BUSINESS AND THE ECONOMY

The Tanzania Investment Centre has been named the world’s best Investment Promotion Agency (IPA) of the year 2007 by the World Association of Investment Promotion Agencies (WAIPA) during an investment conference in Geneva. WAIPA is under the UN Conference on Trade and Development (UNCTAD). More than 200 WAIPA members had competed for the award. Other winners were: ‘Invest in Portugal’ and South Korea’s ‘Trade IPA’.

The TIC was selected due to the effectiveness of its one-stop-shop services and its successful international and local investor roundtable meetings with the President, and the National Investment Steering Committee, which deals with investment of cross cutting nature chaired by the Prime Minister. It registered 679 projects in 2006 as compared to 550 projects in 2005. It also provided services to 11,229 investors as compared to 8,948 in 2005.

According to Mwananchi the government seems to be having trouble in controlling the production and marketing of uranium. The mineral, which is obtained in Ruvuma region, is being sold discreetly in the streets of Dar es Salaam to traders from the Democratic Republic of Congo who then export it. Minister for Minerals and Energy, Nazir Karamagi said that it was true that the mineral had been discovered in Ruvuma. Regarding the smuggling, he said the government was being very careful and a very close watch was being kept by his ministry’s officials who paid frequent visits to the mining and prospecting areas.

PERFORMANCE OF THE STOCK EXCHANGE

The performance of the Dar es Salaam Stock Exchange (DSE) since its inception in 1998 has been very positive and has also demonstrated that there is huge untapped potential financial capital within the country. The second half of last year witnessed a massive over subscription (295%) of Twiga Cement Company’s initial public share offer in which TShs 70bn had to be refunded. This shows how the public yearn for good investments.

Between the years 2000 and 2005 the major shares listed on the DSE experienced a remarkable appreciation in growth from their initial offer price. For example, Tanzania Breweries Plc (TBL) about 21%, Tanzania Cigarette Company Plc (TCC) 37% (2000/05), Tanzania Tea Packing Company(TATEPA) 13.7% and Simba Cement Company(SIMBA) 56% (Year 2002/04).

However, during the period between 2005 and the end of February 2007 the growth rates have dropped dramatically with Tanzania Oxygen Company (TOL) recording -2% growth (year 2003/07), TBL about 7% (Year 2004/07), SIMBA about 3% (year 2004/07) while TATEPA remained almost unchanged between the years 2004 and 2007. Excluding the new listings of Twiga and Jubilee Shares in the fourth quarter of 2006 the market growth was flat (see chart) at a time when the shilling depreciated by about 9% against the US dollar.

Dividend yields (Dividend per share/share price) fell significantly – TBL from 17.1% in 2000 to 11.7% in 2005, TATEPA from 10.5% in 2000 to 1.3% in 2004, TCC from 28.6% in 2000 to 12.7% in 2004 with only SIMBA increasing from 2.8% in 2002 to 9.7% in 2004.

DSM market capitalisation (TShs billion)Dar-es-Salaam Market Capitalisation (TShs billion)

The yield on Treasury Bills (364 days) in December 2006 was 15.6% which can reasonably be presumed as a risk free return so that a rational investor will require a return from the market of not less than 15% to compensate for the risk of investing in the market. In other words one may ask whether an investor with TShs 1bn will be better off investing in the market or in treasury bills!

However, not having current information about company performance over the previous couple of years, means it is not possible to work out the appropriate answer which is probably sad.

The ultimate duty of company management is to maximise shareholder value. In a capital market environment it is vital for investors to be in a position to assess whether the management is meeting this objective. And this is only possible if relevant, up to date, reliable and comparable information is made readily available.

Investors measure the return on their investment by the dividends they receive and the capital appreciation on their stock. And in a market like the DSE where the majority of public investors do not hold shareholdings big enough to influence management decisions, this is the only way they can enjoy a return on their investment. The major objective of DSE therefore is to create the right environment for the market to ensure that capital changes hands at the right price. This will only be possible if the investors are well informed about the current and expected performance of the listed companies and company managements maintain a sense of accountability to the market. In the absence of that it may appear that the investor’s money is being taken for granted, or as they say in other circles, they might be being short-changed.

DSE and indeed the CMSA (the regulator) could and should strive to increase efficiency in the market by requiring companies to report to the market on a timely basis on their performance in meeting budgeted forecasts as well as on any future deviation from expected trends if any – the profit statement. The DSE could also ensure that more information about the companies, the general economic performance, particularly in the sectors represented in the market such as cement and beverage, is made readily available to enable investors to make informed decisions.

In an era of instant information it is not good enough when news items on the DSE website are about events supposed to take effect in January 2004. Websites in the modern world are the windows of the company for their stakeholders.
At the moment only six dealers are allowed in the market and moreover they are required to charge a standard fee of 2%. This may be contributing in stifling competition and discouraging innovation. It is perfectly reasonable to expect more dealers to participate in the market in order to improve competition.

This lack of transparency as perceived by the wider public clouds the quality of even the scant information available. It might even be creating a thriving environment for insider dealing at a huge cost to investors and the public. Not that there is any evidence of it at the moment but it is difficult to rule it out under the current reporting environment.

Joseph Kilasara

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