Tanzanian President John Magufuli, after not having been seen in public since February 27, has died. As I relayed in my African Lions Fund Telegram Channel, here on the ground in Tanzania, we had been fearing this unsettling news for quite some time.
The government was criticised by many for not making Magufuli’s condition public as he battled ill-health. Magufuli had long worn a pacemaker, and the official cause of death was heart failure.
There are of course those who say his attitude to Covid-19 was irresponsible and who are now dancing on his grave. I find this somewhat distasteful.
But, what you or I think doesn’t matter. And my job, as an investor, is to work out what it might mean for the future of investments and the economy in Tanzania.
For those of you who have not closely followed my work before, or who want a refresher, I thought it would be useful to recap…
I discovered the investment opportunity in Tanzania when I went back in 2018 to the place I was born, Dar es Salaam. From reading the stock tables in the local newspaper and getting in touch with a local stock broking firm, I quickly realized some stocks were offering exceptional value.
I’ve previously written about my strategy “investing for keeps,” where I also discussed some of the reasons why I picked this country, and this part of the world, for the future.
Tanzania is a young country, but it has already come a long way. Formed through the union of Tanganyika and Zanzibar in 1964 with Julius Nyerere as the founding father the country went through a couple of decades under African socialism. Nyerere was one of the first in his country to get a degree from abroad, and during his time as a student in Glasgow, he was unfortunately exposed to Marxist ideas.
Returning to Tanzania, he introduced the Ujamaa culture (‘family-hood’ in Swahili) which means everybody worked and benefitted at the same level. He thought he was protecting the country from capitalism.
This policy was embraced by many Tanzanians. However, its inability to efficiently allocate resources and send the right price signals through the economy saw this ideology fail. By the mid-1980s the country was so destitute, even basic goods and services were a struggle to come by.
I recall returning here in 1981 with my parents for a holiday. They had lived here 1972-1974, and I was born in 1973. On that holiday, soap and toilet paper were like gold at the resort we stayed at, and it was only via the connections of an old colleague of my mother’s that we secured enough fuel to set off on the safari we had arranged.
To his credit, Nyerere apologized for leading the country down the wrong economic path and admitted his policy mistakes. But the scars linger. There is still a collectivist mentality and there is no freehold property ownership in the country. That said, a 100% foreign-owned company can operate here and secure tenure of land for as long as 100 years, in theory.
The land is fertile and bountiful, though perhaps not in the same league as Zambia and Zimbabwe with their more temperate climates. Still, Tanzania is a major producer of coffee, cotton, sisal, tea, tobacco, cashew nuts, and food crops such as maize, rice, pulses & wheat.
Avocados and macadamia nuts are other popular cash crops for export that have emerged in recent times. Spices are other lucrative crops.
I’ve noted before that there is an abundance of food in Tanzania. Fruit and vegetable stands are almost everywhere.
Besides agriculture, there are plenty of other investment opportunities in Tanzania. Tourism is one of the most obvious ones. Five of Africa’s most visited tourist attractions are here (Mount Kilimanjaro, Serengeti National Park, Ngorongoro Crater, Olduvai Gorge, and the Zanzibar archipelago). However, with the current pandemic it’s probably not the best time to get into the tourism sector.
(By the way, if you’d like some insider tips for an African Safari, hopefully in the foreseeable future, I wrote about it here.)
The country is also blessed with abundant mineral resources and a strategic location with several deep-water ports on the Indian Ocean that serve the land-linked countries to the west, Zambia, Malawi, DRC, Rwanda, Burundi and Uganda. That makes mining and transportation other great investment opportunities. Companies that can move goods from point A to point B by land, railway, or seas will find a space to fill in this country.
With the rise of condo and apartment blocks, real estate is another industry worth looking at. I have not, however, explored this avenue. I am not yet sure that there’s a clear profit-making opportunity, especially for foreigners.
Finally, current pandemic-related politics aside, Tanzania is a generally stable country. Wars and ethnic conflicts or inter-racial strife, military coups and famines are thankfully not regular features of the landscape here the way they are in far too many African countries.
But there are few institutions of sufficient depth and competency to successfully set policies and keep implementing them. So every time there’s a change of political leadership there are purges and turf wars that set things back. Magufuli was anti-big business, pro-government intervention, and not a big fan of foreigners.
