Start-up nation: What is it that Tanzania isn’t doing right?

Thursday January 21 2021
Tanzania pic
By Charles Makakala

Sometime ago, two guys from the West landed in Dar es salaam. It was a long journey from their nation, and they had not been in Tanzania before – but they had a particularly important mission to accomplish, one which would have made them spend a lot of money here.

Upon arrival, they were received by a team of three Tanzanians. I had met these guys before, and if you haven’t met people in life who made you realise that the best thing you can do in their presence is to be silent, take a notebook and learn, these are such people. Amazingly brilliant fellows.

Together, they leased a charter plane which took them into some region out there. Their mission – to acquire a certain multimillion-dollar business which had gone under sometime in the past.

The business was incredibly promising, but for a number of reasons it didn’t take off well, leading to one bank seizing its assets. Hundreds lost their jobs. For several years, millions of dollars’ worth of assets remained non-productive while dozens of people were being paid for security, waiting for someone willing to purchase the business.

The Tanzanian guys had managed to woo the investors to take interest. And they were genuinely interested – they spent almost Sh200 million just to be sure that things were the way their partners in Tanzania had told them they are. They were completely sold on the idea – and the deal was that a significant portion of the business was to be given to the Tanzanian team for their troubles. The amount to be invested was tens of millions of dollars!


Like clockwork

Everything was going like clockwork – till the deal needed some government officials’ approval. Not a big challenge – these guys had access to people in exalted offices, but one month, nothing happened. Two months, nothing happened. Three months, nothing happened.

Then they received news that they were required to surrender a sizable percentage of the new company’s shares if they want anything to happen. Desperate for the deal to go through, they were ready to consider that. The problem was that the percentage of shares that they were asked to surrender was quite significant that it would have made no sense for them and their investors. It was effectively a no by other means.

Many months later, the deal is still in limbo. The investors are disappointed and the CEO of the Tanzanian group – let’s call it Pamoja Investments – is frustrated because he was on the verge of achieving something special through his team’s ingenuity, and now he has little he can do to change the situation. When I met him the other day, he was contemplating quitting the business and going back to employment!

Companies like Pamoja Investments and its investors don’t appear on the scene every day. Yet, despite their exceptional work and resources, even though the revival of the business would have contributed millions of dollars to the economy every year, what was to be the most common-sensical thing to happen didn’t happen.

If common sense is not common, it appears to be even rarer in these here parts.

Speaking about the United States, the economist Carl Schramm, a specialist in Entrepreneurial Economics, said for a nation to succeed and prosper economically in today’s world, entrepreneurship must be a central comparative advantage. Nothing else can give it the necessary leverage.

There are nations which have taken that mantle properly, and Israel is one of them. It is generally considered ‘the most dynamic entrepreneurial economy’ in the world where, according to Start-up nation: The Story of Israel’s Economic Miracle, almost half of the world’s top technology companies have bought start-ups or opened research and development centres in Israel.

While Israel appears to be the king of global start-ups business, in East Africa, Kenya rules. Think of factors such as internet penetration, mobile money usage, time spent on the internet, per capita investments, FDIs, innovation ranking, etc., it is still on top. But I think there is one indicator which is very revealing in this regard – the number of technology hubs, incubators and accelerators in a nation.

This is a great indicator of the availability of venture funds, innovativeness of the communities, quality of human capital, involvement of corporates and youths in business, and Kenya has 48 tech hubs to Tanzania’s 17. That says a lot.

What this means in practice is that investors are flocking to Kenya to tap onto the talent that is developing there. Therefore, you have the likes of Microsoft, Google, Cisco, IBM, Coca-Cola, Bharti Airtel, Blackberry, Huawei, World Bank, and IMF setting up camps in Kenya as a regional technology and commercial hub and not in Tanzania. They prefer to do business from Kenya rather than Tanzania.

Number 141

Nothing mysterious there. While Kenya ranks number 56 in the World Bank’s Ease of Doing Business 2020 report, ahead of Italy and Mexico, Tanzania ranks at number 141, behind Zimbabwe and Mozambique!

‘Freedom,’ the philosopher John Locke wrote, ‘(is man’s) liberty to dispose, and order, as he lists, his person, actions, possessions, and his whole property, within the allowance of those laws under which he is; and therein not to be subject to the arbitrary will of another.’

Respect to private property must be sacrosanct for the development of entrepreneurial economies. When entrepreneurs are subject to arbitrary decisions of the officials, you can be certain that growth will be limited.