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Friday, October 24, 2008

Dr. shayo muses over BoT's stance

By Dr. Hildebrand Shayo

Tanzania businesses in forthcoming recession!

The warning, caution and confidence issued by Profesa Benno Ndulu, the Governor of the Bank of Tanzania that the Tanzania's economic remain strong and is likely not to be pretentious by the global financial downturn sent waves through my mind that triggered me to suggest steps that Professor Ndulu overlooked in his analysis, that could help the Tanzanian business recover from the financial gloom terrorising the world financial market.

Although the waters are still turbulent, this is now the time for renowned and professional individuals like Professor Ndulu not to undermine Tanzanian by not telling them the reality.

While the normal way of reducing risk in a portfolio during a slump is by diversifying, certain assets tend to do better than others at different parts of the economic cycle. What the world is experiencing is a de-leveraging, where all asset classes are falling in value and will continue to fall in the next two years. No doubt the world is going through a period where shares, property, fixed interest and even commodities will go down.

That said, despite slowing global economic activity and the impending recession that Professor Ndulu seem not to put into his equation, it is not all doom and gloom for business and especially for those with a long-term approach.
I would like to remind Professor Ndulu that what he needs to remember is that market volatility and the indiscriminate selling the world financial sector is witnessing or has witnessed in the past few weeks will create opportunities to pick up bargains.

I would have thought Professor Ndulu would have coded among others, things like the need for business to consider diversifying their portfolio.

While there's no escaping the fact that it's not going to be plain sailing from on-going global financial turmoil’s, and that all equity portfolios will get rocked by further short-term volatility, he should have assured business with well-insulated portfolios that those with long and proven track records will be able to overcome the slump. He should also have tried to advice the business to look to professional managers who could help them benefit through the cycle.

Stating that Tanzania financial position is fine wasn’t enough, he should have reconsidered what happened to Iceland bank were UK government is struggling to recover its money invested by its business. To state that Tanzania banks are well-positioned for the slump and that Tanzania money in the foreign account is safe and is enough to allow “business as usual” isn’t correct, because Tanzania is not an island! Is Professor Ndulu aware on what Kenya stock market is facing following global financial downturn?

Professor Ndulu should have seen the need for corporate debt that seems not to feature in his statement. To me, corporate debt is one of the first investments to recover in a slump, and many bond experts are beginning to call the bottom of the market for this sector. At the moment, yields are likely to be attractive, because interest rates and inflation will or are expected to fall which is a fantastic backdrop for any finance executive.

In any slump, there are traditional areas which are viewed as immune or defensive such as pharmaceuticals stocks and healthcare company; along with utility providers. People need medicine and power, irrespective of economic conditions. I do understand that tobacco and liquor companies that Tanzania has been using as a “model of success” following privatisation, also tend to flourish under the spectre of a protracted recession.

Nothing regarding our gold reserve was mentioned in his statement! Gold
at times of financial crisis, is looked upon as a safe haven for distressed investors rocked by faIling share prices. In the current extraordinary circumstances, Professor Ndulu should have told Tanzanians where this asset class is going or taking Tanzania?

My view is that gold is a long-term story underpinned with supply and demand drivers that he might deliberately omitted in his statement. Does Professor Ndulu recognize that gold price has been rocky in the current crisis? Last year the gold price was $667 an ounce and it rose to a peak of more than $1000 on March 17th 2008. As price now remains choppy, what is the position of Tanzania that is said to produce a lot of this precious metal among gold producer in the world?

While I am not sure if BOT, that Professor Ndulu is the Governor will bail out private owned banks in Tanzania or nationalise part of them, make me speculate what a business need to do in Tanzanian context ?

I think, business needs to be careful not to be too defensive in the current slump. In a way, looking at a cynical portfolio after values have already fallen is a bit like locking the stable door after the elephant has already bolted.

To the business I think, it's important not to lose sight of your long-term objective, try and have the asset mix which is most likely to give the return you are looking for. If as a business you are too defensive now, you will risk missing the upturn when it happens.