However, he had largely eradicated endemic corruption and made lazy, underperforming officials fearful of being ousted.
He took a different development path from his predecessors. Instead of spending on human development goals in health and education (as all the NGOs and foreign aid donors to Tanzania have long insisted), he decided to spend on big infrastructure projects.
This has seen crowding out of private sector investment as the lion’s share of government revenue and much of the available pool of investment capital in the country is being used in these projects, funded via large government bond issues. It remains to be seen whether projects such as the Standard Gauge Railway (fast electric train network around the country) and Nyerere Hydroelectric Dam will earn sufficient returns on investment over the long run.
Now, with Magufuli gone, Vice President Samia Hassan Suluhu is set to take over. And we have yet to see how she will run the country. Female. Muslim. Zanzibari. She ticks all the boxes on “diversity,”which seems so important to the Western allies of Tanzania nowadays.
Whether she is the best person for the job, strong enough to continue the anti-corruption campaign and the infrastructure construction drive in the country, I am not sure. Much will hinge on who she chooses as her Vice President and Prime Minister. It’s too early to make any comment on that.
In recent times, Tanzania macroeconomic fundamentals have been generally good. Right now:
There is a huge domestic market with a population of nearly 60 million, two-thirds of whom are under 20. Population growth is over 3% a year. Dar es Salaam, the commercial capital and major port city, is projected to be among the largest urban areas by population anywhere in the world, during our lifetimes.
There is great potential and much to be positive about, but, as ever, the execution risk is massive. “This is Africa,” as they say.
Generally speaking, Tanzania is a country that welcomes foreign investors. However, it helps to be a bigger player. For foreigners who have at least $500,000 to start a business, the country has set up the Tanzanian Investment Centre (TIC) to facilitate investments. This government agency helps with all the paperwork, i.e., permits, licenses, visas, etc.
As a small-scale entrepreneur I have found the going a bit tougher. I have set up a Tanzanian company to oversee my own local stock market investments, conduct on-the-ground research and provide investment research services to African Lions Fund’s Australian domiciled and licensed Investment Manager, ST Funds Management Limited.
There are many what I call “chicken and egg” scenarios. For example, to get a tax ID number, and be able to manage your company’s affairs via the Tanzania Revenue Authority’s (TRA) online portal, you need a Tax Identification Number (TIN) yourself. But in order to get a TIN, you need a resident’s permit (and a work permit – even if you are an investor not a worker as such). But to get a resident’s permit, as an investor, among other things, you need a tax clearance certificate for your company – hard to get if you are not able to operate the company’s tax affairs. (Delegating this to a local citizen seems the only way).
You are also required to rent physical office space, even if you don’t think you need it, as a small, fledgling company.
Getting a bank account set up, to get money into the country, is not possible either until after all the other requirements are met. And the other requirements all cost money – which needs to be brought into the country somehow, without a bank account.
Also, none of these things are cheap. A business license, just for my company to be able to buy and sell shares, for example, cost me US$2,000.
A resident’s permit application costs US$3,050. A work permit application costs US$1,000.
And I paid a consultant, Faraja Mgwabati, to help set up my company and assist me to get the Tax ID and Business License. In fairness, his fees are very reasonable. Should you be interested in an introduction, please email me.
He has written a book about all the foregoing subjects, works for the Tanzania Investment Centre, and has proven very helpful.
While there are many hoops to jump through, Tanzania is full of opportunities for investors, and the country has seen a consistent increase in Foreign Direct Investments in recent years, from $900 million in 2017 to $1.1 billion in 2019. Figures for 2020 are not out yet, however there is an expected decrease of 11% in foreign direct investments in the entire sub-Saharan Africa. The pandemic is mostly to blame.
What the future has in store we can’t know with any certainty. But with the investments the African Lions Fund has made, we are playing the long-game, driven by the underlying demographics of sub-Saharan Africa, where the doubling of the working age population between now and 2040 will make it a bigger labour market than China and India combined.
Tanzania features prominently among our investment destinations for all the reasons cited above.
A peaceful transition of power after the death of a sitting president, which is now underway, seems as good a concrete illustration as any that this is not the stereotypical, unstable African country that the west likes to portray and highlight.
As I have often said, the perception of risk is often much higher than the actual risks of investing in Africa, which has much to offer.
Until next time,
Global Value Hunter
African Lions Fund