Editorial
Analysis
The log saga continues
The log business in Tanzania got tainted last year when dealers contravened
regulations laid down, including harvesting tree species not classified in the
dealers’
licenses.
In response, the government nullified all log business licenses except for the
log
species that were allowed in accordance with the Forestry Act.
The majority of the log business in the coast areas was carried out mainly in
Coast
Region while in the northern part of Tanzania the business was carried out
mainly in
Tanga Region.
Recently, a local daily paper reported that officials in the Ministry of Natural
Resources and Tourism appear to have been involved in harvesting and
transporting
logs without proper authorization.
Following the allegations, ten wagons belonging to TAZARA were found loaded with
about 40 cubic metres of logs worth Tsh. 80 million at Kidunda TAZARA station in
Kisarawe District, Coast Region.
The logs were part of a consignment which could not be sold by auction last year
following the government’s ban on the harvesting of logs.
The logs were of different species including baphia kirkii (mkuruti) and
comsertum
schubmanii (mpera pori). The consignment is alleged to have been loaded in the
TAZARA wagons by some ministry officials in collaboration with Tanzanian traders
of
Asian origin.
Our concern here is, since the unearthing of the illegal log trade last year,
there
seems to have been plenty of loopholes.
Our concern grows even more after reading media reports alleging that ministry
officials are involved in the business. Time has come for the ministry to break
the
silence and speak out on the logs impounded at Kidunda.
We hope that such a move would alert the government so that lasting solutions
for
this problem can be sought. Let the illegal log scam now come to an end and let
stern
action against those ministry officials involved be taken.
The China syndrome
You cannot get much more patriotic than the American president’s taxi. Pretty
soon
George Bush will be ferried around not in an all-American Sikorsky helicopter,
but in
a new Agusta US101. The new presidential choppers will be assembled in America
by
Lockheed Martin, but they are basically a product developed by an arm of
Finmeccanica, a state-owned Italian defence conglomerate. Given Italy’s support
for
the Iraq invasion, the country is evidently being forgiven for being European.
The
contract, worth just over US $6 billion, was announced by the US Navy at the end
of
last week.
The deal caused a predictable flurry of protest in Congress, long used to pork
being
dealt out to purely domestic defence contractors. Europeans should have been
cock-a-hoop, given that EADS (European Aeronautic Defence and Space company) is
in the running to supply some of the 500 or so air-refuelling tankers that the
Americans will soon need.
But the real reason why Airbus, a subsidiary of EADS, in collaboration with
either
Lockheed Martin or Northrop Grumman (talks are under way with both), will get a
slice of the lucrative tanker contracts once they eventually come along is that
the US
Air Force cannot risk having its entire fleet of tankers of one aircraft type.
If a
technical fault were to emerge, the world’s policeman would be grounded. The
existing fleet consists of converted civil jets made by Boeing, McDonnell
Douglas and
Lockheed. Lockheed is out of the civil-jet business and McDonnell has been
absorbed
into Boeing. The only alternative supplier is Airbus.
But all such logic is threatened by the political uproar that is sure to come
when the
European Union lifts its sanctions against selling arms to China.
So the French rush to get into the Chinese defence market could stymie European
ambitions in America.
The incoming co-chief executive of EADS, Noel Forgeard (the man behind Airbus’s
recent success), is set on buying Thales, a French defence firm with a big
presence in
Britain, to turn EADS into a full-range defence contractor to rival BAE.
Mr Forgeard is a wily character who got the top job at EADS with the help of the
French president (his former boss, when he was a civil servant) and without the
full
board being consulted, according to company sources. Having run rings round
Boeing, he is perfectly capable of stitching up BAE by limiting its American
ambitions,
even if EADS itself suffers some collateral damage. If lifting the Chinese
embargo
stops BAE continuing as an Atlantic bridge, will it opt to join Fortress Europe,
or
instead become 100 per cent American?
Analysis
Listed
securities are great but do we know enough?
The country’s history has made many
Tanzanians unaware of the opportunities
available in capital markets. Few know about the gains to be made through
investment in listed securities. Timothy Kitundu explores the options and
discovers why attracting potential investors are crucial.
For more than three decades, Tanzanians were living in the ‘Ujamaa era’ which
made most of us unaware of or gained very little knowledge on shares, the stock
exchange and capital markets in general.
This resulted in little investment in capital markets and its potentials
remained
unexploited.
Also, companies referred to as public companies were in fact those owned by the
government and referring to them as statutory companies would have been more
correct.
