Tanzania, Uganda seek to fix bittersweet sugar issue

Thursday July 18 2019

 

Kampala. Sugar and edible oil originating from Uganda remain locked out of the Tanzanian market more than six months after a ministerial meeting held at the Mutukula border crossing agreed to allow free movement of these products between the two countries.

This is one of the issues that will be up for discussion at a Tanzania-Uganda business forum to be launched in Dar es Salaam by Presidents Yoweri Museveni and John Magufuli on September 4.

Uganda, which is trying to increase its exports to the East African Community (EAC) is looking to create a mutually beneficial relationship with Tanzania.

Currently, Uganda exports over $60 million (Ush221 billion)-worth of goods to Tanzania, making its southerly neighbour one of the smaller export destinations for Ugandan goods.s

But Uganda’s High Commissioner to Tanzania, Richard Kaboneero, hopes that this state of affairs will change once the two countries realise that working together is mutually beneficial for trade and investment.

Beneficial relationship

Mr Kaboneero said that he is looking to foster this mutually-beneficial relationship through the business forum that will be preceded by a joint permanent commission between Uganda and Tanzania.

The 25 per cent tariff that Tanzania continues to charge on sugar and edible oil from Uganda is among issues up for discussion at the September meeting.

For much of last year, sugar and edible oil extracted from sunflower had been stopped from entering the Tanzanian market, over allegations that these products were imported into Uganda, repackaged and then re-exported to markets in the EAC.

A visit by Tanzanian officials to Ugandan factories producing sugar and edible oils found that Kampala was not importing - and then re-exporting these products to its East African neighbours.

A bilateral meeting between Ministers of Trade Amelia Kyambadde of Uganda and Joseph Kakunda of Tanzania was then held during which they agreed to remove tariff and non-tariff barriers on edible oil and sugar.

The ministers then signed a deal to issue import permits for sugar and edible oil.

Business forum

But it is yet to be implemented, with some Ugandan officials who participated in the negotiations suggesting they are helpless, as they do not know what else to do to get Tanzania to fulfil its promises.

“When someone says they will do something and they do not deliver, what do you do?” the Commissioner for External Trade in Uganda, Emmanuel Mutahunga, asked.

But Mr Kaboneero said he has a solution.

Working with his counterpart from Tanzania, Mr Kaboneero said they had come up with a private sector-led business forum that will focus on investment and sustainable development.

This is the forum that is due to take place on September 4-5.

Mr Kaboneero said that leaders from Uganda and Tanzania will resolve issues like the ones facing sugar and edible oil business in the EAC during the meeting.

He said that since the negotiations over the two products have already been concluded, Presidents Museveni and Magufuli should ensure that the January agreement is effected.

Also up for discussion during the September meeting is how Tanzania benefits from a partnership with Uganda.

According to Tanzania’s High Commissioner to Uganda, Aziz Ponary Mlima, his country expects that Kampala’s use of the Central Corridor will soon increase as a result of this partnership.

He said Tanzania has already reduced the number of roadblocks in its territory from 21 to three, which should translate into less time spent on moving cargoes. He added that the charges for clearing goods at the Dar es Salaam port have also been reduced. “Businesses using the Central Corridor up to Kampala could save up to 40 per cent in costs compared with those using the Northern Corridor,” said Mr Mlima.

He added that Uganda’s insistence that the cost of clearing goods through Dar es Salaam is higher, stemming from the fact that Tanzania itemizes its charges - unlike at the Mombasa port where charges have been consolidated into one.

This claim was, however, difficult to confirm, as several clearing and forwarding agents that The EastAfrican spoke to said they still prefer using the Northern Corridor route.

“My clients are not using the Central Corridor. But, if it is true that we can save up to 40 per cent, we shall definitely transfer our business to Dar es Salaam port,” said Tom Byarugaba, the managing director of Lotusvilla Express, a clearing and freight forwarding company.

The managing director of Unifreight Group, Jennifer Mwijukye, said the company still prefers the Northern Corridor.

A document from Uganda’s ministry of Trade, Industry and Co-operatives, however, shows that it costs a clearing agent $1,570 (Ush5.7m) to operate via Mombasa port, while at Dar es Salaam port the cost is higher at $2,900 (Ush10m).

But, Mr Mlima said Ugandans using the Central Corridor will incur reduced costs, especially following ongoing investments in transport on Lake Victoria. Uganda and Tanzania are currently investing in cargo wagons that will be transported through Lake Victoria, which is expected to reduce the time cargo spends on Lake Victoria. (NMG)

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YOUR BUSINESS IS OUR BUSINESS: Bill Gates says mosquitoes are number one killer

Thursday July 18 2019



Bill Gates

Bill Gates 

By Karl Lyimo israellyimo@gmail.com

A mosquito – scientists take pains to tell us – is “a slender long-legged fly with aquatic larvae” that’s found in every region of the world, except in Antarctica.

[Sheesh... Antarctica is the world’s fifth-largest continent – and is the coldest, windiest, driest region on Planet Earth this side of Heaven!] Then the scientists twist the knife in by adding that “the bite of the bloodsucking female mosquito can transmit a number of serious diseases...”

According to ‘Wikipedia,’ the name ‘mosquito’ is Spanish for ‘a little

fly’: mosca meaning a fly – to which is added the diminutive -ito for ‘little’... There are about 3,500 species of mosquitoes, some dating back to about 226 million years!

[/en.wikipedia.org/wiki/Mosquito>].

The female of most mosquito species has tube-like mouthparts called a ‘proboscis,’ with which it pierces a host’s skin – and imbibes blood which contains the protein and iron needed to produce eggs.

Incidentally, mosquitoes DON’T bite; they pierce one’s skin... Many mosquito species inject and ingest disease-causing organisms with their piercing – and are, thus, vectors of deadly diseases such as malaria, yellow fever, Chikungunya, West Nile virus, dengue fever, filariasis, Zika virus and other arboviruses.

On April 25, 2014, the world-renown business tycoon-cum-philanthropist Bill Gates named the mosquito “the deadliest (creature) in the world – judging by how many people are killed by (creatures) every year... ”

[Google for ‘The Deadliest Animal in the World’ by Bill Gates]. According to data collated by different sources – including WHO and FAO – mosquitoes kill an average of 725,000 people annually.

By comparison, other killer creatures (with the average number of their victims annually shown in brackets) are: humans (they kill 475,000 fellow humans annually); snakes (50,000 humans/year); dogs (25,000 rabies deaths/year); tsetse flies (10,000 sleeping sickness deaths/year), and assassin/kissing bugs (10,000 deaths/year from chagas disease/American trypanosomiasis).

Freshwater snails (10,000 human deaths/year from ‘schistosomiasis); Ascaris roundworms (2,500 Ascariasis deaths/year); tapeworms (2,000 human deaths/year); crocodiles (1,000 deaths/year); hippos (500 deaths); elephants (100); lions (100 deaths); wolves (10 deaths); sharks (10 deaths)...

So... While sharks manage to kill ONLY about ten humans a year – with rampaging lions killing only 100 worldwide – the tiny mosquito sends some 750,000 humans to an early grave annually across Planet Earth this side of Hades!

[/www.gatesnotes.com/Health/Most-Lethal-Animal-Mosquito-Week>].

In efforts to avoid vector-borne diseases, the Ifakara Health Institute (IHI) in Morogoro Region has invented a “low-cost repellent-treated sandals that provide round-the-clock protection against dengue, zika, chikungunya and malaria...”

Wear the ‘Mozzie’ sandals, the researchers tell us – and keep infection-bearing ’quitos at bay. [See Editorial, The Citizen: July 12, 2019].

Fair enough...

But, I’m somewhat dismayed by remarks by the deputy Health minister, Dr Faustine Ndugulile, that mosquitoes have undergone behavioural change so much that it’s no longer possible to contain, control, them!

[See ‘Behaviour change in mosquitoes making them difficult to contain;’

The Citizen, July 10, 2019].

According to Ndugulile, disease-transmitting mosquitoes which used to noisily fly high now silently fly low – and ‘bite’ humans in broad daylight, instead of stealthily biting at night!

REALLY? Whew!

If these are functionally-researched findings, then bed-nets are redundant – and we’ve to go back to the drawing boards for new ’quito control measures. Sheesh!

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GUEST COLUMNIST: Key steps towards building your business brand

Thursday July 18 2019



Charles Nduku

Charles Nduku 

By Charles Nduku mrbrandtz@gmail.com

Great branding is the essence of any respectable individual, group, institution, or a company. However, most of the available resources about branding typically involve advices on how to ensure your brand remains consistent throughout your marketing efforts or improving upon an already established brand. All valuable advice, but where businesses starting from should scratch when building a brand? In most instances, it is advisable to enlist the help of a creative director or market agency, but the immediate first step can certainly be achieved in house. When it comes to instituting the primary features and qualities of your brand, all you need to do is conduct a bit of research and gain a comprehensive understanding of your business operations.

Nail Down Your Target Audience. Before your brands come to life on screen or on paper, you must first understand who your ideal customer is. Brand messaging and imagery should be distinctive to a specific target demographic or segment. Instead of casting a wide net that may result in your brand in being less relevant to any individual within that group, it is best to think critically about defining your target demographics.

• Who are they? Take the time identify your target audience by better understanding demographics. For example, their age range; what age group does the majority of your customers fall into. Gender is also prime example; are there more men or women in the group you are targeting?

• What do they like? Consider your audience’s lifestyle and how they spend their work and leisure time. Are they full time employees that love to hike on their down time? It is important to understand how your product or service can fit into their daily lives.

• What do they need? Study the challenges or struggles that your target audience may face. Understanding how you can create ease or improve your target audience’s day to day battles will help outline the specific qualities and benefits your brand offers.

The goal is to define specific personas that you can learn from and create a brand identity in which your potential customers can understand and relate to.

Pinpointing demographics and segmenting your target audience is an exercise that will benefit all areas of your brand building process, especially marketing efforts.

Evaluate Competitor Brands. You can learn a lot about marketing in your industry by collecting industry focused secondary research from publications, databases, and associations.

This method is an effective way to better understanding current strategies of your competitors, and to further help you differentiate yourself in the marketplace.

It’s important to not copy any of your competitors brand qualities, but rather understand the motivations behind their choices to best identify what will make your brand unique.

For instance, if your product or service is offered at a lower price than offering than your competitors, you could emphasize that in your branding.

Overall, it is vital to find a way to make your brand stand out.

Bringing Your Brand to Life. Visuals are likely the first thing that comes to mind when thinking about to build a brand.

While this creating a brand logo and tagline might be among the most exciting steps of the brand building process, and arguably the most important, it may be the step that requires the help of a professional properly execute. It is essential to recognize the importance of a logo as it will appear on everything that relates to your business; it will become the visual identity for your business.

For that reason, you should prepare to invest the time and money to creating something extraordinary.

Hiring a professional designer or creative agency with branding and identity design experience, will allow you to depend on their expertise to ensure you get a unique and timeless mark for your business.

Test Your Vision. Once your new logo is designed and approved, it may seem like the work is done. Landing on a logo design is certainly an accomplishment, but best practice dictates that one more piece of market research will give you the best chance of rolling out a successful new brand.

Test your logo, and possibly your second choice logo, among customers and potential customers via quantitative or qualitative research methods.

The end results will be a brand that prospective and existing customers will embrace, remember, and reward with loyalty.

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DIGITAL TRANSFORMATION: How Africa can leverage online data for growth

Thursday July 18 2019

 

By Benson Mambosho

Africa, home to 1.32 billion people. Today, Africa’s urbanisation is at 43 per cent, 80 per cent have a mobile subscription, and 36 per cent being internet users. A continent doesn’t cease to progress even with considerable economic challenges. From the year 2018, internet growth in the continent is up by +8.7 per cent (38 million) while the growth in social media is 25 million (+13 per cent).

The growing and unstoppable influence of thought-provoking online trends in the continent has surpassed conventional means of communication. They are by no means driving forces reshaping public discourse with regards to news trends, debates, forums, and informal chats. They have subdued traditional means of acquiring and disseminating information, their prominence cuts across national boundaries by absorbing alien ideas.

Would one doubt such enormous growth and potential ready to be tapped for more progress?

Globally, social media users stand at 3 billion. As you read this, there are more people signing up new accounts. There are probably five or more trending hashtags – related to real-life events and new developing stories right now. Take a closer look; you can sometimes find out what’s going on in your neighbourhood. News on social media travel fast compared to radio, television or newspapers. Here distance is absolutely zero.

What does this mean for Africa? Let’s find out.

It would be able to monitor public sentiments on contemporary matters and adopt viable micro & macro policies. We can survey thousands of online conversations on issues such as climate change, gender, income level, education, health just through keywords and hashtags. Differences in opinion shouldn’t alienate people from its leaders. Such diversity helps us to be proactive and take unprecedented actions.

For instance, estimated at 500 million tweets every day, Twitter offers an opportunity of acquiring raw data. Institutions and governments would be able to use this data sustainably as defined by the Data Revolution for Sustainable Development (IEAG). Can you imagine what and how much is being discussed in a day? Wouldn’t we want to know exactly what has been mentioned, when and why?

Africa would be able to implement and facilitate enhanced production techniques and develop advanced e-skills. Consequently, things will be done faster by economists, practitioners, and policymakers - embracing new modern tools of communication and refrain from conventional methods such as; print and unnecessary trips that are appalling to taxpayers. We would also be saving the continent from deforestation by limiting paper production.

Think for a minute, how long and costly it is from Dar es Salaam to Cairo? And how much does it require you to go live on your social media channel? Truth is, with just a click you can kick start a new business or investment opportunity. Don’t you think so?

Eventually, governments, lobbyists and researchers need to embark on comprehensive and integrative e-participation by engaging with citizens directly. Turning a blind eye can make matters worse – interaction should be fluid and quick. It will foster decentralization and make policy implementation much more effective. This will scale up a vibrant and inclusive digital economy.

Digital proliferation should be parallel to the expansion of ICT infrastructures that enable new users entering the digital realm. It also requires supportive and ‘open governance’ which fosters direct engagement with respective stakeholders. Building this resilient digital society, ambitious plans are needed to close the gap between the internet and non-internet users. Moreover, the interplay of institutions would also accelerate this transformation by educating people about how they can best use modern tools into solving their daily challenges. The quest requires mutual commitment and the full realisation of desired outcomes amongst member and non-member states.

Data source: www.wearesocial.com

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A graduate turning plastic waste into building blocks

Thursday July 18 2019

Ms Nzambi Matee who is preparing the metallic

Ms Nzambi Matee who is preparing the metallic frame for a sand tank stand at her Gjenge premises in Nairobi’s industrial Area. PHOTO I NMG  

Nairobi. Meet Ms Nzambi Matee who is preparing the metallic frame for a sand tank stand at her Gjenge premises in Nairobi’s industrial Area.

Nothing gives away her stellar bio of being a Bachelor of Science graduate in Physics (majoring in geophysics and material science) as well as her eight -month stay at Colorado’s Watson Institute, a noted training ground for next-generation innovators and social entrepreneurs.

She also spent five weeks in Germany perfecting her social entrepreneurial skills before returning home to launch her business behind her mother Margaret Matee’s house in Kitengela.

Inside her new production premises is a stash of waste plastic bottles that have been delivered by a group of waste collectors who are paid based on quantity of bottles received together with other plastic waste.

“Yes, I am a university graduate but that does not mean I should not touch dirt. I chose and enjoyed my course to the end. I worked with Tullow Oil at their Magadi site but I quit to concentrate on producing paving blocks from waste plastic,” she says.

Ms Matee is dressed in a mechanic’s attire and black industrial shoes working with one of her employees on the sand tank stand.

She has just moved from Kitengela to Nairobi’s Industrial Area where she has signed several partnership agreements with plastic products manufacturers to supply her with waste plastic.

Inside her premises is a newly refurbished plastic bottle crusher and melter that prepares the liquid plastic raw material for mixing with dry sand. This is the malleable substance that is used to make attractive yet flexible long-lasting paving blocks.

The 27-year-old graduate from Jomo Kenyatta University of Agriculture and Technology in 2015 during which she invented a thin electronic membrane material that could be used to harness solar energy.

The material she used to make a motorcycle solar hood served as an energy source for the motorcycle as it moved.

“I applied for a patent and was told it would cost me Sh1.2 million to have the entire process including a global search, verification of my invention done and a patent issued with a year. I gave up,” she recalls.

Ms Matee also researched on sustainable ways of collecting plastic waste that could be turned into a raw material for construction products that could be sold to Kenyans.

This saw her invest her Tullow Oil earnings in buying a small machine that she used to make paving block prototypes which she exhibited in the US while undergoing incubation.

But the machine which made five blocks an hour was not efficient and she sought employment to raise funds for a larger machine as well as applied for angel funds to actualise her dream.

She wrote to the Youth Enterprise and Development Fund but lack of an active business with a clear financial history proving viability of her commercial idea as well as a licence saw her application rejected.

“Everyone agrees collecting waste bottles and other plastics cleans the environment while creating quality and sustainable jobs for our youth. The products we make are in high demand but we have no funds to make true our dream. “The government has no kitty for such ventures and Kenya lacks serious angel investors willing to risk their money for better or worse. This is what is giving away our most viable businesses to foreign owners,” she says.

Ms Matee laments that the government has largely concentrated on funding IT-based ventures but hardly looks beyond for other innovations.

She has since applied for certification and was elated when she received an interim certificate allowing her to launch production of her paving blocks as the process continues.

To enhance her production line’s viability, Ms Matee is conducting research on tiles, fencing poles and building blocks to supplement her paving blocks business.

Her prototype paving blocks have since been improved and she invested new funds in making her Most Viable Product (MVP) that she is now selling to churches, learning institutions and residential homes.

“We starting small since we want to build volumes based on affirmation of quality products and demand for our products,” she says. While she has visited many incubation centres in Nairobi,

Ms Matee says Kenya needs to roll out government-supported technical support centres that will insulate startups from regulatory impediments as well as provide them with space to set up shop. “My products will have to be shipped to the US and Germany at my own costs since Kenya lacks a testing centre for my products,” she says.

She supports the Kenya Association of Manufacturers bid to collect PET bottles for onward delivery to recycling firms saying this will give them a steady source of raw materials. (NMG)

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The Franchise agreement basics

Thursday July 4 2019



Wambugu Wa Gichohi

Wambugu Wa Gichohi 

We have been on an exploratory journey of key documents needed to protect your franchise system.

We have discussed the Franchise Disclosure Document (FDD) and the Franchise Operations Procedures and Training Manual in detail and we now turn to the Franchise Agreement. The three form what is commonly referred to as the “Franchise Package”.

The franchise agreement is the most misused document in franchising in that many franchisors in unregulated markets rely on it solely to offer ‘franchises’ to franchisees. When approached this way, the franchisee is short-changed as it could well turn out to be fraudulent.

To deliver a franchise system professionally and protect it against abuse, all three documents in the franchise package need to be expertly prepared. So next time you are offered a franchise without the complete franchise package, ask the person to disappear.

Franchising is a working partnership between the franchisor and multiple independent franchisee businesses.

Franchisees however, are generally gullible, taking things for granted, making decisions too hastily and are easily excited at the initial stages of starting a franchise.

These attitudes often lead to them investing in a franchise without first investigating and conducting proper research.

The franchise package provides upfront information to the franchisee before committing to acquiring a franchise.

It also guides the day-to-day operations to ensure uniformity of the franchisor’s standards. Finally, it describes the entire extent of the franchisor’s relationship with the franchisee.

It is the last part of the franchise package that a franchise agreement addresses. A franchise operates within a sphere of constrained independence.

A franchise agreement must therefore balance the franchisor’s need to control the franchise with the value of their intellectual property with the franchisees’ inherent need to manage their businesses and protect their investment.

When properly constructed, the franchise agreement takes into consideration the interests of both the franchisor and franchisee and it must be a fair and reasonable legal arrangement to create a win-win situation for both parties.

A franchise agreement is generally viewed as an ordinary commercial contract governed by the same legal principles as any other contract.

It is a framework for the smooth operation of the franchisor-franchisee relationship.

While the agreement specifies major operational and financial issues, it often refers to the operations and procedures manual to provide the necessary details.

The franchise agreement also allows the franchisor to legally enforce specified operational, performance and reporting objectives detailed in the operations and procedures manual.

I often receive requests by business owners to give them a franchise agreement template localized for African businesses after realizing the internet-downloadable templates are too far-off the African context for them to use in selling franchises.

I always decline politely the temptation to earn from such for obvious reasons.

The franchise agreement needs to be watertight as well as being an attractive proposition.

But these two conditions often conflict. On one hand the franchisee needs room to operate in rather than being constrained by irrelevant red tape. The franchisor, on the other hand, needs an effective means to control the business without having it exposed to unwarranted risks.

The only way to reconcile these two conflicting conditions is for each franchise agreement to be as unique as the business it represents. This is the only way the document becomes effective in protecting the franchise system.