Professor Ndulu should have encouraged the business to seek additional sources of diversification, encourage them the focus on investments with high earning visibility and supportive valuations. Telling us that daily interbank cash market in Tanzania was doing well and BOT is watching exchange rate movement is not enough! We need measures on how to help business to cope with financial downturn.



mujwahuki said...

Thanx Dr Shayo for your critique on BoT press release! I will like however to point out that being a regulator there is nothing he can say more in such allocated space in the news than what he said. Prof. also is not a business entreprenure or a business person. Opportunitites you've pointed out are normally seen by those on the ground, though in hindsight it is very easy to see them than in foresight, no wonder few people are rich!! As for professional manegers?? I don't know who you are refering to, otherwise they would instead become business persons themselves and exploit those opportunities. Back to Prof. I think he should become a regulatory 'entreprenure' and design a way to cooperate with the private sector on how to surf through these violent financial and economic waves. US regulators are benefiting from having private sector people in public offices. Though they are not yet out of the woods, you can see the speed at which key decisions are made, free from public sector bureaucratic stalmates.Dr Shayo, Gold is a policy issue. In one of African countries, all gold mined used to be sold wholly to the country's central bank. Here the story is different, and I doubt if we have any gold reserves left in our national coffers. X-rate?? The rising tide lifts all boats and vice versa. Let's perfect our fundamentals, an invisible hand will do its work!! he onus is on us all, the people(watawaliwa) - 65%, and the state (watawala) - 35%.Ours is a very rich country, but a very poor nation!!


Karume said...

The Prof was right to question Pro Benno. You cant leave citizens not knowing what they will face , at this time of hardships. We have seen from other countries , that the finance personel knew in advance what was coming and they did not share the info on basis of not creating financial fear.
Prof Benno let us know the truth and tell us for sure what are we supposed to do and what to expect.
I remember they said it will take us 18 months after Nduli Iddi Amin war for our economy to revamp and there was nothing to worry then. Which turned to be a never revamped economy. This issue is beyond our financial experties and answering it through books knowledge will never solve anything. Prof Benno tell us what trial have you taken and what are the errors quickly, so that we can onther module quick and see if it will give us the answers.

Anonymous said...

Dr Shayo welldone.
Nobody is asking the Governor what measures is he taking.
I read today that this problem has now reached into those oil rich countries. Their stock has fallen and the King has injected at a lease $2.7 billion as Kings royality to save his country. At the same time , three rich Arabian finance ministers held a meeting in Riyadh to discuss this issue
Tanzania tunacheza na moto, kusema hii haitatuhusu, eti itaongezeka bei ya Unga na mafuta.

Sakina said...

