Hurdles as Dar, Tanga plan to float $426m municipal bonds
A section of the Dar es Salaam coastline. Dar and another coastal city, Tanga, plan to float municipal bonds this year. PHOTO | FILE
What you need to know:
In 2012, the government hired a consultant to assist in the preparation of the legal and institutional framework for municipal bonds. With the assistance of the World Bank, the government sponsored the two-phase municipal bonds study.
The first phase of the project attempted to establish the feasibility and required policy changes for a thriving municipal bonds market in Tanzania.
The second looked at how to develop the legal and operational framework for the municipal bond markets in the country.
The study brought to light the fact that the prevailing government policy would not support efficient issuing of bonds by local government authorities for public subscription.
Dar es Salaam and Tanga municipalities are seeking to raise more than Tsh720 billion ($426 million) from municipal bonds for investment in infrastructure and real estate.
Dar targets more than Tsh200 billion ($118 million) to invest in improvement of water supply and construction of roads, schools and health facilities, which are dilapidated, Tanga’s Tsh20 billion ($11.8 million) will be used to build its biggest market and a bus station. But the two coastal cities face hurdles to their plans.
“Economists have however warned that such a plan will take a long time to take off because it requires a lot of money and experts who can handle money issues,” a source in financial circles told The EastAfrican.
Sources privy to the project said the process was expected to be over in six months but, due lack of knowledgeable personnel in the handling of bonds, it could take a year.
“The amount of money Dar es Salaam is seeking to raise is a lot; therefore, it will be done in phases,” a source in the Ministry of Local Government told The EastAfrican. “The process was to kick off in six months but it will be delayed for a year as the municipal councils raise awareness about it.”
Because of the councils’ limited knowledge of the process, the Dar es Salaam Stock Exchange (DSE) has intervened by way of educating the municipal authorities and brokers about the matter.
A municipal bond is issued by government entities such as municipal and city councils.
In August, DSE chief executive officer Moremi Marwa said he had initiated talks with the two municipalities to raise capital through the bourse.
“We have begun talks with those municipalities so as to enable them to raise capital through our bourse in order to execute various development projects within their areas,” Mr Marwa said.
He said the time had come for municipalities intending to implement economic projects to raise capital through the stock market.
“It is our hope that, once the two municipalities succeed in raising capital through bond issuance, more will come up, hence speeding up economic growth,” he noted.
The CEO of the Capital Markets and Securities Authority (CMSA), Nasama Massinda, said only three municipalities stood a chance of raising funds through the bourse — namely Mbeya, Arusha and Dar.
The CMSA initiated and supported the idea of municipalities fundraising from the public for their development projects through issuance of bonds. Ms Massinda said bonds were an important supplementary revenue source for councils since most of them cannot raise money through the stock exchange.
She said feasibility studies by CMSA in many municipalities revealed that many of them needed to improve their financial status but a dire lack of good governance was their bane.
Mayor of Ilala Jerry Slaa confirmed that Dar was considering the decision. Ilala is within the Dar municipality. Mr Slaa explained that both cities planned to float municipal bonds so as to raise funds for services and infrastructure but were seeking advice from brokers.
“If the municipality had competent staff to handle this issue, then it would have gone to seek for funds without brokers’ assistance,” he said.
Orbit Securities head of dealings and operations Juventus Simon said the city should first seek authorisation from the executive Minister for Local Government for it to be approved by the Minister of Finance.
“If it does not get approval, then the municipality must not float the bond,” Mr Simon told The EastAfrican.
