Tanzania's Dar es Salaam Stock Exchange is Africa's best performing stock market this year, rising nearly 31% in US dollar terms. The removal of caps on foreign share ownership has helped fuel this rally, allowing global investors to bid for stakes in some of Tanzania's largest public companies for the first time. Shares of Tanzania Breweries and Tanga Cement have more than doubled in value over the past nine months.
In spite of the big run-up, we remain bullish on the DSE over the long-term. Here are six reasons why we find the outlook so promising.
1. Tanzania's economy is growing at a blistering pace. The IMF forecasts the East African nation's GDP will expand by 7.2% this year and 7.0% in 2015, driven by a rapid rollout of communications infrastructure, an improved road network, and booming construction and manufacturing sectors.
2. The discovery of vast offshore natural gas reserves suggests that this rapid economic growth has legs. When the reserves enter production, Tanzania's government expects to raise between $2 billion and $2.5 billion per year over the following 30 years. A portion of this revenue will flow into a sovereign wealth fund for the purpose of infrastructure development. The country will also benefit from cheap fuel for power generation.
3. A big population provides an additional tailwind to economic growth. The country's nearly 50 million citizens are young and having fewer children. This blesses Tanzania with a growing labor force that's able to devote more household income to the health and education of the next generation.
4. The central bank has done an admirable job of taming inflation and stabilizing the value of the local currency. After soaring to nearly 20% in 2011, the inflation rate has been slashed to 6.7% today thanks to tight monetary policy and low food and energy prices.
5. One of Africa's most politically stable countries, Tanzania adopted a multi-party political system in 1992. Since then, the country has held four largely peaceful presidential elections, and is currently drafting a new, reform-minded constitution.
6. The ruling party has introduced a number of reforms intended to make Tanzania more business-friendly. Most notably, it established a credit reference bureau this year. This is a boon to the DSE's four listed banks, allowing them to more accurately assess the default risk of loan applicants, and thus reduce the cost of doing business.
With its wealth of natural and human resources, improved infrastructure, and enlightened leadership, Tanzania should prove fertile ground for local and foreign investors alike.
Unfortunately, Africa ETFs like the Market Vectors Africa Fund (NYSEARCA:AFK) carry little exposure to Tanzanian companies. Apart from firms involved in natural gas exploration, investors best means of participating in the country's growth story are by investing directly through a Tanzanian broker or via a specialist African asset manager.
Disclosure: The author is long AFK.
The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it. The author has no business relationship with any company whose stock is mentioned in this article.