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

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.


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.,


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 ( The views expressed herein are those of the author and do not necessarily represent the views of KPMG.


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.


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


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


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:


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.


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


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.,


Tanzanian carriers optimistic despite gloomy IATA forecast

Friday June 7 2019


By Mnaku Mbani @mnaku28

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.


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

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.


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

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.


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.


FRANCHISE: Disclosures in statutory regulated markets

Thursday May 30 2019

Wambugu Wa Gichohi

Wambugu Wa Gichohi 

By Wambugu Wa Gichohi Email: or

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.


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 />].

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.” [/>].

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!


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.


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.,


Why mobile money, data are telcos revenue drivers

Thursday May 23 2019


By Alawi Masare @AMasare

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.


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.


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…


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.


It’s time to re-look the skills tax

Thursday May 23 2019

Shabu Maurus ,

Shabu Maurus ,  

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.


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!


Tanzania taps into banking forte with bancassurance regulations

Thursday May 16 2019


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: Twitter: @tzpaulkibuuka


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


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


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


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 .


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.


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!


VAT threshold needs to be finely balanced

Thursday May 16 2019

Shabu Maurus ,

Shabu Maurus ,  

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.


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

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).


Tanzania LNG exports may start in at least eight years

Thursday May 16 2019


By Alfred Zacharia @azacharia3

Dar es Salaam. With delayed negotiations over the construction of the liquefied natural gas (LNG) plant, Tanzania has at least eight years from now to start exporting the resources.

And that is only possible if the current discussions between the government and the investors come to the conclusion this September as expected.

Tanzania Petroleum Development Corporation (TPDC)’s manager for the LNG project, Mr Felix Nanguka, told journalists at a recent workshop that the Host Government Agreements (HGAs) may conclude in September, this year, as the government is engaging the financiers individually.

After the agreement is signed, there will be three years of studies before the start of construction that will last for five years.

Mr Nanguka said the HGAs will discuss only key terms of the project with other issues to be discussed in the course of construction of operationalising other procedures.

“The three years will be for conducting Preliminary Front End Engineering Design (Pre-Feed) and Front End Engineering Design (Feed) processes which are usually conducted after completion of the HGAs,” he noted.

According to him, the steps take a conceptual design or a feasibility study and various other studies to figure out technical issues and estimate rough investment cost before the start of engineering, procurement and construction (EPC).

“Normally, Pre-feed step takes up to 18 months, but due to some delays on negotiations, it will take 12 months (one year) only. This is because some of the activities were conducted before the HGAs are concluded,” he said without mentioning the activities.

For the case of Feed step, he said it will take two years of completion.

“Once HGAs are concluded in September, the Pre-Feed and Feed studies will start in early 2020,” he predicted.

According to him, the studies will also include the legal and commercial plans of the project.

Tanzania has so far discovered 57 trillion cubic feet of natural gas from both onshore and in the Indian Ocean.

Currently, the government is engaging international oil companies like Equinor and Shell individually on the terms of developing the $30 billion LNG project. Implementation will also be done individually, but the gas will be put at one government facility.

Both Equinor and Shell confirmed that they are already in the negotiation process and say the actual construction of the project will take up to five years.

Equinor Tanzania head of communications Ms Genevieve Kasanga said the company was well placed to pursue the project with its partner ExxonMobil.

Equinor and ExxonMobil hold block 2 while Shell and Ophir Energy own Block 1 and 3 of natural gas.

The firms plan to develop the project in partnership with the state-run TPDC.

“We have been waiting for this chance for a long time and we have spent a lot of money for the project. Starting the negotiations gives us a hope to start the construction of the LNG plant,” she noted.

She said with more than $2 billion investment, Equinor together with its partner have discovered above 20 TCF of the natural gas.

“We expect that the construction of the LNG export terminal near huge offshore natural gas discoveries in deep-water south of the country will take five years to complete,” she noted.

According to her, the construction will enable them to take natural gas which is found some 2500 metres below sea level to the seabed, constructing a 100-kilometre pipeline which will transport the gas from the deep-water to the shore and building up the plant facility.

“Once completed, we will be exporting at least 7.5 million tonnes of liquefied gas per year,” she said.

She added that, 10 per cent of the natural gas will go directly to domestic uses.

According to her, the plant will operate for 30 years after completion.

On the other side a Royal Dutch Shell Plc has also confirmed to have started the negotiations with the government.

Ms Patricia Mhondo, external relations manager at Shell told the BusinessWeek through a phone that the new HGAs were decided by the government and they have nothing against it.

“We are ok with the HGA negotiations process and when they are over, we will officially announce our next steps,” she noted.

The LNG Plant

The plant is expecting to be constructed in Lindi, covering a total of 2077 square hectors, according to Mr Nanguka.

The capital investment of more than $30 billion, equivalent to Sh67 trillion will be used to construct the project.

So far, according to him, the government has revoked ownership of seven farms, which were found within the plot’s boundaries.

“The government will compensate for the assets available to the farm owners. Only 21 households near the plot are set to be paid,” he said.


The nitty-gritty of the disclosure process

Thursday May 16 2019

Wambugu Wa Gichohi

Wambugu Wa Gichohi 

The Franchise Disclosure Document (FDD) underlies the Franchise Agreement. It is prepared and shared by franchisors during the franchise opportunity offer to enable potential franchisees make informed investment decisions.

It is an international best practice to be followed whether or not a franchisor is bound by law or a code of ethics in a world-recognized franchise association.

Before looking at its contents, discussion of how the FDD is generally handled is apt. Where the franchisor belongs to a franchise association recognized by the World Franchise Council-(WFC), the franchisor prepares and deposits the FDD with the franchise association and any other relevant regulator.

These entities check it for compliance and communicate to the franchisor. U

pdates are also deposited with these entities before a certain date as may be applicable per country.

Prospective franchisees then receive the FDD together with the Franchise Agreement because the FDD contains information pertinent to deciding whether or not to sign the Franchise Agreement.

Given the importance of pre-franchise sale disclosure, it is a requirement for WFC member association franchisors to allow prospective franchisees a “cooling off” period of at least 14 days before signing the Franchise Agreement. In case of franchise renewal, the franchisee must receive an updated FDD (and the Franchise Agreement to be renewed) at least three months before expiry of current franchise period.

Guidance from consultants on interpretation is highly recommended for prospective franchisees.

Prior to the 1978 Federal Trade Commission (FTC) Rule in the USA, dishonest franchisors easily took advantage of potential franchisees by not disclosing the true nature of the franchise offer. This made franchising a shady business.

