Tanzania Tanzania

140 – Tanzania Tanzania

2006 At a Glance Population (mn) 39.03 Population Growth (annual %) 1.8

Official Language (s) Kiswahili/English Mubende Mukono

Kasese Kakamega Y Katong Mpigi Kampala E TANZANIE

Lac� Kisumu L Kifinyaga�

5199 m Tana OUGANDA L Edward

Masaka Nakuru ABERDAR Nyeri A Garissa Bushenyi Mbarara Embu SOMALIE Rakai E Currency Tanzanian Shilling (TZS) Rukungiri Lac� V Volcan� K Karisimbi� a Victoria T ge 4507 m ra A Bukoba Tarime F th Kabale i Goma I Musoma Nairobi PLATEKENYA Osupugo� R Lac� 2642 m Kigali AU DE YATTA Kivu GDP (Current US$ bn) RWANDA Lac� Ile Pate 12.85 Oldoinyo� Ile Manda Natron Orok� a bo Ta n u Bukavu v Mwanza Gelai� 2524 m o PLAINE DU� R Loolmalassin� 2942 m K Baie Ungama

Geita SERENGETI 3648 m A BURUNDI u Mt� I b G al na 2760 m u CRATERE DU� Kilimanjaro� a v Meru� L Ras Ngomeni Ru NGORONGORO 4565 m 5895 m M I

o M Moshi B Arusha Bujumbura y Lac� o w Lac� A GDP Growth (annual %) Ugoma� o Shinyanga Eyasi Mombasa 5.7 s Manyara N 2981 m i J

M A

I e Hanang� g r O USAM o e 3417 m P Mts� b a U m n be BARA a m g ani b e S T E P P E � m

2258 m Kigoma rasi W e a Singida P ag Wete l M A S A I � e

T Ujiji a d M t GDP Per Capita (US$) i Ile Pemba 329 o Tanga r � Korogwe t Masangwe� é 1637 m D Chake Chake� I Tabora � U galla Ngomba� r Manyoni a b 1954 m i

M a Z Mahonda Sisaba�

2462 m Dodoma am i Ile Zanzibar

W e

Mpanda Zanzibard

o Koani

FDI, net inflows (US$ mn) (2005) 473 Lac� Bagamoyo t é

Tanganyika COLLINES� Morogoro D

S MLALA Lugunga� e 2356 m Kilosa Kibaha A a b Dar Es Salaam B Rungw m 2646 m o IM j L N T A .M a

REPUBLIQUE DEMOCRATIQUE DU CONGO 2460 m h Lu ts a v u M R ia u f Ile Mafia a MARUNGU t a ea Iringa G reat External Debt (US$ mn) 6,200 N r Rua M G h e Sumbawanga a a d Lac� t h i a o r u t Rukwa R é e ttl ro D Li e O b m ilo K ubu f O C E A N � Lac� Lu Kilwa Kivinje� M Mbeya Mweru 2067 m KIPENGERE2961 RANGE m � Kilwa Masoko� INDIEN

C � h External Debt/GDP (%) 48.1 a Njombe m u b w eg e Lu s u h d i n a g uru n nk ZAMBIE ra e a a w Lindi l b b M u Kasama p M

a u 2164 m Mikindani L A Nganda� 2606 m Mtwara CPI Inflation (annual %) 7.1 G 2148 m Songea Lac� N a Cap Delgado Bangweulu I vu m Ru Ile Rongui H Mansa hi Ile Vamizi s a be m C w a g Ile Metundo h n C ua Mzuzu L U L ua p Rov u u m a l M Exports of goods and services (% of GDP) 23.5 a Lac Nyasa�

e S -Lac Malawi-g n i

T ss

N M MOZAMBIQUE

o O l Ndola sa MALAWI a e s nd M M e g u Pemba Gross Official Reserves (in bn US$) 2.18 L

1. Overview of Financial System

The Bank of Tanzania (BOT), the central bank, is the Zanzibar Social Security Fund. Currently, these primary regulatory body of the banking system. Its pension funds are self-regulated, with the major funds key objective and function, as the country’s monetary being state-operated. The creation of a retirement- authority, has been, since its 1995 Act, the pursuit benefits regulator is under consideration. of long-term price stability, through management The central bank and the Deposit Insurance Board and regulation of monetary growth. In addition, BOT provide a deposit insurance facility. Three commercial undertakes the licensing of banks as well as their banks provide micro-finance services, led by the supervision. The financial system in Tanzania remains National Microfinance Bank. However, the majority of dominated by the banking sector. There are several micro-finance services are provided by savings and non-bank financial institutions and pension funds. credit cooperatives and foreign NGOs. The BOT Tanzania also has a relatively young stock market, has slated a number of banks for restructuring and with less than a dozen listed stocks. potential privatization. The insurance and pensions sector, regulated and Bank and Non-Bank Financial Sector supervised by the Insurance Supervisory Department As of December 2006, the financial sector included (ISD) within the Ministry of Finance, comprises 4 22 commercial banks, 5 regional banks, 2 regional life insurance and 12 registered, general insurance financial institutions, and 5 pension funds, the latter companies, including life and non-life insurance comprising the National Social Security Fund, the activities. The sector holds just 3% of the financial Parastatal Pensions Fund, the Public Service Pension system assets. The insurance sector remains Fund, the National Health Insurance Fund, and the dominated by the state-owned National Insurance T Tanzania – 141

