Fintech Entrepreneurship vs. Regulations in our Financial Sector

There has always been a constant battle to maintain high levels of integrity and competence in the financial sector. Financial markets stakeholders have long recognized this to be the truth — that fiercely engaging in this battle in establishing minimum set of behaviors and standards for its institutions, its intermediaries and other users of these financial services is in the sectors’ best interest. That is why, Regulators and Self-Regulatory Organizations sets of rules that regulates the conduct of its stakeholders. Having laws, rules and regulations to regulate the conduct of its members is necessary for the financial markets mainly because, if users of financial services loses trust and confidence instead develop a fear that malpractice is prevalent in the markets, they will not allow their deposits and funds to flow through the financial market systems.
If the conducts of financial markets were to be left into gentlemen’s agreement, assuming that all participants have good intents and that they will behave ethically, would have created a room where crooks and incompetents would have joined the band wagon and become industry’s intermediaries free-riding on the industry’s reputation. Thus, the need for regulations, rules and minimum standard of conduct is a necessary hindrance.
The other key reason for the necessity of rules and regulations is that in financial markets, the failure of one player or an intermediary may lead to the situation of systematic failure and instability into the whole system. In our recent memory, the failure of Lehman Brothers led to contagion effect, with very serious consequences not only for the United States financial system, but for the overall global economic health where businesses failed to meet their obligations, banks and businesses collapsed, investors wealth were eroded, insurances and pensions were lost, etc.

Furthermore, if left to their own devices, would tend to move towards a structure where one or a few players exerts undue power to the market, affecting its pricing mechanism in favor of a few over many. If not well managed, this undue influence, creates the desire for beneficiaries to control prices products. In the case of a stock market, this will be the situation where few individuals or institutions manipulates the price mechanism in the market by controlling liquidity and the price of a listed stock towards a direction of the choice of the influencer.

So, regulations have significant benefits for the proper conduct of any financial markets’ activities. However, despite these benefits and necessities, it is important for the society to ensure there is a good tradeoff between benefits of regulations and its negative effect on the innovation, enterprising, creation and growth. Without a good balance and tradeoff between regulations and innovations; regulations may be particularly detrimental to industries and economic prosperity.

I recently read an Article in the Harvard Business Review by Efosa Ojomo titled: “6 Signs You’re Living in an Entrepreneurial Society”. In the article, Ojomo mentions six major signs and the one that caught my attention mostly, is the one saying that if you are in a society where innovation precedes regulations, and not the other way round, then you know you are living in an innovative and entrepreneurial society. Oromo argues that in entrepreneurial societies, innovation always precedes regulation. In the United States, he argues, scientist and engineers in Silicon Valley, Boston and New York are always one step ahead of regulators, in developing innovations that helps societies to solve some of its most critical problems. The regulators eventually catch up, but not before the innovators have developed viable solutions for us to improve our lives. Ojomo says, if regulations in your society precede innovation from entrepreneurs, this is likely to curb the entrepreneurial spirit of innovators and therefore limits the growth and development that the society, in often cases, needs.

Last week I attended the Afro-Asia Fintech Festival where fintech entrepreneurs from the East Africa region and Singapore show-cased how they have allowed majority of us to have an easy access, as well as an efficient, flexible and better user experience in some aspect of financial services, especially on payments and access to credit. Besides this, I also have met several young Tanzanian innovators and entrepreneurs in the fintech who are in the verge of creating technological breakthroughs that can unlock some of the existing potentials in developing and growing some of our industries, but in several cases these young, ambitious and energetic young professionals are being hindered by the practice of letting regulations precede innovation and entrepreneurship.

As said above, markets are always a step ahead of regulators, important as regulations and regulators are, we should learn to let innovators and entrepreneurs help us solve our most critical problems, underscoring that, as Ojomo’s puts it the entrepreneurial society is a prosperous society, where more and more people are able to choose what they do, and when they do it. Innovation and entrepreneurship are the necessary ingredients for any economy or market flourish. This is topical matter, requiring a serious debate like it is other — but is a good debate for us to engage in.

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Values and Conduct in Developing Sustainable Financial Markets