The WFC was established in 1994 to promote growth of franchising internationally and to facilitate best practices in franchise association management among its members. Best practices include a Code of Ethics which associations derive from the WFC’s Principles of Ethics and which association members must subscribe to upon joining.

Pre-franchise sale disclosure is prescribed in the associations’ Code of Ethics. Hence, even with no legislative regulation, franchise associations act as self-regulators.

Unfortunately, in countries with no strong franchise associations or franchise legislation-most of Africa-the situation hasn’t changed much from the pre-1978 USA.

Franchising can still be a murky game-a European-based company attempted to sell me a franchise for travel in private jets, tied to land ownership in the UK but they melted away upon my asking about their franchise association membership! It is important though, to note that there is nothing inherently wrong with the structure of franchising. It is the lack of regulation (legislative or self-regulation) that enables unscrupulous individuals to create and perpetuate scams in the name of running a franchise.

There are still options that can be used to enforce pre-franchise sale disclosures in Africa, including South Africa where some franchisors do not join the franchise association. Tying franchisors borrowing from banks to deposit the FDD with the bank’s loan office as part of the bank’s risk mitigation would weed off dishonest franchisors.

Additionally franchisees should insist on an FDD before engaging, but this is unlikely if they do not, in the first place, know of the need for one.

The days of unscrupulous franchisors who rely only on a franchise agreement to engage franchisees are numbered as we roll out the Africa Franchising Accelerator Project across Africa.

Two of our project components address disclosure, namely developing strong franchise associations and minimum franchising legislation as per the WFC guidelines-with a condition that it is illegal to conduct franchise business unless one is a member of a WFC-recognized franchise association.

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.,


We Can, We Must, We Will

Thursday May 9 2019

David Tarimo.

David Tarimo. 

By David Tarimo

Kutoa ni moyo, siyo utajiri. Generosity of heart was a consistent theme in eulogies at the late Dr Reginald Mengi’s last respects in Dar es Salaam on Tuesday with many testimonies with regard to his generous giving / philanthropic activity.

However, one of his greatest and most enduring gifts will be the inspiration and passing on of knowledge to others.

“When an old man dies, a library burns to the ground” is one of the most familiar African proverbs - at the same time symbolic of the value placed on the wisdom of experience, and also a reflection of the risk of loss of knowledge in the context of an oral tradition that at least traditionally eschewed keeping history into a formal written format.

But as with many other things Dr Mengi bucked this tradition with his compelling autobiography, I Can, I Must, I Will - The Spirit of Success (iCiMiW), and what an inspiration this book is both in terms of life lessons for individuals and policy choices for the country. Deep observations but always with great quotes interspersed and humour to boot.

Courage and vision, and a drive to always do something different and push the boundaries are consistent themes throughout the book - with real practical examples of the power of entrepreneurship allied to a strong sense of purpose.

“Entrepreneurs are simply those who understand that there is little difference between obstacle and opportunity and are able to turn both to their advantage”: Nicole Machiavelli, the Prince.

On a number of occasions when we met he would recount to me initiatives he took in the late seventies as Coopers and Lybrand Senior Partner - in particular the establishment of a consulting practice to advise the emerging parastatals - so as to ensure the survival of the practice against a background of a decimated private sector market following the move to a state controlled economy. This aspect is covered in depth in iCiMiW.

“Sometimes we must get hurt, in order to grow...we must fall, in order to know … sometimes our vision becomes clear only after our eyes are washed away with tears” is a Megz quote from an unknown author cited in iCiMiW as a particular favourite.

A pervasive theme throughout the book is the impact of the loss of his son Rodney in 2005 on his outlook to life including his attitude towards material possessions.

At a personal level I derived much comfort when with his usual generosity of spirit he reached out a few years ago when I lost my daughter and shared with me his experience and counsel based on his own experience.

“Over-complicated regulation can indeed be the disease of which it purports to be the cure…[and] the gamekeeper [could] turn poacher”: Professor Niall Ferguson. For the country, there are many interesting insights and reflections on policy issues ranging from regulation (“who regulates the regulators?”), regional integration (encouraging a move “away from dominant zero-sum mindsets and mistrusts, especially about Kenya”), agriculture (citing “the advantage of opening up to commercial agriculture”) and education (arguing for the need for debate so as to “forge a national consensus on solutions” for problems facing the education sector).

“If you can imagine it, you can achieve it; if you can dream it, you can become it”: William Arthur Ward; “to strive, to seek, to find and not to yield” Ulysses by Alfred, Lord Tennyson. Watching Liverpool’s unlikely victory over Barcelona on Tuesday night, I found myself wondering what underpinned such self belief and drive.

It would be fanciful to suggest that Jurgen Klopp got the Liverpool players to read iMiCiW over the weekend - but this type of unwavering spirit and never say die attitude sums up the late Dr Mengi.

“What counts in life is not the mere fact that we have lived, it is what difference we have made to the lives of others that will determine the significance of the life we lead”: Nelson Mandela. Fare thee well Reg, RIP.

David Tarimo is Country Senior Partner - PwC Tanzania. Other than the library proverb, the quotes cited are ones referenced in Dr Mengi’s book I Can, I Must, I Will - The Spirit of Success


Need for pre-franchise sale disclosures

Thursday May 9 2019

Wambugu Wa Gichohi

Wambugu Wa Gichohi 

The Franchise Disclosure Document (FDD) is a document that franchisors should prepare and present to prospective franchisees in the pre-franchise sale disclosure process.

It aims to protect franchisors from allegations of misleading claims and potential franchisees from franchisor misrepresentations.

It is therefore deceitful and an outright con for potential franchisors to rely only on a Franchise Agreement (the formal sales contract they quickly get from lawyers) to engage potential franchisees.

The FDD underlies the Franchise Agreement. Avoiding to prepare it is informed by utter ignorance of international best practices of franchise documentation requirements, not being bound by a Code of Ethics and Business Practices franchisors would otherwise sign upon joining a world-recognized franchise association, inexistence of laws requiring preparation and sharing, outright crookedness of aspiring franchisors or a combination of these.

The World Franchise Council (WFC)-the world apex body of franchise associations and the world-recognized body for self-regulation of the franchise sector-advocates minimum legislation to govern franchising.

In fact, WFC has a model franchise law to be used by countries wishing to regulate franchising. My advice to potential franchisees normally is; before engaging a franchisor ask if they are members of any franchise association recognized by the WFC-particularly franchisors coming into Africa where franchise-specific laws are altogether inexistent, only a few countries mention franchising in their other laws and where only a handful of (largely inactive) franchise associations exist.

