23 March 2014

Tanzania: TPSF Out to Expand, Formalise Investment Financing

Tanzania Private Sector Foundation (TPSF) recently organised the Consultative seminar on expansion of venture capital and private equity investment financing in Tanzania.

Our Special Correspondent was granted an exclusive interview with the Foundation's Executive Director, Mr Godfrey Simbeye, who among other things, explained the significance of the project and how TPSF was really committed to expand and formalise investment financing industry in Tanzania... .

QUESTION: Recently Tanzania Private Sector Foundation (TPSF) in collaboration with TMS Consultants Ltd organised a long-day workshop of all its members on expansion of venture capital and private equity investment financing which is a new phenomenon in Tanzania. What is this venture capital and private equity investment financing all about?

ANSWER: It is true that on Thursday 6th February, 2014 we conducted a consultative seminar involving our TPSF members and other stakeholders on the Expansion of Venture Capital and Private Equity Investment Financing in Tanzania. I would like to emphasise that Venture Capital and private equity financing is not a new phenomenon in Tanzania.

It has been operating for more than ten years in the country. The only difference is that it has operated legally at a small scale, informally and without any coordination. Now, TPSF in collaboration with TMS Consultants Ltd, we only want to expand and formalise this investment financing Industry.

In a very short definition to the ordinary person, Venture Capital is an Investment financing which ends up as a joint Venture Partnership between the receiver of the finance (Investee) and the provider of the finance (Investor). Hence, it is not a loan as the commercial and development Banks mostly do provide.

Q: What was the outcome of the meeting?

A: The outcome of the meeting was good. About one hundred seventy people attended including TPSF members, existing few Venture Capital and Private Equity Companies and other stakeholders. Particularly, to the Tanzanian business community, they really got an introduction of what really Venture Capital and Private Equity Investment financing is all about.

Q: Why strengthening venture capital and private equity investment financing now?

A: It stems from the fact that private sector in Tanzania is facing limited sources of investment with debt capital (commercial loans) proving unbearable from day to day. TMS Consultants Ltd, who are TPSF partners in this programme, conducted a six year research (2008 to 2013) on how to approach the Expansion and strengthening of Venture Capital and Private Equity industry in Tanzania.

After their completion of this research, then TPSF teamed up with TMS Consultants Ltd in order to implement it together. The main reason which resulted to this research to be done, was after the recognition that, our local private sector has been for very long time, almost excluded in the participation of ownership of large scale investments in the country.

Therefore, taking into consideration that Tanzania is now entering the natural gas and oil economy, there is an urgent need to strengthen our local private sector investors to be able to participate as part of ownership in the Natural gas and Oil sector which is very crucial and has the potential to grow the economy of this country in such a tremendous big results in relatively short period when it is at its full operating capacity.

Q: This initiative seems to have attracted more local businessmen who attended your sensitisation workshop. What sectors of the economy is this initiative targeting?

A: This initiative is mainly targeting to empower our local Tanzanian private sector investors/entrepreneurs to increase their participation in the ownership of large scale investments in the country.

The programme will basically involve our local private sector in all sectors of economic investments, but particularly in the expansion of Industries, Mining and Minerals processing, Tourism, natural gas and Oil, Information technology, renewable energy, electricity generation and distribution, Infrastructure, real estates, financial services such as expansion of commercial banks, etc.

But what I would like to emphasise here is that, this programme will not be involved in supporting the pure trading business such as importing consumer goods into the country. It will mainly deal with projects that are production oriented, that is, either production of goods or services for both export and local markets.

Q: It is an undeniable fact that, private sector is viewed as the driver's seat of the country's economy. How has TPSF prepared its members to seize opportunities that will come along with this initiative?

A: It is true, since the re-introduction of the market economy in Tanzania, the private sector was given the driver's seat to drive the economy of the country with a sustainable growth rate. Also, the private sector has been referred to as the engine of our country's economic growth.

TPSF in collaboration with TMS Consultants Ltd, have already established a joint project known as TANZANIA VENTURE CAPITAL AND PRIVATE EQUITY PROJECT (TVC).

The main objective of this project is to provide facilitation services both to TPSF members and Non-members which will lead them to access Venture Capital and Private Equity Investment financing facilities.

This project office is located within TPSF House at Plot No. 1288, Mwaya Road, Msasani Peninsula and all Local and Foreign Tanzania private sector investors are welcome to contact the project and get the services right from now onwards.

