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Tanzania liberalizes its capital account for East Africans

Tanzania has liberalized its Capital Account for all East African Community (EAC) residents which allows them to participate in Dar es Salaam Stock Exchange (DSE) listed securities and to a limited extent in government securities.

The move will also allow Tanzanians to invest in the EAC region without requiring prior permission from the country’s Central Bank, Bank of Tanzania (BOT).

This is a significant stride towards fulfilling the requirements of the EAC Common Market as annexed in its Schedule on the Removal of Restrictions on the Free    Movement of Capital by 2015. 

Commenting on this development the Deputy Minister for East African Cooperation Hon. Dr. Abdulla Juma Saadalla said the move was one of Government’s deliberate efforts to open up opportunities for Foreign Direct Investments (FDIs) and wealth creation through Tanzanians’ investment abroad.

“This is yet another milestone for Tanzania in its quest to attract more FDIs and allowing its people to invest abroad,” said Dr Saadalla adding that the country was already moving on the right direction in attracting investors.

Liberalization of capital account has been necessitated by BOT’s recent amendments of two key Regulations namely; the Foreign Exchange (Listed Securities) (Amendment) Regulations 2014, and the Foreign Exchange (Amendment) Regulations 2014.

The two Regulations were availed through Government Notice No. 132 and were published in the Government Gazette on 2 May 2014.

Before this amendment, foreigners were not allowed to participate in Government securities at all, and were limited to only 60% in listed securities at DSE.

Now East Africans can participate in Government securities up to 40% of the amounts issued but investors from one country cannot exceed two-thirds of that 40% threshold.

As it was the original Foreign Exchange (Listed Securities) Regulations 2003 that set the 60% limit for foreigners, its amendment effectively means that the foreigners' limit in the DSE does not now apply.

Dealing in Government securities was also closed for all non-residents but this amendment effectively means that Government securities are now open for EA residents up to 40%, but still closed for non-EA investors.

Under the amendment, Residents can now deal in any other securities freely but only within the EA Region. The difference with the first Regulations is that whilst the first Regulations apply to listed securities, the second one allows outward investments in any securities.

“This is partial opening of the capital account should be a welcome development for Tanzania's Licensed Dealing Members (LDMs), banks, pension funds and High-net-worth individuals (HNI),” says George Fumbuka of CORE Securities Limited a Licensed Dealing Member of the DSE.

 Remaining restrictions include; acquisition of Collective Investment Schemes (CIS) is not allowed unless the Issuer is authorized by Capital Markets and Security Authority (CMSA), foreign securities must meet the requirements of the CMSA and Payment must be through a bank accompanied by supporting documentations.

In addition to the above amendment that restricts foreign investment in securities to the EA Region investors only, there is a specific amendment with respect to FDI and the acquiring of real estate and other real assets anywhere in the world.

The amendment allows residents to engage in FDI and acquiring of real estate and other real assets beyond the EA Region but only if: (1) the bank shall notify the BOT of the intended remittance prior to its remittance approval; (2) Funds for the acquisition come from external sources; (3) the bank(s) make (s) periodic returns of such transactions in a manner and frequency to be determined by BOT.

Note: A resident is a person who resides consecutively, or whose centre of predominant economic interest is in the United Republic of Tanzania for twelve months or more.

Written by: Faraja Mgwabati