It is not the document on which to save money by copying a “standard” franchise agreement or for “boilerplate” legal work. It needs to be prepared specifically for the franchise operation, having already prepared the other documents of the franchise package.

The writer is the Project Promoter and Lead Franchise Consultant at Africa Franchising Accelerator Project aimed at achieving faster African economic integration under AfCFTA.

We work with country apex private sector bodies to increase the uptake of franchising by helping indigenous African brands to franchise.

We turn around struggling indigenous franchise brands to franchise cross-border. We settle international franchise brands into Africa to build a well-balanced franchise sector.

We create a franchise-friendly business environment with African governments for quicker African economic integration.

wambugu.wagichohi@worldaheadafrica.com, franchising@tpsftz.org

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The Franchise agreement basics

Thursday July 4 2019



Wambugu Wa Gichohi

Wambugu Wa Gichohi 

We have been on an exploratory journey of key documents needed to protect your franchise system.

We have discussed the Franchise Disclosure Document (FDD) and the Franchise Operations Procedures and Training Manual in detail and we now turn to the Franchise Agreement. The three form what is commonly referred to as the “Franchise Package”.

The franchise agreement is the most misused document in franchising in that many franchisors in unregulated markets rely on it solely to offer ‘franchises’ to franchisees. When approached this way, the franchisee is short-changed as it could well turn out to be fraudulent.

To deliver a franchise system professionally and protect it against abuse, all three documents in the franchise package need to be expertly prepared. So next time you are offered a franchise without the complete franchise package, ask the person to disappear.

Franchising is a working partnership between the franchisor and multiple independent franchisee businesses.

Franchisees however, are generally gullible, taking things for granted, making decisions too hastily and are easily excited at the initial stages of starting a franchise.

These attitudes often lead to them investing in a franchise without first investigating and conducting proper research.

The franchise package provides upfront information to the franchisee before committing to acquiring a franchise.

It also guides the day-to-day operations to ensure uniformity of the franchisor’s standards. Finally, it describes the entire extent of the franchisor’s relationship with the franchisee.

It is the last part of the franchise package that a franchise agreement addresses. A franchise operates within a sphere of constrained independence.

A franchise agreement must therefore balance the franchisor’s need to control the franchise with the value of their intellectual property with the franchisees’ inherent need to manage their businesses and protect their investment.

When properly constructed, the franchise agreement takes into consideration the interests of both the franchisor and franchisee and it must be a fair and reasonable legal arrangement to create a win-win situation for both parties.

A franchise agreement is generally viewed as an ordinary commercial contract governed by the same legal principles as any other contract.

It is a framework for the smooth operation of the franchisor-franchisee relationship.

While the agreement specifies major operational and financial issues, it often refers to the operations and procedures manual to provide the necessary details.

The franchise agreement also allows the franchisor to legally enforce specified operational, performance and reporting objectives detailed in the operations and procedures manual.

I often receive requests by business owners to give them a franchise agreement template localized for African businesses after realizing the internet-downloadable templates are too far-off the African context for them to use in selling franchises.

I always decline politely the temptation to earn from such for obvious reasons.

The franchise agreement needs to be watertight as well as being an attractive proposition.

But these two conditions often conflict. On one hand the franchisee needs room to operate in rather than being constrained by irrelevant red tape. The franchisor, on the other hand, needs an effective means to control the business without having it exposed to unwarranted risks.

The only way to reconcile these two conflicting conditions is for each franchise agreement to be as unique as the business it represents. This is the only way the document becomes effective in protecting the franchise system.

It is not the document on which to save money by copying a “standard” franchise agreement or for “boilerplate” legal work. It needs to be prepared specifically for the franchise operation, having already prepared the other documents of the franchise package.

The writer is the Project Promoter and Lead Franchise Consultant at Africa Franchising Accelerator Project aimed at achieving faster African economic integration under AfCFTA.

We work with country apex private sector bodies to increase the uptake of franchising by helping indigenous African brands to franchise.

We turn around struggling indigenous franchise brands to franchise cross-border. We settle international franchise brands into Africa to build a well-balanced franchise sector.

We create a franchise-friendly business environment with African governments for quicker African economic integration.

wambugu.wagichohi@worldaheadafrica.com, franchising@tpsftz.org

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Stock markets, investment and a good society

Friday June 28 2019

 

Stock markets, to some people are often portrayed as casinos. These sentiments are partly informed by news report that often portrays frantic traders speculating on where prices would go next, almost becoming euphoric if the shares have had a good run up (also called a bull market), or thoroughly depressed if the market is down (a bearish market).

Indeed it is fair to say that there are still many people in our societies who regard stock markets as places to make quick money, who spend their lives and money trying to gain short term trading edge over others, not bothering to understand the underlying fundamentals of the business behind the shares.

The image portrayed above is unfortunate because along-side that speculative trader and/or investor, are thousands of value-based investors, (representing retirements and pensions funds, life insurance funds, savers for the future, fund managers, etc), who genuinely try to understand the long term prospects for a company, calculating the intrinsic value for it and then deciding whether to allocate money to the firm to help its growth, expansion, building new factory, make new invents, go into new frontiers, etc.

Through the actions of these value investors, societies benefit from new products, new industries, jobs, wealth creation, etc as money is taken from idle and inefficient activities and reallocated to new frontiers and efficient use.

As one can imagine, through this intermediation process — it is not only the government that benefits from the presence of stock market in its midst —but anyone with savings in a pension scheme, or with a life insurance cover, or with savings/investments with relatively lower returns, etc — who wants a portion of that money placed in shares with prospects of high rates of returns (profits and capital gain) over the next few decades.

To meet these societal needs (i.e. capital/funds to finance businesses and investment opportunities, etc) stock markets have evolved throughout the history, especially in the manner in which they are governed and managed, the manner in which they face and manage increased competitions and also the manner in which they evolve with technological innovations and invents that have changed their method of trading so that their trading and securities depository are now much built around sophisticated computer systems that can handle millions of transactions in a day.

As it is, it makes sense to say every society at this age of human history needs diversified level of investors within itself to facilitate and assist businesses growth through tools of mobilization of savings resources and intermediate them into productive use, especially long term projects and enterprises -- many investors would prefer to have the liquidity and vibrancy that is offered by stock markets than the difficulty of finding buyers when they need to sell off their businesses and shares (or securities) outside the organized market.

On the same vein, a society needs people who are willing to take risks — either in establishing new business ventures, or expanding current businesses to other new territories, or innovation based on ideas or people with the willingness to provide risky funds to new ventures and ideas.

Some financial institutions, by their nature, given their business model and mandates are not willing to accept such risks. Institutions, such as banks — would like to strike deals with companies whereby even if the amount of profits made is small or even in cases where the company makes losses, they still will be paid their interest income on capital advanced to such companies.

Furthermore, such institutions usually require collaterals so that if business plans turnout to be not as expected, the bank can recoup its money by selling off property or other assets held under collateral.

Holders of other forms of debt capital such as bonds, take similar low-risk (but also low-returns) deals.

One can therefore only imagine if debt (short term or long term) were the only form of capital available for businesses to be established or for financing their further growth. Obviously, if debt was only the source of finance, then very few businesses would have been established or flourished in such a situation because it would be rare for entrepreneurs and business managers to come-up with investment projects (i.e. a new venture, a new product-line, etc) that would offer these lenders the security they need or the certainty and predictable returns they require.

Part of the reason why businesses flourish in various uncertain business and economic environment, is because they are also financed by capital whose source recognize that uncertainty and risk taking is part of the business and investment environment. Such fund providers (investors) therefore factors-in such situations in their capital and investment pricing.

It on such bases that the DSE have been pursuing efforts to educate business enterprises to consider using the stock market to access this alternative source of financing, including establishment of the SMEs segment – and now the DSE has introduced the DSE Enterprise Acceleration Program for the purpose of bridging the communication gap between itself and the business community as well as build capacity of SMEs owners/managers to running their businesses in line with the principles of sustainable businesses management.

These are all meant to connect the existence of the stock market with the financing of enterprises and projects for the good of this society.

Stock markets, to some people are often portrayed as casinos. These sentiments are partly informed by news report that often portrays frantic traders speculating on where prices would go next, almost becoming euphoric if the shares have had a good run up (also called a bull market), or thoroughly depressed if the market is down (a bearish market).

Indeed it is fair to say that there are still many people in our societies who regard stock markets as places to make quick money, who spend their lives and money trying to gain short term trading edge over others, not bothering to understand the underlying fundamentals of the business behind the shares.

The image portrayed above is unfortunate because along-side that speculative trader and/or investor, are thousands of value-based investors, (representing retirements and pensions funds, life insurance funds, savers for the future, fund managers, etc), who genuinely try to understand the long term prospects for a company, calculating the intrinsic value for it and then deciding whether to allocate money to the firm to help its growth, expansion, building new factory, make new invents, go into new frontiers, etc.

Through the actions of these value investors, societies benefit from new products, new industries, jobs, wealth creation, etc as money is taken from idle and inefficient activities and reallocated to new frontiers and efficient use.

As one can imagine, through this intermediation process — it is not only the government that benefits from the presence of stock market in its midst —but anyone with savings in a pension scheme, or with a life insurance cover, or with savings/investments with relatively lower returns, etc — who wants a portion of that money placed in shares with prospects of high rates of returns (profits and capital gain) over the next few decades.

To meet these societal needs (i.e. capital/funds to finance businesses and investment opportunities, etc) stock markets have evolved throughout the history, especially in the manner in which they are governed and managed, the manner in which they face and manage increased competitions and also the manner in which they evolve with technological innovations and invents that have changed their method of trading so that their trading and securities depository are now much built around sophisticated computer systems that can handle millions of transactions in a day.

As it is, it makes sense to say every society at this age of human history needs diversified level of investors within itself to facilitate and assist businesses growth through tools of mobilization of savings resources and intermediate them into productive use, especially long term projects and enterprises -- many investors would prefer to have the liquidity and vibrancy that is offered by stock markets than the difficulty of finding buyers when they need to sell off their businesses and shares (or securities) outside the organized market.

On the same vein, a society needs people who are willing to take risks — either in establishing new business ventures, or expanding current businesses to other new territories, or innovation based on ideas or people with the willingness to provide risky funds to new ventures and ideas.

Some financial institutions, by their nature, given their business model and mandates are not willing to accept such risks. Institutions, such as banks — would like to strike deals with companies whereby even if the amount of profits made is small or even in cases where the company makes losses, they still will be paid their interest income on capital advanced to such companies.

Furthermore, such institutions usually require collaterals so that if business plans turnout to be not as expected, the bank can recoup its money by selling off property or other assets held under collateral.

Holders of other forms of debt capital such as bonds, take similar low-risk (but also low-returns) deals.

One can therefore only imagine if debt (short term or long term) were the only form of capital available for businesses to be established or for financing their further growth. Obviously, if debt was only the source of finance, then very few businesses would have been established or flourished in such a situation because it would be rare for entrepreneurs and business managers to come-up with investment projects (i.e. a new venture, a new product-line, etc) that would offer these lenders the security they need or the certainty and predictable returns they require.

Part of the reason why businesses flourish in various uncertain business and economic environment, is because they are also financed by capital whose source recognize that uncertainty and risk taking is part of the business and investment environment.

Such fund providers (investors) therefore factors-in such situations in their capital and investment pricing.

It on such bases that the DSE have been pursuing efforts to educate business enterprises to consider using the stock market to access this alternative source of financing, including establishment of the SMEs segment – and now the DSE has introduced the DSE Enterprise Acceleration Program for the purpose of bridging the communication gap between itself and the business community as well as build capacity of SMEs owners/managers to running their businesses in line with the principles of sustainable businesses management.

These are all meant to connect the existence of the stock market with the financing of enterprises and projects for the good of this society.

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Why most Tanzanian companies don’t get venture capital money

Friday June 28 2019

 

With low access to finance for majority of SMEs across the continent, the struggle to start and grow a business is huge. Many businesses, especially SMEs, remain small, and some fail to grow due to limited internal savings.

Venture capital (VC) is one of the major sources, after banks, in helping companies get access to patient capital in supporting their value creation and long-term growth. Despite this opportunity, not all companies are able to attract the VC funding, here are some key issues that a VC firm will look into before cutting you a cheque.

Note that the VC firm would look into these even before they start negotiating with you, these are simply your deal-makers or deal-breakers.

Scalability

VCs want to invest their money into a company that they see the potential for future growth and return in multiples. VC firms make money through capital gain when they exit, so none will invest in a company that cannot generate such growth prospects.

Most of our companies operate in limited market space or do not solve bigger problems in the society

Skin in the game

VCs would also want to know how much of your own money has been invested into the business, taking the risk, and build resilient models before they come in. if you believe in your business model and the market availability for your product, you should first demonstrate that by investing the little personal savings that you have.

This has been demonstrated by different global entrepreneurs who even sold their homes, cars, etc. to invest in their own businesses before the investor comes in.

Most companies want to raise money by demonstrating the beauty of their ideas, with no market traction, it doesn’t work.

Potential exit

The important stage of a VC investment cycle is the exit, because this is the point where they liquidate their investment with a return. PE/VCs operate funds with a limited lifetime, after which they need to liquidate and pay their limited partners, if they see the likelihood of getting stuck in your business for much longer time than their fund lifespan, they will most likely decline the opportunity.

Team

The common statement in the VC industry is that VC firms invest in people and not necessarily in your idea. This means that the growth of any business is not driven by the beauty of ideas but by the team behind it.

They want to see the technical capacity, track record, and most importantly the passion and drive in the founder and the team who will push the company forward. Most companies are one-man show, and the founder hires family and friends with no required credentials

Integrity

It is important for you to be honest in what you say about your company and authenticity of the information you are sharing.

If you have a bank loan mention it, and if you don’t have all necessary compliance certificates, mention that too.

Because sooner or later, they will conduct the due diligence and get all the information they want. Most companies don’t keep honest accounts; they cook financial figures in their reports, and are not ready to come out clean

Unique proposition

VC firms would also want to understand the uniqueness of your product or service and how it gives you the leverage in the market and the advantage over your competitors.

Not only that, but also demonstrating how difficult is it for competitors to outsmart you. Don’t be a copycat.

Not ready to let go

Most company owners in Tanzania still want to keep 100% ownership of their businesses; they would rather take expensive loans than equity.

It is important to understand that you better have 50 per cent of $10 million than 100 per cent of $1 million.

Salum Awadh is the CEO of SSC Holdings and founder of Tanzania Venture Capital Network, an initiative that seeks to promote the growth of private equity and venture capital in Tanzania

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Corporate banking’s role in economic development

Friday June 28 2019



Kelvin Mkwawa

Kelvin Mkwawa 

Imagine what it would be like if banks did not exist – people did not have a place to save their money, businesses did not have a place to get credit from, Government could only sell its bonds to individuals.

How our lives would have been? Its frightening isn’t it? Because for centuries, banks have been the cornerstone of economic growth and national development.

The contribution of banks to the promotion of economic activity within a country is unparalleled. There is no other institution more key to the financial growth of a country than a bank.

Hence it is in our best interest as a nation to make sure that banks are supported in their endeavours.

Today banks continue to hold a position of strategic importance as providers of vital financial services that fuel the economy. One of the most important financial services is corporate banking.

Most of my past articles were directed towards individual/consumer banking and its role towards the economy. Just like individuals, companies need money to fund their operations and ensure future growth so whether you own a small or large business, there is a high chance you need a bank in order to run your business smoothly.

This article will focus on corporate banking and its importance to the development of the economy. Corporate banking provides banking solutions to businesses of all sizes, such as:

a) Corporate finance services – Includes funding, capital structure, and allocation of finances

b) Credit management services – Covers the entire process of granting the loans

c) Asset management services – Taking care of the money owned by businesses and advise where to invest the money.

d) Cash management services – Includes collection, distribution, and investment of cash

Commercial banks play a decisive role in the development of a country. The general role of commercial banking is to provide financial services to the public and business while ensuring economic and social stability, and sustainable growth of the economy.

To attain sustainable development, there should be a good financial system (banking system) to support the economy. Below are some of the important roles of corporate banking in the development of a country’s economy.

• Capital Formation – One of the main purposes of corporate banking is capital formation.

Capital formation is essential for the economic development of the country. It is impossible to achieve economic development of sizable magnitude unless there is an adequate degree of capital formation.

Corporate banking mobilizes funds through the bank’s network by offering very attractive terms to major savings schemes to encourage the public to save with them.

Then the collected funds are used as a major source of money supply in the economy. The funds are generally used to initiate, sponsor and implement infrastructure projects.

• Ensure Channelling of Funds to Right Projects - Corporate banking helps in the development of the right economic projects by analysing and assessing all projects costs and profits analysis to ensure the project’s profitability.

Corporate baking grants loans and advances to sectors that are connected with economic development and those that the country is focusing on; for example, if the country’s focus is on manufacturing and tourism, corporate banks will channel funds in the form of credit and advances to those sectors.

This will lead to increased production which creates more jobs for people and improves their lives while creating faster economic development. In addition, corporate banks help fund government spending by purchasing bonds/treasury bills issued by the government.

The money spent by corporate banks to purchase the bonds helps the government to finance its operations, social programs, and support budget deficit spending.

To wrap up, corporate banking acts as an agent of economic development for the country.

Its main purpose is to provide financial services to the public and business while ensuring economic and social stability, and sustainable growth of the economy. Corporate banking achieves this by stimulating savings from the public and channelling the funds to productive projects that benefit the public.

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How to make your new online business sell

Friday June 28 2019



Benson Mambosho

Benson Mambosho 

Is it your first-time online business and you are looking for ways to make it sale? Well, you are in the right page today! Of course, every marketer wants to make a sale. Not everyone knows how to make it possible.

Needless to say, being a customer too isn’t easy – especially when there are a lot of options in the market. So how do customers and marketers trade-off? We are about to find out soon enough.

It’s important not to forget, the online world has customers who vary in behaviour, income, demographic, gender, age, preferences and, there are those who already bought from you and those who haven’t. Regardless, each of them is indispensable in your business – their consistent purchase guarantees loyalty to your business. Luckily, these attributes are measurable.

Let’s see how easy it is to keep your funnel flowing.

Create urgency in your product or service. As a new online business, you can deliberately offer your customers free experience.

Gain their trust by creating a limited and free time to your product or service. In their free trial, they can determine how great your brand is.

After you have successfully signed up your customers in a free trial. Launch an email marketing campaign to keep on the relationship going on.

Nurture their expectations by educating your customers what your business offers and more.

You might consider personalizing your emails for instance; putting their names in the email title.

Make sure to reply back to each email sent by your prospects. Let them know you are there to meet their needs. If a customer doesn’t reply back, set a reminder email in a certain period of time.

Caution! Don’t over flood their inbox or you might risk your emails to be marked as spams. In your emails let them know when their trial period is going to end, how they can subscribe or upgrade their plans, give them a free toll number to reach you and so many other creative ways you can think of.

You already let them in the first place, wouldn’t you want to make them stay? So, go ahead and give them additional value. In simple terms, make a promotion.

They deserve more than your product or service – they need to see every dollar spent was worth the effort.

For instance, in your free trial plan guarantee them a discount, special coupon or giveaways after a subscription or purchase. Next time they won’t ask twice to buy from you.

Create a smooth and frictionless experience. Once they have encountered your business and decided to try a free trial – get them to a friendly landing page or check out without any complications. If a customer asks to buy ‘X’ then he/she should land on that specific category. This means your website has to be optimized and mobile friendly.

Frequent lags, slow loads, and bad landing pages damage your sales funnel.

Your landing pages should contain customer reviews or testimonies that continue to build trust with your customers. Fewer words and more visuals to compel your visitor into purchasing.

Use data to improve their experience. Capture information for every user or visitor you get to your website/blog, it will make your marketing process worthwhile. You need this in your email marketing campaign to provide each subscriber/user their detailed and customized information.

Establishing a new online business or profile could be hard but very successful if it’s supported with a convenient strategy.

One thing to keep in mind in the dynamic online world is the ability to analyse and predict customer’s behaviour. Being ahead of them is the cornerstone to guarantee a profit.

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Taxpayers have a new defender

Friday June 28 2019



Shabu Maurus , www.auditaxservices.com

Shabu Maurus , www.auditaxservices.com  

In the Budget Speech a fortnight ago, the Minister for Finance presented various tax reforms proposals for the coming fiscal year (2019/2020). This was followed the Finance Bill 2019.

The Bill, if approved by the parliament, will become effective from 1st July 2019. Establishment of an independent Office of Tax Ombudsman (“OTO”) is one of the major tax reforms for the fiscal year 2019/2020 proposed by the Minister of Finance a fortnight ago.

The measure partly comes to answer various complaints frequently leveled against the tax administration.

The complaints against TRA raised during the recent meeting between the President and businesses is a good testimony.

You will probably recall that early June 2019, the President, His Excellence John Pombe Joseph Magufuli met the representatives of the business community from across Tanzania. Among other things, the President heard their various grievances.

And, expectedly, tax administration was one of the major issues raised. In some countries with OTO (or similar institution), the office has been particularly effective in identifying cases of corruption in the tax administration.

