Tanzania bars Kenya from its hottest public share sale

Written by Geoffrey Irungu

After opting to stay out of Kenya's biggest share sale —the Safaricom IPO— in May, Tanzania has now expressly barred Kenyans and Ugandans from taking part in one of its most promising share offers. August 13, 2008: After opting to stay out of Kenya's biggest share sale in May, Tanzania has deepened its opposition to ongoing efforts to integrate the regional economy by expressly barring Kenyans and Ugandans from taking part in one of its most promising share offers.   Investors from the two countries, which together with Tanzania were the original members of the East African Community, will not be allowed to buy shares in the National Microfinance Bank (NMB) when the sale begins on Monday. Mr Edwina Lupembe, the director general of the Consolidated Holding Corporation (CHC), the department that owns shares in state companies on behalf the government, was quoted saying the share sale would be restricted to individual Tanzanians and companies that are wholly owned by them. Fears This reluctance by Tanzania to open up its capital markets to foreigners is seen to be arising from fears that trading would destabilise the country's foreign exchange position. Unlike Kenya and Uganda, which have long removed exchange and capital controls from their statute books, Tanzania still relies on restricted currency movements as a macroeconomic tool. The rules however appear to be in direct conflict with the East African Customs Management Act, which requires residents of the three countries to be treated as locals when it comes to investment. It also sets Tanzania apart from Kenya and Uganda, who have opened their doors to regional investors in compliance with the customs law. Last December, Uganda allowed Kenya and Tanzanian investors to buy shares in Stanbic Uganda by according the local resident status. It is under this law that Kenya offered East Africans a chance to buy into Safaricom as residents, an offer that Tanzania declined. The National Microfinance Bank of Tanzania enjoys national clout similar to that of Safaricom, Kenya's leading mobile phone firm, and Stanbic Uganda, the country's largest bank in terms of branch network. It is Tanzania's second largest bank by assets and its initial public offering of shares was expected to attract investors across Lake Victoria, the natural bond that ties the three countries. Forex regulation Capital controls remain in place in Tanzania such that movement of foreign exchange is subject to regulation from the Bank of Tanzania. Although Tanzanians are not expressly barred from investing in the other east African countries, they encounter barriers during currency conversion. "If they could remove the capital controls, then the sale of IPOs to other east Africans would be possible and easier," said Rina Karina of Faida Investment Bank. The lock-out of Kenyans and Ugandans from NMB throws into the spotlight the uneasy relationship in the customs union. Investment bankers, however, say that the Tanzanian government may be justified in locking out foreigners in the IPO as the country has a small economy and the size of the issue is can be supported locally. Suntra Investment Bank chief executive James Murigu said Tanzania's economy was still so small that it may have little to share with the other countries noting that the IPO itself at Sh3.5 billion is tiny. "When you are small, you need to keep all the wealth in the country. That is why Tanzania must have decided to lock out foreigners," he said. The IPO has 105 million shares on offer at Sh35 (Tsh600) each, showing that the total proceeds will be about Sh3.7 billion (Tsh63 billion) – which constitutes 21 per cent of the total stake of the bank. The government holds 51 per cent of the bank; Rabobank Nederland 34.9 per cent; National Investment Company (NICO) 6.6 per cent while EXIM Bank Tanzania and Tanzania Chambers of Commerce, Industries and Agriculture (TCCIA) hold 5.8 per cent and 1.7 per cent respectively. That the bank was already owned more than 30 per cent by foreigners may have been a factor in limiting more ownership by foreigners. The microfinance bank is still considered a national financial emblem, boasting the largest branch network and number of employees. The sale is set to end on September 8. Besides restricting participation in IPOs, Tanzania has appeared uncomfortable with cross-listing of shares in the region's bourses. The Uganda Securities Exchange and the Nairobi Stock Exchange have signed a protocol allowing that. NMB conducts out commercial banking serving retail customers, small businesses, and central and local government agencies. In fact, it is the principal commercial bank to the Government for payments nationwide. The government sold 49 per cent of the bank in 2005 after conducting an international competitive tender. The IPO has been delayed for long as it was first mooted in 2006 and was expected to have been completed by the end of 2007.

 




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