The first half of 2023 saw a decline in trading and liquidity at the Dar es Salaam Stock Exchange (DSE) in Tanzania, with total turnover falling by 34.5 percent compared to the same period in 2022. Global economic uncertainties, including trade tensions and geopolitical risks, contributed to cautious investor sentiment towards frontier markets like Tanzania. Fluctuations in global financial markets prompted many foreign investors to adopt a risk-averse approach, leading to a decline in foreign purchases of shares by over 58 percent. Factors such as interest rate adjustments, dollar shortages, inflation, and trade risks associated with frontier markets have influenced this downward trend.
The slowdown in foreign investor activities in Tanzanian markets is primarily driven by global financial adjustments rather than domestic economic performance. Foreign investors have shifted their investments from riskier markets to more stable and developed ones as they try to balance their portfolios in response to global interest rate adjustments. Additionally, the shortage of dollars in many African economies has impacted financial markets across the region, contributing to the decline in foreign investment. The decline in performance of cross-listed counters and concerns about currency fluctuation risks for the Tanzanian shilling have also played a role in foreign investors’ reduced trust in the DSE.
To stimulate market activity and address the decline in turnover and foreign purchases, proactive measures are needed. Market participants and policymakers should consider initiatives to attract local retail investors and stimulate market participation. Measures such as adopting interest rate-based monetary policies, implementing forex directives to provide easier access to foreign currency for retailers, and utilizing long-term tenure bonds to absorb excess liquidity in the market can help steer the local financial market in the right direction.
Opinion: The decline in trading and liquidity at the Dar es Salaam Stock Exchange reflects the cautious approach of investors in frontier markets amid global economic uncertainties. It is crucial for Tanzania to address factors such as trade risks, currency fluctuations, and dollar shortages to attract foreign investors and boost market activity. Proactive measures that promote stability, transparency, and investor confidence are essential for the long-term growth and development of the Tanzanian financial market.