The existence of an independent tax ombudsman, an institution pioneered in Sweden, provides an independent recourse for taxpayers who are dissatisfied with the way they have been dealt with by the tax authority.

According to the Minister, OTO “will be responsible for receiving correct and unbiased information and complaints from taxpayers or other people with good intention against the administration of tax affairs by Tanzania Revenue Authority”. The OTO will be coordinated under the Ministry of Finance and Planning. Obviously, there are several questions regarding OTO that the Budget Speech, expectedly, did not cover. According to the Minister, OTO will have at least four major functions:

(a) Fight corruption

OTO will be receiving and working on corruption complaints against TRA officials. In my opinion, since, corruption is ultimately a criminal office, there is a need for clear alignment with the existing laws and institutions dealing with corruption.

(b) Arbitrary assessments

OTO will be receiving and working on complaints against TRA officials for issuing arbitrary assessments. The tax laws give TRA tremendous powers in tax administration. Some of the powers are prone to abuse by TRA officials. The power to issue tax assessments is one of them.

Issuance of arbitrary assessments can be linked with corruption.

But it can also be linked to desires by some TRA officials to meet their tax collection targets.

(c) Unlawful closure of businesses

Closure of businesses for tax reasons has in the past four years or so become prevalent in Tanzania. A practice that has been one of the major complaints by businesses. So, apart from complaints related to corruption and arbitrary assessments, OTO will be receiving and working on complaints from taxpayers against TRA officials for unlawful closure of their businesses.

(d) Tax administration

OTO will also be receiving and working on other complaints from taxpayers against TRA officials for other similar tax administration matters. In some countries with OTO (or similar institution), the office also deals with complaints related to delays or inaction by the tax administration. For example, delays in payment of tax refunds, delays in resolving objections, and delays in the finalization of audits or verifications.

What next?

How OTO will fit in the existing tax dispute resolution process? In his Speech, the Minister mentioned about the establishment of OTO.

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Can machines surpass humans in general AI?

Friday June 28 2019



Innocent Swai

Innocent Swai 

What happens when machines surpass humans in general AI? Will AI algorithms save or destroy humanity? Picking up a a gadget that accompanies you through life is not just an easy choice.

Consider a smartphone (an Android or iOS). Which one of the two? On top of that, more choices have to be made like the preferred apps.

Let us lay out a foundation for understanding the future of humanity and intelligent life with the help of digital gadgets.

As you know all the animals including human being have brains from biological perspective.

Good intentions are in order. However, the human brain has so many capabilities than the brains of all other animals.

Actually, it’s due to such characteristics that humanity owes its dominant position in the animal kingdom.

Let us look at how our species (Homo sapiens), has evolved as a result of inventing technological tools. An anthropologist at the University of Bradford, Mr. Timothy Taylor, was inclined to believe that humans evolved from tool-using proto-human primates. He said such an evolutionary path resulted in a “survival of the weakest.” Furthermore, he said that

technology has allowed humanity to accumulate biological deficits. For example; we lost our sharp fingernails due to invented cutting tools, we lost our heavy jaw musculature due to invented stone tools.

As such the changes reduced humanity basic aggression, increased the skillset in performing tasks, especially with the hands and lastly, made males and females more similar. Those biological deficits continues till now.

Unlike other animals in the animal kingdom, we don’t adapt to environments, but rather we adapt environments to us. We are about to have more people on the planet living in the urban than in the rural areas.

As humanity, we are extended through our technology. It could be, we as humans are illogically technological by nature. The author of the book, How Cooking Made Us Human, Richard Wrangham argued that “fire was the human tech invention to cook food.” Moreover, cooked food was easier to digest, less likely to cause diseases and it allowed for a smaller digestive tract to provide the “massive amounts of energy needed by our bigger brains.” Both Taylor and Wrangham could have speculated humanity correctly. Humanity could be a species born of technology. More on a bit of that shortly.

On the other side, human inventions have made things technology become natural. Machines and other digital gadgets have also become a natural product of emerging technologies. If we are reaching a stage where we are worried about machine brains surpassing the human brains in general intelligence; then new outcome; call it superintelligence if you like could become extremely powerful. Could such power be beyond humanity control? No one knows. Imagine the fate of gorillas now which depends more on humanity rather than on itself! Should the fate of humankind depend on the actions of the machine superintelligence? The only advantage we have is free will.

We get to make the first move ourselves. Is it possible to design an initial condition that make superartificial intelligence explosion survivable? How could humanity achieve a controlled detonation?

That is the essential task of our time. The good news is that futurists who concern themselves with the possibility of artificial general intelligence still often believe that intelligent machines will become a reality when you see your computer talking to your printer without your intervention.

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Kenyan biotech cotton likely to impact Tanzania farmers

Thursday June 27 2019

Kenyan delegation in a Bt cotton field in

Kenyan delegation in a Bt cotton field in Aurangabad, central India, earlier this year. PHOTO | AGENCIES 

By Rosemary Mirondo @mwaikama rmirondo@tz.nationmedia.com

Dar es Salaam. Kenya’s decision three years ago to allow research on biotech cotton, which is leading to trials in adopting commercial farming in 2019/2020, could put other countries - including Tanzania - at a disadvantage when it comes to quality and quantity.

Biotech has been used to mitigate effects of pests and diseases, as well as drought stress and other challenges facing farmers globally, with broader advantages of reduced production costs, improved crop quality and environmental protection from use of excessive pesticides through chemical sprays.

Cotton pests include insect populations that thrive on cotton crops. Two of the major cotton pests are the boll weevil and the pink bollworm. The weevil is a pest which primarily attacks flowers and bolls.

According to a 2018 report on cotton farming using Bt technology, Tanzania produces 357,000 tonnes of cotton per year in an area of 400,000 hectares grown by small farmers in 15 regions and 46 areas of Tanzania Mainland. The average yield of cotton in Tanzania is less than a third of the world’s average.

Cotton growers produce about 750-800 kilogrammes per hectare. This is lower than other African countries such as Burkina Faso that produces 1,220kg per hectare, and Benin: 1,283kg per hectare.

For more than four decades from 1974 to 2014 cotton production has been low, growing at an average of 300,000 tonnes per year. This level is relatively low compared to other countries such as Egypt, Sudan, Burkina Faso and India which, during the same period, increased productivity and production levels.

Some of the challenges that lead to poor productivity and poor production in Tanzania include use of poor quality seeds, low inputs consumption - especially fertilisers and pesticides - diseases and pests.

In 2016, a total of 22.3 million hectares of Bt cotton were planted in 14 countries, namely: India (10.8 million hectares), US (3.7 million hectares), Pakistan (2.9 million hectares) and China (2.8 million hectares).

Other countries are Brazil, Australia, Argentina, Myanmar, Sudan, Mexico, Paraguay, Colombia, South Africa and Costa Rica. The area planted with this type of cotton in 2016 was equivalent to 64 per cent of all cotton in the world, and was able to increase production. Reports show that the first results of the national performance trials (NPT) of genetically-modified (GM) cotton done by the Kenya Plant Health Inspectorate Services (Kephis) in partnership with the Kenya Agricultural and Livestock Research Organisation (Kalro), universities and several scientists, which are due this year, are eagerly awaited by stakeholders in the textiles industry.

Kenya and South Africa initiated Bt crops’ research and trials almost simultaneously (Kenya in 2001, South Africa 1998). But, the latter has become the first country in Africa to release its first commercial, insect-resistant Bt crop (Bollgard II cotton) that was subsequently adopted for commercial production four years later, in 2002.

Meanwhile, an independent agriculture consultant, Dr Emmarold Mneney, said reports show that cotton is grown by 500,000 growers in 17 regions and 49 districts where the sizes of the farms range between 0.5 and 5 hectare (ha).

He said the crop is 100 per cent rain-fed, and 70 per cent is exported as lint, while the cotton value chain engages 40 per cent of the working population in those areas.

He noted that farmers harvest yields of between 200 and 300kg per acre, and that Tanzanian cotton is sold at a discount of between 2-and-4 US dollar cents because of poor quality. It used to enjoy a premium of between 4-and-6 cents before liberalization

“The biggest challenge facing cotton farmers is inadequate application of inputs: no fertilizers, minimum number of sprays, poor delivery of extension services, use of uncertified seeds, low mechanization of farming activities, as well as weather-dependent agriculture and climate change,” he said.

He noted that the government was looking to establish and promote a vehicle to deliver quality inputs to farmers: contract farming, revival of a functioning Seed Multiplication System and strength delivery of extension services.

Further there are plans to promote new technologies, mechanization of farming activities and strengthening quality monitoring at buying posts and at ginneries.

Open Forum for Africa Biotech (OFAB) advisor Nicolaus Nyange said Tanzanian farmers are currently yielding few crops as well as being forced to use pesticides for six-to-eight rounds in just one season - which is detrimental to the environment.

He said Tanzania is yet to start research trials on the crop to understand whether biotech cotton will be beneficial for farmers in the country.

He said this in view of a report on Global Status of Commercialized Biotech/GM crops 2017 which shows that the increase in income benefits for farmers growing biotech cotton during the 21-year period (1996-2016) was Sh136.5 trillion ($59.9 billion). The report shows that India was the largest cottongrowing country in the world, with 114 million hectares of biotech cotton.

According to him, Sudan and South Africa have adopted the technology for cotton whereby Sudan’s yields increased 2-to-3 times than those of conventional varieties.

“This is not only expensive; it is also detrimental to the environment because the spray also kills important insects that are vital to the environment,” he said - adding that “more production (means) more money; less pesticides (means) more quality clean cotton and safer environment due to decreased use of pesticides.”

Reports show that the reason behind low yields in Africa include opportunistic behaviour where focus is more on price rather than on yields, as well as lack of know-how, poor timing of operations including lack of manpower and equipment; competition with other crops in growing and harvesting seasons and suboptimal inputs use.

Productivity is key to improving incomes of cotton growers. Income for the farmer is a factor of quantity, quality and price.

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The operations procedures and training manual

Thursday June 27 2019



Wambugu Wa Gichohi

Wambugu Wa Gichohi 

We noted earlier that this manual embodies the franchisor’s experience in written form and is intended to guide and assist the franchisee in the daily running of the business.

Its purpose is also to protect the business as a whole by ensuring that product and service standards are maintained as well as uniformity throughout the network.

In preparing the manual, there is a strong relationship between it and the franchise agreement. The rights and obligations of the franchisee are normally set out in the agreement. The

Operations Procedures and Training manual, on the other hand, sets out the way the franchisee has to perform to comply with his/her obligations.

It is therefore advisable that when drawing up the franchise agreement, insight into the Operations Procedures and Training manual is necessary to ensure a logical fit between these two important documents.

It is also important to preserve both the franchisor’s right to modify the manual and the enforceability of the agreement. To do so, the agreement should specifically refer to the manual and obligate the franchisee to comply with it.

The agreement should permit the franchisor to make changes from time to time, as the franchisor deems appropriate, to preserve the goodwill and business advantage of the franchise and the franchise system.

The Operations Procedures and Training manual is the single most important document that a franchisee receives from the franchisor.

The operations information refers to how things work while procedures refer to the manner of conducting the business.

The extent of the contents in the Operations Procedures and Training manual will be heavily influenced by the nature of the franchise and the complexity of the systems and procedures involved in its operation.

The manual can therefore consist of one or a number of volumes.

The manual must be written in clear and simple language and presented in such a way that franchisees actually want to use it.

The following are some basic areas generally covered in the manual. First, the day-to-day operational procedures in each facet of the business. Second, product knowledge and technical issues unique to the business.

Third is administration and control of the business. Fourth are guidelines on staff management while last are health and safety issues.

More subject matters are often added to this basic list by the franchisor as may be necessary to protect the specific franchise system.

The manual needs to be managed properly by the franchisor. It documents in detail the franchisor’s operating system.

Having control over it is therefore of utmost importance for the franchisor. Some directives in this regard: first, the manual remains the exclusive (intellectual) property of the franchisor and it should only be given to franchisees on loan and only for the duration of the franchise agreement.

Second the franchise agreement should have a statement to the effect that franchisee is expected to return the manual at the end of the agreement.

Third, to minimize misuse of the manual, it is suggested that where hard copies are used, each manual is numbered.

These numbers are recorded and when receiving the manual, the franchisee must sign against the number allocated.

Fourth, the franchisee must be made aware that they are not permitted to pass the manual on to anyone or to reproduce the manual in any format.

Finally, the franchisee must sign a confidentiality undertaking that the information will only be used for the franchise operation and that the document will not be reproduced, in part or in whole, and in any format whatsoever.

The writer is the Lead Franchise Consultant at Africa Franchising Accelerator Project.

We work with country apex private sector bodies to increase the uptake of franchising by helping indigenous African brands to franchise.

We turn around struggling indigenous franchise brands to franchise cross-border.

We settle international franchise brands into Africa to build a well-balanced franchise sector.

We create a franchise-friendly business environment with African governments for quicker African integration.

wambugu.wagichohi@worldaheadafrica.com, franchising@tpsftz.org

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Reduce taxes on telecoms, mobile money fees: experts

Friday June 14 2019

Finance and Planning Minister Phillip Mpango

Finance and Planning Minister Phillip Mpango displays the briefcase containing the FY-2019/20 Budget before presenting it in Parliament yesterday. Photo |Edwin Mjwahuzi 

By Khalifa Said @ThatBoyKhalifax ksaid@tz.nationmedia.com

Dar es Salaam. Stakeholders in the telecommunications sector have called upon the government to reduce the excise duty on telecommunications and mobile money transfer fees, saying doing so would increase mobile telephony penetration and the resulting revenues and profitability all-round.

The current excise duty rate on telecommunication services is 17 per cent – and a ten (10) per cent fee for mobile money transfers.

Analysts say the airtime excise duty of 17 per cent is the highest among the six East African Community (EAC) member states. They also call for reduction of the fee on mobile money transfers from the current ten per cent to seven (7) per cent or thereabouts.

They also want the rate of excise duty on electronic communication services reduced from 17 to 14 per cent.

If the foregoing is agreed to by the relevant authorities, then the changes could easily be incorporated in the government budget for the 2019/20 financial year which officially begins on July 1 this year.

And, if it all happens as envisaged, then it would have a multiplier effect on the economy, as it would be supportive of the growth of all stakeholders in the telecoms industry, including suppliers, dealers, agents – as well as players in money transfer transactions. “The current rates contribute to low mobile penetration. This leads to lower growth of the telecommunications industry and its economic (macro and micro) contribution as they make the services very expensive,” says the Tanzania Private Sector Foundation (TPSF) in its Tax Reform Proposals for FY-2019/2020 submitted to the Ministry of Finance for consideration.

Mr Harold Daudi is a project manager with Peertech Telecom, a local telecommunications contractor based in Dar es Salaam. The man heartily endorses the TPSF recommendations, saying that they are intended to make telecommunications more of a service than a business.

“I think the government is contradicting itself; while it wants bigger mobile penetration, it at the same times charges high rates on mobile money transfers,” Mr Daudi explains.

“This ends up hurting the ordinary person who cannot have access to banking, and who uses a mobile phone in financial transactions.”

A reduction in the rate, Mr Daudi argues, would also increase the use of modern technology, especially in the areas of data and mobile money services across the country, including rural Tanzania.

“It is also a positive step towards the excise duty harmonization process within the EAC regional bloc,” he says.

The stakeholders also propose amending Section 124 (6A) of the Excise (Management and Tariff) Act by reducing the excise duty rate on mobile money transactions from ten per cent to five per cent, with effect from July 1, 2019.

They project that doing this can improve the affordability of mobile money services, thereby leading to enhanced financial inclusion.

This is especially taking into consideration the fact that only a small minority of the Tanzanian population has access to formal banking products and services.

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Franchise sales: Why buyers must exercise care

Friday June 14 2019



Wambugu Wa Gichohi

Wambugu Wa Gichohi 

Having explored pre-franchise sale disclosures in statutory and self-regulated markets, it is important to note that the World Franchise Council (WFC) prefers self to statutory regulation.

Out of forty-eight WFC members, only eleven have statutory regulation, with the rest relying on the WFC self-regulation guidelines-the UNIDROIT Model Franchise Law-when making their national association’s Code of Conduct.

This leaves the rest of the world as a ‘franchise jungle’ without any form of franchise regulation.

Most of Africa is particularly vulnerable as local brands start embracing franchising, most of which evolve without following international best practices when engaging potential franchises. Even foreign franchisors know there is no regulation and unless they are members of a WFC-recognized franchise association back home, some are likely to cut corners for quick bucks.

For this reason and even in the regulated markets, it is important that potential franchisees carry out franchisor due diligence before investing their hard-earned money and sometimes a lifetime-in a franchise opportunity.

In order to size-up a franchise opportunity, here follows, in no particular order, a number of questions potential franchisees should ask the franchisor, answers to which will give a fair picture of the franchisor. Note, the franchisor can only release some of the information under an NDA while some might even be contained in the marketing brochure.

First, ask for how long they have granted franchises, how many franchised and non-franchised outlets they own and their location.

Older franchisors with more than a few franchised outlets have gained more experience than newer ones and are a better bet.

A good balance between company-owned and franchised outlets is healthy-franchisors with one or two outlets whose main income is from franchise sales could be fraudulent.

Second, ask if you are allowed to talk to existing and terminated franchisees. Current franchisees will give you a fair picture of the franchisor, terminated ones reveal common sources of conflict.

Third, ask what support you will receive to run your outlet. A franchise without support from head office is shaky.

Forth, find out what kind of background work they have done before calling for franchisees to apply, eg detailed market research- to reveal the level of demand; you may be paying for a franchise that will not give you any returns.

Fifth, find out if they follow a franchise-specific strategic plan or a normal strategic plan or they just grant franchises to anyone who requests-or both.

A franchise-specific strategic plan thoughtfully guides the franchisor on franchise roll out.

Sixth, ask if they have developed and successfully ran a prototype unit before franchising. This indicates their level of systemization and standards refinement. Seventh, ask what documentation is involved in the transaction.

Franchisors relying only on a franchise agreement could be fraudulent. Eighth, find out if they are members of a WFC-recognized franchise association, for the reasons we have discussed on franchise-sale disclosures.

Ninth, find out if they have any ongoing and past franchisee-related litigation. This reveals possible areas of conflict.

Tenth, is how many franchises they have terminated and why. Pay particular attention to the why.

Eleventh, find out what the total investment cost is and what it includes. What about ongoing royalties, are they fixed, turnover or margin-based?

To this list you may add questions such as what the average annual turnover of an average outlet is, how long the franchise period is, length and location of the training program and the exit terms.

The writer is the Lead Franchise Consultant at Africa Franchising Accelerator Project. We work with country apex private sector bodies to increase the uptake of franchising by helping indigenous African brands to franchise.

We turn around struggling indigenous franchise brands to franchise cross-border.

We settle international franchise brands into Africa to build a well-balanced franchise sector. We create a franchise-friendly business environment with African governments for quicker African integration.

wambugu.wagichohi@worldaheadafrica.com, franchising@tpsftz.org

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The paradox: Calculating social security contributions

Thursday June 13 2019

 

By Mellania Mhuwa

The government - with a view to harmonise the social security funds in Tanzania - established the Social Security Regulatory Authority (SSRA) in 2008 to regulate the social security sector in the country.

SSRA has powers to exercise and perform supervisory and regulatory functions over all pension funds in Tanzania.

Also, SSRA has the mandate to issue guidelines for the efficient and effective operation of the social security sector in Tanzania.

In the light of the above, it was the expectation of employers that the SSRA Act would be the principal legislation for the different Funds - and, in cases of contradiction, SSRA would supersede, as it is the principle of law that in case of ambiguity, the principal legislation would override.

It was also employers’ expectation that any amendments that would be introduced by the Social Security Laws, the same amendments would apply to all pension funds as opposed to applying the amendments in isolation.

However, that has not been the case on how the pension contributions are calculated.

In 2012, the Social Security Laws (Amendments) Act issued various amendments in relation to the social security laws, and among other amendments was the definition of the word “salary.”

The Social Security Laws (Amendments) Act, 2012 defines the word ‘salary’ to mean “gross salary of the member payable to an employee in consideration of the service rendered under the contract of service or apprenticeship or any other form of office of call, excluding bonus, commission, cost of living allowance, overtime payment, director’s fees or any other additional emoluments”.

Employers were of the view that the amendments would cut across all the Funds. However, in 2015, the Employment and Labour Laws (Miscellaneous Amendments 2015) was issued, which deleted the previous definition of the word “wage”, and substituted it with a new definition of the word “wage” in the NSSF Act, which now includes any allowance paid by the employer to the employee whether directly or indirectly in respect of cost of living and a wage in lieu of notice of termination of employment.

You will note that the Social Security (Amendments) Act, 2012 uses the term ‘salary,’ while the Employment and Labour Laws (Miscellaneous Amendment 2015) uses the term ‘wage.’ The definition of the word salary as per the Social Security (Amendments) Act, 2012, excludes some of the employees’ benefits, but some pension funds consider that their legislations do not have the term ‘salary,’ but the term ‘wage,’ Hence, their base for calculating the pension contributions from employers and employees includes all benefits earned by the employee for a particular month.

