Tanzania: Investing The Money Under The Mattress

Omari Saidi heard bad news about the global financial crisis, but the 34-year-old Tanzanian taxi driver felt too far removed from the world market to worry.

Saidi, living on an income of 1,500 dollars a year, has never had a bank account, taken out a commercial loan or learned about personal financial management. His life savings are hidden under a mattress in his modest home in the northern city of Arusha.

It was only in November 2008 that concern with the global credit crunch began to make sense for Saidi -- he invested 50 dollars in the domestic stock market. '‘I don't use a bank account because the charges are high and the interest is very little,'' Saidi said. '‘I decided to put my savings in the stock market because I want a profit.

'‘All I can do now is watch and pray,'' he added, with a shrug.

There is a significant up-tick in the number of poor Tanzanians, like Saidi, trying their luck on the capital market. The east African nation, one of the world's poorest, is a bit player in global commerce and most of its 40 million people are shut out of the world economy.

One-third of the population lives on a dollar a day or less and 64 percent of household expenditure is on food, according to the country's National Bureau of Statistics. Day-to-day necessities eat up whatever piece of spending is left, so the scope for saving is limited.

But a new pattern is emerging with a growing number of Tanzanians putting away a small amount of money to wage on the Dar es Salaam Stock Exchange, in the hopes of raising more cash.

The initial public offerings for three companies this year have attracted an overwhelming response by small-time businesspeople, peasant farmers and women, according to the bourse's regulator.

'‘We're really expanding," Fratern Mboya, chief executive officer of Tanzania's Capital Markets and Securities Authority, said in an interview with IPS. '‘Much of that growth is coming from everyday people buying shares.''

A bank customer for more than a decade, Lidia Mlay, 44, borrowed funds from a local credit cooperative to buy stock in the National Microfinance Bank. Her dream is to collect a yearly cash dividend.

She got off on the right foot. Shares of the Tanzanian lender jumped 70 percent to 1,020 Tanzanian shillings (82 cents), on its debut on the Dar es Salaam Stock Exchange in November. The IPO was hugely popular with an oversubscription rate of 300 percent.

'‘My cost of living is rising and I need the extra money,'' the pharmacy technician told IPS in an interview in Arusha. '‘It's my first time but I'm hoping that my profit at the end of the year will be bigger than the interest I've paid on my loan. I'm nervous.''

For poor people with no experience on the stock markets, the stakes are high if they make the wrong investment.

In a nation suffering high levels of financial illiteracy many of these new investors may go in with the hope of gain and only a vague notion there is a risk of loss, according to Ian Robinson, technical director of the Financial Sector Deepening Trust.

This Dar es Salaam-based trust, which receives funds from the governments of Canada, Denmark, the UK, Sweden, the Netherlands and Tanzania, was established in 2004 to improve access to financial services for a wider range of people.

Only nine percent of Tanzania's adult population, or about 1.9 million people, have bank accounts or borrow money from formal financial institutions, according to a FinScope study conducted in 2007 which investigated consumers' perceptions of financial services and issues on behalf of the trust.

FinScope conducts surveys in southern Africa and is run by FinMark Trust which was set up with funding from the UK's department for international development.

Fifty-four percent of Tanzanians aged 16 years and older are '‘financially excluded'', with no means to save and unable to obtain any sort of loan even from family or friends, the survey shows.

Many people in the country have little or no knowledge about the most basic aspects of banking. Fifty percent of Tanzanians interviewed for a FinScope study had no idea what debit cards, automated teller machines or savings accounts were.

'‘With the stock market I do think there needs to be a lot more education, so people understand they are buying an asset that can go up and down,'' Robinson explained. '‘They need to be prepared for a long-term investment that has risks attached.''

The starting point should be improving access to savings and loans to poor people to help them improve their condition, he argued.

Explained in simple terms, the stock market is an idea that even uneducated investors do understand and they have seen economic rewards, according to Paul Makanza, director of corporate affairs of the Tanzania Cigarette Company (TCC).

Shares of TCC, which started trading on the domestic bourse eight years ago at 410 shillings (33 cents), are now worth about 1,800 shillings (1.44 dollars). '‘The stock market has caught on like wildfire because awareness is increasing,'' Makanza told IPS.

'‘People understand it in a basic way: It's like buying a tomato for 100 shillings (eight cents) and selling it for 200 shillings (16 cents).''

A national effort to boost financial literacy must move to the top of the public agenda, according to Omar Mzee, deputy minister for finance and economic affairs.

'‘The Tanzania capital markets have not yet contributed significantly to the country's gross domestic product. We still have few products listed on the Dar es Salaam Stock Exchange, a very small investor base as the markets are small and very illiquid,'' he indicated. '‘We need public education.''

The Dar es Salaam Stock Exchange has 13 listed companies and a market capitalisation of 3.1 trillion Tanzanian shillings (2.4 billion dollars), compared to 161 billion shillings (124 million dollars) when it opened in 1998.

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