Globalization and the East African Capital Markets: An Analysis of Tanzania's Performance and Potential for a Regional Bourse
Allan Syril Mlulla* (Researcher at the Economic and Social Research Foundation - Globalization Project, Dares Salaam, Tanzania)
Download Article | Published On 01/02/2007

Abstract

Globalisation has transformed most traditional and conventional ways ofbusiness transactions and international relations between economies of the world. As a result of globalisation, capital markets have become important instruments in attracting capital flows globally. In developing economies, capital markets are still in the early stages, i.e. emerging markets, given the pace that they are supposed to move at so as to survive the hazards of globalisation. Adequate knowledge and skills on how to develop the emerging markets are required so as to realize the benefits of regionalizing the capital markets. The aim of this paper is to follow up on an individual country_(Tanzania) capital market situation so as to be able to establish its position in the prospective regional (East African) stock market. Key informant interviews, desk review and content analysis were employed in describing and comparing the traditional and institutional characteristics of the three East African stock markets. The results showed that there are latent factors that contribute to low listing at the DSE in Tanzania, including among others, fear of dilution of ownership, fierce competition that triggers fear of disclosure and thus low incentive for listing, and the high costs of IPO. The results further showed that the mote of the products offered in the Tanzanian market could not attract the tiny savings of Tanzanians, especially those in rural areas, as compared with the Indian case where the UTI reaches the poorest of the poor. Market capitalisation ratio (MCR) and potential investment diversification measures employing both the MCR and risk/ return approaches were used as methodologies for empirical evaluation. Correlation results of both MCR and risk/return showed a poorly performing Tanzanian capital market. Furthermore, a weak investment diversification potential was observed within the three East African capital markets signalling the need for more development of domestic capital markets so as to have viable regionalisation. The study concluded and implied that a regional market should emerge parallel with broader initiatives of regionalizing the East African economies as a political federation.

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