Magufuli’s directives hit capital markets

Monday April 3 2017

Brokers at the Dar es Salaam Stock Exchange. PHOTO | FILE

Brokers at the Dar es Salaam Stock Exchange. PHOTO | FILE 

By Allan Olingo, Asterius Banzi and Joseph Mwamunyange

Tanzanian President John Magufuli’s leadership style has unnerved investors, with weekly turnover at the Dar es salaam Securities Exchange dipping by more than 95 per cent in the past two weeks.

Turnover fell to $813,128 last week, from $1.43 million the previous week; itself 90 per cent down from $14 million a week earlier.

The sharp fall came on the back of a ban on export of copper and gold concentrates, which the president wants processed locally in order to create jobs and earn the country more in foreign exchange.

Financial experts say local investors have been selling their stocks to accumulate funds for investing in the ongoing Vodacom IPO.

“Since Vodacom floated 25 per cent shares to the public, investors have been focusing on buying stocks from the telco although the growth of our economy has slowed down a bit lately,” said Lina Maswi, operations officer with Tanzania Securities Ltd.


Vodacom’s initial public offering opened on March 9 and will close on April 19. The company is issuing 560 million shares to the public at the price of Tsh850 per share.

Analysts expect business to continue being slow on the DSE until then, but it could be stimulated by announcement of dividends by most companies this month. 

“This is not a permanent situation on the DSE. We expect shares to rise by the end of this month as companies reach their financial year and thus announce their dividends. Investors tend to buy more shares during that time,” said Ms Maswi.

On March 28, President Magufuli ordered the Controller and Auditor General to undertake a special audit of mining companies to determine if they pay their fair share of taxes, an extension of the protracted war with Acacia Mining over its tax compliance.

He later set up a special committee to determine the yield of minerals that would be derived from concentrates, in order to determine whether the mining companies declare their income on minerals appropriately.

ACT Wazalendo leader Zitto Kabwe, who was a member of the Bomani Committee, a special team, tasked with reviewing the mining sector said that all issues related to the concentrate were recommended by the committee report and included in the mining policy but were not implemented.

“I support the idea that we must set up our own smelter in Tanzania instead of exporting gold and copper concentrates to Japan and China. But it is important for such a decision to be backed by scientific evidence instead of President Magufuli’s directives, whose impact is adverse to the country,” Mr Kabwe said. Some 277 containers of concentrates have piled up at the Dar es Salaam port since the export ban was issued.

Since the tax tiff began early in the year, Acacia mining has become one of the top losers, shedding 8 per cent of its stock value at the DSE.

 “The government wants to verify if the relevant taxes are actually being paid. It doesn’t sink into my mind that there are no drugs in the hospital while investors are exporting gold; it is impossible that there is no water for Tanzanians while the country is blessed with abundant natural resources; Tanzanians should benefit from their natural resources,” said President Magufuli. Since he assumed office 18 months ago, President Magufuli has taken measures that have included sealing tax loopholes and reducing wasteful spending by restricting the government agencies.

Late last year, his actions led to a mop up of $220 million from commercial banks, which almost led to a liquidity crisis.

Mark Bohlund, the sub-Saharan Africa and Middle East economist for Bloomberg Intelligence said non-performing loans have impact on credit growth in Tanzania and could impair economic growth.

“To maintain its economic growth rate over the longer term, the country will have to become more competitive and open to foreign investment to attract much-needed capital and expertise. If not, low productivity is likely to hold back Tanzania’s economic growth,” Mr Bohlund said.

Last week, Tanzania’s central bank cut the minimum reserve ratio required of commercial lenders to 8 per cent from 10 per cent, effective April 20, an easing measure that is aimed at stimulating economic growth in line with the International Monetary Fund recommendations.

Early this year, the IMF warned that Tanzania’s economic policies threaten its forecast for growth in fiscal year 2016/17 of around 7 per cent, based on investor sentiments.
In November last year, Reuters reported that some of Tanzania’s biggest foreign investors in mining, telecoms and shipping had hinted at scaling down their operations, halting expansion plans, and even exiting because of tougher regulatory demands.

However, Adolf Mkenda, Permanent Secretary in the Ministry of Industry, Trade and Investment, said that the new government’s directives, especially touching on taxation issues were aimed at creating a fair environment for all businesses.
“We are just making sure everyone pays what they should. It is natural for businesses to feel unsettled during periods of change,” Mr Mkenda said.