Stupid thinkers like Prof Ndullu are supposed to be exposed openly.
This issues is a serious issue and what Prof ndullu is trying to do is ok kwa wajinga, by giving them assurances that things wont be bad in the country like TZ.
In truth things will be much worse in TZ than US. The case in US, Europe and Asia is in part a problem within their banks and can be fixed within ways that the Government and those banks will come upon to agree.
Tumeona hii habari imefanya Wachina kuanza kufunga viwanda vyao na kufukuza wafanyakazi, pamoja na kwamba wao ndo wamempa US billioni 700. Tumeona Urabuni(saudi Arabia) stock exchange yao imeanguka sana leo, kiasi cha mfalme wake kuwekeza kiasi cha dollar billion 2.7.
sasa TZ kusema eti itasimama ni uongo mkubwa sana tena sanasana.
We heard the same story in Europe when this shit started in US, that it will never affect Europe and you know what -in three weeks Europe was in the line with this shit. We heard the same thing too that it will not effect Asians market because Americans are borrowing money from them. Then hoop within five weeks its now the borrowed crying like the borrower.
Then now it’s Arabians and I am telling you, Africa will say the same thing but it will be the last continent to be hit hard and with no spare to help itself.
Sisi itakuja baada ya miezi sita na tutakaa nayo hado maneno ya kuongea tuwe hatuna. Maana tunategemea wakubwa(US, Europe, Asia na Waarabu) watupe fedha za bajeti. Sasa kama nao wana-matatizo fedha z akuendesha nchi tutazipata wapiiiiiiiiii?
Dr Shayo you are right, kwa sababu you can question anybody in TZ wakati ukiwa huko nje, without kutiwa ndani au kufuatwa fuatwa.
Nashangaa sana wengi tunasema DR Shayo amekosea au hii haitatuhusu TZ, kwa kuwa tunaendelea na maisha yetu kwa kwenda mbele.This is` shit is real.
Maana kama wewe ukinyimwa credit line huko nje na ukachelewa kulipa bills, au nyumba au chuo na wa kakutoa katika nyumba yako, au kukukatia bills au kukutoa chuo , then utajua whats real wrong.
Au utakapopunguzwa kazi kwa kuwa kampuni haiwezi kupata mkopo wa kulipa payroll kutoka benki then utajua what is real wrong.
Nchi ya TZ hukopa fedha benki ili kuwalipa wafanyakazi wake , huku ikisubiri fedha za Tax zije na za stock. At the same time ikisubiri fedha za wafadhili zikiingia basi iilipe benki iliyokopa fedha za mishahara na TRA ilikokopa fedha ya TAX na banks kwa Stock ilizouza na kukopa.
Hivyo wafadhili wasipolipa fedha waliosema watatoa kujalizia Bajeti , then the issue is over.Maana crunch na sisi tutaiona ipasavyo. Kwa kuongea huwa hainekani, why? Kwa kuwa tunahisi sisi sio sawa na hizo nchi ambazo mtu hutegemea credit lines kuishi. Lakini tunasahau kwamba wanajazilizia bajeti zetu hapa Tanzania kulipia mishahara, mikopo ya wanafunzi vyuoni, vyakula , mafuta ya magari ya serikali na fedha za maendeleo kwa ujumla. Ina maana hawatakuwa na uwezo wa kutupatia kama wao wenyewe wana matatizo yao ki-uchumi. Watatupati ila terms zitakuwa ni loan na sio tena grants au free money na zitakuja na kamba nyingine ngumu ya kushikia , kama vile uza kampuni Fulani, ondoa hisa zako za serikali kampuni Fulani, au uza pamba, korosho na kahawa yako kwetu katika bei hii.
Kibenki maana yake ni kwamba hazitakuwa na fedha ya kutosha kuendesha uchumi –utandawazi kama ilivyotakiwa au kukusidiwa hapo awali. Utaona sasa hata ile fedha serikali ilipata katika kuuza stock zake za benki hazitarudishwa sasa kwa kuwa hali sio njema.
Unafikiri kwa nini watu wanagoma sasa kila siku TZ(walimu, wanafunzi, manurse., watu wa benki, wastaafu wa EAC) wakidai arreas zao na serikali ikishindwa kuwalipa.
Ni kwa sababu they (GOV)don’t have money and are trying to keep the negotiations’ days running ili wakope katika vyanzo vyao kama TRA na benki, then watawarudishia wakilipwa.
Umeona Dola ilivyopanda juzi TZ kutokana na hii issue , kwa sababu now the GOV does not have enough US Dollars to give around, na inaona iweke kiwango cha wao ku-hold katika reserve zao in any case of emergencies.
This issue is real and big.
TZ tunaona mchezo kwa kuwa tunadunda bila kujua kinachokuja, maana tnahisi hata kama kikija hakitatuhusu, we are dead wrong.
Thanks Dr Shayo kwa kueleza ukweli.
Gavana Benno Ndullu na Mr John Mashaka wao wanazuia ukweli kwa kujifanya wanafuatilia hii habari bila kubabika lakini matumbo joto kwa mtindo wa kuto-inject uoga.
Bali in a real sense we are to suffer and to suffer big time.
Imeshaitwa Global problem na TZ tumo vile vile, sio kwamba sisi tunakaa mashimoni.