to be the most utilized feature of fintech. According to Statista Data, the mobile (money) payment market in Tanzania surpassed US$ 3.6 billion worth of transactions — attributed to 23 million subscriptions — on 257 million transactions. Measured against the total population of approximately 58 million, around 40% of Tanzanians made use of mobile money in 2019. The same can be transformed and provide leverage into the market.

Based on the foregoing, the Covid-19 crisis provides an opportunity for the DSE and fintechs in Tanzania to mutually engage on the urgent need to leverage on existing development, adapt and innovate financial inclusion solutions and limit the long-term negative impact of the pandemic, while providing a buffer against similar crises in the future.

The DSE believe that by prioritizing fintech, we can ensure that the vulnerable among us not only survive new cases (if any) of Covid-19, but also that they are given a fair chance to thrive post-pandemic.

The way forward — DSE Focus on technology and innovation

On the lessons learnt and the urgency to act as a result of the pandemic, the DSE in collaboration with development partners and government agencies are currently developing fintech solutions to enable: access to securities trading and investments; entrepreneurs and issues of financial instrument access to wider capital base; implement financial inclusion and inclusive economic empowerment policies.

Among the ICT projects geared to address current market challenges are:

  • Mobile Trading Platform — the DSE is developing this platform to enable remote access and increase outreach to retail investors currently not served by stockbroker networks;
  • M-Akiba bonds, targeting retail investors — the DSE and other key stakeholders are developing the Mobile Phone Platform to enable Tanzanians to invest and trade in Micro Saving Bonds, so enhancing liquidity in the secondary market and widening the domestic investor base of the government’s financing source; and supporting the country’s Financial Inclusion Framework;
  • Automatic Fail-Over Process — during this pandemic the DSE has focused on enhancing its business continuity process and has automated the fail-over mechanism to the disaster recovery site (DRS) to allow live trading, clearing, settlement and other operations to continue at the DRS without any interruption in case of continuing or worsening impact of the pandemic; and 
  • Request for Quotations trading Module (RFQ) – the project whose purpose is enabling brokers and bond traders to request bond prices and accept quotations from other participants in a more transparent and competitive manner, enhancing the bond price discovery process, volatility and transparency in price discovery.