The FDD originated in the United States (USA) where early business format franchising was shaped.

The International Franchise Association (IFA) of the USA is the world’s oldest franchise association and played a pivotal role in creating the WFC.

Prior to the 1978 Federal Trade Commission (FTC) Rule in the USA, franchisors could easily take advantage of gullible franchisees.

The would conceal critical information for the latter to collect franchisees’ joining fees, only for franchisees to later learn that some of these franchises were untenable.

Given the seriousness attached to pre-franchise sales disclosures in the USA under the 1978 FTC Rule, a franchisor who doesn’t disclose material facts is sued by the government (Federal or State) rather than giving private rights to franchisees to sue.

The FDD easily equates to The Prospectus prepared by a company prior to listing at a stock or securities exchange.

The two are similar in that they disclose the current and past performance of the business to enable prospective investors to make informed decisions.

They are different, however, in that in franchising, more than when listing at a stock exchange, non-disclosure is more harmful to investors-hence more critical details in the FDD. Unlike investors buying shares and other securities during an IPO who would normally invest “excess income” in a business run by managers guided by a board of directors, potential franchisees invest their “active incomes” and time to own and run franchises of another business.

Even where they borrow to acquire a franchise, it is normally a requirement that at least half the investment is in cash from own sources.

Misrepresentation can be very expensive for potential franchisees. Franchisees run franchised outlets as own businesses unlike in listed companies where shareholders wait for financial year ends to know their dividend earning status.

Franchisees pay the franchisor a joining fee plus monthly royalties and marketing fees. If material facts were concealed initially, sooner than later this will be exposed and ugly scenes will ensue.

Even with no franchise-specific or consumer protection laws and with weak franchise associations, it is important that aspiring franchisors follow international best practices on pre-franchise sale disclosure.

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.,


Tanzania’s most polluting industrial activities revealed

Thursday May 9 2019

A production plant releasing heavy smoke into

A production plant releasing heavy smoke into the air. A new report has revealed the five most polluting industrial activities in Tanzania. PHOTO | FILE 

By BusinessWeek Reporter @TheCitizenTZ

Dar es Salaam. With Tanzania’s natural resources threatened by growth of economic activities and industrialization among other reasons, a new report has identified five sectors which are described as the dirtiest that account for the largest share of pollution loads.

The industrial sectors raise concerns as Tanzania is moving on with its industrialization agenda currently under implementation.

According to a new report, leading pollutants are categorized into sectors and regions to allow priotization of measures.

The Tanzania Country Environmental Analysis which was launched early this week was prepared in partnership between the government, the World Bank and with support from the Swedish Embassy and the country’s development agency (Sida).

The five “dirtiest” sectors which lead in the overall pollution in Tanzania include basic iron and steel; plastics products; basic chemicals; vegetable and animal oils and fats; and cement, lime and plaster.

These five most polluting industrial sectors are said to account for over 90 per cent of particles that have aerodynamic diameters less than or equal to 10 microns (PM10) emissions; over 75 per cent of toxic metals; 66 per cent of sulphur dioxide(SO2) and 60 per cent of total toxic emissions.

However, they release only 10 per cent of biological oxygen demand (BOD)- a measure of organic pollution.

The plastics products sector is reported to contribute about 39 per cent of the total toxic chemicals while the basic iron and steel sector contributes about 52 per cent of the toxic metals, according to the report. Tanzania has announced to ban production and use of plastic bags effective June 1, 2019 with the aim of conserving the environment.

For air pollution, the cement, lime, and plaster sector contributes an estimated 66 per cent of the total PM10 and 34 per cent of total sulphur dioxide.

The experts say although Tanzania’s industrialization is still in its early stages, there is growing concern of increased pollution if the process is not properly managed.

“Emerging issues such as ambient air pollution, or toxic waste, or industrial pollution, can still be tackled now at a fraction of the cost of what will take to tackle them in the future. Doing the right thing today is just much cheaper than cleaning up the mess later in the future,” said the World Bank country director for Tanzania, Malawi, Burundi and Somalia.

Tanzania’s pollution-related challenges are frequently associated with urban settlements, industrialization, and agglomeration, some of which have only recently emerged.

“Preventing pollution today avoids tomorrow’s costly cleanup actions and offers opportunities for better quality of public goods such as air, water, and soil” said Veruschka Schmidt, World Bank environmental specialist and co-author of the report.

On the other hand, Dar es Salaam is reported to be the leading producer of industrial pollution accounting for about 88 per cent of all industrial pollution in Tanzania, reflecting the high concentration of industries that are located in the area.

The industrial pollution concerns come as Tanzania plans to expand processing through its industrialization drive.

Through the National Development Plan for 2016/17–2020/21, Tanzania targets expansion in the petroleum, petrochemicals, pharmaceutical, building and construction, agro and agro-processing (cotton to clothing, textiles and garment, and leather), coal, iron, and steel subsectors.

“Therefore, as the country’s industry scales up, the regulatory authorities have a good idea of its technical capacity and hardware needs to improve its monitoring and compliance activities,” states the report.

The report proposes improving pollution regulations and enforcement today describing it as an early and cost-effective government investment in preventing higher pollution loads in the medium term.

The authors say having regulations in place before new investments are made is easier than trying to get firms to retrofit at a later stage.

In the Dar es Salaam area, efforts should be focused on a ray of measures including promoting self-reporting by industries, especially those with the size and resources to do it; improving monitoring of polluting emissions, both at the source and in key areas; and promoting clean production using a variety of command and control mechanisms and well-designed incentives.

The other measure involves exploring principles of the “circular economy” through which the by-products of an industry become the inputs of another.

Facilitating access to cleaner fuels, offering solid and liquid waste collection and processing solutions, and requesting end-of-pipe technologies in cases where pollution cannot be avoided, are key to reducing industrial pollution impacts in Dar es Salaam, which is the largest settlement in the country.

In other less developed regions, the report proposes efforts should be focused on clean production technologies, and supporting new industries to adopt sound environmental performance practices and processes. Tanzania also requires the Environmental Impact Assessment (EIA) before development of projects as the country attempts to curb industrial pollution. Each industry is mandated to prepare an EIA to obtain an operating license. These EIAs analyse the possible impacts to humans and the environment, identify alternatives that are less impactful, define mitigation measures, and establish monitoring and evaluation programmes.