Q: Where else in East Africa has this initiative been in place?

A: In fact, Venture Capital and Private Equity Investment financing Industry is almost legally operating in all of the five East African countries, but as I have said it before in a small scale and uncoordinated way.

Therefore, this industry is already legally existing. Now, the only difference is that we in Tanzania, following the research findings obtained by TMS Consultants Ltd, we are on the move to expand and formalise the industry so that it operates in the same institutional set up existing in other countries worldwide.

For example, it has been proved that, in every country where this financing industry operates formally, there is usually a local country association of Venture Capital and Private Equity.

In our case, during the International conference on Venture Capital and Private Equity in Tanzania, which is already scheduled to take place in November 2014. One of the results of this conference will be the starting point to initiate the formation of the proposed Tanzania Venture Capital And Private Equity Association (TAVCA), as part of the formalisation process of the industry in the country.

Q: How can you describe the private sector performance in Tanzania comparing with counterparts in the Region?

A: I would say, there is not much difference in terms of ownership of large scale investments, when it comes from the local citizen private sector involvement in the ownership. Due to our historical background in almost all countries in East Africa, ownership of large scale economic investments have been dominated by foreign private investors at the level of over ninety per cent.

But, in Tanzania with this initiative we want to encourage the ownership of large scale economic investments to take a different route, that is, we want to promote more joint - venture Investments between our local private sector with foreign private sectors.

Q: Is the government supporting this endeavour as your key partner in development?

A: Yes, in fact the government of Tanzania had challenged us in the private sector since way back in 2007 to come up with such initiative, in order to establish Venture Capital and Private Equity investments financing facilities so as to fill the investment financing gap in the country.

Also, the Minister for Economic Empowerment and Investments, Hon. Dr Mary Nagu, during her opening speech at the sensitisation seminar on 6th February,2014 clearly stated that, the government was in full support of this initiative.

Q: What kind of regulatory reforms would you propose to the government in support of development of venture capital and private equity in Tanzania?

A: Our main activity now is the creation of awareness to our Tanzanian private sector, as well as developing their capacity to be able to negotiate better Venture capital and Private equity deals with such investors.

The coming November 2014 International conference on venture capital and private equity in Tanzania is an intensive four days training programme. After this stage of awareness creation and capacity building to our private sector is done to a reasonable stage and the proposed Tanzania Venture Capital and Private Equity Association (TAVCA) is formed, then the issue of processing any review of regulatory reforms will follow.

Q: To what extent does venture capital and private equity financing has the potential to attain inclusive and sustainable development in Tanzania and East African region?

A: Venture Capital and Private Equity Financing has very great potential to attain an inclusive and sustainable development in Tanzania as well as in the East Africa region generally, given the fact that we are going to emphasise the expansion of industries that mainly use raw materials that are produced by ordinally rural Tanzanian small scale farmers.

For example, the expansion of textile industries will create more demand for cotton, expansion of cashew nut processing industries will demand more raw cashew nuts, etc.

Hence, this means as more of such industries are expanded through venture capital and private equity investment financing, then at the end of the day, the resulting scenario is having an inclusive and sustainable development in Tanzania, as the income level will generally rise from the grass roots level involving poverty reduction to ordinary poor rural small scale farmers as well.

Q: What message would you like to give to members of the private sector in Tanzania in regard of this initiative?

A: I would like to encourage all of our private sector members both TPSF members and Non- members as well as other stakeholders including in particular those government institutions that are related to economic empowerment and investments, to take the issue of attending as participants in the coming International Conference on Venture Capital and Private equity in Tanzania scheduled to be conducted in November, 2014 to attend in great numbers.

Because, without having the right and relevant knowledge required in order to be able to negotiate better deals of Venture Capital Financing, the whole process cannot be sustainable.

Therefore, let us come up, learn the negotiation skills and apply the same as the industry is now undergoing expansion in the country.

The other message we would like to convey to the private sector is to advise all members of the business community who have businesses which are not performing well due to lack of capital or management or technology, to contact Tanzania Private Sector Foundation for advice on how they can access Venture Capital and Private Equity funds. For more information about the Venture Capital and Private Equity Financing Project contact the Executive Director via his email: simbeye@tpsftz. org, or Mr Sebastian Kingu through his email tmssebatiankingu@yahoo. com

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