In the last week’s article, I wrote about the role of financial markets (particularly the capital markets) in financing our economic development. Given the history that we and our finance world have sometimes gone through, the recent being in 2008, for some then – finance can be equated to an enemy of the people, dispossessing them with their savings, their pensions, their wealth and sometimes their sovereignty. For others, finance is perceived as the tangible expression of human greed – considered as an instrument of domination, making it possible to create value without efforts and accumulate wealth without actually producing. But to some, finance (and by finance I mean financial tools used by stakeholders in the finance-ecosystem (such as banks, investors, pension funds, stock markets, financial advisers, etc) is the fundamental mechanism for the mobilization and allocation of wealth and financial resources to benefit the economy in an inclusive manner. This is part of what I covered in the last week’s article – somehow inspired by a book I recently read, titled: Can Finance Save the World? Regaining Control over Money to Serve the Common Good by Bertrand Badre. Today’s article is more about how we can sustainably make finance serve for good by address the bad, especially approach this question from the culture and governance space.
It is been 11-years since the 2008 financial crisis has brought in some new knowledge and insights on how regulators of financial markets should go about conducting their business and fulfilling their mandates. We observed that, the regulatory response to the prudential crisis has been profound, equal to the significance of the crisis itself and in trying to mitigate the repeated happenings, at least if it has to happen within similar contexts.
The response from the learned insights has redefined and reshaped the financial markets, especially the banking and capital market industry. Examples of ring-fencing and separation of investment banking from commercial banking activities are some of clear indications. The introduction of IFRS 9, which came to operation in the January of 2018, is such other example.
For a keen observe of the conduct of financial markets’ regulators, one will learn that from their different points of views, they perceive such aspects related to their mandates as well as market conduct as not just being the cause from business conducts of firms operating in the financial markets – but rather more into it there are personal and individuals conducts too that impacts the happenings. That sometimes people who are afforded with fiduciary duties to oversee and provide oversight to businesses and those responsible for their operations in some cases gets ahead of themselves, for various motives and reasons.
As a result, for example, having individuals within financial firms being held personally accountable for their work has shown to affect outcomes positively. For instance, there is evidence related to accounting and financial management practices, even here at home, which indicates an increasing perceived individual accountability, such as by requiring audit engagement partners to sign the audit report with their own name, rather than the company name, with the aim of improving both the quality of the audit and decreasing manipulative practices – this has indicated positive results.
As it is with other societal issues and challenges, firms operating in the financial markets whether they are listed or not listed are focusing on the aspect of culture too. For instance, we now hear in boardrooms relentless discussions of culture and we often are being asked how senior managers in firms that operate in the financial markets should measure their culture and how regulators, could measure and set targets for their businesses’ culture. Many regulators have recently opted to assess what management is doing to manage issues of culture within their firms by using four types of lever.
The first lever is a clearly communicated sense of purpose and approach. Clearly communicating the ‘what’ and the ‘how’ are very important to getting a firm to work effectively and efficiently. But they pale into the background when contemplating the power and effect of a well communicated and resonant ‘why’. It is the tacit understanding, shared by employees, of a company’s true purpose. This may not necessarily what is articulated formally in a company’s mission statement and values. I often learn more about a firm’s sense of meaning by reading the strategic plans. And I suspect that employees do too.
The second lever available to senior managers is ‘tone from the top’ – what staff hear and see from senior management. What are the behaviors that senior managers role model to their employees?
The third lever is the formal governance processes and structures, the policies and systems that specify expected behaviors and decisions. From a conduct culture point of view, regulators look for a well thought through conduct risk framework: is there a clear exposition of conduct risks, the systems and controls for mitigating them and risk indicators for monitoring them?
Finally, there are people related practices, including incentives and capabilities. Remuneration, promotion and recognition criteria all matter. Does a firm’s pay structure reward misconduct? Is the pressure to turn a profit driving employee to act against consumers’ interests?
People capabilities are becoming more and more important to having the right culture. It’s not enough to be motivated to behave in a new way; people also need to understand how to be successful with the new behaviors.

Stock Market in Financing of Economic Growth

Many within our society think of stock market as one of those things that virtually exist for some few. Many among us can not relate the stock market to our economic growth, understandably so.
However, as it were, the functioning of the economy depends on the financial system of the country. This financial system includes capital markets, stock exchange, central bank, and commercial banks as central entities along with other financial services providers. Normally, the financial system should be deeply entrenched in the society and provide employment to a relatively large population. Accordingly, the three major functions of the financial system are: providing capital and credit; providing liquidity which protect businesses and individuals against sudden cash needs and providing risks management mechanisms.
Another important work of finance is to boost growth of capital markets. Business needs two types of capital – fixed capital and working capital. Fixed capital relates to funds that are needed to finance infrastructure, production and other such activities which are long term in nature. To achieve these, business and governments issue shares and bonds to raise fixed capital.
On the other hand, money needed to run business on the day to day basis (working capital) i.e. ongoing purchase of raw materials, financing cost of finished goods, costs of proving services, transportations, operating costs, facilitating trades, etc are provided by banks. Businesses access this type of financing by issuance of bills and promissory notes or bank borrowings, etc. These instruments are valid in the money market, and banks exist for that purpose. Banks also facilitate international trade via issuance of letters of credit, trade guarantees, and provide access to foreign exchange by businesses.
Thus, it is somehow clear that the financing of infrastructure, or industrial development, or financing of such other long-term projects which plays an important role in the socio-economic development of the nation and its people depends on the development of the nation’s financial markets, particularly in this context, the capital markets and its key institutions such as the stock market. It is argued that there have been few economies that have run successfully and sustainably without a sound capital market.
So, where are we on this finance-growth nexus, particularly in the tale of capital markets? Well, our market capitalization to Gross Domestic Product (GDP) ratio is less than 10 per cent, our liquidity to market capitalization is less than 5 per cent and the number of people with investment accounts at the Stock Exchange is less than 1 per cent of the population.
With domestic equity market capitalization of Tsh 9.1 trillion and Outstanding bonds worth Tsh. 9.4 trillion relative to the GDP of about Tsh 125 trillion; with only 28 listed companies; with market turnover of about Tsh. 400 billion per annum; and about 550,000 investors out of more than 55 million population, it says that as a society we need to do more in this important aspect of an market-based economy. What does these data tell us?
It means, as a country, we could potentially unlock a substantial portion of highly needed capital to build our physical and social infrastructure system, build industries and finance local development projects. We need to enhance and diversify the role of finance in our economic development. The stock market can be a tool and a platform that could inject much needed capital into our country’s growth engine. Crucially, however, is the fact with our current direction where domestic financial resources mobilization seems to take a significant consideration in our political and policy discussions, then the stock market could be one of the focal vehicles which can enable local citizens to play a more active role in financing our own economic development by way of releasing some of the idle savings in financing investable enterprises and development projects.
The key question, however, is, how do we get there? by creating awareness and forming a mutually shared understanding and appreciating this matter. How do we bring this awareness? Or how can we act towards this direction? These requires both political and policy leadership, especially if this is considered to be one of the policy priorities – and I do not see why it is not, why it should not be a policy priority especially if there is a fundamental understanding that economic development requires financing, and that the stock markets is one of the key tool for mobilization of domestic and foreign funds for investing in our development.
Without prejudice to the above, the government has so far done a significant portion of its part. It has put in place the regulatory framework and key institutions for the operationalization of the market. There are several tax incentives provided by the Government to incentive businesses to participate in the capital markets.
The other aspect where the Government has led the way is championing mandatory listings of companies from some sectors for the purpose of enhancing economic empowerment to citizens, creating the atmosphere of good corporate citizenship as well as encouraging transparency in the Tanzania corporate environment.
Privatization via the stock markets and enabling many Tanzanians to participate in the ownership of some key entities in our economy is another key contribution by the Government.
In conclusion — the growth of our stock market represents an opportunity which has the potential to accelerate development and promote financial inclusion and economic empowerment. However, stock markets do not grow on their own — political willingness and leadership, policies mandates and priorities, strategies and action by public and private sector should accompany a mere existence of a stock market.

