We were happy last week when we learned that the Government has decided to reinstate its initial position of (continuous) providing fiscal incentives for the Dar es Salaam Stock Exchange (DSE) listed companies’ investors. We were amazed by the degree of wisdom that informed this decision. As I argued in the last few weeks — our exchange is still nascent, it is still small, investors and listed companies are few and the level of awareness on the role of the stock market to the economic growth is still low. But the vibrant stock market is vital for any major economic development — the sheer ability of bringing people together through common financing and ownership of major sectors or enterprises within the economy is a fundamental tool in propel the economic development in a different way. This idea is economically sound, socially coherent and psychologically good — it makes the society content and secure to the idea that we are all in this together.
Furthermore, the Finance Bill of 2016 recommends for the amendment of the Electronic and Postal Communication Act (EPOCA) of 2010 (as amended in 2011) back to its original intent and spirit, which is to require companies operating in the telecommunication sector to offload part of their shares and list into the local stock market. The recommended amount of shares to be sold to the public is 25 percent. And so by doing this — significant (75 percent) majority of ownership will still be retained by the strategic investor(s).
These two legislative actions by the Government aims at creating a vibrant stock market that will be able to partly facilitate the financing of the envisaged economic transformation through industrialisation. In the process, these actions will also enable economic empowerment to many Tanzanians, it will go further into enabling more financial inclusion and financial literacy to many people in the society as well as creating more transparency and encouraging good corporate governance. So, the argument here is strong and many other countries have gone through this process — we won’t be the first, we are not reinventing the wheel.
We definitely need a vibrant capital market in line with the economic transformation and a successful industrialisation that we are currently pursuing. So these decisions by the government and the parliament sends a strong signal towards a new era, that the way out of underdevelopment lies in raising the level of a nation’s savings and capital formation capacity. A vibrant capital market will encourage more savings and investment.
Currently, our total savings as a proportion of our Gross Domestic Product (GDP) is about 20 percent per annum, while our investment rate per year is about 30 percent of GDP. What this means is that we finance the investment gap using foreign funds and capital. Many economic and geopolitical indicators tells us that we need to gradually reduce this gap — this will require us to make a cultural reorientation, from a cycle of low savings and high consumption into the situation of high savings and high investment. Eastern Asia countries have done so in their process of industrialisation — China to the extreme, 50 percent of what is produced in China is being saved and then invested. Even in other relatively poor countries such as Vietnam their savings rate is currently 33 percent. Therefore, efforts and plans and decisions to motivate our savings has to be encouraged. a vibrant stock market is one of the means to encourage savings which are mobilised and intermediated towards productive investment activities in the economy.
As we consciously increase our capacity to save and capital formation, in the short to medium term, we should target to leverage further from foreign sources of funds (grants, Foreign Direct Investment – FDIs and development finance). In 2015, FDIs flow to Tanzania was about 3 percent of the total FDIs to Africa; we proper policies and a conducive business climate we can do more in this aspects. However, once raised, foreign capital (via donor funds, concessionary and non-concessionally loans, FDIs, private equity funds, portfolio investors, etc) should consciously be utilised to gradually increase our capital formation. We need to match the mobilised foreign funds with a clear intent to monitor, manage and prudently utilise funds raised from external sources. That is to say, having managed to attract foreign funds, we should aim to use the same for financing importation of capital goods, raw materials and foreign technology that are to be used in manufacturing of goods under the industrialisation program.
Further actions to propel a vibrant capital market is for whenever there are future privatisation intent — significant considerations should be paid to the capital market. Our own history tells us that this approach, as opposed to private sales, is more impactful to the society and the government. Privatisation through the capital market and listing of these entities into the stock market creates multiplier effects whose trickle down socioeconomic impact is more impactful. However, a better sustainable and impactful privatisation strategy has been through a good blending of retail domestic investors via IPO, the state and foreign strategic/industrial investment — privatisation examples of TBL, TCC, Swissport, NMB, Twiga Cement, and Tanga Cement are good models to repeat. Therefore, a combination of government’s ownership in existing (and new industries) via financial interests/commitments, combined with large number of shares trading publicly in the stock market, plus joint ventures with strategic/industrial investors is a better privatisation program to execute. SOEs that are being privatised through a combination of: state ownership + strategic/industrial investors + IPO (& public listing) have been socially and economically more impactful than other forms of privatisation. Therefore, going forward, targeted and strategic privatisation where the state retains ownership, combined with an invite for strategic/industrial investors to own and manage identified enterprises while allowing the public ownership (via IPOs) should be encouraged.
State-owned enterprises and parastatals such as TANESCO, should be restructured and be encouraged to list into the stock market. Entities with similar nature and mandates within the region are efficiently run following their restructuring and listing in local exchanges; TANESCO’s equivalent in Kenya i.e. KPLC and KENGEN are all listed in the Nairobi Securities Exchange. UMEME of Uganda, is dual listed in the Uganda Stock Exchange and Nairobi Securities Exchange. The same approach may apply to our TPDC and STAMICO— companies with similar business and economic models and mandates, are listed into local exchanges i.e. ZCCM in Zambia (with mandates similar to our STAMICO) is listed in the Lusaka Stock Exchange. Following their listing, our companies may be run more efficiently relative to their current state, will be better managed, will be more accountable and will reduce using tax payers money to finance some of the inefficiencies. Other entities where the government have ownership but may be privatised, while the government still retain major ownership, are: TPB, TIB, TWB, TPA, TTCL, NIC, ATCL (after restructuring and financing by the government), etc. Other entities where the government may reduce its ownership and convince their strategic partners to also do the same are NBC, Mbeya Cement, East African Cables, etc. Privatization through listing, while the government have ownership, have several benefits: i.e. sources of revenue to the government; provide access to efficient finance to these entities; economic empowerment to citizens; provide quality jobs to many; more government revenue (by way of taxes); growth of the local capital market; encouraging transparency and good governance, etc.
What I am proposing is that development aids and concessional financing for our economic development has it limits, we do not need to be trapped in this status. We can move up the ladder and potentially grow faster if we increase our domestic level of savings and capital formation so that we can invest in our own development. Advance in technology has taught us how deposits may be mobilised in the way that the conventional banking model would have took long time to uncover. A vibrant capital market can also be a tool to facilitate mobilisation of savings in our local economy in order to finance part of our growth and development. However, for this to be achieved — it requires conscious decision to move into this direction. The recent government decision on tax exemption for DSE listed companies’ investors and the decision on EPOCA is a clear signal towards that direction. We can do more in pursuing privatisation and in better use of of foreign currency and foreign capital.