Global Value Hunter

Media reports Tanzania’s economy is awful
– truth, or fake news?

Chess pieces-Knight and King

Earlier this week, several people forwarded me a link to a recent article published by The Economist, which makes the bold claim that Tanzania’s official economic statistics are bogus.

Among other things, the nameless author (a feature of The Economist is that it has no by-lines) claims that cement sales by the top two firms are “flat,” and bank lending to companies slumped. To quote the article directly:

“If Tanzania’s economy grew by almost 7% in the fiscal year to the end of June 2019, why did tax revenue fall by 1%? And why has bank lending to companies slumped? Private data are bad, too. In 2019 sales at the biggest brewer fell by 5%. Sales of cement by the two biggest producers were almost flat. None of these things is likely if growth 

is storming ahead. The discrepancies are so large that it is hard to avoid the conclusion that the government is lying.

Some of these statements by The Economist, based on the evidence I have gathered from primary sources – namely, the statutory financial reports that listed companies in Tanzania are legally obligated to release – are simply not true.

Bank lending to companies as far as I can see has not, “slumped.”

The two biggest banks in Tanzania, which between them account for approximately 40% of the banking sector, both reported strong loan growth in 2019.

Here’s NMB Bank PLC …

“Year on year Loans and Advances exhibited a healthy growth of 11% to TZS 3,596 billion from TZS 3,252 billion in 2018.” – NMB 2019 annual report, page 17.

And here’s CRDB Bank PLC …

VALUE ADDED STATEMENT of NMB annual report 2019
Source: NMB Annual Report 2019

“Our quest to support businesses and individuals through credit has returned good tidings as seen in the growth of our loan’s portfolio, which rose by 8% to TZS 3,382.0 billion, compared to TZS 3,126.7 billion reported in 2018. This growth was primarily motivated by our sustained efforts to uplift the Small and Medium Enterprises (SMEs) and consumer sectors. Specifically, we launched a host of new lending solutions to the SME sector such as Purchase Order Financing (POF), Certificate & Invoice Discounting for contractors and suppliers; and Safari Car loans for tour operators.” – CRDB 2019 annual report, page 31.

The geographic of leader market in Tanzania from CRDB Annual report 2019
Source: CRDB Annual report 2019

I don’t know where The Economist got its data from. But on the primary source data I look at, Tanzania’s biggest banks are in rude health, extending lots more credit to the private sector in 2019 than 2018.

This has continued in the first six months of 2020 as well. NMB’s total loans and advances grew by 3.1% from January 1 to March 31, and by 2.7% from April 1 to June 30. Annualize those rates and it looks like double-digit loan growth is on the cards again in 2020.

For CRDB, loan growth was even stronger at 3.1% in the first quarter of 2020 and 3.8% in the second quarter. Again, that would translate to a robust double-digit annual rate of more than 12%.

And it’s leading to big profits for shareholders…

NMB Bank’s net profit climbed 65% in the first half of 2020 versus 2019
(which was already a decent year!)

Already earnings per share (EPS) for NMB have reached TZS 187 for the first six months of 2020. A year ago, it was a respectable TZS 113.

For CRDB, the comparative numbers are TZS 27 in the first half of 2020, versus TZS 23 in the first six months of 2019 (17.4% growth).

As for cement sales being “almost flat,” again, this is total nonsense. My biggest shareholding in Tanzania is in Tanzania Portland Cement Company (Twiga). I follow the numbers like a hawk.

In 2019 Twiga sold 6% more cement by volume than it did in 2018. In the first six months of 2020, Twiga already sold 8% more cement than it had done by the same stage in 2019.

Again, these numbers are very consistent with an economy that’s reported to be growing at around 7% per annum.

Twiga’s cement is being used in many large-scale, high-profile infrastructure projects that seem to me to be pretty hard to “fake.” My business partner Peter Tan has written about this, in his Twiga report. The Standard Gauge Railway project, the Dar es Salaam Port expansion, and the Stiegler’s’ Gorge hydroelectric dam are but a few examples.

And yet, supposedly reputable mainstream media outlets such as The Economist persist in writing hatchet-job articles such as that quoted from above. If they don’t like the Magafuli administration, they should just say so, in my opinion. Accusing the government of falsifying its economic statistics, based on factually incorrect claims that are not corroborated by plainly obvious and readily available evidence to the contrary, in my view, is extremely unprofessional. It smacks of clutching at straws.

The Economist also makes mention of the 5% fall in beer sales in 2019. Again, even a cursory glance at the published 2019 annual report by Tanzania Breweries Limited (TBL) will tell you there were one-off circumstances that largely drove the decline.

Bans on the cheap plastic packaging used for the lower-end, “cloudy” traditional brews (made from sorghum and millet) made this business segment unprofitable. TBL therefore exited from this segment, and re-structured its “Darbrew” operation. This resulted in sales falling. But TBL’s profits actually rose in 2019.

Sometimes it’s what’s behind the headlines you need to study. I’d have thought journalists writing for The Economist should know that.

I can only conclude they must have some sort of “hidden agenda.” Deliberately obfuscating the facts, where it suits the narrative that they want to push is not good journalism. Not to worry, I’ll call them out as long as they do it. (Follow me on Twitter if you want the unvarnished criticism in full @globalvaluehunt).

But this sort of muddying of the waters actually works in our favour as investors. Where others are misinformed, there is opportunity.

I’ve written before about how I believe this mismatch between the narrative in the media, and among a certain segment of the population in Tanzania (generally those who don’t like President Magafuli much), has provided …

One of the best investment set-ups I’ve seen in my career

To make big money in financial markets you generally need a non-consensus view; that view needs to be correct; and, then eventually, you need the market to come around to your way of thinking.

I am convinced we have such as set up in Tanzania right now.

I have read almost nothing bullish about the country for years. Anyone I meet or talk to is either downright bearish or at the very least circumspect. Investors who were riding high in the 2012-2016 period have largely sold up and fled. Several high profile funds let go of their NMB Bank shares for TZS 700 and TZS 1,000. They’ve also been selling TBL shares at TZS 5,000, or less than half the last quoted price.

Prices for many blue-chip shares on the Dar es Salaam Stock Exchange are downright bargains.

That includes the stock exchange itself, which is also listed. I’ll have more on its great recent earnings report next week.

Of those stocks I own, CRDB, is selling for under 3x earnings, and Twiga Cement for under 6x earnings. Even market darling TBL trades on a single-digit P/E ratio if you can secure a block in a special crossing at TZS 5,000 as has been possible in recent months.

Tanzania has Presidential elections coming up in October. Already the media has its knives out for Magafuli. I don’t see the negative press changing any time soon. Hopefully that gives us time to buy some great bargains for the African Lions Fund.

I’ll be circulating an information memorandum on the fund next week. That will be followed in short order by the legal document, the Private Placement Memorandum (PPM), which has been sent to the regulators for approval this week.

I will invite all those interested in investing to join me on a Zoom call, where I will do a presentation and run through the details again. There will also be an opportunity for you to ask questions.

It’s going to be an exciting few weeks ahead. So, stay tuned. Or, if you are interested in the fund, but haven’t signed up to the list yet, please join us. 

Until next time,

Good Investing!

Tim Staermose

Founder and, African Lions Fund.

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