Enhancing Domestic Resource Mobilization: What are the Potentials?

At a nation, we can still enhance on the effective and equitable strategies for domestic resource mobilization. The impetus for such emanates from considerations of possible tools and process of financing our development, it basically calls on us to step up our efforts to collect more taxes to achieve development and growth plans that we have set before us, especially the one for achieving a middle income status within this decade. To reach there, we need to constantly engage in these discussions, especially those related to potential impediments—political and structural—in raising domestic resources.
The challenge of mobilizing domestic taxes should be considered against the funds required to achieve our development goals. To achieve the development target funds required. For instance, to achieve targets in education, health, roads, railway, electricity, water and sanitation requires an annual growth of at least 15 percent of GDP until 2030.
Where are we on mobilizing taxes domestically?
According to the publicly available data, in these last 4-years, direct tax collection has increased by about 7 percent, while the number of taxpayers has grown by 20 and 3 per cent for individuals/sole proprietorships and corporate types of direct taxes respectively. Direct taxes contribute about 40 percent of our total tax revenue.
Much as there are noted progress, we still have a low taxpayer base even as a percentage of the total population. Only 2.75 million have a TIN and of these, 21,000 have filled for VAT and about 300,000 file income tax returns. Only 5 per cent of the population pays direct tax, which is very low compared to 30 per cent in Botswana, 25 per cent in Namibia, 20 per cent in Mozambique, etc.
On average, our tax-to-GDP ratio has risen by about 3 percentage points of GDP in these past few years, which is higher than the average rate for Sub-Saharan Africa (SSA) countries, which ranges between 2 and 3 percent. That said, we are still among the 10 countries in SSA where the tax-to-GDP ratio is below 15 percent. Thus, whatever angle this debate takes, the level of tax capacity requires enhancing for us to ensure sustainable growth.
So far, higher indirect tax collections, have been driven primarily by rising revenues from value-added tax (VAT) and domestic duties, despite the significant revenue potential from international trade taxes. Revenues from corporate income taxes have held up at less than 5 percentage points of GDP. These revenues are less than what we can potentially mobilize because of profit shifting by multinational companies.
A key question for us, going by this argument, is whether the increased reliance on VAT and duties causes the overall tax system to become regressive to the detriment of the poor. Unlike in advanced economies, the ratio of direct tax revenues to indirect tax revenues has remained broadly unchanged.
What seems to be the problem?
Let us consider the political economy of taxation. While there has been noted improvement in these past few years, and there is still room for further improvements in the techniques of tax administration, the fundamental problems in revenue mobilization, across a wide variety of sources, are sometime rooted in inequitable power structures. These power structures create widespread perceptions of unfairness, corruption, and a lack of transparency, which compromises compliance and enforcement mechanisms. In some cases, political forces exempting the rich and powerful compound the already difficult technical problems of bringing large, informal sectors into the tax net. The “tax culture” that many advanced societies rely on, in part to ensure regular tax payments across smaller taxpayers, does not exist. This gap opens a vicious circle of distrust in the government: low resource mobilization means services are not provided regularly and efficiently, and the lack of service provision discourages tax payments. This the one major area that the current government is facing head on and we all can observe the positive outcome coming out of it, and we remain grateful.
Essentially, the social contract needed to make any revenue effort more credible can be broken by the above. Like it is in many of our countries, the general populous is unclear about the benefits of paying taxes and is skeptical about their social duty to contribute to a revenue system where they see large and powerful players—be they individuals or corporations—opting out, sometimes because of tax exemptions. The economically powerful in a country can sometimes keep even the tax authorities at bay. We are however, much grateful that this is no longer the case.
Is there a sustainable solution?
There are a variety of solutions to the challenge of domestic resource mobilization. They include increasing resources for audits; establishing well-resourced large taxpayer units; simplifying tax processes to lessen the administrative burden; using digital technologies for better record-keeping, monitoring, and auditing; increasing transparency in granting tax exemptions; and harmonizing tax policies across sectors. These are all well-known recommendations and can potentially assist tax authorities in mobilizing more revenue.
What’s next?
Implementing these measures, costs money and takes time. Difficult choices are made and will have to be made—tax authorities are victims of low tax revenues just as other government service providers. What advice can one give to craft effective strategies for inculcating a tax culture that will provide the domestic resources needed for the pressing human and physical infrastructure needs of the country? That’s the question that is being answered through action following various strategies implemented by the current government. Obviously, the room for improvement is large.

