Some aspects of share transaction in Tanzania

The months of February and March 2017 in Tanzania have been dominated by, among other things, sales of shares by Vodacom, one of the telecommunication companies operating in the country. There also have been sales of Tanzania Chamber of Commerce, Industry and Agriculture (TCCIA) Investment Company. Shares of these companies have been on sale in the primary market. A shares business is a relatively new phenomenon as it is still in its relative infancy stage in Tanzania. In-depth knowledge and discussion around this matter is needed. This piece aims at making the shares business more known among Tanzanians, especially shares in the primary market.

On shares

A share in the context of this piece is one of the equal parts into which a company’s capital is divided. It entitles its holder a proportion of profit distribution, if any is declared, in form of dividends. It is worth knowing that the capital of companies is normally divided into shares. Each share forms a unit of ownership of a company. Shares can be offered for sale to raise capital for the company. Therefore, the amount of ownership of a company that one controls depends on the number and monetary value of shares that one holds in that particular company. The more the shares the more the ownership and vice versa.

Share sales

Corporate chiefs do sale shares of their companies for various reasons. The main economic and business case of selling shares is to raise capital from the general public.

This is the capital needed for various investments in business. It may be capital for investing in new business, expanding existing ones etc. Companies may also sale shares to comply with government policies, legal and regulatory frameworks. This is partly the reason in Tanzania this time around for some companies. Companies in the telecommunications sector are required to be listed at the Dar es Salaam Stock Exchange (DSE) as a matter of relatively new requirement in 2017. By August 2017, companies in the mining sector too will be required to offload some of their shares at the DSE to the public. Yet, some captains and titans of the industry may opt to go public for the sake of accessing investment incentives.

Shares and transparency

One may wonder why the government, including Tanzania’s, would force investors in some sectors to go public by way of listing in stock exchange. Among the arguments include transparency. The key issue is that once listed in stock exchanges, companies become more transparent. The process of issue Initial Public Offer (IPO), for example, makes open some key business issues of these companies. By publishing prospectus, for example, a company makes a lot of public disclosure of its business. Inter alia, its ownership structure, assets, liabilities, sales volumes, sales revenue and profits over the years are made public, including projected ones. This transparency is very important for, among other things, taxation purposes. It helps in taming tax evasion as companies in the stock market can hardly hide key variables that determine the amount of tax due to them.

Local ownership of the economy

Another perceived benefit of making companies public is increased public ownership of the economy by a country’s sons and daughters. This school of thought believes that when companies offload some of their shares to the public they will be bought by the country’s individual and corporate citizens.

This increased local ownership of the economy, especially for a dominantly foreign-owned economy via foreign direct investments (FDIs). Whereas this is good, one needs to note that foreign investors may also buy shares that are being offloaded. In a situation, where they buy a ‘substantial’ amount of shares in the market, then the local ownership point may be watered down.

Issues to consider

Individuals, groups and corporate bodies wishing to buy shares both in the primary and secondary markets have to make a number of considerations. Buying and selling shares is a business. As is the case with other businesses, it has its risks. It is, therefore, important to invest in shares with that fact in mind. Share prices are turbulent and volatile depending on market conditions.

It is, therefore, important to invest money that one can afford losing should business go wrong. It is also important to buy shares with clear objectives. These may be to buy at low price and sale, when prices go up or buy and reap benefits in form of dividends, when profits are declared.

A way forward in Tanzania

As stated earlier, the shares business is still in its infancy stage of development in Tanzania. It is still a relatively new economic and business phenomenon compared to the situation in some countries. Among the key issues is making this potentially beneficial transaction meaningful to many Tanzanians, especially in the lower social and economic strata.

Knowledge on how the potentiality can be unlocked and actualised is very important. This piece is a contribution to stimulate debate around this matter.

The author is Professor of Economics and Business at Mzumbe University Dar es Salaam Campus.