In this month's briefing we highlight investments in Government securities by Tanzanian residents and the restrictions imposed under Tanzanian law on East African Community residents and non-residents investing in Government securities.
Government securities are debt instruments issued by the Government in exchange for money borrowed from the public, with a promise of repayment upon maturity.
There are two types of Government securities commonly traded in Tanzania, these are treasury bonds (T-bonds) and treasury bills (T-bills). T-bonds consist of long-term securities that mature over a year whilst T-bills mature in less than a year. The Bank of Tanzania (BOT) issues T-bonds in five categories with maturities of 2 years, 5 years, 7 years, 10 years and 15 years. T-bills are issued in four categories with maturities of 35 days, 91 days, 182 days and 364 days.
There are two markets for Government securities in Tanzania; the primary market and the secondary market. The primary market is the BOT's auction through the Central Depository System (CDS). BOT auctions Government securities through the CDS for the first time on regular intervals. T-bills are issued for the first time on a fortnightly basis and T-bonds are issued on a monthly basis. After being bought in the primary market, Government securities are listed at the Dar es Salaam Stock Exchange for secondary trading.
Investing in Government securities in Tanzania is partially restricted. A Tanzanian resident (Resident) can freely invest and trade in Government securities. The Foreign Exchange Listed Securities (Amendment) Regulations 2014 (the Amendment Regulations) defines a 'Resident' as a person who resides consecutively, or whose centre of predominant economic interest is in Tanzania for twelve months or more. A Prescribed Territory is defined under the Amendment Regulations as a member country of the East African Community. Pursuant to the Amendment Regulations a resident within the Prescribed Territory can invest in Government securities provided that:
- The total amount of securities acquired by residents from the Prescribed Territory does not exceed 40% of the securities issued;
- The amount acquired by the residents from a single Prescribed Territory does not exceed two thirds of the amount acquired under the first item above; and
- The Government securities acquired shall not be transferred to a Resident within twelve months of the date of acquisition.
Government securities in Tanzania are not open for investment to any other non-residents.
Eligible investors are required to open a CDS account through their brokers in order to trade in Government securities. Through their CDS accounts, investors can transfer, create or release liens on the Government securities that were pledged as collateral.
Investors accrue several benefits from holding government securities. Some of these benefits are:
- They are transferable and negotiable;
- They can be pledged as collateral;
- Investment in T-bonds accrue interest payment semi-annually; and
- Investors are guaranteed a competitive return rate by the discounted price of the securities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.