Stock Markets, Investments and a Good Society

Stock markets, to some people are often portrayed as casinos. These sentiments are partly informed by news report that often portrays frantic traders speculating on where prices would go next, almost becoming euphoric if the shares have had a good run up (also called a bull market), or thoroughly depressed if the market is down (a bearish market). Indeed it is fair to say that there are still many people in our societies who regard stock markets as places to make quick money, who spend their lives and money trying to gain short term trading edge over others, not bothering to understand the underlying fundamentals of the business behind the shares.
The image portrayed above is unfortunate because along-side that speculative trader and/or investor, are thousands of value-based investors, (representing retirements and pensions funds, life insurance funds, savers for the future, fund managers, etc), who genuinely try to understand the long term prospects for a company, calculating the intrinsic value for it and then deciding whether to allocate money to the firm to help its growth, expansion, building new factory, make new invents, go into new frontiers, etc.
Through the actions of these value investors, societies benefit from new products, new industries, jobs, wealth creation, etc as money is taken from idle and inefficient activities and reallocated to new frontiers and efficient use. As one can imagine, through this intermediation process — it is not only the government that benefits from the presence of stock market in its midst —but anyone with savings in a pension scheme, or with a life insurance cover, or with savings/investments with relatively lower returns, etc — who wants a portion of that money placed in shares with prospects of high rates of returns (profits and capital gain) over the next few decades.
To meet these societal needs (i.e. capital/funds to finance businesses and investment opportunities, etc) stock markets have evolved throughout the history, especially in the manner in which they are governed and managed, the manner in which they face and manage increased competitions and also the manner in which they evolve with technological innovations and invents that have changed their method of trading so that their trading and securities depository are now much built around sophisticated computer systems that can handle millions of transactions in a day.
As it is, it makes sense to say every society at this age of human history needs diversified level of investors within itself to facilitate and assist businesses growth through tools of mobilization of savings resources and intermediate them into productive use, especially long term projects and enterprises — many investors would prefer to have the liquidity and vibrancy that is offered by stock markets than the difficulty of finding buyers when they need to sell off their businesses and shares (or securities) outside the organized market.
On the same vein, a society needs people who are willing to take risks — either in establishing new business ventures, or expanding current businesses to other new territories, or innovation based on ideas or people with the willingness to provide risky funds to new ventures and ideas. Some financial institutions, by their nature, given their business model and mandates are not willing to accept such risks. Institutions, such as banks — would like to strike deals with companies whereby even if the amount of profits made is small or even in cases where the company makes losses, they still will be paid their interest income on capital advanced to such companies. Furthermore, such institutions usually require collaterals so that if business plans turnout to be not as expected, the bank can recoup its money by selling off property or other assets held under collateral. Holders of other forms of debt capital such as bonds, take similar low-risk (but also low-returns) deals.
One can therefore only imagine if debt (short term or long term) were the only form of capital available for businesses to be established or for financing their further growth. Obviously, if debt was only the source of finance, then very few businesses would have been established or flourished in such a situation because it would be rare for entrepreneurs and business managers to come-up with investment projects (i.e. a new venture, a new product-line, etc) that would offer these lenders the security they need or the certainty and predictable returns they require. Part of the reason why businesses flourish in various uncertain business and economic environment, is because they are also financed by capital whose source recognize that uncertainty and risk taking is part of the business and investment environment. Such fund providers (investors) therefore factors-in such situations in their capital and investment pricing.
It on such bases that the DSE have been pursuing efforts to educate business enterprises to consider using the stock market to access this alternative source of financing, including establishment of the SMEs segment – and now the DSE has introduced the DSE Enterprise Acceleration Program for the purpose of bridging the communication gap between itself and the business community as well as build capacity of SMEs owners/managers to running their businesses in line with the principles of sustainable businesses management.
In my argument above, I have painted a picture that says over-reliance on debt is neither sustainable nor recommendable for the long term growth and sustainability of many businesses in many sectors. However, let me also say I appreciate that it is possible for some businesses to be entirely financed by debt capital, i.e. companies with little uncertainty regarding its future income — such as those dealing with water and energy utility may fall under this group, because they are regulated and bills charged to their customers are highly predictable for a foreseeable future. However, despite such situations, even for such companies, whenever analysis for a new project is carried out — issuance of shares, because of its efficient pricing and hence less costly source of capital, might be one of the considered capital source.
Now, consider a company whose business is continuously cyclical, or a business whose sustainability depends on its clients or customers sentiments or depends on whether or external factors beyond their control— can such a business be purely financed by debt?. Probably no — such a business would require part of its finance be debt and partly equity. That is the non-risk takers can finance part of the business and risk takers can finance it partly — naturally risk takers will want high reward for putting their hard earned savings in such an exposure. In exchange to such risk taking — they would want to have their views on who should be on the board of directors of the company, they would want the power to vote down major moves proposed by the managers. They would also want regular information on the progress of the company they have invested into. One important aspect to note is that these holders of shares, in the success or failure of the enterprise, they do act as shock-absorbers so that other parties contributing to the company, from suppliers and creditors to bankers, do not have to bear the shock of a surprise recession, a loss of market share. This is why it is important for any society to appreciate the relevance of a stock market in its midst.

On the Commoditization and Commercialization of Kiswahili

About two years ago, friends (Ali Mufuruki, Rahm Mawji, Gilman Kasiga) and I wrote a book, themed: Tanzania’s Industrialization Journey, 2016 to 2056. The book attempts to suggest possible solutions on how to go about industrializing our nation – moving from agrarian to a modern industrial state. In the soft side of this attempt is the aspect of cultural changes, and the need leverage on our cultural exceptional cases, particularly Kiswahili exceptionalism, on encouraging and motivating us to take pride by being a Swahili Nation. There are also suggestions on how we can turn this whole pride thing into some form of economic benefits –packaging Kiswahili into a tradable commodity, commercialize it and sell it into the marketplace, to those in demand, as we have it in abundant supply. So, in today’s article, I would like us to focus on this topic, while referring to some of what we said in the book – basically complementing current efforts by our Government in this space.

Let us start by putting the context right: with more than 120 different ethnic groups and tribal languages, Tanzania is genetically the most diverse country in the world, and yet, of all African countries, it is the one that has not had any serious ethnic conflicts because of the unity fostered by Mwalimu Nyerere under Swahili nationhood. Spoken as a first or second national language by more than 140 million people in Tanzania, Burundi, Congo (Kinshasa), Kenya, Mayotte, Mozambique, Oman, Rwanda, Somalia, South Africa, Uganda, UAE and the USA; Swahili is the single most widely spoken language in Africa and one of the top ten most widely spoken languages in the whole world! And there is a significant potential to expand the base of potential Swahili users to far more than the current 140 million. As Henry Ford and later Steve Jobs once said: people don’t know what they want, until you show it to them. We can therefore be entrepreneurs in front-running our Swahili exceptionalism and show to the people of Africa, what they probably want. I hope entrepreneurship by the private sector will complement the Government’s recent efforts.