The history of the Dar es Salaam Stock Exchange (DSE) dates back to the early
1990s
when the government enacted the Capital Markets and Securites Act of 1994.
The act also facilitated the establishment of the Capital Markets and Securities
Authority (CMSA), which is a government agency under the Ministry of Finance,
charged with the responsibilities to regulate the securities industry in
Tanzania.
At the time of establishing the authority in 1994 CMSA was given a number of
duties,
including the establishment of the DSE, which is the secondary market for
capital
market instruments in Tanzania.
In a more expansive aspect, the instruments of capital markets are shares (both
ordinary and preference) and bonds (which include treasury, municipal and
corporate). Capital markets are therefore markets for the mentioned instruments
whose lifetime exceeds one year.
Some explanations about the terminology could be helpful. A stock exchange is a
market where large and small investors can buy and sell securities (shares,
bonds
etc.). This market is referred to as the secondary market under the category of
capital
markets.
In capital markets, the primary market is a financial market in which new issues
of
securities are sold to initial buyers for the first time, commonly referred to
as Initial
Public Offers (IPOs). An example is when a company floats its shares or sells
its
corporate bonds to the public for the first time.
A stock exchange is therefore a secondary market, also referred to as a
financial
market which deals with buying and selling of securities previously issued (in
the
hands of investors) in a primary market.
DSE is a market where investors, through their brokers, sell and purchase listed
securities. There are also two types of secondary markets for securities:
organized
stock markets and over-the-counter (OTC) markets.
Under organized stock markets, trading of securities is done under formal
establishment structures, rules, procedures and a set of standards. In this
case, the
DSE is an example of an organized stock market. This is an advantage for those
who
invest at the DSE or any other organized markets around the world.
While stock exchanges are organized markets, OTC markets are not organized in
the
sense of having buildings where trading takes place, instead, trading occurs
over the
phones or other communication means.
In Tanzania, trading of shares like those of CRDB Bank, Akiba Commercial Bank,
DSM
Community Bank etc. takes place in the OTC market.
The DSE as a stock exchange adds value to those who invest there owing to the
fact
that it is a Self Regulatory Organization (SRO) performing the duty of ensuring
that
every listed company complies with all requirements which pave the way to an
advantageous and sound investment environment.
One of these requirements is that all listed companies are required to disclose
any
material fact to the public which will assist them in making informed decisions.
This is
the continuous disclosure requirement. All listed companies are required to
comply
with this rule.
The existence of these rules as well as other requirements ensure an orderly
market
practice, adequate transparency and equal and fair availability of information
to the
investing public which does not discriminate any of the investors.
The rule attempts to eliminate inside dealing, which is an offence under the
Capital
markets and Securities Act, 1994 (as amended).
The rule also assists in ensuring that a certain group of investors is not
favoured in
their dealings due to privileged information and therefore benefit from this
information which is not publicly available at the expense of others.
Apart from the above advantages and benefits, investing in capital markets such
as
stock exchanges (listed securities) has a number of incentives. So far the
government
has approved the following incentives to those who participate in investing in
listed
securities:
Withholding tax on dividends: investors in listed securities will pay five per
cent
withholding tax on dividends earned as opposed to a tax rate of 12.5 per cent
for
investors in non-listed shares. If the investor is a foreigner or local and
holds 20 per
cent of the shares in a listed company they will pay zero withholding tax.
Withholding tax on interest on bonds: Interest on listed bonds payable is
exempted
from withholding tax as in the case of government bonds. For non-listed
corporate
bonds the withholding tax rate of 12.5 per cent and charged on interest earned.
Stamp duty on transfer of shares: To legalise any transfer document (chattels,
shares
etc.) a stamp has to be affixed to the transfer forms. That is stamp duty which
is
charged at the rate of 0.96 per cent or a minimum of Tsh. 1,000. The government
has
fully exempted the payment of such stamp duty to investors who invest in listed
securities.
Capital gain tax: This kind of tax at the rate of 10 to 40 per cent is charged
upon sale
of an asset on the appreciation value over the costs incurred on it. The
government
has approved the exemption and any surplus earned on the sale of listed shares
is
fully exempted.
Experts have argued that because the capital market industry in Tanzania is at
its
infancy, there is a need for the public to be educated and sensitized so as to
invest in
listed securities.
In due course, this will develop the capital market and the country will have a
stock
exchange which is active and liquid; consequently more investors are needed.
Deliberate measures to attract potential investors as well as companies to list
are as
important as necessary.
| Business News | Forex Week | Money Market | Corporate Report |
| Business Opinion | Bank Interest Rates | Capital Market Focus |