The use of terms ‘salary’ and ‘wage’ in various pension funds is clearly confusing the employers as to which legislations to rely on computing pension contributions.

Also, the above confusion on the use of the terms salary and wages in different legislations has tax implication.

It is clear that, when the pension contribution is calculated on the income which is inclusive of all benefits, the tax on employment income is reduced.

The Income Tax Act provides exemption on social security contribution on the actual contribution made or the statutory amount required, whichever is lesser. The question that arise here is, what is the correct statutory amount required, in an instance where two laws are in contradiction to each other.

On assessment of income tax by the Revenue Authority, their reliance has always been on the specific legislations of the retirement funds (such as PSSSF Act, NSSF Act). However, their definitions of the word “salary” differs from each other.

These differences at the end of the day, leave two employees in different organisations earning the same pay with a difference in their tax burdens just because they are registered under different pension schemes.

This situation is against the principle of horizontal equity in taxation, which demands that, different taxpayers earning the same level of income should be taxed equally at the same rate and should have the same tax burden.

Therefore, I am of the considered view that it is high time for the legislations to be aligned in order to have common understanding -- and, thus, make compliance of social security contributions stress-free.

Mellania Mhuwa is a Senior Tax advisor at KPMG in Tanzania (mmhuwa@kpmg.co.tz). The views expressed herein are those of the author and do not necessarily represent the views of KPMG.

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Striking a balance between an attractive tax regime and securing public revenues

Thursday June 13 2019



 David Urassa

 David Urassa 

By David Urassa

Public spending has put immerse pressure on government to collect and source for more funds that will enable it to sustain the ballooning budget.

External sources of funds, however, have become too expensive for the Government due to the ever fluctuating exchange rates and extreme terms and ‘conditionalities’ that are attached to them.

Therefore, the government has turned to internal sources to finance the budget. This has led to the introduction of various new strategies/measures that are aimed at widening the tax net and improve government collection. But, have these new measures created an attractive tax regime that fosters investment?

Ranked as the fastest-growing economy in East Africa at a relatively staggering annual rate of seven per cent, Tanzania has been juggling around massive projects so as to attain a middle income economy status by 2025.

From revamping its national carrier (ATCL) to building its first standard gauge railway and a mega hydroelectric power plant along Rufiji river, Tanzania’s public spending on development projects seems to know no limit. These projects have put immerse pressure on the government to increase its tax collection targets and source for alternative avenues to finance the projects.

TRA and other government collection agencies have aggressively embarked on different strategies to collect revenues for the government and widen the tax net. However, some of these strategies have not been attractive in the business environment while others have been poorly implemented.

The tax amnesty, for example, was a strategy that was well-thought of and openly welcomed by all.

But, its implementation showed lack of preparedness on the part of the revenue authority.

For instance, in last year’s Finance minister’s speech, taxpayers thought they had twelve months to settle their tax bills.

But, in actual sense, due to late response of amnesty applications by TRA, taxpayers found themselves being given 4 - 6 months to clear their tax liabilities or else the remission of interests and penalties would be forfeited.

Another collection strategy introduced at the end of the financial year with the aim of widening the tax net, was the introduction of business identity cards to the informal sector e.g. mama lishe.

This strategy, though it adds immense benefits to entrepreneurs, its implementation has been less than desirable. I believe the strategy was aimed to be a stimulus that will allow more people to engage in self-employment avenues without the fear of being hustled by the council officers and TRA revenue collectors.

However, the implementers have been targeting anyone to obtain these cards instead of improving the business environment to enable more and more people open up businesses.

For example, recently a regional commissioner has included fuel pump station attendants and supermarket attendants to the list of people who should obtain these identity cards.

This turbulence has not spared the financial sector either, early this year - in a move by the government to regulate the money markets - we saw a closure of a large number of bureau de changes across the country creating massive ripples across the business environment.

Although banks swooped in to fill the void created, they have not yet fully succeeded to fill in the needs of the economy in a regulated manner.

As we strive to become a middle-income economy, we a need to become a 24-hour economy as well.

This should prompt banks, if they need to really fill in the gap, to shift from their normal working hours and include Sundays and public holidays in their schedules to accommodate the market.

This can be witnessed at the international airports across the country.

All these strategies to widen the tax net and curb tax evasion are good however there has to be a balance so as to preserve the investments and nurture businesses and the economy.

We expect in the upcoming budget speech swooping changes would be made to eradicate laws that hold back businesses and instead come up with laws that would foster businesses.

Mr David Urassa is a senior tax consultant at Basil & Alred. The views expressed here do not necessarily represent those of Basil & Alred.

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VAT exemption on sanitary pads: A blessing or a curse?

Thursday June 13 2019



Asia Mti

Asia Mti 

By Asia Mti

Most girls in schools, who have hit puberty, do not use suitable sanitary pads during their monthly menstruation cycle, especially in the rural areas of Tanzania.

These girls use local means such as rags, raw cotton and maize cobs, which pose serious hygiene and health challenges due to lack of sufficient running water in most rural schools to wash and re-use the local pads.

In order to curb this hygienic problem, disposable sanitary pads, is a solution, since they provide quality assurance and certification for sanitation, hygiene and health safety of manufactured and imported pads as provided by the Tanzania Bureau of Standards.

Urban women are the main consumers of sanitary towels and very few school girls across Tanzania (mostly urban based) use the disposable sanitary towels.

The majority of the rural female students end up using inappropriate materials to manage menstrual flow and opt to stay at home, instead of attending school during their cycle, because when they attend school without proper sanitary wear, many girls tend to soil their uniforms and this may cause psychological torture to the girls due to shame and embarrassment.

According to the 2019 world population review, about sixty per cent of Tanzania’s population is female and every adult female must go through menstruation and requires appropriate sanitary tools, which are very costly.

It is undeniable that women need appropriate sanitary towels as much as they need clean running water.

Having comprehended the importance and need for appropriate sanitary pads, the Government of Tanzania devised various methods to ensure that sanitary pads are not only readily available but also affordable to women of all walks of life.

One of the initiatives from the Government was to exempt Value Added Tax (VAT) on sanitary towels in the financial year 2018/2019.

This initiative was designed to kill two birds with one stone, that is by promoting industrialization and also ensuring the availability and affordability of sanitary products to girls and women who on average come from low-income communities especially those in rural areas.

To everybody’s dismay, this initiative did not yield the intended outcome of affordability, since the sanitary pads’ prices kept on rising, hence curtailing the availability and affordability of the sanitary towels.

This begs the question why are sanitary pads’ prices going up, despite the VAT exempt status?

The answer to the above question is in simple maths and logic, basically with a company selling VAT exempt products, the company does not charge any VAT on the products it sells, therefore, the company is neither liable to pay VAT to the Revenue Authority nor is it allowed to claim any input VAT on its purchases.

Bear in mind that, the targeted companies do not work in isolation, simply because their products have the VAT exempt status, does not mean they purchase goods and services from other VAT exempt companies. This basically means that, the VAT exempt company pays VAT on it purchases for goods such as material costs used to manufacture the sanitary pads and services such as consultancy services.

Hence, without a platform of claiming or netting off the already paid VAT, this becomes an additional cost to the company. This additional cost is then shifted on to the final consumer of the product that is, Tanzanian women, through increased costs of sanitary towels.

This defeats the purpose of exempting the products from VAT so as to minimize cost, and make the product affordable.

Having realized the futility of exempting VAT on sanitary towels, in the hopes of making the products affordable, the million dollar question is what should be a more effective approach.

I believe that in order to minimize sanitary towels’ prices, the costs incurred by companies should be minimized and VAT expenses can be minimized by making the products zero rated supplies and not VAT exempt supplies.

By making the products zero rated supplies, a company charges VAT on the products, but at a zero rate and more importantly the company is allowed to claim the VAT it incurs from its purchases by claiming it through the monthly VAT returns filed with the Revenue Authority.

With the ability to claim input VAT, this is no longer a cost (if the refund is made in a timely manner) to the company and therefore the companies do not seek for a relief by shifting it to final consumers through higher pricing.

Asia Mti is a tax advisor at KPMG in Tanzania. The views expressed here are the author’s and do not necessarily represent the views and opinions of KPMG

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Let’s budget for the diaspora

Thursday June 13 2019



David Tarimo.

David Tarimo. 

Diaspora? What relevance do they have to a national budget?

Well at first glance the relevance might seem peripheral. By definition, diaspora would be those of Tanzanian origin who have moved out of the country and so their activities will not seem to affect the country’s revenue side (taxes will be paid elsewhere) nor expenditure side (as public goods and services consumed are those in their new countries of domicile).

However, for African countries the contribution from diaspora is having increasingly significant macro-economic impacts.

“Diaspora remittances continue to support the economy” was the number one theme in PwC Nigeria’s “Nigeria Economic Outlook - Top 10 themes for 2019” publication issued in February 2019 – a ranking supported by some pretty startling statistics.

In particular, in 2018 the Nigerian diaspora sent home an estimated $25 billion in remittances, representing 6.1 per cent of Gross Domestic Product (GDP) and translating to 83 per cent of the Federal Government budget in 2018 and 11 times the foreign direct investment (FDI) flows in the same period. These inflows were also seven times larger than the net official development assistance (foreign aid) received in 2017 of $3.36 billion.

Closer to home, we can see the significant impact of diaspora remittances in East Africa. The World Bank’s 2019 Migration and Development report highlighted that remittances to Kenya rose in 2018 to $2.72 billion (up from $1.96 billion in 2017) - equivalent to over three percent of Kenya’s GDP.

Equally, remittances to Uganda rose to $1.24 billion in 2018 (up from $1.17 billion in 2017) – and equivalent to 4.5 per cent of the country’s GDP. By contrast, Tanzania remittances were significantly smaller – $430 million, an increase of only $25 million on the previous year and representing 0.8 percent of its GDP.

One could research the reasons for the differential. For historical reasons it may well be the case that Tanzania has a smaller diaspora – certainly decades ago as a university student in London my peers at my particular college included many Nigerians, Ghanaians and some Kenyans and Ugandans but I only came across one Tanzanian.

But times have moved on, and the Tanzania diaspora will certainly be growing now. But is the diaspora dollar welcome at home?

Posing such a question may seem like an affront – but how else can one put it, if such diaspora who will have obtained foreign citizenship then as a consequence automatically lose a right to reside in Tanzania and invest in Tanzania real property as a consequence of the bar on dual citizenship. Importantly, such a restriction does not apply in Nigeria, Ghana, Kenya or Uganda.

The Greek term “diaspora” conveyed the sense of “scattering”, and indeed is the root of the word “dispersion”. For example, Greeks used it to refer to citizens of a dominant city-state who emigrated to a conquered land with the purpose of colonization, to assimilate the territory into the empire. The Bible also adopted the concept “thou shalt be a dispersion in all kingdoms of the earth” (Deuteronomy).

In all cases, the term diaspora carries a sense of displacement such that the population so described finds itself for whatever reason separated from its national territory, and usually its people have a hope, or at least a desire, to return to their homeland at some point, assuming it still exists.

This emotional connection is important – because whilst for many diaspora it may be impractical to make a permanent return home, most invariably want to keep those ties strong and where possible invest back home. But, this is only possible if the policy environment for the diaspora is appropriately conducive; and where this is the case, the countries concerned are clearly reaping a handsome “diaspora dividend”.

David Tarimo is Country Senior Partner – PwC Tanzania. The views expressed do not necessarily represent those of PwC

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Will it be taxes, taxes and more taxes?

Thursday June 13 2019



Godfrey Mramba

Godfrey Mramba 

By Godfrey Mramba

Last Friday President John Magufuli met with businessmen from across the country at the State House in Dar es Salaam, a meeting that largely dwelt on the challenges faced by businessmen with respect to paying taxes in Tanzania.

Almost every businessman who spoke complained about the unconventional methods used by the taxman in collecting taxes as well as the multitude of taxes imposed on businesses, a major hindrance of operating successfully in Tanzania.

Needless to say, successful businesses create employment, pay taxes and contribute positively to GDP growth through expansion of the economy.

The President stated that it is the government intention of having a successful but law abiding private sector and that his government will do whatever is necessary to ensure that this happens.

Furthermore, the President went on to say that he will be happy to see 100 Tanzanian billionaires created by the time he leaves office.

This afternoon the Minister for Finance and Planning Hon. Dr Philip Mpango (MP) will table the 2019/2020 Budget, which is pegged at Sh33.1 trillion, up from Sh32.5 trillion approved in the 2018/2019 budget.

As it has been the case in previous years, the biggest challenge faced by the government is financing of its proposed budget and it is where the importance of having a business friendly tax regime together with a smart and likewise business friendly Tanzania Revenue Authority (TRA) cannot be underestimated.

To be smart, the TRA should look to technology and data analytics as a way to expand the tax base. TRA’s recent announcement that it intends to extend usage of electronic tax stamps to all alcohol, cigarettes, soft drinks and bottled water effective June 15th this year is an attestation on how technology can be leveraged to improve revenue collection.

Electronic tax stamps were introduced in the last budget to replace paper tax stamps. I still repeat my last year’s recommendation that the government, not the taxpayer, should bear the collection cost of using the technology.

The government needs also to shift more into consumption based taxes and less on other forms of taxation such as income tax.

Examples of consumption taxes include Value Added Tax (VAT), excise taxes and sales taxes in countries like the USA. VAT is a tax on consumption of goods and services supplied or imported into a country and like other consumption taxes, it is an efficient means for governments to collect revenues as opposed to other forms of taxation. However, to succeed, our current VAT law needs to be reformed to make it more effective and inspire economic growth.

VAT law imposes a duty on the supplier of goods or services who is registered for VAT to collect and remit the tax to the Tanzania Revenue Authority (TRA) by the 20th day of the following month thus making companies that are VAT registered to be collection agents of the government.

Recent experience shows that the VAT legislation has led into unintended consequences by the requirement that companies remit the tax to the TRA even before the tax is collected by them. In other words, companies are required to remit VAT to the government even before they are paid for the goods or services which they have supplied. To comply, many companies end up financing VAT payments with bank loans or from other sources, which are often expensive, thus imposing an unnecessary burden to the businesses and so potentially limiting their growth.

The reality on the ground is increasingly proving that things are not working as smoothly as envisaged in the law because most companies are facing liquidity crunches caused by the current economic situation.

It is, therefore, necessary for the VAT law to be reformed to force buyers of goods and services to honor their payment obligations within say 60 days or face legal action.

This will be similar to the current deadlines for payment of VAT or PAYE. This proposal should likewise be applicable to service providers with respect to remittance of VAT to the government.

With such reform, cash flow constraints will be minimized and companies will be free to reinvest available cash in the companies towards growth, which will in effect lead to more taxes to the government in the future.

Hopefully the proposed reforms and others will be addressed by Dr Mpango when he tables his 2019/2020 Budget at the National Assembly in Dodoma.

Mr Godfrey Mramba is Managing Partner at Basil & Alred. The views expressed do not necessarily represent those of Basil & Alred. Email: gmramba@basilalred.com

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A change for sustainable development

Friday June 7 2019

 

As a society, we may collectively form an agreement to the fact that there is a necessity to propel ourselves from the state of poverty to that of plenty – we want that, and yes, we can do that, don’t we? We may also fundamentally agree to the fact that for us to reach at the state of plenty, which we again so much in need of, we need to make some primal changes – such as changing our model of socio-economic development, from an agriculturally based economy to an industrialized and services-based society.

And thus, a vision or a manifesto that affords us an opportune to move towards that direction would not only be a matter of political correctness, it is a fundamental necessity in our pursuit of a better life.

As we move towards such a direction, we, as a society, need to underscore the fact (and consciously understand) that this change process may take a generation or two – they say to achieve great things takes time.

What could therefore be largely achieved within a decade, despite all the good intent and purpose and discipline is actually setting the necessary groundwork, systems, structure, infrastructure as well as encourage and motivate a cultural change – which is the key ingredient in this process.

In this article, I will focus in the last aspect -- the cultural change.

As were, once we get the basics right -- such as the aspect of a society’s cultural aspects, and the embedded positive attitude, and the collectiveness for a purpose -- it then becomes relatively possible to pursue a cause, any humanistic cause.

Addressing the need for cultural change is pivotal in the process of economic growth, or technological change or any social transformation, since attitude and culture is the deepest and most determinative aspect of our human lives, our development and our growth.

And so, one of the key ingredients to national economic success, for example, is the culture of innovation and experimentation, the culture of intellectual freedom in which new ideas, technological methods and new products could emerge -- all these are cultural/attitude aspects.

And since all these depends on human resources capabilities within a society -- it then says that for us as a society to achieve the ambitions that we have set before us, it is fundamental that one of our key priorities should be to rigorously work on social fabrics that defines us as a society, and a country -- the culture.

To be able to change ourselves in any how we want, will require us to educate our communities and the society about where we want to go and the means (including skills and competences) that will get us there.

Once we decide on this -- we should also try to understand that it may probably take a whole generation to train us so that at such given moment we have skilled, intelligent, knowledgeable people who can become productive in whatever socio-economic venture we are set to pursue.

Who should do it? We could also form an agreement that despite, globalization and economic liberalization, and democratization of our governance and political system, but the state still have the role to create a setting or an environment in which people can live and thrive, and where they can freely express themselves and pursue their productive ambitions (of course within well administered rule of law).

That, the state could still have the significant role to create or influence or determine some cultural attributes and certain attitude within a society i.e. improving the level of human capacity, within our overall goals of human development.

And this is important because after all the best way that the society can sustainability develop is fundamentally embedded in what people do with their lives -- this is what determines economic success or failure of a society.

In the case a society has been fortunate to have a good cultural background within its own socio-economic fabrics --such as a belief in thrift and hardworking, a belief in continuous learning and self-improvement, and such related attitudes -- such society is grateful.

However, the truth is, not so many societies are such fortunate. In these cases, which are many by the way, it is the society’s leadership role to step in to enable the creation of economic growth based on proper cultural values and facilitate the necessary changes especially in crucial moments of moving from one social and economic structure to the other, i.e. agricultural to industrialization to services.

A society that has a culture that doesn’t place much value in continuous learning and scholarship, or emphasis in hard work and thrift, or the deferment of present enjoyment for the better future, or encouraging its people on doing the right things and what is right – then such a society, despite its good vision, properly documented manifestos, timely legislative actions, etc -- it’s process of growth and development would be much slower.

The argument so far has been, to be able to succeed in this endeavor, the society needs to get the basic fundamentals right -- for instance in addition to attributes mentioned above, encouraging savings and investments, developing the habit of spending within our means and encouraging the right financial discipline (for individuals, to families, to community, to the state), providing adaptive quality education, embracing and adapting economic and technological changes that matches our current situation (as we imagine it) while at the same time re-create its future, as well as developing practical policies with clearly targeted sectors, are some of the crucial elements for sustainable and inclusive growth that is based on how the society culturally behave.

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Don’t quit even when the business gets pretty tough

Friday June 7 2019

 

It is easier having a dream of success, whether in running your own business, excelling in academics, or in your job career.

But achieving your dream has never been easier, never will it be, you will be faced with ups and downs before getting there, and that struggle is what makes success an interesting journey.

All the globally acclaimed successful entrepreneurs failed once or more, but never quit, they picked up themselves and moved on, today they fly private jets going to their private islands.

I know we are all faced with enormous challenges that you may think you cannot bear, are running out of cash? Are you losing motivation? Are you thinking of going back to job search? Are you thinking you are in a wrong business? All these questions are normal, its not only you.

Before you make a decision to quit, think of the following;

Failure is a precondition of success

Do not look at failure as opposite to success, think of it as part and parcel of success.

All the successful entrepreneurs you see today failed once or more, but they kept on going. The great thing about success is that you learn about what made you fail and what you should never do again, you become a better person, and a more experienced entrepreneur.

“I can accept failure, everyone fails at something. But I can’t accept not trying”. -Michael Jordan

You have what it takes

Before quitting think of people who were less blessed than you but believed in their dreams and did it, they never quit.

Think of people with disabilities competing in the Olympics, think of Oprah Winfrey who was abused as a teenager but kept on going and today she is on the Forbes list.

Albert Einstein, he did not speak until the age of three and teachers labeled him mentally slow, and this is what he said “Anyone who has never made a mistake has never tried anything new”.

If it were easier, everybody would be successful

If you count those who are successful and those who are not, you will see that the successful ones are very few? You know why? Why do you think less than 10 per cent of people account for the total wealth of the world? You think they are lucky? You think is a coincidence? NO. They worked hard and never quit, they knew it would take mountains before seeing the valleys. If you think you are working hard, know that someone else is working harder than you.

“Don’t wish it were easier. Wish you were better.” – Jim Rohn

Prove yourself, don’t prove them wrong

When you chart out on your journey, you face a lot of challenges mentally, first is people next to you who are negative, who say you can’t do it, and then is you. You start doubting yourself whether you can do this or not, whether you made a right decision or not, if you quit, you prove that you are weak, prove yourself that you are not.