Let’s proceed — under the leadership of our Founding Father Mwalimu Nyerere, Tanzania deliberately embraced Swahili not only as a national language but also as a way to express our national identity and pride of us, as a people. As a result, proper Swahili writing, grammar and literature are taught in school as mandatory subjects all the way to secondary school. Swahili is used as the default medium of communication in government offices, parliament and now, even in international conferences. Although we have not achieved similar success in finding the way back to our cultural and traditional roots (Christian or Islamic faith institutions have continue to dominate the spiritual space within which we congregate); but we, Tanzanians can claim today to be one of the few African countries that have successfully used a common indigenous language as a tool for the unification of its people into a strong, peaceful and harmonious society.

Despite of the above, we still observe some key aspects that require our reflections and intervention in order to make Kiswahili more prominent among us, even in our own measure. For instance, rather than creating and translating works in literature, economics, business, history, etc., in Swahili and encouraging the widespread use of Swahili among political leaders and citizens and in formal education and businesses, we see English as the sign of sophistication, we think that economics and philosophy and technical concepts can only be studied in English, we clamor to name and operate our businesses, schools and research institutes in English and our political leaders use English when foreign delegations use their own languages. We sometimes forget that all major powers that have risen recently/are rising e.g., China, Japan, South Korea, Norway, Malaysia, Vietnam, Sweden, Thailand, Germany, Qatar, UAE, etc., all use their own languages – often with a unique script – for everything and sometimes teach English, but only as a secondary language.

Based on the above, as Ngũgĩ wa Thiong’o (on Decolonizing the Mind) and Frantz Fanon (on the Wretched of the Earth) says, psychological freedom – the rejection of colonizers’ linguistic, cultural and identity forms, and a strong re-adoption of and belief in one’s own – is a precondition for achieving political and economic freedom.
Now for us, we are fortunate that Mwalimu Nyerere sowed the seed of psychological freedom early on and instilled in Tanzanians a sense of self-pride, self-worth and self-love that was independent of the European. He fostered nationalism and mandated the widespread use of Swahili, which has made Tanzania along with Ethiopia and most recently Rwanda, the only countries in Sub-Saharan Africa that use their native languages in the conduct of official government business.
We must therefore actively forge a Swahili/Tanzanian identity of uniqueness, greatness, brilliance, and unity and self-confidence and self-pride in being Swahili/East African (and not striving to be American or British or Chinese). We should find a suitable term for this in Swahili; Uzalendo comes close, as does Rwanda’s Agaciro, but Swahili language scholars can likely find a better-suited word to embody this spirit.

So how do we go about building the structure upon which we can leverage the Swahili exceptionalism into a commodity that could be sold in the market for our mutual economic benefits?, well this will be a follow-on to this one: How do we build Swahili exceptionalism, and get Tanzanians to draw strength from it, feel psychologically empowered and personally invested, triple their efforts to drive the nation forward and make Swahili a tradable Commodity? Below are some of the suggestions, basically starting from looking within:
We need to come up with national values, slogans, aims and disseminate them everywhere across the country as a reminder of Swahili exceptionalism, and the greatness it was always meant to achieve.
We should encourage us to use Swahili everywhere — as Mwalimu Nyerere and Ngugi wa Thiong’o suggest, we have to stop the deliberate disassociation of the language of conceptualisation, of thinking, of formal education, of mental development (at the moment, mostly English), from the language of daily interaction in the home and in the community (Swahili). We need to make them both Swahili. Language is the ultimate creator and preserver of self-identity and self-confidence, as described before, as we speak it every hour of every day. Our government leaders have to lead the way and use Swahili on every platform, local and international. We saw this with the Vietnamese delegation that visited Tanzania earlier this year; clearly they could speak English, but, when addressing the public, they spoke in their own tongue.
We have to grow and make widely available a vast body of professional and academic subjects and texts in Swahili, and encourage study in them. Reproduce and spread widely the works of literature, philosophy, etc., that already exist in Swahili, for example, the works of Shabaan Robert, Muhammed Said Abdulla and Julius Nyerere, as well as more recent writers. Encourage the creation of vast amounts of Swahili works in medicine, law, business, literature, physics, education, mathematics, history, engineering, economics, philosophy, etc.
Why don’t we teach project management, electronics, business studies, medicine, agricultural and factory technician courses in Swahili? This would be the greatest equalizing force in Tanzania, where instead of forcing everyone to learn everything in a language that is not their own, they learn in a native language in which they can excel even further. We need to build our intellectual tradition and glorify it.
We can even translate on a mass scale foreign works into Swahili, e.g.,the works of Professor Ha-Joon Chang’s work on economics like Bad Samaritans and Transformative Industrial Policy for Africa, or Thomas Sankara’s speeches on society, politics and economics in Thomas Sankara Speaks; or translate science texts from Singapore, vocational and technical texts from Vietnam and Germany, medical texts from India and the US, Chimamanda Ngozi Adichie’s novels like Half of a Yellow Sun, the Harry Potter series, etc. We need a healthy fusion of locally produced Swahili work and work from abroad that we translate into Swahili.
We should real set an example for other African nations from this context. As we carry out all the above measures and more, we will become more united, self-confident, proud, and this will accelerate industrialization and growth. Just we have drawn from other nations in building unity and Swahili exceptionalism, so must we assist other African countries in strategizing their way of doing the same. We could even, for example, spread the academic and professional use of Swahili (after we’ve built up the requisite knowledge base in it) throughout East Africa, other parts of Africa and the diaspora, as a way of uniting people and strengthening their senses of identity
Let us learn from other nations.
The above is not an exhaustive list. As done above, we must continue to research what other nations have done to drum up a sense of exceptionalism and nationalism, and adopt what could work for us, and build upon it
Finally, we should remind ourselves that true nation-building is both extrinsic and intrinsic: as we build the external (industries, infrastructure and economy), we must simultaneously strengthen the internal (mindset, identity and confidence) values of our people. One without the other will inevitably lead to failure. Once internalized and understood, can then turn into an aspect of geopolitical-cultural-social-economic tool.

