2015 can be year of domestic investors in Tanzania
As Tanzanian policymakers look ahead to the upcoming elections, there are growing concerns that the government may take its eye off the ball when it comes to economic policy and responding to a fast-changing external environment. It is now a well-worn story that while consumer demand in the country is growing, the supply side of the equation is not quite as rosy. Infrastructure bottlenecks, bureaucratic obstacles and the uncertain legal climate continue to be the main complaints of investors and the business community in general. Foreign investors, with the 2015 elections in mind, are adopting a wait-and-see attitude although regional investors remains optimistic that investment will rise by 40 percent over 2014.Your blogger has personally noted that 2015 could be the era of the domestic investors in United Republic of Tanzania. If foreign investors choose to stand on the sidelines, domestic investors should take full advantage. But they will need support by way of fiscal incentives and less red tape.
Most importantly, investors will need stability at a time when the political environment will start to heat up in the coming months with 2015 being seen by many primarily as an election year, and therefore a crucial period that will determine the direction of the country in years to come. Domestic investors will also need to work with local leaders who have a sense of ownership. If infrastructure projects are to take off, domestic investors need to work with like-minded local government leaders. Execution will be critical. Almost half of Tanzania investors could be taking undue risk by holding the majority of their portfolios in shares and bonds, often after their allocations rose ‘by accident’. According to research by an investment firm, 52 per cent of Tanzania retail investors have the majority of their portfolios invested in Tanzanian companies as a result of ‘domestic bias’. This could increase investors’ risk by concentrating their exposure. In contrast, a typical medium-risk portfolio would usually only devote up to 45 per cent to Tanzanian investments. However, I think investors in the country with higher risk appetites would probably want to avoid this kind of bunching together of exposure come next year until after elections.