Banks give construction, hotels the cold shoulder

Thursday May 2 2019

Bank of Tanzania headquarters. Tanzanian banks

Bank of Tanzania headquarters. Tanzanian banks are still giving hotels, restaurants and construction the cold shoulder even as credit to the private sector is recovering. PHOTO | FILE 

By Alawi Masare @AMasare

Dar es Salaam. The loans extended by Tanzanian banks to hotels and restaurants; and building and construction sectors are still contracting as the credit to private sector is recovering.

Lending to hotels and restaurants accounts for only 3.2 per cent of the outstanding credit extended by banks to major economic activities by February this year while the share of building and construction sector was 4.2 per cent, according to the Bank of Tanzania.

Both sectors are still recording negative growth since September last year even as the credit to the private sector recovered during the last 12 months.

In the year to February this year, hotels had a growth of -4 per cent while that of building and construction was -7.7.

The hotels were increasing in the recent years, thanks to disposable income among Tanzanians and government conferences that created good business for the owners.

However, some experts say the owners had no business experience and did not survive when the government banned conferences and tightened the economy.

“When the current government came with its austerity policies, many businesses fallen and these hotels were hit hard. Their closing down resulted into bad loans among the banks which are now avoiding lending the hoteliers,” says a seasoned banker from one of big banks who preferred anonymity.

The change of wind which started in 2016 with cost-cutting measures affected many hotels in Tanzania. In 2017, several medium-sized hotels switched to student hostel services other than visitor accommodation to avoid more loss making, while key hotels in Bagamoyo, the beach and historical town had signaled loss making fears, with some closing their business.

Building and construction which covers real estate business is also still unattractive to lenders due to the experience the sector is going through.

“It should be noted that most buildings especially in Dar es Salaam are vacant following slowdown of businesses and of course the government shift to Dodoma. Most of big buildings and posh houses were rented by government, diplomats and expatriates who worked with the mining and exploration companies.

“However, recent crackdowns on foreign firms and stringent conditions for work permits have reduced the foreigners and these buildings are not generating enough. For those reasons, no bank can continue issuing loans to struggling customers,” added the banker.

As hotels and construction loans contract, the overall credit growth reached eight per cent in the year to February 2019.

“Growth of credit to the private sector has maintained a steady upward trend since May 2018 reaching 8.0 per cent in February 2019,” states the central bank.

Reports indicate that the annual growth of credit to the private sector was at 1.3 per cent in February 2018.

“The continuing recovery of credit growth reflects the sustained accommodative monetary policy stance, on-going government efforts to improve business environment and credit risk measures taken by banks, including use of credit reference system prior to loan approval,” it adds.

Personal loans which are normally used for small and medium-sized business financing is the leading economic activity which received 28.4 per cent of all loans. It’s followed by trade which accounts for 18.6 per cent and manufacturing which accounted for 11.7 per cent.

Agriculture follows at 8.1 per cent of all loans while transport and communication accounts for 6.8 per cent.

“Personal loans to banks are like bread and butter because it’s an area where there is less risks – especially for public servants. Sometimes there is huge demand from the public servants. So, it’s both the demand and the preference of banks to cover the public servants who are more trusted compared to private sector workers who sometimes face retrenchment for corporates to cope with business environment,” adds the banker.

Way forward

Economists say the lenders should look for ways to improve the credit extension for the welfare of the private sector who is perceived as the engine of the economy.

“There are two ways we can make the credit to grow. Fist by ensuring improved business environment that will facilitate growth of businesses and therefore need for credit. Secondly, Tanzanian banks should do away with business as usual in lending. They need to be pro-business through innovation and finding new areas for lending,” says Prof Delphin Rwegasira of the University of Dar es Salaam economics department.

Tanzania has over 50 banks but over 70 per cent of the market share and assets is controlled by only ten lenders.


DIGITAL TRANSFORMATION : How to build empathy with your customers

Thursday May 2 2019

Benson Mambosho

Benson Mambosho 

By Benson Mambosho

The digital age demands marketers and brands to critically think of their products or services because consumers quickly change behavior, thinking, and reasoning. Lately, they have developed emotions attached to a particular business.

Consumers are not only concerned about their well-being 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, it is a subset of a larger component, which is emotional content marketing.

Consider for instance, how a customer gets to know your business. This is the first and crucial point where it demands attention. Then the next steps would probably be; customer’s interaction customer’s purchasing decision and customer’s loyalty.

In every step, your content strategy must be built to create empathy that will connect you and your target audience.

So, how would you start mapping out areas, to begin with?

Begin with understanding your customers or audience. Dig deep by understanding what they mean to your business and what you mean to them (relevance). You can develop different profiles that will help you come up with a valid strategy. Use social media to gather consumer’s feedback, Google analytics could also help you understand their behavior and hanging out areas.

Go further by pulling out your customer relationship management data (CRM) that will show how they respond to your customer service and business entirely. Consumers keep evolving, therefore, doing research will enable you to come up with concrete and flexible content marketing ideas that connect with them. Build your story from them by talking to them through interviews, questionnaire or surveys. Let them tell you how they perceive your brand. These are powerful testimonials that collect more information that accumulates to your emotional content marketing strategy, they also serve as a unifying factor between you and your customers.

While interviewing your customers, watch out for unique keywords/phrases they say to your business such as; maybe, am not sure, I don’t know, perhaps, it’s fine, no, yes and so many others. You can also pay attention to their emotional levels that include; joy, happiness, laughter, mad, cautious, surprised, fearful and many more.

Persuasion can tough sometimes that’s why you also need influencers who will craft trustworthy stories that connect.

The best way to having your message cut across the noise out there is to build your own influencer if you are building a new brand. Look no further, empower one of your favorite fan or customer to push your message. Invite them in to discuss marketing strategy and implementation. Ultimately, this will strengthen word of mouth that will amplify your business at the same time. If you are seeking an outside influencer then don’t choose randomly. Pay attention to their ability to influence and command authority to the audience. Do intensive research before you begin implementing your influencer strategy, ask them if they understand the company’s vision, have they used your product/service?

Integrate and invite influencers in your content marketing program such as; live online sessions or brand’s events. Customers have a right to hear about your business from influencers ground, therefore, allow them to share insights of your business to them. This will only be successful if an influencer understands the business and content marketing strategy.

Success will not come overnight, that’s why it is very important to keep on reading and analyzing your customer’s behaviors throughout their purchasing journey. You can take time for a while to cement and personalize relationships with existing ones before going for new ones. Let them know you are always there and you care.