On the Commoditization and Commercialization of Kiswahili

About two years ago, friends (Ali Mufuruki, Rahim Mawji, Gilman Kasiga) and I wrote a book, themed: Tanzania’s Industrialization Journey, 2016 to 2056. The book attempts to suggest possible solutions on how to go about industrializing our nation – moving from agrarian to a modern industrial state. In the soft side of this attempt is the aspect of cultural changes, and the need leverage on our cultural exceptional cases, particularly Kiswahili exceptionalism, on encouraging and motivating us to take pride by being a Swahili Nation. There are also suggestions on how we can turn this whole pride thing into some form of economic benefits –packaging Kiswahili into a tradable commodity, commercialize it and sell it into the marketplace, to those in demand, as we have it in abundant supply. So, in today’s article, I would like us to focus on this topic, while referring to some of what we said in the book – basically complementing current efforts by our Government in this space.

Let us start by putting the context right: with more than 120 different ethnic groups and tribal languages, Tanzania is genetically the most diverse country in the world, and yet, of all African countries, it is the one that has not had any serious ethnic conflicts because of the unity fostered by Mwalimu Nyerere under Swahili nationhood. Spoken as a first or second national language by more than 140 million people in Tanzania, Burundi, Congo (Kinshasa), Kenya, Mayotte, Mozambique, Oman, Rwanda, Somalia, South Africa, Uganda, UAE and the USA; Swahili is the single most widely spoken language in Africa and one of the top ten most widely spoken languages in the whole world! And there is a significant potential to expand the base of potential Swahili users to far more than the current 140 million. As Henry Ford (the founder of Ford Motor Company) and later Steve Jobs (co-founder of Apple Inc.) both once said: people don’t know what they want, until you show it to them. We can therefore be entrepreneurs front-running our Swahili exceptionalism and show to the people of Africa and beyond, what they want. I hope enterprise spirit by our private sector and private citizens will complement the recent Government’s efforts.

Let’s proceed — under the leadership of our Founding Father Mwalimu Nyerere, Tanzania deliberately embraced Swahili not only as a national language but also as a way to express our national identity and pride of us, as a people. As a result, proper Swahili writing, grammar and literature are taught in school as mandatory subjects all the way to secondary school. Swahili is used as the default medium of communication in government offices, parliament and now, even in international conferences. Although we have not achieved similar success in finding the way back to our cultural and traditional roots (Christian or Islamic faith institutions have continue to dominate the spiritual space within which we congregate); but we, Tanzanians can claim today to be one of the few African countries that have successfully used a common indigenous language as a tool for the unification of its people into a strong, peaceful and harmonious society.

Despite the above, we still observe key aspects on this matter that require our deep reflections and intervention in order to make Kiswahili even more prominent among ourselves. For instance, rather than creating and translating works in literature, economics, business, history, etc., in Swahili and encouraging the widespread use of Swahili among political leaders and citizens and in formal education and businesses, we see English as the sign of sophistication, we think that economics and philosophy and technical concepts can only be studied in English, we clamor to name and operate our businesses, schools and research institutes in English and our political leaders use English when foreign delegations use their own languages. We sometimes forget that all major powers that have risen recently/are rising e.g., China, Japan, South Korea, Norway, Malaysia, Vietnam, Sweden, Thailand, Germany, Qatar, UAE, etc., all use their own languages – often with a unique script – for everything and sometimes teach English, but only as a secondary language.

Based on the above, as Ngũgĩ wa Thiong’o (on Decolonizing the Mind) and Frantz Fanon (on Wretched of the Earth) both says, psychological freedom – the rejection of colonizers’ linguistic, cultural and identity forms, and a strong re-adoption of and belief in one’s own – is a precondition for achieving political and economic freedom.
Now for us, we are fortunate that Mwalimu Nyerere sowed the seed of psychological freedom early on and instilled in Tanzanians a sense of self-pride, self-worth and self-love that was independent of the European. He fostered nationalism and mandated the widespread use of Swahili, which has made Tanzania along with Ethiopia and most recently Rwanda, the only countries in Sub-Saharan Africa that use their native languages in the conduct of official government business.
We must therefore actively forge a Swahili/Tanzanian identity of uniqueness, greatness, brilliance, and unity and self-confidence and self-pride in being Swahili/East African (and not striving to be American or British or Chinese). We should find a suitable term for this in Swahili; Uzalendo comes close, as does Rwanda’s Agaciro, but Swahili language scholars can likely find a better-suited word to embody this spirit.
So how do we go about building the structure upon this foundation? How do we build Swahili exceptionalism, and get Tanzanians to draw strength from it, to feel psychologically empowered and personally invested, triple their efforts to drive the nation forward and make Swahili a tradable Commodity that can be commercialized and sold in the market place across the continent and beyond? These are some of the suggestions, starting from within ourselves: (i) we need to come up with national values, slogans, aims and disseminate them everywhere across the country as a reminder of Swahili exceptionalism, and the greatness it was always meant to achieve.

We will continue next week…

Municipal Bonds, a Viable Option for Funding Local Governments

In the past five years we, at the stock exchange together with some of our key stakeholders have been engaging local government authorities on the idea of using municipal bonds in the financing of local government projects, especially infrastructure projects. Up to this point, we have, in various forums and platforms engaged with municipalities of Kinondoni, Ilala, Ilemela and Tanga. We have also done the same to city councils in Dar es Salaam, Mwanza and Arusha, as well as Songwe region and in the next few days I will be in Simiyu on the same mission. Unfortunately, it is been five years of engagements and no single municipal bonds have been issues, while at the same time there is no deficit of social economic infrastructure projects that needs funding. In fact, we haven’t gone as far, despite opportunities in some cases of helping identify potential projects and preparations of Draft Information Memorandum framework that could have guided their further consultations. Why efforts such as these are necessary? and why are we still pursuing this cause? I will explain:

Municipal bonds are debt instruments issued by sub nationals such as local government authorities, municipalities and cities. They enable local governments to raise money to fund public projects, paying bondholders interests for the debt as the cost of raising funds. In the U.S, where such bonds were first issued during the urban boom of 1850s, their outstanding bonds issuance by states, cities and other sub-national entities exceed US$ 3 trillion, as of 2018. In Africa, only the Republic of South Africa cities of Cape town, Johannesburg, Ekurhuleni and Tshwane have issued bonds, so as Douala in Cameron. Dakar in Senegal as well as a few cities in some states in Nigeria have tried but so far has been without coming to its finality. It is therefore apparent that municipals and sub-national bonds market is still infant in not only to us, but in Africa, and countries municipals/sub-national entities are not allowed to borrow via issuance of municipal bonds.

