Private Equity Investing in Tanzania

About 3 weeks ago, I had the privilege of being invited by the Tanzania Investment Centre where we met with the new Executive Director of the TIC, Gilead Teri and other stakeholders namely colleagues from SSC Capital , Sahara Ventures , the Fair Competition Commission, Central Bank of Tanzania and others. The aim of the meeting was to discuss among other things private equity investing in Tanzania and how to promote this type of investing. Today’s newsletter will talk about what Private equity investing in Tanzania, the advantages to this asset class, the challenges, relevant laws and regulations and the future of PE.

Private equity investing in Tanzania involves providing capital to private companies in the registered in Tanzania, that have a potential for high growth and significant returns on investment. Tanzania is one of the largest economies in East Africa and has significant potential for private equity investments, particularly in sectors such as agriculture, infrastructure, energy, and telecommunications.

One of the main advantages of investing in Tanzania is its strategic location, which provides access to a large and growing market in East Africa. The country also has abundant natural resources and a young, growing population, making it an attractive destination for investors looking to tap into these markets.

However, private equity investing in Tanzania also presents some unique challenges. The regulatory environment can be complex and bureaucratic, and there are often delays in obtaining necessary permits and approvals. In addition, there can be challenges around access to finance, infrastructure, and skilled labor.

Despite these challenges, there are several private equity firms that have successfully invested in Tanzania. These firms typically partner with local companies and investors to gain a deeper understanding of the local context and navigate regulatory and cultural barriers. Shikana Group has worked with a number of Private Equity firms and family offices as a local partner providing the necessary insights on regulatory and legal matters crucial to navigate effectively the environment so as to close deals successfully.

One example of successful private equity investing in Tanzania is the Mkoba Private Equity Fund, which has invested in several Tanzanian companies in sectors such as agriculture, energy, and healthcare. Another example is Emerging Capital Partners, which has invested in companies in Tanzania and other East African countries and has a strong track record of success in the region.

Overall, private equity investing in Tanzania requires a deep understanding of the local context and a willingness to navigate regulatory and cultural challenges. For investors who are willing to do so, there is significant potential for high returns on investment in this dynamic and growing market.

?

Relevant Laws and Regulations

Private equity laws and regulations in Tanzania are governed by several pieces of legislation and regulatory bodies. Some of the key regulations that private equity investors should be aware of include:

1. The Companies Act - This act governs the incorporation and management of companies in Tanzania, including the requirements for shareholding and governance structures.
2. The Tanzania Investment Act - This act regulates foreign investments in Tanzania, including private equity investments. It sets out the requirements for foreign investors to obtain investment certificates and other permits, and outlines the procedures for dispute resolution.
3. The Capital Markets and Securities Act - This act governs the regulation of securities and capital markets in Tanzania, including private equity funds. It requires private equity firms to register with the Capital Markets and Securities Authority and comply with disclosure and reporting requirements.
4. The Banking and Financial Institutions Act - This act regulates banks and financial institutions in Tanzania, including private equity funds. It sets out the requirements for licensing, capitalization, and reporting for financial institutions, and provides guidelines for the management of risks.
5. The Fair Competition Commission Act – This regulates mergers and acquisitions including purchasing of equity in a company. It sets out the requirements for notifications to the Commission and requirements that need to be fulfilled so that the Commission may accept such a transaction.

In addition to these laws, private equity investors in Tanzania should also be aware of other regulations and requirements, such as tax laws and labor laws. Tanzania has a complex regulatory environment, and investors should work closely with local legal and financial advisors to ensure compliance with all relevant regulations.

Overall, private equity laws and regulations in Tanzania are aimed at promoting foreign investment and protecting investors' interests. However, navigating the regulatory environment can be challenging, and investors should be prepared to work closely with local partners and advisors to ensure compliance and maximize returns on investment.

The Future of Private Equity in Tanzania

Most Private Equity funds and General Partners managing the Funds are located in Nairobi, Kenya and therefore private capital is deployed from Kenya into Tanzania. Tanzania has no Private Equity funds or General Partners as of now who are domiciled in Tanzania and this is a lost opportunity.

Given that Tanzania, like many other countries in Africa, have a vibrant private sector and budding entrepreneurship, the problem that exists is lack of affordable capital and also lack of skills to govern companies and really build big brands that are scalable. Private equity offers that solution since it is private capital coupled with knowledge and expertise.

Unfortunately, for now Tanzania does not offer sound regulatory environment to encourage such investments. For example, the Companies Act is outdated in that it does not offer some of the investment vehicles necessary for these types of investments, namely Limited Partnerships. In addition, there are no tax incentives that encourage for this type of investment making the Private equity transactions too expensive. These are the few problems that exist that if well addressed may encourage more investment in this asset class.

There is a lot of potential for Private Equity investment in Tanzania, however that potential is currently locked. It is up to stakeholders and government to work together to unlock these opportunities of investment which can benefit the whole of the private sector in Tanzania, especially entrepreneurs and startups.?