“When you feel like quitting: think about why you started” – Author Unkown

Before you quit, remember that, “The difference between ordinary and extraordinary is that little extra”.-Jimmy Johnson

Salum Awadh is a CEO for SSC Holdings, an investment holding company with businesses in corporate & investment advisory, financial services, and logistics

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How disclosures work in self-regulated markets

Friday June 7 2019



Wambugu Wa Gichohi

Wambugu Wa Gichohi 

Any franchisor offering a “franchise” using only a franchise agreement without issuing a Franchise Disclosure Document will outrightly be taking advantage of potential franchisees’ gullibility.

Their argument of there being no such requirement simply adds to this belief because a responsible franchisor always follows international best practices. To mitigate that risk, three avenues are available-statutory regulation, self regulation or a combination of both.

Having looked at statutory disclosure requirements in the USA, it is important to note that the World Franchise Council prefers industry self-regulation.

For this purpose, guidelines for a disclosure document were determined by the International Institute for the Unification of Private Law (UNIDROIT) and finalized by an international committee of governmental experts in Rome in 2002.

Referred to as the Model Franchise Disclosure Law, it is from this law, together with WFC’s Principles of Ethics that franchise associations draw when preparing country code of ethics for sector self-regulation. It is not a binding international convention and franchise associations are free to make changes they consider necessary to cater for specific country needs.

Important, however is that UNIDROIT Model Disclosure Law is limited to business format franchises as the definition of a franchise requires namely, the granting of right to engage in the business of selling goods or services, the grant to be in exchange for direct or indirect financial compensation, a system which includes know-how and assistance, prescribes the manner in which the business is to be conducted and which includes operational control by the franchisor and a business associated with a designated trademark, service mark, trade name or logo.

The information required in the disclosure document is relatively standard but comprehensive. Eight key details that need to be given.

First are the key franchise details including legal, trade name, business address etc, statement by the directors certifying the viability of business and that debts can be paid as and when required.

Also, details of any material debt, criminal, civil or administrative proceedings in which the franchisor or a member of its management team was cited as the defendant, respondent or accused during the past five years must be given.

Second is a background of the franchise-operations history, including different names which might have been used in the past to carry out business.

Third are current franchisees in terms of name, telephone contact and physical outlet location details. Fourth is a summary of the franchise agreement, whose signing will be informed by the disclosure contents. Fifth are the franchisor’s obligations.

Sixth is financial information including initial franchise fees, establishment cost, other costs and total investment required.

Seventh are the ongoing payments-royalties and marketing fees while last is an auditor’s certificate certifying to have carefully studied the franchise offering and giving opinion on the same.

According to the WFC, the document must be available in the official language of the country. The disclosures must be clear, concise in a normative form that is understandable by a person unfamiliar with the franchise business and should not contain technical language.

There should be no factual or legal inconsistencies between the disclosure document and franchise agreement.

The potential franchisee must have at least fourteen (14) days “cooling-off” period to study, evaluate and question any fact on which they need elaboration.

No monies must be paid by potential franchisees before the fourteen (14) days have expired and also only once the agreement has been signed. The disclosure document must be updated at least annually or when a material change in the franchise system and/or franchisor has taken place.

The writer is the Lead Franchise Consultant at Africa Franchising Accelerator Project. We work with country apex private sector bodies to increase the uptake of franchising by helping indigenous African brands to franchise.

We turn around struggling indigenous franchise brands to franchise cross-border.

We settle international franchise brands into Africa to build a well-balanced franchise sector.

We create a franchise-friendly business environment with African governments for quicker African integration.

wambugu.wagichohi@worldaheadafrica.com, franchising@tpsftz.org

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Tanzanian carriers optimistic despite gloomy IATA forecast

Friday June 7 2019

 

By Mnaku Mbani @mnaku28 mmbani@tz.nationmedia.com

Dar es Salaam. Tanzanian airlines have said that the recent report by the International Air Transport Association (IATA) showing the fall of profit this year was normal in the aviation sector.

IATA said in a statement after a meeting held in South Korea that the global air transport will this year face turbulences, which will slow profits.

The African airlines are projected to deliver a loss of $100 million, the same performance reported last year.

During its recent meeting held in Seoul, South Korea, IATA announced a downgrade of its 2019 outlook for the global air transport industry to a $28 billion profit (from $35.5 billion forecast in December 2018).

That is also a decline on 2018 net post-tax profits which IATA estimates at $30 billion (re‑stated).

IATA said the business environment for airlines has deteriorated with rising fuel prices, increased competition and a substantial weakening of world trade. In 2019 overall costs are expected to grow by 7.4 per cent, outpacing a 6.5 per cent rise in revenues.

As a result, net margins are expected to be squeezed to 3.2 per cent (from 3.7 per cent in 2018). Profit per passenger will similarly decline to $6.12 (from $6.85 in 2018).

African airlines will deliver a $0.1 billion loss (unchanged from 2018), continuing a weak trend into its fourth year, according to IATA.

Commenting on IATA forecasts, Air Tanzania Company Limited (ATCL) managing director Ladislaus Matindi said this is a normal trend for the aviation industry as ups and downs have been the behaviour of the airline business.

“I agree that this is true and ATCL is not competing in isolation; it is part and parcel of the global aviation market,” he said in an interview with The Citizen on Tuesday.

On rising price of aviation fuel, Mr Matindi said it has remained the major challenge to the airlines business as it accounts for 30 per cent of direct operational costs and this may rise as the fuel price escalates further.

According to IATA, the high price of fuel from 2018 ($71.6/barrel Brent) will continue in 2019 with an average cost of $70.00/barrel Brent expected.

This is 27.5 per cent higher than the $54.9/barrel Brent in 2017. Fuel costs will account for 25 per cent of operating costs (up from 23.5 per cent in 2018).

Non-fuel unit costs are expected to rise to 39.5 cents per available tonne kilometer from 39.2 cents, because of higher labour, infrastructure and other costs.

Overall expenses are expected to rise 7.4 per cent to $822 billion, says IATA.

He said the Iran/US conflict will directly affect the production of fuel and will automatically affects the prices and this will lead to increased prices of tickets.

“The conflict between the US and Iran as well as internal conflicts facing some of the Middle East countries, who are major oil producers, has affected the production of the commodity, which resulted in increased prices.

Mr Matindi said the issue of US-China trade war has also been the main challenge facing the aviation industry as two countries account for a large share of global travellers and cargo movement.

‘Whatever these conflicts happen, each people are usually attached to their countries and sometimes limit the movement of people from each country,” he said.

As the US-China trade war intensifies, IATA says the immediate risks to an already beleaguered air cargo industry increase. And, while passenger traffic demand is holding up, the impact of worsening trade relations could spillover and dampens demand.

However, Mr Matindi is optimistic that as far as ATCL has its own focus and does not mostly depending on global passengers or cargo, the IATA forecast does not relate to its outlook.

He said the airline’s main focus is on domestic and regional routes rather than the global routes, which are currently more complicated due to competition and trade war between the two global economic giants. He said competition in aviation industry is due to the emergence of new airlines as well as improvement of existing airlines as they are both battling to do well.

“Competition is not for granted because we have seen the emergence of smaller airlines which have shaken the market, while large airlines are also improving,” he said in a telephone interview.

He said ATCL is not competing with other airlines because some competitors are not from the same level, but the strong economic growth and increased appetite for air transport among Tanzanians, give a positive hope of doing better.

“ATCL has seen the strong growth of domestic market because many people have increased their ability to purchase air tickets and they are typically ordinary people,” he said.

According to IATA, in 2019, the return on invested capital earned from airlines is expected to be 7.4 per cent (down from 7.9 per cent in 2018). While this still exceeds the average cost of capital (estimated at 7.3 per cent), the buffer is extremely thin.

Precision Air head of marketing and corporate affairs Hillary Mremi said the airlines is one of the most challenging businesses because profit has become more difficult, especially on the African continent.

Commenting on IATA forecast, Mr Mremi said operating costs have become higher, especially fuel and spare parts for planes.

“The cost of fuel and spare parts are so expensive in Africa due to a distance from suppliers,” he said. He said economies of most of the people Africa do not support them to use air transport, which limits number of passengers.

“Each passenger carried is expected to cost the carriers $1.54, leading to a -1.0 per cent net margin,” the IATA statement says.

However, few airlines in the region are able to achieve adequate load factors, which averaged the lowest globally at 60.7 per cent in 2018.

However, IATA has noted that the overall industry performance is improving, but slowly.

“This year will be the tenth consecutive year in the black for the airline industry. But margins are being squeezed by rising costs right across the board—including labour, fuel, and infrastructure. Stiff competition among airlines keeps yields from rising,” said Mr Alexandre de Juniac, IATA’s Director General and CEO in a statement posted on the association’s website.

“Weakening of global trade is likely to continue as the US-China trade war intensifies. This primarily impacts the cargo business, but passenger traffic could also be impacted as tensions rise. Airlines will still turn a profit this year, but there is no easy money to be made.”

Moreover, IATA says the job of spreading financial resilience throughout the industry is only half complete with a major gap in profitability between the performance of airlines in North America, Europe and Asia-Pacific and the performance of those in Africa, Latin America and the Middle East.

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Bank mergers the in thing now in TZ

Thursday May 30 2019

Bank of Tanzania headquarters in Dar es Salaam.

Bank of Tanzania headquarters in Dar es Salaam. The past two years have seen major banks in the country look for partners in a bid to raise new capital, create synergies and build economies of scale to tackle increasing competition. PHOTO | FILE  

By Mnaku Mbani @mnaku28 mmbani@tz.nationmedia.com

Dar es Salaam. Merger and acquisitions have been big news to banking sector in Tanzania over the last two years.

Apart from regulatory measures taken by the Bank of Tanzania (BoT) to merge certain local banks over capital adequacy, the sector has continued to receive more merges and acquisitions announcements, involving both local and foreign banks.

Analysts say the merger and acquisition will automatically change the landscape and improve banking sector in Tanzania, through consolidating assets, deposits and improving capital base.

Tanzania Institute of Bankers executive director Patrick Mususa said merger and acquisition was good to banking because it consolidate businesses, while increasing protection to deposits, which accounts for nearly 80 per cent of the industry’s assets.

“We have observed banks merging with others, once the banks being acquired or merged, it means the customer deposits continue to exist as what is changed is only the name,” he said. In August last year, the sector witnessed the merge of Twiga Bancorp, Tanzania Women’s Bank (TWB) to TPB Bank Plc, after the two former banks failed to meet the capital adequacy as required by the regulator.

The merge involved all assets, workers debts of TWB and Twiga, which were both owned by the government, through the Treasury registrar, being transferred to TPB Bank Plc, the oldest institution in Tanzania’s financial and banking sector.

Twiga and TWB were put under statutory management of the Bank of Tanzania since 2016, following their undercapitalization status.

BOT noted when announcing the measure that has taken to improve the oversight and performance of banks owned by the Government.

Commenting on the move, TPB Bank managing director Sabasaba Moshingi said merger and acquisition is a good thing because it is building solid financial institutions.

He said the merge of banks is expected to create strong capital and liquidity base, which will help to cushion risks facing the banking industry.

“Merger and acquisition is good for the economy; is good for liquidity; is good for regulator and good for customers as well,” he told The Citizen Monday.

He said merge and acquisition is not only experienced in Tanzania but other countries including in Nigeria, where recently; the central bank increased capital requirements, which resulted into merger of some banks.

On January 15 this year, the BoT announced the authorization of merger between Azania Bank and Bank M Limited, which was under statutory management of BOT since August last year.

The merger resulted into making Azania as top mortgage lender in Tanzania with 22 per cent of the market share and a loan portfolio of Sh78 billion.

Prior to merger, Azania had only 8 per cent of the mortgage finance market share with the portfolio of Sh59 billion.

After the deal was concluded, Azania shareholders, who are social security funds, injected an additional capital of Sh120 billion to boost liquidity.

Two months later, Exim Tanzania announced that it was planning to acquire all assets of UBL Tanzania Limited.

Exim Bank and UBL Bank said in their joint statement over the acquisition in March this year that an offer of intent for the deal, was already made, although the value of the deal were yet to be determined.

The planned acquisition was subject to regulatory approval in both Tanzania and Pakistan and was expected to complete by the half of this year. Both were also working with BoT to smooth the transaction.

UBL originated from Pakistan, opened its first African branch in Dar es Salaam on September 4, 2013. Internationally, UBL has more than 1,220 branches, as well as 17 branches in the United States and throughout the Arab Peninsula.

The deal will enable Exim Bank to have the combined assets of Sh1.7 trillion from currently Sh1.6 trillion.

At the end of April this year, the Kenyan largest bank- Equity Group announced that it has entered into an agreement with Pan-Africa focused banking group Atlas Mara to acquire the latter’s banking operations in four African countries including Tanzania.

Atlas Mara is the majority shareholders of BancABC Tanzania, which is also owned by the government of Tanzania.

The transaction, which will be done through a share swap, will see Equity Bank acquire 62 per cent of share of Banque Populaire du Rwanda Limited, 100 per cent of African Banking Corporation (ABC) stake in Zambia, Tanzania and Mozambique.

Equity Bank Kenya announced that it expects to allot about 252.5 million new ordinary shares that represent about 6.27 per cent of Equity’s issued shares equivalent to Ksh10.7 Billion (Sh240 billion).

On Kenya side, the Competition Authority of Kenya (CAK) has approved the proposed merger in May 13, but in Tanzania, it was waiting the approval from the regulators, which are BoT and fair Competition Commission (FCC).

“Based on the foregoing, the Authority’s view is that the proposed transaction is unlikely to lead to lessening of competition in the relevant product market for retail and corporate banking services in Kenya,” CAK said in a statement as reported by Kenyan Business Daily.

CBA and NIC said there was a possibility of branch closures where overlaps exist.

The merge will enable the merged banks to have a combined asset of more than Sh500 billion in Tanzania.

The banks group in Kenya said none of the 1,872 employees of Commercial Bank of Africa and NIC Bank should be declared redundant for a period of 12 months from the date of closing of the transaction.

On April 15, the local banking sector also received acquisition news after Hakika Microfinance Limited announced to take over Mwanga Community Bank, based in Mwanga, Kilimanjaro region.

The FCC announced it was carrying out investigations over the deal and it is yet known whether the deals was already been approved.

The Hakika Microfinance Bank Limited (HK MFB) is a private limited liability company (by shares) which was established by the Arusha Club SACCOS and the Individual Tanzanian entrepreneurs.

The bank was established to availing banking services and products to the under banked community particularly those in the low and middle-income segment of the society within Arusha and surrounding regions of Manyara, Kilimanjaro and beyond.

The target firm is a licensed community bank providing banking services in the Kilimanjaro region.

The acquiring firm is set to take over the entire operation of Mwanga Community Bank and in post-merger scenario, the separate existence of target firm will cease and new company will be created under the name of Mwanga Hakika Bank Limited.

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Amid hope and fears, TPDC turns 50

Thursday May 30 2019

One of the natural gas processing plants that

One of the natural gas processing plants that are operated by TPDC. PHOTO | file  

By Kelvin Matandiko @TheCitizenTZ news@tz.nationmedia.com

Dar es Salaam. The Tanzania Petroleum Development Corporation (TPDC) has grown from being a mere regulator to a strategic national company representing the country’s interests in petroleum-related projects.

TPDC, which is turning 50 years today, became the national oil company through which the government implements its petroleum exploration and development policies after Parliament passed the Petroleum Act of 2015.

Although it has many achievements in the energy sector, including connecting 42 industries with natural gas for power generation and ensuring that more than 50 per cent of electricity (about 884.5 MW) is produced using natural gas, analysts see more challenges in the upcoming projects.

Africa co-director for the Natural Resource Governance Institute (NRGI) Silas O’lang says the company has a challenge on how it will invest in the 25 per cent share in mega project implementation like the liquefied natural gas (LNG) planned in Lindi.

The National Oil Company will have exclusive rights over natural gas midstream and downstream value chain including the participation in the development and strategic ownership of natural gas projects and businesses on behalf of the government, according to the Petroleum Act 2015.

“This participation will depend on where TPDC will get the money to invest in the 25 per cent of project implementation. Paying cash could be difficult and the international oil company will take loan to cover the gap on behalf of the government,” he says.

“Then the government will stop receiving its profit share until the loan is repaid. This could be a challenge to TPDC hence will get lower profit out of the expectations,” he adds.

The lesson

Mr Godwin Samwel who happened to work with TPDC says in 1992 the management introduced a plan to impose tariffs on oil prices as a means of assisting TPDC in becoming financially independent but the government rejected the proposal. According to him, the management by then also introduced the idea of buying two depots of strategic oil reserves but the government declined as well.

“The reason behind was that the government was not allowed to involve and compete in business. If the government agreed, TPDC would be very strong financially. However, the current regime has shown a political will, which is the most important aspect to the future of TPDC,” he says.

Recently, the Controller and Auditor General (CAG) Prof Mussa Assad revealed in his 2017/18 reports that TPDC was one of the 14 state owned organisations passing through a financial crisis.

Apart from the challenges, TPDC acting director of exploration, development and production Ms Venosa Ngowi says the company has many things to demonstrate as achievement in the last 50 years.

According to her, the government used to spend a lot of money to power electricity to the national grid using expensive fuel. She says by then, the power cost $35 to 42 cents per unit but currently the government pays between $6 and $8 cents per the same unit. Ms Ngowi says TPDC has contributed to the successful discovery of 57 trillion cubic feet of natural gas in the mainland and Deep Sea through the International Oil Companies.

“The reserve can be spent for 40 years to come and as a country we are yet to count even one trillion cubic feet of gas. Already natural gas has contributed to generation of more than 50 per cent of electricity in the national grid and 42 industries have already been connected with natural gas for power generation,” she says.

“Exploration is still ongoing in many areas. The main aim is to reduce the cost of goods and services directly or indirectly and we assure the citizens will benefit from the TPDC presence,” she adds.

The gas domestication project received Sh20 billion in this financial year for the gas distribution to homes in Mikocheni as well as 150 houses in Mtwara Region.

TPDC acting managing director Kapuulya Musomba says their projection is to connect over 1,000 houses in Dar es Salaam but all depended on funding. The project is under Gasco - a subsidiary company of TPDC. Raymond Kavishe, a gas user at his Mikocheni Bar, says he was spending about Sh15,000 for charcoal per day but currently he has reduced half of the cost through natural gas uses for cooking.

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DIGITAL TRANSFORMATION: Get your business discovered with ease by your customers

Thursday May 30 2019

 

By Benson Mambosho

Thanks to the internet, your business can now be discovered quicker and easily. With modern developments in Google algorithms, it’s much easier for a customer to search for your business with just a keyword or typing in a location. There is more to this. Google allows you to be found conveniently. Instead of spending more money on boosting your ads, you can optimize your website or business listing in Google that will enable customers who search for products or services you sell to find you in seconds.

Luckily, Google trends provide you with relevant keywords that can drive traffic to your business. All that you have to do is include words such as; near me, shops near me, restaurants near me, markets near me and so many others.

You can search for more words in the Google trend to see which ones are used more by your local customers. That’s not all, you can run a quick survey of new words customers are using in your vicinity to have them included in your online business or website as well.

You might be wondering what Google uses as outweighing factors that lead to your business being discovered. Well, here are a few things that are often considered:

Google looks at how popular you are to the community. Yes, hate it or love it.

You must be well known to get found easily. All that you have to do is to step out of the crowd by getting your business information out there as much as possible. Google often relates to what customers talk about in the online world and match it to your business. For instance, your customer reviews, brand images shared, links to blogs, articles, latest news/trends, and so many other directories. The more this information is out there, the more your competitors won’t even stand a chance.

Location is another key factor that Google uses to rank your business. Since potential customers will be searching for services or products near them, then your business has necessary info with regards to a physical address, street, city, ward or the road. Relevance is another score for Google. As mentioned in the second paragraph, customers are often looking for convenient service or product. Therefore, your website or business listing should compose with specific or relevant keywords searched and used by your customers. The higher the score of your keywords, the better the likelihood of your business getting found.

Keep your business information up to date. Data such as phone number, business location, hours, address, product/service listing should be frequently updated to stay consistency and visible to users in Google search.

In addition to your business listing, your website or blog should offer maximum experience in delivering the right message or info to customers. Provide useful details about your business through online journals or articles that will pull customers back to you.

That’s still not enough, once customers have landed to your page make sure you have proper landing pages that will help you capture their information. The idea is to get to know their behavior and journey. This will help you optimize your business profile.

Again, keep an eye on top competitors. Wouldn’t it be fun to beat your competitors each time there is a new online development? It will help you to stay ahead of the game once you familiarize with tactics used in their marketing campaigns.

How about that? To this point, you are half way to make achieve superiority on search results. It’s never easy but with frequent updates to your business and understanding of how Google algorithms works will do the trick to get your business on top of the food chain and be discovered with ease.