I think it is important to appreciate the fact that it is not only the municipal bonds market that isn’t developed as it should, but so are other types of bonds, i.e. government bonds (issued by central governments and backed by national governments); Agency bonds (normally issued by stated-owned-entities, government agents or government sponsored entities); corporate bonds (issued by public and private companies); sovereign bonds (issued in foreign currencies and guaranteed by national governments targeting foreign investors); diaspora bonds (issued by governments and directed to citizens originating from the country but live somewhere else); nor are Islamic bonds (issued by government or Islamic banks and institutions targeting people of Islamic faith) — these are all underdevelopment in most African countries, despite funds mobilization challenges and the need for financing.

In spite of the above, the truth is that our Governments are overwhelmed by the rapid growth of cities, however, strategic planning has been insufficient as it is for the provision for basic services to residents, and the situation isn’t getting any better by the day. For instance, since 1990s, (earlier than that for us) widespread decentralization and devolution has substantially shifted responsibilities for dealing with urbanization to local authorities; yet municipals and local governments across Africa receive just aa small share of the national income to discharge their duties and responsibilities. Responsible and proactive local governments, municipals and city authorities are examining how to improve their revenue generation and diversify their sources of finance. Municipal bonds may be a viable financing option for some capital cities, depending on the legal and regulatory environment, governance and control mechanisms, viability of proposed investment projects, viability of vehicles for implementation of project financing and projects’ implementation, investors’ appetite and the creditworthy of the borrower.

Massive construction programs for roads and pavements, roads rehabilitation and parking, street and traffic lights, shopping malls, downtown markets, bus terminals, waste management facilities, flood management, sewage pipes, environment management as well as other social programs such as school milk programs, free uniforms and computers, etc. all these can be financed efficiently via issuance of municipal bonds by municipals and cities without over-reliance to central government for funding.

I understand that under the current legal/regulatory framework provides for a limited scope to increase resources by way of revenue collections because this role if highly concentrated to the central government, also there are several overlaps between the central and local governments in this space. However, it is also fair to argue that institutions that are closest to the people i.e. local government — must have pro-poor development programs that can be financed using internally determined financing channels such as municipal bonds. Therefore, reforms that will enable cities and municipals to borrow efficiently in the process of reducing their financing dependency on the central government, should be encouraged and pursued.

Much as there exists limited alternatives for raising finances to finance local governments development projects, but the attraction of bonds issuance may be clear, it will enable cities to borrow large amounts in lump-sum at a relatively competitive interest rates from a wide and diverse investor base than what could be provided in bi-lateral commercial borrowings. Once done, this will be a strong signal of determination by local government authorities, municipals and cities not to overly rely on concessional financing and confidence in their abilities to manage large revenue-generating investments. But this requires close leadership by a champion within the local government governance structure, such as a mayors as well as the political and administrative discipline that goes with such initiatives.

Basics of raising capital for startups and SMEs

Capital is the lifeblood of business. If you run out of it and lack access to additional resources, in many a case the game is over. As the founder of a startup, you’ll find that raising capital is a significant part of your efforts and, for better or worse a major challenge. Unless you have a clearly defined plan and a path you will follow, you’re going to end up wasting precious time that could have been spent elsewhere.
So, understanding the basics of raising capital will be critical to your success. If you’re clear on what you need to do to get from where you are to where you want to be, you’ll be less likely to derail while you’re in the thick of it. Here are the factors to consider:
Preparations, Preparations, Preparations
This step is often overlooked but unless you want to be constantly pumping your own resources into your business, you’ll want to assess and address various aspects of your company to ensure its overall readiness. Not only will you need to examine your team’s overall health from every angle, but to research your industry, competitors and the market, define your products prepare financial projections and determine how much money to raise, plus decide whether to tap into debt or equity.
Preparations may be the most time-consuming and effort-intensive aspects of raising capital. But if you know what you want and outline the rationale behind those choices, you’ll find it easier to figure out whom to target and ask for what you need. Remember, as you court investors and financiers, they will be asking the tough questions. So, you’ll have to be equipped with all the relevant information you need that will make them understand the business you’re in closer to how you know it.
Just because you have decided whom you are going to go after and what amount to ask doesn’t necessarily mean you are going to get what you’ve requested when it comes to financial matters, the more options you can identify, the better. That way, you will always have a backup plan when you need it.
Among the different types of investors out there that you may consider are: family, friends, banks, microfinance institutions, venture capitalists, angel investors, private equity firms, business incubators, investment groups, crowd funding pledges and the stock market.
Keeping in mind that some forms of funding are costlier and riskier than others, you can also use lines of credit (i.e. letters of credit and guarantees), bank loans, notes and bonds offerings and the like. These financing options are often last resorts or backup initiatives, as they are more contingent on the condition of your personal finances and assets, versus the value or potential value of your business.
Searching from the web or engaging capital raising consultants will inform you about the necessity of a “pitch deck” (basically a brief presentation, created using PowerPoint, or Keynote which is used to provide your audience with a quick overview of your business plan. Usually used during face-to-face or online meetings with potential investors, financiers, and such business partners) and the ways in which to put an effective presentation. The fundamentals are that your presentation should be used to highlight the most attractive aspects of your business.
Keeping your target audience in mind and knowing what’s important to investors is key.
Generally, 10 to 15 of pitch deck slides containing information your company, your team, competition, target market, milestones, future plans and funding requirements is sufficient. Armed with this information, your prospective investors should be better able to decide on a course of action.
You can never know too many people. While networking, you don’t necessarily need to be constantly promoting your business; you should make sure you are helping other people. This will help you garner a positive reputation, and when you help others get what they want, they will be more likely to help you.
Keep in mind that you will face rejection when discussing your business with others. Some investors may not be looking for an opportunity right now. For other people, your concept simply won’t be the right fit. Knowing this while going in can save you a lot of heartache and stress.
Researching various investment groups and resources online can prove worthwhile as well, especially during this time and age where internet and web searches resources are significantly helpful. Just make sure that you don’t get so much sucked into the bottomless blackhole of the internet. Once you get what you want from the internet, use that in trying to reach out specifically. Such as by making phone calls or sending emails to specific individuals, so that you specifically address what you want while you also remain proactive when reaching out.
This will assist in finding tailored solutions streamlines your process of finding capital and getting the source of capital convenient and aligned to your business objectives and needs while addressing the growth aspect of your business.
It is however important to note that, even with all your ducks in a row, there are no guarantees you’ll get the capital you need from the investors you’re courting. But no problem-solving is part and parcel of entrepreneurship. Knowing all your options and what you can do to get the money you need can give you greater confidence when you encounter bumps in the road. And that is something you unfortunately, can count on.
In line with the above, as one of the interventions to help bridge the gap for the SMEs sector in the context of access to capital, the DSE is considering introducing the “DSE Enterprise Acceleration Program” with the objective, among others, providing capacity building to identified growth-start up and SMEs in order to enhance their capacities in key areas of their growth ecosystem as well as easing their access to various sustainable capital raising and financing options, both locally and internationally.