MANAGING TAX RISKS : VAT waivers not necessarily a good thing

Thursday May 2 2019

Shabu Maurus ,

Shabu Maurus ,  

By Shabu Maurus

VAT has been in Tanzania since 1998 and has been making up between 20 and 30 per cent of gross tax revenue on average. This, prima facie, seems to be a good performance. But if you measure the VAT collections to GDP and compare that metric with other VAT jurisdictions, this performance is not impressive.

Conceptually, the VAT is an “in rem” tax on domestic consumption. The word “in rem” is a Latin which literally means “against the thing”. So, an ideal VAT is in rem in the sense that it leaves out considerations of personal circumstances. It is a tax on things, not persons. You consume, you get taxed. Regardless of your status. The effectiveness of VAT system is highly affected by exemptions or exempt supplies.

The term “exempt supplies” is used in most VAT systems to describe supplies that do not bear VAT. Exempt supplies and “zero-rated supplies” are two different VAT concepts with different implications.

The World Bank’s Tanzania Economic Update publication (Issue 7 of July 2015 titled “Why Should Tanzanians Pay Taxes? The unavoidable need to finance economic development”), the author, quite convincingly, claims that “Tanzania’s performance in the area of the collection of VAT is one of the worst in the world”.

The VAT revenues are equivalent to less than three per cent of GDP. The biggest chunk of VAT collection come from imports, telecommunications, beverages, and cigarettes. This suggests that, for some reasons, many key contributors to national GDP have been left out of the VAT base (i.e. exempted).

New Zealand’s VAT (called ‘Goods and Services Tax’, or simply “GST”) is one of the best performing VAT systems in terms of collections as measured against GDP. New Zealand’s VAT model gets its prominence from the very limited exemptions. The “Tanzania PER Tax Exemptions Study” in 2013 identified the unusually wide range of exemptions and domestic zero-rating as the most distinctive feature of the Tanzanian VAT. In 2015 when the new VAT law was enacted, Tanzania managed to get away from domestic zero-rating and reduced some exemptions.

Generally, tax exemptions may be provided for several good reasons. To attract investments, to drive economic growth and job creation in general or in certain areas or sectors. To promote social service delivery and enhancing food security. Or to honor contractual or international obligations. And for practical reasons such as VAT exemptions on financial services. It is notoriously difficult to apply VAT on financial products.

Like other tax exemptions, VAT exemption is a public expenditure. Cognizant of this, the “Tanzania PER Tax Exemptions Study” proposed five criteria that must all be met for any tax exemption to be granted.

1. Consistency: The intended and real effect of an exemption must be consistent with the government’s public policy commitments and objectives.

2. Simplicity: Reasonably easy for the tax authority to manage and eligible taxpayer to understand, comply with and benefit from it.

3. Transparency: Policy objective clearly defined, needs to be legislated, and the cost of exemption assessed and periodically reported.

4. Fairness: Not discretional and has to serve public policy objectives and commitments for which the government has been elected.

5. Efficiency: Should not create undesirable economic distortions or inefficiencies and that the cost of an exemption has to be reasonable compared to real benefits to the country as a whole.

Mr Maurus is a Partner with Auditax International


DIGITAL TRENDS : Time for innovation inside out

Thursday May 2 2019

Innocent Swai

Innocent Swai 

By Innocent Swai

The digital economy has demonstrated how some brands are able to innovate. However, the biggest problem has to do with stupidity as our cultures must be broken down for better results.

For example, the idea of employees just walking out of a boring work related meeting is a dream come true to many. The term ‘idea’ used here, implies that any information that can be stored in people’s brains; not only affects their behaviour but also humanity.

Few years to come; humanity will have a permanent settlement on the Red Planet according to Elon Musk. It’s just the other week his Tesla brand; an electric vehicle (EV) maker (a.k.a technology company) announced plans to roll out an insurance product.

How come this guy, a polymath has managed to make innovation much easier by eliminating pointless bureaucracies, getting rid of outdated technologies as well as giving its top performer employees permission to take matters into their own hands? They are bypassing sacred structures, ignoring silly corporate edicts in favour of going straight to the person “doing the actual work” by hacking work!

This new concept of hacking work has to do with the type of mental attitude for empowered employees who truly want to change the way business operates. Imagine such employees hanging up tedious phone calls, avoiding jargon vocabularies and bypassing unnecessary chains of command from anywhere in the workplace! The best lesson here is that it’s not a matter of innovating for innovation’s sake, but in order to respond to unmet customer needs.

As we know, the challenge has always been to do with humanity cultural values. Even the former IBM Chairman and CEO Mr. Lou Gerstner from 1993 until 2002, in his excellent book “Who Says Elephants Can’t Dance,” said that “culture is not part of the game, it is the game.” Nevertheless, cultures always keep changing.

Hackers modify cultural ideas and sometimes the modified versions are passed to future generations. The inexplicit ideas are always hard to pass on accurately from one generation to another as there is no way to download them directly like computer algorithms. Moreover, the future of innovative business models is unknowable, because the knowledge that is going to affect it has always been enabled by emerging digital technological tools. Ever come across the new sales pitch which for Tesla EV? It claims that buying other different car models today is the equivalent of “buying a horse,” implying that they have advanced so much digitally when it comes to self-driving technology.

Just as no one in the 19th century could have foreseen the consequences of innovations made during the 20th century including new fields such as computer science and biotechnology, so the future of humanity will be shaped by knowledge that is not there yet.

We cannot even predict correctly most of the challenges that to be encounters! Furthermore, opportunities and appropriate solutions follow some known secretive business invented patterns religiously. Call it serendipity or happy encounters.

Who can predict the outcome of a phenomenon whose course can significantly affect the creation of knowledge. Most entrepreneurs walk the talk of being “innovators” and “disrupters.” They have mastered the art dealing with humanity in a truly world-shaking ways in compelling ways.


YOUR BUSINESS IS OUR BUSINESS : Overly-strict land laws create squatters …

Thursday May 2 2019


By Karl Lyimo

Usually, land matters are governed by statute. In Tanzania, one of the most pronounced statutes is the Land Act (Parliamentary Act No. 4/1999), assented to by President Benjamin Mkapa on May 15, 1999.

Other than the ‘Village Land Act’ (No. 5/1999) Land Act No. 4/1999 is the basic law on land other than ‘village land’ matters!

The Land Act statutorily provides for “the management of land, settlement of disputes and related matters” – including “vesting all land in the President as Trustee” (S.4).