Corporation. In the general insurance sub-sector, the CMSA generally waives this requirement on National Insurance Corporation holds nearly 25% of the basis of the credit quality of the applicant. premiums and has a near-monopoly market share in • In order to maintain a certain level of local life insurance premiums. ownership, foreign investors are not permitted to hold government paper, which remains Capital Markets a major holding for domestic investors. Tanzania’s capital market is centered on the Dar-es- Salaam Stock Exchange (DSE), which opened in 2. Fixed Income Markets 1996. By the end of 2006, the DSE had a market Government Securities capitalization of USD 2.4 bn and eight listed Treasury bills for maturities of 35, 91, 182 and 364 companies, two of which (Kenya Airways and East days, as well as 2, 5, 7 and 10 year maturities for African Breweries) were cross-listed. The agency in treasury bonds, are all issued regularly by the BOT charge of supervising the Tanzanian capital market on behalf of the government. The auction is based is the Capital Markets and Securities Authority on a multiple price system, with treasury bill auctions (CMSA). being held on a weekly basis. Treasury bond auctions, The Capital Market and Securities Act, introduced usually on a monthly basis, are scheduled in advance in October 1994, paved the way for the subsequent via a quarterly-issue calendar, published by the BOT. introduction of the CMSA. Its responsibilities include All treasury bonds are listed on the DSE. Although regulating issuance and trade in securities as well as primary dealers are active in the market, investors are taking an active role in the development of the market. also permitted to submit bids to the BOT directly. The Guidelines for the Issue of Corporate Bonds The yield curve extends to 10 years, and each of and Commercial Paper was issued by the CMSA the existing benchmark issues, made up of 2-, 5-, in September 1999. The DSE approves the listing 7- and 10-year bonds, are regularly auctioned by of issues, but usually only subject to prior approval the BOT. by the CMSA. The capital market in Tanzania is characterized by : Tanzania Government Yield Curve (End 2006) • Issuance of corporate bonds and commercial paper is subject to the approval of CMSA/BOT. 25 • Commercial banks and other financial 20 ield institutions that plan to issue are required Y 15

to get central bank approval. 10 3M 6M 1Y 2Y 5Y 7Y 10Y

• Although only listed companies may issue Source: Bank of Tanzania corporate bonds and commercial paper, the 142 – Tanzania

Non-Central Government Issuance Private-sector issuers are comprised of banks and of only one corporate. Primary market activity has been dominated by foreign banks and supra-national organisations, i.e. regional development banks.

Outstanding Corporate Bond Issues in Tanzania Amount Issue Company Name Industry Tenor Coupon Offered* Year East African Development Bank** 15,000 Banking 2005 12 Fixed 13.35% Subordinated Tier II debt Barclays Bank 10,000 Banking 2005 5 24% Fixed 13% Barclays Bank 10,000 Banking 2005 5 182TB + 0.30% Standard Chartered Bank Tanzania 8,000 Banking 2005 10 182TB + 40% – Subordinated Debt Fixed 9.63% Bidco Oil and Soap*** 10,000 Oil & Soap 2004 5 182TB +0.60% PTA Bank 15,000 Banking 2003 7 Fixed 8.5% East African Development Bank 18,000 Banking 2002 5 182TB + 0.75% * Data in TZS mn ** Fixed rate based on the 7-year fixed Treasury Bond as of 20th April + a margin of 75 basis points *** Fixed rate based on the 5-year fixed Treasury Bond as of 10th December, 2003 + a margin of 30 basis points

Secondary Market Clearing and Settlement In the absence of dedicated market makers, there is Delivery and settlement of bonds is conducted hardly any activity in the secondary market. through the DSE, on T+2 for treasury bills and T+1 for treasury bonds. The day count basis convention used for treasury securities is actual/ 365.

African Development Bank Bond Issue Linked to the Tanzanian Shilling In 2006, the AfDB was the first supranational issuer to issue a bond which was linked to the Tanzanian Shilling. As the continents premier development financing institution, AfDB was the natural issuer to open this market and it is expected that on-going interest in and further development of the African capital markets will occur over the coming years. The Note has a Notional Amount of USD 10 million (note denomination is USD 500,000) and has a 1-year tenor (settlement date 7 March 2006 and maturity date 20th February 2007). The Note pays one coupon at maturity; both the payment and redemption amount are linked to the performance of TZS vs USD. All payments are made in USD, based on the exchange rate between the USD and TZS at the time of payment. The issue was tailor-made to reflect the investor demand. The transaction, as is the case in other African local currency bond issuances, is expected to bring greater visibility to Africa among international investors. In fact, shortly after the transaction, the Tanzanian Shilling gained denomination currency status with some of the international clearing houses, further enhancing its attractiveness as an investment destination. PRINCIPAL FEATURES OF THE TRANSACTION Principal Amount: USD 10,000,000 TZS Face Amount TZS 590,000,000 per Note Maturity: 1 Year Type of Note: Convertibility-Linked Note Interest Amount: An amount per Note in a USD calculated in accordance with the following formula: 11.80% (TZS Face Amount / FX Rate) *Days Maturity Amount: An amount, per Note, in USD calculated in accordance with the following formula: TZS Face Amount / FX Rate T