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FRANCHISE: Disclosures in statutory regulated markets

Thursday May 30 2019



Wambugu Wa Gichohi

Wambugu Wa Gichohi 

By Wambugu Wa Gichohi Email: info@worldaheadafrica.com or wambugu.wagichoji@worldaheadafrica.com

The Franchise Disclosure Document (FDD) underlies the Franchise Agreement. The USA represents the world’s most statutory regulated franchise market where the FDD contains “items” of disclosure.

Item 18 presents any public figures-current or past politicians, celebrities etc-who may be involved in the franchisor business. Item 19 deals with franchisor’s financial performance representations. While franchisors are not legally-bound to present information on potential income or sales, when they do, they should have a basis for their claims and be able to substantiate. Franchisors must address the following areas when earning claims are made. First the sample size. When a franchisor claims certain earnings, they should disclose the sample size, the number and percentage of franchisees who reported earnings at the level claimed.

Second, average incomes. Average figures tell very little about how individual franchisees perform. An average figure may make the overall franchise system look more successful than it is because just a few very successful franchisees can inflate the average. Third, gross sales. These figures don’t really tell about the franchisees’ actual costs or profits. An outlet with a high gross sales revenue on paper may be losing money because of high overhead, rent, and other expenses. Fourth, net profits. Franchisors often do not have data on net profits of their franchisees, so if anyone presents such, a red flag is raised.

Fifth, geographic relevance. Earnings may vary with geography. The disclosures should be made on geographic or other differences among the group of franchisees whose earnings are reported and a franchisee’s likely location. Sixth franchisees’ backgrounds. Franchisees have different skill sets and educational backgrounds. The success of some franchisees doesn’t guarantee success for all.

Lastly, reliance on the earnings claims. Franchisors may ask a franchisee to sign a statement— sometimes presented as a written interview or questionnaire—that asks whether a franchisee received any earnings or financial performance representations during the course of buying a franchise.

Item 20 discloses a list of franchise outlets, current and past and franchisee information. Terminated, cancelled and unrenewed outlets will easily tell the kind of franchisor you are dealing with. Some franchisors buy back failed or failing outlets and list them as company-owned outlets, only to offload them to new franchisees. In such a case the franchisee must be told who owned and operated the outlet for the last five years. Several owners in a short time may indicate that the location isn’t profitable or that the franchisor hasn’t supported that outlet as promised. Many franchisees in an area may mean more competition for customers. Some of the former franchisees may have signed confidentiality agreements that prevent them from speaking. Franchisors practicing franchise fraud may have a high number of former franchisees under a gag order.

Item 21 discloses the franchisor’s financial statements, including audited books. Notes thereto can revel certain key information. Investing in a financially unstable franchisor carries a real risk of the franchisor going out of business into bankruptcy, sometimes no sooner than a franchisee invests. Franchisees are advised to seek professional help to determine if the franchisor has steady growth, has a growth plan, makes most of its income from the sale of franchises (which is some form of franchise fraud) or from continuing royalties or devotes sufficient funds to support its franchise system.

Item 22 discloses the franchisor’s current and past contracts, all which have a bearing on the running of the franchise network. Some contracts might be detrimental to the franchise system, franchisees should be spared this. Finally, Item 23 is a section for acknowledgement of receipt.

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YOUR BUSINESS IS OUR BUSINESS: Show me the colour of your Economy!

Thursday May 30 2019

 

By Karl Lyimo

For quite a long time, Society heard and read of a ‘Green Economy.’ This not only “aims at reducing environmental risks and ecological scarcities,” but also targets “sustainable development without degrading the environment.” [Google for /en.wikipedia.org/wiki/Green_economy>].

Today, a ‘Blue Economy’ is the talk of the town, exciting Economists and other stakeholders alike!

But, experts have varied definitions of the phenomenon, although the oceans are central to it. [See ‘Hairsplitting: what is new in a blue Economy, pray?’ The Citizen: December 20, 2018].

According to the World Bank, for example, ‘blue economy’ describes “sustainable use of ocean resources for economic growth, improved livelihoods and jobs while preserving the ocean ecosystem.” [See ‘What is the Blue Economy?’ The World Bank: June 6, 2017].

The European Commission defines it as “all economic activities related to oceans, seas and coasts. It covers a wide range of interlinked, established and emerging sectors.” [The 2018 Annual Economic Report on EU Blue Economy’].

The (British) Commonwealth of Nations considers a ‘blue economy’ as “an emerging concept which encourages better stewardship of our ocean – or ‘blue’ – resources.” [/www.hydrant.co.uk>].

The US-based ‘Conservation International’ states that a ‘blue economy’ “also includes economic benefits that may not be marketed – such as carbon storage, coastal protection, cultural values and biodiversity.” [Bertazzo, Sophie (2018-03-07). ‘What on Earth is the ‘blue economy?’].

The World Wildlife Fund: “For some, ‘blue economy’ means use of the sea and its resources for sustainable economic development. For others, it simply refers to any economic activity in the maritime sector, whether sustainable or not!”

Finally, The Centre for the Blue Economy at the Middlebury Institute of International Studies, Monterey-USA, says “the term is widely used with three related but distinct meanings: the overall contribution of oceans to economies; the need to address environmental and ecological sustainability of oceans, and the ocean economy as a growth opportunity for developed and developing countries.”

However, they are all agreed that ‘Blue Economy’ is a term in economics largely relating to the exploitation and preservation of marine environments.

But, again, while experts concede that the scope of interpretation of ‘Blue Economy’ varies widely, they also nonetheless admit that a Blue Economy has the potential as a major source of wealth and prosperity for Africa.

If nothing else, this’d help to advance the African Union’s Agenda-2063, the UN Sustainable Development Goals Agenda-2030 – and Tanzania’s National Development Vision-2025 envisaging a semi-industrialised, middle-income economy.

Fair enough; and, so far, so good...

As a matter of fact, stakeholders and their well-wishers have organized an ‘Africa Blue Economy Forum (ABEF) () for June 25-26 this year in Tunis, Tunisia, intended to raise awareness of the economic, social and environmental benefits of a Blue Economy.

Speakers at the Forum are government officials from Gabon, Ghana, Morocco, Seychelles, Somaliland and Tunisia – named here strictly in alphabetical order, and not on any other merit.

So much, then, for Green and Blue Economies... to say nothing of a Red Economy... Or is it a question of ‘an economy in the red’ – a la ‘red ink’ in the sense of financial deficit or debt?

Anyway; where’s Tanzania in all this, pray: a Green, Blue or Red Economy stalwart? Cheers!

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5 money mistakes that entrepreneurs make

Thursday May 23 2019

 

As much as becoming an entrepreneur by itself deserves a positive nod, but it is about remaining a successful entrepreneur that makes a difference.

one of the major challenges that young entrepreneurs face is on how to deal with their money issues, here five (5) common money mistakes that majority of young entrepreneurs make;

Overinvesting in the business

While you may think that you are investing to start and grow your business well, you may actually be over-investing and running out of cash. Instead of spending your money wisely to ensure that your product reaches the market and you start earning your first cheque, you are busy spending on office luxuries, expensive furniture, office vehicle, expensive equipment, and so forth, while you have not even signed your first customer.

Avoiding paying yourself

While you may be fascinated by “owner’s mentality”, that you own a business and deserve all the money coming in, you may not think of paying yourself, as a result you start drawing money from your business account paying for your personal bills, mixing the two accounts is a good start of such a bad ending of your business finances. Pay yourself a salary and separate yourself from business money

You know it all

While you may be an expert in your area of business field, you may as well be ignorant in the field of others. Y

es, you know your business better than anyone, but if you are not an accountant, then you need to hire an accountant to take care of your finances, at least outsource or hire a part-time accountant, avoiding such a reality may cost you more when payables exceed receivables, and when the taxman knocks on your door.

Failing to put a financial back-up plan

Yes, your research and cash flow projections indicate great prospects in earning more money for your business and this you think justifies your spending today, but did you ask yourself what happens when things don’t go as planned, do you have a financial back-up plan? Do you have a creditor’s policy that will guide you in bad times? Have your insured your business assets and undertaking?

Not measuring, and not complying

Do you assess your business financial performance periodically? Do you write reports that give you a true picture of your business and cash flow trend? Are you complying with the plans you had 6 months? or you have forgotten about everything and now spending your first big cheque to buy your dream expensive asset?

Think about your money wisely and plan its spending wisely, most young entrepreneurs do not grow their business and some fail completely because of some of these mistakes that we make every day. Plan, measure, and comply, follow the rules of the game.

Salum Awadh is a CEO for SSC Capital. A corporate and investment advisory firm, and Founder of Tanzania Venture Capital Network, an initiative that seeks to promote the growth of private equity industry in Tanzania.

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Disclosures in legally-regulated markets

Thursday May 23 2019



Wambugu Wa Gichohi

Wambugu Wa Gichohi 

The Franchise Disclosure Document (FDD) underlies the Franchise Agreement. Prospective franchisees will receive the FDD together with the Franchise Agreement because it is the FDD that has information pertinent to deciding whether or not to sign the Franchise Agreement.

Given the importance of pre-franchise sale disclosures, it is important that African countries that are now moving towards franchising indigenous brands under our Africa Franchising Accelerator Project decide between government legislation or to rely on emerging franchise associations-or a combination of both- to regulate the sector.

The World Franchise Council advocates minimum government legislation and has issued a guideline law to be adopted by those wishing to entrench franchising laws.

Given this scenario, I will present the contents of the FDD in a government-regulated market (USA) then the World Franchise Council requirements regarding contents, which all WFC-member associations must subscribe to.

The contents and procedure for preparing and presenting the FDD in the USA was greatly informed by the pre-1978 situation where all sorts of ‘franchises’ emerged, some genuine but most not, leading to massive losses by prospective franchisees.

The 1978 Federal Trade Commission Law made it a requirement for all franchisors seeking franchisees to prepare an FDD-previously known as Uniform Franchise Offering Circular (UFOC) up to 2007-containing twenty-three “items” as follows. Twenty-one of these relate to the franchisor while two relate to the franchise itself.

Item 1 deals with the franchisor, their patents, their predecessors and their affiliates. This makes it difficult, if not impossible, for a franchise that failed in the past to later re-emerge under a different name. Item 2 presents the identity and business experience of the key persons.

Franchisees need to be sure that they are investing their time and money with forthright and adequately-experienced franchisors. Item 3 discusses the litigation history of the franchisor and any of its key executives-and their outcomes where available-current and past cases involving fraud, violations of franchise law or unfair or deceptive practices.

Item 4 discusses the franchisor and the executive officers’ incidences of bankruptcy and presents information that can enable franchisees to assess the franchisor’s financial ability to grow the franchise system.

Item 5 presents the initial franchise fees payable to the franchisor which include the cost of outlet set up (where franchisor hands over a turnkey operation), stocking and running the business-including royalties. Item 6 presents other fees and expenses.

These would include training and marketing fees. Item 7 deals with estimated initial costs such as cost of leasing sites, building up the outlets, equipment and stocking where franchisees are allowed to do this on their own.

Item 8 deals with restrictions on sources of products-does the franchisor restrict franchisees to stock only products from a franchisor-identified source? Item 9 delineates the franchisee’s obligations while item 10 presents the desired franchise financing arrangements.

Item 11 presents the obligations of the franchisor while item 12 defines the general franchise territories and the specific territory the franchisee would focus on.

Items 13 and 14 deal with the franchisor’s other intellectual property such as trademarks, copyrights and proprietary information, including how to deal with the latter.

Item 15 defines the obligations of the franchisee to participate in the day-to-day running of the franchise business while item 16 says whether the franchisee is restricted (and how) on the goods and services they will offer.

Item 17 spells out the conditions under which the franchisor may end a franchisee’s franchise and the franchisee’s obligations to the franchisor after termination. It also defines the conditions under which a franchisee can renew, sell or assign the franchise to others

The writer is the Lead Franchise Consultant at Africa Franchising Accelerator Project.

We work with country apex private sector bodies to increase the uptake of franchising by helping indigenous African brands to franchise. We turn around struggling indigenous franchise brands to franchise cross-border.

We settle international franchise brands into Africa to build a well-balanced franchise sector. We create a franchise-friendly business environment with African governments for quicker African integration.

wambugu.wagichohi@worldaheadafrica.com, franchising@tpsftz.org

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Why mobile money, data are telcos revenue drivers

Thursday May 23 2019

 

By Alawi Masare @AMasare malawi@tz.nationmedia.com

Dar es Salaam. It is still the cash cow of mobile operators but revenue of voice calls is decreasing year after year amid changing dynamics in the telecommunication industry.

With technological advancement which is shaping the industry with more options for communicating, revenue from data and mobile financial services is growing fast while that of voice services which is the traditional source of revenue has been decreasing in the last two years.

Data from the largest mobile operator Vodacom – that may reflect the industry trend - indicate that messaging, data and mobile money recorded the fastest service revenues while that of the voice calls continued to decrease.

Vodacom which accounts for 32 per cent of the subscription market share by last December generated Sh1.02 trillion from its services with about 40 per cent being from the voice services.

However, the voice service revenue had declined by 1.1 per cent to Sh388.1 billion, according to the company’s preliminary results for the year ending March this year.

On the other hand, the company’s M-Pesa revenue increased by 14.5 per cent to Sh333.5 billion while mobile data revenue increased by 17.9 per cent to Sh167 billion.

The trend reflects the trend that internet users are increasing in the country with majority of the customers doing it through smartphones.

Experts say more will happen in the telecommunication industry with unpredictable revenue strength.

“Telecommunication industry is more driven by technology and innovations, thus, we cannot be certain of what revenue stream is going to dominate. The operators have become like a platform for other services to occur…think of mobile money integrated with banks and sim banking and all kinds of mobile payments,” says economics Professor Honest Ngowi who is also the principal of Mzumbe University’s Dar es Salaam campus.

“It is one of disruptive industries meaning that a lot will happen and overshadow some current services. So, I think the future is on the digital services which revenue is increasing and slowly will overshadow others,” he adds.

In Tanzania, the tariffs of the voice calls have been falling following a stiff competition which has resulted into price war among the operators.

Until December 2018, Tanzania was home to seven operators with Vodacom accounting for the largest market share at 32 per cent followed by Mic (Tigo) at 29 per cent and Airtel at 25 per cent. Halotel becomes fourth with nine per cent with Zantel, TTCL and Smart accounting for three per cent, two per cent and 0.30 per cent respectively, according to Tanzania Communications Regulatory Authority (TCRA).

With majority of the operators having mobile money services which are also integrated with banks, the number of active registered accounts for mobile money stood at 23.3 million in December 2018, compared with 19.4 million at the end of December 2017.

Vodacom alone transacted Sh49.3 trillion per year through its M-Pesa, representing a 38.6 per cent of the mobile financial services industry, according to the company’s finance director Jacques Marais who recently briefed investors through a conference call.

“We will continue to drive long-term shareholder value and lead Tanzania through the digital journey, leveraging data analytics and segmentation. The acquisition of 700MHz spectrum in the year provides a good opportunity to increase 4G coverage across the country and extend our leadership position in data,” he said. “Our focus on data monetization and acceleration of smartphone penetration, as well as leveraging on our expanding base to drive data adoption remain the key drivers to help bridge the digital divide,” he said adding that M-Pesa is one of the company’s key driver.

Globally, the mobile revolution has resulted in new forms of competition for telcos and shrinking revenue from traditional offerings like voice and texting.

Social media and smartphones have shifted customer preferences toward mobile platforms and helped generate products that cut directly into what once formed the lion’s share of telco profits.

Tools like WhatsApp, FaceTime, and Google Hangouts have established themselves as “free” alternatives to paid voice and texting services. As a result, customers no longer expect to pay much for voice and texting, but rather data, which can give them access to a slew of alternatives at little to no cost.

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How to stop losing customers and win new ones

Thursday May 23 2019



Benson Mambosho

Benson Mambosho 

By Benson Mambosho

Have you ever asked yourself why your customers run away from your business and don’t come back? You are probably on the verge of shutting your business down.

I encourage you to take a leap of faith and, don’t! Of course, not everyone that leaves means you don’t serve well or have a bad product or service.

People have various reasons not to stay or stay, however, it’s important to realize why others leave after they just interacted with your business for some time.

According to Harvard Business Review, ‘it is from 5 to 25 times more expensive to acquire a new customer than it is to keep a current one’. Isn’t this statement stating the obvious if you keep customers there is a high chance of increasing profits by more than 25 per cent? This also shows retention and acquisition are inseparable to the success of your business.

The online world offers the opportunity to analyze and report on customer behavior, especially if you have a blog, social media or website that they interact with. Stay with me to find out more on how to stop losing more customers and bring back those who already left.

Is your business still relevant in the minds of customers? Let’s face it, no one can buy anything if it doesn’t meet their needs.

Take a look at your business to see if customers have stopped using it or your business solution has an alternative. If it’s the latter then learning from your competitors can help you reposition your business strategically.

For instance, since customers are actively found on the web nowadays, competitors might have invested in Google search or display to create more awareness. Are you also doing the same? Are you doing it right? Do you have the required talent or skill to do so?

How you treat your customers will determine whether they stay or not. Consumers are not only concerned about your prices while accessing your products/services but also ideals or values your business stands for.

The superiority of your business doesn’t necessarily matter in the 21st century.

You need to connect with them emotionally. It will help you build successful business and personal relationships with them. Moreover, you need to let them into your organization by often educating them about the business. People might just continue to buy from you even when prices keep rising.

Ease customer’s purchasing journey, don’t let them get lost in between. In today’s world, businesses that interact with their customers across multiple channels both – online and offline have a high chance to succeed than those that don’t.

Experts (Aberdeen Group) suggest that ‘companies with the strongest omnichannel customer engagement strategies retain an average of 89 per cent of their customers, as compared to 33 per cent for companies with weak omnichannel strategies’.

Therefore, consistency in customer communication and satisfaction across devices and platforms are key to win new customers and bring back those that left.

Sometimes all you have to do is do more or go beyond their expectation. I am pretty sure most people love surprises. So why don’t you create suspense and excitement the next time customers interact with you.

Use Google analytics to see how many people didn’t check out on an item at your online shop. Later, you can decide to put an incentive (i.e. discount coupon for new shoppers, etc.) to make that purchase happen.

You have now half way from bringing new customers to you, all that is required from you is first understanding your customers. Afterward, subtle investment techniques are required to personalize their experience.

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Municipal bonds: viable option for funding local govts

Thursday May 23 2019

 

In the past five years we, at the stock exchange and together with some of our key stakeholders have been engaging local governments in the idea of using municipal bonds in the financing of local government projects, especially infrastructure projects.

Up to this point, we have, in various cases and platforms engaged with municipalities of Kinondoni, Ilala, Ilemela and Tanga.

We have also done the same to city councils in Dar es Salaam, Mwanza and Arusha, as well as Songwe region and in the next few days I will be in Simiyu on the same mission. Unfortunately, it’s been five years of engagements and no single municipal bonds have been issues, while at the same time there is no deficit of social economic infrastructure projects that needs funding.

In fact, we haven’t gone far, despite opportunities in some cases of helping identify potential projects and preparations of Draft Information Memorandum framework that could have guided their further consultations. Why efforts such as these are necessary? And why are we still pursuing this cause? I will explain.

Municipal bonds are debt instruments issued by sub nationals such as local government authorities, municipalities and cities.

They enable local governments to raise money to fund public projects, paying bondholders interests for the debt as the cost of raising funds. In the US, where such bonds were first issued during the urban boom of 1850s, their outstanding bonds issuance by states, cities and other sub-national entities exceed $3 trillion, as of 2018.

In Africa, only the Republic of South Africa cities of Cape Town, Johannesburg, Ekurhuleni and Tshwane have issued bonds, so as Douala in Cameron.

Dakar in Senegal as well as a few cities in some states in Nigeria have tried but so far have been without coming to its finality.

It is therefore apparent that municipals and sub-national bonds market is still infant in not only to us, but in Africa, and countries municipals/sub-national entities are not allowed to borrow via issuance of municipal bonds.

I think it is important to appreciate the fact that it is not only the municipal bonds market that isn’t developed as it should, but so are other types of bonds, i.e. government bonds (issued by central governments and backed by national governments); Agency bonds (normally issued by stated-owned-entities, government agents or government sponsored entities); corporate bonds (issued by public and private companies); sovereign bonds (issued in foreign currencies and guaranteed by national governments targeting foreign investors); diaspora bonds (issued by governments and directed to citizens originating from the country but live somewhere else); nor are Islamic bonds (issued by government or Islamic banks and institutions targeting people of Islamic faith) — these are all underdevelopment in most African countries, despite funds mobilization challenges and the need for financing.

In spite of the above, the truth is that our governments are overwhelmed by the rapid growth of cities. However, strategic planning has been insufficient as it is for the provision for basic services to residents, and the situation isn’t getting any better by the day.

