TRALAC - Trade Law Centre

Arusha forum: Calling investors, as others leave?

Tuesday, 16 December 2008

Source: This Day (Tanzania)

AS a large gathering of business executives from the public and private sectors was commencing in Arusha, sideline observers were wondering what the whole effort was geared to achieve, whether it is to inform investors from around the region (and even locally) of available potential in the region, or to showcase investment areas. The reason is that a few existing industrial ventures were closing down, and it is uncertain if the convening of an investment conference is to take note of that situation, or to ignore it. In what manner do current investment forums differ from the previous situation, say in 1996 at the country’s first forum?

Reports indicate that by the time the forum was being convened, Arusha was the scene of substantial rundown of traditional industries, including General Tyre (EA) Ltd, and Kilimanjaro Textiles (Kiltex), with the latter terminating about 800 workers, and the former about 400 workers. There was no clear indication what slant was being given to the forum, as to boosting the capital base of such firms, or inviting them to new ventures while existing production units collapse. The question is how far successful ventures collapse and new ones take their place, right there.

When summarizing the situation about General Tyre EA Ltd, reports said the government was unlikely to bail out the tyre firm unless the last investor, Continental Tyres of Germany, ’’satisfactorily accounts for $10m it was advanced in 2002 to revive production.’’ It similarly says the government turned down its request for an additional USD 2m from investors to help it consolidate operations, which raises eyebrows. In that case, is the government calling investors to dissuade them on such arrangement, if an enterprise needs cash? Or is the problem in equities?

There was also the case of Sunflag (T) Ltd, a more surprising case of failure since it had airs of success in the AGOA market, which by some approximation was a leader in that area, but somehow failed to manage. If two significant textile ventures fail and an established tyre industry fails as well, is the matter at hand one of enticing investors, or rather the need for address structural shortcomings that might be common to all the three, or differentiating them specifically? Has there been an economists’ conference on why they failed, before urging new investors?

At times issues of this sort can be sorted out, partially at any rate, by the timing, such that if three companies fail within the space of a year, and they don’t produce identical products, it means something in the wider operational environment links them. In this case it appears that the new wages announced unilaterally by the government on account of excessive pressure by trade unions caused the problems, and some other auxiliary circumstances in shareholding patterns, capitalization levels, etc. Such problems belong to policy, not resolved by an investors’ forum.

So it is unclear what specific sectors need investors or are capable of absorbing capital and build sustainable industrial enterprises if these established industries fail, and when the latter situation arises, what sort of remedies are found in the current investment environment.

There are few chances that the drawbacks can be reduced owing to ingrained habits of how investment is administered, for instance in the case of General Tyre EA Ltd. The crucial aspect is that the company isn’t free to sell shares as the government retains majority shares, and it doesn’t own the land on which it stands, thus cannot raise long term bonds, etc.

What is in any case surprising is the depth with which the country is enmeshed in its public ownership stance, such that even if so many things fall into disarray they can scarcely notice that there is anything wrong with ownership structures, for the Arusha industrial failures are symptomatic with ATCL or RTL. In these two key areas, the government bemoans this or that investor, workers come up with a litany of reasons why the management failed, and no one at the World Bank - the chief inspector of policies in the country - is available to tell the government that the core issue is public ownership of those institutions, and their assets. That if they were left to the private sector the way TBL and TCC were properly privatized all would go well - shall this situation perhaps change with global crisis, as easy money to ATCL and the rest dries up?

As it appears however, these situations don’t cause any real worry to the government as nothing depends on them - as no one will fail to fly to any part of Tanzania because Air Tanzania wasn’t operating, and for that matter no goods will fail to be lifted because TRL is scarcely operating, or its wagons are derailing each other month.

Ultimately it is the budget structure which will compel Tanzania to change things, for instance the whole effort to steer clear of the East African common market seems to have met with a sharp reminder from donors, that the whole Economic Partnership Agreement with the European Union was signed with the East African Community, and thus Tanzania negotiates with donors as part of the common market as it comes up.

The brilliant idea of waiting for another 30 years makes sense to Tanzanians but donors are bent on pushing ahead with new structures for African, Caribbean and Pacific countries in their trading structures with Europe. Outside such pressures it could be projected that Tanzania would ignite a shift in state power, a measure of populism and dictatorship, and remain there for a century.



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