Other intriguing Sections are on ‘Conditions on Right of Occupancy, including length of term of Right of Occupancy, and payment of premium on grant of Right of Occupancy.’(S.31); ‘Corrupt transactions...’ (S.178); ‘the Act to bind Government’ (S.186), and ‘the Act to be translated into ki-Swahili’ (S.185)...

I’ve gone to relatively great lengths here to highlight the need to revisit the land legislation in general – and, in particular, its provisions relating to land title deed procedures, charges and other shortcomings.

Look at it this way…

On April 17, 2019, the minister for Land, Housing and Urban Settlements Development, Mr. William Lukuvi, announced from the rooftops – pardon the exaggeration – that he had directed reduction of land formalization charges from Sh250,000 to Sh150,000.

This, he said, is to enable more Tanzanians to formalize ownership of the land they own/occupy… [See ‘Land Fees down to Sh150,000;’ The Citizen, April 18, 2019].

Nearly a year ago, the very same minister reduced the fee from Sh300,000 to Sh250,000, effective on July 1, 2018 – with the same noble objective: ‘huruma/unafuu kwa wanyonge.’ Clearly, that never worked; hence this further reduction…

Fees reduction ad infinitum, ad nauseam may not work. This is if only because there are a bazillion other charges which must still be paid to formalize land ownership – and which most Tanzanians cannot afford.

Glad to say, The Citizen dwelt on this beautifully in its editorial of Sunday, April 21, 2019, titled ‘Revisit land title deed procedures and charges…’

The Citizen augustly cited as an example a bill for Sh2,737,486 raised by the Kinondoni Municipality Land Office [] as “transaction fees for the grant of right of occupancy for a 379sq.metre plot of land.”

That whopping sum included Sh2,653,000 as ‘premium’ for the transaction! In this context, a premium is “a sum added to an ordinary price or charge.”

Why would the government add charges to ‘ordinary’ charges,” pray?

Well, ‘premiums’ are provided for in S.31 of Land Act 4/1999.

But, while such high premiums may be affordable by flourishing businesses, well-positioned government ministers and politicians, ordinary Tanzanians cannot afford them to formalize their residential plots.

Minister Lukuvi provides an alternative: 5-year land licences at Sh5,000 a throw! Surely, this encourages/creates more squatters rather than respectable homeowners?

By definition, ‘squatters’ are persons who unlawfully occupy uninhabited buildings or unused land. They do this out of necessity, usually for lack of the requisite resources with which to finance formalized land allocations.

Surely, it’s not the intention of the President John Magufuli Administration to turn otherwise self-respecting ordinary/poor Tanzanians into squatters in their motherland?

Lands Minister Lukuvi should seriously consider exempting ‘premiums’ on homesteaders who acquired their land before Land Act No.4/1999 became oppressively operative. Tears!



Funds: Distinguishing the good from the bad

Thursday May 2 2019

Entrepreneurs at work. PHOTO | THE CONVERSATION

Entrepreneurs at work. PHOTO | THE CONVERSATION 

By Aubrey Hruby @TheCitizenTz

Entrepreneurs have a pivotal role to play in Africa’s unemployment crisis. Today over a third of the continent’s young workforce (those aged 15-35) are unemployed.

Another third are in vulnerable employment. By 2035, Africa will contribute more people to the workforce each year than the rest of the world combined. By 2050 it will be home to 1.25 billion people working aged.

To absorb these new entrants, Africa needs to create over 18 million new jobs each year. Governments need to put in place policies that drive economic growth and competitiveness. These in turn, will enable the growth of small and medium-sized enterprises (SMEs).

This is important because they currently play a significant role in low-income countries, representing nearly 80 per cent of jobs. They are also responsible for 90 per cent of new ones created each year.

The challenge for countries is how to support the growth of SMEs. Various African governments have experimented with ways to help address the US$140 billion funding gap for startups and SMEs. For example, one approach has been to set up entrepreneurship funds.

Based on my experience of watching their performance over the past 18 years, I would issue some words of caution. Some entrepreneurship support models work better than others. And how they are set up – particularly the governance structures put in place to manage them – is key to their success, or failure.

Funding gap

Access to financing is consistently listed as the biggest obstacle to business for SME’s in African countries. They often face double digit interest rates from local banks. And venture capital penetration is still extremely low. Top end 2018 estimates put it at about $725 million for the whole continent.

To tackle the problem, African countries continue to start new entrepreneurship funds. In July 2017 Ghana launched the National Entrepreneurship and Innovation Plan. The aim is to provide integrated national support for start-ups and small businesses.

Almost a year later, Rwanda secured a $30 million loan from the African Development Bank for the establishment of the Rwandan Innovation Fund. This will focus on investments in tech-enabled SMEs.

As new funds are started, African countries must look to the successes and failures of both global and regional funds to replicate best practices and avoid common pitfalls. African governments should explore replicating models similar to Small Enterprise Assistance Funds and the USAID backed enterprise funds. Both include robust investment selection criteria for funds.

In doing so, African government-backed entrepreneurship funds would operate as fund-of-funds – where a fund invests in another private equity or venture fund rather than directly in businesses themselves – as do many development finance institutions globally such as the UK’s CDC or FMO of the Netherlands.

The what and the how

The fund of funds structure creates an arm’s length relationship between the government agency that houses the entrepreneurship fund and the businesses that eventually receive investment. In between, sits a professional fund manager that earns the majority of its income from making good investments, growing companies and exiting them after a period of five to seven years. In this way, there are natural disincentives for corruption and market-based selection criteria for the entrepreneurs who receive investment.

How the fund managers are selected also matters. To ensure true investment independence from the government, fund managers and board members must be chosen in a transparent and competitive process. And once selected, representatives of the government entrepreneurship fund agency can sit on the investment committee for oversight purposes but should respect the fund managers’ independent decision-making.

There are examples of funds being set up without the necessary independent, accountable fund managers. One is the YouWin program in Nigeria. Created in 2016, it was set up to help youth entrepreneurs grow businesses. But senior civil servants handed out awards to friends and relatives.

Government supported fund managers through the FoF model can also catalyse additional investment. By operating in markets and sectors often ignored by traditional private equity funds, Small Enterprise Assistance Funds and enterprise funds have mobilized additional capital for investment-starved companies. African government-backed entrepreneurship funds could do the same by participating in blended finance deals with development finance institutions, social-impact investment funds, local banks and other market players to back growing firms.