For instance, since 1990s, (earlier than that for us) widespread decentralization and devolution has substantially shifted responsibilities for dealing with urbanization to local authorities; yet municipals and local governments across Africa receive just a small share of the national income to discharge their duties and responsibilities.

Responsible and proactive local governments, municipals and city authorities are examining how to improve their revenue generation and diversify their sources of finance.

Municipal bonds may be a viable financing option for some capital cities, depending on the legal and regulatory environment, governance and control mechanisms, viability of proposed investment projects, viability of vehicles for implementation of project financing and projects’ implementation, investors’ appetite and the creditworthy of the borrower.

Massive construction programs for roads and pavements, roads rehabilitation and parking, street and traffic lights, shopping malls, downtown markets, bus terminals, waste management facilities, flood management, sewage pipes, environment management as well as other social programs such as school milk programs, free uniforms and computers, etc. all these can be financed efficiently via issuance of municipal bonds by municipals and cities without over-reliance to central government for funding.

I understand that under the current legal/regulatory framework provides for a limited scope to increase resources by way of revenue collections because this role if highly concentrated to the central government, also there are several overlaps between the central and local governments in this space. However, it is also fair to argue that institutions that are closest to the people i.e. local government — must have pro-poor development programs that can be financed using internally determined financing channels such as municipal bonds.

Therefore, reforms that will enable cities and municipals to borrow efficiently in the process of reducing their financing dependency on the central government, should be encouraged and pursued.

Much as there exists limited alternatives for raising finances to finance local government development projects, but the attraction of bonds issuance may be clear, it will enable cities to borrow large amounts in lump-sum at relatively competitive interest rates from a wide and diverse investor base than what could be provided in bi-lateral commercial borrowings.

Once done, this will be a strong signal of determination by local government authorities, municipals and cities not to overly rely on concessional financing and confidence in their abilities to manage large revenue-generating investments.

But this requires close leadership by a champion within the local government governance structure, such as a mayors as well as the political and administrative discipline that goes with such initiatives. To be continued…

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The blackbox thinking in the digital capital era

Thursday May 23 2019



Innocent Swai

Innocent Swai 

By Innocent Swai

Why most brands aren’t ready to welcome what is called lack of “appetite” for blackbox thinking? Being creative and innovative matters less than we want. In order to capitalise on blackbox thinking, some brands must translate their shared vision into viable business practices.

Do all big brands have enough talent? Imagine what Amazon is doing as of now! You might get an impression that such a super brand is about to scale down so as to avoid a break-up. However, it is now moving aggressively into almost every industry.

Will it be broken-up? It seems to be escaping not only the break-up trap but also transforming itself into new creative financial assets. Amazon is breaking free from old ways of thinking switching into blackbox thinking.

Amazon has a new proposition to its smart employees that says “quite your job now and we will offer you $10,000 to start a business in delivering packages.”

The brand is trying to speed up its shipping time from two days to one for its prime customers. What next? Amazon is always in Day one; implying a startup company; full of energy and ready to leapfrog rather than Day 2 which is stasis, followed by irrelevance. Followed by painful decline; ultimately followed by death. It’s all about the long-term innovative strategic plans.

Clearly, Jeff Bezos shared vision for his brand has always been front and center, and he is always inspiring his employees to see the big picture. He has managed to keep Amazon to remain a “day one” company, always jostling, always hustling and always focused. When brands innovate products or services, they end up transforming not only the markets but also poaching clients from wherever they are found.

If an employee at Amazon is able to get his job done by mastering the routines that have been documented; provided the procedures can be well executed, then there could be a reason to do things differently.

No wonder Amazon said that, it will cover up to $10,000 in start-up costs for employees who are ready to focus their efforts on perfecting their business skills; hence quite their jobs. That’s like helping people out of their comfort zone.

Amazon has already discovered that such employees’ start-up will be their greatest contribution in case the brand just like other big tech companies (Facebook, Google, etc.) might end up being broken-up due to having too much control over consumers’ lives. However, this could be Amazon’s survival strategy before the split to maintain an indirect steady and reliable brand to leapfrog itself after the break-up in case it happens.

Lack of creativity and innovation doesn’t have to keep businesses from designing better long term strategies. In this digital capital era, the most successful visionary leaders are required to navigate through new situations using blackbox thinking.

One of my favourite columnists, Mathew Syed issued a stirring call on how brands should redefine themselves as well as redefining the word failure.

He explains that failure shouldn’t be stigmatizing anymore. Instead, he demonstrated that failure can be exciting and enlightening; an essential ingredient in a recipe for any brand with a risk appetite. Blackbox thinking has already changed the aviation industry giving it a steady hand for continued sustainable growth.

The annual letter to shareholders by Jeff Bezos is a must read to understand how Amazon disrupts different industries. His employees are challenged to get smarter; they understand that effort makes them stronger.

Therefore, they know much better how to put in extra time and effort which makes all the difference.

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It’s time to re-look the skills tax

Thursday May 23 2019



Shabu Maurus , www.auditaxservices.com

Shabu Maurus , www.auditaxservices.com  

Are you an employer in Tanzania? Do you have four or more employees? If yes, then it is likely that you are obliged to pay 4.5 percent of your monthly pay bill as a ‘tax on skills’. Skills and Development Levy (SDL) is one of the few taxes that are collected for a specific purpose in Tanzania.

Originally, it was intended fund the vocational education training. The scope was later expanded into funding higher education.

However, there are consistent cries from employers against the tax. Some see the SDL rate as too high.

And some see little benefits, if any, coming back to their businesses. They argue that in additional to SDL, they still incur a great deal to train and develop their employees. And yet some argue that SDL discourages employment.

The question is how SDL can be reformed to encourage employment rather than discourage it. Very few countries operate SDL most of them at a rate 2 percent or below.

How SDL works

SDL is collected by the Tanzania Revenue Authority (TRA) under the Vocational Education Training Act, Chapter 82 (“SDL law”). The tax kicks in when your number of employees reaches four or more. Unlike PAYE, which is essentially borne by employees, SDL is meant to be borne by the employer. SDL is charged based gross emoluments made by the employer to his employees in the particular period.

Generally, on monthly basis. The SDL law defines gross emoluments as a sum of the amount from salaries, wages, payments in lieu of leave, fees, commissions, bonuses, gratuity, any subsistence travelling, entertainment or other allowance received by an employee in respect of employment or service rendered. So, SDL is payable by the employer at 4.5 percent of gross monthly emoluments.

Some few exemptions

You may have four employees or more. But SDL may still not apply to you. How? The SDL law exempts some persons. The exemption list include the following (i) a Government department or a public institution which is non-profit making and wholly financed by the Government; (ii) Diplomatic Missions;(iii) The United Nations and its organizations; (iv) International and other foreign institutions dealing with aid or technical assistance; (v) Religious institutions whose employees are solely employed to administer places of worship or give religious instructions or generally to administer religion; (vi) Charitable organizations; (vii) Local government authority (viii) farms employers whose employees directly and solely are engaged in farming except for those engaged in the management of the farm or processing of farming products; and (ix) registered educational institutions (nursery, primary and secondary schools; VETA schools; Universities and Higher Learning Institutions).

You will notice that not all the exemptions are blanket. Some exemptions are conditional. Public institutions, for example, sometimes overlook the criteria for exemption.

That is how their budget is financed. Also, charitable organizations need to have their status vetted and recognized by TRA.

Farming business needs a good control to identify and separate employees directly engaged in farming.

Compliance obligations

As an employer, you are obliged to accurately calculate the monthly amount of SDL and pay the amount to TRA by the 7th day of the month following the month of payroll. You are also required to prepare a monthly return and submit to the TRA by the 7th day of the month following the month of payroll.

You are also expected to prepare and submit to TRA half year certificate which tally with the monthly returns submitted during the period (bi-annual SDL returns).

All these compliance obligations come with additional costs to employers on top of the tax itself. A gradual reduction of the rate could be a better option for now. But giving tax credits to employees for the training and development expenses they incur can also be considered.

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Pros and cons of print vs online publishing...

Thursday May 23 2019

 

There is a lot going on behind the scenes in the publishing industry across the world, in the developed and least-developed/developing countries alike – Tanzania NOT excepted!

This revolves around the twin but unlike ‘siblings’ – so to speak: print and online publishing. Generally, the publishing industry is “a branch of culture and production involving the preparation, production and distribution of books, magazines, newspapers and graphics.

“The level, scope and orientation of publishing are determined by Society’s material, sociopolitical and cultural conditions.” [The Columbia Electronic Encyclopedia™; cu/cup/>].

For aeons, publishing was limited to the print media. According to , the publishing was in the manner and style of mass communication publications that were printed and distributed among Society, usually as newspapers and magazines.

The mass publication medium is waning, arguably on its last legs: near the end of its usefulness – and even its existence this side of Heaven!

Its mortal enemy is the burgeoning generation of electronically-published online newspapers.

In some cases, an online newspaper or periodical is a version of ordinary, run-of-the-mill, down-to-earth newspaper or periodical that’s routinely printed on common or garden newsprint.

It so happens that many newspaper publishers are gradually ‘going online.’ This is considered to create more (income-generating) opportunities – as well as enable more effective competition with/against broadcast journalism in presenting breaking news.

Random researches have shown that “the credibility and strong brand recognition of well-established newspapers – as well as the close relationships they have with advertisers – are also seen by many in the newspaper industry as strengthening their chances of survival.

“Also, moving away from the printing process can help decrease costs.” [‘Newspapers recreate their medium archived 2007-03-14 at the Wayback Machine;’ eJournal USA, March 2006].

It’s possible to integrate the Internet into newspapers operations by, for example, writing stories for both print and online publishing.

Fair enough...

But, the central question here is: whither the traditional print media the way we have known it for aeons, pray?

To cite a living example: New Habari (2006) – publishers of ‘MTANZANIA,’ ‘Bingwa,’ ‘Rai,’ ‘Dimba’ and ‘The African’ – recently notified readers that it’s retrenching some workers as it ‘goes digital,’ starting with ‘MTANZANIA,’ whose printing/publishing is suspended for a month from May 20 this year! [See MTANZANIA; May 15, 2019].

So, as newspaper publishers scramble to go online, we must rationally rethink its implications/repercussions: the pros and cons...

Things digital may today be a fad. This is a ‘pro.’ But, it could just as well fade away with time: a ‘con.’

Indeed, replacing paper print with digital in the mass media stakes has more disadvantages than advantages on the Economy at all levels: personal, family/household and national.

Millions of jobs will be lost in Journalism (reporters, editors, proofreaders, page-makers, etc.), Printing (presses, stationery, etc.), Distribution (paper boys, delivery van crews)...

Also, newspaper owners will lose millions of their readers who don’t access online publications out of choice or inability.

Advertisers, wide-circulation public notices (Court summons, regulatory institutions, TRA, auctioneers, etc.) will lose out under digital publication. Oh, there are a bazillion more cons!

Anyway, not all changes are a good thing, or positively transformative/transformational. And, what is trending as a fad today could peter out soon enough, leaving a weeping society longing for the past – including the roadside newspaper vendor... Cheers!

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Tanzania taps into banking forte with bancassurance regulations

Thursday May 16 2019



PAUL KIBUUKA

paul.kibuuka@isidoralaw.co.tz

PAUL KIBUUKA paul.kibuuka@isidoralaw.co.tz 

By PAUL KIBUUKA @tzpaulkibuuka

In what is seen as a further step to foster the development of an inclusive insurance market in Tanzania, the national insurance regulator—the Tanzania Insurance Regulatory Authority (Tira)—is officially launching today the Insurance (Bancassurance) Regulations that were published in the Gazette of the United Republic of Tanzania under Government Notice No 216 of 2019 on March 15 this year.

The regulations will be launched in a special ceremony at a city hotel in order to raise awareness and inform stakeholders as well as the general public about the entry into force of the Bancassurance Regulations, 2019, says Tira’s Corporate Communications Officer Mr Oyuke Phostine.

This article amplifies that idea by bringing understanding to the dynamics of bancassurance. Specifically, the article discusses the mechanics of bancassurance and highlights the status of the insurance industry and selected salient aspects of the Bancassurance Regulations, 2019.

In addition, the article considers the most important challenges and concerns and the way forward to the success of bancassurance in Tanzania.

Bancassurance, as the name suggests, is “a mechanism by which banks or financial institutions and insurers collaborate to distribute and market insurance products” (see, Regulation 2 of the Bancassurance Regulations, 2019).

Through the mechanism, a licensed bank or financial institution (“bancassurance agent”) enters into a contract (“bancassurance agency contract”) with a Tira-licensed insurer to sell the insurer’s products to its customer base in return for a commission on each lead closed.

It is a win-win situation for the bank, the insurer, and the customer of the bank in the sense that the bank has a wide reach, market penetration, and established customer trust in the financial industry—of which insurers are a part.

The insurer can use the customer base of the bank to strengthen the uptake of its insurance products and consequently its premium turnover.

And what’s in it for the bank’s customer? Bancassurance encourages the customer to purchase insurance policies, obtain better premium rates, and enjoy much greater convenience.

The collaboration between the bank and the insurer can be deepened to a most satisfactory level in Tanzania, since the country’s overall population is about 55 million people.

Thus, bancassurance, as an innovative intermediate channel of selling insurance products, is fast gaining importance among insurers in Tanzania; nevertheless, it was initially introduced in France in the 1970s before spreading to other countries in the world.

Bancassurance is taking a central role in the strategy of many banks and financial institutions in Tanzania because it enriches their customer portfolio and generates new risk-free income in the form of commissions from insurers at a minimal set-up cost which, under Regulation 4(2) and 6(1) of the Bancassurance Regulations, 2019 (read together with the First Schedule thereto), includes prescribed application fees; one-time registration fees; and annual license maintenance fees.

The Regulations come in the backdrop of the monumental opportunity for insurers to get more Tanzanians to buy life and non-life insurance. The opportunity is monumental in terms of the country’s insurance penetration rate (premiums as a percentage of GDP) which was 0.55 per cent for the year 2017, representing a decline of 0.1 per cent in comparison with the penetration ratio of 0.64 per cent for the year 2016 (see, Tira’s Annual Insurance Market Performance Report for the year ended 31 December 2017). The rate is very low compared to the world’s average of 6.1 per cent and 3 per cent for Africa.

Clearly echoing the draft National Insurance Policy (NIP) statements on bancassurance, the Bancassurance Regulations, 2019, should encourage both banks and insurers in Tanzania to capitalise on the monumental opportunity exemplified by the country’s low insurance penetration and demographic profile.

Under regulations 4(3)(b) and 8 of the Bancassurance Regulations, 2019, prospective bancassurance agents are required to maintain the same capital provided for by the Bank of Tanzania (BoT) and to obtain a letter of no objection from the BoT when applying for a bancassurance license. This, I submit, sets a strong financial foundation for the steady growth of bancassurance in Tanzania.

There are different business models of bancassurance, but the choice of the specific model depends on, inter alia, the regulatory environment of the market.

In the Tanzanian market, the Bancassurance Regulations, 2019, provide for the pure distributor model whereby a bancassurance agent acts as an intermediary offering the insurance products of more than one insurer and up to a prescribed limit.

Tira has, thus, left some discretion to the banks and financial institutions to make a proper decision that would best suit them given their operating environment.

In the upshot, there is more choice for the customer; and for the bank, more insurance policies to understand and explain to the customer.

The interesting, but paradoxical, point to note is that the pure distributor model is the most prevalent in the Americas and Asia yet Tanzania is a member of the British-led Commonwealth of Nations, where the most prevalent model is a model that integrates the strategic alliance model (where a bancassurance agent sells the products of only a particular insurer) and the joint venture model (where the bancassurance agent and insurer form a new entity via shareholding).

Nevertheless, the pure distributor model underpinned by the Bancassurance Regulations, 2019, will serve to enhance agency force, a key driver of insurance business in Tanzania.

While naturally all the top tier banks and financial institutions will establish bancassurance business, it is advisable to do so with a concrete plan—a plan which includes sensitizing their customers on the importance of purchasing insurance policies, since Tanzania suffers from a very low level of public awareness about insurance.

Moreover, banks and financial institutions should take cognizance of the apprehension that bancassurance would likely make it tough for Tanzania’s estimated 413 insurance agents licensed by Tira.

But as the Bancassurance Regulations, 2019, prohibit tied-selling (the practice of a bank agreeing to sell its customer a bank product only if the customer also buys an insurance product through the bank), the apprehension might seem inapt. In reality, though, only time will tell whether the regulatory prohibition against tied-selling will save many traditional insurance agents from losing business to banks and financial institutions and, thus, dropping out of the insurance sector.

In terms of the way forward to the success of bancassurance in Tanzania, timely satisfaction of claims and serving customers in a courteous and professional manner will be critical.

In particular, professionalism would help stave off bancassurance lawsuits brought by customers of the bank and stop cascading effects of, say, the customer leaving the bank.

The insurance sector is closely linked with the national income of Tanzania and the attainment of the three principle objectives of the Tanzania Development Vision 2025 (achieving quality and good life for all; good governance and the rule of law; and building a strong and resilient economy that can effectively withstand global competition), as well as the international trade regime.

Bancassurance, as the convergence of the banking and insurance sectors, can help increase insurance uptake and premium turnover and ultimately add value to Tanzania’s development.

The Bancassurance Regulations, 2019, being launched today by Tira have been framed with that in mind. It is critical to realise that these Regulations are not cast in stone, but could be amended by Tira in response to the actions by insurers, banks and customers. In this sense, continuous and authentic stakeholder engagement will be very important in improving the Regulations and in achieving an inclusive insurance market.

Paul Kibuuka is the managing partner of Isidora & Company Advocates. Email: paul.kibuuka@isidoralaw.co.tz Twitter: @tzpaulkibuuka

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Forex volatility a blessing in disguise for banks

Thursday May 16 2019

 

On 6th May, 2019 it was published in this paper that the closure of bureaux de change in some cities in Tanzania was the reason for a significant increase in income from forex trade for banks during the first quarter of 2019, citing an increase of 70 per cent for the period.

Whilst there might be a link, albeit weak, between the closure of bureaux and increased earnings by the banks, I believe the main reason for the increased earnings was the volatility of the shilling against major currencies.

During the first three months of this year, we saw a sharp depreciation of the shilling against the US dollar to a low of about Sh2,440 before bouncing back to around Sh2,300, a fluctuation of 6 per cent in a single quarter versus a depreciation of around 5 – 7 per cent per year experienced over the past decade.

To elaborate, volatility in foreign exchange often creates panic to those that depend on foreign currency to transact, such as those with cross border transactions.

Panic would then lead to increased volumes of trade even when the foreign currency is not immediately needed because companies would want to hedge against the perceived further depreciation of the local currency. This phenomenon is often referred to as front loading of demand.

In the case of the shilling, the artificial demand of the US dollar pushed high the exchange rate of the shilling against the dollar due to increased demand of the dollar – laws of demand and supply.

Going back to the banks, the most recently published quarterly financial statements of 10 largest banks by assets dated 31st March, 2019 show a combined income of Sh65.5 billion from forex transactions compared to Sh45.9 billion for the same period last year, an increase of 43 per cent.

We seem to have passed the tumultuous patch in the weakening of the shilling as the shilling has been relatively stable in recent weeks.

Therefore, I would expect lower earnings from foreign exchange to be reported by banks in the second quarter although bureaux still remain closed. The truth will be known after publication of the second quarter results.

In conclusion, it is important for businesses that deal in or depend on foreign exchange to act rationally by not reacting to unexpected movements in exchange rate. Furthermore, one should obtain independent exchange rate figures before agreeing to an exchange rate given by a particular bank including our own bankers. Obtaining expert advice is also recommended and can save money.

Mr Godfrey Mramba is Managing Partner at Basil & Alred. The views expressed do not necessarily represent those of Basil & Alred

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VAT challenges remain firmly in place for agriculture

Thursday May 16 2019

The budget speech for the financial year 2019/20 is expected to be read by the Minister for Finance on 13 June 2019. As usual, business stakeholders will be keen to see what changes in taxes/policies are in store.

For the last two years, the theme of the budgets of all East African countries has been “to build an industrial economy that will stimulate employment and sustainable welfare”. This theme also aligns with Tanzania’s Vision 2025 (of being a semi-industrialized middle-income country) and the 2016/17 to 2020/21 National Five Year Development Plan (whose theme is “Nurturing Industrialization for Economic Transformation and Human Development”).

In the 2018/19 budget speech, the Minister for Finance highlighted numerous economic and social challenges, as well as opportunities and achievements.

Amongst the challenges highlighted were: high levels of poverty; limited employment opportunities; continued slow growth of the agricultural sector; and a narrow tax base (with a low domestic revenue to GDP ratio (almost 15 per cent) as compared with the Sub-Saharan African country average (17 per cent).

Explicit acknowledgment was made of the difficult environment for business –particularly as regards multiple taxes and regulatory levies, high tax rates and unnecessary bureaucracy –and an update was given in relation to analysis undertaken by the Government during the year to identify the relevant challenges, and in particular the “Blueprint for Regulatory Reform to Improve Business Environment for Tanzania”. I understand that the implementation of the Blueprint recommendations is currently a priority focus area for the Government.