Stock Markets and the Economy

In last week’s article we covered years of stock market’s experiences for both the UK and the US, covering 119 years for the period starting from year 1900 to date. This was from the recent Credit Suisse which was the eleventh edition dubbed the 2019 Global Investment Returns Yearbook: 119 years of financial history and analysis.
Now, year 1900 was a long time ago. A lot has changed ever since, for instance over 80 per cent of the value of invested assets during then was in industries that are today too small or are extinct altogether, on the other side — a high proportion of today’s equity raising, and listed companies come from industries that were small or non-existent in 1900. But then, we quoted a line from the Biblical book of Ecclesiastes 1:10 which asks and says: Is there anything whereof it may be said, see this is new? It was here already, long time ago – nothing is new under the sun. So, it’s been 119 years of experimentation and experience and nothing new.
As you reflect on 119 years, add this into that — the first stock markets were established in 17th century London coffee houses. During this time, people who were interested in owning commercial shares of businesses came to places like Jonathan’s Coffee House. There, innovators such as John Castaing posted stock and commodity prices for “marketable securities in London,” according to the London Stock Exchange’s historical record. This was the “earliest evidence of organized trading,” moving from coffee houses to an actual exchange on March 3, 1801. Now, compare that to the typical of today’s market with sleek electronics and frenzied trading floors; but even with this, still nothing is new as has been foretold.
Whether new or not, in countries around the world, stock exchanges are being used to help businesses raise capital and give investors opportunities to back new and established enterprises. In recent times, there seem to be no geographical limit or bias to the stock market which means that individuals from a diverse array of countries can use stock markets to build wealth and invest responsibility. By any standard of measure, the functionality and utility of the stock market is becoming universal by the day – now this may be something new. In today’s article we go back into the basics, we will try to answer the question — what is the role and impact of the stock market in the economy?
Raising capital
Stock markets are, first and foremost, financial institutions established to help businesses and entrepreneurs come together to transact (buy, sell and trade) shares for the purpose of providing capital to enterprises that need it. Were it not for stock exchanges, entrepreneurs would be left to their own devices to find investors, and consumers could wind up at the mercy of unlicensed and unregulated financial products with no oversight.
Servicing Investors
Another role of stock markets is to act as an intermediary for large and small investors seeking to make money outside the realm of standard banking institutions. The role of a stock exchange in an economy is to maximize return on savings that might otherwise languish in static bank accounts with low returns. Stock exchanges promise and often deliver higher profits, and in return, investors receive measures of assurance, diverse opportunities and flexibility. Further, a stock exchange offers investors assurances via formal oversight on investments. There is the negative side as well, where for some reason the companies listed in the stock market does not perform as expected, and investors risking losing value of their investments.
Barometer of economic health
A stock exchange can serve as a barometer of a nation’s fiscal health, broadcasting the ups, downs, trends and shifts of the domestic economy. For matured markets, the relationship between a society and its stock exchange is so deeply embedded that analysts can influence both the domestic economy and/or the stock market it relies on by signaling optimistic outlooks, or the opposite.
Good governance and financial accountability
Sophisticated financial market systems require credibility and accountability if they are to function on behalf of businesses and investors as interested in ethics as they are in profits. For this reason, a stock exchange benefits from a formal structure upheld by rules, laws and regulations. Management and operational standards set by governments, bureaucrats and agencies overseeing stock exchange operations add authority and oversight to the institution, giving stockholders, investors and businesses checks and balances necessary for investor confidence.
Economic effects
The direct effect of stock market activity can impact a nation’s economy in multiple ways. Stocks fall, spending stops, consumers lose confidence and a nation’s financial state begins to falter. Conversely, stocks rise, confidence spreads, spending and investments grow. A nation’s mood can rise or fall on stock market activity and performance, which shows how important the role played by a stock exchange can be in a society’s social and fiscal fabric.
Expanding diversity
If one of the stock market’s roles is to bring together like-minded investors, exchanges also serve as fiscal melting pots, giving minority businesses an opportunity to place shares of new company assets before potential stakeholders who might not otherwise learn about diverse new products were it not for the existence of stock exchanges. Few economies can hope to flourish without infusions of new ideas, systems and opportunities — all represented by cash — which is why this confluence of financial needs and wants regularly merges on the floor of a vibrant stock exchange.