Few days ago, analysis by Vertex International Securities Ltd shows that the volume of traded shares at the Dar Bourse dropped by 88.4%, reaching 1.8 million from 15.6 million in the preceding week. Weekly turnover plummeted from Tshs 7.35 billion the previous week to Tshs 3.3 billion by the close of business on Friday. As a result, stock market activities at the Dar Bourse have dropped by a whopping 54.48% last week, with the downward spiral, contributed to foreign investors’ absence.
There seems to be no correlation between the volume of trade at the Dar Bourse and the unprecedented foreign business records that the Tanzania Investment Centre (TIC) is locking, which indicates significant injections of foreign investment in our country. Why does a gap exist between TIC and Dar Bourse activities, and what tax reforms could attract tangible foreign assets?
Local companies such as TBL and NMB Bank Plc breathed life at Dar Bourse, and without their sheer role, the stock market would have been quieter than this! Generally speaking, Dar Bourse has experienced a bearish mood as the volume traded kept diminishing, with the Bank Of Tanzania attributing the quietness to external factors such as global economic crunch as a result of global trade dislocations, supply chain nightmares exacerbated by the Western-imposed Russian sanctions, Israel – Hamas war that is threatening to disrupt shipping movements in the Red Sea, among others.
The U.S. Federal Reserve’s actions of slowing the surging inflation through interest rate hikes have shrank money movements in circulation, depriving investors of the cash they needed while making borrowing costs unaffordable for an average investor, leading to a reduced volume of trade globally with the penumbra effect biting smaller economies like ours.
Domestically, deliberate moves by the Bank of Tanzania to raise interest rates as part of contraction monetary policy have dampened competition between equities and fixed incomes as long-term maturity instruments become cheaper, attracting local investors’ money while constipating equity liquidities in the same breath. This narrates why local companies such as the TBL, NMB Bank Plc and TTCL persevered, and their impact was visible, albeit without foreign players showing inadequate to stop the dovetailing at the Dar Bourse.
While those explanations are acceptable, they do not tell a whole story. The TICÂ has informed us that foreign investors have been voting with their money to invest in our economy. For instance, in January 2024 alone, the TIC said that it recorded a significant increase in investment, registering 52 projects valued at $422 million, marking a more than 50% increase from the previous year.
Read related: Tanzania Investment Centre Aims High, Eyeing $5 Billion in Annual Investment Projects.
In January, Tanzania's Investment Centre (TIC) @InvestTanzania recorded a significant increase in investment, registering 52 projects valued at $422 million, marking a more than 50% increase from the previous year.
The report also noted a shift in investment types, with… pic.twitter.com/FSXLHospDw
— Tanzania Digest (@TanzaniaDigest) February 19, 2024
The report also noted a shift in investment types, with Domestic Investment (DI) rising to 33% and Foreign Direct Investment (FDI) slightly dropping to 52%. Some experts said an increased volume of investors was partially attributed to policies favourable to investors, improvements in infrastructural gear such as the SGR, and expansion of ports, roads and others.
On the peripheral, one would expect an injection of foreign inflows to be felt immediately no sooner such agreements are signed, but such projects take years before they materialize. In addition, most foreign investors that the TIC gets on the boat have no statutory requirements to trade in the Dar Bourse as a precondition to business in Tanzania.
This is not news as information on most big miners in this country is found in foreign Bourse such as New York or London, where they are members, but not in Tanzania! As a result, most of the business generated in Tanzania is transacted on foreign soil, to our utter dismay. Most large investors, particularly those in mining, are nowhere to be seen in the Dar Bourse, yet they transact business worth more than $5 billion per annum, mostly outside Tanzanian soil!
According to Statista, in 2019, Tanzania recorded the highest gold output of 48.4 metric tons since 2010. In 2020, Tanzania recorded 47 metric tons of gold work. Tanzania earned around $2.3 billion in mineral exports in 2019, a significant increase over the 2018 level of 1.6 billion U.S. dollars. Gold had the highest contribution to the value of mineral exports.
Tanzania is the 4th largest gold producer in Africa after South Africa, Ghana and Mali and is the world’s sole producer of the precious stone Tanzanite. Gold production currently stands at roughly 40 tonnes a year, copper at 2980 tonnes, silver at 10 tonnes, and diamonds at 112,670 carats.
Mining and quarrying activities substantially contributed to Tanzania’s Gross Domestic Product (GDP) growth in the first quarter of 2021. The sector recorded 10.2% of the GDP, equivalent to 1,473,804 million TZS.
Also, read A Closer Look at Black Tax: The Elephant in the Room.
A Call for All Foreign Companies to Register at the Dar Bourse and Trade
Business volume at the Dar Bourse will never significantly increase until we look at our laws beyond tax collections. At the same time, we have been attracting foreign investors in a manner that would not boost our economy. For example, foreign companies’ tax incentives should be wholly tied to the registration with the Dar Bourse, and tax credits should be commensurate with the value of actual volumes recorded at the Dar Bourse. This move will encourage most foreign companies to register at the Dar Bourse. It will reward actual performance rather than what we can hardly ascertain at the moment.
If the TIC exempts a foreign company from paying certain taxes since those exemptions have not been locked to performance benchmarks such as active participation in our Dar Bourse where there is transparency to ensure real wealth is generated rather than exchanging paper money. No tax exemptions should be offered as they are done today because they encourage land and business opportunities for speculators getting those agreements with the TIC without really having any money to invest, as had been claimed in those pacts.
Then, the speculators approach local and foreign banks, not excluding the genuine investors, to seek and secure the money they must invest as per their agreements with the TIC. Such associations multiply transactional costs, eroding those projects’ worthiness before implementation.
The TIC may not know the actual value of the investment in the agreements entered with foreign investors, but if we craft investment laws that will require a 25% deposit of the value of the assets on the deals, the majority of the bogus investors will not even attempt to knock the door.
Experience has shown that most foreign investors neither have the money nor the gravitas to enter into agreements with us, but because our investment environment is not plugging loopholes against con men, leading to attracting the wrong people. We need a down payment of at least 25% of the value of the contract deposited at the BoT as a security guarantee for any of those agreements the TIC signed on our behalf to be legally operationalized.
Foreign mining investors have cakewalked without necessarily having the money. Still, the TIC granted them approved investing certifications with tax exemptions to boot without clear cash deposits at the BoT to assure us we were not taken for a ride by the speculators. We need to plug this loophole now.
We have examined the investment environment in Tanzania and saw what the Dar Bourse is doing is not linked with the TIC, leading to the underwhelming performance at the Dar Bourse while the TIC is chalking off lucrative foreign investments whose actual value is anybody’s guess. Tax reforms are urgently needed to ensure foreign speculators do not walk away with auctionable investment agreements to the highest bidders.