Previous budget speeches have included proposed measures – particularly tax measures to encourage “in country” manufacturing especially targeting the processing of raw local products prior to export to foreign markets.

Typically, these measures have included export taxes for certain unprocessed products, as well as changes to the import tax regime (for example, increased taxes on imported finished goods, and at the same time exemptions on certain imported capital goods).

In 2017 changes were also made to the VAT regime to deny VAT input tax claims if attributable to exportation of certain raw products.

The restriction came into immediate effect in relation to exportation of raw minerals while the equivalent restriction for other items (raw agricultural products, raw forestry products, raw aquatic products and raw fauna products) was to be effective from July 2019 i.e. after two years.

In April I was invited to participate in a workshop organised by the East African Grain Council (EAGC) so as to explain the proposed amendment.

At the meeting several stakeholders in the agricultural sector expressed their concern on the restriction of input tax incurred after July 2019 and how this will affect their businesses going forward.

Their major concern was that most agricultural products exported to foreign countries are required in their natural state (for example avocados, tomatoes, green peas, flowers etc) and that such any disallowed input tax (which will become a cost) which would affect the competitiveness of these products in foreign markets.

Accordingly, if this law should come into force as drafted, then it will have adverse impacts for the farmers/exporters and by extension the economy as a whole.

In my view, whilst I fully support measures to encourage local processing and industrialisation, I would question the use of the VAT system to achieve this objective.

My hope therefore is that further consideration should be given to the practical challenges of the proposed restriction to consider (i) whether such restriction is appropriate, and (ii) if it does remain on the statute book then the scope of affected products should be narrowly defined.

Aside from this issue, another major VAT concern for agricultural exporters (also articulated at the EAGC meeting) related to delays in the processing of VAT refunds. It is to be hoped that the Budget will have some good news as to measure to resolve this logjam.

Jafari Mbaye is manager, Tax Services, at PwC. The views expressed do not necessarily represent those of PwC

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Is it easy for PE firms to exit their investments in Africa?

Thursday May 16 2019

 

A sixth annual survey titled “From origination to exit, how much value can your capital create? Published in 2018 by EY and AVCA, it provides update and analysis on exit activities on the continent.

It covers key important issues such as the number of exits, exit routes, holding period, etc.

Exit is one of the critical aspects of growing a PE industry in the continent, and it important to understand what exit options are available in the market now, which ones PE firms prefer over the other, and what policy makers need to do in improving the overall exit landscape.

This graph below shows the trend of total PE exits on the continent achieved between 2007 and 2017.

Some of the key issues in the survey are highlighted here below;

Are number of PE exits increasing?

With a slight decline to 49 exists in 2017 from 50 exits in 2016, it is still higher that 10 years ago when total exits achieved were 34 in 2007. More still needs to be done to ensure that we see more exits in the market.

We need to do more to attract more funds coming into Africa as potential buyers, we need to stimulate M&A market, and governments need to stabilize the policy and macrocosmic environment in creating the right environment for exit.

Where do we see more exits on the continent?

The number of PE exists are not uniform across the continent, we see for the 10-year period between 2007 to 2017, South Africa has remained as the dominant market for exists, accounting for 43 per cent of total exits. East Africa had a total of 10 per cent of all exits in the same period.

More needs to be done to attract more exit activity in EA market, Kenya is still the dominant force in the region, more is still desired in other member countries.

Which sector saw more exits?

For a 10-year period between 2007 to 2017, financials and industrials experienced more exit at 19 per cent each of the total exits, but the trend is changing now with consumer staples taking up the shape. For the period of 2016-2017, industrials remained dominant with 22 per cent, followed by consumer staples with 15 per cent, financials accounted for 12 per cent.

With population increase, growing middle class and increased urbanization, we expect to see more growth in the consumer industry.

How do PE firms hold their investments before exiting?

Holding period is still higher in Africa in comparison with the developed markets. This can be explained by many factors but one of them being PE firm going through tough changes in the market and can only wait for the right time to exit.

The average holding period for 2017 was 6.5 years, slightly improved from 7.7 years in 2016, but still way higher than the 3.9 years achieved in 2008. Shorter periods are better especially for PE funds that have shorter lifespan to 10 years.

Which route do PE firms exit through?

So apart from the number of exits we see, the issue of how firms exit their portfolio companies is also important to understand. In 2017, PE and other financial buyers accounted for 37 per cent of total exits.

Trade buy-outs have decreased to 27 per cent in 2017 from 50 per cent in 2016. IPO is still the less preferred option of all routes, accounting for only 4 per cent of all exits in 2017.

We need to improve our local bourses, deepening them and making them more liquid to attract more IPO exits.

Salum Awadh is CEO for SSC Capital, a corporate and investment advisory firm, and founder of Tanzania Venture Capital Network, an initiative that seeks to promote the growth of private equity industry in Tanzania

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Basics of raising capital for startups and SMEs

Thursday May 16 2019

 

Capital is the lifeblood of business. If you run out of it and lack access to additional resources, in many a case the game is over.

As the founder of a startup, you’ll find that raising capital is a significant part of your efforts and, for better or worse a major challenge. Unless you have a clearly defined plan and a path you will follow, you’re going to end up wasting precious time that could have been spent elsewhere.

So, understanding the basics of raising capital will be critical to your success. If you’re clear on what you need to do to get from where you are to where you want to be, you’ll be less likely to derail while you’re in the thick of it. Here are the factors to consider:

Preparations, preparations, preparations:

This step is often overlooked but unless you want to be constantly pumping your own resources into your business, you’ll want to assess and address various aspects of your company to ensure its overall readiness.

Not only will you need to examine your team’s overall health from every angle, but to research your industry, competitors and the market, define your products prepare financial projections and determine how much money to raise, plus decide whether to tap into debt or equity.

Preparations may be the most time-consuming and effort-intensive aspects of raising capital. But if you know what you want and outline the rationale behind those choices, you’ll find it easier to figure out whom to target and ask for what you need.

Remember, as you court investors and financiers, they will be asking the tough questions. So, you’ll have to be equipped with all the relevant information you need that will make them understand the business you’re in closer to how you know it.

Just because you have decided whom you are going to go after and what amount to ask doesn’t necessarily mean you are going to get what you’ve requested when it comes to financial matters, the more options you can identify, the better. That way, you will always have a backup plan when you need it.

Among the different types of investors out there that you may consider are: family, friends, banks, microfinance institutions, venture capitalists, angel investors, private equity firms, business incubators, investment groups, crowd funding pledges and the stock market.

Keeping in mind that some forms of funding are costlier and riskier than others, you can also use lines of credit (i.e. letters of credit and guarantees), bank loans, notes and bonds offerings and the like. These financing options are often last resorts or backup initiatives, as they are more contingent on the condition of your personal finances and assets, versus the value or potential value of your business.

Searching from the web or engaging capital raising consultants will inform you about the necessity of a “pitch deck” (basically a brief presentation, created using PowerPoint, or Keynote which is used to provide your audience with a quick overview of your business plan.

It’s usually used during face-to-face or online meetings with potential investors, financiers, and such business partners) and the ways in which to put an effective presentation. The fundamentals are that your presentation should be used to highlight the most attractive aspects of your business.

Keeping your target audience in mind and knowing what’s important to investors is key.

Generally, 10 to 15 of pitch deck slides containing information your company, your team, competition, target market, milestones, future plans and funding requirements is sufficient. Armed with this information, your prospective investors should be better able to decide on a course of action.

You can never know too many people. While networking, you don’t necessarily need to be constantly promoting your business; you should make sure you are helping other people. This will help you garner a positive reputation, and when you help others get what they want, they will be more likely to help you.

Keep in mind that you will face rejection when discussing your business with others. Some investors may not be looking for an opportunity right now. For other people, your concept simply won’t be the right fit. Knowing this while going in can save you a lot of heartache and stress.

Researching various investment groups and resources online can prove worthwhile as well, especially during this time and age where internet and web searches resources are significantly helpful. Just make sure that you don’t get so much sucked into the bottomless black hole of the internet.

Once you get what you want from the internet, use that in trying to reach out specifically. Such as by making phone calls or sending emails to specific individuals, so that you specifically address what you want while you also remain proactive when reaching out.

This will assist in finding tailored solutions streamlines your process of finding capital and getting the source of capital convenient and aligned to your business objectives and needs while addressing the growth aspect of your business.

It is however important to note that, even with all your ducks in a row, there are no guarantees you’ll get the capital you need from the investors you’re courting. But no problem-solving is part and parcel of entrepreneurship.

Knowing all your options and what you can do to get the money you need can give you greater confidence when you encounter bumps in the road. And that is something you unfortunately, can count on.

In line with the above, as one of the interventions to help bridge the gap for the SMEs sector in the context of access to capital, the DSE is considering introducing the “DSE Enterprise Acceleration Program” with the objective, among others, providing capacity building to identified growth-startup and SMEs .

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Why accept Chinese digital green cards?

Thursday May 16 2019



Innocent Swai

Innocent Swai 

What happens when we embrace our failures? The aviation industry and the Chinese government know better.

When failures are embraced, growth mindset is born. Why not? Look at what black box has done to the aviation industry; all their accidents have a cause and that cause once embraced and fixed for good, such a failure will never be repeated.

Look at other industries; doctors are sued for their mistakes; they even take an oath so that they can be sued. That’s fixed mindset. No wonder, mistakes done 30 years ago are still recurring in our hospitals, factories, schools, offices, etc. That’s a way of life.

We need black box thinking. The Chinese government is one step ahead in black box thinking.

There is something different happening as we speak. In the auto industry, there is a crazy entrepreneur whose vision has never been taken seriously in the West.

However, the Chinese people have embraced both his craziness and failures. Interestingly, a baby known as Tesla Gigafactory 3 was born when Elon Musk’s vision was taken seriously by the Chinese.

Those who are saying that Tesla’s Gigafactory 3 construction in China is speedy; do not know anything about insanity. Actually, that’s a gross understatement. By visiting Shanghai’s Lingang Industrial Area where Gigafactory 3 is under construction, the transformed muddy field about 865,000 square metres has given shape to a massive EV factory.

In early March, it was said that Gigafactory 3 initial buildout should be done by May 2019. That timeframe was insane.

However, it seems that the project is on track. And Tesla could start pilot production by September 2019, something which is outstandingly ahead of Elon Musk’s own insane estimate; which was by the end of 2019.

It’s likely that Gigafactory 3 will set a record for fastest factory construction in China. How is this possible?

The insane timeframe is truly optimistic and ambitious. It has had faced relentless skepticism everywhere else except China.

Fortunately, a Chinese construction partner saw its feasibility and ensured it’s happenstance by necessarily doing everything possible specifically adopting a 24/7 work schedule.

Elon Musk and his Tesla brand have always faced unfair opposition in almost every product brought to the market.

This is unbelievable pace of Gigafactory 3’s construction, with a volume production goal in the 4th quarter of 2019.

In reality, it’s about time for Elon Musk’s shared vision to be embraced without any unnecessary drama.

The Chinese people and their workforce provided no controversies when Elon Musk shared his electric car production vision. Their black box thinking has made them beat Elon’s insane timeframe as they will commence their pilot production earlier than his end of the 2019 estimation.

If there is a lesson from Gigafactory 3, it’s that people with vision like Tesla founder could accomplish great things if their visions are embraced and supported.

And it happens only when such visionary opportunities are spotted. This is something that Chinese have learned to see using black box thinking. No wonder the Chinese government is going the extra mile.

The Chinese Prime Minister Li Keqiang gave Elon Musk a “Digital Chinese Green Card’ so that he can create more opportunities to Chinese people.

Lastly, according to Tesla artificial intelligence (AI) director Andrej Karpathy, we are entering “Software version 2.0,” where neural networks write the code while people’s main responsibilities are defining tasks, collecting data, and building the user interfaces. However, not all tasks can be handled by neural networks for now.

Hence, the traditional software development cycle, partially still has a role to play.

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Integration: Was EAC-I ‘better’ than EAC-II?

Thursday May 16 2019

 

On April 30, 2019, a Don of the Sokoine University of Agriculture (SUA) in Morogoro Region emailed me on an intriguing topic.

The holder of an MSc degree in Agricultural Economics, the emailer raised issues on regional economic cooperation, integration.

In particular, he compared the first East African Community (EAC-I: 1967-1977) and its successor, launched on July 7, 2000. (EAC-II: 2000–???).

By way of background: inter-territorial cooperation in the eastern African region began in earnest in 1917 with a Customs Union between what were then Kenya Colony and Uganda Protectorate, both under the British Government.

The Customs Union was joined by Tanganyika Territory, which was mandated to Britain by the League of Nations, predecessor to the extant United Nations.

In 1948, the three countries were lumped together under His British Majesty’s Government as the EA High Commission (EAHC).

Following Tanganyika’s flag independence on December 9, 1961, the three countries stayed connected under the EA Common Services Organization (EACSO) until 1967.

By that time, the three had become independent from alien rule, and together formed the first EA Community (EAC-I) under the 1967 Kampala Agreement.

This lasted until midnight on June 30, 1977, when EAC-I imploded from failure of Presidents Jomo ‘Johnson Kamau wa Ngengi’ Kenyatta of Kenya, Julius ‘Mwalimu’ Nyerere of Tanzania and Iddi ‘Dada’ Amin of Uganda ignominiously failed to sit at the same table as the Community’s Summit of State Heads and approve its Budget for FY-1977/78.

In due course of time, events and negotiations – and well after the three erstwhile Summit heads had left the scene, each in his own unique way – the new State Heads (Daniel arap’Moi of Kenya; Ali-Hassan Mwinyi of Tanzania, and Yoweri-Kaguta Museveni of Uganda) signed the East African Co-operation Treaty in Kampala on November 30, 1993, and established a Tri-partite Co-operation Commission.

The idea was for the three nation-states to resume integration via tripartite co-operation programmes in political, economic, social and cultural fields, as well as in research and technology, defence/security, legal/judicial affairs...

To that end, the new East African Community (EAC-II) was mooted on November 3, 1999 when the Treaty for its re-establishment was signed – and became effective on July 7, 2000: 23 years after the collapse of EAC-I.

Back to the email from the SUA Don...

He notes that the 10-year EAC-I (and the earlier regional institutions) had already put in place what EAC-II has failed to do in nearly a generation.

Examples of EAC-I achievements:

A Monetary Union of sorts: a common currency (East African Schilling), a single (East African) Currency Board.

It had joint public enterprises: EA Railways and Harbors; EA Customs and Excise Department; EA Posts and Telecoms, and EA Development Bank. (Incidentally, EADB is still operating, with total assets valued at approximately US$381m as of December 2015...)

Common Education System – complete with a single school syllabus, an EA Examinations Council (a secondary school level testing agency) and the EA Literature Bureau.

So – my emailer laments – instead of the ‘new’ EAC-II establishing common systems (EA Airways; EA Railways; EA This and EA That, etc.), each member-country is ‘selfishly building’ its own airline, standard gauge railway, etc...

Well... Call that regional integration or disintegration? I ask you... Yeah: YOU!

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VAT threshold needs to be finely balanced

Thursday May 16 2019



Shabu Maurus , www.auditaxservices.com

Shabu Maurus , www.auditaxservices.com  

My previous two articles focused on value added tax (VAT) exemptions and their negative effects.

Connected with VAT exemptions is the VAT registration threshold. Generally, this is the point in terms of annual taxable turnover, at which VAT registration becomes compulsory.

Businesses with taxable turnover below the threshold are not obliged to register for VAT. The threshold, therefore, effectively acts as a form of VAT exemption. This is because goods and services supplied by unregistered businesses do not explicitly bear VAT.

The level of turnover at which registration for the VAT becomes compulsory is, therefore, a critical choice in the design and implementation of the VAT. It is an important policy issue.

Of course, there are other criteria that may make VAT registration compulsory. For example, specific rules apply to the registration of professional service providers, government entities or institutions doing business and intending traders regardless of their turnovers.

Providers of professional services in Tanzania Mainland are obliged to register for VAT regardless of their annual turnovers. Services providers such as lawyers, architects, engineers, auditors, tax consultants and quantity surveyors would fall under this category.

When VAT was introduced in Tanzania in 1998, the threshold was set at Sh20 million. This was later on increased to Sh40 million in 2004. And to Sh100 million when the new VAT Act, 2014 came into force in 2015. This means that traders with average daily gross taxable sales of Sh280,000 are obliged to register.

There have been calls for the Sh100 million threshold to be revised upwards. The current threshold may be too low for the structure of economy where informal sector is dominant. It is not surprising that some people have proposed a threshold as high as 500 million shillings.

Given the relatively poor performance of our VAT system, these calls cannot be ignored.

High or low threshold?

The VAT registration threshold determines the administrative efficiency in the operation of the VAT. Low threshold tends to include many small businesses into the VAT system which may exceed the administrative capacity of TRA.

The VAT revenue should exceed administrative cost of collections. The cost of collecting VAT from many small traders, if the threshold is set too low, is likely to exceed the VAT revenue.

VAT registration entails additional compliance burdens to the registrants. Most notably are the costs related to managing the tax invoices, VAT returns, VAT payments and the financial cost if customers delay in paying their bills and VAT is due to TRA. These VAT compliance costs tend to be relatively more burdensome to small traders than to the large businesses. The EFDs is a typical example of this. Smaller traders tend to complain more about the cost of devices.

On the other hand, setting high threshold would eliminate many businesses from VAT system and increase administrative efficiency.

But the increased efficiency may come at the expense of revenue loss as the VAT base narrows if the threshold is set too high.

VAT is a multiple stage tax and only tax on value added on each stage, so simply exempting traders below the threshold may not necessarily mean a 100 per cent revenues loss. Unregistered traders cannot claim input taxes.

This also means that removal of small traders from the VAT system will reduce the problem of bogus input tax claims that are difficult for TRA to trace.

The threshold, therefore, needs an appropriate balance between reducing administrative and compliance burdens and avoiding competitive distortions.

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Solar power changes lives in village

Thursday May 16 2019

Solar power has spurred economic activities in

Solar power has spurred economic activities in Lukumbule Village, Tunduru District. PHOTO | FILE 

By Haika Kimaro @haikakim hkimaro@tz.nationmedia.com

Tunduru. Until 2017, Lukumbule Village in Tunduru District, Ruvuma Region, was not only in dark, but also quiet at night as few economic activities were taking place.

Today, the village which is located some 64 kilometres to the south of the district is busy with activities like welding, salons, as well as shops that have refrigerators, thanks to reliable solar energy across the community.

When one arrives to the village, one will be greeted by poles of electricity wires – a development which has brought a new lease of life by enabling various economic development projects.

Some villagers are tapping the potentials by running welding business, carpentry, tailoring, selling cold drinks, photocopy machines, milling machines, running electronic equipment shops as well as entertainment halls. The solar energy is run and provided by PowerCorner.

Hadija Issa, who is a student, used to study with a candle light but now she can do that in a brighter light.

According to her, the solar power has also enabled her and other memders of her family to watch television programs.

“My family has also the opportunity to watch various programmes on television including news and soap opera,’’ she says.

Juma Ayubu, a villager, says initially they used to travel 64 kilometres to have photocopy services but now the services are available at their doorstep.

Mr Hashim Beno owns a shop and used to sell a maximum of ten bottles of drinks but with his solar-powered refrigerator he says he sells up to 25 bottles of cold drinks.

Tunduru District Commissioner Juma Homera explains that the access to solar energy in that village has helped people to freely do their business at any time.

According to him, Lukumbule Village is near Mozambique border, thus becoming a tourist destination for people from the neighbouring country, who visit the turbines to learn how solar energy is working in the village.

Currently, PowerCorner has connected 150 customers and that the target is between 400 and 600 before the end of the year, according to the company’s project supervisor in the village, Mr Adam Issa.

“As days go by, many people are expressing interest in our projects,’’ he says.

Lukumbule Village Executive Officer (Veo) Bahati Andrea says the village has 198 households with a total of 5,427 villagers and 140 homes had requested to be connected to solar energy.

According to him, initially when he called a public meeting to introduce the project, the majority of the villagers did not understand properly the idea of renewable energy which, to them, appeared unnecessary.

He says the project has so far created employment opportunities to many youths in that village.

“The solar power has brought happiness in our village and that is why you can hear music sounds and people enjoying wherever they are,” says Mr Andrea. PoweCorner project manager Mr Daniel Nickson says for a customer to be connected to solar energy he/she spends between Sh59,000 and Sh177,000, depending on the capacity.

He says his company also provides loans for some equipment like solar-powered refrigerators.

The smallest package of 40 watts is provided at Sh59,000 while 100 watts are obtained at Sh118,000.

A package of 1,000 watts is sold at Sh177,000 and that a package of 4,000 watts for small industries is obtained at a cost of Sh177,000. Mr Nickson said public institutions like health and education centres were connected at a cost of Sh295,000 as part of the company’s Corporate Social Responsibility (CSR).

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