Measuring success

While not actively managing the funds’ portfolio investments, governments have a key role to play in guiding the funds priorities. Priorities may vary by country and given Africa’s growing rates of unemployment, funds should prioritise job creation by evaluating investment on key performance indicators. These would include the number of jobs created per dollar invested, indirect jobs created per dollar invested, and average salary of job. In addition to job creation, governments can direct funds to focus on specific sectors either in need of increased capital or high-growth areas in local economies.

Beyond establishing investment criteria, government-backed funds should prioritise rigorous measurement of investment results and long-term data tracking to inform future investment decisions.


FRANCHISE : Non-disclosure agreement

Thursday May 2 2019

Wambugu Wa Gichohi

Wambugu Wa Gichohi 

By Wambugu Wa Gichohi

A number of documents are needed to protect your franchise system and offer your now-perfected and proven franchise opportunity to prospective franchisees. Some may be collapsed into the Franchise Agreement which, wrongly, is the first and only port of call for many first-time franchisors who think they can franchise quickly-without adequate understanding of the franchising process.

In the franchise system development process, you will have prepared at least one of these documents, but before you can share it a few others precede it.

First you need to prepare a Non-Disclosure Agreement, hereinafter referred to as NDA. Under international and most local laws, you hold undisputed rights (copyrights) to the franchise system that you develop and document, even without registering it with authorities.

In the course of attracting, recruiting, selecting and starting off the relationship with potential franchisees, a lot of information will flow both ways. Before giving any sort of information about the franchise opportunity beyond the general information you would have given during the call for interest, an NDA is needed to protect this information.

But how do you tell who to sign an NDA with among all the responses you receive after advertising for potential franchisees? Normally the trigger is a Letter of Confirmed Interest that potential franchisees write in response for your call.

Ideally, this letter sieves off jokers from those seriously seeking to achieve their personal and financial goals through your franchise system.

The main components of an expertly prepared NDA for this purpose would include, as a minimum, the following sections. You will, undoubtedly, need a franchise attorney to prepare it. First, Introduction, where the parties and the business opportunity are identified.

Second, Interpretations, setting a common understanding of the terms used in the document. Third, Undertakings. Here you define, among others, the kind of information that would be considered confidential and set out commitments to protect the identified confidential information and to only use it for its intended purpose.

Also, commitments not to copy or reproduce the confidential information without written authority of the disclosing party and to return (without keeping a copy), destroy or otherwise dispose of any confidential information as may be required by the disclosing party.

Finally, commitments not to disclose to anyone the existence, nature or content of any discussions and negotiations regarding the franchise transaction. The undertakings section is particularly important because all the information disclosed to franchisees by the franchisor aims only to enable the former to operate their franchised units and at the end of the franchise period, the franchisee shouldn’t have any further access to this information.

The forth section deals with Exceptions, defining certain types of information exempted from being considered confidential. Such would include information which existing laws might require parties to disclose to the authorities.

Fifth is the Duration of the NDA, which ideally should be at least double the franchise period. Sixth, are Remedies of Breach, detailing the penalties applicable to the party in breach while seventh is the legal jurisdiction of the agreement and dispute resolution procedures. Finally, some General covenants to guide the NDA are defined, including parties’ addresses and how to treat notice dispatches.

Questions have been asked about the ability of African judicial systems to effectively enforce NDAs. The answer is that like every other agreement, an NDA is as good as the parties therein and the identified dispute resolution procedures.

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.,


Important lessons from years of equity markets

Thursday May 2 2019


By Moremi Marwa

Credit Suisse recently published their eleventh edition report dubbed the 2019 Global Investment Returns Yearbook: 119 years of financial history and analysis.

The report covers 23 national stocks and bonds markets and almost all financial products, from stocks, bonds, currencies, and indexes that trade in these markets.

Countries and markets covered in the report represented 98 percent of the global equity markets in 1900, but still represent 90 per cent of the investable universe as at the start of 2019 – some closely reflecting what is being said in the book of Ecclesiastes 1:10 -- Is there anything whereof it may be said, see this is new? It was here already, long time ago. So, here are some of the highlights from the 119 years:

At the beginning of the 20th Century in 1900, the UK equity market was the largest in the world accounting for about 25 per cent of the world market capitalization, followed by the US (15 per cent), Germany (13 per cent), followed by France, Russia and Austria-Hungary. This hasn’t changed significantly – 119 years later, the US market is now dominating, accounting for 53 per cent of the total world equity market value. Japan (8.4 per cent) and the UK (5.5 per cent).

Then there are some shifts in sectoral concentration in the equity market, but not so stunning. Markets that started in the beginning of the 20th Century were dominated by railroads, which accounted for 63 per cent of the US stock market value and almost 50 per cent of the UK value.

Over a century later, railroads have declined almost to the point of extinction in the stock markets listed securities market cap, representing under one percent of the US markets and close to zero of the UK stock markets.

It may be interesting to note that, although railroads stocks have declined reflecting the decline in the industry itself, but railroad stocks performance beat the overall market performance and indices in the US market.

In fact, railroads stocks outperformed both trucking and airlines since these industries emerged in the 1920s and 1930s.

Learning from this, could we finance then, Ok, there is nothing new – should we our SGR and other railroads projects by issuing stocks or infrastructure bonds to the DSE?, or would we be going to the US and UK of the 1900s? Anyways, if we decide otherwise, at least we know this is how history records the financing of railroads whose demand by those countries in the 1900s may be similar to our current case.

Another interesting set of facts presented by the Suisse Report which show the similarities between 1900 and 2019 are: the banking and insurance sectors, which wer important then, continue to be important now.

Industries such as beverages (including alcoholic beverages), tobacco, utilities were largely present in the early 1900s and still survive today, as they continue to be among the top sectors represented in stock markets.

In our case, we have only seven listed banks (out of more than 55), no insurance listed company, only one alcohol beverage, only one cigarette company listed – again no insurance company, no soft drinks company, no utilities company among the listed securities at the Dar es Salaam Stock Exchange.

Isn’t it odd! Why is this the case at this time and age -- with globalization, free enterprising, free markets, broad access to commonly shared prospects via common ownerships, over a century of experience and learning that we could easily be leapfrogged, why are such companies outside of the stock market space?

In the UK, quoted mining companies were important in 1900 just as they are in the London Stock Exchange today.

Out of the many mining companies operating in our local environment because of our endowment, and they are very important to us today, but unfortunately none of them is listed in the Dar es Salaam Stock Exchange to form part of the domestic equities and domestic market capitalization.

