If you really want to invest at the furthest reaches of Africa’s frontier markets, the Dar es Salaam Stock Exchange (DSE) is for you. The little market lists only 11 local companies and trade volumes often don’t exceed $500,000 per week.
Part of the reason for this is because the Tanzanian government does not allow foreigners to purchase shares of companies whose foreign ownership percentage exceeds 60%. As of this date, only six stocks have foreign ownership percentages less than 60%.
Even so, the DSE will likely not be so sleepy five years from now. Exploration companies have discovered huge natural gas reserves off Tanzania’s sandy shores that they are rushing into production. Now the country appears set to be the world’s newest energy hub.
One way to get in on the ground floor of these exciting developments is via the stock market. Let’s take a look at what it takes to open a Tanzanian brokerage account.
I emailed each of the ten brokers who are licensed to trade on the DSE. I asked them if they catered to foreign investors, how much they required to open an account, and what documentation was necessary. I found the two brokers listed below to be particularly helpful and responsive.
|Broker||Minimum Initial Deposit||Account Opening Form||Research Sample|
|Orbit Securities||No minimum required||Not Available Online||Not Available Online|
|Vertex Securities||No minimum required||Here||Not Available Online|
Commissions and fees are assessed on a sliding scale that is standard across all brokers. For transaction amounts less than TZS10,000,000 (roughly $6,300) you will pay 2.0% of the total trade value when buying or selling a stock. For amounts less than TZS50,000,000 (about $31,600) the total commission is 1.8%. Anything greater than that is charged 1.1%.
Opening a Tanzanian Brokerage Account
Now let’s walk through the process of opening an account with a Tanzanian stockbroker and buying your first shares.
Step 1: Complete the CDS Account Opening Form
The Central Depository System (CDS) records the ownership of Tanzanian securities via electronic accounts. When you ask a broker to open a trading account, they will send you a copy of the CDS Account Opening Form. After completing and returning it to your broker, you will be assigned a CDS account number. This number will accompany every Tanzanian stock trade you execute, allowing the CDS to keep record of all your holdings in the country.
Step 2: Complete the Broker’s Account Opening Form
After your first email to the broker requesting information on how to open an account, they may also send you a blank account opening form, which is sometimes referred to as the “Know Your Client” or KYC form. A sample form from a Vertex Securities may be found in the above table. The form typically requires disclosure of your passport number or other ID number, your address, and asks for your preference regarding collection of dividends and payment of fees.
Step 3: Photocopy your passport
If you don’t have a valid passport, a driver’s license may suffice.
Step 4. Mail the original CDS form, account opening form, and copy of your passport to your broker
You may email photocopies of all documents to your broker to get a head start on the account opening process, but they must eventually receive the original documentation.
Step 5. Wire Funds to Your Brokerage Account
After opening your trading account, your broker will provide you with its bank details so that you can fund your account. The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.
Step 6. Submit a Trade Order
You’ve done your research and found a stock that you’d like to buy. What now?
While some brokers will request a signed trade mandate form, for most brokers, all you need to do is send an email to your broker with your trade instructions. Keep in mind that many shares listed on the Dar es Salaam Stock Exchange are rather illiquid, so I advise specifying a limit price for all of your orders. This will help you avoid paying significantly more for your shares than you had intended to pay.
Your broker will then execute your trade and send you a contract note that specifies the buy or sell price, commissions, and fees. Settlement of share trades takes up to six business days in Tanzania, so if you’ve sold shares, don’t expect to receive the proceeds of a sale before then unless you’re willing to incur a penalty to settle the trade more quickly.
An Important Note on Dividends
It is not possible to have stock dividends deposited directly into a Tanzanian brokerage account. You must instead opt to receive a Tanzanian Shilling denominated dividend check or open a Tanzanian bank account to collect the dividends. Because the teller at your local Wells Fargo branch will probably laugh in your face if you ever try to cash a Tanzanian Shilling denominated check there, your best option, unfortunately, is to open a Tanzanian bank account.
Your broker should be able to assist you in connecting with a reputable bank and to help facilitate the account opening process. The CDS will be informed of your local bank details and will route all of your dividends there.
Follow these steps and you’re all set to begin investing in Tanzanian stocks. That wasn’t too bad, was it?
The process of opening a foreign brokerage account can be confusing. If you found this walk-thru to be clear as mud, please don’t be shy. Post your questions in the comments, and I’ll do my best to get answers for them.