Are we such backward in this perspective to the point of being not closer to the UK and US of the 1900s? – what is the meaning of learning, what about the idea of inclusive growth and citizens economic empowerment?

Deflecting a little from Ecclesiastes, it is similarly interesting to note that of the US listed companies in 1900, over 80 per cent of their value was in industries that are today too small or are extinct altogether. The same situation applies for the UK, for the rate is 65 per cent. Other industries that have declined significantly over this period include textiles, iron, coal and steel.

Now, as we pursue these industries, in 2019, should we understand that same industries controlled significant value of listed firms and market capitalization for stock markets in the UK and US in 1900, that citizens in those countries owned companies in these industries and benefited from their common ownerships via the stock market?

However, it is equally true that a high proportion of today’s equity raising and listed companies come from industries that were small or non-existent in 1900; actually, it is 62 per cent by value for the US and 47 per cent for the UK – what prohibits us from pursuing industries such as those in ICT, sciences, etc?

All in all, the value of the Credit Suisse report isn’t some sort of a roadmap of investment returns expectations and opportunities. It instead gives us a better sense of where the equity market has come from and its evolving in these past 119 years.

We also should be mindful to the fact that a lot has happened during this period – two world wars, several recessions and financial crises, reshuffling in the global equity, financial markets and economies. If we only could reflect, learn and assimilate – so Ecclesiastes 1:10 implies.


Why is there a low uptake of private equity deals in Tanzania?

Thursday May 2 2019


By Salum Awadh

Tanzania is among the fastest growing economies in Africa, with an average growth of six per cent over the past 10 years. This provides stable macroeconomic conditions for predictable returns, plus low inflation currently at a single digit, ensuring better returns for investors.

Tanzania has the largest population size in the region, strong political stability, and rich in natural resources. All these provide massive investment opportunities, with some sectors offering as high as 30 per cent ROI.

Despite all such potentials, access to finance has remained to be the major obstacle for starting and growing businesses in Tanzania, with no adequate financing options in the market, apart from banks, the availability of above investment potentials remain untapped, or partially extracted. Private equity investors have also not aggressively tapped into market and support the growth of SMEs that can give multiples.

Tanzania accounts for less than 18 per cent of all PE investments coming into the region, but why has the uptake been that low?

Size of the deals

PE/VC investors tend to look at the investment opportunities that match their size outlook. With many VCs looking at deals from USD 5m, and few below that, majority of SMEs tend to be small, with majority of valuations hitting below the threshold. This calls for the need to support the local SMEs to achieve scalability, and necessary growth potential that can attract VCs.

Unwilling to let go

Most of businesses in Tanzania are family-owned, and owners prefer to retain and transfer ownership within the family circles. They, resultantly, not in favour of being receptive of VC/PE money that come with dilution. Most of them would rather take expensive and short-term commercial debts over potential PE investors who can give risky and patient capital. This needs to change and family-owned businesses need to understand that VCs don’t just bring in money, they also bring in expertise and experience necessary for growing a business.

Low compliance to best practices

Majority of SMEs are not run in the compliance with the best practices, from acceptable internal controls to agreed levels of corporate governance.

Most business owners start businesses but fail to institute professional conduct, corporate governance, and some even remain non-compliant to the country’s legal and regulatory framework.

All these make the businesses less attractive as most of them are not ready to open up and run transparent and accountable businesses. This calls for building businesses that have the right structures, internal controls, and compliant to the country’s laws and regulations. This is important to grow a responsible business, even if the intention is not to attract PE money. This is simply a good practice for any business

Fear of unknown

Private equity is still a foreign concept to majority of SMEs in Tanzania, some have misconceptions and others do not have the total understanding on how private equity works. Some fear that when PE investors come in, will push them out of their businesses, which of course has happened in some cases when the founder fails to steer the company to the right direction.

As a result, these and other factors not mentioned above create a limited deal flow in the market.

It is important for all key stakeholders to work together in building and supporting our local SMEs to understand better how to start and build better businesses with best practices.

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


Coffee production forecast to drop by 23pc over poor rains

Thursday April 25 2019


By Gadiosa Lamtey @gadiosa2

Dar es Salaam. Coffee production is projected to decline by 23.7 per cent in the 2019/20 season on delayed rainfall in northern regions.

The Tanzania Coffee Board (TCB) states in its update that the production may decline to 50,000 tonnes from 65,527.7 tonnes in 2018/19.

In 2018, coffee generated $139.9 million and was the third after cashew nuts and tobacco in forex earnings, according to the Bank of Tanzania.

Japan is the leading importer of Tanzania’s coffee, the board shows.

The decline in productivity is caused by a number of factors including low applications of fertilisers and poor investment, according to TCB acting director general Primus Kimaryo.

He urged municipalities to invest in coffee to increase incomes as well as production.

The Tanzania Coffee Industry Development strategy 2011-21 aims at increasing production to 100,000 tonnes annually.

It is expected to bring additional revenues of at least $223 million a year through export earnings

He urged farmers to increase productivity and strengthen relationships between manufacturers and consumers.

During the 10th stakeholders meeting early this month in Dodoma, stakeholders gave recommendations on improving production.

They included having all coffee growers registered by the board by June 2019.

The Tanzania Agricultural Development Bank was advised to lend funds to farmers through their cooperatives at affordable terms.

In addition, financial institutions should come up with a strategy on how to support the coffee production and marketing from small-scale farmers.

A large amount of coffee should be sold in direct markets through forward sale system. That means agreements will be entered into between buyers and cooperatives under the government management.

TCB, Tanzania Coffee Research Institute and the government should develop short- and long-term strategies to increase productivity and quality of coffee products.

The government should closely follow up and manage the availability and quality of coffee inputs.

The head of agriculture and rural finance at the Financial Sector Deepening Trust, Mr Mwombeki Baregu, told BusinessWeek recently at the 24th Repoa Annual General Workshop that Tanzanians should stop blaming the government for not investing in coffee.

“We need now to come up with a new idea of bringing together other financiers and capital stakeholders who can boost the crop, which is potential for generating income to farmers and the government revenue,” he said.

According to Mr Baregu, Tanzania can produce up to 150,000 tonnes of coffee annually if other all stakeholders are involved.

Prof David Mhando, of Sokoine University of Agriculture who conducted a research titled ‘Unlocking Institutional Constraints to Increasing Coffee Production in Tanzania’, said the government was not investing enough in the crop production.

Prof Mhando said preliminary findings on coffee research showed that the government was not investing adequately as there were a shortage of extension officers and supply of hybrid seeds, causing low production.